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- [00:00]
Venmo Advertiser
With the Venmo Debit card, you can Venmo everything. Your favorite band's merch. You can Venmo this or their next show.
- [00:05]
Carlton Dennis
You can Venmo that.
- [00:06]
Venmo Advertiser
Visit Venmo Me Debit to learn more. The Venmo MasterCard is issued by the Bancorp bank and a pursuant to license by Mastercard International, Inc. The card may be used everywhere. MasterCard is accepted. Venmo purchase restrictions apply.
- [00:15]
Austin Hankwitz
Ryan Reynolds here from Mint Mobile with the price of just about everything going up, we thought we'd bring our prices down. So to help us we brought in a reverse auctioneer, which is apparently a.
- [00:25]
Robert Kroke
Thing Mint Mobile Unlimited Premium wireless better get 3030 better get 30 better get.
- [00:29]
Carlton Dennis
202020 better get 2020 everybody 1515 just 15 bucks a month so give it.
- [00:35]
Austin Hankwitz
A try@mintmobile.com Switch upfront payment of 45.
- [00:39]
Venmo Advertiser
For 3 month plan equivalent to 15 per month required new customer offer for first 3 months only. Speed slow after 35 gigabytes of networks busy taxes and fees extra cmno.com welcome.
- [00:45]
Austin Hankwitz
Back to the Rich Habits Podcast, a top 10 business podcast on Spotify brought to you by public.com Today's episode is all about learning the tax and business strategy hacks of the wealthy as well as give you all our hot takes on how to win with a New Big Beautiful Bill. My name is Austin Hankwitz and I'm joining joined by my co host Robert Kroke. Robert is a seasoned entrepreneur with lifetime revenues of over 300 million and I'm a multimillionaire in my late 20s with a background in finance and economics. As the show name might suggest, every episode we talk about Rich Habits as they relate to business, finance and mindset. So Robert, what are we going to be talking about in today's episode?
- [01:25]
Robert Kroke
In this week's episode of the Rich Habits Podcast, we're joined by my friend and tax strategist Carlton Dennis. With over 1 million subscribers on YouTube, 650,000 on Instagram, and 250,000 followers on TikTok, Carlton has made a pretty big name for himself by providing everyday investors the best possible tips and tricks for paying less in taxes in April. So this episode of the show will be no different. We'll uncover unknown tax strategies to lower your tax bill. Additionally, the One Big Beautiful Bill was just signed into law, which means we'll walk you through some of Carlton's major takeaways that both the everyday person and the millionaire listening right now need to know about as it relates to the massive change in the tax code. So Carlton, welcome to the show, my friend. I think you're one of the best at it out there, and that's why we're glad you're on the show. Go ahead and introduce yourself to our audience and we'll get started.
- [02:21]
Carlton Dennis
Yeah, absolutely. First off, thank you, Austin. Thank you, Robert, for bringing me on the show. I'm excited to be here with everybody because taxes is that foreign, you know, topic that most people don't like to venture into because we weren't taught about it in school. But it happens to be our biggest expense. And most of us don't really focus on taxes until we start making a lot of money. But if we understand a little bit more about the tax game, we can reduce our overall tax bill earlier in our life and set ourselves up for an earlier retirement. So I am a licensed enrolled agent, a little bit different than a cpa. An enrolled agent focuses primarily on tax and tax strategy. And our firm, tax alchemy serves small based business owners and high net W2 taxpayers on Leverag the tax code to reduce their tax bill in real time typically involves making investments into real estate and oil and gas and alternative investments to really drive home those tax savings that they're looking for while also being able to build their cash flow.
- [03:14]
Robert Kroke
Yeah, one of the most important messages that I put out there and have been for years in Austin as well, is it's not what you make, it's what you keep. And that is why I think this episode is going to be just epic. So let's jump into things. Right now. There's over 100,000 people listening to this episode. And those people have all sorts, sorts of backgrounds, all walks of life and levels of wealth. And so we really want to cover all these bases. What advice do you have for someone who's just getting started in their wealth building journey, who's trying to lower their tax bill as well as someone who has millions of dollars and is trying to really figure it all out.
- [03:52]
Carlton Dennis
And what I try to remind taxpayers is the tax code was built to provide incentives for the everyday taxpayer. And if we can work backwards and discover all of the incentives for W2 taxpayers or business owners or real est investors, we can stack the cards in our favor and start leveraging the tax code. The issue is, is that most people are accustomed to, you know, just going into their CPA's office and filing a tax return and they think a lot of the savings happens at the time of filing. But the issue is, is that we're already past the end of the year and so anything that you could have done that would been meaningful to reduce your tax bill probably could have been implemented in the prior year before the end of the year got here. So for many taxpayers that are wanting to leverage the tax code, it's going to be a proactive approach to thinking about your taxes, which means someone is going to have to forecast out your income with the remaining months we have left in the year so you know today what your estimated liability is. And then if we match that up with the available incentives that are inside of the tax code, we can formulate a strategic plan of strategies that we can implement that'll hopefully draw down that tax bill prior to December 31st.
- [05:00]
Austin Hankwitz
So let's get more granular. Let's pretend someone's working a 9 to 5 job that makes them $65,000 a year. What are some of your favorite tax strategies to help someone who's making less than six figures working a normal job lower their tax bill on an annualized basis?
- [05:17]
Carlton Dennis
Believe it or not, when you're making less than six figures, what I'm going to recommend is for you to sacrifice and actually pay taxes. And the reason why I say that is because the Roth IRA and the Roth 401K will allow you to tuck money away and grow that money tax free. And if you're at that point where you're making 65 or 70,000, your tax bill is going to be less than $12,000. So really, we need to focus more on our wealth building than trying to reduce our tax bill at that current juncture. So this is when I'm telling people, hey, what if we just bite the bullet here and we pay the tax on the extra 6,000 that you're going to roll into the IRA or the 23,000 that you might stuff away into the Roth 401K. And now we have money that will grow tax free forever. So when you jump up into that next tax bracket where you're 100k or 1:50,000, you've already tucked away some tax free money for you. When you're in one of the lowest tax brackets humanly possible. Once you start to crawl into those six figures, that's when we start to look at some strategies around whether or not it makes sense to transition from a raw 401k and to continue to bite that bullet. Or maybe we want to transition to a traditional 401k. By putting money into a traditional 401k, we will reduce our taxable income, which could result back in some money coming back in the refund. If you're W2 or less, taxes that have to be paid when you're 1099, but it's right around that amount is when I also start to consider tax planning for the customer.
- [06:45]
Austin Hankwitz
So let's double click on that. Do you have maybe a rule of thumb or maybe there's someone listening right now who's been doing their, you know, Roth 401K and they're making 400,000 W2 because they're a surgeon. Right. Is that just way off? They should really be thinking a little bit deeper about lowering their taxable income by contributing to a traditional 401k or what's that sort of range of income where they need to start to thinking more strategically as it relates to taxes. Right. How do I now begin to save a meaningful amount of money on my tax bill? Because I am building wealth in a meaningful way as well.
- [07:16]
Carlton Dennis
Yeah, I love that you brought this up because most people are looking for a threshold. And I remind people that taxes really don't become a problem until you have made a good amount of income. Because you're really focused on becoming a higher earner. And a higher earner that's going to pay a lot of taxes starts off right around 300k. Yeah, right. When you hit around 300k, you're paying roughly about 50 to $55,000 in taxes. Coming out of college, that's a starting salary for somebody. I remember coming out of college, that was exactly my starting salary. And if I had to pay that much in taxes, there's something wrong with that picture there. This is when the average W2 or 1099 employee should look at transitioning to doing tax planning and strategy outside of just filing a tax return. And that's when we can start to invite some of the real strategies that can really draw down that income.
- [08:00]
Austin Hankwitz
Can you maybe walk through a couple of different strategies that you recommend to your clients that are those high earners as well as maybe clients that are business owners?
- [08:07]
Carlton Dennis
Yeah, I love that. So we'll start off with those high earners that are W2 first, because it's very particular, the types of strategies we have to leverage for someone that's W2, because the government doesn't create a lot of tax incentives. When you're W2, you're working for somebody else and you take on very little risk. The IRS understands when you are working for somebody, whether you're getting 100% of your effort or only 50% of your effort, you're still going to get paid 100% of your paycheck. Right? And so that's the difference between sometimes being a business owner and being an employee. That being said, if you make money first, IRS gets paid second and you have to spend what's left over. The goal for you as a W2 employee is to try to get some of the money that the IRS already took from you since they're withholding money on your paychecks. This is when I look to create active losses on the tax return. And the only way in which I can get active losses on the return is if I have a business that is unsuccessful or I have an investment that naturally performs at a loss. The IRS has an issue with W2 taxpayers starting a business as like a hobby and not being profitable. As a matter of fact, if you're not profitable for two out of the three years of you being in business and you'd show no economic gain, the IRS could subject your business to being a hobby and they could disallow the expenses that you had on your tax return that was helping you save money on taxes. So then we look at the investment side of it. We have real estate and we have oil and gas. Both are which viewed as active businesses in the irs, depending on how you invest in it. For many of my W2 taxpayers I work with, we're investing in short term rentals. And the reason why is because there's a carve out in the tax code where if you're running a short term rental on a transient basis, meaning your customers are only staying in the property for seven days or less, the IRS views this this business as an active hotel or motel like business, different than a passive real estate investment. And if you're somebody that can materially participate, AKA manage the property yourself for a hundred hours in the year, and more than anybody else that's helping you, this qualifies that that building or this property to be an active investment that can generate active losses on the tax return. We have customers that are making $300,000 that have invested money into a half a million dollar property and they're getting nearly a hundred to $150,000 of year one write off just with accelerating the depreciation on the property. And so we use a very specific particular strategy called the cost segregation study, which allows for these W2 taxpayers to create this paper loss that offsets their W2 income, resulting in a massive refund.
- [10:42]
Austin Hankwitz
That's a great breakdown. Now let's hear about business owners.
- [10:45]
Carlton Dennis
Yes. So not only do W2 taxpayers get to benefit from this exact same Strategy, so do business owners. But before we jump down into the real estate side of it, I always like to look at how my business owners are structured. Most people will rush off when they're starting a new business to go set up an LLC to only find out later that they're getting destroyed by being in an llc. And the reason why is because as your income continues to grow and you become more and more profitable, all of the profit of your business entity is subject to self employment taxes. And that's just an additional 15.3% tax that you have to pay on top of your federal taxes to the IRS and state taxes if you're in a state that taxes you. So if I'm somebody that's growing my business profits and maybe I just hit 100k inside of my LLC, net profit right off the top, $15,300 is going out the door to Social Security and medicare taxes or self employment taxes. I think that for most six figure earners, having to send off $15,300 off of a six figure salary is a lot. Without even tying in federal taxes to Uncle Sam or even state taxes. This is where we like to split the LLC to an S corporation. And that way the taxpayer is getting paid in two separate ways rather than just getting paid by taking money out of your bank account which is in the form of a distribution. You'll also receive a SAL2 from your business and this salary that you receive is the only amount that's subject to self employment taxes. So with that same example Austin, if we, if we had made a hundred thousand dollars, maybe I decided to give myself a salary for 40 grand and I left $60,000 inside of the business. Well, that $40,000 is the only amount that's subject to that 15.3% self employment tax. That means I have $60,000 that was sheltered away from 15.3% tax. This directly puts money back into a taxpayer's hands that self employed without even mentioning any real estate strategies just yet, just simply changing their tennis shoes.
- [12:35]
Austin Hankwitz
Now before we ask Carlton Dennis our next question, we want to remind you guys that public.com is an investing platform for those who take it seriously. No gambling, no day trading on that crazy stuff. If you're serious about investing toward your financial future, it's time you learn more about public.com because on public you can build a multi asset portfolio of stocks, bonds, options, crypto and more. And that's not all. Public's artificial intelligence isn't just a feature built into the platform. It's woven into the entire experience, from portfolio insights to earnings call recaps. Public gives you smarter context at every touch point of your investing journey.
- [13:11]
Robert Kroke
And for a limited time, you can earn a 1% match on all IRA deposits, IRA transfers and 401k rollovers. So let me say that again, very important 1% match on all IRA deposits,' transfers and 401k rollovers. So fund your account in 5 minutes or less only@public.com rich habits paid for by Public Investing. Full disclosure in the podcast Description all.
- [13:37]
Austin Hankwitz
Right, next question with Carlton I want.
- [13:38]
Robert Kroke
To go a little further on this point because it's one of my favorite behind the scenes arguments with people. All the fake gurus are telling people, go open an S corp when you do your side hustle, go open an S corp when you get started. And I try to explain to people you can open an S corp, but I always look at it that you can create an S corp but you can't make it an llc. Rather, I'd like to see people that are unsure of what their income is going to be at first start with the LLC and then migrate it to an S election. Because then, you know, once you get past I've always said 65 or $75,000 in income, that is a good time to migrate over to the S Corp. Do you agree with that strategy?
- [14:18]
Carlton Dennis
You're absolutely right, Robert. If you're unsure of how profitable you're going to be, it does make more sense to start out as an LLC and then let your CPA or tax professional transition you over to an S corporation. And it's really about the cost involved of being an S corp versus being in an llc. When you're an S corporation, you're probably going to pay around 2,000 to $3,000 just to file the tax return. That's not Even including the K1 form that goes inside of your individual return. You'll probably pay another $200 just to file the K1 form inside of your individual return. Not to mention, most bookkeepers will charge more for corporate returns than LLC returns. So you might bump up your monthly payroll cost by an additional 200 or $300 just by the tennis shoes you're wearing. So when you think about the differences between being an LLC and an S corp, it's not just about saving money in self employment taxes. It's about knowing when to transition to an S corp. Because it's going to cost you more to be in those tennis shoes that way. I want you to make sure that you have made the right decision which is why we start off with the LLC and we transition to the S Corp when it makes sense.
- [15:16]
Robert Kroke
Such an important message. I'm so glad you and I are on the same page. So now let's jump into the next question that's at the top of everyone's mind. The Big Beautiful Bill passed on July 4th. Give us your five or six biggest takeaways that everyone needs to know and should keep into consideration for what is happening and the pros and cons of the Big Beautiful bill.
- [15:40]
Carlton Dennis
So the One Big beautiful act became the One Big beautiful bill on July 4, 2025. And for many of you guys that were a part of Donald Trump's first presidency, you may have noticed that he had a very big tax change called the Tax Cuts and Jobs act that he incorporated back in 2017 that went live essentially in 2018. Very similar to how we're feeling this now here in 2025. Well, with the One Big beautiful bill, he extended and made permanent his Tax Cuts and Jobs act, why is that such a big deal? Well, during that time period, we had tax rates that were high as 39%. And he came in and slashed those tax rates down. Our highest tax rate is now 37%. But that wasn't the only bracket that moved. We used to have a 35% bracket that went down to a 32% bracket. We used to have a 30% bracket that went down to a 28% bracket. We have a 24% bracket, a 22% bracket now. So he's reduced all of our tax brackets down and he's extended those brackets due to inflation. This is absolutely amazing because it just means that the average taxpayer is going to pay a little bit of less money. So that's one that I feel like is a win, no matter how you look at it, because if you're somebody that's building wealth, you would prefer to probably pay less taxes. Now, this leads me to probably one of the biggest things that Trump was campaigning for, and I would probably say a big reason why many people voted for him was his promises around no taxes on tips and no taxes on overtime. He landed on a $25,000 deduction on the federal side for tipped income that you earn as a single individual or a married individual. But this phases out at $150,000 if you're single. So what this means is, is if you're somebody that's earning tipped income, whether you're, you know, a Las Vegas poker dealer or you're just somebody that's working as a Uber driver or a grubhub delivery guy, you're earning tips. You can report up to $25,000 of those tips as long as your adjusted gross income is beneath 150,000 and you'll receive a tax deduction for it. However, that deduction phases and phases all the way out as soon as you make over 150,000 adjusted gross income, single and $300,000 if you are married, filing joint. So huge, huge, huge ramifications for all of our tipped workers. Robert, I'm curious to hear your thoughts on that one.
- [18:00]
Robert Kroke
Yeah, I think it is the most important part of the big beautiful bill for the masses because people don't realize how many millions of workers out there do work in the tipped industry, the service industry. And they are, in my opinion, the bread and butter of the economy. And so if we can add $25,000 back into their pockets, you know, in that write off, so they're spending less, I think it is just an incredible thing because they're the ones that go out and spend most of their income. So I think it is a really breath of fresh air for the economy, for the everyday person. Because in my opinion, right now there's two economies. There's the haves and the have nots. And until we can bridge that to make it more of a one economy, America, I think that this part of the big beautiful bill is just amazing for millions of people.
- [18:56]
Carlton Dennis
I love that and I side with you on that. But that wasn't where they stopped. We also got a really awesome deduction with overtime pay.
- [19:04]
Robert Kroke
Yeah.
- [19:05]
Carlton Dennis
So now if you're single, you can make up to $12,500 of overtime pay and deduct this on your federal tax returns. Incredible. And if you're married, filing joint, that's up to $25,000. However, this one does expire. Just like with no taxes on the tips, this one will expire in 2028. But at least for the next four years or next, you know, four, you know, three and a half, four years, we'll get to experience what this is like to see taxpayers not have taxes on their overtime or on their tips.
- [19:34]
Austin Hankwitz
I'm most excited about that one. I've got a named Jonathan who's a firefighter here in Nashville and he's trying to build wealth. He's working hard. He's working 60, 65, 70 hours a week as a firefighter and he's, he's paid hourly, of course, makes between, I'd say, 55 and $65,000, depending on how hard he works. And he was like, dude, I'm so excited for this because I'm always picking up weekend shifts, I'm always working overtime, and now I'll be able to really take this money home in a meaningful way beyond just this higher tax bracket that it was before. And so I'm most excited about the overtime because, I mean, that's the American dream, right? Work harder, get paid for it. And I think that that, to me, is like, what's really, really exciting about this bill. For those people who do have exposure and they want to work harder, they want to make more money, they can now keep more of it in their. In their pockets.
- [20:17]
Carlton Dennis
Although Trump is feuding a little bit with Elon and what he has going on, Trump kept to his word and he kept to his agenda. We saw him incorporate the auto loan interest deduction as a part of the big beautiful bill. So what this means, Austin, is if you have an auto loan and you're paying interest on that auto loan, as long as that vehicle is a personal vehicle, it's not used in business because business owners can already write off their interest on their auto loans. You can deduct up to $10,000 of your United States assembled vehicle all the way up until 2028 every single year on your tax returns, and it'll be considered an itemized deduction. So if you have an auto loan and you want to deduct the interest on that auto loan, you get to deduct up to $10,000 a year as long as a United States assembled vehicle.
- [21:01]
Robert Kroke
No matter who you voted for, who you like, who you don't like, our goal here is to provide people, the hacks, the blueprint, the framework of how to live better financial lives. And something Austan says that I think is very important in this instance is we don't care what happens in the White House. We care what happens in our own house. We can control what happens. So I want everyone to be clear, this isn't a sponsorship of what Trump's doing. This is how can we take advantage of what is laid in front of us and make it what's best for our own personal finances and our future? So I love the coverage of the big beautiful bill.
- [21:39]
Carlton Dennis
Yes, I love that, too. And as a tax professional, you know, I play even keel here. You know, my goal is to just help my clients leverage what's in front of them, because we can only control what we can control.
- [21:50]
Robert Kroke
That's right.
- [21:51]
Carlton Dennis
That being said, a lot of people lost a little bit of control of their tax savings. When Donald Trump implemented his Tax Cuts and Jobs act because he repealed the SALT tax deduction down to 10,000. And a lot of people felt that sting. Homeowners throughout California that had high property tax bills and state taxes that they were able to deduct on their returns saw a slash in their deductions when he dropped that salt tax down to 10,000. For those that are unfamiliar with salt tax, it stands for state and local tax. And the government allows for you to itemize this as a deduction on your tax returns. If you live in a state that has taxes or a city that has local tax, or you are possibly a homeowner and you have property taxes, you are only limited to $10,000 in a deduction on your tax returns, which, be honest with you, not too much money that you get to deduct. Well, we have now seen this increased to $40,000 as a part of the big beautiful bill. However, again, there is a phase out and if you make over half a million dollars, you won't receive this. You'll. It'll be dropped right back down to 10,000 for you. But for a majority of taxpayers, which a majority of taxpayers fall underneath that threshold, they will now see the salt cap deduction increased up to 40,000.
- [22:58]
Austin Hankwitz
Wow. I did not know that. At $40,000. That one's really cool. So hit us with some more. This is fun. I like learning about this stuff. Keep going.
- [23:05]
Carlton Dennis
All right, let me rapid fire you. The child tax credit. If you're a parent and you have children, you used to be able to receive a $2,000 credit per child, and that credit was refundable on your tax returns up to 1400 dollars. Now the child tax credit has increased to $2200 per child, and 1700 of that is refundable per child. What that means is, is if you file your tax returns and you've already claimed all your deductions and you have no more tax, you're essentially receiving refunds back from the government for having children. And you're receiving seventeen hundred dollars per child in a refundable portion of the child tax credit. That increase went into effect as a part of the big beautiful bill. Outside of the child tax credit, the other two that are probably pressing, that most people were waiting to hear about was bonus depreciation. As a tax professional, I know I was excited to see that one get increased because of the investments that I have in working with business owners on the planning side. But if you buy a qualifying piece of equipment or a vehicle and Utilize that qualifying piece of equipment or vehicle in the first year of ownership. You can take a 100% write off. It was down to 40% this year without this big beautiful bill. But we're at 100% now again and that 100% has been made permanent. I think this is absolutely amazing because most taxpayers out there that are self employed are looking for ways to leverage their spending to reduce their tax bill. And by buying the right types of equipment, vehicles, you name it, you are now able to reduce your tax bill and do something that the government has incentivized you to do. So bonus depreciation. Absolutely. A huge one. Robert, I know you probably have taken advantage of that tax code before in the past. And last but not least, I would say the Trump account, if you guys are familiar with that one. The Trump account gives a thousand dollars deposit for kids born between 2025 and 2028 and parents can an additional $5,000 into that account. However, that account is solely invested into index funds. Good thing is, is there no income limit? So if you're a high earner, it doesn't matter. You'll still be able to receive the Trump account and still be able to make contributions to it. However, that Trump account is solely focused on funding education, the purchase of a home for your child, or starting a business after the age of 18. And your child must be a United States citizen. So I love it. However, we already know that if you're working as a business owner, you can hire your children, place them on payroll and set up the to offset taxes by shifting income to your children. And if you're really smart, you would open up a Roth IRA for your children with taxes neither you or I paid money on and put that money into a Roth ira so they have money growing tax free.
- [25:31]
Austin Hankwitz
So Carlton, let's say that I've get my wife pregnant and we have a kid next year. How do I get this thousand dollars? Do I just like send some sort of email maybe, or do I. I think there's a Robinhood account announcement that came something with that. But you're saying so the government's going to fund it with $1,000 and then I can then fund it up to $5,000 on top of that.
- [25:51]
Carlton Dennis
That is 100% correct. I believe we are getting information now that some people are going through their financial advisors to set up these accounts. Some people are talking to their employers to figure this out. I think we'll probably get more information and details here pretty soon on exactly what is the desired route for new parents to take for their kids. However, you nailed it on the head in the fact that that thousand dollars will be deposited and then you'll have the option to contribute $5,000 additionally.
- [26:17]
Austin Hankwitz
Austin, that's awesome. I appreciate you walking through all those. And speaking of investing here, I want to remind everyone too. And Carlton, you mentioned like the oil and gas stuff. You mentioned sort of short term rentals, real estate, but also these retirement accounts, right? We love carry.com C-A R R Y.com Shout out Ankur Nagpal he was on the show a couple times now but I have a mega backdoor Roth Solo 401K. Robert's got something similar. We've got SEP IRAs, we've got all these cool, awesome different retirement accounts that are afforded to us as business owners. Us to write off 50, 60, $70,000 of contributions into these investment accounts off of our earned income. I mean if you're at a tax bracket like me where you're paying 33% effective tax rate, sometimes you put $70,000, I mean that we're talking tens of thousands of dollars that you are saving on your tax bill by just investing the money correctly in the right accounts.
- [27:09]
Carlton Dennis
I love that because most people don't think about growing tax free dollars. They just think about trying to pay the least amount of taxes possible. And it's a double edged sword. I mean if you're going to try to pay the least amount of taxes possible, you're looking at qualified retirement accounts that are going to drop down your taxable income. But if you're trying to build money tax free, I would always side on that. That side of the fence. We have to look at the sacrifices that we're making to build money tax free. If we incorporate the right types of tax strategies, even contributing to a Solo 401k or a SEP IRA and then converting that into a Roth dollars even though you're going to pay taxes on it might be the best thing for you to do because you decided to leverage other strategies like a short term rental that year or the Augusta rule or you switch to an S corporation. And so when you start layering strategies on top of each other it opens up opportunities like converting taxable dollars into non taxable dollars for a lifetime.
- [28:03]
Austin Hankwitz
I know that we didn't talk about this beforehand but I think this also was positively impacted by the big beautiful bill. Can you talk about the qualified business? The QBI thing? Is that. Is that a thing? Ubi, are you familiar with that?
- [28:15]
Carlton Dennis
That? Yeah. So a lot of people get confused on like what the hell is a QBI deduction? And to simplify this, if you're somebody that is self employed and you have an LLC or an S corporation or a sole proprietorship, you may qualify for a 20% deduction. Now, in order to receive this deduction, the IRS wants to make sure that any of the income that you didn't pay yourself out of the business is less than a certain threshold in order for you to be subject to this 20%. Normally that threshold is right around 380,000 to $400,000. Right. When you're over that amount, you no longer receive this QBI deduction, qualified business income deduction. But let's just say that you're making $100,000 self employed and you have an LLC. Well, great. A hundred thousand dollars is going to now be taxed at $80,000 after receiving this QBI deduction. So you had 20% of your business profits no longer subject to to taxes at all. So somebody at a 37% tax rate would possibly be saving quite a substantial amount of money.
- [29:17]
Austin Hankwitz
I could talk about this stuff forever, I swear. I love, I love learning about this.
- [29:21]
Robert Kroke
Yeah. I think the biggest takeaway for me in this episode, so thank you, Carlton, is that so many people out there, when they're building wealth and they're trying to figure out how to get ahead, you know, we always have this hate the rich or the rich have all these advantages. No, they don't. We don't. It's all about understanding. The tax code is the blueprint for all of you to exploit in a legal way to build your wealth and do things like the rich people and the really ultra wealthy people. So, Carlton, we really appreciate you stopping by. Everyone listening, please take notes on this episode. Really do your research so you can understand that as you make more money, it always comes down to it's not how much you make, it's how much you keep. So, Carlton, tell people where they can find you. What's next? What are you working on this summer? Let it Rip. Tell our listeners what's going on.
- [30:12]
Carlton Dennis
Yeah, so first off, thank you guys so much for tuning in to this episode. We hope that you found a lot of value. If nothing else, you got one step closer to building tax free wealth for you and your family. Right now, we're hosting the Tax free Wealth live event. It'll be kicking off August 4th through August 8th. So if you guys are interested in learning a little bit more about tax saving strategies that you can utilize, go to www.the tax free wealthchallenge.com we'd be more than happy to see you on that live event. You guys can also tune into our YouTube channel by visiting Carlton Dennis on YouTube and Instagram, we put out educational content every single week teaching you advanced tax strategy. And we've been doing this for well over five years. We are here to help you keep more of your hard earned money. And it starts with education and we believe in providing that. So we look forward to helping all of you guys.
- [30:54]
Austin Hankwitz
Let's go. Carlton, my man. Thanks so much for joining us, my friend. And we can't wait to have you back.
- [30:58]
Carlton Dennis
Thank you guys. Take care.
- [30:59]
Robert Kroke
Thanks, Carlton.
- [31:01]
Carlton Dennis
All right, Robert.
- [31:01]
Austin Hankwitz
I had a blast talking with Carlton. I feel like every time I talk with these tax strategists, I learn something new. As someone who pays well over six figures a year in taxes, which feels criminal at this point. But yeah, it's just, I feel like these conversations are so important because on one side of the equation you've got the everyday person who, you know, he pretty much said, listen, if you're making 60, 70, $80,000 a year, you should not focus on trying to lower your tax bill. Right? That's not going to be the needle mover. The needle mover for you is getting money invested, earning money while you sleep.
- [31:30]
Carlton Dennis
Right?
- [31:30]
Austin Hankwitz
Becoming an owner, not just consumer. And so I totally agree with that. Where on the flip side, he was like, listen, if you're making a couple hundred thousand dollars a year, well now you're paying 50, 60, 70,000 a year in taxes. Let's figure out how to bring that down by 10, 20, 30,000. Have a good time doing it. And it's so cool to see that there's so many options, right? Not just some stuff mentioned in the big beautiful bill with tips and overtime and all the other things like that. But also you've got these investment options, you've got these different types of bonus depreciation, right? There's a lot of things out there that if you are someone who's trying to strateg your taxes, there's options and there's strategies and there's hacks. And we hope this episode was an opportunity for you to learn some.
- [32:11]
Robert Kroke
So true. It's just too many people take their eye off the prize. They get their 401k, they maybe get their Roth IRA, but they're not continually learning or engaging with people that can help them figure it out. You know, along the way, over my 30 year journey, I've learned so many things and I continue to learn every day. And that's why this episode to me is a very important episode. Tell people really understand it is not just what you make. We want you to focus on earnings, but it is what you keep through really good strategies and understanding the options you have in front of you. So I love this episode. I think it's going to be very impactful for everyone and I'm so glad we did it.
- [32:52]
Austin Hankwitz
I am too. Now, before we jump to our Q A section of this episode, we need to take a moment to shout out NEOS Investments. This episode of the Rich Habits Podcast is brought to you by NEOS investments. NEOs offers ETFs that seek high levels of monthly income with a keen focus on tax efficiency while providing core portfolio exposure across equities, fixed income, real estate, cryptocurrency, and cash alternatives like t bills. Their ETFs may be especially interesting for folks looking to generate tax efficient monthly income inside of their investment portfolios. Their funds may serve as a compelling income focused alternative or complementary to many of the investments already in your investor portfolios.
- [33:33]
Robert Kroke
If you're looking to add passive income focused ETFs to your portfolio, consider learning more about NEOs ETFs@neosfunds.com and as with any investments, investors should carefully consider their investment objectives, risks, charges and expenses of NEOS exchange traded funds before investing. To obtain a prospectus containing that and other important information, please visit neosfunds.com and and please read the prospectus carefully before you invest. An investment in NEOS funds involves risks, including possible loss of principal. There is no guarantee that NEOs ETFs will make monthly distributions, and the amounts may fluctuate from month to month. Cryptocurrency is relatively new and the markets have their own specific risks, so NEOs ETFs are distributed by Foreside Fund Services, LLC.
- [34:22]
Austin Hankwitz
All right, Robert, let's now jump into our first question in the Q and A portion of this episode coming from Sarah on Instagram. Sarah says, hey everyone, what does a normal advisor client relationship look like? I'm 55 years old and I have one brokerage account that I've had for the last 20 years from an inheritance. I basically just been letting it ride, but I don't feel like this money has grown for me as much as it could have. I can probably count on maybe just two hands. The communication I've had with my advisor. I freelance and I want to retire by 60 and now I'm very concerned about that. In 2007 this account was valued at at 43,000 and now it's valued at 200,000. This account consists of mutual funds and a few blue chip stocks. I've reinvested all the dividends, but I haven't been proactively overseeing it and I've just kind of trusted the process. Listening to you all is making me question my relationship with my broker. Thank you so much for answering my question. So Sarah, I'm going to like, help you take a deep breath here. From 43,000 to 200,000 since 2007 is 365% return. During that same period of time, The S&P 500 delivered about a 320% return, which means that you are par for the course. Right. You're not really outperforming too much. You're not underperforming. You're just moving up with the markets during the same period of time. So don't feel like you've lost out on generational wealth. Don't feel like this, you know, 200 is really supposed to be 2 million. Right. It just, it's not. Not. You're doing a wonderful job just letting it ride and staying consistent, keeping this money invested. Robert, I'll let you jump in though and talk more about like the type of relationship that you think that Sarah should have with her financial advisor and maybe any advice you might have for her.
- [36:03]
Robert Kroke
Yeah, I love this question and unfortunately my response isn't going to be great, but it happens every single day. So make sure you understand that like Austin said, you've done all the right things because you've reinvested the dividends, you've let it ride and it is doing quite well. But that doesn't mean that the person handling your money is doing their job because at the end of the day, you hear Austin and I talk about it all the time, that we don't want people to have knee jerk reactions, but we do want people to have an eye on the prize and have active management on their money. And so many people just trust the process. And unfortunately you can't take your eye off the prize. And I feel like you have because you don't know what to do. In my experience, through my personal finances and CRO Capital over the last 25 years, I have noticed that what they do is they do a quarterly call with every client. And I think quarterly is enough for most people as they're building their wealth and as you get more and more items and more and more structure and more and more investments, then maybe you bring that up to once A month call. But I think quarterly is fine. So for you to only have a few interactions with this person over that long of a period of time, I think is a little egregious. So I would have a call with them. I would reach out and say, hey, I'm getting a little nervous. I see the returns have been decent. I want this to be more active. I want to improve on my situation. How can we better communicate to make that happen? Because like Austin alluded to, you're doing fine. You've turned this money into a meaningful sum, but it could be optimized further. And I think with more communication with that broker, you'll find yourself in a better place, but you'll also feel more comfortable because what a lot of people do, they fear the unknown. So it's kind of out of sight, out of mind with their money. And that is the absolute biggest mistake you can make. You wouldn't be here today asking this question if you're not ready to take the next step into understanding what's happening with your money and optimizing it it. So we really appreciate the question, but that is what I would do to put yourself in a better position to understand how to maximize your earnings over the coming years leading into retirement.
- [38:16]
Austin Hankwitz
So tactically speaking, Sarah, here are three things you can do from my perspective to make sure that you're 200,000. If you decide to keep it with your advisor, which you probably should, right? That's fine, but make sure it's working hard for you. The first thing is ask that advisor if you are invested into the S&P 500, the NASDAQ 100, the Dow Jones Industrial Average. These are the three most popular and best performing index funds in sort of ETFs, right, that continue to do well over a long period of time. So they probably have you in like mutual funds that have a strategy that's benchmark against those things. I don't care about if the strategy's benchmarked against it. I care if you are actually investing in the S P, actually investing in the nasdaq, things like that. Because anyone can benchmark a strategy against anything they want. Strategy can underperform, which it seems like you're not, right? You're doing fine. But just make sure you're investing in those specific indices. The second thing I want to make sure that you're auditing your expense ratios. Make sure that you're not paying for a, you know, double dipping of your financial advisor, which means you're paying them 1% and they're also putting you into these high cost mutual funds that are also at half a percent, 1%, one and a half percent. And now you're paying, you know, over one one and a half percent, maybe 2% a year in management fees. Right. Since 2007. I mean that is, it's like 50 return right there. So like just make sure you're not getting robbed from a expense ratio perspective. And then the third thing is I want you to promise us that you're going to have those quarterly calls with your advisor. You said you've talked to them a handful of times here over the last 15, 20 years and that's not going to cut it going forward. Right. You're 55, you want to retire in five years, which means you need to have a lot more more visibility, you need to have more ownership as it relates to what you're doing with your money. So set up a quarterly check in with your advisor, be proactive and just don't have that set it and forget it mentality. Instead switch to a proactive mentality going forward. Sarah, thank you so much for your question and we are rooting for you. Our next question is actually going to stay anonymous. So we'll just call them F because that's what their first name starts with, F says. Good evening. I had a question for you guys and I'd like to remain anonymous. Soon I'll be receiving $30,000 from a lawsuit and I wanted to see what you all would think I should do with it. Specifically what should I invest it in? I want to get into real estate in the next year or two so I don't have to pay for housing at my college because rent is high. I'd much rather buy a Property than lose $40,000 over the next two years renting an apartment. Thank you so much for your time. Robert, do you have any advice for F?
- [40:48]
Robert Kroke
Yes, I think it would be a bad idea to get this $30,000 and immediately dump it into a property because you don have your base built. You don't have any investments as of this question and what we know. So I think you should continue renting, find a suitable place that works. And I would take this $30,000. I would immediately get it into a Roth IRA on public dot com. I would max out the Roth IRA. I would invest in the basket of index funds that we talk about all the time. The VOOs, the QQQs, the VGTs, and, and the L. Like that's what I would do. Get your base built first because at the End of the day, so many people still believe that when you're paying rent that you're losing money. It is cheaper in almost every instance right now to rent versus buy. And at the end of the day, the last thing you want to do is take all $30,000, invest it into a property because you believe you're saving money on rent and then find yourself housebroke broke while you're trying to get through the next few years of school and getting into whatever position you're going to be in career wise. So that's what I would do. I would not take the money and immediately dump it into a property because 30,000 isn't going to be enough if you have issues or carry costs or let's say that the renovation costs more than you thought. So that's what I would do. Build your base first, get to a hundred thousand dollars saved and invested, then consider buying a property. And I would never buy a primary home as my first property. I would buy a duplex, triplex or a quadplex. Do a Fannie Mae 5% down mortgage and you will be set up and on your way to financial freedom.
- [42:30]
Austin Hankwitz
Yeah, I think what people forget about is for example, the home I'm in right now has a six and a half percent interest rate on the mortgage. I pay about 2350amonth in monthly mortgage and that's my payment. And so what people think of like, oh, so he's paying 2350amonth. Month. He borrowed 320,000. So every month he's paying $2350 off of the principal. Now that's not the case at all.
- [42:56]
Robert Kroke
Right.
- [42:56]
Austin Hankwitz
That's not the case with any mortgage. Right. First off, it's amortized very much. So where you pay a lot of interest in the first 3, 5, 7 years on your mortgage and then you pay a lot of principal on the back, you know, half, if not back 20, 25 years of the, of the mortgage. It's an amortization schedule that makes it so you pay a lot of interest upfront. The second thing to call out is to Robert's point, renting is cheaper than buying a home right now in America. I just went to rent.com the average rent in America is only up 0.4% year over year and it's at $1,607 a month. So 1600 bucks and you can rent a one bedroom apartment for $1600 right now in America. Compare that to the median monthly mortgage payment in the United States. The United states, which is $2,250 right now. And depending on how much you put down, it seems like it's even up even to 2,275. That's for a median home priced at $395,000. So I guess what we're trying to say is don't feel like renting, especially right now, you know, is throwing away $40,000 over a two year period of time. It's not. Here's how you think about it. You need to live somewhere, you need to pay somehow, some way, some somehow. Right? To live, live. And if it says that you're, it's going to cost you $40,000 to live, then that's how you're going to pay for your living. Either you're going to do it via renting or you're going to do it by putting down a big down payment by having to repair the dishwasher and the microwave when it goes out in three weeks and six months from now. And then also by paying a bunch of interest over the short period of time here because interest rates on mortgages are seven, seven and a half percent, especially if you're in college. Right. You don't really have a work history. So like, think about it as a blessing to take this 30,000. I'd love for you to max out that Roth IRA. I'd love for you to start building your base, getting those rich habits implemented. So the 30,000 over the next several years turns into a hundred, 200, $500,000 by the time you're in your 30s and 40s. And then when you're ready to go buy a home, do what Robert said, go house hack. We have a whole episode with Brandon Turner talking about house hacking. Different ways to do all that stuff. Go check that out. It's an incredible episode. But there's so much to do strategically as it relates to living and having a housing structure around you where you're not throwing money away. Right. Because I think that's what a lot of people think they're, oh, I'm throwing money away with renting, I'm throwing all this money away with my interest on my mortgage, whatever. There's a ton of different strategies that you guys can implement to ensure that you're building equity, you're maybe getting some cash flow and you are house hacking.
- [45:27]
Robert Kroke
Yeah. I think the biggest issue for me is most people never consider the total ownership cost when they're thinking of renting versus buying. So if you're going to rent like Austin Illustrated, at sixteen hundred dollars a month, you know that's what the rent is. You're going to sign a lease, it's in stone. You know what you're going to pay. You can add in your cable, your Netflix, your water, electric. You know exactly where you're at when you buy that first property. And you're getting used to homeownership, you don't know what's going to happen. You could be in that house for one month and the furnace goes out and it's $5,000 replaced. Then two years later you could have a roof go bad and it's $10,000 replace. That is why people get it wrong when they think own versus rent. We want everyone to own property. Everyone that follows us should own real estate, but they should own it on the correct terms. Too many people get started with buying a house right out of the gate. They live beyond their means and their house broke and it delays them from ever being able to invest properly towards financial freedom later on. That's why we want you to build your base. Then consider house hacking. That's what we would do.
- [46:32]
Austin Hankwitz
Now, before we jump to our final question coming from Mia, let's take a moment to hear from Blossom. You guys always ask us, what are you guys investing in right now? And you know, we aren't gatekeepers, but.
- [46:42]
Robert Kroke
We also don't blast our portfolio all over the Internet either. If you want to see it, you gotta follow us on Blossom.
- [46:48]
Austin Hankwitz
You guys know we've been big fans of the Blossom app for a while. It's a free social investing platform where people actually show you what they're investing in.
- [46:55]
Robert Kroke
And just to be clear, Blossom is not a brokerage. It's like a social network for investors. Think Instagram meets investing.
- [47:02]
Austin Hankwitz
And what we love is the transparency. You can literally see our portfolios, track our changes in real time, learn and discuss strategies with other real investors, among many other things.
- [47:11]
Robert Kroke
And the best part is the community in Blossom is long term focused. Not typical of what you see on the social platforms which tend to revolve around trading, FOMO and whatever's hype at the moment. Moment.
- [47:23]
Austin Hankwitz
And we all know there's always something hype at the moment, Robert. So if you're curious about how we're building our wealth or you want to just level up your own investing habits, download Blossom. It's completely free, it's easy and we are both on there. Just search at Austin Hankwitz and at Robert Croak.
- [47:37]
Robert Kroke
Official and huge news and highly requested. Blossom is now available on desktop. So you can head to blossomsocial.com to join the investing community that everyone's talking about now on the big screen. And of course it's totally free.
- [47:52]
Austin Hankwitz
So hit the link in the show notes below to join us on Blossom Blossom or head over to blossomsocial.com so we can build rich habits together. All right, Robert, let's now jump to our final question coming in from Mia. So our final question comes from Mia on Instagram. Mia says hello. Rich Habits podcast. Thank you so much for all you do. I'm 37 years old, I'm a self employed nurse practitioner and I have $160,000 spread across 5 old 401k accounts from my previous employers. I've already opened a Solo 401k a few years ago and it was originally with Vanguard, but I've since transitioned it elsewhere. I'd like to consolidate all of my old 401ks into my solo 401k to simplify my retirement accounts and keep everything in one place. I understand this move should be done carefully to avoid tax implications, so can you please offer some advice as to what I should do about the situation as well as what types of funds I should invest this $160,000 in? I love this. So as you probably heard on our advertisement earlier in the show, Public.com is offering a 1% back match on all of those rollovers into their platform right now. So if you have old 401ks, all you have to do is open up a traditional IRA because a 401k is a pre tax retirement vehicle just like a traditional IRA is a pre tax retirement vehicle. Roll over all five of the values of those 401ks into your traditional IRA. You'll get a 1% match on that $160,000 total rolled over. So you'd get an extra $1,600 for free from public for just using their platform. And that's how you do it. There's no tax things to worry about. It's just it's pre tax to pre tax. That's what matters most in this situation for you. And as it relates to funds, you can buy almost anything on public, especially ETFs, things of that nature. So you know, we want to encourage people to have Voo, the S&P 500QQ, which is the NASDAQ 100 VTI, which is the total stock market VGT, which is the, the you know, technology focused sort of strategy by Vanguard vug, which is a growth focused strategy. But then you also have things like vym, which is a dividend strategy PYI is a high income strategy from Neos but have the vast majority think 65 to 85% of this money invested into Voo. Qqq vgt vug these very tried and true strategies and indexes that have been around for a very long time Time.
- [50:11]
Robert Kroke
I don't have anything to add. I think you crushed that and that is exactly the playbook of what to do here and public.com is a great place to do it.
- [50:20]
Austin Hankwitz
Robert what another awesome episode in the books. I'm excited to be back. We're back. We're back on the saddle getting episodes made and it's just, it's just a blessing. It's a blessing to be able to come back here every single week to film and talk with incredible human beings about awesome financial strategies that hopefully help everyone build wealth, save on taxes and enjoy more time with the people they love. Use that money intentionally. Call your parents, tell them you love them, talk to your kids. Do do all the fun things with your friends and family because when they're gone, they're gone and just come to that realization is really heavy. So want to make sure everyone is moving in the right direction. We're so excited that you guys are here joining us every single week. If you've not yet checked out the Rich Habits Network, it's our community. For our biggest fans, Robert and I host weekly Zoom Calls for our community members every Tuesday night. About 180 people show up to last night's Zoom call. It was pretty fun. It's awesome. We've hours of video coursework over there. We're publishing a new video course actually about building small businesses, buying small businesses, making some money with that. Stay tuned. But there's going to be a link in the show notes below and then also don't forget our new weekly episodes coming out Friday, August 1st. Really excited about those, the Rich Habits Radar as we're calling them. And it'll be a breakdown of the week's biggest headlines and happenings that are moving your portfolio in real time time.
- [51:38]
Robert Kroke
Yeah. I'm so blessed and grateful of this podcast and the community we built because you know, we had a bumpy road for the last week or so and it really makes you realize how important all of this stuff is. And so I'm very grateful for you, Austin and Christian and the whole team, but also the crowd and the audience that we've built around this message that personal finance is personal. And we are here to help guide all of you do in every aspect of business mindset and finance that we can because they don't teach it in schools. And for us it's just a wonderful, wonderful thing that we get to do each and every day for all of you and we thank each and every one of you for stopping by, giving us those five star reviews and sharing with friends. It's one of my favorite things that I get to do every day and we so appreciate all of you.
- [52:27]
Austin Hankwitz
Yeah, this episode is one of those episodes that you should go share with your friends. If you know any high earners, if you know business owners, if you know people out there that need to save money on taxes, share this episode with them. Say hey, these are some interesting strategies to consider if you've not seen them already, go listen to the Rich Habits podcast. They do a good job breaking that down. We would appreciate you as always, thank you all so much and have a great start to your weekend.