Tax Strategies for Business Owners
Tax Strategies for Business Owners
The guest we had on our show today talked about tax strategies for business owners with his experience in taxation.
In this week’s The Faces of Business Episode, our guest speaker was Spencer Strickland. Spencer is a Tax Partner at GrantStrickland and the VP of Finance at Sparkle in Pink. Spencer helps clients with their annual and long-term tax needs. Spencer specializes in helping clients execute tax strategies that will help to reduce taxes and provide the appropriate tax risk mitigation.
The conversation of the episode started with Damon asking Spencer about how he got into his line of work. Responding to this question, Spencer said that he originally started studying law, but soon realized that he did not like pure law.
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This is when he shifted to accounting as he was more interested in that. Therefore, he started working at a CPA firm and began his taxation journey. After this, Spencer talked about the biggest thing he learned from providing tax strategies for business owners.
He said that you always have to work along with the situation of the company and you cannot impose your factors on them. Moving on, Damon asked Spencer if there was something surprising he has experienced in his career.
To this, Spencer said that usually, people don’t like paying taxes, but he once met a person who actually liked paying taxes so that was surprising. Moving on, Damon asked Spencer how he goes with his tax strategies for business owners.
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According to Spencer, he says that he always tells his clients to have a strategy in plan otherwise they will pay the most taxes. With this, he also shared an analogy that is that when you go camping, you always have to plan your trip ahead.
This includes planning your logistics, refreshments, and the entire stay. Therefore, according to Spencer, the same goes for your taxation plans. After this, Damon asked Spencer about the questions that one should ask a tax expert and the tax strategies for business owners.
Spencer responded to this question by saying that the first thing you can do is ask a tax expert about strategies to lower your tax payments. After this, the tax professional will ask you a bunch of other questions to understand your situation in a better way.
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Therefore, Spencer said that for paying taxes you have to be sure to hire the correct company to do your taxes. Moreover, Spencer also said that you have to ask your tax professional about the things where you are deducting the most of the things where you are deducting the least. With this Spencer helps effectively drive tax strategies for business owners.
The conversation ended with Damon thanking Spencer for his time.
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Damon Pistulka, Spencer Strickland
Damon Pistulka 00:04
All right, everyone, Welcome once again to the faces of business. I’m Damon Pistulka. And with me today, I’ve got Spencer Strickland with me. And we’re going to be talking about tax strategies for business owners. Welcome, Spencer. Thanks for being here.
Spencer Strickland 00:21
Thanks Damon’s great.
Damon Pistulka 00:22
Yeah, awesome. Well, it’s great to have you. So what’s First of all, Spencer, I forgot to mention the name of your company in the in in the intro. The names?
Spencer Strickland 00:31
It’s grant Strickland. Okay. You know, I get a lot of people ask me, okay, is your name grant Strickland? I don’t know. Oh, it’s my partner string grant. And I’m in district one in that.
Damon Pistulka 00:42
Okay. Awesome. Awesome. Well, you know, it’s a. So for some people, taxes might not be something they like to talk about. I know, nobody likes to pay him. But I think it is an interesting subject, especially when you’re talking about business owners, high net worth people or business owners going through transactions. It’s something that that, you know, in our company, we get involved with a lot.
Not that we decide what to do, we just say, hey, find the right people, because it can make a huge difference in how much taxes you have to pay, you know, and that’s how I that’s how we get it. But let’s back up a bit. So Spencer, tell us, give us a little bit about your background, and you know, where you started out and kind of, you know, how that how you just kind of got to what you’re doing today.
Spencer Strickland 01:31
Okay. Um, yeah, so I background, I originally was going to Damon, I probably haven’t shared this with you, I was going to law school journey. And figured, as I was going through that process, if you’re I saw that I didn’t really like just pure law. I also did a lot of accounting, and I was lucky enough to start working with a local CPA firm. And did some did some taxes and such and did some consulting.
And I really enjoyed it. And so I took me a little bit longer to get through school because I had to change up a lot of stuff, but I didn’t start doing taxes instead, got my master’s in accounting and went on got the CPA, and I’ve gone from there. Start out my career with Deloitte, one of the big four firms. Yeah, I think you’re aware that worked with a local firm in Salt Lake City for about eight or nine years. We were merged into BTO which the fifth largest accounting firm five years ago, and then then just a stunner, a year ago started my own practice.
Damon Pistulka 02:43
Okay, so you’ve had I mean, with Deloitte and then and then the local firm moving into VDO. You you’ve done some pretty large, firm accounting work. Oh, I’ve
Spencer Strickland 02:53
done yeah, I’ve, I’ve honestly, I’ve done it all. I’ve worked on, clients have over 10 billion in revenue and market caps have in the billions. And I’ve done your startup companies that are pre revenue, and trying to raise capital. Yeah. Yeah, it’s it’s, it’s it’s fun, fun process.
Damon Pistulka 03:15
So this is just kind of off topic a little bit. But when you have these huge companies are they’re like, literally just like, groups of people that work on one little section of the business. And then groups of people that work on another, it’s you almost have to break it down into this business unit, or this business unit kind of thing.
Spencer Strickland 03:35
Yeah, it’s spot on. Even when I was what, like when I was with Deloitte, we had a whole team that would work on one section of their tax return.
Damon Pistulka 03:45
Oh, really? Yeah.
Spencer Strickland 03:46
I mean, it was they’re very complicated and complex. So you’ve got those teams and those groups or divisions that that’s what they’re doing in each business. So
Damon Pistulka 03:55
Oh, yeah. Cuz I never thought about it. Because in the long form, I mean, you could just take a schedule, and that’s what the team works on. Are those schedules for big companies? Yeah. Yeah. Okay. Yeah. What do you think about it? You know, you think about it in a production kind of process like that in a very big, I mean, because a multi billion dollar company doesn’t just have one business, usually. And there’s different operating units and all that there’s a lot of different things that come to play in that.
Spencer Strickland 04:26
You have all that usually consolidates up right? Yeah. Yeah. It can get very crazy sometimes.
Damon Pistulka 04:34
Yeah. Yeah. So so what are what are so if you had to go back and look at some of that experience, what are some of the things you think you really took away from that kind of thing that helps you today?
Spencer Strickland 04:49
You know, I think the biggest thing is that you got every situation. There are status. A lot of situations have many things in common, but every situation is you Unique, every every taxpayer client, if you will, is unique in their, in their strategy that they want to take in there are risks that they’re willing to take. And so you’ve got to you can’t just approach from a high level and say, Hey, this is my blanket way of doing work, you’ve got to do everything based on the facts and circumstances and the approach and goals of the people that you’re working with.
Damon Pistulka 05:27
Yeah. So that they’re very interested in something else that may or may not be relevant. But So have you ever had somebody just come to you and say, I don’t care the risk? I don’t want to pay any taxes? Yeah. Because I mean, it is a strategy, right? It is a strategy. And
Spencer Strickland 05:49
that is a strategy and typically at that point, you walk through everything with them, and you see the circumstances because you’d want there are certain times when that person I’m like, Yeah, I can get you there. But for the most part, let’s say for the most part, I’m like, Yeah, I can’t legally get you there. And if if you’re wanting to do something illegal, I’m not I just won’t work with him. Yeah, I’m
Damon Pistulka 06:11
just I’m just trying to say is go as great as you can without going outside the line. Yeah. Yeah, cuz there’s some some people’s like, no, don’t even want to go there. don’t even want to take that, you know, I don’t want to deduct that even though I could kind of thing and everybody would, but to the other side of it is like I deduct everything plus this plus that plus that and and you’re going Whoo, that’s kind of that’s that’s that’s risky. Right. Yeah. Yeah. So it I know, I understand that, though. The willingness and they they fail to minimize that. But that at a certain point, you got to believe that it’s not worth it.
Spencer Strickland 06:50
There are many points where it’s not worth it. Right. Yeah. Yeah, especially. I mean, I’m sure everybody’s seen the news stories of people who’ve come to jail because of tax fraud or, or tax evasion. Yeah, they’ve done something. It’s not worth it at that point, right.
Damon Pistulka 07:03
Yeah. Yeah. Yeah, that’s when you get to that point. I think that’s that’s, that’s far too far. That’s for sure. So, so what? What has been something that that over the years of doing taxes? That really has surprised you?
Spencer Strickland 07:26
Oh, there’s been a lot of things that have surprised me over the years. You know, I will say this, there’s, you mentioned at the very beginning of the call, hey, nobody likes paying taxes. I’ve had, and like isn’t the right term, but I’ve had one person in my entire career, who actually wanted to pay tax. Like they were fine with, they were grateful that they were paying tax.
Yeah, every other person I’ve ever talked to. And that includes myself. You know what? I feel like I pay more than my fair share tax. I think most people feel like they pay more than their fair share tax. And so the goal is to get your taxes as low as possible. Yeah. Yeah. To answer the surprise, yeah, I was surprised to find one person who was
Damon Pistulka 08:11
like, yeah, I’m cool with it. I want to pay my taxes. Yeah, I’m glad I have to. And there’s I can understand that too. Because if you have to pay a lot of taxes, hopefully you’ve made a lot of money. And it’s it’s not such a bad deal. Right? Yeah. And you get to that point, and that’s, that’s a lot. It’s not quite as as different of a decision as it is on the other end, that’s for sure. So when you think about taxes, and what you’re doing, you have some some things that you talk about your your vision of taxes, and what do you what what, what is your overall philosophy towards taxes and what you’re trying to help people do?
Spencer Strickland 08:57
Well, so I think in any just like any other thing, you’ve got to plan for it. If you don’t plan for it, you’re going to end up being paying the highest amount, right? Yeah. I like I have an analogy that I use. Damon, I’m a I like to camp and so this is a good analogy for me. There might be people who hate camping. So it’s a horrible one. But I look at this way, you know, if you’re going to go if you’re going to a camp out, you got to plan for it. If you don’t, you’re you’re it’s gonna be horrible.
Yeah, depending on, depending on what you’re going to do depends on how much planning you need to do. If it’s just me, and actually, I’ve got a buddy who he loves to camp, and he’ll literally he just gets in his car, and he drives up into the mountains. And he has a sleeping bag and a tarp. And he’ll get up in the mountains. He hikes up to the place that he wants to camp, puts the tarp down, puts a sleeping bag down and camps there, and he’ll spend the next day hiking and then he goes home. Not a lot of planning into that. Okay. Just however with me, I’ll usually go camping with my wife and maybe my kids.
There’s a little more planning is going to that, right? Yeah, we’ve got to figure out, hey, what are we going to eat? Or we’re going to bring with us? How are we going to cook? Right? You got it. And then I’ll give you another example, this last year, I did a whole family, like my extended family, we did have this huge camp and tons of planning to go into that, right. And then I’ll even throw on, hey, if if someone’s bringing a, I do a tent most of the time, but if you’ve got an RV, hey, there’s even more planning around that, right? You don’t want run out of fuel, I’ve actually had someone who ran out of fuel while they were doing that.
But the point is the same with taxes, you have different levels. And that’s sort of my philosophy, different levels. If I’m an individual person, I get have a W two wage coming in, you know, there’s not a lot of planning that can be done, and there’s not a lot that you really need to do, but you still should be looking at it, at least. It’s not an annual basis.
If I’ve, if I’ve got a W two, or I’ve got a business involved, hey, I’m a little bit more complex, my plan needs to be a little more complex. So I’ve got multiple businesses involved. It needs to be even more complex. And it can just keep growing and growing, growing as far as what your plan needs to be in order to get you to where you want to be. From a goals perspective. That’s how I and I always try and start it out with Hey, what’s your goal? What do you want to do? If the answer that goal is hey, I don’t want to pay any tax? Well, let’s, let’s figure out what the real goal is there. Yeah. Yeah. Yeah.
Damon Pistulka 11:40
Cuz most of them yeah, it makes a lot of sense. And it is a great analogy. Because if you look at that, and understand and yeah, when you got multiple businesses income going between multiple businesses or, you know, a Yeah, and just how the owner takes compensation or doesn’t, or, you know, there’s just a lot of that, a lot of that, and the ownership structures in them and how that affects it.
And sometimes, even with other corporations owning part of it, too, it just can add to the complexity an awful lot. Yeah. So Ah, Interesting. Interesting. So, if you were out there, looking. What were that? If so, so just this is play a, for example, I’ll just back up a little bit. If If I’m sitting here today, and I’m a high net worth, or business owner, and I’m sitting here, what are some of the questions I should be asking my tax person every year? Because that’s the thing that I always wonder is what we really should be talking to them about?
Spencer Strickland 12:49
Yeah, well, honestly, I think that the number one thing you really want to do, and I say this daymond, because I see so many people who they don’t plan, Okay, number one thing you want to do is go to your tax professional, and say, Hey, I’d like to sit down and talk about what I can do to minimize my taxes. And then you sit down, you talk to him, right? And for lack of a better way of saying this, when you’re in that meeting with them, you’re asked him, Well, what are some ideas that I can do?
Generally, they should be able to come up with certain things that you should be doing. Okay? And I’ll be honest, even in my case, there are times when I sit down with someone and we go over their taxes. Like I look at a prior your tax terms, see what’s done, and I’ll ask them a bunch of questions. And I’ll say, are you doing this? Are you doing this? Are you doing this? And the answer could be yes to all of them. And so my answer as a tax professional, maybe you know what, you’re doing everything you can based on your circumstances right now.
Yeah. Like, I mean, common ones, if you’re just, if you’re a W two employee, that’s all you got. Okay, tax planning strategy, make sure you’re contributing to a retirement plan. If available. If you’ve got a high deductible health insurance plan, make sure you’re contributing to your HSA or your company’s contributing to your HSA. If you’re there strategies that you’d want to go over around your itemized deductions or standard deductions, and things. From an individual standpoint, if you’re in a business quest, if you’ve got a business, you should be going in and asking, Hey, can I deduct this? Or the question is Hey, what am I not deducting?
That I can Yeah, to do that your your tax professional needs to have access to what you have been deducting, or what or what your what your accounting looks like. But those are the typical things that I would, I would go in and ask and honestly, you got to ask almost that same question or same questions every year, because tax law constantly changes. And we have a proposal out right now, that is going to change a significant amount of tax law and as that changes There are certain deductions you previously could take that you can’t. And there are deductions now that maybe you can take that you previously couldn’t.
Damon Pistulka 15:07
Mm hmm. That’s, that’s good. It’s good. I think and I think you’re right. I, I wouldn’t know that you’re right. But it seems reasonable. What you’re saying is going and asking every year because the taxes, tax laws are always changing, that’s for sure. And so what? So what we should be asking, and then there are some things that we should be doing as well. And that is primarily first we should be going in and asking the tax people, what are good some things? Are there other things we should do? And is there is are there specific places where we should be researching some things? Or where where are some places just to understand generally, what’s going on?
Spencer Strickland 15:54
Then let me I’m going to twist that a little bit. I want to say what you shouldn’t do. Okay. And when I say Shouldn’t I make take it for a grain of salt? I feel well, yeah, um, I have a lot of people who reach out to me, there’s Hey, watch this video. And it’s a YouTube video.
Yeah. And someone’s pitching attack. Yeah. And I watch it and you don’t generally there is there is some truth in those, and there’s strategy in there. But I would say I’ve yet to see one where there was something that wasn’t completely wrong. That just made it way overblown, ever overselling strategy to where it just was not it did not have the effect that they want it. Yeah. So my point is, don’t just trust YouTube, I think, hey, just because it’s on the internet doesn’t mean it’s true. Right?
Damon Pistulka 16:45
Yeah, that’s true. That is the case that is the case. But that being
Spencer Strickland 16:48
that being said, I appreciate it when my clients will send me those videos, because then I know they’re actually looking for opportunities. And they’re not just being lazy about their own tax situation. Yeah. And there have been, if I’m putting out there have been times when I’ve seen some of those videos. And there was a unique issue. Now it still wasn’t completely correct. But I was able to, as a tax professional, go back and research into it and say, You know what, this is something I did not know before.
And that really, if I jump back, if when you’re talking to your tax professional, and you ask them a question like this, and you’re saying, Hey, I saw this strategy, and they generally, if I, and this is any professional, in my mind, not a tax professional, if you’re talking to an attorney, or talking to a financial or financial planner, you ask them a question in relation to something that you’ve you’ve heard about, they should either answer it one or two ways, they should say, Oh, I know all about that.
Here’s some issues around it, or I don’t know a lot around that. Let me look into it. And I’ll get back to you. What I don’t like to hear and I hear this way too often from various professionals is, yeah, I don’t know anything about that. We can’t do anything. I don’t get I don’t get that answer, obviously. But as you’re asking those questions, because you’re asking those questions to your tax professional. And just your question on where you can research. From a tax perspective, I think the best places are I love irs.gov. It’s gotten a lot better over the years.
A lot more robust. If you’re reading through anything on irs.gov. Generally, you can trust it. Now the IRS Strout says just because it’s on our website doesn’t mean you can rely on it. Yeah, find that little odd. But it’s it is a great research tool, if you will. Okay. Yeah. And I again, the other thing, I love this, and I hate it, it’s the same as the videos, it’s, it’s when someone comes into me and they say, hey, my friends doing this right now like, Well, that doesn’t mean they’re doing something, right. But I still love that people are coming to me and talking to me about it. Because I want to make I want to get them educated on what they can and cannot do in their situation.
Damon Pistulka 19:13
Yeah, cuz every situation is going to be unique, as you said, and it’s really, it’s so you can’t just because you’re your friend or your neighbors doing it or something like that. It’s it can be a completely different situation.
Spencer Strickland 19:26
Yeah. Okay, Danny, can I give you an example that really Yeah, yeah. I’ve had this happen multiple times. client comes in as my body is riding off his boat in his business. How do I want to buy a boat? I don’t write that off for my business. Well, the thing they don’t know. And I’ll say this, there are there are taxpayers who out there they write off their boats, and they should. There is an IRS Publication as well as what’s called a revenue ruling. This it straight says you are prohibited Writing off any water any boat or watercraft, okay?
Unless you are in the business of dealing or leasing boats, if you will. And so many times, hey, that person is actually leasing out your boat. That’s how they’re writing it off. You have a business for doing that. You can’t necessarily I mean, me and my accounting practice, I’d love it. If I could go out and buy a boat or plaster My name across the bow of the boat. And I can deduct it my business. Um, you know, I could do that. And I’m playing an audit game, right? Yeah, we’re waiting to see if the IRS comes in audit to me. But under the laws, you know, I can’t do that.
Damon Pistulka 20:41
Yeah. Huh. That’s interesting. Well, I think I think you’re right. This is like some of the things you can do. And you may get away with it for a while, but you may may end up paying for it later. Yeah. Yeah. And that is a great example. Because I’m pretty sure I’ve heard that myself.
Spencer Strickland 21:04
Everybody wants to do it. Yeah. Yeah. And, and daymond. I’ve said this to you before, and I’m sure a lot of people on here have heard this. There’s this saying pigs get fat hogs get slaughtered. Right? pigs are, the general thing around that is, hey, do the little things here and there, do the things that are within that, and you’re gonna continue to save, save, save money on taxes, and grow, grow your wealth. If you’re being super aggressive, Vince, you’re gonna get caught and you’re gonna be in trouble. Yeah, yeah,
Damon Pistulka 21:37
that’s for sure. So we’re, we’re heading into the end of the year, he got a new president in office this year. And we started off earlier this year with talking about taxes, changing capital gains, we’re going to change I always hear that a lot in our business about capital gains. You know, we’re at what is it just shy of 20% or something like that on capital gains, and there was first thing it came out, it was like going to be close to 40%. So what are some of the things that you’re seeing coming out of the different committees or or the House or the Senate that, you know, gives us an indication of what what’s going to be happening with our taxes for 2022? And beyond?
Spencer Strickland 22:27
Yeah. Okay. So this is the perfect question for right now, because the house and Ways and Means Committee just released their proposal on a tax bill, I believe is on the 14th. Actually. And they released it, and there has been it’s been thrown out there under various plans that they want to raise capital gains to 40%. Underneath this, this bill that was passed. they’re proposing a 25% top capital gains rate. So you’d still have right now you have a 15% rate that goes up to 20% rate when you reach certain thresholds, and this would just want to reach even a higher threshold to be 25%. Okay, okay.
I’m used along with that you currently have what’s called the it’s a Medicare surtax. 3.8%. on anything above 400,000 in income, so you’re really your top capital gain rate could end up being 28.8%. Okay. Okay. Okay. The other thing that a lot of people are looking at are those individual rates. Right now, your top individual rate is 37%. Its proposed 39.6 39.6 is the rate was before the Trump tax cuts that passed a few years ago. And then the corporate rate right now corporate rate is currently at 21% flat corporate rate under this another proposal that’s out there right now, they would raise it to 26 and a half percent.
I don’t know why they love throwing in this half percent, like yeah, point 2% or even the 21% Why can’t we just do 20%? Yeah, I like even numbers. The the 26 and a half percent just zero only applies to businesses that have taxable income in excess of $5 million. Okay, so everything up to 5 million will be at 21%. Everything about 5 million be 26 and a half. The other thing that is a little in my mind concerning is that 3.8% I talked about for capital gains that additional amount if you make more Yeah. 400,000. I typically that’s only on investment income.
So interest, dividends, capital gains. I Congress are in this bill. If it was passed as it is, yeah, it would, it would include that 3.8% on anybody if you have ownership in an S corporation or partnership, your earnings coming Out of that, even if you’re active in it would have to still be subject to that additional 3.8% tax it’s a little concerning because it’s called an investment income tax and feel like if you’re working in your business, it’s not really an income. So that’s why it’s concerning to me.
Damon Pistulka 25:18
And so when you look at that with that Yeah, so that’s like on the draws and such that you would be taken out and
Spencer Strickland 25:25
it Yeah, effectively on your draws. Again, that’s if you’re making more if you’re single, you’re making 400,000 or more and if you’re if you’re married, it’s five or married filing joint would be 500,000.
Damon Pistulka 25:37
Spencer Strickland 25:40
That was the last one that’s on a lot of people’s minds Damon, our estate and gift tax right now yeah, yeah. I can get each spouse can give 11 point almost $1.8 million without paying any tax on it. If they die, they can give it away if they give it away throughout their life. They can give it away to their you know, their heirs like kids and grandkids and such.
Damon Pistulka 26:06
That’s an in total amount or is that per child or
Spencer Strickland 26:10
that’s an in total Okay. What they’re looking at what the proposal would be is to reduce it down to 6 million so almost in half. Hmm, yeah. Effectively what this is saying is Hey, if you’re worth more than $6 million, you’re you’re wealthy and you deserve to pay a tax on that if you pass or if you want to give away more. This is creating I’ve had since this came out last week, I’ve had multiple calls because you got people who they’re worth $12 million and they’re like I didn’t really need to do anything I need to do something now before this potentially passes, right?
Damon Pistulka 26:45
Spencer Strickland 26:49
Again, that’s if you’re married, it’s per spouse. So even if you’re married and you are worth 12 million between the two of you, you could still give away effectively 12 million tax free
Damon Pistulka 26:59
Spencer Strickland 27:01
Again these are still these are just proposals that are out there. I do want to I’ll give my opinion on you know, some of these are going to pass or I think that they will pass others I think they’re going to get kicked out I really don’t think or I’m hoping that that 3.8% on your escort draws and your partnership draws if you will, I’m hoping that doesn’t pass
I do you think that you’re going to see an increase in corporate tax it may not be to the 26.5 meters to 25% but I do think it’s going to go up I do also think that they’re going to raise that individual rate Yeah, there is just just so I can throw it out there based on some analysis has been done if you were in the top tax bracket on all these you effectively pay just for federal taxes 46.4% of your income not including state so if you’re in California and their top tax bracket is 13% you’re well over half of your incomes going to taxes
yeah yeah, that’s
Damon Pistulka 28:06
a bit more
Spencer Strickland 28:08
Yeah, there are also demand There are also some other incentives that are being proposed there’s not a lot of detail has been released especially related to electric vehicles.
Damon Pistulka 28:18
Yeah, that’s funny how that the increases together out there right away but anything you can do to mitigate it that’s that’s gonna take us a while to figure those out. Or if that’s magically happens like that,
Spencer Strickland 28:30
well it’s in the bill and to be honest, I have not read all 1000 pages of the bill Yeah, exactly it’s just it people are more focusing on hey here’s oh my gosh we’re gonna have to pay this additional tax what what can we do about it so
Damon Pistulka 28:48
so what are what are some of the interesting things that you see in the in the world of taxes beyond you know that the things I mean what are some of the ways this lets others rephrase my question a little bit so if you’re sitting out here today you’re a high net worth individual say, Man, I might have to pay a half a million dollars a year in taxes, what are some of the things that you should be doing that you might not be thinking of now?
Spencer Strickland 29:15
Okay. Number one, and then let’s just assume this is a high wealth individual that they’re only getting paid wages it’s not from Yep.
Damon Pistulka 29:25
Because that actually came up with me and someone I was talking with a financial advisor about this and they deal with higher net worth people and they were saying, you know, I love sports people but the one thing about it is they have huge salaries but it’s all w two income Yeah, their incomes w income. So this is a great example.
Spencer Strickland 29:44
Yeah. So some things that you can do and it usually involves investing, right and in some way or another, okay. Um, well actually, let me back up. The number one thing I would say if you’re charitably minded is maximize your charitable deductions or contributions. If you’re a high net worth individual and new, in your giving to charity on an annual basis, you’ll use what’s called it’s called a donor advised fund. Every large bank or brokerage will have a donor advised fund that you can contribute to. and effectively what it does is let’s say, let’s say I’m giving $100,000 a year to charity.
Well, I can, instead of doing that on an annual basis, I could say, well, you know, I’ve got the cash and I want the deduction, I’m gonna put a million dollars into this Donor Advised fund. And if I’m doing that much, I’m assuming I’m in the top tax bracket. So if I do a million dollars, I’m going to save $370,000 in taxes. And then over the years, when you put it into that Donor Advised fund, it is a charitable contribution. It is a 501 c three charity. But you get to direct how those funds are used. This way, it’s called Donor Advised.
You’ve made the donation, but you advise on how it’s used. I’ve done this myself in the past where I sort of just wanted to double my deductions for the year. And I put more in there. And then over the next three years, I paid out my various charitable intents out of that Donor Advised fund. So someone to let’s say, Make a wish or United Way, or my church or almost any, any recognized charity, you can you take it out there and you send it to the charity. And it’s just a great way of doubling up for that year. That probably number one, it’s easy, low picking fruit right there. Okay. A second one that I would sort of talk about is just various investment vehicles.
Now these you have to really research and make sure it’s a good investment opportunity. And I saved the status because I don’t want you to spend $100 and save, save $37 in taxes. But then you never get your $100 back. Yeah, yeah. Right. Let me just throw there like so right now, you can go out and you can buy into various solar, solar companies, if you will, or their solar panel, investment companies put it, let’s just use $100,000 500 $100,000 into one. That’s the word that solar company is then using that money to install solar panels on buildings, and then you get a credit for that of 26%.
So you get a $26,000 credit. Okay, so you save $26,000 in taxes. Over time, wherever you install those, you should be getting a cash flow as well return on investment from effectively the sale of the power those solar panels are generating your money back. Where I say, hey, look into the company, look into what they’re doing to make sure or have a reasonable assumption that you’re actually going to get the money back. I have I’ve seen it way too many times. I’ve had clients that have done these types of strategies, not with the solo or haven’t seen this happen yet with that, but I’m assuming it will eventually or they’ll put the 100,000 in, they get that big, huge tax benefit.
And then later on a couple years on the company that was marketing goes bankrupt, and they never get any money back then so Oh, yeah, I got a huge tax benefit. But I’m out this $100,000. Yeah. These are all just as individuals, right? Because there’s what you really can do as an individual. There are a few there’s one other one I’m not going to really I don’t want to talk about because it’s one of those that’s on the chopping block with ozel. So it doesn’t make sense to do it right now. I’d love to talk about it if it comes off. Yeah. But it’s one where you the huge, huge benefit. And that’s why it’s on the chopping block, if you will, yeah.
Damon Pistulka 33:57
Okay, well, there’s some good ones that I think that it’s, it’s interesting to be able to really think of taxes in a proactive manner rather than reactively. Just because of the fact that you know, you can make a difference, you can make a difference.
And when we look at some of the things that people can do to mitigate the capital gains, and over a long term period, there’s just there’s a lot of things in that I know and in the other annual earnings and this stuff like you’re you’re helping people with too in the annual space there are there things to do too, and it’s just good to hear that. Yeah, you’re not going to go to zero, you know, probably if you’re making money, but there are ways to to make it as reasonable as you can get it. Yeah. Yeah.
Spencer Strickland 34:49
Damon, if you’ve got a business involved, that’s really I mean, that’s where you need, at least, I mean, at least once a year you need to be sitting down with your tax preparer. And going over it. If that’s the case, I recommend October, November, December timeframe. I prefer this is me, I prefer to sit down on a quarterly, sometimes monthly basis, just to say, Hey, here’s where we’re at. And speaking sorry, you brought up capital gains. So I want to hit this if you have capital gains, a guy I met with a client yesterday. And they recently sold a rental property that they had in California, smart time to price sell.
Yeah, I, I don’t know if it’s smart sell or not, but you know, value is pretty high. So they have a huge capital gain? Well, the first thing I asked them is like, Okay, you’ve got a stock portfolio. I know, it’s not likely, but you have any stocks that are running a loss right now.
So we want to sell those so we can loss harvest, to offset this game. So I always say if you, if you looking at that you’ve got capital gains, I don’t care if it’s on stock sales, or real estate, sales of virtual currencies like Bitcoin. And then you’ve got other things that are running a loss, sell those off, so you can recognize the loss. One caution is you can’t sell off stock, you have a loss on and buy back within 30 days. Yeah, under the wash sale rules. But as long as you don’t really buy that stock for 30 days, you can recognize that loss to offset the other gains.
Damon Pistulka 36:17
Yeah, that’s a good, that’s, that’s a good suggestion. Because it, they can make a significant difference. Because if you got some of your positions in your investments that are upside down by a long ways, get now taken the tax advantage of it might be a really good thing to do. Yeah.
Spencer Strickland 36:36
And even I mean, I’ll be honest, I’ve got clients, right, today’s markets are doing generally really well. But you still have very stocks that are. And so I’ve got clients who they might have $100,000 gain, and then they’ve got $100,000 loss on a stock, that they were like, hey, let’s sell it off. You’re not performing, it’s not going to perform based on all of our analysis.
And going along with that, and this The other thing, I’d say, you don’t get all your professionals involved, if you can, and just depending again, how complex your situation is, if you’ve got someone who’s managing your wealth, like a financial advisor, and you’ve got a CPA or tax professional, get them in a room together, or on a zoom call together, if you will, to discuss all this because they’re gonna all have their same, or they’re gonna have different ideas, and they’re gonna get you hopefully to the best place you can be.
Damon Pistulka 37:32
That is a really good point, because I think a lot of people and significantly networth people fail to do that. They just go to one person and or affirm and that’s what they do. They don’t get the other people involved.
Spencer Strickland 37:48
Yeah. And Damn, and I’ll tell you, this got drilled into my head, probably a little over five years ago, when I had put together what I thought was a bulletproof plan for my client. Okay. And to be honest, there’s nothing with bulletproof kit, the health tip, yeah, it was good plan was really good. What I didn’t know, was they and we didn’t execute the plan yet, luckily, but I didn’t know if they had been meeting with their attorney. And the attorney was putting together a plan in in separate area. But if we went through with either one of ours, it completely conflicted. I was doing some income tax planning, the attorney was doing some estate planning.
Okay, if we would have implemented the income tax planning, it would have really messed up the estate planning and the same vice versa. Luckily, we found out about each other before either one of us executed. And, and were able to put together and sort of reconcile the two different plans and get them together. So we got to where we wanted to be. But since then, yeah, I will always ask my clients, if they’re coming to me, and we’re doing plans like, Hey, what are you talking to your financial advisor about? What are you talking to your attorney about? Can we get on the phone with them as well, to make sure that whatever we do here, doesn’t mess up something else?
Damon Pistulka 39:06
Yeah. Well, I think that, I mean, as things change, and this is the other thing that we see in business, and with business owners is that, you know, the changes for someone who’s living the life happens over time. But if you don’t make the changes, like so, you’ll see someone that has had a business for maybe a lot of years, and they use the same attorney forever, right? And they, they don’t understand that.
I’m not that startup business or that $2 million business. I’m a $40 million business now. And I’m still going to do my taxes which may be appropriate, but maybe not I’m still having my lawyer that was helping me out a $2 million business do my same work because I liked them and add a 40.
Now there’s not i’m not saying there’s anything wrong with that, but it takes more people to coordinate what you’re going to do if you’re going to do it right as you get as things changed, and I don’t think that a lot of people recognize that and go, Hey, is it time for me to, to augment what I’m doing in the financial and tax areas of their lives enough. And I think you’re bringing up a great point that you need to get your team together and talk about it, you know, when it’s a certain point in your life, because it can make a huge difference.
And like you said, If you executed that same thing, it would have negated the the benefits of either one plus the last time all the pain in the butt that she had to deal with, you know, because of it, and really could cost a lot of money going on like that. Wow, that’s, that’s so relevant. It’s It’s funny how much that crosses over into one of the first conversations we have with business owners, if they come to us and say, Listen, I’m thinking about selling my business. And the next question that comes that we ask is, have you talked to your financial advisor about it?
Do you understand what the tax implications are? And do you know if this is going to be enough money for you with the business at the value today? Because you know, there’s there’s so many things that need to cross through that we that that high net worth people, business owners, whatever, they’re used to making the money, they’re used to having a business and supporting them. And these are, these are very different things. And taxes is like that. I mean, you do it every year. But it changes as, as the business is changing your lifestyle, life changes and all that. So yeah, interesting.
Spencer Strickland 41:33
Damages going on with your if you’re if you’re out there thinking of selling a business, this is my approach, okay? I think before you go out to market, what you want to do, is you want to say, and you’re not trying to, you’re not trying to establish your market value the company on what you want to do with your financial planner, your CPA, your in house accounting, if you need to your attorney, and calculate out hey, here’s what I’m spending right now. Here’s my spend per Yeah, yeah. And then you back into and get back into, here’s what I need the company to sell for in order to continue to spec what I’m doing.
And I’ll be honest with you, most of the time, the company is worth more, and you’re more than what you need, because then you take that number. So let’s say let’s say that numbers, what you need for the rest of life, so that you can just put into a conservative portfolio, if you will. Yeah. And let’s say that numbers 10 million, most of time I’m seeing the company, it’s still worth like 20 million, so yeah, well in excess. And that’s, and you got to make sure that you’re talking about after tax dollars to buy Yeah, companies were 20 million out out the door dollars net dollars, not not what I’m gonna sell for, right?
Yeah. Okay. That’s how I like to approach it. Because, you know, what, if you don’t, you might run out of money. In the hardest part about that, especially with business owners, is you have a lot of what I call quasi personal expenses. They’re legitimate business expenses that you’re writing off, but you’re not once you sell the business, you’re probably going to continue to spend that money. A good example of that is any anything related to travel? Because generally, at least the way you were running, if you’re traveling for you, in your life, I can get you to where you can get that as a business deduction.
I mean, unless, unless you’re going somewhere really extravagant, has no business purpose whatsoever. That can be a significant cost. But yeah, you need to approach it that way. Oh, I remember was gonna bring up we actually this is more than 10 years ago. client who sold their business very cash flow is a cash cow. Yeah, it’s sold it, they did not realize how much they were spending. I was not involved with him. Yeah, Tom. Um, but they literally were out of money in the next 10 years. Yeah, they ran out of money, because they didn’t realize how much they’re spending. Mm hmm.
Damon Pistulka 44:06
Well, it is it is a critical thing to know, even if you know, even if gut instinct tells you, there’s no way I could ever spend this money the rest of my life. Yeah, I mean, you really need to understand that because it is pretty amazing. When you look at what $20 million sale of a business turns into, in the end, when you compare that to somebody’s lifestyle expectations and everything else. When you take away something like a business that is generating cash flow, on a monthly basis, daily basis, whatever you want to do, and you go Okay, now I have to have an asset that generates that, that cash flow and a return basis. It might take a lot. It takes a bit more money than you’d expect.
Yeah. And but that’s a that’s that’s great advice, I think, and it’s, it’s something it’s like you said that example 10 Yours out of money you don’t want to find it out 10 years in 10 years and you don’t you know that you know my trips to Europe aren’t gonna be there anymore or you know or whatever it is because let’s be honest let’s be honest high net worth individuals I mean some people have multiple homes they have you know dozen cars they they they travels for months out of the year I mean all this kind of stuff that that when you look at it your lifestyle you really got to look at that after after whatever you’re doing lifestyle to understand because it can be significant.
Spencer Strickland 45:35
Yeah, it can be really yeah can be really significant. Yeah,
Damon Pistulka 45:39
yeah. And yes, not not the norm obviously. But it but it is. And that’s that’s what I really in, like in the example you gave with the people that had a nice cash flow in business. It’s significant and you don’t even know because it’s 20 years of doing it 30 years ago, whatever it is, then that that’s just becomes normal habit.
Spencer Strickland 46:01
One anymore, even just this is just I feel like human nature like this these clients, they start spending even more because they didn’t have they weren’t working in the business. Yeah, yeah. didn’t have anything else to do. So in fact, that’s something I always people always ask me I’m I’m still young guy, but they still say hey, what was your retirement? What do you want to retire? Like, I don’t really don’t want to retire. I love what I do. And plus I’d rather make money than spend money. Yeah. So
Damon Pistulka 46:29
yeah, well, I think I mean, you bring a very, very valid point. And we and it’s one of the psychological and fundamental things that I think when people are getting ready to a retire B Sell a Business as I’m dealing with, with clients, it’s what is the next step because the next step, if it’s gonna it’s going to be Oh, I’m gonna play golf. Mm hmm can’t play golf 20 473 65 you’re gonna go crazy if you’re a high driven individual that ain’t gonna work for you. There’s there’s a few more planning steps involved in that.
Otherwise, you know, it does turn into more spending on things that were unplanned and, and if you plan it ahead of time, you can plan for that spending to actually know what you’re going to need to do. Because on the other side of that, there’s a lot of people that that go into a a another phase in their life, whether it’s they started different businesses to be more philanthropic efforts. There’s just so many good things that you see from it, too when it’s planned and executed properly.
Spencer Strickland 47:30
Yeah. And then I’m sure you’ve seen this in your in your practice as well. But I’d say almost half of what I do when I’m talking to a client and selling our businesses talking through those What are you going to do include you’re talking about Hey, what are we spending money on?
What else do you want to do? What do you do especially if they’re younger? I’ve got a client right now who they’re in a sales process. She’s 31 Yeah, and I’m like okay, what are you gonna do you have a long time left Yeah. And in that that’s really what is you’ve got to figure that out because you don’t want to get into this funk of of either spending money or more more often than not a lot of people go into depression when they don’t Yeah,
Damon Pistulka 48:14
yeah. Yeah, figuring out figuring that out it’s cool to hear that you love your work so much that you’re like hey, I can keep working and i think i think that a lot i mean i’m gonna work well into my older age as long as I can do it and I can see myself changing you know, I may not work as intensely for the number of hours you know, since you know seven days a week kind of stuff when it when it needs it anymore but but it is it really is it keeps your mind active keeps other things going.
And I think that’s, that is really that part of that as people sell their businesses and and decide to exit they really have an A sound plan and thinking about that. I’ve been fortunate to to actually meet some really great people that help plan help people understand that, you know, I’m not, I don’t deal with that, as far as that part of it. But I think it I think for a lot of people, it’s probably well worth the investment of try it, you know, talking to people about that.
Yeah, we’re kind of getting off on here. But I just wanted to say because I guess it is just you know, you’re with the taxes and this other thing, but thanks so much, Spencer for being here today. I mean, I I’m glad that I was able to finally get you on and we talked about the taxes because this is something that you know, a it happens every year be there’s one time life events and other things that people should be reaching out, communicating regularly with their tax professionals, and really understanding what they can do and how they need to and what they need to do with their tax professionals to reduce their, their overall taxes or just keep them appropriate. So
Spencer Strickland 49:54
yeah, it’s been it’s been a pleasure.
Damon Pistulka 49:56
All right. Well, how do people get ahold of Spencer what’s the best way
Spencer Strickland 50:02
if they want to get a hold of me um easiest way is through email okay I am I mean I’d be more more to give them a give out my phone number but I don’t I think most people are this way I don’t pick up a number I don’t recognize so yeah yeah I don’t know if you I mean I can
Damon Pistulka 50:20
share it in the show comments too and then they can find you on LinkedIn too expensive.
Spencer Strickland 50:26
Yeah, they can find me on LinkedIn. Yeah, they can go to my website grenco CPA calm.
Damon Pistulka 50:33
Okay, Grant co CPA calm Awesome. Well, we’ll get well and they can get there and hit hit you with an email from the website and reach out to you there if they’ve got some tax things they want to talk about. So thanks so much. bencher Strickland for being here today we’re talking about tax strategies for business owners and other high net worth people. Thanks, everyone for listening today. We will be back again on Thursday. Thanks, you bet.
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