Uncover Hidden Money in the Tax Code

‍Kevin Schneider: [00:00:00] Welcome to the Hidden Money Podcast, our very first inaugural episode. I am Kevin Schneider and joined with Mike Pine. Hi Mike.

Mike Pine: Hi Kevin.

We're excited to do this for a multitude of reasons, but the main reason is where we got our title for the podcast. Hidden Money in the Tax Code Buried Deep in the Tax Code. There are so many opportunities that so many tax payers don't know about and unfortunately a lot of tax practitioners don't know about either.

Just for example, we got a new client about five or six years ago who had sold off part of his business, and unfortunately the statute of limitations had applied, but there was one small area in the tax code that said he was not subject to the net investment income tax, and he paid over a million dollars in tax that he shouldn't have paid a million dollars.

And once he came to us, the three year statute of limitation had just passed, and we tried any way we could. We talked with tax attorneys. We did our best to get the statute of limitations open. If he would've met with us six months [00:01:00] earlier, that million dollars would be in his pocket Now. Unfortunately, that million dollars is gone forever.

That was hidden money that he should have had, that was hidden money that he could have used to help grow our economy. That was hidden money that he lost because he didn't know where it existed. So we're hopeful that we can help all of our listeners avoid such situations and keep their money, grow our economy, and we truly do believe it's your patriotic duty to keep as much money in your hands to grow the economy than to let disappear in the IRS or Department of Treasury.

Never land.

Kevin Schneider: So not only saving people actual cash on their taxes, but if you get into the details a little bit more of what we're trying to accomplish, it's actually providing freedom for clients.

And I'm not talking just financial freedom, I'm talking freedom from a broader subject of time, energy, stress. Mike, give us, gimme an example of a time when an entrepreneur came [00:02:00] to you and you not only helped 'em on the tax side of things, but you actually made a difference in their family life by giving them time or, reducing that stress..

Mike Pine: Wow, there's so many, Kevin. One great example more recent from the Covid era is we have a long-term client who's become a close friend of mine. He runs a business, an entrepreneur. He employs a lot of people and Covid hit and his particular business. There was no way to continue earning any type of revenue during Covid.

And he called me up panicked. Hey, everything's shut down. There's nothing we can do. I've spent 20 years building this business and all I see is we gotta shut our doors. And, it's fun to be part of basically a business counselor or part of their board of advisors when things like that happen.

And I was able to help remind him to, Hey just take a deep breath. You've got a great business. This covid thing, most likely isn't gonna be permanent. There's something that we can do here. Let's [00:03:00] figure it out. And this guy's such an incredible guy and he's makes changes and benefits so many lives.

So they actually went to all of his employees, and said, look guys, we don't have any revenue to pay payroll. We have a little bit in savings. We're gonna get some of this triple p loan that we're gonna be able to. Maybe keep a quarter of the people on payroll, but he went and actually asked every single employee, can you please come with me?

The minimum or the smallest amount that we can pay you to keep your family through until we can get back to operations and all. But a couple of his employees came with major pay cuts and of course he tracked it being the guy that he is and tracked how much he was underpaying everybody. And then once they made it through COVID and were able to start reopening, he actually, while they were still on payroll, since there was no client service to offer, they worked on retooling their systems and processes and they got a lot better.

And then on the other side of the shutdowns, they started going back into business and then he was able to give everyone back their normal salary. And this guy, the first profits he finally made, [00:04:00] he took that and paid back his employees all of what they had been underpaid over time, which is amazing.

He didn't have to do that. It wasn't a written agreement. No one expected him to do that. But that's the type of Business owner and client and friend of ours that he is all that profit that he paid back to them, he had nothing. He'd basically, literally given up almost every bit of net worth he had to keep his business going, to keep his employees paid and then doing the right thing or what he does was the right thing by catching them back up with what they would've made.

No one had told 'em about the E R TC or the employment retention tax credit and just a awesome tax credit that was available for every business that was out there during Covid v. We told 'em about that and got 'em working with a specialist. He was back in business again. All of his profit was gone to paying his employees for the first six months and we got him over three quarters of a million dollar in a tax credit.

Now this is, again, that's more hidden money in the tax code and [00:05:00] the constantly changing and evolving tax code. He got that and again, I was hoping he would take that for himself. He took some of it, a good Biff for himself. He took some great time off. But he also gave most of his people in the firm a raise.

And that was changing lives. It was seeing him change lives and it was just this one small area of the tax code that came out during a lot of the Covid legislation. That made a big difference cuz he kept these employees on the. that's what the government wanted him to do, and he was rewarded it with nearly three quarters of a million dollars.

I think it was a little bit more of a tax credit. He got three quarters of a million dollars in tax credit, and that is life changing. Life changing for him, for his family life changing for all of his employees.

So there's so many stories like that, Kevin.

Kevin Schneider: . Yeah. I'm reminded of one as well where, we were, this was probably four or five years ago, and we had a client come in and she adopted two, two little babies and she came [00:06:00] into our office and she told this story of these babies, they were not having their diapers changed and they were in the system and all this stuff, and they. Terrible off. They weren't being cared for, so they decided to take 'em under, take 'em in. It was a, if anyone's ever been through an adoption process, it is expensive. It is very timely, costly. And at the end of the day, they spent over $30,000 to adopt these two children. And, the first thing as a tax advisor, my, just my alarm's going off of adoption credits and, things like that.

Looking at the prior tax return, they came to us. The adoption was finalized the prior year. The prior CPA did not even catch on that they adopted two children. They just put it on the tax return. There's two new dependents. Great. That's, that was at the time, it was probably $12,000 tax deduction or somewhere around there.

What was missed is the amount you pay for that domestic adoption. You can get credits against your taxes and they paid $30,000. We were able to amend [00:07:00] that return. and get a significant refund. I think it was nearly $28,000 of refund coming to 'em. And they just completely bypassed it. Missed, it was just a missed opportunity for $28,000.

So there's so many just small little nuances of the tax code like that, that the tax code is so burdensome and big and it is hard for one cpa, a sole practitioner, which is where she came from, to understand all those pockets. So that's why Mike and I we partner together because we can tackle more of the code, but also we have a team available to tackle code too, because it's too extensive for one person to sit in a cubicle and mull over.

It's impossible. And so seeing things like that, that just, that stirs my passion more and more because not only are, is it for a good cause, adopting two children in a bad situation. Oh my gosh. That's amazing.

At the time they were self-employed too, and it was, harder times for 'em too. And that $30,000, they were just so grateful for it. And so it was just seeing that, I just love seeing those kinds [00:08:00] of opportunities out there.

Mike Pine: What a great example. And again, there was just money hidden within the tax code overlooked. They didn't know about it, and it was life changing. That's another good example of why these incentives exist in our tax code. Those kids needed a good home. They needed parents that loved them, they needed safety, they needed shelter, and they found it through the goodness of our client.

And the IRS or the Congress had come together with a tax code that said, Hey, we will help you. If you do those things, it's better. Our nation is better for it if you do those things and here's some financial incentive to help you do those things. Now granted, we know the tax code in that particular case didn't give her near enough money to raise those kids, but it certainly helped for a little while, right?

Raising kids

Kevin Schneider: yeah. Oh

Mike Pine: a great

Kevin Schneider: yeah. And that's,

Mike Pine: in the tax code.

Kevin Schneider: yeah, you carry a lot on your shoulders and hidden this, these hidden money ideas are not going to solve all your problems, but it sure [00:09:00] helps. It sure takes that stress off if we're able to work alongside our entrepreneurs or just families who are having a unique situation to develop and create more cash flow for 'em.

Mike Pine: And this is how we were raised and grown up as CPAs when we went to college and accounting schools. It was all to be after the effect. It was, look at what they did last year and put the numbers on the right lines.

There's no value to add there.

And that's how so many people end. So many tax practitioners look at tax. But by proactively tax planning, you can change your taxes, you can change your footprint, you can change your financial freedom in real time before December 31st. Once December 31st has come around, you're gonna pay what you're gonna pay.

There might be a few adjustments you can make here, or an IRA contribution you can make before you file your taxes. But proactive tax planning is how someone should plan in general, I think for taxes. And Kevin said, everyone's got a different situation. So you can't just read Tax for Dummies and be ready to go.

You can't just hire one tax [00:10:00] specialist that's great in one area and be able to help all of you in all of your situations. One of the quotes that I've heard multiple times, and it's true not sure if it's exactly to the right decimal point, but less than one half of 1% of the tax code actually involves the levying or the assessment of taxes.

99.5% or more of the tax code involves and includes opportunities. It's incentives that our society, our Congress, the people of this country have come together and said, these are the things that we want to incentivize that will help our economy, that will help everyone in the economy that will improve our national security.

Like I've said many times, it is our patriotic duty to save as much taxes as we can to grow the economy and not watch the money just disappear and never land at the Treasury Department. All of those opportunities exist. They're hidden in the tax code. That's where [00:11:00] we come up with hidden money.

Kevin Schneider: And it's really cool whenever you see a client who utilizes different strategies combined together, because what we're gonna do is we're gonna talk about specific strategies, maybe real estate, oil and gas entity structuring or retirement, or we're gonna have a lot to talk about, about a lot of things.

But once you start implementing all these strategies or multiple of these strategies, then you're gonna start seeing a tax strategy snowball. You're gonna start seeing that momentum pick up. And I actually had a client last year. He was a high 10 99 earner. He made over a million dollars as a contractor.

So first step is I was like, you're gonna get hammered with not only income tax, but self-employment tax. So we got 'em into an S corporation, and we can get into what all that kind of entails later, but saving a lot on self-employment tax right off the bat. Through discussions with them, he had two rental properties he owned.

Then on top of that he bought a new truck. He works from home, all [00:12:00] these small things and they're not even small, but in the big picture we were able to utilize two real estate holdings that he had cuz he actively managed them. And he's a 10 99 contractor in real estate. So he's a real estate professional by nature.

So we were able to use his real estate holdings. We were able to S Corp him and save a lot of self-employment tax. Then we're able to bring in a new truck he bought for 70 grand. No truck is cheap these days. He bought a $70,000 truck, which is about normal. And we were able to utilize all these things that he had no idea about.

Real estate cost segregation and accelerated depreciation. And he didn't know about it. When he came to us, we were able to take all these moving pieces and put them together into a tax plan, saved him nearly over $300,000 and he was just floored. And so that is why. Mike and I get up in the morning

Mike Pine: kevin. So you had a client come in, he's already got his business. Businesses going on, his holdings going on. He didn't take any actual new [00:13:00] business action or transaction. He'd done all this and if he wouldn't have unwrapped and unpeeled, what hidden money was available for him in the tax code and met with you, you're saying even though he didn't change his business, even though he didn't change the fact that he already owned a truck, he didn't buy a new one, he didn't go buy new real estate property.

He was just sitting there. And if he would've just gone on without uncovering the hidden money, he'd have paid almost $300,000 in new tax.

Kevin Schneider: Bingo. He did not change a thing. He did not change the way he operates his business, his day to day. He didn't go loan more money. He had all this tax deduction and tax benefits sitting there, and he just had to tap into it and understand. And that just starts with knowledge. So we had to diagnose the problem.

He had a big tax problem, then we were able to diagnose that, and then we were able to administer the medicine and basically heal him. Could you imagine what he, he's just head over heels, right? 300 K in his pocket and he didn't have to [00:14:00] do a thing except find the right information.

Mike Pine: So Kevin, I have a good general question for you. Again, generally speaking, how should someone plan for taxes in general?

Kevin Schneider: What a broad question, I think a good place to start, first you have to know what the problem is. You have to diagnose just like a doctor, right? You go into a doctor, they're not just gonna start throwing medicine and pills at you. First. You have to know what the problem is, what are we attacking? And that's always gonna be the first.

Where's your income coming from? What's your income coming from next year, two years, three years from now? We have to be a little forward thinking here, but once we know what the problem is, do you have earned income problem? Do you have a high w2? Are you a 10 99 contractor for the first time?

Are you, do you have a really nice portfolio kicking off interest dividends, capital gains? Are you about nearing retirement when you're gonna hit some required minimum distribution issues? Are you invested Into some businesses that you don't manage? Is that passive income? Do you own rental properties?[00:15:00]

Everybody's different. But what's really cool is that the tax code is actually designed to help you not pay tax.

Mike Pine: but I would caution people, there's only, there was only a few things these people could do in the month of December and they had to move really fast. If they would've come to us or if they went to someone else that knows the tax code. That's a good proactive tax strategist versus a tax preparer.

There would've been a lot more things I could have probably done. This applies to anyone who pays taxes. If you're not paying taxes, you probably can't save taxes. Let's just be honest there. But if you are paying taxes, whether you're an employee, you own your own business, whether you're a partner in a partnership there are always ways to mitigate taxes.

It doesn't always make sense to sometimes. One of the sayings that we say around here a lot is you should never let your tax tail wag your business or investment dog. So sometimes they're great opportunity to save taxes and it makes no sense for you, but [00:16:00] you should know what those options are. You should be able to evaluate your options and your opportunities, and that's what this podcast is all about.

Kevin Schneider: What kind of challenges for 2023? We don't, we know covid happened, so it's impossible to foresee something could happen tomorrow and the tax coach could change overnight, just like in Covid. But what, as a present now, present day, what are some opportunities and challenges you see Mike, and how could we prepare for 2023 tax planning to start getting proactive about these hidden money ideas?

Mike Pine: I know you, my partner is not asking me to predict the future on something that's gonna be public never ever right? . Thanks brother. Whatever 2023 holds, whether we have a big recession, whether we come out of the recession, whether we have super high inflation, whether or not there are gonna be opportunities.

There's always opportunities. So I figured there's a few things that could happen, at least a few things that could happen in [00:17:00] 2023. Interest rates could keep going higher as the Fed tries control inflation. We could see hyperinflation if that happens. There's still gonna be plenty of opportunities.

First of all, Congress, one thing we can always trust with our politicians is they want to get reelected. Some of them really care about the country. I suspect a lot of them just care about their power. But regardless, they all want to get reelected. So if we have super high inflation, which is gonna slow economic growth greatly, they're gonna come out with legislation that offers more incentives.

There's gonna be opportunities and hidden money opportunities in that legislation. There's also gonna be, in a bad economy, great deals, you're gonna be able to buy incredible investments or businesses at great discounts. You're gonna be able to buy real property at great discounts. So we see hyperinflation and a stagnant economy or even a recession economy.

There's gonna be opportunities. Maybe we actually get this soft landing that the Fed's trying to. To land. If that happens, it's certainly a possibility. [00:18:00] There's still gonna be opportunities. So we're gonna be coming out and hopefully ready in position for some more great growth. Those are great opportunities.

There's gonna be, again, one thing I do foresee, if not in 2023, certainly by the 2024 election, there's gonna be tax law changes every time the tax law has changed. Anytime there's new tax law, there are opportunities to find your hidden money and keep it, whether they raise taxes, there's hidden money, they lower taxes, there's hidden money.

So I would say regardless of what happens in 2023, Kevin, there's opportunities and you should use it, leverage off of it. One of the things I'm so fond of saying, Don't be a victim to the tax code. Choose to take advantage of the tax code. Use it to your advantage. If you put your head in a hole like an ostrich and just hate the tax code away, it's just gonna take advantage of you.

You're gonna be a victim to [00:19:00] it. Don't be a victim. Take advantage of it. There's so many opportunities there. If it changes, there's more opportunities. If it doesn't change, there's still opportunities. So I see opportunity in 2023. What do you see Kevin?

Kevin Schneider: I see the same and I like what you just said there. Don't be a victim cuz what other area in your life can you just ignore? And it's gonna fix itself If you have an issue with your. Can you just, go on vacation or just lock yourself in a room and just go, I don't wanna even want to deal with this and it'll go away.

Taxes are scary. They can be.

But that's why when you have professionals, and that's where Mike and I can help, is if you don't have a strong tax strategist around you, if you've never worked with a cpa or you just don't want to deal with it or your current relationship is, I drop paperwork off at my tax preparer and then I hear from 'em a month later with a final result that you're not attacking anything.

We can be proactive and we [00:20:00] can grow our wealth using the IRS code. And that's. CPAs can help. So if you don't have advisor, if you don't have a strong tax strategist around you or a team around you, which we'll get into also is, you need that financial advisor, you need that attorney, you need that cpa.

We all play our roles. We all play our part to give you a good, strong outlook and financial picture and making sure you're taken care of holistically and not just in one area. So if you don't have one, please reach out to us. Our website will be in the sh in the description and notes. If you want to discuss with us, we'll be more than happy to talk about your personal situation a little bit, get to know you a little bit, and see how we can provide value to you and find those hidden money pockets that suit you and that can go to you.

If you do have a CPA and you like that relat. Cultivate that more. Get to be more proactive. Take ownership of your taxes. Don't just sit by and trust that they're doing it. They may be very good, they may, you may love that [00:21:00] relationship, but take the first step going, Hey, I want to meet with you on a quarterly basis.

I wanna meet with you on a semi, at least semi-annual basis. Talk about my year. Hey, what's new in the tax code? This is where my family's going. What can we do to utilize the tax code to in our situation? So just be more mindful of taking ownership of this tax dog that's sitting in front of us, and use it to your advantage,

Mike Pine: Amen to that. And again, whatever CPA you're working with or tax advisory you're working with I think of that Jerry McGuire quote, help me, help you. We can't help our clients if they don't call us before they enter into a large transaction. We can't help our clients if they won't respond to our emails or calls all year.

Your CPA can't either. You need to help them help you or help us, help you be in a good, constant bilateral relationship with your tax planning team and look for a tax planner, not a tax preparer. There's a big difference. A [00:22:00] tax planner, tax strategist can make a world of difference.

You think it's, you think I'm exaggerating when I say we probably saved over a hundred people, at least five or six digits in taxes. At least five digits just in the month of December alone that were new clients to us.

Kevin Schneider: I was meeting with five a day. You were probably meeting with five a day plus our team. Yeah, I think that's reasonable. And it, that was the beauty of it is even though it was in December, we're able to put the pedal to the metal and get some things in action before your end.

Mike Pine: That is awesome. We see that almost every single day if not every day, multiple times a week, hundreds of thousands of dollars in tax savings.

Kevin Schneider: Even if you are a straight W2 earner, an employee, not much you can do, right? You would think there are so many available options to you and significant options not. I'm not talking, we're gonna save a few thousand dollars on tax.

I'm saying we're gonna save tens of thousands of dollars of tax against your W2 income while [00:23:00] investing into opportunities that are gonna grow your wealth, which is the big goal here. Our goal here is wealth growth. While we are saving taxes and the tax savings are gonna really expedite your wealth growth cuz you're able to take the savings today that you save on tax and you're able to redeploy that either into another investment or to grow your business or something along those lines.

So the time, value, money is so powerful. So if we can save you 30, 40 grand today in tax, that is worth. Reinvesting that and growing that on a multiple. So that is also what I'm really passionate about, is just how much can I solve today to save you tax, to grow it? And then next year there's gonna be probably new tax law, new opportunities your business might change.

This, it's a living and breathing kind of tax plan, right? We never just set a tax plan and go and set it. So it's constant communication. Proactive communication.

Mike Pine: And again, whatever CPA you're working with or tax advisory you're working with I think of that Jerry McGuire quote, help me, help you[00:24:00]

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