EP. 133 More Knowledge, More Wealth: AM 590 Radio Show

Transcript:

Announcer:

This is More Knowledge, More Wealth, with your host, Gabriel Shahin. Gabriel is a certified financial planner and a registered investment advisor at Falcon Wealth Planning. This show is not intended to provide personalized investment advice through this broadcast and does not represent that the services or securities discussed, are suitable for any investor. Investors are advised not to rely on any information contained in the broadcast, in the process of making a full informed investment decision. More Knowledge, More Wealth, on AM 590 The Answer. Now here's your host, Gabriel Shahin.

Gabriel Shahin:

Good afternoon. This is Gabriel Shahin, certified financial planner and your host of More Knowledge, More Wealth! that's here on every weekend talking about all important topics of personal finance. Our goal is to give you the knowledge you need to increase your wealth.

Now, to the listener, you can always reach out to myself or any one of our colleagues here at Falcon Wealth Planning. Our phone number is 855-963-2526. That's 855-96-FALCON, like the bird. Or visit our website at falconwealthplanning.com. That's falconwp.com for short.

Now, I'm a principal of Falcon Wealth Planning, a registered investment advisory firm. We are a fee-only financial planning firm that also manages money, but we go over all important topics of personal finance, folks. That's where you are today. That's how retirement looks like. Tax planning, which is a very big niche of ours, insurance estate planning investments, folks, you name it, anything that involves a dollar sign, we can help you with. We are telling you to go ahead, if you want to relate this show to your specific situation, give us a call. We'll be happy to help, folks. We typically charge for this. This is no cost at all. Our phone number is 855-963-2526. That's 855-96-FALCON, like the bird.

All right. So here we are at the height of tax season. I always feel like it's tax season, just because March 15th, you have your corporation taxes that are due. Then you have April 15th and then you have some time in between. Then you have September 15th for the extensions that are due for the corporations and then October 15th for personal. And then you have year-end planning at the end of the year. So I really think it's always end of the year.

But for a lot of you, non-business owners and whatnot, here's the time where you have to review your situation because there are some year-end tax planning techniques that you really should be taking advantage of. It's as simple as that. It's extremely important because a lot of you meet with your accountant once or twice a year. That's it. And folks, that is what's called a tax preparer and nothing is wrong with that. There are extremely, there are some competent tax preparers, whether they're a tax preparer, an enrolled agent or a CPA from bottom to highest has the level of competency is the CPA, certified public accountant. But that is just to put your taxes together and looking at a snapshot of just the calendar year from January to December. And that's it.

They don't understand your full situation, how much assets you have and retirement accounts. They don't understand what your mortgage balance is. They're not giving you recommendations on your cashflow, how much you have left over, what do you spend, who are you supporting, whether it's parents or kids, adults that are not listed on your tax return. Obviously, it makes sense when you have kids, but do they do any college planning? And the problem is there's a lot of accountants out there that try to dip their finger and everything, and then they have this relationship where they get commission kickbacks when they make a referral or even make a recommendation of investments.

So of course, there's a conflict of interest there. I see a lot of that with accountants. But what are they actually helping you with? What is the recommendation that they're giving you to save in taxes? Some of the most basic ones is contributing to an IRA or a Roth IRA. One of them gives you a tax benefit. The other does not.

Here's what I don't see a CPA doing is when they look at your line 2 in your 1040, when it talks about interest, or your line 3 that shows dividends, if you have dividends, a brokerage account that's paying you dividends and you have capital gains on those, you're paying taxes on that on an annual basis. Well, why don't you just put into a Roth IRA. On Roth IRA, you are not paying taxes on dividends, interest in capital gains.

So something as simple as that, folks, is proof there's a difference of a tax planner versus an investment advisor or an accountant that does just tax preparation. I'm not telling you to invest more money of your cash. I'm saying just simply shift your investments from a taxable brokerage account to a Roth. That's something so simple. And if you're in a really high tax bracket, maybe you should save into an IRA, the deductible IRA. So there are ways that you can save money, and I don't see that happening. I don't see those recommendations coming. Why? Because we review thousands of taxes a year and we give these recommendations all the time.

You know what else I don't see in what a lot of people should be doing is a health savings account, an HSA. You can contribute to an HSA, four to $8,000, depending on your age and your plan and who's covered, on an annual basis and you save taxes on the federal level, folks. You get a tax right up by putting it in, and here's the best part. When you take it out, it's tax-free also on the federal level. You pay no taxes on the way out. It's better than a Roth because a Roth, you get no tax deduction going in, but all the growth is tax-free. When HSA, a health savings account, you need a certain high deductible plans, your health insurance company will be able to help you to see if you're eligible for that. But it's important to know. Now, when you put it in, you get that tax benefit this year, and then when you take it out later, you take it out and pay no taxes on it, as long as you use it for healthcare.

Now, I know what a few of you are thinking. "Well, what am I supposed to do with that money? It's just supposed to sit there forever. What if I'm healthy, I'm young? I don't have to care about it." Well folks, number one, you can invest in it. Yes. You can invest in a health savings account. Exactly. You didn't know that, did you? So taking advantage of that is huge. And let's say you are healthy, God willing you are, and from now to 65, you don't have to worry about it. And you've been putting in $8,000 a year for 40 years and now you have $2 million in a HSA. "Wow. Okay. What am I supposed to do with that?"

Well, here's the thing. Number one, healthcare, you'll probably use it more as you get older, number one. Number two, you can use it for reimbursement of your Medicare premiums. You can get reimbursed for that. It's almost like a quasi pension. It can be as little as 150 a month. It could be as much as 600 a month depending on your income in retirement, and that's assuming our Medicare system doesn't increase at cost, which oh, by the way, they always increase their cost.

By the way, folks, if you're just joining us, you listen to Gabriel Shanin, certified financial planner, your host of More Knowledge, More Wealth! here on every weekend talking about all important topics of personal finance. And today, we are talking about just the simple benefits of prepping for your taxes and what you should be reviewing, what you should be doing. And I'm giving you just some simple recommendations for you through a health savings account and a Roth IRA contribution or an IRA contribution. These are simple ways that you can help reduce your tax liability. So note that.

Also, looking at business owners and what they could be doing, a lot of them save into a SEP IRA, which means if your business has a hundred thousand dollars in profits, assuming it gets its whole proprietorship, or if you pay yourself a salary, 25% of that, you can save up to 25% of what you net. So if you make 300,000, but you only clear, net, after all expenses, a hundred thousand, you could save 25,000 into a SEP IRA. So this is something that could make sense for the business owners out there.

But here's what I always get confused about. How come the business owners are not saving into a solo 401(k). That's why... I just don't understand why you would not. Let me explain. Let's just say you're a sole proprietor just because it's easy. It's not a corporation. Whether it's LLC, S corp or a C corp, and you net a hundred thousand dollars with a SEP IRA. And let's just say, you really want to save for retirement. You really want to max it out. You want to save as much as you can on tax deferral, whatever it may be.

So you net a hundred thousand dollars. With a SEP IRA, you can save how much? You could save 25% on that a hundred thousand, which is $25,000. Okay. Not bad. So you could save 25,000 on a SEP. Well, how much could you... So that's great, right? Take advantage of it. But how much could you save on a solo 401(k)? On a solo 401(k), you can get a contribution, like you do your normal employers, you can contribute into your solo 401(k) up to 20,500, assuming you're under the age of 50. If you're over, it's about $26,000. Okay? So you can put in on your contribution, your employee side, you can contribute 26,000.

Now, on the match, you still get a match up to 25%, just like you did in the SEP. So you could save $25,000, which is the same 25% of your net profit, which is a hundred thousand. You could save 25,000 a year. That's on top of the 26. You could save 51,000 versus the original 25,000. Folks, there's no reason not to do this. I don't know why people don't. I just think they don't know. They're so used to saving into SEPs.

Really, solo 401(k)s have become very easy to set up in the past 10 years. Some of these companies, you don't even need a tax ID number. You could do it under your social. Well, if you're a sole proprietor, then that makes all the sense in the world, but people are not doing that. They're just complacent. They're simple. And that's saving them or costing them tens of thousands of dollars of savings on an annual basis, depending on how much they make.

But this is a key reason why you should meet with a tax professional, with a tax planner. And folks, that's what we are at Falcon Wealth Planning. We can help. This is what we offer. Folks, we have offices all across California and we help people all across the country, folks. Our headquarter is here in the Inland Empire, and we can help. Give us a call. There is no cost, no obligation to this at all. We're one of the good guys in the industry. If it's something we don't work with on a long-term basis, then we just refer us to people. We want to cast a large net out there and help as many people as possible, so you can spread the good word of what we do.

Folks, our phone number is 855-963-2526. That's 855-96-FALCON, like the bird. Or visit our website at falconwealthplanning.com. That's falconwp.com for short. We can help put a plan together for you, and this is the perfect time to do it, as you're reviewing your taxes prior to submitting.

I just had someone at my church on Sunday, last Sunday, tell me that, "Hey, could you... I'm paying $50,000 in taxes, and I just paid 22,000 in estimated taxes in December. Something is wrong." I want to tell you what was wrong with that situation. I reviewed that, and I gave him recommendations that's going to save him a bunch of money. I will share his exact situation, folks, after we come back on a break to let you know what the common issues people are doing and seeing, and it's not sometimes their fault. It's their accountants fault because their accountants probably have 16-year-olds inputting the information on their behalf and they're not even reviewing it, and this is a classic case of that.

And I'm sorry, I'm not trying to make fun of anybody here, but my goodness, this would've cost this individual thousands, tens of thousands of dollars. So folks, I want you to stay with us. We're going to come back. We're going to go over this information with you and tell you, in this scenario, what our tax review did for this individual. And this is a friend of mine that I know from church. Folks, we'll be right back. If you need help, give us a call, 855-963-2526. That's 855-96-FALCON, like the bird. We'll be back after a few words.

Welcome back, folks. This is Gabriel Shahin, certified financial planner, your host of More Knowledge, More Wealth! here on every weekend talking about all important topics of personal finance. And today, I wanted to go over with you tax planning and tax reviewing, because I don't see that happening a lot. I don't see financial advisors helping with this. No way on earth are they not helping with this. Why wouldn't they? Because they're not trained to do so, and their compliance department says, "Hey, you don't get paid for given tax advice. You get paid for selling product. So stop it." Yeah, I see that a lot. So you have to make sure that you talk to a tax professional and ideally somebody who's holistic that also looks at your investments. We are a fee-only, non-commissioned true fiduciary advisor. It's extremely important to get that unbiased advice because when you don't, you miss out an opportunity.

This individual that I'm talking about, that have his accounts over at Vanguard, which is a great company, Vanguard. My little brother works at Vanguard, who, by the way, just had a baby. So congratulations, Matthew. And so that's on one side. And we use investments from Vanguard, as well. I mean they're a great company, but number one, if they're truly the best at everything, they would have the world's money and you and I wouldn't be talking. That's number one.

And number two, they're also not allowed to offer tax advice. It's as simple as that, and you have to make that decision of getting that review. Sometimes, you can't afford to be cheap. You have to spend the money to make sure that you are getting the proper advice of what to do with your money. And so it could be as something as simple as contributing to a Roth IRA, like we talked about earlier. It could be something as simple as looking at the difference between a SEP IRA and a solo 401(k). These are extremely important options that you have to look into as well.

So when you compare the two options of tax planning, tax preparation, and just an investment advisor that's there just to manage your money, they're not holistic, and it could be something that's putting bonds in a brokerage account versus having stocks in an IRA. This IRA is taxed at the highest of tax rates. And so that is not fruitful for you when you're looking to do long-term planning. You would rather have all your growth investments - your stocks, your small caps, your internationals, your mid-caps, your growth companies - in the Roth IRA in brokerage account. Why? Because it's favorable tax treatment.

And I do not see advisors doing that. It's called asset location, and Vanguard, speaking of Vanguard, did publish a study where this can help juice the returns of your overall net worth in your portfolio by half a percent. That's huge. And again, a lot of people are not doing this. Why? It's complicated to do it because you have to understand your tax situation, and advisors are not allowed to do that.

So I want to give you a scenario of last week, last Sunday. And I hope the gentleman's listening to the show, because we spoke. After church, he told me the situation. Everybody knows what I do at church in my personal life. This is my life. And so he goes, "I'm going to send you an email." So he sends me an email at 9:30 at night. I call him. I mean, what else am I going to do? The kids are asleep. My wife, I think she was busy grading as a professor. And so I said, "What the heck? Instead of watching some HGTV, let me do some work. This is what I love to do."

So the scenario is he's reviewing his situation and he's W-2ed. And so what happened is he showed me his corporate return and his personal return, and it shows, he told me at church he makes a hundred thousand dollars. Now, when I reviewed his taxes, it showed, under office compensation, there was only 80,000. I was a little confused. So it was one of the first things I mentioned to him. "Is your wife on payroll?" "Yes." He didn't tell me that initially, so I took a guess. "Did she get paid 20,000?" She said yes, or he said yes. So right then and there, that was issue number one. In his brain, he was trying to contribute to his wife's social security. I'll come back to that later and why that's unnecessary, not because I don't like his wife, it's because it's a wasted contribution to her social security. So that's number one.

Number two, he told me he was getting roughly $75,000 of a K-1 that comes to his social, from side business. We'll call it referrals. I'm not sure. And so 75,000 was coming through, and it was being hit as a sole proprietor with zero expenses, which was a little crazy, if you ask me. Who gets 75,000 for nothing and with no expenses? Long story short that he got hit with self-employment tax of 15% on that 75,000. He paid over $10,000 in self-employment tax. This is what self-employed people pay to fund their social security and Medicare, but he was already paying himself an $80,000 salary on the other company. So he was really paying a lot of unnecessary because he really only had 40,000 of profits on his corporation.

And on top of that, it was a C corporation. For somebody in his situation, we recommended an S corporation. He paid about $10,000 in taxes for the C corporation because the C corporation pay some taxes on that as well. So I recommended he did an S Corp, which also would've gave him access to something called QBI. Now, what's this fancy term? That would've given him 20% off his net income of almost $50,000. So he would've saved $5,000 in taxes there. Okay? Plus it's important to know, that 75,000, if he had an S corp, instead of paying over $10,000 in self-employment tax, I would recommend flow it through his S corporation because it's roughly the same business. He's in event planning. So he could have also avoided that $10,000 in self-employment tax, plus he could have gotten QBI, qualified business income, on that 75,000 as well.

What he also did do is he put into a SEP IRA, not a solo 401(k). So he was only... Because he paid himself 80,000, so he was able to put 25% of 80,000. That's roughly $19,000. If he did a solo 401(k), he would still be able to do that $19,000. That 19,000 would've been a match. He would've been able, because he is under 50, to do another $20,000, 20,500, as a employee contribution, which would've saved him on taxes being in the 30, excuse me, 24% bracket plus 9% in state of California. He would've gotten one-third of $20,000 back. That's over almost $7,000. Folks, you add this up, it's over a $20,000 difference.

By the way, folks, if you're just joining us here, you're listening to Gabriel Shahin, certified financial planner, your host of More Knowledge, More Wealth! here on every weekend. Folks, if you want help with this, we are at tax season, if you want help reviewing your situation, seeing that we do this on a daily basis and we do tax planning only. That's our main focus, folks. We only do taxes for our clients. Give us a call. We can help. Our phone number is 855-963-2526. That's 855-96-FALCON, like the bird.

We can help relate this show to your specific situation. In this gentleman's situation, he unnecessarily paid over $20,000, and that doesn't include paying his wife 20,000 in salary, which oh, by the way, he had to pay payroll tax on that as well, 15%. So that was $3,000 she had to pay a payroll tax, which is in addition to the federal and state taxes of one-third that we just discussed. He was doing that because his accountant told him that, well, you got to start paying in credits for her for social security.

But here's the thing. If there is one spouse that's working, making, let's say, a hundred thousand dollars a year, their social security's going to be about $2,800 a month, if they continue. Their spouse making $20,000 a year, if they continue, they're only going to get maybe about $750 a month. Well, the way social security tax law works is, which this accountant failed to understand how it works, is this spouse gets either the higher of their social security, which is $750 in this case, or half of their spouse's. Well, what's half of 2,800? Exactly, 1,400.

So why would you contribute into social security to get 750 a month versus you being able to get half of your spouse's 2,800, which is 1,400. You get almost twice as much by just taking your spouse's. I will just take that 20,000, number one, and put it back into the husband's social security. Pay them, increase their salary, so they get more social security, or do that fine analysis to see what's the proper amount to pay, because the more money you make, the less you get back on social security. So there is an analysis for that of the right salary. There's two answers. There's an IRS way, which is reasonable compensation. You don't want to mess with that. But there's also a tax planning way to know what's the right amount to pay yourself, to make sure you get the maximum out when you retire.

Folks, this is what we do on a daily basis, and I see people messing this up every single day. This is actually what keeps us in business. I should feel blessed that other advisors and other tax and financial professionals are not giving this type of advice. And number one, it's ridiculously difficult. We need to get to maybe three meetings and maybe five to six hours worth of time before we even can come to a conclusion of the recommendations, because you have to understand their goals, their long-term goals, any other assets that are out there, how much they're saving, where they're saving it, their house, their goals, so on and so forth.

Folks, this is why it's difficult to do, but this is what we love to do. That's the fun part of our job. Folks, managing money is easy. When you're not paid from the funds that we're investing for our clients, when we get paid directly from our clients, investing is easy. There are no commissions we receive. There's no products we offer. And when you're saving somebody $20,000 a year minimum, how do you quantify that into paying an investment management fee of one or 2%? And then you delegated that out and you retained us for that information.

Folks, it's a no-brainer, and this is why we're offering a free financial tax assessment. Folks, give us a call. Take advantage of this. You have nothing to lose, and it's the perfect time of the year. When you're reviewing your taxes, send it our way. We ask for your taxes anyway for the consult. Folks, our phone number is 855-963-2526. That's 855-96-FALCON, like the bird. We can help relate this show to your specific situation, folks. Visit our website at falconwealthplanning.com. That's falconwp.com for short.

Folks, that was a fast, fast show. I want to thank you for tuning in with us this weekend. You can always reach out to myself or any one of our colleagues here at Falcon Wealth Planning. Our phone number is 855-963-2526. That's 855-96-FALCON, like the bird, where we can help relate this show to your specific situation. Call us. We'll have a personal, confidential conversation to help relate what we're talking about to you and what you're doing.

Reach out. You can always listen to this show live every Saturday on AM 590 from 12:30 to 1:00, as we go over all important topics of personal finance. But we got this on Spotify. We got this also on podcasts and so on, but our goal is to give you the knowledge you need to increase your wealth. We want to thank you for listening. We want you to enjoy your week. Have a great weekend, and God bless.