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The Entrepreneur DNA
1. $1 BILLION in Tax Savings: The Secrets Your CPA Won't Tell You | David Perez
00:42:58
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- [00:00]
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- [01:28]
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Justin Colby
What is up the Entrepreneur DNA family. We are back with another incredible guest and if you have not yet joined the entrepreneur DNA community, I advise you to go to the entrepreneur DNA.com be a part of this community because incredible humans like our next guest will be advisors to this community to help us think through taxes. You heard me that you heard that right. One of my favorite and least favorite subjects in mankind is taxes. In our next guest, David Perez is a tax strategist. In fact, he has helped his clients save over 1 billion with a B in tax savings. David Perez, what's up brother? How are you?
- [02:13]
David A. Perez
What's up man? Thank you for having me. I'm excited.
- [02:15]
Justin Colby
Yeah, yeah. This is a great community. All entrepreneurs from the fledgling early stage entrepreneurs all the way to the guys that are figuring out how to take a $10 million company and get it to 100 million-plus. So you have the audience that really cares about your, your circle of genius. Let's just talk about the first things first, right? It is March 30th as we record this, we have this little tax date coming up very shortly. Talk to us a little bit about some of the things that are top of mind when you're consulting your clients and helping them find tax strategies to avoid paying taxes.
- [02:54]
David A. Perez
Well, as, as you know, the, the, the deadline is, is April 15th, depending, and if that falls on a weekend, then it moves to the next business day. And so that, that's always going to change every year. But in the preparation of filing your returns, there's a lot of things that you need to consider. After a year ends, after December 31 ends, there's relatively not many strategies that could be impactful to your return that's already been completed basically. Now what is very important to do in the, in this year before you file is to make sure that you have accurate data because that's, that's what we find the most challenging with most entrepreneurs today. They don't have the most accurate data. They don't have up to date financials. And so when they file their returns, sometimes they guess or they roundabout or they, they take longer than needed, allowing them to either file an extension without making the right estimated payment or filing a return that may not always be as favorable to them in the moment. And so right now, I mean, you've got two and a half weeks or a little less than two and a half weeks to really do this. And if you're not doing it correctly, I mean I would be going to my, my accountant, my tax professional right now and saying, hey, we need to file an extension. But you have to determine do you want an extension of time to file or time to pay. Neither. The, the time to pay is never extended. But you just need to know, am I going to pay an estimated payment or am I going to just wing it? And a lot of entrepreneurs in the early stages just wing it. I noticed.
- [04:15]
Justin Colby
Yeah, of course, Absolutely.
- [04:17]
David A. Perez
Oh yeah, I was there. Oh yeah, we're all there. But as you become more mature, this becomes a, this just becomes a part of the business cycle. Right. And if you're doing this correctly, by the way, you're, you're not, this is not even a thing. This is just, let's just check the box, let's get the returns done. Because the year was already over December 31st for most business owners or even just high net worth individuals.
- [04:39]
Justin Colby
Yeah, you say so much. I want to unpack.
- [04:42]
David A. Perez
Yeah, let's do it.
- [04:43]
Justin Colby
Most early stage entrepreneurs wing it to the, to the 10 and me, me included. Right. I'll just get around to like, I don't know, I'm just, I want to make money. Right. Give us the early stage entrepreneur advice that you can. Right. Think about when you just started. When I just started, the people that have done this, I've done this now 23 years and I was the king of winging it. Right. Just who cares? Just let me make money. I'll deal with the IRS later. Like I want to make money so they even have something to come get.
- [05:12]
David A. Perez
Right. Yeah.
- [05:13]
Justin Colby
But what would be some pieces of advice for those early stage entrepreneurs?
- [05:18]
David A. Perez
Well, my advice for early stage entrepreneurs is always going to be don't run your, your business out of a bank account. That is a very common theme amongst business owners today. They, they seldom look at their business as a financial equation. It's more of a inputs and outputs. So it's how much money comes in, how much goes out and hopefully there's a surplus at the end of the month and that surplus is what they live on and depending on, on the seriousness of your business, meaning seriously, seriousness to me means commitment will determine how well you manage that input, output. Right. Because if you're managing it to live out of there, that's a problem. And that usually happens to most early stage entrepreneurs. That was me, I would, you know, go and pay for food or dinner at, in the evening and groceries and whatever I could use my, my business card for, because that's what you're supposed to do. But then as you progress, one of the challenges that you'll see is that I would say there's a startup phase and then there's what we would call maybe like a, a growth phase in a business. And startup phases to me are those who are typically under 200,000 or maybe even under 100 and, and they haven't really made a serious commitment to the business. But once you seriously commit to business, you're in the growth phase and that's typically between 200,000 and above. And that is where things become different because you realize that managing your business out of a bank account, it also causes you to be very sloppy when you file your taxes. And this is the biggest challenge that I see. Most startup businesses who transition to growth businesses go through which is they need funding of some sort either to fund the growth of their business or fund the growth of their lifestyle. So they want to buy a home or they want to buy a property or they want to buy something and they can't because those last startup years are really, are really taking them down. They showed no income. They manage their expenses through their bank account. They have little to no real credit worthiness. They may have a great credit score, but no worthiness because they just didn't establish themselves from the beginning. And that's not, not to the fault of their own. It's just what happens and I think that's the biggest gap right now is when you go from startup to what I would call growth. You're really messing up a lot of the things that would really set the right foundation.
- [07:27]
Justin Colby
So in startup to growth, that 0 to 200 grand, let's just use that barometer.
- [07:33]
David A. Perez
Yep.
- [07:34]
Justin Colby
What do we need to do? My. So as someone that typically advises early stage startup type going into growth, I don't advise the, the, the IND the businesses that are at scale and in running to 10 million. But I do advise what we are talking about besides just going out and making more muscle, hustling. Just go make more money and hustle, just get it done. What tax strategies can they be thinking about while doing one? The hustle mode to 200 grand. What specifically you said don't run it out of bank account. Do they need business lines of credit, Amex cards, charge cards? Do you advise some way of doing how you finance your car? Like what strategy in that phase do you want to advise?
- [08:22]
David A. Perez
Well, I mean the strategy in the beginning it's, I hate to say it this way, there's not a ton of strategies when you're in the startup phase of your business.
- [08:30]
Justin Colby
Sure.
- [08:30]
David A. Perez
A lot of it's just expense, right. So it's documenting expenses that are legitimate to your business, meaning buying things that your business needs in order that are ordinary and necessary to run. And the reason that I say that is because most real advanced strategies require capital intensive investments. And if you're in the startup phase, you don't got the money. It's just very simple. So the biggest, the biggest advantage that you have though is that your ability to document things is a lot easier in the startup phase because it's not a lot of things. It's not a lot. And if you do have to make some investments to grow, like you're buying computers or you got to buy some sort of equipment or you are going to buy a vehicle for business, those things can happen and are huge deductions. I would say that in the beginning you should be focusing on expenses that are legitimate, number one. Number two, depreciation is probably your best friend. And I say that because depreciation is when you buy an asset like a laptop or an iPad or a vehicle and you place it in service on your return and it gives you a deduction on that return. Now the cool thing about depreciation though is that unlike other deductions, like for an example, if you buy supplies for the office, supplies for an office are legitimate deduction. Or rent is a legitimate deduction, meaning they go dollar for dollar deductions and it's an expense that goes out, whereas depreciation could be accelerated. Meaning I can take a computer for, for $2,000 and I can either finance it, so I could finance it on a credit card, but I could take a two thousand dollar deduction. And since it's in depreciation, when I go to a bank, the bank will allow me to add back depreciation to my income, allowing me to still look like I made money, even though I spent money on an expense for my business. Where you can't do that with rent, you can't do that with utilities, you can't do that with notebooks, you, you can only do it with depreciation. So if I had to give you a careful balance, it's like use legitimate expenses and when you can use depreciation, use it so that you can always show reportable income.
- [10:24]
Justin Colby
Give us a, give us a handful of some of the smaller. Because I come from the space of real estate, so when you say depreciation, I go kind of one where I'm
- [10:31]
David A. Perez
in real estate, man.
- [10:32]
Justin Colby
But I would love for you especially I think this, this concept of putting it in service, right? So the laptop going into service, maybe phone, give us a handful. Kind of top of mind of a list of some of these smaller things. Not going and buying an apartment building. But some of these are smaller things that people could look at like. Oh, I could go ahead.
- [10:52]
David A. Perez
Oh, great. So some small things you can get from depreciation, obviously a cell phone, an iPad, a printer, a computer. Not office supplies that you are not, not inventory. Most people get that very confused. They buy inventory for their business. Inventory is not a depreciating asset. It's actually same as cash. So it has to be an asset like chairs or a desk or this microphone. This is a great example of that. Things that are used for the nature of business or pursuing income and they have to be ordinary and necessary for your business. Then that's, that's really important. Some people will say, well, I need a watch to tell the time in my business. But a watch is, is not ordinary and necessary unless you're a watch dealer or you sell watches for a business model, which very few people do. So depreciation is just a Great. It's a great way to get a deduction and allows you as, as the buyer to use that deduction on your return but also be credited back to you when you go to a bank for financing, which is incredible. And if you're not in this position yet, you're going to learn it. Because what most people do is they expense to zero. They look broke to the bank and broke to the irs where you want to look rich to the bank and broke to the irs.
- [12:04]
Justin Colby
That's right. Yeah. No, that, that is so powerful. I know you do a lot of advisement to other CPAs accountants. What are the, the things that they come to you with like, oh, I have a client that makes $30 million a year and they need to find a way for tax write offs tomorrow. Or you know, they're on it, they're on a rocket ship and they know they this year they made 10 million, next year they're going to, they're on the trajectory making 30. Right. So when these accountants come to you and they have more the growing to scaling component of their clientele, what are some, you know, pieces of advice you talk to them about?
- [12:43]
David A. Perez
Well, first when you're, when I'm talking to an accountant about their particular client base, we have to determine what type of income they were looking to offset. Right. There's ordinary income, there's passive income, there's capital gains income. And so we have to determine that first and foremost. Number, number two, it, it's, it's now, it's what kind of client are we talking about? Are we talking about somebody who wants to be aggressive in tax saving strategies? Now when I say aggressive, I want everybody to pick that up. I don't mean illegal or evasion. I'm just saying there are strategies that require more capital contribution than others. Meaning. So if they want to do a capital outlay that may have some risk involved with that, that's okay. And they, they have to be risk tolerant. And then we have to know how the accountant feels, the tax pro. This is, this is actually one of the biggest limiting beliefs that I find is that a lot of accountants don't even know or believe that it is possible for somebody who is making $30 million to pay zero in taxes. They don't believe that. Number two, they don't believe that. If they do believe it, like, oh, it's possible. But then they're like, but that's got to be legal. And then, and then the third thing is like, I don't know how to explain this to my client because they're going to think that I'm trying to do something illegal, which is all. All not true. The tax code was written in a way that allows to incentivize behaviors, and those behaviors are typically in investments. Like you mentioned, real estate. That's one of our favorites. It's not. It's not the most impactful. I mean, it's very impactful. It's not the most impactful, but it is impactful. The only problem with real estate today, as you probably know, deals don't make sense.
- [14:12]
Justin Colby
Yeah.
- [14:12]
David A. Perez
So they may make sense from a tax standpoint, which is cool. But I mean, I don't want to lose money on it.
- [14:18]
Justin Colby
That's right.
- [14:19]
David A. Perez
Yeah. I don't want to lose money. I want to lose money on paper, but not in real life, you know.
- [14:23]
Justin Colby
That's right. Yeah, but.
- [14:25]
David A. Perez
But energy sector, like solar is a huge play right now. We also have some stra. Strategies that involve capital gains that are offset through forex trading. We have some charitable donation strategies. We have some real estate strategies that are. They're not really real estate. They're more like temporary housing strategies that allow you to purchase assets that are similar to homes, but like mobile homes that can depreciate very quickly. There. There's a lot of nuance. But when I talk to a client or when I talk to an advisor, which is a cpa, I'm really just saying, what's your client's appetite? What kind of cash outlay do they have? What kind of. How aggressive do they want to be in this strategy and how soon do they need to make these decisions? And once we get that, we start rolling with strategies and start putting things into place so they can actually execute before the end of the year.
- [15:12]
Justin Colby
Yeah. What are some of the tax strategies that the rich people do regarding their taxes that poor people don't even know exists?
- [15:22]
David A. Perez
Well, I would say that a lot of. I mean, poor is a very. It's a loose word. Right. So I mean, meaning, I don't know what we would define poor as. I would just say that a lot of people don't understand that investments are what give you the tax benefits. Because a lot of. A lot of just normal taxpayers don't believe in that there are investments or don't even invest anything. They've invested in either the S&P 500 or some sort of, you know, ETF or something. And that is an investment that they think is the way crypto or something of that nature. Whereas wealthy people know that businesses by. By nature are. Are Investments. They know that assets need to be bought in order to offset income. They understand that investments come with risk, which very few people just generally want to have risk. Everybody wants certainty. But the riskier that you get, the more rewards that you're. You're betting on. And so I think just wealthy people understand this concept of investments in assets versus, I would say a poor person just doesn't understand what an asset really is.
- [16:24]
Justin Colby
Yeah, I mean, we don't have to go into the. The economic status. I really believe that the gap is really separating in a massive 100 right now. I mean, it is. If people are listening to this right now and they think they are poor, they have to do something about it right now. I don't. I'm not counting. And by the way, I've been legitimately poor. My home's been foreclosed on. The repo man has taken my car. I've slept on a couch. Like, I've been legitimately poor as an adult. I know that. And I know what being very rich feels like. I know both of them now. And I can tell you, if you feel like you're closer to poor than rich, this episode's very meaningful for you. Whether you do reach out directly to David or not, understanding the laws and how the code is written literally for us, that is going to be imperative of how you move forward over the next decade, because it is. Can it is. Again, just my own kind of opinion right now is this gap of the have and have nots is going to just be unbridgeable at some point.
- [17:28]
David A. Perez
I 100% agree with you. And if I could add that, I think that what the big disconnect today is not just that the income disparity is just growing by. By leaps and bounds. And it's really just a disconnect between. People want us. So, like, I meet people every day who want to save money on their taxes, but what their real problem is an income problem. I see that all the time. Right. And I think a lot of people get caught up in this now, this new, I guess this new mantra or this new belief that investments are the way to wealth. And I do believe investments help to stack wealth. Wealth. But in the early onset of anybody's career, it has nothing to do with investments other than the investment in yourself and then the business activities that you're. You're going to. Because you can't have these tax problems without having income. You just can't. And a lot of people put the cart before the horse and they're like, I Need to strategize about my taxes. I'm like, bro, you made 50 grand. Okay. That's right. And, and, and I like that you're ambitious, but 50 grand, right now, you don't make enough money to do anything. We need to just help you make more money first. And, you know, because today in the, in the world that we see and I see now, right when I was coming up, and I mean, just generally, I used to think a million dollars was a lot of money.
- [18:42]
Justin Colby
Yeah.
- [18:43]
David A. Perez
And, and now a million dollars is nothing, man. And I know that sounds really arrogant, but it. If somebody has a million dollars in their 401k right now, that's not enough money to live. If you have a million dollars in the bank and you stop working today, that's not enough money to live anymore. I mean, the cost of living is going crazy and the luxuries of our lives, now everybody's got new, higher standards because we're all kind of spoiled in our own lives, right?
- [19:06]
Justin Colby
Yeah.
- [19:07]
David A. Perez
Unless. Unless you have really modest means. But then I feel bad for those people because it's like, you didn't. You weren't put here to just, you know, exist. You've got to enjoy life at the same time. So I think that there's just this disconnect between what people believe they need to do, which is not invest. They believe they need to invest, but it's not investments right now. It's truthfully. If you're under 250,000, you need to just get your ass to work.
- [19:30]
Justin Colby
I mean, it's funny you just said that. That has been. I've been yelling that from the mountaintops for the better part of a decade is if you are personally not putting 250 grand in your pocket. There is only one thing you should be thinking about is that how do I get there faster? That's it.
- [19:44]
David A. Perez
Yep.
- [19:45]
Justin Colby
Get everything else is a B. Like, trust me, my accountant would say all the little politically correct things that he should be saying. Well, you got to make sure you're putting 30% away. And then you got to make sure. Go make more money faster. You'll re. You'll get there. Right. And so again, if. If you feel like you're not there yet, if you feel like there's one thing you guys got to do is listen to David. Get your butt to work. Focus on sales, focus on lead generating and make skills.
- [20:13]
David A. Perez
Get skills. Man, I, I hate, I hate to. To be that guy, because I've heard a lot of people say this, but it's just Just get some skills, man. Like, skills are, are what sets you free these days. And lead generation is a good skill. Marketing is a good skill. Communications a skill today. I honestly think. This is crazy, but I think just thinking is a skill today, which is unreal to say, but there's so much dependence and leverage right now on AI, even in, in tax strategy today. A lot of people are like, oh, I AI'd this strategy. It should work. And I'm like, well, you know, I mean, would you trust AI to, you know, do open heart surgery on you right now, or would you trust AI to do the things that you. I mean, AI is a tool. It's, it's not the solution. It's just a tool. It's a research tool. It's a, it's a great way to move faster, but it is not the solution to all problems. And the problem with, with people today are they're reliant on it as, as the solver, like the thinker for them. They're like, oh, this is, you know, I have had people send me emails that I can tell were written by a. And I'm like, dude, you could have put some thought in this. Like, just, just, just take, take the AI out of this and just be you. Just be you, bro. Like, yeah.
- [21:21]
Justin Colby
Anyway, easier said than done. What is something the IRS actually wants us to do? Like in their how they Wrote the law, what is one thing or a handful of thing? What does the IRS want us to do that no one is doing right now?
- [21:34]
David A. Perez
Well, that, that, that's a very good question, I would say. Let's go a little deeper. The IRS is just the enforcer of the code, right? They're, they're not the writer of a code. The writer of the code is Congress. So a better way to state that is, what does Congress want us to do? Right? Because Congress is, is ultimately the decider of what's about to happen. And Congress passed the new one, big beautiful bill that is now, you know, incentivize certain activities, like buying real estate. Well, they, they incentivize bonus depreciation, which real estate is just a benefactor of. That doesn't necessarily mean that real estate is the only thing you could buy a vehicle, you could buy equipment or machinery. These are all ways to get depreciation. But, but of course, they're also incentivizing some business credits for solar, which is a huge one for 20. Though solar may not sound like something maybe the current administration likes. It's still in play and it's still very Big. But housing is also one. Real estate, as we mentioned. I would say that any activity that's putting money back into the stock market, that's why they founded those Trump accounts for children, which. Small, small incentive, but, I mean, it's still something that they want to incentivize. I would say there. There's a lot of small things, I think. So it's kind of interesting.
- [22:47]
Justin Colby
What about employing your children? I like that one.
- [22:50]
David A. Perez
I think employing your children has always been in the. In. In the code. So I don't think that that's a disincentive. I don't think they incentivize it. I think it's a loophole that was unintended. And we're capitalizing on two things. In this case, we're capitalizing on each taxpayer in this country, regardless of age. You're a taxpayer, at some point, you have a standard deduction, meaning there's an automatic deduction that's given to you by the IRS tax code. All we're doing is contributing income from our business to our children to the extent of that. That standard deduction. So if it's 16,000 this year, 16, 100, I can contribute 16,100 to my children, just coincidentally. Right. So we're, We're. It's like an unintended consequence. That's all it is. It wasn't written. So there's no code that says, this is the code to pay your kids. It's just an same thing for. Well, alternatively, like the Augusta Rule, which is code 280A, to rent your house to your business. That is a code, and it is written in the code to allow taxpayers to release their home back to or lease their home, just generally. Okay, just to be clear, they should be able to lease their home up to 14 days, generally tax free. But what business owners decided to do is to lease their own home to themselves. So that's how. That's why the code wasn't written to allow taxpayers to lease it to their business. It was written for taxpayers to lease their home just generally. And then business owners figured that out and said, oh, well, my business will be the tenant. And then that's how that became the Augusta Rule.
- [24:20]
Justin Colby
Yeah. By the way. Which is a great hack. I mean, you know, I use the word hack. It's written in the rule. I mean, it's literally written by the irs or to your point, Congress, that this is how. If people could just listen to this episode. And again, whether you get a hold of Dave Perez. Dave, where can people find you, if they do want to communicate with you or reach out to you, you can
- [24:40]
David A. Perez
go tax plan Experts with an s.com and Schedule A call with me or my team. Or you could find me on any, any channel. I am David A. Perez on any channel and you can send me a dm.
- [24:53]
Justin Colby
Yeah. And the reason why I say that is because you have to understand all these people, you know, people rip Donald Trump to death and leaving politics out of this, but it's because people are yelling at all these people for not paying tax. These billionaires that don't pay taxes, they are just using the codes and the rules to their advantage.
- [25:12]
David A. Perez
That's right. That's right. Well, I would say just, just from my own context, right, I haven't paid taxes in about six years now, and I report a net income over, over seven figures every year.
- [25:24]
Justin Colby
And, and you don't pay any taxes on that?
- [25:26]
David A. Perez
I don't pay any taxes, but I, but, but that, that's kind of not true. At the same time though, because I own a lot of real estate. Sure. I, I pay over six figures in just state property taxes, property taxes every single year. I pay sales taxes every year. I pay property taxes every year. I pay franchise tax in the state of Texas every year. There, there are taxes that I pay every single year that I don't avoid. And I mean, if I could find a way to. I'm not saying that I like paying them. I'm just telling you that they're the state of where I live in Texas. Right. They're not going, they're not going hungry because I ain't paying taxes here, man. I'm paying taxes and I'm paying exactly where it needs to go, to my local community where the biggest impact is happening for me.
- [26:12]
Justin Colby
That's right.
- [26:13]
David A. Perez
That's what I want.
- [26:13]
Justin Colby
That's right. And that's, you know, listen, my accountant says this all the time. He said, stop bitching about paying taxes because you made a lot of money. The reason why I about it is because I'm saying, hey, you're not giving me the advice I'm needing. This is why David Perez is so attack strategist is so important, is because a lot of times CPAs literally just fundamentally do what they're supposed to be doing, which is reporting your income and expenses and all the other things, but they're not actually strategizing with you. Like, hey, what do you see coming down the future? Hey, what kind of assets can we buy? What can we depreciate? Whether it be real estate you used machinery. I have a buddy who just bought seven figures worth of machine. Like, like, what am I thinking? Like bulldozers and like that. Like, he was like, dude, I just got a ridiculously large tax wrap. Another buddy who bought a oil drill.
- [27:04]
David A. Perez
Yeah, yeah.
- [27:05]
Justin Colby
And all these things are massive tax write us. But if you don't know, if you're not listening to this podcast, if you're not listening to us right now, a lot of people don't know these things. What are some of the secret tax write off secrets? Not a secret to you, but I think. What do you think? The common individual out there making some money doing some things, but they're not even aware that this would be a tax write off.
- [27:25]
David A. Perez
Man, that's, that's interesting because a lot of them would require a little more complex topics, but I would say there are turnkey business investments out there that offer tax strategies. As an example, you just mentioned equipment. We have a, we have an investment that they can make into a turnkey rental equipment business that allows them to invest in this business, get a return from the equipment that they purchased. The, you know, so they basically buy equipment, put it into service as a rental company. There's a secondary party that leases out that equipment, pays a return back to the investor, which is the taxpayer. The taxpayer owns the equipment, owns the business, and then they take the depreciation on their tax return to offset their income while they're simultaneously getting income from the rental equipment. It's called a turnkey investment. And we have quite a few of those, by the way, beyond just rental of equipment. But there, there are turnkey investments that people can make just kind of like short term rentals. Nowadays you can buy a short term rental already in place. Very, very similar concept. We have several of those that people can use today. Obviously you have to be an accredited investor. You have to have the ability to purchase equipment. So there are criteria that needs to be met. But I mean, they're out there. They're out there everywhere.
- [28:38]
Justin Colby
Yeah. What is. You know, people look at Grant Cardone as a great public figure that talks a lot about this kind of stuff. I don't think, I think people think Grant Cardone is just douchey when he, when he's, you know, showing his jets and his G Wagons and all these things and his helicopters. Remember he bought two helicopters.
- [29:00]
David A. Perez
Yeah.
- [29:00]
Justin Colby
David, tell everyone why he's doing that.
- [29:03]
David A. Perez
Well, I mean, first and foremost, I, I like Grant Cardone. Now that's.
- [29:08]
Justin Colby
He's a buddy of mine. I'm saying this because this is what the public perception. But he is a really great dude and very smart when it comes to this.
- [29:16]
David A. Perez
I get it. I like Grant Cardone because he's leveraging the tax code. He uses it to purchase assets. Then he uses that depreciation to offset his income every year or not every year, the last. I think he bought a jet at the end of last year in December or October, December somewhere in that neighborhood. But he bought a 60 million dollar jet for the same purpose to get a depreciating asset on his return to offset his income. So is he doing all these things technically for business activity? Absolutely, he's doing it. What I would say that I don't like about Grant Cardone is that when he's asking people to invest money with him, when you're investing money in Cardone ventures to go out and purchase real estate, which is a very cool concept, there's a lot of ambiguity. He's saying talk to your tax professional before making these investments to ensure that they benefit you. Well, I, I'll just be honest. There's no way that those tax benefits are actually falling to you that are actually beneficial because in most cases you're a passive investor and that means you're going to get passive losses. And so because of that the investment is, it's not a bad investment because I don't know that. I can't say it's a bad investment. What I can tell you is that tax benefits are non existent in year one and you're not going to be happy about that. And I know that you're not going to be happy because most people buy into real estate for the tax benefits at that capacity. When they say come buy these $140 million units, well automatically I'm thinking man, tax savings for me. But the truth is I don't get any. And so that's the only thing that I don't think he's doing anything wrong. I just wish he said that louder. But I mean, I can see why he doesn't. I mean he's like, hey, go talk to your tax person because honestly you may have a lot of passive gains on your return from other activities and that could offset it. So it could benefit you. But I mean it's probably less than 1% of the people who are investing.
- [31:01]
Justin Colby
So what is. So how, because I have not invested in anything of his. How is he structuring it? That it. Because it's passive because you're a limited partner, I'm assuming, right?
- [31:11]
David A. Perez
Correct.
- [31:12]
Justin Colby
You make $10,000 in rent?
- [31:15]
David A. Perez
Yep.
- [31:16]
Justin Colby
You still get to write that. That's tax free. Well, no, I'm not sure how he structures it. Right.
- [31:21]
David A. Perez
Well, so when you make an investment into a syndication is what he's doing, he calls it a fund, but it's a syndication because he's doing it by property. So you purchase into this one property, let's say you put a hundred thousand into it and you become an owner. You're a passive investor, limited partner. Now every year you're going to get a distribution from that property, either a gain or a loss. In year one, he's going to give you a loss because they're going to do a cost segregation study, which is accelerated depreciation. And it's going to come to you in a negative K1 in the first year. And let's say that negative K1 is probably equivalent to your $100,000. Let's just assume that. So you get a negative that comes to your tax return and you would expect that that $100,000 loss would offset your $200,000 income. But it does not because, well, it's a passive loss. And passive losses can only offset passive income. And your ordinary income, which is non passive, it can't be offset. Now year two comes in and let's say you get $1,000 return. Let's just use as an example. So he's giving you $1,000 K1 positively. And then you have some, some depreciation that's going to offset it because still, there's still depreciation. You'll probably not report anything when they sell the property, let's say in 10 years. And there is a gain, let's say you do gain, I don't know, 150,000 as an example. Well, at that point it's a capital gain. Plus you're going to get the depreciation recapture, if there's any. And so you're going to have to offset your tax return somehow. And that gain is going to be taxable. Whatever it is, is going to be taxable. Let's say it's $50,000. There's no way to offset that. So along the way you may not show any income, you may not actually get any income because the property has to make money. Number one, the depreciation is probably always going to offset the income. So you'll never pay taxes on it. But that 100,000 from the beginning never really benefited you in year one. So like you're, you're just along the ride, you just put 100,000 in and you just ride it for 10 years. It's a long term investment because there's no immediate rewards. There's just nothing. And so I don't like that for me and I don't like that I don't get the tax benefits for me. I think that, I think that if you like Grant Cardone, you believe in him, I do too. I just wouldn't invest in that type of fund because it doesn't make tax benefits for me and it doesn't give me a return fast enough. That's just my belief.
- [33:32]
Justin Colby
Yeah. And I think you're talking specifically because most of the people are be high income earner W2s and those employees, you can't use that as a active income tax write off. So I'm using a little bit more. I know what you're saying. I just want to break it down
- [33:47]
David A. Perez
a little bit because I can, I can make it really simple. So there's just two types of income. There's non passive and there's passive. So passive is usually real estate. Non passive is what you do to get. You earn it. Right. You work.
- [33:56]
Justin Colby
That's right.
- [33:57]
David A. Perez
That's it. So these two do not offset each other, period. Like, you cannot take losses from real estate and offset your ordinary income. Now you can, however, you can take passive losses and turn them into non passive income. And the way you do that is by meaning a specific criteria with the IRS called real estate professional status. That, that's another conversation in itself. But most people can't meet that. Most people can't meet that.
- [34:21]
Justin Colby
That's right now. And I'll briefly do it because that is my background. You, you need to have some large amount of hours, 700 hours or so to become rep status like your real estate professional. Okay. Most people can't meet that because they're a doctor and they make a million dollars a year and they don't have time to do that. Now, a caveat. Could that same doctor go out and buy an Airbnb and treat it as a business and then 100% now, because they own an Airbnb, they have a real estate business, they are now a real estate professional. They can now go take that tax write off against their active income 100%.
- [34:58]
David A. Perez
The challenge would be, is that, could they buy an Airbnb big enough with, with enough income to support the investment? Sure.
- [35:05]
Justin Colby
Yeah. And that's so again, because for the sake of time, right, like this is why you guys got to reach out to David in his team. But he's right, right? I mean can you buy a 2 million dollar Airbnb and you're gonna probably have to put 400 grand down on that. And then is the income really gonna that 400 grand for that? Is there enough income and is it make enough sense, like just practical sense to make that investment just so you can take the 100 grand that you gave Grant Cardone and, and use that against your business? That's what he's saying is, is it just becomes math.
- [35:39]
David A. Perez
Right.
- [35:39]
Justin Colby
Making investments to make investments, just to do that doesn't make any sense.
- [35:44]
David A. Perez
A lot of the times I find that there's a lot of people who want to do those kind of deals and I, it bothers me because there's a lot of, there's a lot of salespeople out there selling these type of deals are like, buy this Airbnb, get the tax benefits. And there are easier ways than that. By the way, I have so many strategies at our disposal that you don't have to buy an Airbnb to get that benefit. In fact, I can get you with less cash out of pocket with bigger deductions. So I mean, it doesn't have to be a one.
- [36:11]
Justin Colby
What would be one example that you're thinking of? What would be that example?
- [36:13]
David A. Perez
Well, a good one would be our equipment, the one I mentioned earlier. It's only 10% capital outlay. So if I want to buy $1 million of equipment, I just need to put 100,000 out of pocket.
- [36:23]
Justin Colby
And you get a million dollar tax deduction.
- [36:26]
David A. Perez
Yeah.
- [36:26]
Justin Colby
Wow.
- [36:28]
David A. Perez
And
- [36:30]
Justin Colby
now. But that doesn't still do the rep status. So that's just talking one for one. So does that help the, the high income earner W2?
- [36:37]
David A. Perez
Yeah, yeah, yeah. Because that hunt, that $1 million will be considered an active activity. So it will be, it will offset your million dollar W2.
- [36:45]
Justin Colby
Oh, that is phenomenal.
- [36:46]
David A. Perez
This is why it is a great strategy.
- [36:48]
Justin Colby
Yeah. That's why the Airbnb strategy works. Because active activity, you're running a business. Same idea is you're, you're doing active against active. To David's point, when you try to go passive against active, that's where there's a break in the chain. It never connects. There's no bridge to it unless you do some of these things that we're talking about that Dave's advising. Right?
- [37:06]
David A. Perez
Correct. Unless you move it the other way around. But to be honest with you, right now, I, I know there's a lot of noise and there's depending on who you talk to, they're going to say buy Real estate or don't buy real estate. To me, I don't. I think it's always a great time to buy real estate. I just think the deal needs to make financial sense. It always has to make sense. And if it doesn't make sense, don't do it. That's, that's it. Like you don't want to be speculative right now.
- [37:30]
Justin Colby
No.
- [37:31]
David A. Perez
Especially if you're not in a good cash position. That, that's the problem. If you have cash and you're willing to be speculative and you want to sit on something for a year, that's different. But if you don't, if this is all the money you got, like don't, don't do that.
- [37:45]
Justin Colby
Yeah, you know, I, I buy, I'm with you, David. I buy large apartments not quite the size of Grant, but you know, we just funded a $36 million AP. The month before that we funded a 40 million dollar apartment. So I believe in this. Now I also agree with everything you're saying. I don't want people going into that kind of space. Let me rephrase what I'm going to say. The reason why I believe it. Sure, I do have rep status. Yes. I get the tax write offs. That's great for me. Not everyone gets to do that. However, I also believe in building and accruing wealth. That's right. That's more why I'm doing it. Not necessarily for the tax write offs. However, when I own 4% of a 40 million dollar apartment and I owe 1% of 150 million dollar apartment and you know, that stuff starts to add up for me, of course. But I also think people are so consumed with what you and I are talking about. How do I stop paying taxes they're not actually thinking through? Hey, maybe this investment doesn't help your income, but it creates an opportunity for you to have tax free wealth accumulation. Okay, so what I believe is most people, like you said the beginning of this episode, episode, People have no idea what it's going to take to retire these days. I have a calculator. I'm sure you do too. People that have $2 million sitting in the bank will not have money. If they retire at 65 years old and they have 120 grand living style, they will not have money. By the time that they are 78, they will be done. There will be no more money and they'll probably be living in their 80s. I say that to say real estate tax write offs. Yes, but, well, tax free wealth accumulation because you continue to 1031, the money, it continues to compound and then you're able to exit at a time that can be tax free. If you structure it right, like David would suggest.
- [39:35]
David A. Perez
That's, that's 100% right. You are right on that.
- [39:38]
Justin Colby
Yeah. And so David, you know, kind of as we're wrapping up, what would be a couple of key components that some high income earners should be thinking through should be going to your team and, or their accountants moving into 2027. Right. What should they be doing to finish out 2026?
- [39:56]
David A. Perez
Well, first things first, we talked or touched on this earlier, which is, you know, most, most accountants today or tax professionals are not equipped to help their clients at the highest levels right now. And there's two reasons. Number one, this is going to sound really crazy, but I, I don't think accountants get paid enough. I, I think a lot of accountants undercharge by nature. And then secondly, because they undercharged, they get overworked, they take on too many clients and then they're not able to, to really give the guidance and advice that they're meant to be able to give to their clients. That's number one. You couple that with an ever growing landscape of demands, meaning beyond just filing a return, most people demand so much of their accountant that they don't have the time or the bandwidth to go get new knowledge. And this is causing a lot of frustration from high income earners because they're saying, well, my guy or gal, they're just not doing it, they're not cutting it. And it's relatively not, it's not the account's fault, it's actually the client's fault. It's kind of funny, but it's actually the client's fault. They're just not, they're not paying enough. And I, I encourage everybody to have a serious conversation with their accountant and say, hey, this needs to stop. I want to be able to be proactive, not reactive. I want to be able to save money on my taxes. And I've actually had conversations or heard other, and I want to make sure that we apply it to my situation and I want you to still be that person. But if you're not willing to do that, I need to know now because there's a lot of years still left and I need to find a new source of information that can help me do these things. Because most accountants today are what I would call glorified, patriotic, you know, accountants, they want to make sure you pay your fair share. And I think that's blind. That's blind. Patriotism. Because patriotism isn't defined by the number of tax dollars you have paid this year. It is defined by your willingness to abide by the code. And if you can play that game right, then you should win. So I would have a conversation with my accountant, then I would look at my, my income for the 2026 year. Is it going to be about the same as it was last year? If it was, then we already know what the estimated bill is. If not, then you need to estimate it. We call that a tax savings assessment. We review the last year of income, plus we review current year financials. We forecast liability. Then we lay over strategies that apply to your unique situation to determine what strategies we can lay in. And then we start executing them one by one every month as we get closer to the end of the year, so that by the end of 2026, by December 31, there's no question of what you're going to pay. There's no question. And hopefully it's zero at that point.
- [42:28]
Justin Colby
Yeah, that's the number we like to hear. Yeah, that's what we do.
- [42:32]
David A. Perez
And that's what you should do.
- [42:34]
Justin Colby
David, where again, we have, you know, your tax planning experts.
- [42:39]
David A. Perez
Yeah, tax plan experts.com or I am David A. Perez. On Instagram, Facebook, or anywhere, just send me a dm. I'd love to talk to anybody who's looking for some advice. If you have an accountant that you're working with or a tax pro that you feel needs some guidance. My firm and I, we work with accountants directly. I, I started to do this, by the way, about four years ago because I could not take on as many clients anymore. I just couldn't. And accountants were asking me, how are you helping your clients? It seems like they all love you. I'm like, well, yeah, I help them not pay taxes, man. Like, that's easy. Like, it's easy to get people to love you when they don't have to pay taxes. They said, well, help me do that. And so today, what we do, just for clarity, there's a lot of TikTok, there's a lot of Instagram, there's a lot of Facebook strategy people out there. We vet every strategy. We, we put it through tests. We get opinion letters from IRS lawyers or attorneys. We are willing to represent and battle the IRS on any strategy that we propose. This is the difference between most other providers and ourselves is what we do is we do the back and the grunt work to make sure that everything we do is legitimate and we back that up and that's not found in this industry. Today. A lot of people are coming into the accounting industry that are either coaches, consultants or salespeople who are just hey, invest in this thing or hey, do this thing. It's all about just making money. I've been doing this for 18 years. I'm an enrolled agent with the IRS. I'm, I know what I'm doing and we do the right things. And I would encourage you to work with somebody who's a professional, not a salesman.
- [44:07]
Justin Colby
Amen to that. I appreciate you, brother. You are great. You're going to be helping a lot of entrepreneurs, a lot of high income earners. David A. I'm Justin Colby. This has been the entrepreneur DNA and hopefully David will share a little bit more time with our community. Go to theentrepreneurdna.com, get in the community, meet people like David. Talk to y' all soon. Thanks, David.
- [44:27]
David A. Perez
Thank you.
- [44:29]
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- [44:30]
Love's Rewards Advertiser
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- [44:31]
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- [44:34]
Justin Colby
I love that for you.
- [44:36]
Julianne Moore
It was just there calling to me.
- [44:39]
Justin Colby
Where on wix.
- [44:40]
Julianne Moore
I even built a whole website last night with its AI website builder, WIX Harmony. But I was still in bed by 2:30, so you should be proud of me.
- [44:49]
Justin Colby
That was very responsible of you.
- [44:51]
Julianne Moore
You should try it too. Maybe I will just go to wix.com domains confidence.
- [44:58]
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David A. Perez
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