In this fiscal episode, Matthew Sercely, Owner of Agorist Tax Advice, shares how he helped multiple clients find ways to save thousands of dollars in taxes this year and every year for years to come.
You will discover:
– The crucial difference between tax avoidance and tax evasion
– Why tax strategy is least effective from Jan 1 to March (or April) 15
– The truth that busts some of the bigger tax myths for business owners
Episode Transcript
Scott Ritzheimer
Hello, hello and welcome. Welcome once again to the secrets of the high demand coach and I am here with yet another high demand coach once again in a slightly different take on that where that you’re going to understand you’re very quickly. But someone who has some extraordinarily valuable information for each and every one of you here today, it is the one and only Matthew Sercely, who graduated from the University of Dallas and attended ABA, Maria School of Law and SMU School of Law. He received his law license in 2009, and spent much of his early career working on personal injury cases. Now he provides tax and advice planning to small business people and real estate investors. He’s an attorney and a tax advisor who helps business owners legally take advantage of the tax code to reduce their taxes as much as possible. Well, Matthew, welcome to the show. First question right out of the gate here, as I was looking at your website, you got a big bold statement that most business owners are paying too much on their taxes. I think it just says you are overpaying in taxes. So back then, of course a little bit. Why is that particularly in the water founders? Why do we have a tendency to overpay on our taxes?
Matthew Sercely
There’s a couple of different reasons. One of them is my my observation is that most successful businesses focus a lot more on going out and making a profit than dotting every i and crossing every T at the beginning, which means they didn’t do any tax planning. And that’s a smart thing to do, I think. But then they maybe don’t go back and fix it. The other thing is that the tax code is incredibly complicated. And a lot of people, they just put their head in the sand as like, well, I’ll, you know, I’ll just make more money and pay the taxes. And I’ll trust my CPA to tell me what to do. And not knowing most CPAs are not doing tax filing, they’re not going to tell you how to avoid taxes, they’re just going to say, Okay, you did this, you owe this. Next.
Scott Ritzheimer
Yeah. So I want to address because there’s a couple of things in there. But I want to kind of do a Mythbusters saw, we do this every once in a while on the show, when we get an area that has a lot of myths that surround it. And so the first one I want to hit it’s actually, I think a really, really common one. But it’s it happens to many of the most successful businesses for exactly the reason that you said before, most of the time you become successful by focusing on generating a profit, right? If you don’t do that in the first place, it’s hard to have a successful business. And you don’t always want it like no one starts their business to save taxes. Well, that’s not true. But most of us don’t, right. There’s some unique strategies on how you do that. But for most founders, they started to do something else to make a profit to achieve freedom and autonomy, etc, etc. When is the right time to really focus on your tax strategy. And when would you actually choose to maybe even have less profit during the year as a result of attack shot?
Matthew Sercely
So there’s a couple of different times when you should look for tax strategy one is, if you are paying the bills full time with your job, it’s actually past time, you should have looked at it. Secondarily, if you’ve got some sort of a side hustle, I would do it really as soon as you’re like truly profitable. Like once you’ve made 10 $15,000 That’s the time to do it. Because if you’ve got income from a job and then a business, it’s really easy to mess that up. Compared to just having a company. My third rule of thumb is anytime you got more than $75,000 in profits, again, it’s probably past time to look at it. I mean, you depending on your circumstances, you can start saving money even after paying someone like me at 40 or $50,000 in profits.
Scott Ritzheimer
Wow alright, so then a couple of minutes the first one is very related to this and that is a lot of founders are going to work all year to make as much profit as they possibly can. December 31 comes and goes January hits, maybe a couple more months it before we really start paying attention to taxes March corporate due date or April. Personal do they come and they gotta tax that like fix it right? Like I have this giant belt. So can you fix it? And if so, how do you do that? If not, what should we have done?
Matthew Sercely
So there’s almost nothing that can be done after December 31. Once December 31 comes and goes the the the books are closed, and there’s very little we can do. You need to be planning the whole year like realistically with a lot of my clients, I do their taxes in April. Even if we do an extension I do a draft of it. Then usually starting May June July we start Okay, that’s look at this next year. What are we going to do? Now there are a few things you can do at the end of the year. There’s the kinds of things everybody knows about IRA or HSA contributions. But the bigger one is if you’ve got any sort of a solo 401 K or 401 K, you can actually do that in some cases as late as September of the next year. So that’s going to be the best way to really move the needle. Once the books have closed for the year, the other thing you can do is you don’t have to pay, you don’t have to classify things until you file your tax. So, you know, if you buy new equipment, should you expense that? Or should you depreciate it, assuming you have the option, you get to make that decision after you know, when you file your taxes. That’s basically though all you can do like 98% of what you owe is set, you know, the end of December 31. And that’s another reason like not only am I a fan of the whole year, I always have an end of year meeting, you know, ideally, the last week of November 1 Two weeks of December, with my clients just to go over Okay, is there anything we want to do to move the needle? While we still have a choice of when to do it?
Scott Ritzheimer
So there’s very little we can do after December 31? What are a couple of things that you can do before December 31 that you do with your clients?
Matthew Sercely
So the very first thing we should be looking at is, are you set up in the right structure? Are you a corporation? Are you an LLC? Are you taxed as a partnership, or sole proprietorship, an S corp, or a C Corp, that’s going to be 60 to 70% of your tax savings or overpayment in taxes. The next thing I like to look at is, can we take money you’re currently spending and turn it into a business expense. And like there’s small things that everybody does, you know, your cell phone, maybe some of your home internet, even the home office, but there’s a lot more you can do that you can take and make something you want to spend money on for yourself into a business expense. What am I my favorite strategies, recently is if you want to buy a firearm, and I don’t know where you stand on owning guns, but a lot of people like owning guns, well, almost any business can justify spending money on protection and defense of the business. And so you know, you’re not going to be able to go out and buy 17 guns in a year. But if you want to buy one gun every two to three years, and go to the range maybe three or four times a year and pay for that as a business expense that is justifiable for almost every business. I love those. My big thing is what are you already doing? And let’s turn it into a business expense if we can because I never want like I hate the tax advice like, Oh, you want to save money on taxes, go buy a car? Well, if you don’t need a car, you’re wasting money doing that you just spent, you know, $70,000 to save maybe $20,000. But I’m sorry, that’s not smart. But if we take money you’re gonna spend anyway, and we can move it from the after tax to the before tax. That’s where we can really get some savings. Yeah, you got one of my other myths, which was that that end of the year that the car it’s always the car, or the truck, right, a lot of founders the truck, and is a big one. So next one here is isn’t avoiding paying taxes illegal? No, absolutely not. There is a difference between evading and avoiding. And in fact, there’s a federal court case where basically the IRS was suing somebody and said, Hey, he structured his business. And because of how we structured it, he was like half as much in taxes. And the way the judge ruled was, well, he structured his business legally, because of how he’s structured. He owes this much in taxes. Not only does he owe the legal amount, it is actually his duty as a patriotic American not to overpay his taxes. Now, there are some warnings about fraudulent tax avoidance, which is basically you’re committing fraud to avoid taxes, which is slightly different than evading taxes. Don’t do that. But no, there are many many ways to legally avoid taxes. And again, it’s it can be as simple as you know, stop being a sole proprietorship go to being an S corp. And you are if you do a right going to significantly lower your self employment tax. It’s totally legal 100% legal avoidance of taxes. evasion is when you owe the money and you don’t pay it. That’s when you get in trouble. But if you do it right, you didn’t ever owe the money in the first place. Totally fine.
Scott Ritzheimer
So another one here. Don’t most tax avoidance strategies only work for the super rich?
Matthew Sercely
There are some tax savings and tax avoidance strategies that really do work much better for the kind of the trust fund crowd. Because there are certain things there are certain tax savings things that there’s a very good chance you’re going to lose money on them. But if you can do them 50 times on that you’ll make money. But no, there are many, many, many things. And in fact, there are some, it’s a little easier sometimes for smaller people, I call it the tax avoidance doughnuts. It if you’re making less than $200,000 a year, and these are net profits, if you invest into it $1,000 A year, there’s a lot you can do to save money on tax. If you’re making more than about $500,000 a year, there’s a lot you can do money to do to save on taxes, that 200 to 500, there are things you can do. But there’s fewer things you can do compared to the smaller or the bigger groups.
Scott Ritzheimer
And even to this a couple of times, there’s different ways of setting up your business. And and one of the things I’ve heard is you should never use a C Corp. Joe should be double tax, right? So it’s always double taxed all tax, is there ever a time when the C Corp would result in a lower net taxation?
Matthew Sercely
Yeah, there’s actually several times when it makes sense to have a C Corp. Sometimes the proper way to set up your business. And if you do this, please work with someone don’t just do this on your own, especially these things. But it can make sense to actually set up a company as two separate business. One, an S corp and one a C Corp. And that’s because a C Corp can pay for certain benefits for you, and write them off as the owner that an S corp can’t. A second thing is if you’re starting up a business, and you’re basically planning on putting most or all the money back into the business for a couple of years, a C Corp can actually result in much, much lower tax, because the problem with the C Corp is when you take the money out and put it in your pockets. If you ever take the money out or you don’t for several years, you avoid that double taxation. And in fact, C corpse only get taxed 21% of their profits compared to the vast majority of people these days 20 to 24%, into your schedule to go to 25 or 28% and C corpse are still going to be that 21%. The third reason to be a C Corp is if you are planning on building a business that you want to eventually sell and sell make go go public with it. Because only C corpse can go public. And you can take an S corp and turn it into a C Corp generally. But there are problems during that there are expenses during that. So if you know your you know, our if you’re going to be raising venture capital or anything like that, you basically have to be a sequel. You don’t save taxes at that point. In fact, you may pay more in taxes, but it’s your only option. So you have to do it. But so now there are absolutely reasons to be a C Corp, there’s absolutely reasons to there are benefits to every type of way you can be taxed. The C Corp is usually not the right choice for most people. But it definitely has its place.
Scott Ritzheimer
So you you mentioned this before, right at the beginning of this question, actually and saying, Hey, don’t do this alone, right? The tax code is complicated. Corporate Law is complicated. There’s lots of places that you can get this very, very wrong. But one of the challenges that I’ve found with founders in particular is that they go to get help. And it’s like you go and you walk into another country, right? They speak a different language, they have different priorities. Use like you say one thing, they see something, what seems like entirely different bad, like there’s just this gap between founders and many professional service providers. What can what can founders do to overcome that gap to get the best advice and help they need?
Matthew Sercely
Well, so there’s a couple of different things they can do. If they’re big enough, and they have legal counsel as part of their team already, they could use them as kind of a go between an interpreter. And hopefully if you already have legal counsel, they’re able to translate your legalese into human. I much prefer the way I try to do it, I try to I try to be a human being and not just a lawyer, I, I will use technical terms so that my clients use them, but then I’ll define them for them. Another thing, and this is I think something every business owner should do. Investopedia does like a daily email where they send out a financial term every day. And a lot of those are not tax terms. But I think anybody with the business if you don’t know what a lot of these terms are, learn them. They’re actually really important. And the last thing is, and this is really hard I find for a lot of business founders. Don’t be s that you know what is going on if you don’t. It’s something I was not very good at catching when I started my business was when I had a client who’s like, oh, yeah, I got a great and they didn’t get it and it was not great. And they then just didn’t do anything for weeks because basically they were too prideful to say I didn’t get it. Can you explain that again? Really is the worst with so many things in business though. It’s about building the right team of people. You know, if you are somebody who has a lot more financial and legal education, it’s less important for you to have somebody who can kind of speak in layman’s terms. If you don’t have those skills, find somebody who can talk to you in a language you can understand. And if, if you have no idea what they’re saying, let them know when if they can’t fix it, they’ll hire somebody else.
Scott Ritzheimer
Yeah, it’s, it’s not worth being embarrassed over right? You see D, keep it your mouth shut, because you’re embarrassed about it. You’re the one who pays the price for that. So we’ve talked about several myths here. I want to turn it around. I’ve got a question for you, Matthew, that I asked all my guests and it is this. What is the biggest secret that you wish wasn’t the secret at all? What’s that one thing you wish everybody watching or listening today knew?
Matthew Sercely
You know, it’s not even going to be a tax thing. By I really think it’s the importance of mindsets in being successful in business. I know a lot of people think that’s like woowoo, mystical stuff. And I’m not a big fan of some of the, you know, thinking get rich, just by thinking about it sort of stuff. But I’m a big believer that you’re never going to succeed beyond where you feel you’re allowed to succeed. Even if you get lucky, you’ll pull yourself down. So I’m a big believer in I call it getting rid of the poverty mindsets. You know, don’t don’t drag yourself down. It’s too hard businesses too hard to not have, you know, every advantage. You know, don’t be stupid, the optimistic but be optimistic, believe in yourself. And I think that’s a really important thing to succeed.
Scott Ritzheimer
It’s so true. So true. No more nowhere more than I believe in the world of entrepreneurship. And founders in general. Matthew, there’s some folks listening to this, like, finally, someone who speaks my language who gets where I’m coming from. They want to know more about you the work that you do, how can they get in touch with you?
Matthew Sercely
So the best way is going to be to go to a special landing page. It’s www.agoristtaxadvice.com/highdemand There, they’ll be able to sign up to download a book of over 60 business deductions. It’s some things most people are going to know about. And it’s going to have some things you probably don’t know about. It’s just to get your mind going. Because my favorite question is not can I deduct this? It’s how can I deduct this? And you know, get your mind thinking about that. And after that, download that but also get an invitation to schedule a free 15 minute consult with me to see if I’m a good fit for them now maybe in the future. You know see if we work out.
Scott Ritzheimer
That’s fantastic. Well, Matthew, thank you so much for being on the show. Just a privilege having you here. And for those of you watching and listening, you know that your time and attention mean the world to us. I also hope you got as much out of this conversation as I know I did. You’ll avoid those myths and move on to a more successful, more profitable business that you get to keep more of and with all that I cannot wait to see you next time. Take care.
Contact Matthew Sercely
Matthew Sercely graduated from the University of Dallas and attended Ave Maria School of Law and SMU School of Law. He received his law license in 2009. He spent much of his early career working on personal injury cases. Now, he provides tax advice and planning to small business people and real estate investors. He is an attorney and a tax advisor who helps business owners legally take advantage of the tax code to reduce their taxes as much as possible.
Want to learn more about Matthew Sercely’s work at Agorist Tax Advice? Check out his website at https://www.agoristtaxadvice.com/
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