Listen Here
Ted Lanzaro is a highly recognized and respected Certified Public Accountant, real estate investor and real estate broker. He is the founder of Landmark CPA Group, a boutique CPA firm specializing in accounting and taxation for the real estate industry.
For the past 31 years, he has helped thousands of real estate business owners, entrepreneurs and investors all over the United States implement cutting edge tax strategies that save them thousands of dollars annually on their taxes.
Ted runs the Lanzaro Commercial Investment Group which does investment acquisition and disposition for real estate investors and private equity firms as well as his personal investments and syndications.
Today he shares with us how it is important to put tax strategies in place within the year and safeguard it because planning is where all the tax benefits and wealth comes from!
Listen now to Ted’s incredible discussion and take notes of his top tax strategy secrets!
In This Episode
- Ted’s background, and how it started for him.
- The structure of Bonus Depreciation.
- Top Tax Recommendations and Opportunity Zones.
- Ted’s Top 3 Tax Strategies
Hey everyone, welcome to today’s show on Wealth Strategy Secrets. Today, we’re joined by Ted Lanzaro. Ted is a highly recognized and respected CPA, real estate investor, and real estate broker. He’s the founder of Landmark CPA Group in Fairfield, Connecticut, a boutique CPA firm specializing in accounting and taxation for the real estate industry.
For the past 31 years, he has helped thousands of real estate business owners, entrepreneurs, and investors all over the U.S. implement cutting-edge tax strategies that save them thousands of dollars annually on their taxes. Ted also runs the Lanzaro Commercial Investment Group at EXP Commercial, which does investment acquisition and disposition for real estate investors and private equity firms, as well as his personal investments and syndications.
Ted, welcome to the show.
Yeah, thanks, Dave. Thanks so much for having me. I appreciate you having me on today.
You bet! Really looking forward to this conversation. Look, it’s October of 2022 as we record this, so taxes are definitely at the forefront of people’s minds. As they look towards the end of the year, how can they prepare themselves and optimize for 2022, as well as get prepared for 2023?
I really appreciate you coming on the show. Maybe we can kick things off with you telling the audience a bit about your background. How did you… I’m actually from Connecticut myself, so I know exactly where you are. Tell the audience a little bit about your background, how you got into taxes, investing, and real estate, and how it all started for you.
Yeah, so it’s kind of interesting. I grew up in Stamford, Connecticut. When I was a kid, my mom and dad moved us down to the Boca Raton/Delray Beach area of Southeast Florida, and I—that’s where I started my real estate investing career. When I graduated from college, I went to work for a CPA firm there in town, and I was basically putting in a lot of hours and learning the business. I was primarily working with real estate clients, high-net-worth individuals, developers, and homebuilders, because that’s what there was in South Florida at the time. There was basically tourism, farming, and real estate, and those were the primary economic drivers.
As I moved through and started getting more experience, I started realizing, “Hey, these guys are really making money.” Some of these guys are doing syndications for basically shopping centers and industrial buildings back then, even as a—you know, this goes back to the early 90s, right?
So, fast forward to about the year 2000, and a friend of mine from high school approaches me and he says, “Man, you’ve got to read this book, Rich Dad Poor Dad.” Right, yeah, this is a book that’s launched, you know, like all these investment careers, right? So I’m like, I look at him, I said, “Yeah, we really should get into this.” I’m telling you, the guys that I work with, they’re really making money. We should definitely get into this.
About a week later, we went out to look at houses in Fort Lauderdale. We ended up putting three houses under contract that day, right? And that was the beginning of our real estate investment career. I mean, basically, we were using the buy, fix up, and rent model that has become pretty popular.
Those were our first three deals—three single-family houses. I think, you know, a lot of people started out that way. Well, after, you know, over the next two years, we ended up buying something like 60 units because we ended up buying a handful of more single families, and then we bought three garden apartment complexes, you know, 12 to 18 units each. There’s a lot of those down in Southeast Florida.
We got to about 2005 or 2006, and I was like, I was telling you, in 2005, we ended up having a couple of hurricanes. I wanted to basically go back to Connecticut. I had just had my first son. So, what ended up happening is that was about the same time that the mortgage—everybody, if you could buy a mirror, you could get a mortgage, right? So, quality tenants were getting harder to find, but good buyers were, and pricing was going through the roof. So, we ended up— as we exited the single families, we were able to sell them at a pretty nice price. I ended up selling my piece of the apartment stuff. I think my buddy still owned these apartments, by the way. Right, right. So, they bought me out, but during that period of time, I started networking and going to real estate investment club meetings.
Somebody found out I was a CPA and they were like, “What tax strategies are you using, you know, on your own investments?” So, I started telling them about it, and they’re like, “You need to get in front of the room and talk about this, you know, for our group.” I had never done a presentation before, and literally, it was the first time I had ever done it. I got up in front of the room, my knees were knocking, and I spent the next hour, you know, reading off of my PowerPoint slides. But at the end, everybody clapped, and I got a few clients. And I was like, “Okay, well, you know, this is kind of interesting.”
Fast forward to today, I literally do probably two or three dozen presentations a year, you know, webinars, live stage talks to real estate groups. So, it’s actually become almost second nature, but back then it was scary, you know?
And then somewhere during that time, cost segregation became a big thing, you know? And I remember one of my partners—had a partner for a while—and he was part of the group that testified in front of Congress as to what these depreciation rules would, you know, what economic effect would they have, what effect on the real estate industry would they have, when they implemented these cost-seg rules, right? And back then, the big thing was you were taking essentially—you were breaking up a 39-year asset, and bringing some of the pieces down to five years or 15 years. And people thought that was amazing, right? No one knew about bonus depreciation, right? You know, just, “Hey, we’re going to be able to take 20% of this building and depreciate it over five years instead of 39 years.” That’s amazing, right? It was really, you know, kind of a very interesting strategy. Now, everybody’s like, “Oh, bonus depreciation’s going away.” You know, a long time ago, we got a little spoiled.
Yeah, no, that’s a really great story of how you got into it, Ted. You know, I always find it fascinating—almost everyone in the space took that purple pill and read Rich Dad Poor Dad or The Cash Flow Quadrant. That was the same for me, and you know, it was really so insightful in terms of really understanding how money works. Right? Because nowhere, you know, is that concept taught in any educational fields or anything.
So, once you kind of learn that and get your head around it, it’s quite powerful. The next trick, though, is trying to put it into action, you know, which takes some work.
Right, and you know what I always thought was the most interesting—and to this day this still happens to me—so in the book, he talks about looking for opportunities, and if you have a, you know, kind of an opportunity mindset, you’re going to be looking. So, to this day, and it’s been a while, and so I got after, when I moved back here to Connecticut, I started basically just like flipping houses, and I was also like renovating multi-family, stabilizing them and selling them. But I really didn’t want a landlord anymore, so my business was more, you know, fine-fixed, stabilized and flipped, right?
But what that book taught us was every time I passed a crappy building, I’m like, “Oh, what’s that?” Or if I see an empty building, I start thinking about what could be done to that building, right? You know, and so it’s like that mindset of looking for opportunities. And the same thing from a business, because the book, you know, business wasn’t all about real estate, it was about businesses too. Like, when you see an idea or you see something that you know needs a solution, and you feel like you could provide that solution, you know, starting that business.
So, that was the genesis of my conversion, my commercial brokerage, was my client saying to me, “Hey, we can’t find properties.” At a time when I was finding properties and buying properties and flipping properties, right? So, I’m like, I’m using my broker’s license to do this for myself, why not start doing it for other people also, right? So it started small. It started basically just sourcing, you know, small multis and stuff for people, small single-family houses for them to flip, and it’s turned into now where we’re brokering a handful of apartment buildings. We’re helping people find buildings. I’ve got right now, I’ve got three mobile home parks in my portfolio of mobile home parks that we’re marketing for a client. So, it’s the, you know, that book was amazing from the standpoint is it taught you how to recognize opportunities to make money, not only in real estate but in business also.
Yeah, absolutely, Ted. And one of the big insights I gleaned from that as well was that the top one percent are really aligned to the B and the I side of the quadrant, you know, being a business owner, right, and then also an investor. In that sense, you’d be most optimized to take advantage of taxes. So, when I read that and understood that, I was looking for opportunities to, you know, become a business owner, become an investor. This all started for me in about 1999–2000, also when the book had just come out.
Shortly thereafter, I started a business, and, you know, being a business owner is where I really learned about taxes. I learned about them also as an investor, right, getting, you know, depreciation benefits and such. But as a business owner, I really struggled, right? I built three companies over the past 20 years, and I went through this journey where I knew there was some type of tax Nirvana out there. Like, I was just determined to find it. But I can tell you, Ted, I literally fired five different CPA firms over the years. We worked with some prestigious firms, and, you know, the checks that you wrote to them got bigger and bigger, but the results were always the same, right?
I find that the majority of the industry is really looking at taxes, you know, in the rearview mirror, saying, “Give me all your statements, tell me what you did, this is what you owe.” I had two really big frustrations. So, number one was not understanding what my taxes were at the end of the year, right, what my liability was. So, how could I plan a business? And then, you know, you’d get crushed in cash flow, you know, come April time when you had to pay. Secondly, no one really proactively created a strategy for me around my taxes.
So again, I went through this journey of going through all these CPA firms until I finally found the right one that really understood, you know, business owners and investors. We could then create a proactive strategy around, you know, building wealth and, you know, how you take that forward.
So, can you tell us a little bit about why the industry is like that? And, you know, also, Tom Wheelwright’s book was, you know, such an eye-opener for many of us, right, to realize that the tax code is really 6,000 pages of… it’s a roadmap of incentives for business owners and investors who understand how to utilize it. But if you don’t understand how to utilize it and position it, then, you know, you’re really just paying your taxes like everyone else.
Yeah, I mean, so that’s another great book. Tom Wheelwright’s book is very, very good. I was fortunate that when I started, I had some really good mentors who, you know, taught me tax planning. Right? Like, the first CPA I ever worked for, he was really big on tax money and taught me the proactive side of the business. I think a lot of CPAs make a living literally putting numbers on forms, but the ones that have the ability to look at situations and say, “Hey, look, if we’re proactive about this, we’re going to save you money.” So I’m telling people all the time, right, that the key to tax savings is to be proactive and organized. Right? Because I think they go hand in hand. If you don’t keep great records, then it’s very hard to be proactive because you don’t know what your numbers are.
So I’ll just give you an example. We just got done with the September 15th deadlines. My partner works on most of the personal returns, but I do all the hardcore planning, and that’s what we’re doing now. So right now, and all during the year, but specifically right now, we’re looking at our clients’ numbers—all of the business owners—and saying, “Where are you at as of the end of August? Where are you going to be at the end of September?” Right? And throughout the rest of the year, all I’m going to do is tax planning. I’m going to put things in place during the year to help my clients save money come April 15th. Because most of the stuff that…
So you’re right. Most of the good tax strategy happens during the year, and from a real estate investor perspective, we have a thing we call year-round tax planning. That’s what we do for a living. I’m not a tax preparer. I’m a strategist, and we do year-round planning with our clients. I’ll give you an example. I tell my real estate clients I need to know before you buy, before you sell, and before you renovate a property. The reason I want to know that is because there’s a whole bunch of strategies I’m going to help you implement on all three of those things. But also, there are things I’m going to need you to do while you’re doing those things in order to safeguard. So it’s not just about putting the strategy in place, it’s safeguarding it. Because sometimes, and in a lot of cases, you’re working that roadmap that Tom Wheelwright talks about, but you also need to be documenting the things that you’re doing so that if it ever gets looked at, you can say, “Well, here’s my backup.”
Yes, I’m taking real estate professional status. Here’s my log of hours. Or, here’s all of the before-and-after pictures of this renovation that I’m doing. Here’s all the stuff that went in the dumpster. You can see that that stove that was there in the before picture is not in the after picture. I threw that stuff away; therefore, I’m entitled to deduct it, right? So, you know, if I haven’t already fully depreciated it. So, it’s all of those kinds of things that we’re talking about with people all during the year and encouraging our clients to be communicative. That’s the big thing: to get them to tell us what they’re doing.
But the planning is where all of the tax savings come from in all the wealth building. Right? Because we’re looking at people’s situations and saying, “Hey, if you do this now, you’re going to be able to save some money.” Now you can put some money away, and you’re making sure you’re maxing out your retirement plans, for example. Right? Even the self-directed ones. Because people—like, I’ve got a lot of clients, some real estate investor clients—they’re like, “Oh, man, I don’t want to lock my money up in the stock market.” No, self-directed. Right? You’re still building wealth. You’re still putting that money away. You’re still getting the tax control. Right?
So it’s all of those kinds of things that we want and help people do during the year that save them. That ends up being the reduction on their bill on April 15th.
Yeah, absolutely. And I think another real key piece of advice is, you know, part of this journey is really taking, not only being proactive and having a great CPA such as yourself, right? That looks at things, does planning on an annual basis, like you say, but a lot of this is awareness. Right? When you look at the top wealth destroyers that are out there, taxes are number one. Right? However, no financial planner or no one talks about, okay, if taxes are your number one biggest wealth destroyer, what are you doing to mitigate them? Right? What are you doing as part of a strategy?
So part of this is taking an active role yourself and understanding the taxes and the strategies, just like you were talking about, so that anytime you do something, you structure it in a way that’s favorable, right, to you. So I think about, even on a daily basis, whether, you know, whatever, whether you’re going to buy a new vehicle, whether you’re going to go on a vacation, maybe you can tie that into, you know, a business trip. Or, you know, we’ve talked about going internationally and we have an international real estate property, right, that we go to. Right? So we get some advantages that way.
But, I think it’s really important for people to take an active role and have some ownership, you know, in your taxes if you’d like to reduce them, instead of just, you know, waiting every year and then sitting down with your tax preparer and again having them prepare your taxes. You know, you want to be actively involved.
Right, yeah, no, absolutely, you’re absolutely right, and you brought up a good point, which is that whole idea behind, the, you know, creating situations where things that you’re going to do and going to spend money on anyway, you figure out a way to give a business purpose to, so that you can deduct some or all of it. Right? And it’s not just looking at it from, you know, this year.
Right, so I’ll give you an example. I was in, I was in Summerlin in June speaking at a conference and we were talking about, is where is everybody going to be when the deals that you’re taking bonus depreciation on in 2020 and 2021, when you go to sell them as deals in 2025 and 2026 and bonus depreciation doesn’t exist anymore, where are you going to be? And I made a comment that everybody kind of laughed at, but it was a serious comment, which was, I bet you there’s, I bet you there’s a hundred billion dollars in deferred bonus depreciation just sitting in this room right now.
So what’s gonna happen? So with my operator client stuff, we’re already looking at that style right now. We don’t, we’re developing a plan, right, because we don’t really know what the code is going to look like then. I mean, so we have to develop a plan based on what it looks like now. What it looks like now is pretty bleak, you know, it looks like people are going to be paying a lot of taxes in 2025, 2026, 2027.
So how do you go about mitigating that? How do you start thinking about that scenario where, you know, all of these 2021 syndications that run their five-year, typically their five-year course, right? You know, when you can’t turn those and then go just put your money in another deal and get the bonus depreciation to offset the capital gain, where are you going to be? Right now, there’s not a great answer for it. So we’re talking with our clients about, hey, you know, this is what this is going to look like down the road, this is how much money you may need to have down the road.
But also looking towards, okay, now what things are we going to be able to do and put into place for those years to try to minimize that? So it’s both, it’s short-term and long-term.
Yeah, no, great point, Ted, and maybe you can elaborate a little bit because I know there’s a lot of confusion out there too in terms of depreciation recapture. Can you just talk about the structure of how that works?
Yeah, I mean look, it’s common. I mean, it is reasonably complicated, but the basics are that the bonus depreciation, and if you’re a real estate professional active in deals and you’re taking bonus depreciation against your earned income, or you’re taking the deduction for it, it’s not a complete wipeout of any tax liability like a 1031 exchange would be. It’s a deferral, and it’s a deferral until you sell the property, at which point you have to recapture. So if you take a hundred thousand dollars of depreciation against your earned income in 2021, for example, and then the deal sells in 2026, you’ve got to pick up that hundred thousand dollars of recapture. That’s the basics of it, plus any gain you have on the sale.
What people have been doing is they’ve been doing that with their syndications that they’re selling in 2021, but they’ve been doing it with new deals. The bonus depreciation on new deals wouldn’t be there then. So the thought process is, okay, well, do I have a plan for that? Part of that plan is accumulating some dollars in case you have to pay the taxes, and the other part is trying to figure out, okay, well, if I’m still in the business, if I’m still doing this business, then I can still get regular five-year and 15-year regular depreciation on my new purchases. I just won’t get that big bonus in it. How is that going to affect it? How much more property do I have to buy?
We typically will tell people, like I’ll give you an example. If somebody has to defer a million-dollar gain now this year, let’s say they sold something in 2022, and they’ve got to defer a million-dollar gain, okay, go and buy a five-million-dollar property, go buy a five-million-dollar apartment building. About 20% of it, give or take, is subject to bonus depreciation. You get a million dollars’ worth of depreciation on it, your off-the-billion-dollar gain, and you’re at net zero at that point.
Okay, well, if you’re talking about that same scenario in 2026, you know, it’s a completely different story. Now it’s either, well, we’re going to do the identical strategy, but we’re only going to defer a couple hundred thousand of it, or you’re going and buying a 20-million-dollar building to be able to do that. You know, that’s a big task for anybody. I mean, that might not even be possible for most people.
What if everything you thought you knew about investing was wrong? Would you like to create a wealth strategy like the top one percent have and get exclusive access to top private equity deals that provide downside protection, tax efficiency, predictable cash flow, and have a lucrative upside? Discover how with the Pantheon Advantage and join our investor club today at pantheoninvest.com.
Good point. Do you have any other strategies that you could recommend? We have a lot of business owners that have done exits and are looking at large tax liabilities this year. Any other strategies you could recommend?
Yeah, I mean for the business owners, it comes down to their situation. We’re always looking to try to, if somebody sells their business, what else can they do to get their other income down? Ideally, you would sell your business in a year where you have the lowest possible taxes, and if you’re trying to develop an exit strategy in advance of that, that’s what you try to do—you minimize everything else.
But as an alternative, I have somebody who’s coming out of a situation where they sold stock in a business they helped develop. Now they’re getting out of it, but they also took a $700,000 loss in the stock market over the last three months. They were in a situation where they were heavy on margin, and as the stocks were coming down, they had to sell stocks to cover their loans. So, they have a $700,000 loss, but now we’re going to use that. It exists—it sucks, but it exists. That loss will help offset their situation.
It’s the same concept as trying to use bonus depreciation against a business capital loss. If you qualify as a professional and you’re active in a deal, that’s another type of income you can use to offset, even from the sale of a business that’s not real estate-related.
Regarding Opportunity Zones, there are other strategies like 1031 exchanges and Opportunity Zones. One of the coolest things I’ve seen recently is the Deferred Sales Trust (DST). You can sell a business and put the proceeds into the DST, assuming you’re willing to give up control of the money. It’s like a 1031 for businesses. You can take the money out and pay taxes on it as you want. For example, you could defer a $10 million gain and take a few hundred thousand out each year and pay taxes on it.
That would help avoid taking a huge hit in the first year, but you’re giving up control of the money. Essentially, you’re putting a financial advisor or trustee in charge of your net worth.
Right, we also had the opportunity this year, Ted. We have a new partner in oil and gas, and that’s been a fantastic investment that’s yielded an offset to active income because we have a lot of investors who are high-income earners. They’re able to offset with that, and they have a 1031 exchange set up in the oil and gas fund for 2023. Any thoughts around using oil and gas and energy-type investments to offset active income?
Yeah, I mean, look, I hear a lot about that. I personally don’t know very much about that at all. I’m pretty real estate-centric, and I kind of like it that way. You know, the same way I… So, I think if you want to do that, just know the facts—know what you’re getting into—and maybe find somebody who is an expert in oil and gas investments. Put them on your team. Even if they’re not your primary tax advisor, they can help somebody like me. That’s what I would do with a client. If somebody said, “Hey, I’m getting into oil and gas,” I’d say, “Okay, let’s find you an expert,” the same way we might find you an expert on crypto or something like that. You know, I’m dealing with some people who have canvas investments, right? So, okay, let’s find somebody who knows that business.
There are two things I think everybody needs to understand: one, if you’re a specialist in everything, you’re a generalist, and you’re a specialist at nothing. It’s an effective way, right? You can’t know everything about everything. It’s not possible, right? So, what I would suggest is that whatever asset classes you want to invest in, you find somebody who is an expert in that area. Just the same way people who do real estate search me out, there are people who are experts in each of those things. They should be on your team. I have no ego about working with other professionals because the goal is always what’s best for the client. Does that make sense? Yeah, and you can’t possibly know everything.
Right, no, that makes sense. We talk about that as part of our overall wealth strategy—building a team around you to support you. You want a team of specialists who understand their particular domain expertise.
Right, so you can get the most value. Everything is about building a great business quickly. Be a specialist in something—know everything about one thing—and then don’t worry about the rest. People approach me all the time about doing tax work for cannabis businesses or other types of businesses. Maybe I’m just an old dog who can’t learn new tricks, but I tell people, “That’s great, let me refer you to someone who knows that business.” Sometimes, even if I don’t know someone, I’ll search them out and qualify them for people. But I won’t take on something that’s completely outside my realm of knowledge.
Yeah, makes sense. So, Ted, we have a lot of accredited investors in our audience—people who are getting into syndications and private equity. What would you recommend in terms of, let’s say, your top three tax strategies for that type of profile?
Okay, so the first one is just recognizing that if you’re going in as a limited partner and you’re investing in a syndication, especially if it’s a real estate syndication, and they’re promising you bonus depreciation, you really need to kind of like the idea of tax-free cash flow and not so much work. You may not be able to take the bonus depreciation if you don’t have other capital gains from real estate or other active rental income. So just get used to the idea that effectively what you’re doing is building tax-free cash flow, and that tax-free cash flow is actually lowering your marginal tax rate.
Okay, so if I make $100,000, for example, and I live in California (I use this as an example because the math is easy here in California) and I work in tech and make $500,000 a year, I probably pay about $200,000 in taxes, which is 40%. Let’s say I’m able to use the money that I’ve accumulated from making that kind of money every year and I start investing in syndications. I build an extra $100,000 in cash flow from syndications. So now I make $500,000 from my job and $100,000 in passive cash flow, so I really make $600,000 a year, but I’m still only paying that $200,000 in taxes. Why? The extra $100,000 is not subject to tax under most circumstances. So, what did I just do? I just lowered my marginal rate from 40% down to 33%.
Understanding that and building a pool of those kinds of investments to bring in that tax return is actually a good thing, even if you never take the depreciation. The other thing, though, is for people who, especially kids and soldiers, are not maxing out their 401(k)s or SEP plans or whatever for their businesses. If I can’t, but I have this pool of money, let’s say I’m in that exact same situation (I’m at $500,000 from a business), and now I’ve created this $100,000 of extra cash flow, well maybe I can’t get that tax-free. But if I take 50% of that and I max out my SEP, which I hadn’t done before, myself about the Adventure plan, not only did I create $100,000, but I just created a $50,000 tax deduction with that money. Does that make sense? So, that’s like a double whammy.
Now, let’s say I’ve done that over a few years. This will be the third one. Let’s say I’ve done that over a few years, and I’ve created this self-device. It’s called a self-directed SEP for a 401(k) or retirement plan. So now I can go in and invest in other simulations using that money, or I can invest in other things that may have capital gains. Maybe I’m doing some… maybe I invest in the other communications. Now I’ve got the cash flow coming into my retirement account also. So what did I do? I created a pool of tax-free dollars that exists over and above my earned income, and I used part of it every year to fund my IRA or my SEP or my retirement plan. Then I invest that money in other syndications that put tax-free cash flow into my retirement fund.
Okay, so now I’m just triple-winning. I’ve lowered my marginal tax rate by investing in the syndications to start with. I’m using it to fund a retirement plan, which gives me a deduction on an annual basis. And those investments are earning tax-free cash flow inside my retirement fund. Does that make sense?
Yeah, that makes sense. Let me just throw something in there, contrarian to that, and you can help me with this. So, if you’re putting money into a SEP or really any other type of qualified plan, you’re deferring taxes. One of the things I just don’t like about this strategy is you’re deferring taxes into retirement. So yes, you get a break that year, but I don’t know about you, but it seems that taxes are likely going up by the time you hit 60, 59 and a half, and you can start taking funds out.
Not to mention, you have RMD requirements, which you have to start utilizing at that point. So, it seems that you’re just pushing those taxes, kind of kicking the can down the road, and you’re going to pay a higher amount of taxes in the future.
Well, so, potential, right? But think about this: If I’m making five hundred thousand dollars a year, I’m already in the top bracket. So that fifty thousand dollar deferral from 500 down to 450 is probably pretty close to a forty percent benefit.
Yeah, so now I get down the road. If I’m in my 50s, I have a shorter window until I hit the RMD, right? But if you’re in your 40s or 30s and you’re making great money, like a lot of these people are, you have that long deferral time. But, two, when you come out of that, most people won’t be making 500 thousand dollars a year anymore when they get to 70 and the RMD scenario. They’re probably retired, and their income is likely going down. Even if rates go up, the amount of money that they’re pulling out on an annual basis is probably being taxed at a lower rate. So, think about this: They saved it at 40%, and they’re pulling it out 15-20 years from now at 25%. They’ve got that years of deferral and the arbitrage from the difference between the 40 and the 20.
Right, good point. I think that’s where a lot of this comes down to having someone great like Ted on your team because everyone has an individual situation.
You really want to optimize that for your own strategy and see what makes sense. But yeah, I’m tracking you there.
Yeah, well, that’s a great point. I literally start every live presentation that I do with a slide that says, “Everybody in this room is different,” and each of you has a different tax situation. What works for you might not work for me, and it all depends on a whole bunch of different factors.
Tax strategy is like when you go out and buy a suit off the rack or even go to a tailor. Too many people are doing strategy off the rack, you know, a “one size fits all” kind of deal, when the reality is that tax strategy literally needs to be tailored to the person’s specific situation—and, to some extent, sometimes their goals.
One of the funniest things that I see out there—and I say “funny,” but it’s really not—is people who do such a great job with their taxes that they can’t get a freaking mortgage to buy a house. Literally, they might have a balance sheet where they have ten thousand dollars of net worth, but they can’t show a hundred thousand dollars’ worth of income.
Yeah, 10 million, right?
Yeah, 10 million in net worth, but they can’t show a hundred thousand dollars of income to buy a house.
Right, it completely tricks up the standard mortgage lenders and such.
Right, no, it’s 100%.
And the other thing, Ted, I mean, this is really great dialogue. I think one thing I’ve learned, as much as you want to take that active role and be proactive, is that things are very customized to yourself. It’s also important to be cognizant not to have the dog’s tail wag the dog. In that case, you’re chasing optimization so much that you lose sight of maybe the upside of a particular opportunity or strategy that works for you over the entire life cycle of your strategy.
Yeah, well, people will ask me—this is the time of year I get a lot of these kinds of questions—like, “Should I buy something? Should I buy this? Should I buy that? Should I pick depreciation? Should I buy a big truck?” Do you need a big truck? What are you going to do with the big truck?
Does the big truck make you money? Because if you can save me, “Hey, I’m going to buy a big truck, and by having that big truck, this is going to make my work easier. It’s going to make me more efficient, and I think that big truck is going to produce X amount more revenue as a result.” You know, with construction—I do a lot of construction work also, and a lot of people are into real estate. It’s like with the equipment: Do I need to buy a loader? Should I buy an estimator? How is that going to make you money? If it’s going to make you money, buy it. But otherwise, all you’re doing is spending a dollar to save 40 cents. So in that scenario, just give the dollars to me, and I’ll give you 40 cents back. Right? Then we’ll worry about it.
But that’s the thought process. Here’s an example of the tail wagging the dog: People get so worked up about tax savings that they’ll go out and buy things they don’t even need in order to save a couple bucks on taxes. But they don’t realize they just spent $40,000 on something to save $10,000 or $15,000.
Right, yeah, it’s an important note.
Ted, anything else that we should advise the audience in terms of things coming out in the future? I know we’ve got the Inflation Reduction Act coming out. Any advice you’re giving clients right now about what’s going on? Obviously, bonus depreciation is sunsetting; I think most of us are aware of that.
That’s the biggest one because I think it has the biggest economic effect. Look, there’s probably going to be tweaks along the way, and what I would tell you is to make sure you’re working with somebody who, you know, is keeping track of that stuff. You know, I’m tracking this stuff all the time. I have, like, you know, the little alerts and whatever set up on my computer so that any news comes out about tax stuff, you know, it hits my, you know, hits my computer and I find out about it. I read this stuff.
So you want to be working with someone you’re confident is paying attention, because a lot of people don’t. A lot of preparers don’t. And, you know, they find out about it, you know, when they do their required annual filing, and then sometimes maybe it’s, maybe not too late to implement it. But, you know, you’ve got to be watching all that stuff. Just as an example, look at the look at the Exodus that PPP went through, all right, during COVID. Right, where, first, it was going, you weren’t going to be able to deduct the wages, right, and it was going to be forgiven, but there was this big process. Then, and then they realized, “Oh my God, we don’t have the amount of people necessary essentially to be able to even process the paperwork to actually defer these loans, you know, or to make these loans, forgive it,” right, to forgive the loans. So they said, “Okay, everybody who got less than this amount, fill out this one-page piece of paper,” right.
That was the progression. And, oh, by the way, now we’re going to let you, you know, now we’re, now we’re not only going to forgive the loans, we’re going to let you deduct the wages, right? So that kind of progression, watching what’s going on, right, those kinds of progressions make a difference. You need to be paying attention to that kind of stuff. And the reality of it is, is most high-net-worth people are, right? Because they’re the ones who, they got to be high-net-worth people for a reason, right? They pay attention to stuff.
Great, Ted. Really appreciate you coming on the show today and providing so much value to the audience. If anyone would like to, you know, reach out and learn more about what you’re doing or connect with you, what is the best place to do so?
So, yeah, well, I have a website, www.landmarkcpagroup.com, and you can learn about, you know, our tax strategy. You can get my book, The Tax-Month Landlord, there. We have, you know, articles and all kinds of stuff there, so that’s a good place to start.
There’s also a “Work with Us” page where you can go and fill out a little form that tells us about you and then set an appointment to have an intro conversation with me about your situation.
Look, we don’t take everybody because there are people who we really feel like we can make a huge difference with, and those are the ones we take. Then there are people who, like, you know, if you’re a W-2 employee who’s investing in syndications and you’re not a real estate professional, you’re not active in the deal, so your losses are just gonna carry over. Those people we take on—we look at it from a selective basis—but there’s no magic there.
So, I like to take people as clients who, you know, who like to do magic for it, right? And, you know, there’s only so many hours in a day, and you want to try to get the most results for people with those hours. So, that’s kind of how we approach it.
Great, really appreciate it, Ted. Great dialogue, and I look forward to connecting with you soon. Thanks again.
Thank you, Dave. Thank you. Have a great day.