Are You Protecting Your Wealth and Growing Your Business?
The Investor's Guide To Joy Episode 38
In this episode of The Investor's Guide to Joy, host Paul Graham and Stacy Calvin dive into essential financial strategies for business owners and high-income earners. They explore the benefits of diversifying investments through syndications, optimizing entity structures for tax efficiency, and leveraging income-shifting techniques. Stacy also shares actionable insights on liability protection, proactive financial planning, and the importance of aligning financial decisions with long-term goals.
The value of working with a knowledgeable CPA and provides tips for choosing the right one based on experience, qualifications, and strategic approach. Stacy debunks common myths about tax preparation and highlights how proactive planning can maximize deductions, reduce liabilities, and enhance financial outcomes. Packed with practical advice, this episode is a valuable resource for anyone seeking to optimize their finances and elevate their success.
Highlights of the Podcast
00:08 - Introduction
01:59 - Guest Introduction
02:58 - Investing Personally vs. Through a Business
07:28 - Top Strategies for Larger Businesses
11:58 - Finding the Right CPA
14:21 - Debunking Tax Myths
15:36 - Tax Strategies for Business Owners
17:32 - Real Estate Rules and Myths
20:06 - Trusts and Tax Misconceptions
23:34 - The Importance of Year-End Planning
27:04 - Best Practices for Six-Figure Earners
30:17 - Tailored Strategies for Seven-Figure Earners
31:31 - Diversifying Lifestyle Investments
32:41 - Tax Strategies for High-Income Earners
35:05 - Choosing the Right CPA
38:56 - CPA Fees: Value vs. Cost
44:47 - Mindset Shift: "Knowledge is Power"
45:34 - Closing Remarks
Paul Graham [00:00:08] Hey Everyone. This is The Investor's Guide to Joy podcast. And my name's Paul Graham. And today for the Tax Savings CPA Track, we're going to be talking to Stacy and going through several things to help you as a business owner or entrepreneur, not only save on taxes, but understand them and your entity structure as well as some of the best ways for you to go about on different levels of business growth. So if you are a six figure earner, your seven figure earner, if you're an eight figure earner, we go through each of these stages to ultimately help you understand what things you should be thinking about, what you should be doing, how you should be doing it. We're also going to go through how to find the best CPA, especially at the end of the year here. It is a thing that probably no one's thinking about until at least February, but now is the time to ultimately have those interviews with CPAs to ultimately change simply because it's beneficial to be prepared before tax season actually starts. The best tax professionals that I've talked to are right now sending engagement letters for the next year. So consider who you're going to hire and use for the 2025 year and the 2024 taxes. Also, if you are looking to offset your income in 2024, now is still an opportune time to invest in oil and gas to offset your high income and receive passive cash flow from that investment. More information will be linked to the show notes for you to inquire if it's of interest and benefit to you Now into the show. So today Stacy and I are going to go through a number of different experiences that she's seen with business owners and for their business side, personal side. We'll get into kind of some tax specific things that she's uncovered for me and learn just all the tax things today. So, Stacy, thanks for being on and sharing your insights here.
Stacy Calvin [00:01:59] Yeah, thanks for having me.
Paul Graham [00:02:01] Yeah, you bet. And so we, I guess, met and also know each other. We pretty much talk weekly in our abundance and go pod. So I'm very thankful that I have you in my corner for all goals in life, in addition to just like, tax insights, you know, for as I've been raising funds specifically for oil and gas, at least for the moment, we've really found that it's been for high income earners as well as like the business owners like themselves as individuals, and like 1099 people, but not necessarily like the business itself invests in, you know, maybe some like real estate syndication or oil and gas syndication or a debt fund or something like that. And I have a feeling and I guess of like why that is and but would love to initially just outline for business strategies like does that make sense or are people maybe scared of it or like what makes sense for like the business and the taxes that they have?
Stacy Calvin [00:02:58] I think for the businesses, the reason that they don't do a lot of investments within the company itself is liability reasons because it's better to pull the funds out and have your investment outside of your entity. You have that corporate veil with an LLC or a corporation that protects your assets. Yeah, you have investments. You don't necessarily want them within your entity because of that liability. When it comes to oil and gas, you do get the deductions. There are benefits that it's not subject to the passive loss restrictions, and that is the benefit or easy for us to invest in passive investments is because they are not limited, but because we don't have that, we don't have to worry about it. So that's where you have the individuals pulling the money out of the business and investing and offsetting their income on their personal side. Yeah.
Paul Graham [00:03:48] Okay. So does that mean there is a difference in terms of how people might evaluate if they are like a C Corp or S Corp or LLC? Or is that essentially kind of a rule of thumb of how people approach it?
Stacy Calvin [00:03:59] I think with oil and gas, it could they could look at it based on their entity type, but the segments are the ones that get the benefit for passive investments because they're restricted. They can offset all of their active income with the passive and they don't have that. So I think when it comes to oil and gas, you're really just one of these individuals investing. Sure.
Paul Graham [00:04:18] Okay. Yeah. And again, I'm not necessarily seeing, you know, companies invest in like multifamily or debt syndications or other commercial real estate type syndications as well. And it seems like that's the case. You know, before we go too far down the rabbit hole, because he shared some good points there, like tell us more of like what types of like companies and clients that you work with today. So we can also get a good sense of your expertise and you know, your knowledge as well.
Stacy Calvin [00:04:44] I primarily work with business owners. They range from partnerships, of course, and seek works. So depending on what their strategy is, you know, their their plans for exit, what they plan to do with the funds, you know, all of that plays into what is the best entity structure for them. And there are benefits that are available to each entity type. So a lot of people are. And to ask, cause that's not always the best strategy depending on what you have. You know, if you needed to take advantage of medical reimbursement plans as an owner, for example, it might be better to be a sole prop, a partnership or a C corp. So, you know, the whole we have to look at the whole picture and determine what is the best entity structure. It's really not just based on income levels, which is one of the things that people tend to get stuck on at this point.
Paul Graham [00:05:34] Yeah, certainly. Yeah. No, I would say at least from, you know, the number of businesses that I've started and documented, if you will, you know, they've been LLC, but it's like, well, maybe I'll do this, maybe I'll do that. But it but it is income mindset, right? But there's a difference between being a, you know, sole proprietor partnership, but then also running a company like a business in the sense of, you know, how you're leveraging, how you're delegating and how you desire to operate, etc., as opposed to having individuals that are titled as a business. And so, you know, for our conversation, really want to focus on people who have call it a, you know, 500,000 plus or maybe like 2 million plus like type business because there specific things that kind of come up at that level. As someone who's just starting out a business, like they're not, for my experience, really going to have tax implications because you're making, you know, 20 to 100 grand a year as your business. Like you probably have more than expenses to kind of write off. And it's kind of like a simple, you know, in and out sort of piece. But there's not like creative tax strategies that, you know, could be done because there's not enough, you know, gunpowder being like income as well as there's not enough opportunity being, like you said, in terms of like health savings plans or things around that medical nature. Oftentimes those individuals are, you know, just getting that temporary or they have some sort of their own sort of health insurance. But it's not directly, you know, with the actual company. So with these, you know, bigger, if you will, or more establish or however you might want to define it type companies, what are you seeing is like the top sort of three things that companies should really, you know, consider for, you know, savings on taxes or maybe even just like knowing about taxes, because then maybe they're not doing some of those things that they would then had to do some action again just to sort of save.
Stacy Calvin [00:07:28] So I would say for the bigger companies and I really look at profits as well as taxes. So when we're looking at larger companies, they're in growth mode. So we're looking at cash flow, buying more equipment, buying more vehicles for a fleet, opening up a new location. So the timing of that, how are those things deducted? Because we have depreciation on the fleet, on equipment that is subject to a restriction right now on 79 is at 60%. So we're looking at that tax deduction piece as well as the cash flow with those things as well as staffing issues with growth. So how to get the best performance? So pay structures and then looking at benefits for employees, the deductibility of those. You also have credits for things like starting up retirement plans and employees on auto withdrawals from their paychecks and putting in. So there are credits available for some of those things as well. So making sure that we're capturing all of those and doing the documentation to take advantage of them.
Paul Graham [00:08:43] Okay. What help as being and maybe others understand in terms of like credits like you know, is that like, hey, we're giving you $5, like help me understand more on like what sort of impact or return or benefit that's getting. Are we talking about like $1 or are we talking about $1 million? Certainly depends on the amount of people and some complexities. But just curious of like what kind of splash would this make?
Stacy Calvin [00:09:05] So for the retirement plan, it's the fees for setting up the account. So it really does it depends on how many employees, how big is the plan because what is that expense? So I did one recently where it was about 25, 30 employees and the startup costs, I think we're about five grand. Okay. That's a five grand credit that if we didn't have all of our ducks in a row and make sure that we capture that, it could easily be missed. You know, if you're just doing tax prep at the end of the year and you throw all your numbers to your CPA and you're not talking with them, that is often missed.
Paul Graham [00:09:40] Yeah, and seems like that's like a different level of relationship access. And they like intertwine this because I've seen this with my personal life in business and investment life where it's a difference of, Hey, there's TurboTax, if you will, right? H&R Block ask right? Then there's call it the CPA that is a CPA. And then, you know, maybe there's a kind of CPA sort of strategist that's a little bit more, you know, inner. Wine and maybe there's more in house. I'm not sure if there's others to kind of add, but definitely the intertwined pieces is big. How do you go about like having those conversations with companies and in what have you as more of an investor? Essentially, I've found that it's been challenging to connect with a CPA in a lot of ways. It's just changing who my CPA is, but it's this idea of having, to your point, frequent or sharing what you're doing or plan to do type things as opposed to, I did this thing like what's the bill and kind of planning versus, you know, kind of being retroactive? What are you seeing with with companies and what they're doing?
Stacy Calvin [00:10:50] So it is very common for me to hear that people can't get a hold of their tax preparer throughout the year. And that is the big piece, is being proactive and speaking with your tax preparer regularly throughout the year as things come up, as things change. So I work with my clients on a monthly or quarterly basis, typically where we are reviewing their financials. So we're seeing changes, we're inquiring about them, we're asking them what challenges are you having? What what are your plans? What are you looking to do in the upcoming months? So we're getting that data pulled out of them with those conversations. And I think the biggest issue that we're seeing with tax preparers is they charge so little for tax prep and they're doing thousands of returns and they just do not have the time to talk to all of those thousand clients throughout the year. It's just impossible. So that's where you're seeing the more concierge, proactive CPA firms pop up and offer that higher, higher level service that a lot of business owners are really asking for.
Paul Graham [00:11:58] Yeah. When would you maybe recommend I mean, I'm thinking like rather the new type level or maybe it's more profitability that a business kind of transitions from a, you know, hey, kind of do my taxes to, you know, be more proactive like we're mentioning, I'd say.
Stacy Calvin [00:12:14] Definitely at the 1 million. But it really depends because I have had clients at the four and 500,000 level that they were really serious about growth and we were able to guide them through that growth. And you know, like I have a roofer who was at 500,000 when they came in. Now, today, a year and a half later, they're at 10 million. So, you know, just being able to be there and give them the guidance. We're doing a little bit of fractional CFO work with them as well as the tax target. So it it really is dependent upon, I think, the business owners intent, their ambitions and where they're headed. If you're a $500,000 business and you're sort of the status quo, you're maintaining, you're not looking to grow and you're pretty much seeing the same profits year after year, then you can probably create a strategy one time and stick with it because you're not going to see any growth or change in your situation. Okay. I'm not sure if that answers your question, but yeah.
Paul Graham [00:13:15] No, I mean, that's a that's a good thought to think that. Yeah, it's not just like the income level, it's more of the, like the it's like psychographics than necessarily demographics. So it's like, hey, we're looking to grow and expand. We're here right now. Like, what should we think, think about and proactively plan for? Because then you also have a destination and then you can like back into it. One thing I found with business owners is that it's sometimes like a, Hey, well, I didn't know I should tell you that or share that or, you know, what have you. And so, you know, you either grow or die. But even just the idea of like how you want to grow or where you can grow is, you know, important to to share beyond, you know, growth. I would assume, you know, sharing in terms of like contraction is another, you know, intertwined ness to to really have someone who's, you know, proactive so that we can kind of catch things, you know, as they fall and, you know, for different strategies for businesses, what is maybe something that's like a myth or like a misnomer or something like that, that, you know, you've seen people come through and have some sort of perspective, opinion experience sort of on.
Stacy Calvin [00:14:21] And trying to think of the best one to give right now. I think definitely, definitely the S Corp is the best. Okay. People are very afraid of C worse because of the double taxation. But there are benefits, especially if you're looking to grow a business to sell it in the near future. There are qualified some benefits too. I think where where if you qualify, you have $10 million of stock sale that is tax free. So I guess in total entity type is often not what people think. You know, the ideal entity structure for them isn't necessarily what they think it is.
Paul Graham [00:14:59] Yeah, yeah. And again, I would echo that. It's kind of like when you start, it's going to be great. I'm going to be, you know, have a $10 million stock sale and. You know, you can barely get out of the six figures type. So, I mean, is that something that you could like transfer into different like ownership types? I have not really.
Stacy Calvin [00:15:17] Yeah. Yeah. So you can change your attitude has made different elections and different ways. So and that's the benefit of working with somebody proactively is you can watch that and make those changes when they make sense as opposed to being stuck in the wrong entity type during a period that maybe you should not be that type of entity. Sure.
Paul Graham [00:15:36] Okay. Yeah. Makes sense. And definitely in a lot of ways, I would think takes, you know, pressure and concern off from people from then the personal side. So, hey, I'm a business owner. I'm doing, you know, these types of, you know, numbers of of high six or even, you know, seven, eight figure type numbers. What sort of strategies and conversations are you having more on the personal side to help these business owners or even kind of executives or others that are like, you know, high in these companies?
Stacy Calvin [00:16:03] So it's harder because depending on your income type, right, that really can limit your deduction. So if you're a mid to high income earner, what deductions do you really have available? So we want to maximize any deductions that you have. So if you're charitable, that might be doubling up and your charity efforts every other year to taking advantage of an itemized situation. If you aren't regularly giving enough to hit you over that threshold to itemize. It could be taking advantage of your stocks if you have losses that you can harvest from some of your brokerage accounts. So it depends on what kind of investments you have being invested in other businesses. But you have to be somewhat active or something like oil and gas where you have the benefit of being able to treat it as sort of an active and on your active income. A lot of people go to real estate not realizing that the passive losses from real estate can't offset your income after a certain point. If you're not a real estate professional and then the real estate professional rules also get messed up a lot. I have people that are come to say, I got my license so I can be a professional. Like, Well, but you're a W-2 that works here, and that's nothing to do with real estate. So like a license in itself won't qualify. You have to hit the hours and all the other rules that the IRS gives.
Paul Graham [00:17:32] Yeah. Can you share what that limit is for active income when it doesn't? I guess.
Stacy Calvin [00:17:38] Equate, though, you have to have over 50% of your hours in real estate. So if you have a W-2 job, you'd have to work more in real estate than you do at your W-2 job and 750 hours. Yeah.
Paul Graham [00:17:54] And isn't there something along the lines of like, if you make more than like 150 and you're not a real estate professional, you can't take like passive losses or something like that.
Stacy Calvin [00:18:04] Yeah. So you can be active and you can take up to 25,000 of losses if you're under the income threshold. But then if you're over that income threshold, then you're capped.
Paul Graham [00:18:17] And 180 is that level.
Stacy Calvin [00:18:18] That sounds right. My hands on that can we.
Paul Graham [00:18:22] Can confirm it, Consult your CPA or email Stacie. So one thing I found, you know, with the the, you know, individual and certainly for some of these companies that there are some of these, you know, levels, they're probably making, you know, 150. But just to dive into this, what is that, like 150 essentially, like only active income? Or is that like all income? You know, certainly for me, I have my short term rentals, long term rental and then, you know, have had W-2. Those W-2 have been closer sort of over the 150. So that completely gets me out. But like as I have not had, you know, a W-2, if I have, you know, call it my two short term rentals, they're grossing over 100 grand. Like, do those get counted or is it based on reporting? Because it's not that that's a gross income for the property, but that's not like dollars in my pocket type income. So I want to kind of separate that for the people in real estate.
Stacy Calvin [00:19:13] They are it is looking at your total income is one source of that.
Paul Graham [00:19:18] But so is that like dollars in pocket or is that gross revenue of the properties?
Stacy Calvin [00:19:23] Well, it's a taxable income. So it's the income that gets reported. So for for your business or real estate, it would be the profits. Taxable profits.
Paul Graham [00:19:33] Taxable profits. Okay. Yeah. Good. Good deal. I want to switch a little bit and go into this thing. I've learned a lot about these trusts, so there's a bunch of, like companies that are, you know, essentially saying, Hey, there's a special kind of trust that allows you to not have capital gains and, you know, hides income taxation and a number of different things. You know, I shared this and you knew and found information on this. So was curious for you to share more what your experience has been with these like, kind of trusts and then also what you've found on.
Stacy Calvin [00:20:06] Them as well, though the IRS issued a memorandum which I forwarded to you. Yeah, we had happened was some attorneys misread the instructions of the trusts, and so they were marketing these trust that were exempt from taxation on the capital gains. So they say, put your properties in this trust and they don't have any tax. Well, they were reading about distributable income. And so what happens is a trust pays taxes on a 1041, which is the equivalent of a of which is your personal income tax. And so if the money stays in the trust, it gets taxed on that 1041 form. If you distribute the income, then it goes to the beneficiary. So the income always follows where the money goes. So if you had a trust and you got distributed, the income, the trust would issue you AK1 and you'd pick that up and tax it on your personal return. So things that they read it and they said, it's not included in that distributable net income. So it doesn't even get taxed. Well, it's operating. And I didn't see that it does get taxed on the 1041 itself. So trusts are not exempt from taxes.
Paul Graham [00:21:18] Okay. Yeah. And that's yeah. Seems to be a hard line in the sand, you know, for someone who has maybe gone down this path of doing a trust, like do they have options or what options do they have because they potentially put, you know, real estate in the trust. I mean, can you just take it out of the trust and get it under Miller?
Stacy Calvin [00:21:38] So I would I would say would have to get the attorney involved to see. And what is the timing on that? And it was a gift tax return done to properly get it into the trust. So if it's a same year, I would say, yeah, I just retitle it, pull it back out. No harm, no foul. It's all the same year. But if it's different year and a gift tax return was done. Now we're probably looking at having to do another one to gift it back to yourself and get it out.
Paul Graham [00:22:08] Yeah. Yeah. I mean, definitely doing things in the same year is absolutely imperative for taxes. And so, you know, my parents for the longest time used TurboTax in their gift to each other for Valentine's Day was my mom's ask for Valentine's Day was that my dad kind of completed taxes and did it on TurboTax? Since then, you know, I brought them over to, you know, the CPAs that I've worked with. And so that certainly changed things. The the idea of completing things within the same year again, is what taxes are. And so I found that most business owners yes, you know, industry professionals, high income earners like as well, business owners themselves are then going to be, you know, focused on completing in the same year because they probably have an accountant or a bookkeeper that they're, you know, kind of paying or things like that. But to that company that doesn't have that dedicated resource or kind of does it themselves or or things like that. I would love for you to just share, like especially like Q for, like my viewpoint is that you should have everything outlined for Q four and then you're kind of like, for the rest of the year. It's just kind of kind of do this right. That way you can have these proactive conversations with your CPA, like you're mentioning, but one is. Q four Like the start of. Q four like the time to have everything kind of, you know, ready to go and kind of finalize for the rest of the year. And the other question is just like, what sort of opportunities are missed by people not completing and understanding things like in the same year.
Stacy Calvin [00:23:34] So yes, order for typically I would meet with my clients midyear at a minimum July usually and see what has the first six months been like? What do we plan? And then it is a November check in at year end to see do we need to pivot? Did we hit where are we? Are we on track or has something changed, you know, good or bad? And what do we need to do to pivot so that we can do that before December 31st? Because you don't want to wait up until. And I get those I get those calls on December 31st. Hey, I'm here trying to buy a truck. You know, does this qualify? What deduction does it get me? What? How much should I spend? So we want to avoid those phone calls. And, you know, I do get those calls to clients that I have that are grandfathered in, that aren't proactive, even though I try and they'll say, okay, great. I had all that profit. I have that tax. What can I do now? Not a whole lot. So before year end, we have the opportunity to look at is there anything that we want to prepay? Is there, you know, going into January? February? Because I'm not a proponent for spending money just for the sake of spending money. If you do not need a new truck, we're not going to go buy a $70,000 truck every year. That's just insane. That doesn't make cash flow sense. So, like, what do we need? And timing wise, what should we put our money into? And, you know, paying bonuses. And I've had people pay large balances on their credit card that's not deductible like. So just knowing where to put your money, what makes sense and what's going to get you the result that you're actually planning on getting as well?
Paul Graham [00:25:14] Yeah, certainly. In some ways it's kind of been a joke on some calls or just interactions with people. For me, again, for high income earners or maybe the business owners on their personal side is, yeah, like instead of just like buying the g-wagon, like invest in oil and gas has higher depreciation than you realize, especially with Section 179 and then bonus depreciation decreasing. And then, you know, from some of these returns, maybe you also go get it right. There is enough to go get a lease or something. Right. But just the idea of constantly buying a highly depreciated asset to drive around with that doesn't make sense to me. Maybe it's because I love my forerunner so much and I put so many decals on that thing and I lifted it and put a winch that, you know, I'm not willing to buy some of these 6000 plus vehicles. But even from an income standpoint of the business, it doesn't necessarily equate. Certainly if you're in like construction, ask like maybe there is a justification for it. But yeah, to your point, every year just seems a little bit silly. What one thing I was thinking about as you were mentioning some of this is I'd love to go through this idea that came to mind of like, what sort of best practices would you give to like the six, seven and eight figure earner? So whether they're a business owner, a 1099 employee or just like high income type person, let's start with that, you know, six figure type person. I'm thinking that they should be buying some sort of, you know, real estate. Right? They can then, you know, get some sort of deductions with a couple of things and then, you know, type of maximize for one K Roth IRA, you know, type stuff. But what you know, validate those things or, you know, poke holes in them or what other things would like six figure earner should be like really you know focus on.
Stacy Calvin [00:27:04] So it depends because real estate isn't necessarily going to help you with your tax situation. If it's passive and you're trying to offset, you know, the depreciation against your active income. So it really comes down to what are your goals? You know, does it make sense if you find a property that is going to actually cash flow and short loss, is it going to be a property that's going to appreciate? That makes sense. That's a long term gain with real estate retirements. You're kicking the can down the road if you're investing in retirement accounts that give you a deduction today because you're going to pay tax on them later. So trying to put in and, you know, convert directly to Iraq so you don't get the deduction today, but it's growing tax break. So it's not just about saving money in taxes today, but over your lifetime. Let's have you pay the least amount in taxes overall. And so I would say with the the six figure business owners, what makes the most sense? If you have cash, let's try to to look at what will increase your profitability, what's going to increase the value of the business so that you can sell it later. What's going to increase your cash flow so that you have more money coming in from that business? So we're always going to look at that investment as an opportunity. What what can we do there to make that better and does that make sense? And then also, you know, diversification. So look, 31 guess looking at other partnerships, you know, other investment opportunities, just overall and brokerage statements, you know what makes sense with the extra cash that we have as well. And in tax advantaged brokerage accounts, things like that that we can look at.
Paul Graham [00:28:51] Yeah, absolutely. So then for that six figure earner investing in real estate, like what what types of real estate do give tax advantages?
Stacy Calvin [00:29:01] Well, in that situation, I'd want to look at do we have a media spouse that isn't working that we could push into real estate professional status potentially. I have several of those situations where we were able to have the spouse working on the real estate and making it completely active. In that case, if you have a commercial property that you own for your business that's active and then there is shifting, we can do between the entities to make that make sense. But primarily real estate, it tends to default to a passive situation.
Paul Graham [00:29:39] Yeah. And I mean there's certainly the active potential for like short term rentals. But, you know, again, you know, having those hours and aspects are imperative for that seven figure, you know, individual definitely going to be, you know, more things that could kind of come up. So what specific things should they kind of think about and know from And great point not just for saving taxes today but like taxes like overall and. Like profitability overall and also not just having expenses for the sake of expenses. So what would that kind of seven figure earner really need to think about and consider or just like ask questions to their CPA?
Stacy Calvin [00:30:17] I think it really comes down to what are their goals? What are their interests? And I think it's really having that conversation with your CPA so that you can build the best plan for you. But you do want to look at everything that you are spending. Are you getting a benefit? So looking at are you deducting all of your, you know, medical, your dependent care, you know, all the things that have benefit plans that could potentially be in place in your business and be deductible? Are you taking advantage of those? Is there anything that you're spending money on that can be transitioned to business use somehow so that you're not missing out on deductions? And then when you're looking at investments, what are your interests? And then how is that actually going to play out through your tax situation? And is it going to give you the benefit that you think? Because I have tons of people and I keep going back to real estate, but I have tons of people that get into real estate thinking that they're doing it for the tax benefit and then they don't get those tax benefits. And then they're bummed because it's a lot more work than they really wanted. And so it doesn't really align with their goals. And they wound up selling and getting out of it and then finding something that does more align with the lifestyle that they want.
Paul Graham [00:31:31] Sure. What are some examples of that lifestyle that you find people invest in after they maybe, you know, again, to your point, the real key isn't getting them what they want or how they like it with lifestyle.
Stacy Calvin [00:31:42] Definitely near more into other businesses. So, you know, passively investing in friends, businesses. You know, a lot of brokerage accounts, syndications, a lot of syndications because it's completely passive. And they're like, okay, so I'm diversified. I'm in real estate, which is great for diversification, but without any of the toilets crashing down, it's yeah.
Paul Graham [00:32:09] You bet. And it's like the true passive, not the long term tenant type. Passive and short term rentals are not passive breaking all, you know, but it's outsourced. But then, you know, that causes like tax implications for then someone who's like eight figure ask you know beyond them buying a private jet and they maybe shouldn't at that level but and that should be maybe be more a company thing. But jokes aside like what does that sort of like strategy and things that they should, you know, look at think about ask them and understand.
Stacy Calvin [00:32:41] When they're getting to that level. They're they're building their team and they're looking a lot more at benefits. Again, the entity structure may need to change at that point because once you hit a certain bracket, then the double taxation isn't as much of a big deal because you can change how you can pull money out. So instead of taxing all the profits, for example, if you had a C corp and you're at a higher income level, you can then lend money from the corporation to do different things. So there's there's different ways to pull money out of different entity structures. So the more you make, the more some of those more creative strategies make sense as well as like income shifting and potentially having management companies or payroll entities and shifting income through different types of entities as well can come into play.
Paul Graham [00:33:33] Yeah, sure. So still getting kind of the same outcome, but it's just more of like who owns what and how that's kind of facilitated.
Stacy Calvin [00:33:39] You're looking at like liability production to see what will different pieces out and put it in different entities for liability protections as well as the tax savings.
Paul Graham [00:33:48] I mean, is that something that should be considered for a 6 or 7 figure earner in terms of liability protection? And I guess let me change the word should. Is that a need for a 6 or 7 figure type individual?
Stacy Calvin [00:33:59] You definitely want to look at making sure that you have your separate entity and that you're keeping everything segregated from your personal life. And then as well as property is typically, no matter what level you're at, if you own a buildings that you're a manufacturer and you have a building, you want that building owned in a separate LLC than your your manufacturing business. I can't speak too much to the liability. You generally want to consult with your attorney, but typically I advise people to speak with their attorney about that and to look into making sure that those are separate.
Paul Graham [00:34:33] Yeah, certainly. Okay. That's great to know, especially towards the end of the year here. People are thinking of, you know, well, hopefully they're thinking of taxes, but for currently what? How would you recommend people find the best CPA for them again, will mainly focus on, you know, business owners or, you know, people that are, you know, at these high income type roles within companies. But what sort of ways have you found the people you know, find you or that other people find, you know, CPAs.
Stacy Calvin [00:35:05] So definitely through. Referrals. So asking other business owners who they use and then interviewing that CPA to find out what their experience level, you want to make sure, in my opinion, that they have worked for other firms before they have opened their own firm, or that you're going to be working with staff that has been trained by somebody who has a lot of experience because there is a difference between what you learned at school versus what you experience and learn in the industry. So I'd say ideally somebody with some public accounting experience at a firm would be great. And then also, you know, what designations do they have? Are they a CPA? Are they NEA? Are they a certified tax coach? What kind of training are they doing to keep them up to date on different strategies and tax laws? Just making sure that they have an answer to those questions. And then, you know, maybe asking them a couple of questions that, you know, you can corroborate and make sure you like and agree with their answers. Because there are a lot of different you know, tax law isn't necessarily black and white. There's a lot of gray and there's a lot of interpretation that has to happen. And we lean on IRS memorandums and other entities even to sort of go through and read and sort of say, okay, this is what we think that they mean by this. But there's a lot that's left interpretation. So you want to work with somebody that you enjoy working with and that you sort of agree on how to interpret things. You know, are you a little more risk averse or do you like to walk the line? So you just want somebody that's ethically similar to you.
Paul Graham [00:36:47] Okay. And what are the you mentioned EEA of sorts, and what does that stand for?
Stacy Calvin [00:36:51] So that's an enrolled agent and is they take a short exam on just taxation versus a CPA takes four exams and it covers accounting. You have risk. So the auditing looking at controls. So yeah, that's when you go in and you look at what kind of controls are in place to prevent fraud and left in the business. So a kid is more widely versed in all sorts of areas and versus an EAA is just tax.
Paul Graham [00:37:20] Is that something that anyone can kind of take or is that more like a dedicated study career professional? Only two for the year.
Stacy Calvin [00:37:28] You could definitely study for the exam and take the exam, but it doesn't have the same requirements. CPA, You're required to have the five years, two years experience under somebody. So it's a lot more rigorous to get through and get the CPA exam.
Paul Graham [00:37:42] Yeah, certainly. We talked a little bit about how to, you know, kind of these different stages of, you know, CPAs and the services they offer and things like that. One thing I've also found is fees. So I've seen a lot of CPAs have like different levels of, hey, it's like, you know, $1,000 to file some stuff or it's, you know, two grand just as an individual or it's like a, you know, two grand an entity. And it's like, well, I have all my properties in an entity. So like I we're really going to charge like ten K out the door, like, what are we, what are we target? So what have you, you know, found of like how individuals should go about understanding like the best, you know, CPA and you know what they charge and ensure kind of what the value they're getting is in alignment. There's this idea of like solution selling where it's like, Hey, will you pay me ten grand? I save you 50. It's like, well, like, you know, it also then becomes this like, what do you are you giving me the best, you know, value and benefit? This is a very specialized and time consuming thing. Like, I'm not going to have two CPAs just to see, like, who's going to do a better job, right? Like this is in a painting quote that I get for my house. So, you know, how does that sort of conversation or questions kind of come into be and where do you kind of fall in line with that?
Stacy Calvin [00:38:56] It is really hard because is it the same as getting a painting quote right. You have 2 or 3 companies come in and you say, Hey, I need this wall paint and give me a quote, an apples to apples. Look, when you're looking at different CPAs, it's not necessarily apples to apples. So I do believe very much in you get what you pay for. So you have people that are out there doing business returns for $400 that no way. Like there are there is no world that that should happen because when you do a business return, you have to tie up the balance sheet. I feel like you should be reviewing the balance sheet even if it's not required to be in the return itself. And that goes down to making sure that your your income and your expenses are correct. Because if your cash account doesn't balance or it's negative and we just say, well, it's negative, I want to look at it, I'm going to ignore it, which is what happens with some preparers because they just take the numbers that you give them and they plop it into the forms. You know, that's a difference between a tax preparer and a tax strategist. So you don't want somebody to do that. You want them to say, hey, this doesn't look right. Let's get it back so that we're filing an accurate or complete return. And it's I would ask that. And say, Hey, are you going to ask for support and ask questions on my balances? You know, look at the reconciliations. Look at the bank statement, make sure it all matches. And then also keeping the equity and basis schedules. You know, somebody has got to do that. And a lot of times the preparer, if if the person preparing the business isn't the same as the personal, they'll point their fingers at each other and that nobody's doing it. So, you know, I, I will track the basis for the business hours. So when you think about all that compliance and all the questions that have to be asked to mark the right boxes, it just really should be more expensive than $400. So if you're getting a really low quote in the market, I would ask sort of why, if you're getting a really high one, ask, you know, what does that entail? And you know, if you get an IRS notice, are you going to look at it? And is that going to cost me an additional fee because the services are apples to apples. So you do have to really ask, what am I getting for this fee? And then what is going to be extra if I need it?
Paul Graham [00:41:09] How do you operate? The IRS piece is an interesting thing to think about. So, you know, if a client gets, you know, a letter or something by the IRS, like, what does that look like for yourself? Or maybe if you have different packages?
Stacy Calvin [00:41:20] Yeah. So for the tax preparation we do automatically requires support and we tie out all the balances we keep the basis. And if there is an IRS notice received on that tax year, then we will review it and respond. So, you know, if it's an IRS error and we have everything, we'll set and say, please correct your records and work with them until it's resolved. If it's something that the client like, yeah, there was this thing and I forgot to give it to you and there is an error, you know, we can assess and make sure, okay, yeah, the IRS is right. We'll just tell them. Yeah, you're right. Here's what we owe you. Amen. Yeah, definitely. All right. And then we also have monthly packages that include proactive meetings for a tech strategy CFO level. It all depends on what the company needs.
Paul Graham [00:42:10] Sure. Okay. That's great. And, you know, we talked about this maybe a week or two ago, but right now you're sending out like confirmation engagement letters of, hey, like, we'll see you next year. Or, hey, like, we've kind of gone another direction. That has been something that could come or was one dead, one did not. So I want you to share maybe not necessarily the thought process behind this. To me, in a lot of ways, it's kind of black and white, but it's just more of, you know, when should people be thinking about evaluating tax professionals and getting it kind of locked down and secured? And if they are maybe, you know, uncertain about if their current professional is going to be them next year. Certainly emailing them. But what sort of timeline is that?
Stacy Calvin [00:42:52] So we are sending out our taxes in a letter now and engagement letters will be going out in a week. The thought behind it is we want to know who is going to be working with us because when it comes time to collect documents and potentially do extensions, we need the time to potentially calculate their balance due with those extensions. So we're not going to prepare extensions for anybody who doesn't sign and pay with us. And we don't want to be in a situation where at the last minute we're trying to chase down and argue or find somebody else. And do we need to calculate a balance, do with this extension and prepare an extension? So we just don't like to be last minute. It's stressful. It creates errors. Things fall between your backs. So we like to operate proactively. So we want to know who is a client. Then we can make sure all their stuff is in on time and nothing there is now. You need to go to the post office today and get this payment in. We just don't want that for our clients. And then as far as finding a new CPA, now is the time because it really doesn't take that much. You know, a lot of people are afraid to switch because they're like, that's going to take so much time. And I'm going to you know, I'm going to have to explain everything. Well, we can learn a lot and understand a lot from your forms. So it's really not a ton of work for you as a tax payer to switch. But we do need time to update our records, get you into the system, you know, have everything rolled over. So now is the ideal time because we just don't have time to on board during the tax season.
Paul Graham [00:44:26] Yeah, absolutely. No, it's great. And that makes complete sense. Yeah. Thank you for going through this. Super helpful for me. I mean, definitely business owners in a lot of different, you know, aspects. What would you say in this kind of guided joy of how people or I guess what you would put in in terms like a mindset montra quote, something that you would kind of write in to this guide?
Stacy Calvin [00:44:47] Knowledge is power. It's easy to stick your head in the sand and say, I don't like math, I don't like the numbers. It stresses me out. Maybe your profits aren't where you want them to be, but it's not going to change if you do that. Like knowledge is power and knowing gets you on a path to fixing it. So. Just knock it out and meet with your CPA and be in the know and help Neil. Let them guide you on what to do next. Thank you. He goes baby steps. It's not so overwhelming and scary.
Paul Graham [00:45:18] Yeah. And it's making me think of like, making a T-shirt. I'm really into graphic tees, so making a T-shirt that's like, call your CPA. We're like, man, I should do that. Stacy, thanks for being on. I enjoy talking to you and going through this. And I'll put in the show notes where people can connect with you more. So thanks for your insights.
Stacy Calvin [00:45:34] Yeah, Thank you.
Paul Graham [00:45:35] Hey, one last thing before you go. I wanted to share my mission while on this earth, and it's to help educate investors about different opportunities, share mindset tips on how to change our perspective and different things to really experience more joy in our lives. If this resonates with you at all and you enjoyed this episode, please share it with friends and others to help grow the community around. The Investor's Guide to Joy. Leading a five star review also helps grow the show and get connected to more people and share our experiences along the way. Thanks so much for joining. And can't wait for you to listen to the next episode.