The Worst TikTok Tax Advice That Could Get You Audited | Real CPA Reacts

Speaker 0 | 00:00.256

In this episode, we're walking through some of the most popular tax strategies on the internet with a real CPA to see what's legit, what's a lie, and what's a simple exaggeration. I'm excited to introduce Chase Insania, an expert CPA with over 20 years of experience in the tax strategy, financial planning, and entrepreneurship. Chase, welcome to The Better World Show.

Speaker 1 | 00:21.234

Thanks for having me.

Speaker 0 | 00:22.765

Before we jump into this lovely internet TikTok advice that I cannot wait for you to share your thoughts on as being a CPA. Why don't you give a little bit of backstory on who you are, how you got into this space, what you do before we jump into you reacting to some maybe really good or some really bad internet advice when it comes to taxes?

Speaker 1 | 00:43.260

Yeah, cool. Again, thank you for having me. Chase and Sonia, I have been doing this about 25 years now working with small business owners, accounting and tax mainly. I always was entrepreneurial and then got out of corporate accounting. I wanted to bring that to the small business level and then analysis. That's kind of my gist of starting the business. So back in 2011, I've been around since then. I basically started with myself and now we're up to a team of 20 people. So I don't do all the work anymore, but focus on half of the house is accounting, half is tax. Within that, we have an advisory team. And so what we mainly look for is, you know, delivering not just transactional work, but being more proactive, looking into December 31st, making sure we're on track for deductions and tax planning. And just being a resource and being proactive with our clients on a weekly, monthly, quarterly basis with forecasting, with operational questions and financial questions. That's mainly what we look for is where we can add value and be proactive.

Speaker 0 | 01:55.022

You've not seen any of the clips that we're about to share, but is there anything that drives you nuts on the Internet when you see people, you know, see people say or you're like, oh, that's so wrong. Or like or are you do you try to stay off of TikTok and Instagram and the social media platforms? Yeah,

Speaker 1 | 02:10.562

I'm not on TikTok, but I do see some of the videos on Instagram. um uh you know the biggest thing for me is um one if they're not a licensed cpa uh they're delivering this advice are they signing your return are they going to be legally liable when you take this strategy uh and file your taxes and and take the penalty when you get audited potentially um i've seen a couple cpas be you know put out there like oh we're going to save you you know a million dollars i mean you know it's all kind of in jest because it's based on one client situation. But you know, not everybody's the same situation, not your neighbor's not the same tax situation as you. So, you know, just kind of take it with a grain of salt and know that it likely probably doesn't apply to you. It's just more of a sales tactic.

Speaker 0 | 03:02.849

Yeah, no, I think there's, that's valid. And you can also be a licensed CPA and say whatever you want, but it's not like they're going to be held liable if you take their advice on the internet, you know, kind of deal. And so that's, I don't know, I don't know your thoughts on that, but I think like, Anything across the board, anytime you hear it on the internet, doesn't mean like you should not take that as a, this is a blanket statement, it applies to me. You know, my friends on one side that might say some things that are maybe in the gray, what they would say is they're trying to get people to think differently and go to their CPA and challenge their CPA to think differently. And but on the flip side, you could be like, hey, like, people are literally following these people. And they're getting themselves into trouble because they're so you know, But he... there's, there's arguments. I don't know if you have a take on, you know, would, would we, would the world be a better place with no internet, no bet, like no TikTok advice, or is it true? Like there feels like there can be an incentive for CPAs to not work for clients to help them save money. You know, that's a frustration. Like most people feel like they're overpaying on taxes, whether they are or not. And they feel like their CPA or their tax team is doing the bare minimum. I don't know if you've experienced that where people have come to you, but I just, you know, and, you know, we're, we're in this space and, you know, it, it meant very many people come in and it's a frustrating thing that they feel, um, maybe because they hate paying taxes or maybe there's just, it's so complicated that it's hard to, it's hard to like, feel like you're mastering it.

Speaker 1 | 04:29.815

Yeah. I would agree with some of those sentiments. I mean, you know, I, I attend these CPA conferences and I, I can, I can tell you that the majority of the people there are not at the top of the game. you know, as far as like tax saving strategy. And, you know, for us, I mean, obviously we're outside the box, you know, we're, I mean, I have multiple businesses. I'm trying to maximize my taxes just as much as I am for my clients. And so we're more. you know, pushing the envelope, but avoiding a red flag when we put our name on a return. Whereas, you know, most of the CPAs that I have come in contact with, they're just doing the bare minimum. You know, they're just taking what you give them. They prepare the return. They send it out. They're not really pushing you. They don't really keep up with, like, how to get, you know, kind of in the gray area. You know, there's aggressive ones. There's very conservative, and there's a gray area. We play in the gray area. A lot of them that I come in contact with are very conservative. I mean, it's the nature of a CPA generally. And so they, you know, clients are like, you know, my CPA doesn't want to deduct a home office. I've had this like multiple times in the past couple of years. I mean, that seems a bit extreme, you know, from a very conservative CPA when the tax code allows it. So when it comes to me, I'm like, that's kind of surprising and unfortunate. But it's, you know. It's like anything else. Financial advisors are the same. They're all over the place, you know, and how they're going to advise you and insurance agents. And, you know, so you just kind of have to shop around and see who best fits, you know, your needs the best and what would work for you better.

Speaker 0 | 06:12.927

Love it. All right. We're going to play the first clip. This is the media team has seven clips for us to react to. First one is, here's why IRAs suck. We'd love it. You just see PAs take them. IRAs suck. You can't touch your money until you're 59 and a half. It was a program designed by the government to make sure there's not a bunch of old, broke people running around. Anyone I know who has a lot of money or anyone who really understands money wishes they never got involved with it.

Speaker 1 | 06:40.849

And that's why. Selling insurance? Is that why he doesn't like IRAs?

Speaker 0 | 06:45.872

No idea.

Speaker 1 | 06:46.247

You know, my take is, I mean, if you're doing, if you're under the age of 50, you should be maxing out a Roth IRA as much as possible. backdoor Roths for individual. And then in your 401k plan, I mean, I would contribute to Roth. I mean, I'm in a high tax bracket. I contribute to Roth after tax because we're in a historically low tax rate environment right now. And it's projected that we will continue that way with what the house just passed. So I, you know, I'm a proponent for IRAs. And, you know, at least maxing out as much as you can in the Roth annually to grow tax free. Because what people if you if you what people miss is that I always follow the old people. And when I go to conferences, I'm listening to the old ones, the 70, the 80 year olds at the CPA conference. And they all wish they did more Roth. Because what happens when you get older and you start your own Social Security and you hit RMD minimums with your pre-tax IRA, your tax bill goes up. Uh, and we're in an ultra low environment right now. Will that continue in whatever, you know, tax environment you're in when you hit 70 and a half? Um, who knows? I don't have that crystal ball either, but my guess is it's not going to be this low. So I'll take the free tax money on my earnings. Um, when I retire,

Speaker 0 | 08:15.782

when you say free tax money, you're assuming with inflation taxes potentially going up that you're, you're better paying the tax today. not having to worry about it, but then also like you're able to fit more money in to a Roth because you're paying the taxes out now. And so you're actually able to save more and invest more for the future. Do you agree with that statement?

Speaker 1 | 08:40.539

Yeah. I mean, I manage my own portfolio. So the Roth money is growing tax-free until I retire, turn 59 and a half. So that's what I mean by tax-free money but Um, but again, when I have social security income and I get to 70, you know, do I, do I need to take the Roth money? So if you have pre-tax money, you're required to take those RMDs no matter what, if it's in a Roth account, you're not. And that's where most people get hit with additional tax, you know, in that older generation that I listened to in the 70, 80s, because they now realize they should have done it differently.

Speaker 0 | 09:17.716

Yeah, so question for you, when it comes to... I'll talk to you about a backdoor Roth in a second. You can explain that. Is it legit? How does it work? But if Roths were off the table, would you still contribute to an IRA if you had to defer and postpone? So you're getting a deduction today, but you're not necessarily saving tax. And you could argue that you're paying more in tax depending on just inflation and all. What are your thoughts? What are your thoughts on that? because it is a common... Strategy a lot of tax people use is contribute to retirement accounts, get that deduction. Their client is maybe happy today, but is it actually a tax savings long term?

Speaker 1 | 10:04.289

If it's invested properly, it is, I believe. I mean, you can make 8% to 12% on your money. You can make that tax back in three to five years, and then it's growing tax-free in a Roth account.

Speaker 0 | 10:16.853

Well, no, no, we're not talking about Roths anymore. We're talking about if you don't do it through a Roth.

Speaker 1 | 10:21.556

Okay. Pre-tax IRA?

Speaker 0 | 10:23.400

Yeah, and a traditional IRA. What is your thoughts on traditional IRAs? They're sold as you get a tax savings, but I think that's… that's not a correct statement. You're getting a deduction, but I think you can make the argument that...

Speaker 1 | 10:37.563

Yeah, you're basically deferring the tax. Yeah,

Speaker 0 | 10:40.146

you're deferring the tax to an unknown date. You're deferring a tax to... Do you believe the taxes are going to be higher or lower in the future?

Speaker 1 | 10:49.231

Yeah, I mean, I agree yes and no to that statement. If it's only pre-tax and there's no Roth that exists, then I mean, that's an argument for, you know, using your money in just a brokerage account to grow tax to grow however you want it to be liquid um yeah i mean because you're basically deferring the tax until you get older so what's the tax bracket going to be so yeah i mean i could be open to that argument uh on a pre-tax basis okay traditional what

Speaker 0 | 11:24.567

is your okay explain to us how a backdoor roth works because one of the Someone could look at the basic Roth rules and say, I make too much money. I can't contribute to a Roth. And so what is the way around that if that's someone that raises their hand?

Speaker 1 | 11:40.978

Yeah, anybody can do a backdoor Roth annually, no matter how much income you make. What you do is basically contribute to a traditional IRA. And you don't take the tax deduction. And the backdoor is basically you rolling. that traditional IRA money into a Roth account. And that is the backdoor way of getting money into a Roth account without having to qualify to put it straight into a Roth account. Backdoor doesn't seem to be going away. I didn't see it in the current tax bill. So I think it's going to be around a while.

Speaker 0 | 12:19.447

And is there any mistakes that people make? Obviously, you can't take the deduction. So is there any common mistakes that people that try to do it themselves make that disqualify them to do the backdoor Roth?

Speaker 1 | 12:39.333

Generally, no. I mean, what I generally recommend is make sure you do it like within the next couple of days. So what I do, you know, every January, I have it on my calendar to contribute to the traditional and backdoor it two days later to a Roth. So that it immediately grows tax-free because a lot of people will contribute to the traditional, wait six months, and then you have earnings that get rolled into a Roth that then are taxable on the earnings part of it. So you want to do it as soon as possible to do that backdoor piece.

Speaker 0 | 13:12.549

Okay, great. Next clip is, we'll get your reaction to this. It's got almost 10,000 likes.

Speaker 1 | 13:23.465

If you want to go on vacation, you can make it a tax deduction now. So if my daughter wants to go to Disney, I'm going to make it a full tax write-off. And my CPA is totally cool with that. Because what you got to do is travel for at least half of your trip. But here's the fun part, is that one meeting for one hour for breakfast is a business day. Right? So now I go to Florida and I'm going to fly in, say, on a Thursday. And then when I land, I'm going to make sure I go have, you know, go to a real estate meetup. Yeah, so those are fun. Go to Tampa, I'll be like, hey, I'm going to meet some new friends. There's a meetup at seven o'clock. I'll go there for a half hour. That becomes a business day. Great, right? That writes that off. Next day, I'm like, okay, I'm going to go to have a brunch or something with a wholesaler in town. Great. Day two, business day. Saturday, Sunday, we're going to Disneyland, right? And then we sandwich it. And then the next day after that, I do maybe one more meeting. I've got three business days, two play days. The whole trip's written off.

Speaker 0 | 14:16.545

What's your take on that?

Speaker 1 | 14:17.951

He's not wrong technically. The trouble is If the IRS audits you, you need to prove, you know, there was a legitimate business reason for you being there. And there was a legitimate reason for those meetings. You know, you're not just showing up at a coffee shop for a meetup for some random strangers. So, you know, I mean, that would be under a full audit. Like, what's, you know, are you what's the chances of you getting a full audit with that deduction in your return? I mean, that's the question. But.

Speaker 0 | 14:50.733

I think he potentially misspoke. He said, like, you have to travel half your days on your travel. Shouldn't he have said, like, you have to work? Technically, you have to work more than 50% to be able to write off for business. Is that actually... how it works. If I travel for seven days, do I, to make that technically a business expense, do I need to prove that I'm working more than 50% of that travel?

Speaker 1 | 15:19.302

I'm not sure about the 50%, but I have to look that one up. But I mean, I know, you know, the travel day doesn't count. So now if you're doing a seven day trip, you're down to five of those five days, which ones are, you know, what are legitimate business you're doing. Um, and that, you know, that would be the, the deduction. Now, you know, for a hotel, if you're there seven nights, for example, you know, but you're only doing business five, you know, you sometime, or you're only doing business, maybe two out of the five days that you mentioned, uh, fully, then there's a percentage of what you can deduct there. You can't just take the full seven nights.

Speaker 0 | 15:55.514

A lot of people on the internet are saying that you can just deduct the whole thing if it's, if it's technically, if you're working more. So that's, That's why I'm asking you. Is that legit or do you think that's a gray area?

Speaker 1 | 16:06.779

It's a very gray area. If you get audited, you're going to have to prove that there's a legitimate business reason for being there. I can't just go to Disney World in Orlando and have one business meeting on a Friday for the whole weekend and be like, oh, it was a business trip. I mean, if I got fully audited and that's all I could prove, I would be like, no, that's not deducted.

Speaker 0 | 16:29.544

The other thing is... Just working one hour a day, isn't there a rule of like you have to isn't there guidelines on how much you have to work technically? And this all comes down to documentation because here's the problem with entrepreneurs. We're very optimistic. I feel like I could probably write off anything because I'm always working in my head, but that's not how the IRS sees it. And so there's been like there will be times where I'll go to lunch or coffee and all. and I am working, but it doesn't mean that I can just deduct that. And so when it comes to travel, it's my understanding that you have to work more. You have to justify that more than half that day is for business reasons. Now, maybe that's just a made-up thing in my head, but that's my understanding of how it works.

Speaker 1 | 17:22.030

Yeah. Again, I don't know. I would have to look at the I don't remember the 50%, but, I mean, you could be right. I have to look that one up.

Speaker 0 | 17:29.420

Well, the beautiful thing is people can fact check us with AI after the fact.

Speaker 1 | 17:33.181

But there's a lot of tax court cases with these deductions. And that's what the tax court goes off of. So again, it's a super gray area. You can get away with it. But if you do get audited, just know it can come back on you.

Speaker 0 | 17:48.949

What's the worst case scenario when you get audited? Let's say you do this trip and it's like you're working for three hours. You write the whole thing off. You get audited. What's What happens when this person loses the audit?

Speaker 1 | 18:02.875

I mean, that deduction comes back, your income goes up, you might owe more taxes, penalties and interest on the tax owed. You know, that could be the difference there.

Speaker 0 | 18:11.684

So what would you say to someone that says it's worth the risk? I mean, I'm going to have to pay penalties, potentially, probably not if it's my first offense. I'm going to have to pay interest, which is valid, but the likelihood of me getting audited. Is low. What is your I mean, again, this is all I'm just I'm just I mean,

Speaker 1 | 18:32.455

you know, like we're not we're not an ultra high risk firm. We're not willing to risk a red flag. So for us, we're not willing to put our name on that return, because if you do get audited, the first thing you're going to do is point the finger at us like it was our fault and we don't want to be liable for it. So as a CPA. So in that case, we'd tell you to file your own taxes because we know legitimately. we couldn't defend it. That's our biggest thing. Can we defend it if we put it on paper? And something like in that example, no, we can't defend it to the IRS. So we're not going to risk it.

Speaker 0 | 19:08.178

When someone goes on a business trip, what's your, what's, what do you want them to do to be able to write off the whole trip?

Speaker 1 | 19:17.881

I mean, you know, there needs to be some legitimate business meetings. I mean, we, we at least needed an email, some documentation, like what you did.

Speaker 0 | 19:26.280

um and who you met with or something um and then you know is it reasonable you know you're not fine you know your whole team like private jet and staying in you know four seasons like for a whole week uh just to hang out and have spa treatments yeah um you know there's got to be like legitimate reasons for it but yeah i think i think one of the biggest thing is is can you just can you justify can you justify this and i think on another framework to think about is if you're not the owner and you're justifying it to the owner of the company, how do you make them feel good that this is a write-off? And I think, again, like this is not, I mean, I'm not the CPA here. I'm just like, how would I just, like if I were spending someone else's money and it was a business write-off, would the owner of the company be excited about that? Or be like, oh, yeah, that's absolutely. And if the answer is no, that usually means that you're probably using it as a loophole for yourself. But if the answer is yes, that probably means you have some type of way to justify it if you do get audited. So that's, okay. Next one, we're going to realize why all the rich people drive G-wagons. Here we go. Why do all rich people drive G-wagons? This is top secret info. I promise to tell you if you keep between me and you. All right, so why G-wagons? Under tax section 179, you can write off any vehicle over 6,000 pounds and use for business. Let me guess, G-wagons are over 6,000 pounds and if you buy it under your business, you can write it off and pay less taxes. Yep, that's correct. You get to write the entire thing off. Yeah, you definitely followed the Romelanian king.

Speaker 1 | 20:54.237

My favorite thing about that is after the pandemic, uh Most people work remotely from home now. And so what we generally get is like, yeah, I'm going to buy the G-Wagon and I get 100% deduction because it's for business. I'm like, well, where do you drive? They're like, well, I don't really drive. You know, I might go to the bank or something. But I'm like, well, how are you going to prove the IRS is 100% write off? So most misconception is, you know, you have to if you ever get fully audited, it's clear in the IRS code. You have to provide a mileage log. So we recommend mileage IQ for business miles on your phone. But that's the first thing they're going to ask for to provide it. So if you're working from home, how are you going to provide 10, 15, 25,000 miles a year driven as 100% business deduction?

Speaker 0 | 21:48.586

Yep. What would your recommendation be, hypothetically, if I was to get a G-Wagon? want to be able to write some of it off, but let's be honest, some of it's going to be for business. Some of it's going to be for personal. Would you recommend, like, how, how would I be able to potentially take advantage of the, of the right, write the whole thing off? Or would I not be able to, if I was going to work, do a little bit personal because most people take a percentage.

Speaker 1 | 22:18.051

I mean, we take percentages for sure. I mean, is it 10%? Is it 90%, you know, somewhere?

Speaker 0 | 22:25.067

Are you guessing? Because you're technically like... You're taking it in year one, but you don't even fully know. So is it just a good faith guess?

Speaker 1 | 22:34.846

Well, I mean, you have miles. So if you had 10,000 miles in the first year you owned it, tax year, and you drove 5,000 of those for business, then the 50% is the deduction.

Speaker 0 | 22:50.643

Okay, so then if we were going to go that route, is then... would you recommend depreciating the whole deal? Or just like when you would only get,

Speaker 1 | 23:01.049

you'd only get 50% depreciation. Right.

Speaker 0 | 23:04.877

When would you recommend not doing the depreciation route and just doing the mileage route?

Speaker 1 | 23:08.878

Well, I mean, that's kind of different from the video here, but you know, it really depends on the personal level. I mean, I tell clients if you drive a lot for work and business, then, and you like to keep your cars longer, like I keep my car till it dies. I'm not a car guy. So, you know, if that's the case, then you're better off taking mileage because it's lucrative at 67 cents, I think it is this year per mile if you're driving that much. If you like to trade in your cars every two, three, four years, and you want something new all the time, you don't drive a lot, then, you know, depreciation may make sense. But no, once you take depreciation, You can't go back. It's just depreciation and actual expenses, gas, oil changes, tires, maintenance. You don't get mileage. You can't ever flip-flop. So that's kind of the thing you have to think about once you have a new car and what we like to discuss with clients and what their longer-term plan is for it.

Speaker 0 | 24:15.118

I think a common mistake is that, I mean, I guess I'll say this. If you have a super expensive car, it probably makes more sense to appreciate a percentage. And if you're buying a super old, let's say, G-Wagon or kind of deal that's a $10,000 G-Wagon, you may find that it's better to take the mileage. I think it's based on the situation. What I believe that most people are getting wrong with TikToks and all is they're assuming everything's for business. And that's what most people are actually doing, Chase. Yeah, I know. And what you're saying is if they get audited. It's just not going to hold water. And most likely they're going to be able to write off a percentage. But what happens if you get audited and the IRS asks for your, your drive, like your logs and you just never, I mean, let's, most people don't have logs of their personal and business. Does the IRS just disallow the whole thing?

Speaker 1 | 25:09.398

Most of the time, yeah. I mean, if you read the tax court cases, you know, they'll say provided to us, you know, if they they'll know if it's made up. Generally, there's a lot of court cases that show like people that submitted documentation and they messed up, like they recorded mileage, you know, in two different places on the same day or something. And so if you try to backtrack that far, you know, the general will know better. but Yeah, but that's what the IRS requires is mileage log. Who keeps up with it? Probably no one. But, I mean, I don't keep up with the mileage log, but I know on a percentage basis, like, based off Google Maps and driving, you know, what I spend annually.

Speaker 0 | 25:54.541

And this is, I mean, we're going to get into the next clip with the Augusta rule, but this is where you can feel like, and I'm not saying this is the right thing, I'm just saying this is what some people are thinking, including myself. It can feel overwhelming to be like, okay, technically, everybody's not compliant. I mean, you got it. You technically have to be like, really, really rich to like, check every single box. And I'll give you the benefit out. Maybe all your your clients are super compliant. But is there does IRS like, do they at least can they read like, can they like, give you the benefit of the doubt? Or they can they say like, you're doing this in good faith? Like, yes, like you're you wrote off 40% of your, your car. Here's the general reason why, but Caleb, you don't have the logs. We're going to be good. Or they're like, hey, you don't have proof. You're hauling your money.

Speaker 1 | 26:46.078

Yeah, it really depends on the agent that is auditing you. But I would say in general, like if you're buying a G-Wagon at 100% deduction, that's going to be a red flag in the system. I guess this guy $120,000 on a vehicle, 100% deduction, and you're Depending on how much your business made, what is the percentage of that? A lot of people don't realize the IRS has a lot of AI tools that, you know, they're tracking the numbers and percentages based off your type of business, you know, your revenues, your expenses. And they have all these different tools and, you know, analytical metrics that they use to kind of pull out the red flags. And something like that, like if you're making $100,000 and you deducted $120,000 G-Wagon, That's probably going to be a red flag for you in general.

Speaker 0 | 27:37.494

You might get audited a little bit more frequently than the person not doing that.

Speaker 1 | 27:42.017

But if you made a million dollars and you deducted, I mean, you might get away with it. I don't know. Okay.

Speaker 0 | 27:47.982

Now, this is tax advice. It's not every day that I get to talk to a licensed CPA that has a practice, does this day in and day out. So it's just really helpful. Let's go on to the next clip on the Augusta rule.

Speaker 1 | 27:59.600

It's called the Augusta rule. So you can, if you own a home. if you own a home, it's not for renting, if you own, you can rent out your house to your business. Right. So you rent out your home to your business as long as you're doing business activity in the house those days. So if I have a business, I can rent out my home to my business, pay myself. Let's say a reasonable rate of $500 a day for renting a house out. You create a lease agreement, leasing out your primary residence to your business, charge your business $500 a day. You're able to get that money from your business. All this is tax-free. Wow. Yeah, that's accurate.

Speaker 0 | 28:36.732

What's the biggest mistakes that people make when it comes to Augusta Rule?

Speaker 1 | 28:40.357

The biggest one is, you know, they don't have, they just think they can just take 14 days. Just in general, I mean, you got to have a business reason for it, as he stated there. He was correct. Did you have an event? You know, did you have employees over or vendors or customers over or something? And then a lot of people, you know, assume they can treat their like home gym or their home pool as like a business deduction. It's kind of an ancillary of that Augusta rule. And, you know, they want they treat it as employee benefit. but we've had clients where their home was like in Austin where we're at and their employees are all over the country. So we're like your employees are visiting the gym and the pool on a regular basis. Like that's not that's not a legit like flying through the iris radar. So you know it's all depends on the situation but when it comes to the money you know you mentioned $500. You know we generally when we're taking it for clients we generally will go on Airbnb.

Speaker 0 | 29:45.806

or something and platform and look at like what the houses are renting for in the area to make sure we have the right number that's key that i think the common misconception is like it's it's you have to be able to back up what you're charging and you can't just be like oh my house is worth 20 grand a day it's like okay back that up you know and it's like would someone out it's again it goes back to the theory If you were renting this house and you didn't have any financial benefit to it, could you justify that as a good benefit to the business? And if the answer is no, then good luck. And so that's a problem. Does this work if someone just has like an LLC pass-through or do you need to have some type of corporation like S Corp or C Corp to technically do the Augusta rule?

Speaker 1 | 30:33.858

We haven't seen it as much on Schedule C's. You know, it really depends on the business and what you're doing. I mean, if, you know, most of the time when you're a Schedule C, you're kind of a contractor working at home. So, like, what business would you be doing other than, like, are you inviting people over, like your customers? Generally, you're working with one or two customers that are bigger, so you're not going to invite people. So, you know, again, you've got to have a legitimate reason. But, yeah, I mean, normally when you're a S-corp, C-corp or something partnership, you've got kind of a larger business usually. and there's more to it that could potentially be a reason to rent out your house for the day.

Speaker 0 | 31:13.204

Okay. Okay. So, so even if someone has a, it's, it's more, it just has to be reasonable. And, and if it's reasonable, you're, you could back that up.

Speaker 1 | 31:22.852

Yeah. Defendable back to, you know, the word defendable, like, can you defend it in an IRS audit? That's what we look for.

Speaker 0 | 31:28.922

Got it. Okay. Next, next clip is how the wealthy legally pay zero in taxes. This will be, this will hold on. Uh, let's do how the wealthy legally pay.

Speaker 1 | 31:39.048

I mean, we all want to pay zero.

Speaker 0 | 31:40.488

Yeah, yes, this sets the bar high. Are you ready?

Speaker 1 | 31:44.111

Dad, so you make $10 million a year. That means you pay about $3.3 million in taxes every year. Do I look like I have stupid written across my head? I pay zero taxes. How? First, I don't spend my money personally. I let my business pay for things legally. Travel, business expense. Meals, business expense. Even my luxury car, a tax deductible. acceptable business asset. That means before the government takes a penny, I'm reducing my taxable income. Second, instead of taking paychecks like a regular employee, I leverage business assets for loans because loans aren't taxed. And third, instead of selling investments, you use them as collateral and take loans. Again, loans are not taxed. Wait, so wealthy people just keep recycling their money and avoid taxes legally? Exactly, and it's not some mystery or secret. Everyone can learn this. Where did you learn this? I follow Andre Pennington on social media.

Speaker 0 | 32:39.734

All right, so just for context, that has over 438,000 likes, 48,000 shares, and over 121,000 saves. So it's an understatement to say that this clip has been seen by lots of people. What are your takes on his three things that he talked about?

Speaker 1 | 33:00.355

Yeah, a lot of generalization there. Again, your taxes aren't the same as your neighbor. Um, so, you know, business, I mean, we kind of talked about the travel and the meals earlier. So in the cars, so, you know, yes and no, depends on your situation. Now, the difference is number two, they're the assets, because what he what he doesn't really mention is he's probably a real estate investor. And he's getting, you know, a cost segregation deduction on what he's purchasing. And that's how, you know, you're, you're lowering your. current tax bill through what you're paying. And so from those, from those investments, in getting that cost tag, he's probably investing, you know, the profits from it. And then, you know, I mean, anybody can borrow against their portfolio with their brokerage account. So that's pretty standard. But I would say the biggest one's number two. And that's where he's, you know, they're kind of skirting the details and generalizing why he doesn't pay taxes. but my guess is he's He's a real estate investor taking those big deductions just like, you know, every other real estate investor does. And a lot of people, you know, to that point, a lot of people don't even know what a cost segregation is when we talk to them and they bought property. You know, cost segregation allows you to front load depreciation. So, for example, if you buy a rental property or you buy a commercial property, it's 30 year straight line depreciation. in order to get more, you have to cost segregation that through a legitimate company. You can't just do it yourself. And that basically front loads depreciation for the first five to 10 years. So what they take is the roof and the walls and the electrical and the pipes and all of those things have depreciable lives and they're fast tracking it up front. So you're going to get it up front and generally how you have to keep that wheel moving. is you keep having to invest in other properties because if you just do it one time, after five years, you're going to have a huge profit because you have no depreciation against your money that you're making. So you've got to keep reinvesting in more property. To keep the deduction going to not have the profits in the current year.

Speaker 0 | 35:20.414

And then if you sell the deduction, don't you have to pay that back?

Speaker 1 | 35:25.663

Well, I mean, and then again, as a real estate investor, he's reinvesting. So he's selling it and he's 1031 exchanging it into another property and deferring those capital gains down the line. So that's where he kind of probably gets into leverage where he's rolling over that investment he just sold into another. qualified 1031 exchange.

Speaker 0 | 35:47.905

And the goal is to just die.

Speaker 1 | 35:51.470

And then you can get loans against those assets externally. Personally for you can put it up as collateral sometimes there's I don't know, there's rule 1031 rules around some of that. But yeah. But you know, that's what is number three is there he's leveraging to get cash out of it.

Speaker 0 | 36:09.150

Do a lot of your clients lend against their assets? And if so, what are the pros and cons?

Speaker 1 | 36:13.841

We don't have a lot doing the lending part of it, but definitely the cost seg and the 1031 exchange we do.

Speaker 0 | 36:19.547

Okay, okay. Yeah, because obviously people look at like Elon Musk or Jeff Bezos,

Speaker 1 | 36:28.180

and it's easy to These are my favorite examples because these people have worldwide resources. Okay, you can if you have Hmm. If you have eight, nine plus figures in your account, in your wealth, then yeah, you can go around the world and start skirting some tax issues. But if you're making under $10 million or $100,000 a year, you're not in that same school as those people.

Speaker 0 | 36:56.572

And this is a hot take, but some people try to overcomplicate things. And I would say... borrowing against your assets is probably not a great strategy.

Speaker 1 | 37:10.567

Well, I mean, some people are comfortable with high leverage. I don't want to be highly leveraged to the gills and risk all of it because that portfolio, that real estate portfolio, something could happen to it. And if you're leveraging against it, it could go south quickly. But a lot of people like to take that risk. I like to be in the middle.

Speaker 0 | 37:35.786

Okay. The middle doesn't make good content, just so you know. We got to be extreme.

Speaker 1 | 37:43.234

That's why I'm a CPA. It's my nature.

Speaker 0 | 37:46.796

I love it. All right. Next video is here's how to legally avoid a property tax. Love your take on this one.

Speaker 1 | 37:54.558

You can legally avoid property tax.

Speaker 0 | 37:56.599

When you buy your home,

Speaker 1 | 37:57.541

you don't actually own it. You see,

Speaker 0 | 37:58.885

the government can take it away if you stop paying rent, and then they'll auction it off to the highest bidder.

Speaker 1 | 38:03.689

But if you want to avoid that, you need to bury your relative on your property. This is exactly what Donald Trump did with his golf course and what Elvis's family did with Graceland. If you put your home in a trust and it's a cemetery, nothing can ever take it away. Not the bank,

Speaker 0 | 38:16.666

the government, lawsuit,

Speaker 1 | 38:17.681

or bankruptcy.

Speaker 0 | 38:18.416

Your house is completely protected. If you want to protect your home,

Speaker 1 | 38:21.384

go ahead and comment to our trust,

Speaker 0 | 38:22.620

and I'll show you exactly how it's done.

Speaker 1 | 38:24.606

That's interesting. I've never heard that before, where you bury somebody. But, I mean, how many people have enough land where you're going to bury somebody on it?

Speaker 0 | 38:32.475

There's another clip that I reacted to a while ago. There's this lady that was like, guys, I have this best-kept secret. Like, if you bury someone in the backyard, your house is a cemetery and all. And when you fact-check it, it's just not accurate. It's very regulated. And then if you bury someone, you can technically, like, that plot of land.

Speaker 1 | 38:53.738

I was going to say it has to be parceled out with the county, right, if you're going to have a cemetery?

Speaker 0 | 39:01.065

Oh, yeah. I mean, trust me, like, let's not go bury bodies on your property. Like, there could be bigger issues with that. But the other thing is it doesn't necessarily make your home a cemetery if you're using it. It's almost like the IRS, whether you like them or not, like, they're not dumb. And it's like, you know, it's like this is a you really think that's going to fly. And so my my thought process around the trust, I think, could be an interesting deal. So I don't know if you're if you have any comments on like people using trust and avoiding property taxes. I will say it's not financial advice. I do believe that private family foundations or charities own property that there's in some counties. They don't have to pay property tax. And as a result,

Speaker 1 | 39:49.820

it's a charity.

Speaker 0 | 39:50.727

It's a charity. So There have been people that I've known that their home is not owned by them. It's maybe controlled by their charity or nonprofit. Again, not financial advice. You obviously have to make sure that it's set up properly. And at the end of the day, the benefit needs to benefit. Not you or your family. It needs to benefit the charity or the nonprofits. Well,

Speaker 1 | 40:12.156

that's the thing. I mean, the IRS is going to want to know where your primary residence is. If it's the charity, then why aren't you paying I mean, or the county at least would want to know why you're not paying tax on it.

Speaker 0 | 40:23.678

But I don't even know with certain trusts. It's hard for me to imagine that even if I like an irrevocable trust. Own property or land, wouldn't you still have to pay?

Speaker 1 | 40:34.241

Not a general trust. I mean, we're talking about a charity here, like a 501c3. You know,

Speaker 0 | 40:39.204

a charity or nonprofit, I think that's, in some cases, you're good. But in an irrevocable trust, we're not talking charity, we're talking trust, you still have to pay property taxes, I would imagine, in that setup.

Speaker 1 | 40:51.986

And then, you know, in general, back to the parcel of land, I mean, the same. The IRS still looks at what the primary residence is, like where you live day to day, what you claim on your driver's license, where you get mail from. That's your primary residence. And then the county, you would need to parcel that primary residence out. You would still owe property taxes on that piece. And then if people have land, that's why they parcel it, because the other acreages are farmland to pay a lot less tax on it. But same scenario with the cemetery.

Speaker 0 | 41:26.736

Yeah, not financial advice, but burying your loved ones on your property is probably, probably there's better ways. Because it's not free, I would imagine. And I just, don't ask me how I know these things, but I just, I've heard, let's just say that, because we've been looking at different real estate and there's been some properties that we've looked at. There's cemeteries and they're just like, don't even ask. You can't move. it will it will literally like impossible to move these things. And so, you know, so it's one of those things, heavily regulated, lots of people need to, you know, approve it. And it's definitely not free. So not financial advice, but find a better tax strategy if that's where you're going. But thank you for making that video to give us content.

Speaker 1 | 42:13.598

I love these random videos you found.

Speaker 0 | 42:15.285

Yeah, well, shout out to the team. All right, next one.

Speaker 1 | 42:17.816

Most people don't know that if you own land and that land isn't improved upon, you don't have to pay property taxes. Meaning if you don't have a crane parked on a development, you own it, but the ownership is passive in the sense that you don't have to pay any property tax. It is a loophole.

Speaker 0 | 42:35.110

How in the world is that? Is that straight up a lie?

Speaker 1 | 42:38.375

I mean, talk to your county on that one. Maybe some do, some don't, but I know I'm here in Texas and they don't give you free property taxes unless you have an exemption filed with the county to not pay. There would have to be an exemption reason. Okay. If you just own land, you owe some property taxes. I mean, yeah, it's unencumbered. There's no improvements. Then, yeah, you pay a lot less, like maybe here in Texas, maybe it's $1,000 on 10 or 20 acres versus $5,000 or $10,000 with a house on it. But that's just one example.

Speaker 0 | 43:16.988

And there's no difference of personal property versus business property because that just doesn't make any it doesn't make any sense to me. Like obviously the property tax is going to be based on the perceived value.

Speaker 1 | 43:27.967

It doesn't care who owns it. I just want their taxes.

Speaker 0 | 43:30.831

That's right. Okay. Well, very, very, very interesting stuff, but we're, we're out of clips. I wish we had more. This has been a lot of fun.

Speaker 1 | 43:36.214

What, what, uh,

Speaker 0 | 43:37.301

and as we, as we wrap this up, there's obviously, again, the, the, the common person we're talking to is creating value. They're making money. They do not. want to pay any extra money to the government that they have to. And I believe that, you know, just my personal opinion that people and the economy would be better off having them spend the money than maybe the government spending on what they're doing. Personal opinion. But it doesn't matter what I think or my personal opinions, you still want to do the right thing. And so any final words when it comes to whether people work directly with you or somebody else, What type of things, what type of... frameworks, what type of questions that they should be asking to try to save them as much money as possible?

Speaker 1 | 44:25.567

I mean, we're obviously looking at anything we can, you know, save money on. I mean, I do too. Again, I own multiple businesses, so I want to save as much as possible. You know, for me personally, I mean, I like to sleep well at night. So, you know, I don't, again, want to raise a red flag or risk an audit. I don't want to have to be looking over my shoulder. Thinking one of these days is going to catch up with me and one of these returns. So, you know, yeah, I like to pay no tax and I hate writing the check when I have to write it on the income I make. But at the end of the day, you know, it's a cost of doing business. I would say, you know, I love travel. My family is from Europe. You know. Comparing what we pay versus what they pay is significantly, I repeat, significantly less taxes than, you know, what Europe is paying and in particular Germany, where my family's from. So, you know, on the grand scheme of things, you know, you know, it's a cost of doing business in America and building welfare.

Speaker 0 | 45:28.132

Yeah. And here's here's my final take is most people just spend too much. Like it's there. They get themselves in trouble because they overconsume. And, you know, I do, I think it goes back to the leverage aspect is leverage, leverage is an amplifier, like straight up. Leverage can be amazing. Leverage can actually reduce your risk if you do it properly. Most people that get themselves in trouble with leverage is just amplifying consumption. And anytime you try to amplify consumption, you know, it's, you know, you're just increasing, in my opinion, personal risk. And when it comes to... Tax strategies and all, like, yeah, you might be able to save some money, but you may have some tax strategy that hangs over your head that potentially creates liabilities in the future. And so my, you know, thought process is do whatever you can, but make sure that you can sleep well at night. And if you don't understand it and your CPA is not willing to, like, sign off on it and defend it, then maybe think twice about doing certain things. But Chase, it's been—

Speaker 1 | 46:32.888

How much time do we have here?

Speaker 0 | 46:34.036

We got time. Yeah.

Speaker 1 | 46:35.679

I got a perfect example to that statement. You know, years ago, financial advisor, we were referring to our clients. They were putting them in these easements. And and, you know, we read through the documents and, you know, me and my tax manager were like, no, you can't get a three or five X deduction on what you put in in year one and be a legitimate like it's just not possible. So. Fast forward, the IRS is now auditing all these easements. The clients are now involved in the audits. They're having to give testimony to the tax court. You know, it's a sense of worry. And, you know, they're having this hanging over their head because they don't know what the ending outcome is. You know, these easements promised insurance on these deals, and that's not covering it. So, you know... They got the deduction. They were like, yeah, it's legitimate. We got it. Okay, whatever. We told them it was not legit. So fast forward, now they're being audited. Is it worth that much in your life to have that deduction? There's other more legitimate deductions. Like I did oil and gas lease last year. It's active business. You can get 60, 80% deduction. I'm not going to get three to five X. What I put into that, you know, first year as a deduction, that's just not legit. I might get 100 percent. I'm going to get three or five X in the first year. Like just just think like is it does it sound reasonable at the end of the day? And are you are you willing to have that, you know, over your head for years to come in tax court? Are you willing to deal with that? Some people are. Some people aren't. I'm not. And my clients certainly aren't either because they've been telling us every year about it. It's still going on five years later in tax court, and it's just never-ending for them.

Speaker 0 | 48:33.014

Yeah, there's a peace of mind that potentially is worth paying a tax for. Chase, appreciate you a ton. Thank you so much for coming on the show. Excited to see what the comments are. We'll see all the AI experts as they're able to, in real time, fact-check us and give their thought process. We want to hear your comments. I read them all. And you always make us better. Thank you so much for subscribing. We've got links down below. We'll give links to Chase and what he's up to. And so anything that you want to plug Chase, let us know. And I wish you the absolute best, man.

Speaker 1 | 49:07.958

Yeah, thanks again for having me. And feel free to hit us up at insognacpa.com, I-N-S-O-G-N-A-C-P-A.com. And love to talk to you if you need our help.

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