How the Wealthy Use Real Estate to Pay Little to No Taxes (CPA Breakdown) | CJ Tarantino

Summary

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The Entrepreneur DNA – Episode Summary

Episode Title:

How the Wealthy Use Real Estate to Pay Little to No Taxes (CPA Breakdown) | CJ Tarantino

Host: Justin Colby
Guest: CJ Tarantino (Tarantino CPA)
Date: March 24, 2026

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Overview

In this episode, Justin Colby sits down with CPA and real estate tax expert CJ Tarantino to uncover how entrepreneurial investors—especially in real estate—can dramatically reduce, or even eliminate, their tax bills by leveraging specific provisions in the U.S. tax code. They break down actionable strategies like depreciation, bonus depreciation, cost segregation, and entity structuring, addressing not only real estate pros but also aspiring entrepreneurs, high-income W2 earners, and passive investors. The conversation is an invaluable CPA-level roadmap to capturing wealth the way the wealthy do—by working smarter within the tax code.

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Key Discussion Points & Insights

1. Why the Tax Code Favors Real Estate Investors

• Main Idea: The tax law incentivizes real estate investment with structures that legally allow investors to significantly reduce their tax liability (02:00).
• CJ Tarantino: “The tax law is written to incentivize people to invest in real estate... there are advantages built into the tax code to help you.” (02:00)

2. Understanding Depreciation: The 'Magic Word'

• Core Concept: Depreciation is a “paper loss” that shelters rental income and can even generate useful deductions on appreciated assets (02:38).
• Types:
  • Residential properties depreciate over 27.5 years
  • Commercial properties depreciate over 39 years (03:20)
• Notable Quote:
  “Really depreciation is a tax concept that essentially allows for a recovery of the cost of your real estate over time as a deduction.” — CJ Tarantino (02:38)
• Land vs. Building: Land value is not depreciable; only the building and improvements are (05:41).

3. Accelerating Depreciation: Bonus Depreciation & Cost Segregation

• Bonus Depreciation: Recent tax legislation now permanently allows for 100% bonus depreciation, enabling larger, upfront deductions (04:33).
  • “The one big beautiful bill did was extend the previous tax law... now make that 100% bonus piece permanent.” — CJ Tarantino (04:43)
• Cost Segregation Study: An engineering analysis that allows portions of a property (e.g., appliances, fixtures) to be written off faster—sometimes resulting in 20–25% of the purchase price as a deduction in year one (06:36).
  • Example: On a $1M property, after allocating 20% to land, up to $200,000 ($800k x 25%) might be written off immediately (06:36–06:39).

4. Passive vs. Active Losses: Using Deductions Against Other Income

• Restrictions: Most real estate losses offset only passive income. To shelter W2 or business income, losses must be “non-passive” (08:06–09:11).
• How to Qualify:
  • Real Estate Professional Status: Spend 750+ hours/year, and more than half your working time, materially participating in real estate (09:17).
  • “If you have a spouse that can meet the real estate professional [test]... you get this result where I’m going out, I’m doing the cost seg, creating large deductions... offsetting against my husband’s, you know, high income medical salary.” — CJ Tarantino (10:34).

5. Short-Term Rentals: The “Loophole” for W2 Earners

• Active Business Angle: Unlike typical rentals, short-term rentals can unlock active loss treatment with only 100 hours of material participation (13:02).
  • This allows high income (W2) individuals to use accelerated depreciation to offset W2 or business income.
• Caution: The asset must function as an actual short-term rental business, not just be bought for tax benefits (15:33).
• Market Note: Now, success in short-term rentals requires being a high performer—simply buying and renting isn’t enough in a more competitive landscape.

6. Bonus Depreciation Timing: Strategic Use of Losses

• Carryforwards: Unused depreciation losses can be carried forward to future years (18:05).
• Planning: Sometimes, deferring cost segregation or purchases to match future high-income years makes more sense (18:23).

7. Broader Tax Strategies for Entrepreneurs

• Business Travel, Meals, Entertainment: Only meals are 50% deductible; entertainment is largely disallowed since 2017 (20:14).
• Document Intent: Maintain a clear business purpose and documentation to substantiate any deductions for travel or meals (20:23).
• Employee Family Members: You can employ spouses or children, pay them salaries (under the standard deduction limit for kids), and the business can deduct those wages (22:26–23:16).
  • “You can pay your kids... issue them a W2... you can do it where it's under the standard deduction so you're essentially creating a write off for your business and then they’re not going to recognize the income.” — CJ Tarantino (22:26)

8. Entity Structuring: LLCs vs S Corps vs C Corps vs Trusts

• LLC: Best for holding real estate; offers protection and is a “pass-through” entity (40:55–42:38).
• S Corporation: Suitable for active businesses (e.g. flipping, wholesaling), not for buy-and-hold real estate because of restrictions on losses (39:01–40:17).
• C Corporation: Rare for real estate due to double taxation (41:22).
• Trusts: Used for estate planning and asset protection; commonly, a revocable trust owns the LLC (40:31–40:46).
• “LLC is less about a tax consideration, more of asset protection.” — CJ Tarantino (40:55)

9. Other Top CPA-Style Questions

• Car Write-Offs:
  • Ownership (purchase): Eligible for depreciation, potentially bonus depreciation.
  • Lease: Write-off lease payments proportional to business use.
  • Documentation is vital; IRS cares only if you’re audited (35:56–36:20).
• Marketing Expenses: Deductible if in pursuit of income (37:42–38:11).
• Common Misconception:
  • People often only use “tax preparers,” not advisors. True tax savings come from proactive planning—not from tax prep after-the-fact (25:45–26:48).

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Notable Quotes & Memorable Moments

• On Cost Seg and Bonus Depreciation:
  “You could see 20 to 25% benefit off that [non-land] number in year one.” — CJ Tarantino (06:36)
• On Strategic Planning:
  “It's not always about what you do, but when you do it.” — CJ Tarantino (18:23)
• On Employing Family:
  “You can pay your kids a salary... and then you can do it where it's under the standard deduction so you're essentially creating a write off for your business and then they're not going to recognize the income.” — CJ Tarantino (22:26)
• On Real Estate’s Unique Power:
  “I just don't know any other industry that can kind of be operated in a formal manner without having a crazy boatload of work to be put on your shoulders.” — Justin Colby (17:04)
• On LLC Protection:
  “LLC is less about a tax consideration, more of asset protection.” — CJ Tarantino (40:55)
• On CPA Approach:
  “A lot of people just have a tax preparer... there's no advice with that... Planning is what needs to be done now.” — CJ Tarantino (25:45, 26:06, 26:21)

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Important Timestamps

• 01:15 – Introduction of guest CJ Tarantino
• 02:38 – Depreciation as the core tax concept in real estate
• 04:06–04:33 – Cost segregation & bonus depreciation
• 05:41–06:39 – Example of how depreciation works on a $1m deal
• 09:17–10:49 – Explanation of Real Estate Professional status and the “spousal loophole”
• 12:55–15:12 – Short-term rental tax treatment for W2/high earners
• 18:05 – Bonus depreciation carryforwards and timing
• 20:14 – Business travel, meals, and entertainment deductions
• 22:26–23:16 – Employing family for deductible wages
• 24:19 – Myth-busting: “Should everyone be in real estate?”
• 25:45–26:48 – Biggest misconceptions: preparer vs. planner
• 33:10 – Depreciation recapture risk when selling an asset
• 39:01–42:38 – Entity structuring: LLC vs S-Corp vs C-Corp
• 43:10–44:03 – Maximizing real estate benefits for clients

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Conclusion & Actionable Takeaways

• Most tax myths and strategies are case by case.
  The single biggest mistake: Failing to plan proactively with a CPA who understands entrepreneurship and real estate.
• For the highest tax efficiency:
  • Explore bonus depreciation and cost segregation for rapid deductions
  • Consider short-term rentals, especially for high-income W2 earners
  • Employ family members with proper documentation
  • Have the correct entity structure (usually LLC for real estate ownership)
  • Document everything, especially business use for travel and vehicles
  • Consult a knowledgeable CPA before year-end for biggest results

Contact Info:

• CJ Tarantino (“CJ the CPA” on Instagram)
• Website: tarantinocpa.com

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Listening to this episode will arm any entrepreneur—active or aspiring—with a blueprint for dramatically improving their tax situation via smart business and real estate investment.

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Transcript

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[CJ Tarantino]

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[Justin Colby]

What is up the Entrepreneur DNA Family I am back. And if you are an entrepreneur, whether you're in real estate or in general, you understand or need to understand, I should say the tax law with me is an accountant, a CPA focusing on entrepreneurship in real estate. Tarantino CPA is the firm. C.J. tarantino's the man. He is here. What is happening?

[CJ Tarantino]

What's up? Justin, I'm so pumped to be here. Excited to talk about tax savings with you.

[Justin Colby]

Let's go. All right, dude. Well, as you know, I'm heavily in real estate, but I want to be talking to people aspiring to be in real estate who are entrepreneurial, who are aspiring entrepreneurs. There's actually tax law that can help us never pay taxes again if we do it right. Right. I mean, that's the idea behind it.

[CJ Tarantino]

Yeah. I mean, the tax law is written to incentivize people to invest in real estate. Right. So there are advantages built into the tax code to help you. So you definitely need to be aware. And that's what we're here to break that down a little bit more.

[Justin Colby]

Today, you and I were just kind of talking offline. There's so many different angles that we can take. Right. We were even just talking about your travel and like are they vacations or are they business travel? Right. But let's talk about some of the, the more obvious, at least to me would be obvious and maybe not known real estate angles. Like what are the angles? Why does everyone, you know, use real estate? Is the way that they don't pay taxes.

[CJ Tarantino]

Yeah. When you're talking about this, you're really getting into the magic word, which is depreciation. Right. And so that is a tax concept where you're essentially have a paper loss that's sheltering your rental income. And there we'll get into the strategies to make that even more powerful. But really depreciation is a tax concept that's essentially allows for a recovery of the cost of your real estate over time as a deduction. And you know, oftentimes with real estate you see that it actually appreciates. Right. So you're getting the benefit of that and then on taxes you're getting to take this depreciation deduction that's sheltering your income.

[Justin Colby]

Is it, is all assets the same?

[CJ Tarantino]

No. So there's different classifications depending on what type of asset, even what type of real estate. Right. So residential is going to be 27 and a half versus commercial 39. Even like short term rentals fall under like the 39 year. And we'll, we'll get into how to make that even more powerful, how to speed up that timeline which a lot of people are looking to do.

[Justin Colby]

Yeah.

[CJ Tarantino]

Hey, I don't want to wait 39 years. How do I, how, how do I make that happen today?

[Justin Colby]

Yeah, well, in, in, listen, we're recording this literally on the 17th, I think of October, I think is today's date. Yeah, let's talk about this, right? Let's talk about bonus depreciation. Let's talk about the big beautiful bill that just passed. Let's talk about what people want to hear. Right. Like how do we speed that up? Because that is not sexy to me to go buy a property and have to take my tax write offs for 27 and a half years.

[CJ Tarantino]

Right.

[Justin Colby]

How do we spit it up?

[CJ Tarantino]

Right. So you're going to get into this thing called a cost segregation study. Right. And that is going to be done by an engineering firm who has the background to assess that property. And, and what they're going to do is they're going to be able to break out certain parts of the real estate to different asset classes that are going to speed up that time horizon. And really what that's going to do is make a portion of that asset be eligible for bonus depreciation like you mentioned.

[Justin Colby]

Right.

[CJ Tarantino]

And one key really critical thing from the one big beautiful bill was the 100% bonus depreciation. I mean that is huge. It's a game changer.

[Justin Colby]

Yeah.

[CJ Tarantino]

And the fact that you can go out and you know, before year end and, and get something under, under contract and, and take advantage of this is, is incredible. Part of your strategy before year end and really what the one big beautiful bill did was extend the previous tax law that Trump put in place in 2017 and now make that 100% bonus piece permanent going forward. If you recall, they actually the, there was a decline in that in, in previous years. Right. So if the, if the one big beautiful bill didn't bring back 100% bonus. We were at 40% before that was 60 and then 80 and it's kind of been on a decline. So now it's 100% and it's that way going.

[Justin Colby]

And it's specific to bonus appreciation. Right? Correct. Talk the difference between bonus depreciation versus your normal again 27 and a half year depreciation schedule.

[CJ Tarantino]

Yeah. So if you don't, if you don't do a cost seg. You don't do bonus depreciation. You're, you're, when you buy the, when you buy real estate, a portion is going to be allocated to land, Right. That can be anywhere from 10 to 30% if you're in certain areas.

[Justin Colby]

20. So that's about Right.

[CJ Tarantino]

Right, Right. So a portion going to be allocated to land and that's not going to be considered for depreciation. The remaining portion would. And that is the piece that's going to be covered over 27 and a half or 39 years. So say, let's, let's talk numbers. Right. So say you buy a million dollar property, right. 20% to land, that's 200,000. The 800,000 now would be the eligible piece. That would be over 27 and a half years. The cost segregation is going to go and grab that number and break it into smaller buckets and on average you could see 20 to 25% benefit off

[Justin Colby]

that number in year one.

[CJ Tarantino]

In year one.

[Justin Colby]

Yeah. That's the key. Right. So this is why when people talk about these commercial people and by the way, let's also distinguish like a single family home versus a commercial residential property. To me there's not really a comparison. Right. Like this commercial asset is going to have much better tax write offs or better tax advantages. What I'm trying to say than a single family home.

[CJ Tarantino]

Right. I Mean, it's, it's based on the value. Right. So the bigger the, the bigger the real estate we're talking, the more potential value there is to, to write off. Right. So that, that's going to drive a better tax benefit for you. And really? Yeah, this is powerful strategy. And then there's a lot of misunderstanding around, okay, I create this large deduction. Now what, how does that help me or can I use that, that change for those questions? Yeah, yeah, yeah. So what confuses a lot of people and we like to bring clarity around is active versus passive laws and in the tax laws and really I like to just quickly bring like how this came to be. So in the, in the 80s they created the passive loss limitations and what they were trying to prevent from happening was, you know, high income earners that would go out and just buy real estate just pure passively and not, not pay any tax. So they created these limitations to try to make that a little bit more difficult.

[Justin Colby]

Sure.

[CJ Tarantino]

So now they're, they've, there's really like two pathways to get to the extreme result where I create that real estate loss, you know, from the cost. And now I want, I want to make those losses non passive so they can offset my active income, my business income, potentially a W2 income.

[Justin Colby]

Yeah.

[CJ Tarantino]

So there's mainly two pathways I can go into, like how to get to that.

[Justin Colby]

So does the, does the write off only work against the income that the property is producing or can it work against my W2 income?

[CJ Tarantino]

Right, so good, good question. So to clarify on that, right, so it's really like there's active and then passive. There's two set two buckets. Right. So if you fall under the passive bucket, it's going to be able to utilize your real estate losses against passive sources of income. So your rental income would be sheltered, potentially another passive investment that you have. But a lot of people come to us and they're like, hey, how can I, I want to move the needle a lot. How do I create, how do I get this real estate loss to be non passive? So it can offset my W2 or my business income.

[Justin Colby]

Yeah.

[CJ Tarantino]

And that's, that's really what we do a lot of planning around is how to achieve that result.

[Justin Colby]

What's the best advice you can give on that?

[CJ Tarantino]

So there's really two pathways. Right. So there's one concept, real estate professional status.

[Justin Colby]

Yeah.

[CJ Tarantino]

And that is where you're spending at least 750 hours in the year. Really want to be diligent about documenting that because if you're Ever audited, they're going to want to see your time log of like how you're spending your time and what that looks like.

[Justin Colby]

Yeah.

[CJ Tarantino]

And then second part of that and which makes it difficult for W2 earners is the more time in real estate than anything else that you do. And, and kind of the golden workaround to that has been if you have a spouse that can meet the real estate professional.

[Justin Colby]

That's what I see a lot of people do. Like if they are, you know, W2 employee at a tech firm, they make their, their wife go get licensed and that is their, her job and then they can, they can utilize it like that. Now what if the wife isn't on title? Does it still work?

[CJ Tarantino]

So it's, it's really is if you can file, if you file jointly together, she meets those hours and, and it's basically you're combining the result together. So like I've worked with a lot of like medical professionals that they have high income doctor. Yeah, just anyone really with a high income and their spouse has an interest and like, hey, I'll do some of the real estate activities. I'll meet the time.

[Justin Colby]

Yeah.

[CJ Tarantino]

And then you get this result where I'm going out, I'm doing the cost sag, I'm creating these large deductions, six figure potential deductions and I'm taking that and I'm offsetting against my husband's, you know, high income. Yeah. You know, medical salary.

[Justin Colby]

Is there, I mean, is there a reason anyone shouldn't be in real. Like I just, I'm obviously in real estate. So it's very easy for me to say everyone should be in real estate. But like there's a lot of ways to get tax write offs. Right. I mean you're not only a real estate cpa, although that's what you focus on. But like you can buy a heavy machinery and get great tax write offs, right?

[CJ Tarantino]

Yeah, yeah. There's a lot of ways to skin the cat, if you will. Buying a business vehicle, buying equipment for your business and it really gets into, that's why you just want to work with a CPA who can take a holistic view to your situation to kind of give you the direction of like, hey, here's your options, here's what this looks like. Right. Because maybe in a, in a given year you don't need to go through the effort of, of meeting the real estate hours because you, hey, I have this business and I have this equipment that I'm going to buy anyway and that's going to cover kind of my tax liability. So it's just like having someone dive into your situation and really give you pinpoint tailored advice.

[Justin Colby]

I think that's really important. I think everyone's to some extent unique in what they need. I mean I think all of us don't want to pay taxes. I think that's the form. But you know, being. Do you do those type of consultations?

[CJ Tarantino]

Yeah, yeah. So what we, our typical approach is we'll meet with you, get a sense of what you have going on, make sure we're a good fit to help you. Then we'll ask you for some information, dive into your situation, kind of come up with hey, here's some recommendations that we see and we'll put a game plan together to, to kind of tackle that. And our goal is to make sure your tax efficient and optimized. Right. You're not paying more tax than you need to and you have the right structure in place, the right game plan in place. And, and that's really what our clients hire us to do.

[Justin Colby]

Where can they go to just find you now I need to do something. How do they go find you?

[CJ Tarantino]

Yeah. So on. On Instagram. CJ the CPA is our, is our way to connect with us.

[Justin Colby]

Yeah.

[CJ Tarantino]

From there we'll get in contact a

[Justin Colby]

way to book call with them.

[CJ Tarantino]

Yep.

[Justin Colby]

All right, dude, listen, you know there's a lot of different verticals in the real estate space. Short term journals had a huge rise since COVID Let's talk about like what tax structuring. Because. Because it's part business is part real estate.

[CJ Tarantino]

Yep.

[Justin Colby]

Talk a little bit about short term rentals and advantages and or disadvantages and or even misconceptions regarding short term rentals.

[CJ Tarantino]

Yeah. So you know, there it is very interesting with short term rentals. Right. Where it's real estate but it's more of like an active business and that's why the rules are a bit different. Right. So we've talked about how in, in order to unlock some of the real estate losses, you need to be a real estate professional. This is kind of the workaround and why they, you know a lot of people refer to it as a short term rental loophole. It's because you can kind of achieve the same result with less time spent. So personally I have clients that are like high income earners in the tech space and then they went out and bought a short term rental and self managed that rental to hit you want to. Most commonly people are spending 100 hours on, on the property and more time than anyone else involved. Yeah, that's, that's a common pathway. There are some others. You just want to make sure your material participation in that property and what that does is unlock the same result as real estate professional. Right. Where you can go do a cost segregation on the short term rental, create the accelerated depreciation and then use that loss against your active income W2 income.

[Justin Colby]

Yeah. And so but then to some extent, if it's a really good performing short term, it may not cover it all. I mean, I guess it just depends on how much cost segregation. Because the reality is if you buy a fully furnished, brand new rehab property, your cost segregation is not going to be much at all.

[CJ Tarantino]

So you will still get a pretty good benefit.

[Justin Colby]

Yeah.

[CJ Tarantino]

Because the cost seg would break out the just structural piece of it.

[Justin Colby]

Yeah.

[CJ Tarantino]

20, 25% and you're going to get that big write off. But what a couple things that are unique with short term rentals as opposed to other avenues of real estate is that yeah, a lot of these are cash flowing quite a bit. Right. Because you're spending a lot more time. It's dynamic pricing and things like that. So you know, in the years after the cost seg, you may still have some tax considerations to consider there. Right. It may not be where that remaining depreciation is sheltering that rental income.

[Justin Colby]

Right.

[CJ Tarantino]

But, but it is a really powerful way to. And if you said like, hey, what can I do before your end? I have a lot of clients asking me. You just had a client reach out to me yesterday that they got one under contract and they're hitting us up to, to do the whole strategy. So it, it works and it's where W2 earners can get into the game.

[Justin Colby]

Yeah.

[CJ Tarantino]

Because like we, I had mentioned with real estate Professional that second piece where you need to spend more time in real estate than anything else that you do. You, the W2 employees, that's where you're kind of getting eliminated from that test. Yeah. It becomes, okay, can I go buy a short term rental? And I always tell prospects and clients like, you just want to make sure you're not doing this totally tax focused because it is. You got to understand how to run a short term rental. And I think a lot of people had success with it.

[Justin Colby]

Yeah.

[CJ Tarantino]

In previous years and now it's like you really need to be a high performer in the short term rental space to make it worth it.

[Justin Colby]

You know, listen, I think it had its run. I was never a big like short term rental guy. The, the older I get and the more Deals I've done more the way I look at money. What I like about it personally, yes, tax ro. But also like you're building wealth at the same time. So if you can run a profitable business and, and by the way, profitable sometimes doesn't mean be largely profitable. If like, if I bought a short term rental here in Miami, bought it for $2 million, it rents well and whatever, but. But brings in 35 grand that year net. Like after cost net. Okay, but also they're paying down my mortgage. Yep, they're buying down the mortgage. And in the first five years, the mortgage has the highest interest rate, meaning your payments go mostly towards interest. So when I'm done with this first five years and if I continue to keep it as a short term rental, I have a multimillion dollar asset here.

[CJ Tarantino]

Right.

[Justin Colby]

And I, I don't think people look at it in the same way. I'm kind of looking at it right now. Yeah, I wouldn't be running it as a business model to get 40 of them, but could I go increase my net worth by $10 million by buying five and then sell them off over time? Right. And have $10 million in the bank? I just, if you look at it a little differently and you're not desperate for income, you want some tax write offs because you're a high income earner and you want to accumulate wealth. Bro, I don't, I don't know any other industry that can kind of be operated in a formal manner without having a crazy boatload of work to be put on your shoulders.

[CJ Tarantino]

Yeah, yeah. And I think it just like what you said, it just needs to fit into your strategy and your economic strategy and investment criteria. But this, the tax benefits is which I always say is like dicing on the cake could really be powerful. Right. So I had just a client, you know, a couple weeks ago where we were able to get them an 80 grand tax refund by, by implementing this strategy, bro.

[Justin Colby]

And that's the other thing. People need to understand how the tax law works. Like you can actually push it forward. Let's say you buy a really great deal and it's a great cost seg situation. The write offs surpass what you earned on that property. That write off now pushes into the next year.

[CJ Tarantino]

So another big planning component. Right. Is not always about what you do, but when you do it. Right. So that's a lot of the planning that we do and why we want to understand your situation and your goals. Because hey, maybe it would be a good strategy this year, but it would Be a great one if we waited till next year. Right. So layering in that with like, okay, what are you, are you going to expect like a big income event next year? Let's, let's maybe do the cost next year. Let's hold that back. Or oh, you think you're going to go buy another property then? Okay, let's use that cost this year and then wait, we'll have one coming online for next year.

[Justin Colby]

That's right.

[CJ Tarantino]

So it's just put like again, putting those pieces of the puzzle together.

[Justin Colby]

So let's just talk a little bit wider scope. Right. I could talk real estate all day, but in a general sense, you and I were talking off, off camera about like interesting ways that the rules are written for us to abide by, such as business travel, business entertainment, eating, business lunches. Let's talk a little bit more about that, like holistically. Right. So if I run a real estate firm, that's great. Buying assets has huge, massive tax write offs. I own two apartments right now. I'm actually raising on them because I need a couple more hundred thousand dollars to complete their construction. But I'll give the person a general partnership ownership stake. They'll get the tax drive if they want and they don't have to do anything. It's passive for them. Yeah. Right. And they own the asset, they own the exit, they own the rise, and they make money all the way through. Real estate to me is, is a no brainer for everybody. Right. Even if you're doing it passively and you're like an investor to someone like me. Well, you don't have to be an investor. You can be an owner. But there's also other, you know, ways to have tax write offs as a general entrepreneur.

[CJ Tarantino]

Yep.

[Justin Colby]

Entertainment, lunches, dinners, flights, hotels. Let's talk a little bit about like business travel.

[CJ Tarantino]

Yeah. So just one thing to clarify. Do you just want to be careful with entertainment and if you can not have it be classified as entertainment? So that's one that they actually did away with.

[Justin Colby]

Okay.

[CJ Tarantino]

In, in 2017. So anything that was pure entertainment, I think that was just people were abusing that a bit.

[Justin Colby]

Like if I take it to take me and my team to a baseball game.

[CJ Tarantino]

Yeah.

[Justin Colby]

They're gonna say, no, it's not.

[CJ Tarantino]

Yeah. You want to say you, you want it to be more shifted to how can I justify this as meals. Okay. Meals for my team. Because that is still 50% deductible. So like when, you know, when clients send us our information and they have like meals and entertainment we're going to say, hey, can this really be meals versus entertainment? So important clarification there. And then. Yeah. Business travel is deductible. Right. And it really, the key is, is you want to make sure you, you have established intent as to like, why you're going somewhere, have that kind of itinerary dialed in, you know, have like, you know, be able to show on your calendar. I had these meetings set up. It's really just a predetermined purpose that I went out there for business reasons. And then if there's some, you know, leisure mixed in, you're there for business, right?

[Justin Colby]

Yeah, that's right.

[CJ Tarantino]

So that's, that's really what you want to be able to establish.

[Justin Colby]

And what counts for the write off side flights, hotel rooms, rental cars, gas for the rental car, your meal while you're there, Meals while there are 100%.

[CJ Tarantino]

The, the meals would be, the meals would technically be 50, but everything else would be deductible.

[Justin Colby]

100 deductible. What if I take an employee? Let's just use the example. You're an employee and we have a business meeting in Dallas. So I pay for your flight, I pay for your room, I pay for, you know, the car and I go to dinner with you. Is that, is the dinner still only 50%?

[CJ Tarantino]

Yeah, so, so the dinner would be

[Justin Colby]

50 and then there's 300 bucks. I only get 150 worth of tax write off on that. That I can write off.

[CJ Tarantino]

Right, right.

[Justin Colby]

But your flight, your hotel room, all

[CJ Tarantino]

of that business, 100% deductible. Deductible expense. Yep.

[Justin Colby]

So we have a mutual friend who just put something out about this. There's written in the law, if you employ your wife and your kids and they actually doing something for your business and you can prove that they're doing something for your business that is also deductible. Yeah.

[CJ Tarantino]

And you just want to make sure again, it's just documenting and doing it the right way, working with a CPA that can help you. And, and it's really a powerful result. Right. Where you can pay your kids a, a, a salary. You want to have it documented, issue them a W2, the whole thing. But as, and then you can do it where it's under the standard deduction. So you are essentially creating a, a write off for your business and then they're not going to recognize the income because it's under the standard deduction. And then we even have clients that will just stash that in a, you know, some sort of retirement account. For them and kind of build that

[Justin Colby]

up for an education account or whatever.

[CJ Tarantino]

Exactly, exactly.

[Justin Colby]

And it, what's the dollar amount? You can't pay more than like more than four.

[CJ Tarantino]

So it adjusts for inflation year to year. So like recently it was 15,000. And then, you know, they adjust that over time for, for inflation.

[Justin Colby]

And those are for children.

[CJ Tarantino]

Yeah.

[Justin Colby]

If, if you're an adult and you have a spouse, like the income could be greater, right?

[CJ Tarantino]

Yeah. Yeah. So for, for it's really what, what you're looking to do is just make sure that it's just that you're going to get the standard deduction that's going to, you know, eliminate the, the income hit. So you, I mean you could pay them more than that. It just made, you may have some tax on that, but you're still going to create a write off for your business. Any salary you have, that's deductible.

[Justin Colby]

It's deductible against your business anyways.

[CJ Tarantino]

Yep.

[Justin Colby]

And this is the beauty about real estate, in my opinion. Here's why I now have two ways to do this. I can employ my family, which gives me the deductions we're talking about, and I can buy assets, which gives me further deductions. Right. And this is why I just think, I don't care the vertical you're in if you're, you know, a doctor, if you are anything like you're in marketing, like being in real estate, creating a real estate llc, having your wife get licensed, you working in it, you buying it, like everyone should be in real estate. Is there a way to prove me wrong about that? Like, I just don't see why someone wouldn't be.

[CJ Tarantino]

No, I honestly really agree with you on that. Because even in the case, so, so what happens a lot is people will come to us and they hurt on social media that I'm going to get all these tax benefits. And then we start to break down. Okay, here are really the rules and the pathways and you do need to spend some time in real estate if you want to write that off against your, your active income.

[Justin Colby]

Yeah.

[CJ Tarantino]

And then they get a little bummed out of like, oh, it's not as great as I thought. Right. But even if, like you said, if you're a passive investor, it's still a really great tax efficient way to, to, to build wealth.

[Justin Colby]

Yeah.

[CJ Tarantino]

Right. Because you, you're, you're getting losses that are offsetting your rental income. Right. So your rental income isn't being taxed in most cases.

[Justin Colby]

Yeah.

[CJ Tarantino]

And then even if you are Creating a loss. You're, you're building up your passive losses. That is another tool that you can use. Right. It's just the fact that they can be used against passive sources of income. So it's, it's really also a tax efficient way. Even if you're a passive investor.

[Justin Colby]

What is a major. Like, like if there's one major myth or two or three. Let's talk about some things that I think are misconceptions or myths out there because I really want people to reason for. By the way, CJ the CPA on Instagram, make sure you go there now. Hit them up. What are. Maybe there's one, maybe there's a handful. Like, let's try to clarify some. Either there's misconceptions or myths that are out there about taxes and how much you owe and how to get write offs.

[CJ Tarantino]

Yeah, I think, I think the biggest thing is. Right. Is that a lot of people are not working with the right professional. Right. And two, two kind of comments on that. Right. One, a lot of people have like just a tax preparer, which is fine. We, we prepare complicated tax returns too, but they don't have an advisor.

[Justin Colby]

I was gonna say there's no advice with that.

[CJ Tarantino]

There's no way. So a lot of people is like, they're, they're sending their files to their accountant. They're getting it done in March, April, maybe they're getting extended. But really that just reports what the planning. If, if there's no planning, you're just reporting what was done. There's no, there's nothing creative happening.

[Justin Colby]

Yeah.

[CJ Tarantino]

There's no, there's no opportunity to really help you. Yeah. We'll dive into it and we'll say hey, like can you, can you do a home office deduction? We'll figure out like a couple ways to, to help there. But really the, the, the planning is what needs to be done now. Right. So it's like critical 10-1-17th that you're meeting with your CPA and like what can I do before year end to help me so that I'm not kicking myself next year when I get my tax bill? I wish I would have done this.

[Justin Colby]

And that's why this is such a pivotal time to have this episode. So I'm glad that we connected. So again, what would be something that I think the public would think, you know, or question like that might be another questions like people might say why are they paying so much in taxes? You know, things are like where you live, the state taxes versus federal tax. I don't think a lot of people understand like there's actually two separate tax bills. You're actually getting, you're getting a federal tax bill and you're getting a state tax bill and there's different taxes within them. Right. So the state of Florida doesn't have income tax. Right. Not all states are that way. Right. So let's go over some of the basics of fundamentals of like the tax law, why they're getting taxed the way they are. And then let's maybe give them advice of strategy to, to help themselves.

[CJ Tarantino]

Yeah, good, good point. So just with the federal versus state. Right. You're going to get hit with your federal first and that's a graduated tax system. Right. So once you're at a high income, you can get taxed as much as 37%. Right. Then your state tax that varies by state. And we're fortunate to be in Florida with no state income tax. We do get hit in other areas, maybe like property tax. Yeah. Which I think we're starting to get some of those bills now. But yeah. And then you know, if you're in like California or New York, those are some tough states. And a lot of the things honestly what that work for federal purposes you'll see like California doesn't necessarily respect, they don't even, they don't care about real estate professional or some of these things. Like they make it difficult. So you definitely want to work again work with someone who's looking at your situation. And if you're in California, how can they plan around that?

[Justin Colby]

Yeah.

[CJ Tarantino]

One point to mention with the state is that they did with the one big beautiful bill act, they did raise the SALT cap limit which was a problem for a lot of people that were paying maybe like high property taxes before it was if you itemized your deductions on your tax return, you're only allowed 10,000 as a deduction. Even if you paid 20, 30, it's now been increased to 40,000.

[Justin Colby]

So if you have, if you pay

[CJ Tarantino]

a lot of, you know, state level tax that, that's thresholds increased a bit to create a benefit on.

[Justin Colby]

And so clarify for me, you said salt.

[CJ Tarantino]

Yeah. So state and local tax deduction. So.

[Justin Colby]

So the hardest deduction you can get for the state and local is 40 grand.

[CJ Tarantino]

Yeah. So like that's on your personal tax return. So it's either you take the standard deduction or you itemize your deduction. That's where you're bringing in like charitable donations and your medical and then you're like state taxes and you're seeing is that bucket bigger than my standard. And then you take the more favorable one. Piece of that itemized was the state taxes and that had a hard cap on it that a lot of people were frustrated with, especially in high tax states.

[Justin Colby]

Yeah.

[CJ Tarantino]

And they've increased that to make it a little bit more favorable.

[Justin Colby]

What can a high income earner do? Like, what can a doctor do as an example? Like, what can people be doing right now to save themselves on taxes?

[CJ Tarantino]

Yeah, I would say meet with a tax advisor. The sooner the better. I could tell you, like, my calendar is starting to get pretty booked out with, with meetings and people wanting to meet with us and plan around this before year end. But really look at, have someone look at your situation and see what are the two to three things I can really do in the short term to help me. Right. And you know, this is real estate focused. If it's, hey, should I try to go buy something before the end of the year? Because 100% bonus depreciation would, would be a game changer.

[Justin Colby]

Huge. Well, and that's why even my offering is the way it's structured because I realize I need probably another $300,000 to finish my apartment. I'll give said person no need to go buy something, no need to go figure it out. You become a partner to me, your capital gets the same tax write off as if you went out and bought it in the same way. And you get the same tax write off. Right. And so that's, that's why I try to do that kind of stuff. Because a lot of people don't know how to go find like a property, they don't know how to analyze a property. They don't know what they're doing.

[CJ Tarantino]

Yeah.

[Justin Colby]

So a lot of times, again, the same reason that you do consultations is a similar reason people should be kind of strategically partnering with people who can operate real estate. Right. Because if you're a doctor, you're not going to know a whole lot or

[CJ Tarantino]

maybe you're not going to have the time to dive into that. Right. And that's a big one to get with someone like you that, that's been doing this for years. Right. That hey, here's this asset you can invest in and could be a great fit for you. So I highly recommend that as well.

[Justin Colby]

I would encourage anyone to reach out to CJ for one basic principle is, is you're just going to do a consultation of where they're at and where they want to go. Right, Exactly. I think it's really Hard for people. You know, I've had an accountant for very, very long, essentially my entire entrepreneur career for 20 years. And he's always laying into me about these type of things. Right. We do a financial planning every single year. He's laying into what I can and cannot do. I think the car subject is a hot subject that people need to understand of what's an actual tax write off of the car. Yeah. Because I think they need to understand the difference between what they write off, meaning if you have a $3,000 a month car payment, is all three grand really a write off or not? And then why.

[CJ Tarantino]

Yeah. So you need to definitely. You want to have like your documented business use. So I'll see a lot of people that'll say, hey, I really, you know, I don't have another vehicle, so I really use this like 90% of the time. So let me like say it's 90% rather than 100.

[Justin Colby]

Yeah.

[CJ Tarantino]

So we're disallowing a portion to, to kind of be a little bit more conservative there. So you definitely want to be mindful of how you're deducting those, because is

[Justin Colby]

this an interest payment? Let's say you have a loan. Is the principal and interest deductible.

[CJ Tarantino]

So if you, if you buy a vehicle, you're going to essentially be able to take that. It doesn't matter if you finance or not. If you lease it, that's a different story. But say you go out and buy a vehicle, it's similar to real estate. Right. Where you're not always buying it outright, but you still, that's a now an asset for you. Right. So it's, it's. You essentially could start depreciating that entire cost of the vehicle rather than worrying about, did I finance? I put 20% down.

[Justin Colby]

That's what my accountant did, is I went out and you were just in my Range Rover. And he said, okay, well if you do this, by the way, buddy, if we all do this in the bonus depreciation in the first year and you go sell this in year two or three, they're gonna say, hey, I want that back. Right. Cause I did it in the bonus depreciation model. And so you have to be aware of what you're gonna be doing when you take things like that and that,

[CJ Tarantino]

that's a big thing. And, and just to come full circle, right. Is that it applies the same with real estate. Right. So. And again, I'll kind of scream this from the mountaintop. So you just want to work with someone that's like knows your goals and your situation and can advise you accordingly. For example, if you do like cost segregation and bonus depreciation, it works the same way, right? If I do that and then I turn around and sell that asset in a year or two, you're going to have to figure out, okay, what am I going to do now? Because I, you know, it could be an unfavorable tax result because you wrote off all that depreciation, essentially gets recaptured again. There's always a strategy for a strategy. We can talk about, okay, what can we do now? But you don't want to have any surprises.

[Justin Colby]

You know, what about a lease? How's, how's the lease work versus a purchase for.

[CJ Tarantino]

So if with a vehicle essentially you would, you could write off a portion of your lease payment depending on how much of business use of the vehicle.

[Justin Colby]

So for example, my family has two cars. I'm thinking about going and getting a lease. It would be for business purposes only. I live in Miami, right? So I'm like, oh, I'd rather commute from my home to downtown, whatever, in more of a commuter style, like maybe electric car, something of that nature. It'd be only for that. So if I went and leased that car, how much write off would I get for that?

[CJ Tarantino]

So then you'd just be looking, what am I, what is my lease payments total for the year? So a thousand for the year. So 12,000 for the year. And you look at, okay, what is my business use percentage? If it's 100, it could be 12.

[Justin Colby]

In my case, it would be I literally, because where I live versus here. So I would just use it only to kind of make these commutes because it'd be electric car. So I'd just save, you know, gas and pain in my butt, right?

[CJ Tarantino]

And then just make sure you get that to your accountant so they can factor it in.

[Justin Colby]

And so all thousand dollars that I pay every single month goes as a

[CJ Tarantino]

towards your tax write off.

[Justin Colby]

And do I need to put it in my LLC's name or should it be in my name or can it be in my name?

[CJ Tarantino]

So really what it comes down to, I get this question quite a bit too, is that you just want to make sure that it's your documented business use. That's really the more than it is titling it's documented business use. So we'll have people that will have it in their personal name. Just maybe it's favorable from like the, the, the financing component, if you are financing. But really it's, it's you want to make sure more than it is about titling, it's more like I can prove that I use this for. That's right. Business purposes. So, like, in your situation, hey, I only use this for my commutes for different business reasons.

[Justin Colby]

That.

[CJ Tarantino]

That would be

[Justin Colby]

the thing that I've always been told. And then I want to get to another question, which is, what are, like the top two or three questions you get in general?

[CJ Tarantino]

Yeah.

[Justin Colby]

But the things I've always been told is this really only matters if you're audited. At the end of the day, you can say to an accountant, anything you want. I can say, hey, cj, this is a hundred percent business use. This is what I told you. This is all, you know, to be accurate. Awesome. That's what you put down on, you know, the tax return. When it matters is when you have to go prove it.

[CJ Tarantino]

Yep.

[Justin Colby]

Show me the receipts now, baby.

[CJ Tarantino]

Yep.

[Justin Colby]

Let me see that. This is documented only for business, right? Oh, I see you're filling up twice a week. Where are you headed? Let me see where you're going all the time. Why are you.

[CJ Tarantino]

You know, and they will dive as far deep into it as that, right? They'll. They'll really go down that road with you. So you definitely want to be careful about being too aggressive. Right? And, and a lot of, like, good CPAs will, like, let you know about the exposure and the risk because for me, right, I'm not necessarily going to take an overly aggressive position because I don't want to put the rest of my clients at risk. Totally. Right. So we're, we're definitely in favor of the client. We want to strategize with you. We want to find the things that we can do to help you save on taxes. But we know the tax code. We research the tax code.

[Justin Colby]

We know what you literally have to study every year. You essentially almost get retested every year, is my understanding. So some level of like, accreditation, Right?

[CJ Tarantino]

So like me personally, I have my CPA license, right. Which took 18 months to get four exams to get it. And there's a level of continuing education that we have to fulfill to keep that license active.

[Justin Colby]

Right.

[CJ Tarantino]

So difficult to get. And we have to maintain our, our skill set there. So. Yeah. And, and really, it's just you, you, you just don't want to put yourself at risk with taking aggressive positions. There's this set of rules that are very favorable. Just play inside. Just play the rules, you know.

[Justin Colby]

That's right. And so, like, things like marketing, Is that a write off? Yeah. So if I do PPC marketing to find homeowners or if I do Facebook ad marketing to find coaching students, all that stuff is write off, right?

[CJ Tarantino]

Yeah. So it really if, if you want to kind of get, you have a general principle, it's like expense that you have in the pursuit of profit, of income. Right. So as long I'm marketing expense because I'm trying to get new business. Totally, totally justifiable.

[Justin Colby]

So let's, let's kind of close this out with some of the top questions that you're getting anyways to, to help people understand like where they're at. And then I really need you guys to go get him on Instagram. CJ is a cpa. Book a call with them. Right. Because I'm trying to do the best I can to pull out general information with you, dude. But like the reality is I have listeners in real estate, not in real estate, high income earners, low income or like I need them to understand, I need you to understand their scenario. Otherwise you guys are doing yourself a disservice by not getting with them. At a minimum, you get to understand why you're paying the taxes you're paying, why you don't have the write offs or how you can get the write offs. So cj, the CPA on Instagram, maybe what are one to two or three top questions that you tend to get?

[CJ Tarantino]

Yeah, Mike, you're saying this stuff is so nuanced and so dependent on each person's situation.

[Justin Colby]

Right.

[CJ Tarantino]

And it's hard to like just in, in, you know, an hour, go, go through it. All right. It really takes meeting with you and diving into your situation. So we see a lot of people like will get like advice on social media and then just kind of run with it. And it's like some of the information is good, some of it's not so good. Yeah, but it's really you, you need to talk to someone that can look at your situation. A big one we get is people approaching us on entity structure is, is a big one. Right. So like should they have an S Corp or should they have an llc? What, what's what, what should they be thinking about there? So I'll give you kind of the, the quick on that one. So like an S corp is a really efficient way for more active sources of active type of businesses. So like flipping old Sisala, you know, service based businesses. And that's because you're going to get some savings on like the self employment, tax, payroll side of it. Yeah, there's compliance components to It So make sure you talk to someone that can help you there. And then one key thing is you never want to have, buy and hold real estate in the S Corp. Number of reasons why you don't want to do that. There's a lot of limitations with the S Corp to take some of those losses. We were talking about it.

[Justin Colby]

Yeah.

[CJ Tarantino]

That's where it's more, it's more beneficial to be in like an LLC type structure.

[Justin Colby]

Do you, can you. What about a trust? Does the trust still have the same type of tax?

[CJ Tarantino]

So, so typically. And there's a number of different types of trust.

[Justin Colby]

Yeah.

[CJ Tarantino]

And revocable. The revocable living is most common. Right. That's essentially treated as like if it's you.

[Justin Colby]

Yeah.

[CJ Tarantino]

But it just gives you the trust benefits there. So typically that would own the, the

[Justin Colby]

LLC and really it's like the holding trust, essentially.

[CJ Tarantino]

Correct? Yeah.

[Justin Colby]

Yep.

[CJ Tarantino]

So like flows up through your trust and really the LLC is less about a tax consideration, more of like asset protection.

[Justin Colby]

Yeah.

[CJ Tarantino]

Right. So you're holding this, you know, holding real estate in there and you want to be protected. Typically that's done in an.

[Justin Colby]

You're playing the game. Right. You've probably had a lawsuit or two in your life. Right. And so this is why you would want to have these assets in an llc. Right. You're really just more doing protection based. Right. By the way, I'm not telling everyone to go get sued. I'm just saying if you've been again long enough, it's, it's bound to happen at some point. All right, so S Corp versus C Corp. Let's maybe make some distinguish there.

[CJ Tarantino]

So a C Corp is not a very common thing you'll see in real estate and that's because of a double taxation issue where you're going without going too down the rabbit hole. Right. Is that the entity itself pays tax and then the potentially what's distributed out to you gets taxed again.

[Justin Colby]

Yeah.

[CJ Tarantino]

So not very favorable. That's more, you'll see that more in like, like the tech world and like, like some of the startups there may be in a group structure with real estate you're very commonly going to see like an LLC and there's just flexibility with partners and the way you can structure things with investors. And it's, it's really a pass through entity meaning like the entity in most cases doesn't pay tax itself. Maybe some state taxes in here and there. But if, if, if a loss is created on the LLC that's going to get passed out to the owners of the LLC. So if it's you 100%, it just flows to your individual level. If you have partners, it gets allocated based on the operating agreement. So most commonly you're going to see an LLC and then it's the question of do I, should I be an S corp for any reason? Right. That's where we, hey, what type of business? What, what do you expect the business to make?

[Justin Colby]

Yeah.

[CJ Tarantino]

And then we'll kind of layer in. Does it make sense for you to be an escort?

[Justin Colby]

Yeah, I think a lot of this also has to do with again, this is why you want to reach out, just so you can get a consultation with cjs. It just depends on what you're trying to do. Right. If you need layer of protection in the case, just in case I get sued world, that may be a different structure then, hey, I want the most tax write offs. It doesn't really matter. I'm not really going to get sued. Like give me the best tax wraps. Right. So what would be, maybe to wrap up here? What would be the second most common thing besides what entity structure is set up? What would be the second most common thing in general?

[CJ Tarantino]

You get asked, yeah, so they're coming to us and they're saying, how can I maximize the benefits in real estate? Right. So to bring it kind of home, is there a meeting with us? And they're saying like okay, if I go and buy this asset or what would that look like for a write off for me and how can I maximize doing a cost seg and that whole, that whole approach there. And that's where we would again meet with you. Get an understanding of what your history is, what your goals are, right for the 11 to 2 years and beyond, and then kind of map out, you know, why I really love this business, right. Is, is I see it as like a, a puzzle in a sense, right. And it's like what pieces can I put in place for you to achieve that result of like tax savings, tax efficiency and just making sure that you're in the best structure possible.

[Justin Colby]

Yeah. CJ, the CPA on Instagram, your website is Tarantino CPA. CPA.com that is CJ Tarantino. I am Justin Colby and this has been the Entrepreneur DNA. If you think you need, you know, a couple people that might get some good advice from cj, please share this with two of your people. I'll see you on the next episode. Peace.

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[CJ Tarantino]

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