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- [00:00]
A
My name is Rudy Moore, host of Living the Red Life podcast, and I'm here to change the way you see your life in your earpiece every single week. If you're ready to start living the red life, ditch the blue pill, Take the red pill. Join me in wonderland and change your life. What's up, everyone? Welcome back to another episode of Living the Red Life. Today we're going to talk about some very important stuff that most entrepreneurs suck at. So you're going to want to tune in. Mark's here with me. He's a bestselling author, a massive podcast, true expert at this, been doing it for many years. He's helped consult over 10,000 small business owners on tax tax strategies, which we're going to dive into. His company is firm, sets up a new LLC every 15 minutes. Yeah, this is the foundations of business that most entrepreneurs get. That's going to cost them probably hundreds of thousands, if not millions of dollars over their lifetime. So I wanted Mark on to come help you guys save a lot of money. And when you save it, will remember me because you can send it my way. Mark, welcome to the show.
- [00:59]
B
Rudy, thanks for having me. This is such an important topic, and I honor you for talking about the topics that are kind of people think are boring or complex. We're going to break it down.
- [01:08]
A
I think these topics are boring just to open up until you start paying hundreds of thousands in taxes, and then you go, okay, I got to pay attention. It's kind of like your health in your 20s, 30s, you don't worry, right? And then you start getting sick to the doctors, get bad blood pressure, and he says you're going to die early, and you go, okay, go worry about it now. So that's why we're here.
- [01:28]
B
Yeah. It's funny. You go hang out at a dinner party and talk to rich people. They love to talk about tax strategies. They're like, oh, yeah, I'm doing this. And, oh, I'm doing this because that's what moves the needle. It's easier to save money than make.
- [01:40]
A
Money, you know, especially once you get going. I mean, even my own journey, we work so hard as entrepreneurs to get the business off the ground to start making money. And then we hit, you know, hopefully everyone in business hits this point where you reach way over the average salary. Now you're making way more than you spend to live. And you've got all this money mounting up. You want to invest that, you want to do something with it. You probably learned from books and podcasts that you shouldn't just sit and. With millions in your bank account, right? You're trying to get it out, invest it. So let's dive in, right? We're going to talk about three or four advanced strategies to help small business owners with that, you know, tax strategy and being. Being smart with their investments and stuff like that. So how do they start doing this? What's your experience? You want to start with an overview?
- [02:26]
B
Yeah. Well, it's funny you say that, because my first tip and everybody, this is absolutely critical. We're going to go through four today, and I'm going to freaking wow you. I want you guys making money today on this podcast. So the number one is captain your ship. So many people think as a small business owner, I'm like, oh, I'm going to find that perfect accountant. I'm going to find, and then I can just not worry about it, you know, I'll just find an accountant and then I'm all good. No people. I was just talking to Rudy before the show, and he's like, yeah, I was teaching my accountant another strategy because he is engaged, I am engaged in learning about my situation, even though I serve thousands of clients. And so when you captain your own ship, you have a visual picture. I call it a trifecta. You got a structure with your operations on the left, your assets on the right, and it all flows down into your 1040, your revocable living trust. Now, if I just said something that sounds weird to you, you're not captain your ship, so make sure that you're learning cool strategies and you don't have to do them, but you have to be able to talk about them and make sure that your professionals are doing them. And if you're not, you're missing out, because it is your ship. You get to decide where it goes. And if your first mate's not doing it, throw them over.
- [03:37]
A
Yeah, I love that. And I think this is the reality that I learned most basic. Accountants and even attorneys don't know this stuff, right? And we are fooled by society to think in life, doctors, accountants, and attorneys all know their stuff. Just like any other industry. You have really good ones.
- [03:59]
B
You have average, a lot of average.
- [04:01]
A
In the middle, and then you have some crappy ones, right? And it's like you get. You get. You have a certain level of trust that you probably shouldn't. Because if you hire a builder, you're watching what they're doing, and if the kitchen's coming together and the sinks upside down, you say stop, right?
- [04:18]
B
Yeah.
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A
That's encountering us don't do that. Yeah.
- [04:23]
B
And that's a great example. So here's your action item. Then we'll go on to. Tip number two is that when you're learning and I've got a great podcast that makes this simple, the Main Street Business Podcast, and I write on this regularly to keep it simple is that when you know the strategies, just knowing the strategies will tell you if you have an average accountant, a crappy accountant or a tax lawyer, whoever, or a good one by just knowing what they're talking about. If you say, oh, I want to write off my home or I want to write off my travel or my auto, what's my S corp about? No, oh, I want to self direct my retirement account and go buy some crypto or I want to do this and your accountant looks like a deer in headlights then that's told you I've got the wrong one. Just like you walking into a construction project going, uhuh, you are a bad contractor. So that's number one. Start learning a little bit. And it's actually pretty fun. It's not that painful at all. You know, you're making money and it's strategic.
- [05:14]
A
Yeah. And I again like with business, even like I'm a marketer and we always teach our clients with marketing and ads. I'm like, you don't need to become a master at Facebook ads and stuff like I am, but you need to know enough to be dangerous. Right. And I think it's same here. You haven't got to become an accountant. You, but you can. You need to know enough like I do. Read a couple of books, listen to a few podcasts, go to a few events and boom, for the next 50 years of your life, you're going to save probably millions of dollars on taxes now just because you spent 20, 30, 40, 50 hours educating yourself.
- [05:47]
B
Yeah. And you're on. It's ongoing education. Why Rudy's having me here, people. Rudy's going to learn something today. I know he will. Because when I talk marketing I learn from him. And, and that's because it's ongoing and we've got tax legislation and policy big time this year. So we got to pay attention to that. I'm going live on YouTube, constantly giving our followers updates on that. Okay, strategy number two. If you're a small business owner and you've got ordinary income, we're not going to talk about real estate today. Love that. I love saving and investing in real estate. Some of those strategies with short term rentals, long term rentals, syndications, Self rentals, blah, blah, blah, but just your operational business, your consultant. You're a landscaper, you're an online marketer, you're an influencer, you're a restaurant owner. That's an operational Main Street America business. Once you start making more than 50 grand a year, so you're taking home five grand a month. You're like, this is cool. I make them five grand a month or better. I'm starting to find my dream. I'm going to scale S Corporation. You've got to convert your llc, which you should start with anyway, so you can start branding, get your ein, get your banking going, start learning how to run your business financially. Then you're going to convert to an S corporation, as in small. When you convert to an S corp, it allows us to save on FICA, the number one cost that hits small business owners, which is 15.3% this year on the first 180 grand. So I only want to pay that on a portion of your income. Now, we don't have enough time in today's show to break it down. I've got YouTube videos on this and articles, and even the people here listening are like, well, I have an S corp. I'm done. Really. What was your payroll percentage last year? I don't know. Well, you're screwed that. Because I'll tell you, most accountants are conservative. They're going to make you take more payroll than you should and you to be involved in that conversation. So the S Corporation is strategy number two today. Evaluate, get a console and understand if you're doing it, when you should and how you're doing it.
- [07:43]
A
Yeah. And let's. I'd love to give a real life example. I know it's always hard to give exact numbers, but let's throw it out there. Someone's earning 3,400k net, they probably should be paying themselves somewhere, you know, reasonable standard, 100 to 200k and then through payroll. Would you agree? Or more.
- [08:01]
B
Bless your heart, Rudy. Well, no. So what I teach and see, I'm going to be saving you money. Maybe you're right. See, what I created is a matrix. It's called the Kohler payroll matrix. You can Google it. I'm out there, I interview IRS agents on my podcast to confirm our strategies are not high risk. So what this is called as reasonable comp. Your payroll percentage may start out at about 50%. So if you're making 50 grand, I might take payroll of 25 grand. But as you make more money, your payroll percentage goes down. It sounds counterintuitive. So if I'm making 300 grand, my payroll percentage might be 20%, might be 25%. So at 100 grand I'll take 40,000 in payroll. At 200 grand I might take 70,000 in payroll. At 300 grand I might be at 96. So my payroll percentage is going down because you're getting, you're taking draws or dividends based on your goodwill. This is fully substantiated. I teach classes to other accountants on this, I write books on this and I keep my, I've never had a client audited for this ever in 25 years. So people, if your payroll percentage, look at your net, how much you're taking out, should be no more. Well again, as you make more money is going to go down. So it's absolutely critical.
- [09:16]
A
That's great. So let's say 300k, you take a 8,900 grand roughly. Is that, that's about what you.
- [09:22]
B
Absolutely.
- [09:23]
A
Just to be clear what, how people are asking, okay, I get it. What happens to the other 200 grand now? Can you.
- [09:28]
B
Okay, so here's the cool part. So let's say, let's comp A to B. So if I don't do this, I'm just a regular LLC and people. LLC is do not save taxes. An LLC does not. An LLC is a jumping off point and it gives you asset protection. Does not save you taxes. You get all the same damn write offs you would with any other entity. So an LLC is here. I make 300 grand. I'm going to pay self employment tax on 15.3% on 180. So that's going to be. Oh, 24. You're going to pay about 24 to 25 grand in self employment tax. If I come over here and take a third of that in payroll. Now I only pay ficar the self employment tax on the payroll port. I still made 300 grand. You still take money anytime you want. You don't have to take a freaking paycheck. It's all on paper. So you're going to take that 100 grand on paper and we're going to spend 15.3% on that 15 grand. I just saved 10 to 12 grand by doing that because you're, you're not going to pay FICA on the 200. Now it phases out at 180 and goes down to three and a half percent. So you may think, well this is crazy, this is high risk. You know Joe Biden and ex president Joe Biden had an s Corp in 2016 when he did his book deal, he had a $14 million book deal. He took 800 grand in payroll. It was like a 3% payroll allocation. And that's okay. Donald Trump that same year was a real estate professional and you and I know that, Rudy, we love that. So he only paid 600 grand in tax. This is normal stuff, people. It is not high risk. So get on your payroll percentage, you can save tens of thousands of dollars.
- [11:03]
A
Yeah. So love that. Let's go into the next strategy just for sake of time. Right, so just the things to recap. Make sure your LLC set up correctly and you're set up. You know, most people are going to be escort obviously if they start bringing in shareholders and cap raising capital, it might have to change. Right, but, but I think it's generally a good blanket statement. Obviously get yourself on payroll. That's something I didn't used to do when I first started and have done for many years recently once I learned that. And let's just search for 10 seconds. You actually kind of have to. Because you can get in trouble, right, if you're just paying for years not having anyone on payroll in your company.
- [11:48]
B
That's right. If you claim S corp and don't take payroll, that's when you get audited. But you again don't have to do bi weekly payroll or monthly payroll because as an entrepreneur your cash flow is going to be all over you just do it on a quarterly report. And so it's called after the fact payroll. But yeah, if you don't do it, you're in trouble. But the savings is immense and it doesn't cost you that much. You might spend a couple grand doing an S corp and you're going to save 10. So people get a consult on it. My contact info's here too. We've got 10 tax lawyers helping everybody, everybody, every, all over the country, every day. So let's get it done. Right.
- [12:19]
A
Love it.
- [12:20]
B
Number three. You're going to love this one, Rudy. The board of directors, Board of advisors. You don't have to be a billionaire to have a family office. Everybody in America that's a small business owner has a family office. It's the third door down the hallway in a bedroom with a hide a bed. That's your family office. I want your kids on the board of directors. I want your spouse on the board of directors. If you have an llc, it's a board of advisors. Every LLC we set up, we set up a board of advisors. Your mom and dad's on it, your best friend Your kids, whatever. And then when you travel for business and all of you should be having your annual board meetings, we're going to write off travel, we're going to write off dining, and we're going to have meetings with our family and give them real duties in our business. Just not board of directors, but get them involved. It's a family business. So what? The problem is so many people pay taxes and support their family or give them money when we put them on the board and give them a duty in the business. Now I'm going to give them a 1099 or a W2 and they pay tax at their bracket. I'm getting a tax write off to support my family. So the board of directors or advisors unlocks payment to children, spouses, parents, unlocks travel, unlocks dining, unlocks home, office. It is huge. And every small business owner should get better asset protection and more write offs with the board.
- [13:36]
A
Yeah. So let's break it down. You know, that was fast. Sounds great. How do, how do they, like, where do they go from here? How do they start?
- [13:43]
B
Start with, yeah, you better. And you know what? I challenge you, Rudy. You can do it this weekend. So if you have an LLC taxed as an S corp, that's fine. You should have a corporate book, right? It's got my operating agreement, my minutes, my membership certificates. If you don't have those people, you don't have a full LLC. That one sheet of paper at LegalZoom is not an LLC. You're got to have all the pieces. So you got your llc. And this weekend you say, you know what, everybody, come on over. I'm going to have a board meeting. I'm going to tell you about my business. I need your advice. I'd like to have you guys engaged in my business. I really need a mastermind meeting. And you say, will you be on my board? And the five people go, yeah, I'll be on your board. Okay. You write down the minutes, you talk about the business, how much money we make, what do we spend money on, where are we going? You put that in your corporate book. That's required annually. Anyway, so let's have our annual board meeting at least. And then you have these people and you're writing off the dining. You might travel somewhere for that, your kids might be involved, your spouse, your parents. And now you're getting the people that are closest to understanding what your vision is, that legacy you're trying to build. And you're getting a tax write off and asset so you can do it yourself. We charge 200 bucks a year to give you a questionnaire and make sure it's done right, it is affordable, you can do it. It's freaking awesome. Super important.
- [14:57]
A
Good. Next question. Just quickly, I know we got, we got some more time and we can talk a couple more bits, but let's talk about offs. Right. Because walking with write offs that are interesting is that to an, this used to be the same for me, to an entrepreneur that was like, that's the way you optimize your tax strategy as well.
- [15:18]
B
Yeah.
- [15:19]
A
The sake of it or, you know, not the sake of it, but, but you're buying it and maximizing write offs. And I think then you, when you get to more an advanced level, you realize, you know, that is not the most advanced way to, to lower your tax bill. So can you kind of talk about that?
- [15:34]
B
Yeah. And here's the thing, the way you said that at the end, I don't know. I want people to know saving taxes is a lot of little things. And I, I want to write off my lunch today. I want to write off my auto this weekend when I drive to Staples or Apple Buy, Apple Store, Best Buy. I mean, whenever I go out for business, I want to take a tax write off.
- [15:56]
A
So people, it's, I think the write offs the key. But people almost like I feel buy more stuff randomly just to write it off.
- [16:04]
B
Okay. Yeah.
- [16:05]
A
And all the other tax options is what I'm trying to say.
- [16:09]
B
Yeah, no, I hear you. But my first point is everybody, the little things matter. Don't think there's some big thing I need to do. It's adding up the little things. And there's some cool strategies. I mean, I've got a 30 Ultimate Tax Guide. I've got five bestselling books and to keep it simple, blah, blah, blah. But, but anyway, it starts by tracking. Now, one thing Rudy just said, everybody is we don't want to let the tail wag the dog. If I'm not going to go out and buy an SUV because it's a $50,000 write off, do I really need an SUV? No. So don't spend money on crap you don't need. But when you do spend money, I want to find a business purpose. So let's just go through. I want dining whenever possible, especially when you're traveling by yourself. Auto. Either we do mileage on every vehicle or we might do actual. And we can take bonus depreciation. Donald Trump wants to do 100% bonus. Backdated to January 22nd this year. That's going to be a big deal, we want to take advantage of travel. That's airfare, hotel, Airbnb, Uber. So whenever we go to a conference or go anywhere, we want to meet with a client and do that. I know everywhere you go is a freaking write off. Same with me, right? It travels a great write off. And I want to write off home office, computers, electronics, marketing. I want to write off health care. I want to be thinking about my health care expenses. And I want to be building a retirement account tax free. I want to maybe buy real estate, run it back to myself. So all these things start to add up. And I love how you said that. It's like you start small and then you build up.
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A
Good. And last one, you let into it a little. Let's talk about retirement and savings and those sort of things.
- [17:43]
B
Yeah, yeah. So I'm going to tell Rudy his next best tax strategy. So Rudy calls me up and he's like, hey, Mark, I got this killer deal. I'm going to invest in this small business in Main Street. They were on my show. I freaking love it. I'm going to Shark Tank it. I'm going to go in on it and I'll say, don't do it, don't do it. That's a bad tax strategy. I'll say, let your Roth IRA do it. And he's like, I can let my Roth IRA invest. You know, Rudy already knows it, but you can let your Roth IRA invest in a small business in real estate. I just bought cows with my health savings account. You can buy crypto mines, actual tokens. You can invest in what you know with your retirement account and build a million, 10 million, 100. We have clients with over 100 million in their Roth IRAs. They still put in their seven grand every year. But what you do around the Monopoly board is unlimited. Then you pass go put another seven or six or eight grand in whatever the amount is that year. So self directing your retirement account is so, so important because you learn to make money tax free.
- [18:45]
A
Yeah, great. And, and so there's that. There's obviously you can invest there. There's a second, there's a second way to invest. Right. You can put more in each year. I can't remember what it's called.
- [18:56]
B
Oh yeah. So I like stacking. So this is a big, big deal. It's called the mega backdoor Roth. Sometimes you'll hear that. Talk about, I talked about that a lot on the web is that I start with my ira, Roth ira, that I in my small business, I can Have a solo for 1k. So I can use a solo for a 1k drop in up to 20 grand or more. Then I can match it and then I could even do a profit sharing plan. I can do a defined benefit plan. Holy crap. I can sock away a couple hundred grand. That's how the rich get richer. But then I use it to invest in what I know and get a 10x or 15x return.
- [19:33]
A
And it's about 70 grand. Right? Let's say the, the, the 401k.
- [19:39]
B
Yeah. I can in a mega backdoor Roth this year I can put away 70 to 85 grand depending on your age and call it all Ross. If you're married, double that. And then there's these called defined benefit pension plans. I can stack on top of that too. There are lots of options people. So when you start really scaling and frickin making money, your tax lawyer, tax accountant should be talking about this. And it doesn't have to be expensive. You should be having an annual consult, building your trifecta and going here. So it's nice.
- [20:11]
A
Let's love it. Well, last question for you because we're about there on time. Someone's earning between 250 and a million a year net. Right. What should they be asking their accountant? Give them like a couple of questions next time they speak to them.
- [20:27]
B
Okay. Assuming again you're making 250 to a million, you should start with your structure. What entities do I have? Are they organized? Are they making sense? Do I have an S corporation? Probably all of you do. What should my payroll level be? If I have employees or not, it's going to dictate the type of retirement account I could build. But I always want to be doing a Roth ira. If you're married, I'm going to be talking about the real estate strategy because one of you might serve as a real estate investor. Partner with you, whether it's the husband or the wife. Because we really want to use that synergy of business and real estate. It's super powerful. I want to talk about your health care expenses. Number one reason people go bankrupt is for health care expenses. And it is terrible out there. So we want to make sure your health insurance is written off. We're using the health savings accounts, health reimbursement arrangements and writing off all your medical. And then if you've got a family, I want to get make sure your kids are on payroll. Ask your My kids on payroll or a 1099 under age 18 is a different strategy than over age 18. And finally do you have a family board? What are you doing for travel and leaving a legacy and talking about your family. Do you have your estate plan finished? Is it all coordinated? If your accountant can't have a good conversation about those, let's upgrade. I've got the Main Street Tax Pro network. You can interview around. Go find an accountant that speaks your language. It doesn't have to be us or me or anyone. And they don't have to be down your street. They could be five states away. But find someone that you trust.
- [21:59]
A
Love it. All right, good deal. I think that's pretty much everything there as a one on one. I know we could spend hours and you've got books and podcasts and courses and so, you know, endless amounts of support. So what's the next best place if someone does want to dive deeper? They want to, you know, learn more about this with you. How can they find. Find you?
- [22:20]
B
Yeah, thanks everybody. Just remember my name, Mark J. Kohler. When you think about tax planning as a small business owner, all you have to do is plug that in your search engine. I'm on all the socials, I've got two podcasts, one dedicated just to self directing. We've got it. Two conferences a year around the country that are super affordable. The books if you like YouTube. I got millions of downloads on my YouTube with 500,000 subscribe. So I'm out there. I'm number one in the country on this, making it simple for you. So just type in my name, find the learning medium you love and just soak it up just a little. Start drinking the kool aid. You'll be the coolest person at this weekend's party too.
- [22:57]
A
So last question, any final tips as we approach the tax season? Now you know people are listening to this few weeks before they file. Is this something they can action right now or are they screwed this year and have to wait?
- [23:10]
B
Great question. What I want people to know is by filing an extension, you actually reduce your chances of an audit. It's first come serve at the irs. First people to file the first ones get audited. Now if you are due a refund, file your dam tax return and get your refund. You gave the IRS a tax free loan, interest free loan, get that money back. But if you had a side hustle a small business and you think you're going to owe anyway, estimate how much you're going to owe, file an extension, reduce your chance of an audit and then sharpen the pencil. Think about some of the strategies we talked about today and go holy crap. I need to prepare my return a little more intentionally. So take your time. File an extension. Don't rush. Now, if you do a refund, go grab it. But other than that, you're in control, people. Don't be afraid.
- [23:53]
A
Love it. Love it. Well, there you go, guys. That's a wrap. Another episode on Living the Red Life. Mark, thank you so much. Entrepreneurs listening to this don't sleep on this because, like I always joke, and most people do, there's two facts of life, death and taxes. The ninth year with one of them and hopefully optimize both. Right? All right, that's a wrap. Thank you, guys. I'll see you soon. Take care. Thanks, Ruth.