Most family offices, you have to be worth a couple hundred million to just even have access to work with them. What we strive to do is create a situation where you don't have to be a really large corporation or an ultra-high net worth family office to have the resources to implement. There's three steps to being tax efficient. The first is structuring. Is there a way that businesses' assets can be owned that creates tax efficiency? Step two is, is there ways that you can go spend a dollar to be more tax efficient? And then third is we're going to do things that the government has said, look, here this exists, here's why it exists. And for the most part, it's going to be simple things like there's technically two risks. You have tax risk and economic risk. What are some of the economic risks? So to me, the economic risk is... One of your big goals is to help people write off active income. How do you guys make that happen? Well, what they're going to have to do is meet one of the seven material participation tests. Let's just say you're going to... buy a million dollars of an asset instead of underwriting it with 85, 90% leverage? Underwrite it as if you put all cash in. Is that a deal you would make? If not, then... Michael Williams, welcome to the show. Awesome. Pleasure to be here, Caleb. Great to meet you and appreciate you setting this up. We got connected by a few people and I love learning about tax strategy. I know that you used to learn firsthand on how the family offices were helping their clients. build assets, pay less in taxes. And when we had a call, I was taking a ton of notes on all the strategies that you were doing. And I was like, is there a chance that you can come up to Nashville and share some of these strategies? You made the track. And so thank you. And I would love for this to be a masterclass on how you think about taxes, how you think about assets, and then also share some of the things that you're doing. And for the people that are listening to this or watching this on YouTube, giving them some ideas. I know that. We'll also have some resources down below for them. I just also just want to say the disclaimer that we're not giving tax advice. We're not giving investment advice. Please do your own research. I know that is the the downfall of sometimes putting things out on the Internet is you never know what someone could do with it. But I would rather increase education and talk. And I believe that's going to make everyone a better better off. So with that, welcome. Yeah, thank you. And absolutely. Thank you. Set that up. really well. Not a CPA, not a tax attorney, so definitely won't be giving any tax advice. But to your point, I did have the privilege of working for a family that they were involved in a lot of tax efficient things through a lot of affordable housing and renewable energy and historic rehabilitation, things like that, which granted me exposure to their ecosystem where I just really saw at the ultra high net worth. family office level, I feel they do two things better than maybe the average person. And that's manage their cash flow and manage their taxes. And when they manage their taxes efficiently, it gives them more cash that they're better at managing. So that was, and I take a pretty simplistic approach to things and I'm more of a high level thinker, but fortunately for me, I was able to go to them. at one point and said, Hey, I see what you're doing inside the family office. Is there any way I can do that myself? And fortunately their answer to me was, Hey, your family, we love you. Go, go tell these two attorneys what we've told you. We'll tell them they can have access to anything that we're doing and they'll help you get set up. And fast forward, I ended up founding my company with those two attorneys. And really what we strive to do is to Create a situation where you don't have to be a really large corporation or an ultra high net worth family office to have the resources to implement efficient strategies. Most family offices, you have to be worth over $100 million, a couple hundred million to just even have access to work with them. Yeah. And I always say, you know, the saying's always, you've met one family office, you've met one family office, right? They're all different. I think most People that say their family office aren't what I would consider a family office. I mean, to me, it's when you have your own infrastructure that you have your own team of attorneys, CPAs, everybody watching every move that you're making. And, you know, if you're going to have a transaction, you've already thought through the tax angle and all the other angles, what you're going to do with that cash going forward because you've got a team watching every move. So I think to do that, you probably legitimately need a hundred million of investable assets to do it well. And I think the good news is I don't think in today's world you really need to be able to do that to be efficient. Advisors, CPAs, attorneys, that's where we really work with our company. That's the people that we work with. And they've gotten really good at being able to do these things, to be that infrastructure for folks that maybe don't have the liquidity to. build out their own internal team. And I want to just set the stage. There are a lot of good strategies out there that almost anyone can take advantage of. We're talking about understanding deductions, understanding how to like use your company structures and different ways to maybe write certain things off. That's not necessarily what we're going to be talking about, though. I think you'd probably do that and all of your clients probably do the bare minimum of those things. What what's the type of person that would be able to really benefit from this conversation? They probably have to be accredited. They probably have to. have potentially a 50, 60, $70,000 tax bill or up. Like I wanted you to just set the stage. And then I asked you to really give us the masterclass. I, you know, some people give big picture, which I think is great, but I would love at the end of this conversation for people to have like a really good idea of what you've dedicated your life to and like how they can take some of the principles and some of the strategies that you talk about and potentially help them potentially pay less in taxes, have more cashflow, that they can create more cashflow for their families. Sure. So I'm going to come at that a different way. I always say there's three steps to being tax efficient. And this is my high level brain, how I view it. The first is structuring. Is there a way that businesses, assets, things can be owned that creates tax efficiency? And I always say that's a little bit more commodity business, right? There's a lot of people that do that really well. Typically, what we're doing, my partners that are tax attorneys may be architecting plans. And then we'll work in conjunction with someone's existing, you know, tax attorney or maybe help find them one to do that. But can you use trust and various things that may create some tax efficiency? So that's what I call step one. Step two is where I think we live. And this is where we, you know, we just don't run into a whole lot of people that that maybe do it on a on a scale and, you know, diversified way that we do. And that is, is there ways that you can go spend a dollar to be more tax efficient? Can you buy an asset that may have depreciation that you could take advantage of and create a time value of money scenario? Can you find investments that have tax credits or other incentives associated with them? That's really where we, you know, spend our time. And again, that's working to implement those through existing advisors, CPAs, attorneys for our clients. And then third is, right, once you've done that, once you've become tax efficient, is there a tax efficient way for you to own the assets that you have? And again, to me, I think that's more commodity, right? There's a lot of people that do that really well. No pride in authorship on our end. We will work with existing team members for people to help be of service there. But we really live in that second step, which is, is there a way to go spend money to be more tax efficient? Can we take dollars that maybe would have went to taxes where we know what that return is? Instead, use things that the government's put in place to allow us to keep some of that money and earn interest on it. So another thing I'd say along those lines, too, is is and, you know, there's so much stuff out on the Internet now. We see videos all the time of people, you know, on social media, putting things up that just do not work. But so. Probably the biggest battle we honestly face is there's so much noise out there and what people can do. And that ends up giving a lot of things a black eye. So we're going to live down the middle, right? We're going to do things that the government has said, look, here, here, this exists. Here's why it exists. And for the most part, it's going to be simple things like just using depreciation. And that's that's kind of where we live now. To answer your question, what is a target client? I mean, anyone that's paying. income tax at the highest tax bracket is going to be a fit for us. You know, our scale of clients is pretty wide ranging and, you know, it's gotten probably larger and larger over time. But the whole premise of why I started this company is I wanted people that were in my situation when I was introduced to these things. People that weren't ultra wealthy, that didn't have their own family office. to be able to do these things. Because I would argue a lot of times the impact of the savings and the control that they can keep over their money is more impactful to someone at that level than someone that's ultra high net worth. End of the day, we want people to be able to be more philanthropic. We want them to be able to create jobs, reinvest in their business. That's why we exist. Yeah. And there's a lot of things that I could go down right now, but it's when it, when it comes to making money, um, One of the best, I won't say the word investment, but one of the best activities you can do is learn how to lower that almost, if you didn't do anything, you were going to have to pay the IRS. And whether it's the IRS or something else, it's money that's. leaving you leaving you and so another way to say what you're doing is you're you're helping people take the dollars that they're already going to have to spend anyways and use them in a way that creates more cash for you today but then also can create some type of potential asset in the future an example of this just so you know that this is not some crazy idea that you're talking about is right now people can go buy vehicles that weigh over 6 000 pounds Just a basic example, if you have a vehicle that's over 6,000 pounds and it's a $100,000 vehicle, you can go get a loan and put a small down payment down and maybe pay for that car over five years. And you get the full $100,000 deduction in that year if it's for business purposes. So people are doing that all the time, but the potential problem is that asset is something that you can enjoy, but it's depreciating. It's getting less valuable. It doesn't necessarily put money back in your pocket. In fact, it could take more money out of your pocket because an oil change alone could be could be expensive. So you're you're taking a version of that and you're saying instead of maybe getting a G wagon, what if we could structure other assets that could check some of those boxes? But instead of being maybe something that gets less valuable over time, it actually could be a plus on your on your balance sheet. Did I articulate that? That's great. You know, I think. one thing I would say is if I'm talking to someone as a, as a prospective client, they're good at making money. Like they, they know how to make money or they wouldn't be talking to me. So what we want to do at the end of the day is just allow them to have more money to use, to make more money. So you mentioned, you know, like buying the vehicle. I mean, I would tell somebody if they were looking at maybe an opportunity I had or in their business, they could buy something and depreciate it and they needed it in that business. I'm going to look at them and say, you need to do that because the return you're going to make in your business off that asset, I can't compete with that and I'm not going to try to compete with that. So we would always tell people, do those things first. There's low hanging fruit, right? It kind of goes back to that structuring phase, right? There's some things that you can do just naturally that we always want people to do before we enter the picture. So an example kind of along those lines, everyone is. you know, tale as old as time, right? Real estate professionals, right? There is a whole game that real estate folks get to take advantage of with the depreciation. And one of the big strategies that we do is essentially helping people play the same game and be able to defer and defer, defer without having to be real estate professionals, because that's a pretty high barrier to put 750 hours of activity in is, you know, that's no small task. So if we can find ways to accomplish the similar goal without such a commitment, we want people to be able to play by the same rules. If depreciation and deferrals good enough for real estate folks, how can we make it available for non real estate folks? Cool. All right. Let's dive in. I know that if the depreciation and I want you to define what depreciation is, but if depreciation wasn't a thing, these strategies wouldn't be nearly as good. But with the big, beautiful bill, it's my understanding that these these next couple of years are really prime to understand the strategy. Why don't you break down what that is? And then I know that you guys put everything together from the asset to the banks to, you know, even understanding the pros and cons. And it would be, again, a win if we understood all those steps. And then obviously, if people are interested in learning more, we'll we'll give them the ability of where they can learn. So probably worth distinguishing, when we talk about depreciation, there's really kind of... two types, right? There's depreciation of value of an asset, which typically is associated with the depreciation that we're talking about, which is depreciation for tax purposes. So to your point, big, beautiful bill took, you know, people like to say took bonus depreciation back to 100%. We like to refer to it as 100% expensing. So if you buy an asset that qualifies, you can expense 100% of that. So if you bought a million dollars of, you know, equipment or some asset in your business, you can write off that full million dollars. Now, the thing to really keep in mind there is, let's say you have a tax rate of 40%. Well, you just paid a million dollars of expense and bought something that cost you a million dollars that tax-wise, you basically have time value of money of 40% of that, so $400,000. So, obviously, there's still a $600,000 delta there. And. If you do it the traditional way, buy cash for everything, you won't have enough money unless you're sitting on a ton of capital that you want to then reinvest just to help you with it. I think this is maybe where the Internet's had a negative impact. And I talk to people all the time. I mean, I've talked to a person that was buying a bunch of planes and depreciating them and then sitting the planes and not generating any revenue. And I tried to talk him out of it. I talked with the CPA and the CPA is like, we've tried to tell him this isn't the math doesn't work here. But, you know, people get so fixated, I think, on not paying tax. that that's all they focus on. And that is not something that we would ever support or be pushing. If you're going to do something like this, that asset needs to stand on its own without the depreciation. Heard, heard. Okay. So understand that. Let's walk through the steps on how you put these strategies together. Yeah. So what we do in our business is really try to be a resource that is bringing a full package solution to the table. So we will do everything from identify the assets. So that process is find something that we are interested in potentially owning, an asset that at the end of the day, there's two characteristics that have to be met. The first is it has to depreciate for tax purposes, which is not too difficult a hurdle. Second one is a little tougher. Second characteristic is the asset has to. basically generate bankable cash flow, meaning I need to be able to take somebody and say, Caleb, I need to be able to take you to a bank that you've never worked with and that bank be willing to lend money to you on an asset that you maybe never have had any experience with. And the way that we make that happen is by having a contracted revenue agreement where we can get that bank comfortable. So I would argue that. We have the tangible asset, but really the asset that we're really focused on is that revenue contract. Revenue contract, meaning the banks aren't going to lend money on something that's just pure speculation. So you're going to the bank and saying, hey, we're going to get this asset that you can have as collateral. But what you're really interested in is this contract that we have that nothing's guaranteed, but is lining up a really good forecast where. this asset will easily be able to pay on its debt. It doesn't matter what Caleb or anybody else is doing. I mean, this person's a surgeon. This person's a busy entrepreneur. It's not based on their ability to earn cash flow. It's based on what this asset's ability to earn cash flow. Exactly. Banks are going to take the approach of Armageddon. What happens in the event of Armageddon? All right. All for this strategy to work, recourse debt. So someone's going to have to guarantee the debt for it to work. So they've got a personal guarantee. that they're underwriting. But in today's world, that's not enough. You're just not seeing a lot of banks just do pure balance sheet loans. They're going to look to that asset. What happens if they end up with that asset? And fortunately for them, it's not just the physical asset, but there's usually contracted revenue that's going to come with that asset. I mean, there's always contracted revenue that would come with it in our case. Okay. So the first step is find an asset out there, lots that check the box that can be 100% expensed. or use depreciation. But the more important thing and where I think you bring your value is figuring out some type of revenue agreements where banks would feel comfortable because this strategy about spending money to own assets and ultimately be more efficient only works with debt. Going back to what you're saying, it still could work. But if you have to put a million into something to get a 40% benefit. Yeah, you're not paying the IRS, but you're you're paying a lot more for that year. Correct. And what we're really looking for is is companies and users. People are going to use these assets that they're a means to an end for them. Right. That company needs them in their business to generate revenue. But they're typically they have places they'd rather go put cash that are going to make them a higher return. They want to go expand their business. They maybe want to build another facility instead or buy a buy another business. What we're able to do is essentially be a provider of off-balance sheet financing for them, where we say, hey, look, we have people that would love to own these assets. They may be fine with a 12% to 15% return, which is not going to clear what the company may be looking to get on their money. So we can bring people that can utilize that depreciation, that can play the time value of money game, and then are fine with more of a coupon-type return that they're going to get over a period. And these type of debt, obviously it's a recourse debt. the individual like myself or a doctor or whatnot, they are, they're co-signing, but does it affect, does the original loan affect their debt to income ratio on the personal side? How does that work? That's a good question. One of the common, I mean, usually where this comes up is people say, hey, look, I'm looking to maybe buy a house and, you know, I want to understand how this will work. So what I tell people is going back to what the asset is, you've got the depreciating tangible asset, but you've got that contracted revenue. So any of the assets that we would be involved in, the net present value, so if you viewed it in terms of a balance sheet, the asset's going to be worth more than the liability. So does that affect debt to income ratio or not? Not really. So what I would tell you, compare it to a house. You go and get a mortgage. There's really not going to be any revenue coming in, right? We're going out and getting a loan, but we're going to have contracted revenue that in theory you would put on your balance sheet as well. Okay. Okay. So overall. You're not having people not be able to buy homes or personal things. Correct. When it comes to debt, what I'm hearing is it is seen, but any banker worth their weight will be able to see, like, yeah, you have debt, but you have income that's coming in. And in a way, it kind of eliminates it from your ability to, like, it's not going to be an issue to get a home or a car loan or other things. Exactly. You would... You would have the liability, right? The banker would see that, hey, you have this debt obligation. But subsequently, they would also see that as an asset, you have a contract for typically five to 10 years, depending on the asset of future revenue. OK, so the two risk right now that I'm seeing and I'm learning about this in real time is obviously the relationship with the bank, because it would be a problem if the bank could just be like, you know what, we're not going to give you this loan or we're not going to renew the loan. So I'm sure that you guys have some type of multi-year. agreements when it comes to the banks, but then also the underlying asset. If the underlying asset went kaput or belly up, you're obviously on the hook for debt with an asset that's not moving the needle. So outside of those two things, is there any other risk or cons that people just need to be aware of whenever they're entering into something like this? So I always say there's technically two risks, right? You have tax risk if you're going to utilize the depreciation. And secondary, you have economic risk. So why we like these strategies is the tax risk, right? We know what that risk is. Do I worry about buying an asset and being able to fully expense it? I mean, that's to me pretty straight forward in my non-CPA, non-tax attorney brain. That seems pretty clear. Where I think there could be risk is people navigating potentially passive activity rules. not talking specific to maybe assets we've done, but other things I've seen out in the market where people are trying to take advantage of depreciation. We take a pretty conservative approach to things. There's some assets where people are saying you could materially participate in this. And my partners that are tax attorneys say we don't believe that. Explain that for a second, because an ordinary individual that's like, I want to go buy even a vehicle to take. I want to buy a vehicle with 6,000 pounds. The only way you get to deduct that fully is if it's for a business use. You can't just do it for a personal gain. You're saying if you're a doctor, a busy entrepreneur, and that you're doing something, okay, depreciating is pretty set in stone, but then what could be challenged is you're doing this passively. And because you're doing this passively, you don't get the same benefits as someone actively doing it in business. So how do you guys get around that? So let's just. make up an example. Say you and I wanted to go buy a plane, right? We come into that together. Well, that is likely going to be passive to both of us. So meaning if we bought that and say we spent a million dollars into investing in a plane and we tried to use that million dollars of depreciation, if you and I have passive income, then that's going to be pretty easy, right? We'll just use that to offset other passive income. If we don't. and we have active income, that depreciation, it's not that we don't get to use it, but what we would do is use it against any passive income, which maybe that plane, since we're passive into it, is going to generate passive income, and we could just use it over time to offset that income. So the risk would be that you're claiming maybe you were active in that plane, and not to say whether you were or weren't, but you needed to materially participate or be active. And that to use that depreciation against any active. And one of your big goals is to help people be able to. to write off active income with what you're doing, correct? We have a lot of clients that that is what they're trying to accomplish. And so how do you guys make that happen if someone's full-time in something that's not in that asset? Well, what they're going to have to do is meet one of the seven material participation tests. What we'd have a lot of people do that some of these assets we are able to structure as trader businesses, and they would qualify for certain people to do. what's called a grouping election for tax purposes with an existing trader business. OK, so we've seen that a lot. You know, one of the things I've done personally, and this is one of the first things that I did, is the way that my my income is mostly structured is going back to that step one and how you can maybe potentially structure things for an outcome. My income due to some some things we did. is almost always passive to me because of how my business is owned. So in that case, I personally am not too worried about active or passive because my income's passive. I don't need to actively participate in some of these things. But a lot of our people are. And that's where their CPAs, their attorneys, we're happy to explain the opportunities to them, but working close with them to understand. What is the most efficient way for these to own these assets? When you say trader business, you're talking about a hypothetical right now, but someone could get into a trader business that you could think of that as like a portfolio, an investment portfolio that they're running. And then they're now acquiring assets and the activity of acquiring assets is an active type of business. And then, boom, that's their way. I won't say to get around, but that's their way to check the box to say that this is more active than just passive. Yeah. And again, let me use my non-CPA, non-tax attorney brain here. But essentially what we've had a lot of people do is we help them start their own trader business. So, for example, maybe they want to basically own servers and GPUs and be in the business of selling power to data centers, right? We can do everything to help them get set up and do that. So now they have a trader business where they're in the business of selling this power to a data center, which a lot of we've had people that have went and taken that business and then grouped it with an existing trader business that qualified for the grouping election. And because they were active in one business are now grouped and active in the new business as well. Has how has the IRS have the has the IRS? audited any of these things? Or like, I know that you said that there's two risk when it comes to tax risk. And I would imagine that that is the big thing that if someone was entering into this, nothing's guaranteed, but it sounds like you guys have a track record and that you've, you've had some type of, does the IRS give you the thumbs up pre, like they say you're good to go? Or is it only when it gets audited? Yeah. The experience we've had, and again, you got to keep in mind, I don't have full visibility to everybody's situations, but I, I am aware of at least one of our clients that's been audited. I'm aware of lots that have done these similar things and been audited. I've never heard four stories, fortunately. Not to say, let me be clear, not to say there's not been somebody out there that said, hey, I claim to be active. And then I got audited and the IRS disagreed and won. I mean, that's totally. I mean, let's be clear, that has happened in scenarios before. There's plenty of case law where you could look or, you know, I can think of a big one where someone claimed to be a real estate professional and the hours that they were putting in and claiming the IRS said those really aren't active hours. So you didn't meet the test. So what I always say when it comes to the tax risk side of this is the tax risk is quantifiable, right? I know what it is. It puts the onus on the taxpayer to. meet the bars. If you don't meet those bars, then you're you're adding tax risk. And just to be clear, that's one thing that you guys do as a company is you help people create one of those trader companies so that they don't have to try to figure out from scratch, go on to ChachiBT and say like, hey, help me, quote unquote, like you guys actually help people do that. So what I would tell you, and this is this is a fine line, what we do not do is help people participate. Right. Because if that were the case, then my argument would be that That was potentially our participation, not the person trying to get it. So we do not get involved in that arena. Now, what we are more than happy to do is to work with someone's attorney or CPA and let them understand the structure and what's truly happening in the trade or business and let them make the determinations for their clients from there. Um, you're disciplined in this podcast. I'm trying to, I'm trying to get you to swing at some balls in the dirt. I don't, I don't know that that is, like I said, I've seen a lot of stuff on the internet that makes me scratch my head. Yeah, I hear you. I appreciate that. Okay. So tax risk, obviously those are, those are things that, you know, going in, um, you know, the upside, you know, the downside and you need to do everything you possibly can to be as active and check the boxes, especially if you want to be able to write it off your active income. And let's kind of come at it this way, too. What I would argue with these assets, if someone was looking at doing this strategy, to me, let's remove the tax angle, right? And the only tax angle that's happening is we're able to leverage, call it 85, 90 percent of the purchase of the asset. And it's creating this delta between what your cash out of pocket is relative to what the value of that depreciation is you're wanting. Right. That's the only tax thing that's happening. So what I tell people is, let's just say you're going to buy a million dollars of an asset instead of underwriting it with 85, 90 percent leverage. Underwrite it as if you put all cash in. Is that a deal you would make? If not, then there is no world where we need to add leverage to this to make it a tax arbitrage. But where the where the tax arbitrage comes in is if you're putting, let's just say, one hundred thousand dollars into a deal, getting a million dollar deduction. at a 30%, we'll just say a 30%, we're not talking about state taxes. In some states, it could easily be a 40%, but a 30% deduction, you get $300,000 that you get to write off. You're putting $100,000 in, that's out of your pocket. You're getting a $300,000 deduction and an asset that hopefully the bare minimum should be to finance that debt. And maybe we'll even have an additional money. Is that is that the whole idea? Right now, let's even call it one hundred and fifty thousand out of pocket. Right. So let's say you put one hundred and fifty out of pocket, but you were able to recognize three hundred thousand from the expensing. So you now have one hundred and fifty thousand in your pocket. You would have had to pay if you didn't do a type of strategy. If you do nothing in those numbers, you're out three hundred grand out of pocket. Instead, you're out one fifty. So you've got one fifty that you give back to your advisor, invest back in your business. It's working for you. More importantly, you now have 150 grand that also would have went to taxes. It's in an asset that's going to earn you a return. It has contracted revenue that should earn you a return on that. To me, that is just as impactful as what's going into your pocket because, you know, we know the return when it goes out the door towards taxes. You know what you get back there. So end of the day, it's putting. More cash into people's control for them to spend how they want. Okay, let's talk about the economic risk. Because the if, and nothing's guaranteed, but if the asset underlying is really, really solid, this becomes a no-brainer. If it's like, going back to it, if you wouldn't put all your money into it, don't do it. But if you're like, this asset's really great. The problem would be is I don't want to put a million dollars into it. From a business standpoint, I may not have the liquidity, but I want to own this asset. Real estate's a good example. It's like I want to own this real estate property, but instead of doing real estate, you guys are doing some other assets. I would love for you to talk about some of the assets that you're getting, but more importantly, what are some of the economic risk? Hey, if you're a business owner watching this video, taxes are likely your largest expense. We help business owners all over the country keep more of what they make with proper tax planning. If you're serious about keeping as much money from the government as legally possible, then book a free tax analysis call with our tax team by clicking the link in the description or tag comment below. Back to the video. Sure. And one differentiator, I would say, you know, real estate, the goal is for that to be an appreciating asset in value, right? So you want the time value of money. You want as much money invested into that appreciating asset. Now, you're not going to typically be able to get the same amount of leverage. on real estate assets is what we can get on ours. But the difference is our assets are going to depreciate not just for tax purposes, but in value too, right? So that means we need to throw, make, it's more important that we're throwing off cashflow to not only cover our debt, but also to pay us that gap, right? We've got the tax savings in our example, if we, if we spend a million dollars to get 300,000 of tax savings. There's 700 grand of money we need to make to break even. Right. So to me, the economic risk is what if that doesn't happen? And if you come in all cash, your risk is that you're out of pocket, that cash. If we use the leverage, the risk is you've got a debt. payment that you're on the hook for that that bank is going to get from you in some form or fashion. So Armageddon in all these situations is that the revenue does not occur off those assets to a level that covers your debt that you have, plus pays you enough to get whole on the investment, which is why it is ultra important to, in my example I used early on, to buy a jet and let it sit and not generate revenue, that one's a head scratcher for me, right? I personally not going to be doing that because I guess maybe the play would be if somehow they think the market of jets is going to appreciate significantly in value, then maybe that works out. But what we're looking for is contracted revenue. And it goes back to how we structure all these is through a revenue share. So, you know. To mention some assets, so we talked about, you know, the selling power to data centers. For folks that have been in airports and seen the big digital marketing screens, they look like giant iPhones, right? We can, for instance, do those screens that we could own that would have 10 years of contracted revenue. So what we're looking for is assets where we know that I've got revenue on them that's expected to pay me more than what I have out in debt. And the way that it's structured is all those assets are in a revenue share together. So there's a whole bunch of people that may have servers and GPUs doing this with data center. There's a whole bunch of people doing this on these screens. Things happen, right? Sometimes you buy a lemon. We've done a lot of yellow iron construction equipment through our platform. Those things break down. They could get stolen. All these things can happen. But the beauty of how we structure these, and this is why the banks really like it, is if that happens, as long as the pool performs as it's supposed to, and we can really, you know, do our diligence and get a pretty clear picture of what that looks like. As long as these assets perform on the whole, you're not going to make more than I am if my asset has an issue on it. So going back to the equipment example, let's say I got the equipment that's not like not working super well instead of it just being like. a risk, it's a pool of the investments. And so overall, if a couple equipment gets stolen or not perform well, it's just going to take the overall pool rate of return a little bit down. But you're kind of like, there's a little bit of a diversification when it comes to that. Yeah. I always say this, look, there's no doubt it limits the potential upside, right? If you owned an asset that just was humming 10 out of 10, then you may be leaving some on the table. We're OK with that because what we want to do is protect that downside. Let's talk about a case study. And again, we can do middle of the row. We can do below average, above average or just average. But if you're if I'm sitting across the table for coffee and I'm saying, OK, I want to do something like this. Talk to me about some numbers of like how this would work. And we can just use general numbers. But I just want to get an understanding of like. Not even in a perfect world, but like a case study of what this could look like. Sure. So if I'm if I meet somebody, I mean, what we're going to do is try to understand their personal situation. You know, obviously, what type of income are we looking at? But as important, how is that income generated? And then what are your goals? Right. I mean, some people have different goals. And if it's, hey, you know, I want to be super philanthropic and and I'm going to say, hey. awesome. Maybe it makes more sense for you to do a donor advised fund or talk to your advisor about that or to go give to this charity rather than do something like this. Now, what we like to be able to do in that situation is feel that we're creating a situation where you can be more philanthropic because we're creating more excess cash. But what we're going to do is try to understand what you're trying to accomplish first and foremost. And then what we're going to do is try to say, who's your advisor, CPA, attorney? Who do you trust to understand these things? And maybe that's you. Maybe you want to be involved. But we want a couple of things there. We want to, one, know that the people that you trust on these things are involved and that we're keeping them in the loop. And two, we want to make sure that they understand that we are here to be support to them, not try to get in and sell you some great idea that they know nothing about. And then you bring it to them at the last minute and say, do this. So. That's where we're going to start. But then from there, it just comes down to the situation. What we're what we're really looking to do most of the time is try to offset as much high income through these investments as we can. And at the end of the day, do we do these for tax purposes? No. Right. We like these assets. We think this is a good place to store money. in these assets. We also understand that our investors like the power of time, value of money, and that depreciation by adding the leverage creates that opportunity. So happy to walk through kind of example. Let's say I put $100,000 in just to make it simple. So let's say I'm like, I'm in, we do all the talks, you meet my team. And I'm like, okay, Michael, I want to give, I want to put $100,000 into this deal. Talk to me about what that could look like. So there's going to be different assets that are going to operate a little bit different, right? So like if you looked at yellow iron equipment, it's going to be structured with 10-year amortized debt, and it's going to have a six-year revenue contract on it. That's going to be with, you know, there's going to be a very credit-worthy source of revenue on that. Now, in that asset, you're going to, the way it's going to work is at the end of six years, because you had 10-year amortized debt, there's a debt balloon payment that you're going to be responsible for. There's also a built-in exit on that. So basically in the back end, there's kind of a minimum transaction price, right? So a floor price that we're targeting to get someone out of the asset, it's going to cover that debt balloon payment for them and then hopefully return some of what they originally invested back to them. But in that asset, two things. One, you've got potential for a debt balloon that you're going to have to be aware of. you also have the potential for recapture of that depreciation that you took because you're selling the asset for a pretty sizable amount still. It still has a decent value at that point in its life cycle. So those are things that we need to talk about and make sure the CPAs and everyone are aware of. What is the true? And one thing you'll always see from us, any modeling is always going to be fully tax effective. So we see a lot of things out there where people will value the depreciation and the benefit. But then they don't really show the full, they don't show the tax paid on the income through the life of the investment and the recapture. So anything we're going to do is going to be really from a return standpoint as low as we can show it by just assuming all taxes paid through that vehicle. Now, you look at some of these other assets, you know, like the servers, for instance, it's going to work a little bit different because it's going to be a five year revenue contract. And the debt's going to fully amortize over that five years. OK, so what's interesting about that is you don't have a debt balloon payment that you're on the hook for at the end of the agreement. And your residual value on something like that, you're you're looking probably 17 and a half, something under 20 percent residual value. So after the five years or after the five years. Yeah. OK. OK. So in that case, you know, you're not as worried about the back end. you don't have the balloon payment and you don't have a potential sizable recapture. Now you'd have 20% of whatever, or let's just say. Yep. You would owe tax. I mean, you basically, let's say, assume you owe ordinary income tax on 200,000 if you've, if you bought a million dollars. Okay. And it would be, you'd come back as ordinary income, not capital gains. It's going to basically show up as income on your tax return that year. Okay. Now, again, do I, does recapture really worry me personally? No, because I'm factoring. This is the world I live in. I'm weighing what my tax situation is on an annual basis. And I would factor that in. Now, do we know what what strategy may be most effective? Who knows? Right. But I know there it would be kind of unprecedented for there not to be something that we could utilize. I hear you. OK, so let's go back to put one hundred thousand dollars. into something, do you want to just use the servers or the kiosks as an example? Yeah. So basically what we're, what we would be looking to in these strategies is if you put a hundred thousand, let's say you buy, I'm just going to work off like a million dollar purchase. And let's say you put 150 grand. I'm just going to assume that to be on the safe side. So you're 150,000 out of pocket. Okay. Right. And basically what you're going to be able to do is, is, you know that you would you would be deducting that amount um getting the depreciation year one of a million yep okay so i get i go to a bank and we get an eight hundred and fifty thousand dollar loan as well yep and we're we're buying what are we buying um so let's let's just use um like gpus for an example okay gpus is an underlying asset and you have a revenue agreement that's tied to it as well. You got, yep. So you're going to get your million dollars of depreciation. If somebody can utilize that this year, let's just assume 30% tax rate. And one thing too, to keep in mind is we really need to be aware of the full income situation. Because if someone says, say someone bought a million dollars of equipment that made a million dollars. We're going to drive their income down into those low tax brackets. So that depreciation is not going to be worth near as much. So at some point, the math doesn't math. And we want to make sure that we're really architecting this out. Someone's at a 10 percent tax rate. A strategy like this may make less sense, even though it's an underlying asset that is still. Say you're 150 grand out of pocket and you're at a 10 percent tax rate. You just saved 100 grand and you paid. Now, again, we're not. doing this, the return's not just the depreciation. I'm just saying you're not creating that tax efficiency. You're still going to continue to get the benefit of the return. Your total return would come out a whole lot less. It just isn't going to be as much upfront loaded because of the tax. The million dollar deduction makes a lot of sense. I want to now understand how the loan works over that five years and is the goal for... clients to have extra revenue above the servicing of the debt so and again this will differentiate between assets right because some assets throw off more cash during the life versus more on the back end and all those sort of things but think here's really what we target we want to be able to know that the money that we're generating so if we look at the leverage structure where we put call it $150,000 in. We're going to target that $150,000. We want that earning 10% plus return through the investment, taking the depreciation out. And that's also including the loan service as well? That's going to include paying your debt and all that. And really what we're pushing for is to get close to 15% kind of cash on cash for these assets. And most of them will at least currently be in that range. Okay, so 10%. percent. at $150,000. That's a, you know, that's. Yeah. Call it, you know, if we could come to somebody and here's what I would say, if we could cover their debt payment and then have, call it $15,000 at the end of the year of net cash in their pocket, we feel good about that. Yeah. I mean, that's because how we would look at it is, all right, you've got money that we put in your pocket through taking advantage of the time value money of the depreciation potentially. And then you now have this 150 grand that would have went to taxes as well, that if it goes to tax, I'm getting zero, right? I'm losing that. Instead, this investment is going to put, call it 15,000 of net cash in my pocket for the next five years. Which is, what is that? That's 15 grand times five. That's 75 grand, let's just say, over five years. And then after five years, the equipment's fully paid off. But but you're not there's really no extra money like. Yep. So here's ultimately how I look at these assets, too. And it gets it gets wonky to put returns on them. People do the leverage and time value of money. So what I really look at is an after tax moeck and I take the debt off the table. Right. If I put a dollar in after tax over the life of that five year GPU agreement, I would expect to generate a dollar fifty of yield. after tax. So the way I look at it is that dollar could have went to taxes. Instead, I got the dollar back plus 50 cents after all tax. Yeah. Okay. So I'm going to try to summarize this and correct me if I'm wrong, but this is a hypothetical again. This is not, I think one of the things that you're cautious about, which I appreciate is you're not trying to put anything set in stone, but just, I find that these can be helpful for the... And there's like we can provide models to anyone on a specific situation. But that's also where it gets hairy. The more data we have for a personal situation, the more accurate our modeling is going to be. So in this hypothetical example, I'm putting $150,000 into a deal into a five year. We're buying GPUs and it's an asset that I can fully depreciate. And we also have a revenue agreement. We're going to a bank that you're going to help connect with. And we're getting an $850,000 loan. And, um, I, so I get a, again, if I'm in a higher tax bracket, I'm putting $150,000 in and getting a much higher deduction, whether it's a dollar for dollar deduction or whatnot, but I'm, I'm like, I'm, I would have been out in this example, 300,000. Now I'm, I'm putting 150,000. So that's out of pocket, but I, but I'm potentially saving 300,000. So that's when number one, when number two is. I am getting $15,000 hypothetically of cash flow for the next five years that's coming from this. And so that equals 75 grand over that time. So it goes back to if I put a dollar in, I'm hopefully over four or five years getting a dollar fifty. Now you're saying that you're already factoring in taxes. And that's net of tax debt payment. That's that's going to be free cash. That's that's that's net of of those things, which is which is key, meaning that these assets are providing a lot more because majority of that money is going to service service the debt. After that five years, the GPUs are totally worthless. And I... now I get a recapture of, let's just say on the high end, 20%, meaning I will have a tax bill of, I'll have an additional $200,000 ordinary income that lots of different ways that you can go about that. It's still, even if you took that on the chin, you're still, you could say that the money that you're earning over that five years could easily go and pay for that if that's the mindset that you want like Free cash flow, just put it into an account to pay the tax at the end of at the end of five years or know that there's always different type of strategies. We don't know what's going to happen in five years from now. Is that did I just summarize like the concept? Yeah. I mean, only thing I would say, like specific to GPUs, not going to be totally worthless. And this is this is part of, you know, kind of where we have to do our job and figure out the full life of this. So the good thing is what we have is kind of the full infrastructure system. for the server and GPU. So certainly there's going to be components, you know, chip, chip gets depleted. It's not worth anything. We still have all the infrastructure where we can just slide in the new version of the chip and you're, you're off running and chasing another revenue contract if you would want. So there's a world where I'm just, again, hypothetical, there's a world that you could get another revenue agreement that might be less valuable because it's a five-year-old machine, but is it fair to say that that income would generate a lot more because you don't have that underlying debt. In theory, for sure. Yeah. I mean, and keep in mind the beauty of this. Let's be clear. Your business, you own these assets. They're yours. You can do whatever you want. You want to pull them out and say, hey, I want to use it somewhere else for my own personal use. You have that ability to do it. So now talk to me about because you just said one of the benefits is you're kind of pulling your risk. But if that's the case, how would I be able to say like, hey, I want to pull this and have it chill in my office? So You fee simple own. These are your assets. You're the owner. You choose to enroll it into this pool. I understand. You can choose to pull it out of that pool if you would ever want. Okay. Okay. Yeah. So most people keep it in the pool. Historically, yes. I mean, I can do speak for myself, and I know I would rather other people make me money. Well, yeah, I'd rather stay in my lane. I'm glad paying them to do some of the things I'd rather not. And I would imagine that you guys get paid or there's other people getting paid by helping you set up these assets and these revenue agreements. And I would imagine that you factored this in to the overall. Sure. Yeah. Great, great question. So the platform, what it exists to do is to make sure that this is fully packaged and all parties are there that you would ever want to utilize for this. So, for instance, there's going to be people that are responsible for. doing maintenance and things like that. The platform's going to cover insurance that's going to be required. Any lender's going to require that you're going to want to know there's insurance. All those things are included in that revenue share. So from a way the dollar flows is the end user is going to send our platform money. Some of that money will go out to parties that are performing on your behalf some of these duties. And that's all going to be netted out by the time you receive that cash that comes to you to cover your debt payment. And then the excess. Does the debt payment get automatically taken care of by how you set it up? Or am I the owner of this need to make sure that I'm getting I'm getting a big lump sum, but I got to make sure that it goes pays the bank or is part of the revenue agreement saying like, hey, we're going to take care so that that that user error user error things get busy. Like we do not make the debt payment. On people's behalf, like that's just we don't have access to that. That's stuff they're setting up their own. It's their debt and it's in their business, right? Now, what a lot of folks seem to be doing is that that account that their money ACH is into every month. That's automatic payment. Is going right into that bank. So that bank's either pulling it or they're just transferring it over. Okay. Some people say, hey, look, I'm, you know, I'm much, I'm, some people are really active in their business and they're handling all that stuff, you know. manually on a monthly basis. Others, it's just getting. Talk to me about how the taxes work there, because then can you just write off dollar for dollar the debt service? So just I mean, you would be just writing off your interest expense. What would qualify at that point? Okay, so is there from a tax perspective, is that going to be worse off? You get what I'm saying is if I'm getting these big lump sums and then I'm paying off debt, yeah, I'll write off the interest, but all the principal that I'm paying back, is that considered ordinary income that I need to take care of? If you're an accredited investor and want to find a place where you can look at all the advanced tax strategies that I know or if I've been pitched or I've heard, I've created a place for you. It's called taxandassets.com. dot com. It's a free community for accredited investors that want to go deeper on potential tax strategies for you to do research on, for your tax team to do research on. You can go to tax and assets dot com or check out the link in the description. So this is back to where I was talking about. A lot of folks don't fully tax effect everything. Our modeling is going to put every tax we can dream up and into it. So money will come in. Basically, the way that this works is business. owner is going to get a 1099 from the platform saying, here's your netted amount of revenue, less expenses. So like that maintenance, things like that. So you would get a net number. Now on those interim years, you are going to have income that is going to be owed ordinary income tax. But in this example that we use, it'd be around 15 grand a year. Actually, it's going to be quite a bit more than that income that's going to be taxed because that's going to be a net amount. after you've paid debt service. So keep in mind, there's been enough revenue to cover not only that debt service, but also those expenses, the insurance, the maintenance. Those get deducted, right? I hear you. You can deduct those. But keep in mind, there is, in our model, when I talk about $1.50 of after-tax MOEC, that is assuming you do no tax planning. You're just paying top income on all that income that's coming in for the year. Okay. And you're what you're saying is there's ways to be more efficient with that as well. For sure. I mean, what I would tell you, I mean, if you looked at our platform, I want to say we're at like a 95 percent. If you bought this year, you're going to buy next year. I mean, most people are adding assets into their business on an annual basis. Do you ever do like presentations where you show numbers and all that might be something? And again, we'll see that might be something that we can do offline and maybe for certain people that. qualify for for it i would love i would love again my i'm an analytical person so i like to see this stuff but i think the concept is really really interesting is there anything else you want to say as it relates to this type of strategy it's like it makes sense to me you put money in you're obviously working with someone like yourself that helps find the asset the revenue agreement helps our cpa or team set up the trading company to really make sure that you can check the active aspect that's a really important aspect of this obviously the revenue agreements is there has there been precedent where like things are happening so fast when it comes to technology is there a world where a five-year revenue agreement will be like hey we're just gonna forfeit this or are the revenue agreements pretty solid is it like a five-year leases and yeah so that's that's to me kind of the main thing i would say like if you were asking me what's what's closing, I would say, look, do not be. Fall in love with the shiny object that people are pit. There's a lot of things we see tax wise that, you know, they appear to be sexy. And if you dig in and really understand what's happening, just they just don't work. Yeah. So be cautious there. Second is, I mean, that's the key, right? Is that those are all the questions that we have to dig into and that we're asking. And here's why I like the bankability component of this. Banks are also doing their due diligence. Banks have, I mean, that's a, that is. I love our diligence. I mean, my partners sometimes frustrate me with the things that they, you know, I'm like, you know, I appreciate that. But I like the fact that there's banks that are willing to, like I said, I can bring them someone that they've never met before and they're willing to lend to them on an asset that they've never done anything with before, which means that contracted revenue has to be something that they're comfortable with as well. So we're looking for and there's a lot of assets out there. I would say we probably looked at a dozen different assets to bring onto our platform this year, and we'll have three this year. I think we'll probably double six to eight range next year. We've got some really cool assets that we can add into the mix. We just run out of calendar. But there's a lot that just we could not get comfortable with. We like the asset. I would personally maybe want to own them, but not to a level I could get comfortable to take them out. When we chat on the phone, there are some things that you mentioned to me that you can't speak publicly about, but they're cool strategies. Is there anything else strategy wise or anything that you can talk conceptually? Obviously, you can't say like this exact thing, but is there any other tax strategies out there that. would be good as like an Easter egg to be like, these are some other things you could be aware of. Obviously, if you want to learn more, we'll have we'll have areas where people can learn more if they qualify to this. I know that. Yeah, I mean, there's there's strata. I mean, there's there's a lot of really good strategies out there. At the end of the day, I think it comes down to people's kind of definitely their individual situation, but also kind of how aggressive and by aggressive, how much work do they want to put in to make sure that things are being done? correctly. So, I mean, there's things, you know, like we do some solar as well. You know, it's a really effective strategy, but I'm only going to do that with folks that have passive income. Like we're not comfortable that folks could take an active position in that. But it still works really well. So folks that have lots of high passive income, if someone has a lot of passive income, especially at an ordinary tax rate, there's just a lot more. opportunities for them, things that they could do to, you know, to certainly alleviate that. You get into capital gains with, you know, and folks that, you know, have the privilege of living in states without an income tax, it gets a little bit limited in what your options are. But I also say the end of really all these, there has to be an asset. There's always an asset that's supporting any tax benefit. And if that asset doesn't stand on its own without the tax benefit, then I would encourage someone to really do their diligence and make sure that they're they're making a wise decision. And I always say lean on the people that are licensed and that it's their expertise to look at these things. But just going back to what you're saying is if you can get a tax benefit and a good asset, that's that's where you hit. That's where you hit a sweet spot. Well, and here's something we didn't really touch on, but the way you de-risk our platform is taking the cash that we save you up front. If you take advantage of the depreciation or expensing up front and park that somewhere where it's going to earn you a return. Yeah, I agree. If you do that, then you can drive the risk of these assets down pretty substantially. Yeah, I agree. And I. If you buy a boat, go buy a boat and, you know, depreciate. I mean, you're just now. inflating your lifestyle. More power to you if that's what you want to do. I would just say do not lose sight that you may have a debt balloon payment here in a few years, as well as some recapture that you're going to have to make sure there's money to accommodate. I love it. I love it. Michael, is there anything else that you want to say as we're as we're wrapping this thing up? No, just that I think it's really cool what you're doing here and you're providing. I mean, end of the day, we just want to help educate people. I'm not saying we have all the answers are not saying that... We have the best and latest and greatest, and we are always open to looking at new opportunities to see if it's a fit for us personally in our business as well as professionally. But I just think it's really cool that you're taking this out to an audience that, again, goes back to why I started my company. These are the types of things that people should have access to without being ultra fluent and having a whole team of support. Yeah, for the longest time I knew about these strategies, but I wouldn't talk about them because I was afraid of like... If someone took this advice or like took a video and then end up losing money, it's like I felt responsible for it. And overall, yeah, will that will that happen? Yes. But I also it's like bring increased conversations and like let people really do their own do their own research, but make them aware of this. And I find that so many times CPAs don't even mention this stuff. Number one, because they may not know. And number two, they don't want to have the risky. is if they're like... If Johnny's fine with paying 35% taxes, why would I want to create more work for myself if he's already quote unquote fine? I think it's short sighted. But overall, the hope is I'm having people like yourself on where I can just challenge. I can ask questions. We can help increase the conversation. And then one of the things that I was telling you about is I'm actually launching a platform called taxandassets.com. For the sole purpose of it's a platform where people can get connected with people like yourself to learn more. And I just find that if someone's qualified, if they're accredited and they want to learn more, you've been so kind to at least be a part of something like that. And so I just I'm very grateful for you taking your time to be here. Grateful for you providing some extra details for that asset class or that platform. And I very much look forward to seeing what the future holds. and Well, might have to have you back on. Also, if you're watching this or listening to this and you have questions or if you appreciate content like this, I would love to hear from you. And if you know somebody that's doing some interesting things. Let me know. I now have a network of people that I can have that I even put something out there for your team to start vetting for me. And I'm just very, very grateful for who you are and your friendship. So with that, I hope you have an amazing rest of your day. Yeah, thank you. And likewise, any questions anybody would have nowhere to find me. I'm in St. Louis, but I'm usually just there on the weekend. So I get across the country pretty sure. I'm sure California. Yeah, you talk to your fair share of Californians. We'll make sure that you're in for it. information will be down below. Awesome. Well, yep. Thanks again. Awesome what you're doing.
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