Warren Taryle is a Certified Public Accountant, founder of Taryle Accounting, CPAs, specialized in working with real estate investors, entrepreneurs, and wealth builders. Warren received a Masters Degree in Taxation from Fontbonne College. He has focused his practice on helping people grow their investments and businesses by reducing their largest expense, taxes. Warren has worked with many notable real estate and wealth building icons such as, Robert Kiyosaki, Dolf DeRoos, Diane Kennedy, Jack Bosch and Loral Langemeier.
In this episode, Jack Bosch chats to Warren about some of the new tax law changes and how land flippers can maximize their profits by doing their taxes the right way (hint: get a good CPA!).
Listen and enjoy:
- Find out about Warren Taryle’s career history
- Learn about some common mistakes that entrepreneurs make with regards to tax
- Discover some of the most pertinent tax law changes and how this affects you
- Find out to use bonus depreciation to save even more money!
Mentioned in this episode
- Subscribe and rate our podcast at: http://www.Jackbosch.com/podcast
- Join our thriving community and talk to other people! Join our Facebook group https://www.facebook.com/groups/ForeverCashClub/
- Hire the CPA that Jack Bosch uses at: http://www.tacpas.com/
- Follow Warren Taryle’s company on Facebook: https://www.facebook.com/tacpa/
- Follow Jack Bosch on Facebook to get the latest updates: http://www.facebook.com/jack.bosch
- Learn how to flip land for pennies on the dollar: http://www.landprofitgenerator.com
Jack: Hello everyone, this is Jack Bosch speaking with the “Forever Cash Real Estate Podcast.” I’m excited to have you watching or listening another episode, whether you listened to it on iTunes or you watch us on YouTube under the profile of Land Profit Generator. You can find us there. I’m super excited. You can look for Jack Bosch and you’ll find us there too. My guest today is our CPA and good friend, Warren Taryle from TA… How do you say that, the company? I only call you Uncle Warren, so…
Warren: Taryle Accounting.
Jack: Taryle Accounting. Wonderful. You just recently changed the name, so I was a little hesitant. But Warren has been our CPA for like 70 years and he has done just an absolutely stellar job. And now he’s also the CPF, a lot of our land flipping students and a lot of our real estate students and our syndication investors and so on and so forth. So, we’ll get started right now. We’re going to talk about tax law. We going to about how to save taxes. We’re going to talk about the biggest mistakes people make when they come to him. We’re going to be right back after this.
Male: Welcome to the “Forever Cash Life Real Estate Investing Podcast” with your host Jack and Michelle Bosch. Together, let’s uncover the secrets to building true wealth through real estate and living a purpose-driven life.
Jack: We are back online right now, so first of all, welcome Warren. I’m excited to have you here.
Warren: Thanks. This is awesome. Nice studio.
Jack: Okay. Warren and I know each other for many years. He’s making fun of the mess in the background of my office here. So, but I actually like very much what you have in the background there. You have the “Land Profit Formula” over there, which is our very first… Over there, yes, which is our very first land course when it still was an audio CD course back in 2008, I think. Anyway, so, we have been through together, kind of like we’re helping each other and he helping us more on the tax side, for several years. He’s also a member of our Ultimate Boardroom Mastermind, real estate mastermind. Well, Warren, tell us a few words quickly about like your background. How long have you been a CPA? How did you get to be a CPA and when did you, what and when and how did…? Let’s start with that first.
Warren: Okay. Well, see, being an accountant is actually a second career for me. I don’t even know if you knew that, Jack?
Jack: I don’t.
Warren: So, I started off in electrical engineering, and I won’t get into all that. But I worked for a pretty high tech alarm company where we were putting in smoke detection systems in military bases and my mom thought for sure I was secretly working for the CIA because I had to get background checks and she thought it was just a cover job because of all the places I was going.
Jack: Well, was it? Maybe it was. We will never find out, Warren.
Warren: I’ll say, as my mom said, “Well if you did, you wouldn’t tell me, right? Like how do you mean that question?” But, anyway, I’ve been working…moved out of that, went to work for our family business in St Louis, so I left California to go to St Louis to work in our family business. And my grandfather, among other things was a real estate guy, and he started furniture stores, some pictures of my family back there. Can never figure out which way to go on these cameras. But, he started these furniture stores, and I’ll tell you this one philosophy because this is my philosophy and it’s yours and…which is so weird. That’s why we’re friends, right, because, you know, in your book, it’s exactly “Forever Cash.” It’s exactly that, right?
My grandfather taught me when I was working for him and insisted his philosophy. He always said, “A business is a temporary thing, because even a good business, there could be one change in law, change in technology, change in people’s taste, and a good business goes out of business.” So, to him the purpose of having a business was to generate excess cash that can be used to invest in things that are permanent. And to him, permanent was real estate. And so, he had his furniture stores and he took those furniture…money from the furniture stores and developed shopping centers to put them in. And now there are one too many recessions and internet sales and things like that too many. Furniture stores are all long gone. The shopping centers are there. My family, not me yet, but most of my family still lives off of those. And if they don’t have too much fun, maybe it will be something left for me someday.
But, so I went and started working for my grandfather in St Louis, learned about the importance of real estate, learned about that philosophy. But I also saw how important good tax and accounting advice was and I also saw how difficult it was to get. And discovered I had a little bit of a knack for that sort of thing. And so, I went back to school, got my bachelor’s degree in accounting. Then I got a master’s degree in taxation and I was about to go back and go to Night school to be a lawyer to learn law. And that’s when Diana, my wife decided, “You know what? You’ve been going to school our entire married life, if you want to go to law school, go for it, but you’re going to be single.” So I decided, “Meh, I think I’ll stick with being an accountant then.”
Jack: All right. And that worked out quite well for you.
Warren: It did, it was amazing. And because of my real estate background, wherever I worked, they would give me the real estate clients, because I was surprised when I got out of school. So when I took my master’s degree, I focused really heavily on real estate stuff, because it was our family business. It was for my own protection and my own well being. And so, we focused on the real estate stuff. And so when I got out of school, I was surprised to see that so many accountants didn’t really get real estate, and I did. So, I would get those clients wherever the firms I worked for, which also happened to be their best clients.
Jack: Right, exactly, because they have… Real estate is profitable. So there’s like more revenue coming through it, more complexities, which obviously brings more revenue for the CPA firm.
Warren: And the wealthier clients. And this is what I didn’t know back then, I couldn’t figure out which came first. I didn’t know… I knew one thing I knew wealthy people had real estate. What I didn’t know was, did the real estate make them wealthy or because they’re wealthy, they had real estate? And after all these years I figured out that it’s both.
Warren: And that’s true. Right. The wealthy people put money in real estate and allow people to build wealth through real estate. That’s beautiful. So then, so you got into taxation, you got a real estate expert. I can agree with you very much so that we got lucky that we found you early on because the way we found Warren was that we read “Rich Dad, Poor Dad.”
And actually back then, Michelle, my wife and business partner was doing her master’s at the Thunderbird, the global school for international management here in Phoenix that we made…that’s why we moved out to Phoenix. And there was a guy by the name of Robert Kiyosaki who came in and taught and actually hired a few of the students very early on before his book was even known to help him develop a marketing plan to go out there and become a brand. And one of these guys was in a study group with Michelle. And one evening we go over there and this guy says, like, “We met this guy, he hired us and he wrote this book. You need to read this book.” And this was 1999. And I read the book and it changed my entire outlook on things.
So logically, when we started our business in 2002, and then in 2003 we did a few deals. And then after doing those few deals, we went back, we said, “Okay, now we made some money, let’s incorporate, let’s create a tax liability-optimized structure.” And, but we of course don’t know where to go. So what’s the logical thing? We loved the Robert Kiyosaki thing, so we went to his CPA, a recommended CPA firm and who we do we meet there working there? Was Mr Warren Taryle. So, Warren, tell us about that and how you from there separated and started your own business.
Warren: Okay. Well, it was really interesting. So, I was in St Louis and I decided it was time to move. And so we chose…actually I wanted to move to the east coast. I really love the Chesapeake Bay area and all the history there and I just thought it was very sophisticated and I just sort of liked it there. And I had some clients when I was working in St Louis that were there. So I got to go there and I told Diana, “We’re going move, let’s move to like Delaware or to Maryland.” And so, I was like, “Well, let’s go to Maryland.” I really like Maryland. Baltimore just seems like such a cool place and we’re right in the heart of everything. And then I said, “I don’t like the cold, I don’t want to go there. If we’re going to move anywhere, let’s go to Arizona.” And I said, “No, we’re going to Baltimore. I’m the man.” So I put my foot down and here we are in Arizona.
Jack: There you go. That’s worked out real well.
Warren: It did. And that changed my whole life, because… So I got a job working here in Arizona, and I won’t put this company down because they did hire me, but they hired me. And again, just like at other places I had worked, I got the biggest client because he was a real estate guy. And he was doing a ton of things. I mean, some things I didn’t even realize were really real estate related. He had Indian gaming casinos, which if you really think about it is a real estate play, when you see how it works. And he had hotels, he had all these things put together. His tax structure was entirely wrong. He was paying way too much in taxes. And this was…this was what, 1998, late…or 2000 or late ’90s. And he was paying just way too much in taxes, because the structure was all wrong. I mean, here’s what you…a lot of us complain about our making our quarterly estimated taxes, his quarterly estimated taxes were over a million dollars a quarter.
Warren: He was paying a bunch of taxes. And I didn’t spend a lot of time. I just did a little bit of playing with it because I just, you know, graduated with my master’s in tax and all that stuff. And I’m like…so I went to my boss, I did the tax returns like I was told and I brought them to my boss and I said, “Here, look, if we make these changes we can save him a lot of money.” And this is without even thinking a lot about…this was just really quickly. “I’m sure there’s even more we can find for him.” And I’ll never forget this because it changed my whole life. He was sitting kind of like this, you know, at his desk and he kind of put the paper in front of me. He looks up to me, he goes, you know, pushes the glasses, he looks at me, “Warren, we’re paid to think…” Or, “We’re paid to do the tax returns, not to think.”
Jack: Wow. And that is unfortunately the philosophy out there for a lot of people, especially the tax accountants that do…that’s why we very quickly realized… We didn’t know that story, but we very quickly realized that the one person that actually had the more creativity that was answering our questions in a better way, that was just…it wasn’t just pushing us off. And we were dealing with that main partner over there. The person that was in [inaudible 00:11:38] book with Kiyosaki and then realized Warren was smarter than the other guy. So he’s like, you know what? And all of a sudden we hear Warren has quit. It was like, “No, where is he?” So we tracked him now and we followed him. He was not allowed to obviously solicit, neither did he. Not a single thing. We followed him or it’s like, “Warren, help us.”
So I think we stayed another while with the other one for one more tax return, but then we came over to Warren and Warren started his own company that is now thriving and has…and a lot of our students in there. And like to reconfirm that I…one of our good friends who does a lot of turnkey house flips every year, like six to 800 or so turnkey house flips, he was like…once I introduced him to Warren and Warren looked at this numbers, they were able to amend their tax returns for several years and literally save him six figures in tax returns to six figures in taxes that he had overpaid the IRS just because his former accountant was not paid to think, he was only paid to do a CPAs.
Warren: But your results may vary.
Warren: Your results may vary.
Jack: Your results? Of course, your results may vary. Of course, of course, if you are with a good tax rated CPA, then great, your results might look good. But that guy, he confirmed it for us. Also between the years there was like some…our business grew and we were just not sure exactly if we’re still in the right path. So, with Warren’s help, we went to another guy that is very well known, a tax attorney, very creative guy. He confirmed our structure and he says like, “You know what? Warren is great. It was absolutely perfect for you guys.” So we got this confirmed many times and we just love it to have somebody at our site that does a really good thing.
So now, Warren, let me ask you. Let’s dive in a couple of things. When you have a customer come to you… Let’s say two kinds of customers, one that’s just starting out and has done a few things and one is already or has not done many many things, and one that’s very experienced already. What is the number one mistake that student…that people come to you when they want to set up, well, when they come to you and they inquire about your services, when you look at their stuff?
Warren: You know, it’s…the number one thing that’s wrong is people trying to do it themselves. I find that often because, you know, people will listen and will get tax advice. Even right now, we might give out some tax advice now, don’t take my word for it. Listen, you know, look it up. Do whatever. But one piece of warning is don’t ever take tax advice from somebody who’s not willing to prepare your return and sign it, because if I tell you something wrong and then I prepare your return that way and I will send it off and I have to sign it as the preparer, if the IRS comes back and says, “That was wrong, you totally, you shouldn’t have done that,” I have preparer penalties that I would have to pay. And they’re probably even worse than the penalties you might have to pay on your return.
So, there’s a lot of advice out there and so we hear some really crazy things when people come in the door from, you know, maybe you heard on a podcast, maybe heard it from a stage or read it in a book somewhere. None of these guys are going to prepare their tax returns so they can say whatever they want to, and it’s up to you to figure out what the right answer is. So, number one thing is people trying it on their own, and I don’t care, even if you’re a really small and you say, “I’m just going to go get Turbo Tax or whatever and I’m going to do this on my own because I don’t want to spend the money to do it,” even even just that time and the bandwidth of your brain that you’re using up to keep doing things on your own and thinking through it, is taking away from time where you’re actually going to be making money. You don’t make money when you’re doing bookkeeping. You don’t make money when you’re doing taxes. You don’t do money…make money when you’re doing the things. You make money…at least for the people I think we’re talking to, you make money when you’re mostly marketing your business, even the details of your business could be done by other people, but that marketing and selling of your business, that’s the heart of where you’re making your money.
Jack: Right. Very cool. So, that’s…I agree with that because, I mean, I remember the first year I looked at through my tax and I think the very first…as an employee, I still didn’t do my taxes. But I had absolutely nothing there. I mean, I had a W2 and that’s it. I hadn’t sold any shares, anything. So, basically that was the 1040 easy and I was done. The moment I started doing some land deals, the moment we started flipping some properties, I mean, just the difference between a short-term flip and a long-term flip, like a short term, when you flip something right away and something we held, perhaps we bought and held. I don’t know how to report this on the tax returns as a different thing at different tax rates and stuff like that. I mean, and then having to shift your mind into the world and the way of thinking on these legal forms…I mean, it just gives me a headache thinking about it. I don’t know how you do it, but, I mean, you must love it. But it’s just not where I live, right?
So, you wouldn’t, just because you save a bunch of money figure out, I don’t know, how to put a new roof house. Either, I mean, you wouldn’t just go figure out, “Hey, I can save. I can buy the materials and I can go out there and I can nail them on myself.” You wouldn’t do that. But yet a lot of people want to do their own taxes because they’re not willing to spend the money that it takes to get them done when, exactly what Warren says, you could literally…you could use that time and do another deal and make that out a deal and make another 10 grand. And now the taxes are many times already been paid for. Well that’s great. So, now, Warren, let’s… Go ahead.
Warren: I was going to say, that would be number one. The second biggest problem is actually the opposite. So, and this is for people just starting mostly. So, we’ll get people just starting who will have set up, they will have spent the money, hired somebody that wasn’t necessarily looking out for their best interests, but that other person’s own best interests. And will buy…will get a package of, let’s say entities and a big structure set up. That would be ideal for them probably four or five years down the road, but they haven’t even bought their first piece of land or their first house yet. They’re still looking and they have five entities and a corporation and all this structure set up and they’re like, “Well, I can’t buy that piece of land because I just spend all my money setting up the entities, and besides I don’t have time to go looking and sending out the letters and doing the things I need to do because I’m trying to figure out what entity I’m supposed to do these things out of.” I do tell this to a lot of people. And it’s only halfway facetious when I say, you know, most important when you’re starting out, create a tax problem, then come to me and I’ll help you make it go away. But the most important thing you got to do is start.
Jack, you said my favorite thing ever a long, long time ago, I still credit you for this and I don’t know if you still use this, but it’s my favorite motto that used to say, “You know, anything worth doing is worth doing poorly.” And that is so true. And maybe I should even replace my first biggest mistake with this one is, get started. That’s the most important thing. We’ll figure out all the details later.
Jack: That’s very true. And yes, I do occasionally still use it. Probably not as often as I have done in the past, but it’s very true because the first time I use it with my daughter all the time, because she wants to do something. She’s 11 years old and she is Sophia, obviously, you know her. Actually, Warren’s wife is actually the godmother of our daughter. That’s how close we are now. And we…I use it with her all the time. She tries to do something for the first time and guess what? She sucks at it, she fails, because there’s not been a human in this world that has done everything they ever do for the first time and done it perfectly.
So, I basically tell her, “You know what Sophia? This is cool, this is fine because everything worth doing is worth doing poorly at the beginning,” then I add. The first time you do something, you always suck at doing something and that’s normal. And then she’s like, “Really? Really, Papa?” “Yeah.” And it’s like, “Yes.” So, go, it’s normal that you don’t do it perfectly. So, the next time you do it better and the next time you’ll do it better. So practice great mastery. And then she like, stops crying and stuff. And then she starts realizing, “Okay, this is normal. So there’s no reason for me to cry.” And she improves. And that works there very well. But this applies to you very much too.
So, then let’s switch gears for a moment and then talk about the actual…the big thing on the horizon. Oh, not on the horizon. Already implemented or being implemented right now is the Trump tax cuts or tax changes, I want to say. So, can you give us just the quick highlights of what it affects us as a business owner or what is your favorite pieces about the new tax laws?
Warren: So, there’s a lot. We actually love it. It just given us so many more tools to use. So, you know, don’t know I’ll be political here with this, but it just gives us so many options and so many tools to use with people that…it has made life more complicated for us. I will say that this has been one of our busiest…
Jack: Was it the simplification act?
Warren: Yeah, that’s the funniest part about it. So, yeah, none of us bought the simplification thing, that, you know…
Jack: Never is that.
Warren: That just means the accountant full employment act. But, so here’s one example. Remember… And, you know, if you guys look me up on Facebook, you will see my Facebook pictures. We just did a really cool…I just…that was fun. A little Facebook live about the new tax forms. So, if you, especially if you’ve done your own tax returns, they’ve changed the 1040 for 2018. It’s entirely different. You’re not going to be able to find anything. Oh, your name is still in the same place, but that’s about it. And so, remember when they were talking about this thing, they made this big deal out of being able to file all your taxes on a postcard, and which we all thought was nonsense, right, because everybody electronically files, so who cares? It’s just data, it doesn’t really have to fit on anything, but they were driven and they focused the IRS on making this new tax form the size of a postcard. So now the 1040…I wish I would have printed out copy. A new 1040 is the size of a postcard, a rather large postcard, like a 4 by 6, you know, half a sheet of paper, poet-sized postcard, front and back. And that’s the form 1040. But you can’t just file the 1040 because it needs some supporting documents or sheets that were never part of the return before.
So, now you have two half pages and six additional full size pages that go along with it. And that replaced the old 1040 which was two pages. So we replaced the two pages with six full pages and two half pages. And if somebody said, “Well, Warren, I had my…I filled the 1040 and it was more than two pages because it had schedule A, schedule B, schedule C, schedule D, schedule E,” and I don’t think there’s a G. But anyway, you know, it was all those alphabet soup forms that go with it. Well, those are all still required. You still have to file all those two along with the six full pages and two half pages. So that’s how they simplified things, but anyway.
Jack: So, bringing it back to like, what’s one of your…what do you think about that? But the…how…what does it…how does it help a typical, let’s say…let’s start with a house flipper first. And then now because the land flippers, we really not help that much because land doesn’t appreciate anyway.
Warren: There are some.
Jack: There is some? Okay. Let’s go ahead, let’s talk about it. How does it help, like, the typical person that wants to get into real estate, either house flipping or hopefully not house flipping but land flipping?
Warren: So, the biggest thing that affects…and this was probably the most talked about, but still people don’t know it. The biggest thing in the tax law for businesses is the 20% pass-through deduction. So, we all heard, you know, they lowered the corporate tax rate. So if you have a C corporation, you know, these big corporations out there, they now have a flat 21% tax bracket. And everybody is like talking about that being a toxic cut. Some of our clients have C corporations, a lot of our clients are C corporations that are taxed at 15%, or used to be. So that is actually a tax increase. But they want it to…they wanted to help businesses and so, well, you helped corporations, those big corporations with this 21% flat tax, but most businesses in America are pass-through entities or S corporations. They’re sole proprietors, their LLCs taxed as S corporations or sole proprietorships, or they’re partnerships. These are all pass-through and you report taxes on your personal tax return. So, what are you going to do to help them? So they gave us this 20% pass-through deduction. There’s a few hoops to jump through, but for the most part, whatever your profit from your business, whether it be land flipping, house flipping, own a pizza parlor, whatever your business is, so long as it’s a sole proprietorship or a an S corporation or a partnership that passes through to your return, your own personal tax return, take the profit, all the other deductions, do all the work, the depreciation, all that stuff. Look at your profit, then subtract 20%. So in other words, if you had $100,000 profit from your company, you’re only going to pay taxes on $80,000.
Jack: And that’s good.
Warren: So that turned out to be really huge for people. There’s some income limitations. If your income is too high, they start to take away that 20% and then they replace it with some other things. So, again, that was tax simplification. But that 20% is out there and we saw that one…that has made one of the biggest differences for most people’s businesses that we’ve seen. So that’s what…we’re really excited about that. There’s not a whole lot… I mean, I wish I could take credit for this, but there’s not a whole lot that we do that, you know, in our strategizing that makes it work. It just happens unless people are at higher income rates and then we have to strategize so they can take advantage of it.
Jack: In your business you’re dealing with a lot of people are very successful. And so, there is some more strategy necessary anyway, which makes it even more important to pick a good accountant. Some of these beginning, they’re probably still qualify for the full 20%. So, that’s really exciting. Now, personally because as many people now as, we not only do land flips, but we also started buying apartment complexes. I’m personally very excited about the bonus depreciation rules that allow you now, if I’m correct to depreciate, to do… And if you do a cost segregation study, then it allows you to depreciate all the pieces that usually would depreciate over 5, 10 or 15 years, right away in year one of owning it. And that obviously can make a huge impact on taxation. Can you talk about that a little bit?
Warren: Sure. And so, most of you assume understand the whole concept of depreciation. And basically the idea is to…if you have a asset that’s going to last you many years, they want you to be able to spread the cost of that house asset over the life, the expected lifetime of it, to make it somewhat fair, right? You know, you buy a rental house for $200,000 and you’re going to rent it out for the next 10 years. You should spread out that $200,000 over that time period, just to match the income. At least that’s the thought behind it. So, a few years ago, several years ago, they came up with this idea of bonus depreciation, where they let you write off 50% of the cost if you buy something that would have a useful life of 15 years or less. But it also had to be brand new. And this worked in real estate if you were buying new construction or doing rehab or something like that and you were putting in new stuff, we could write off [crosstalk 00:28:07].
Jack: Stuff like that.
Warren: Refrigerators, new cabinets, new windows, you know, things like…things such as this. And it also works in other businesses. So we like to talk about it with real estate. Any kind of business that has things that they would depreciate works for it too. So, my…you know, your pizza parlor, that… I must be hungry. That works for that too. But it had to be brand new. And the reason they created this rule was they were trying to stimulate the economy because remember up until a few years ago, we were kind of chugging along when we had 9/11 and then this thing came right after that. So they’re looking for things to stimulate the economy. And so, they created this for people to buy expensive stuff and help them do it. Well, with the new tax cut, they came or the new tax law, they came in and said, “We’re going to change those bonus depreciation rules.” First of off, instead of only being able to deduct 50%, you’re not going to be able to deduct 100%, and we’re going to take away the requirement that it be new.”
So, even if you buy used stuff… And the used thing doesn’t really come into play for many people other than us real estate guys. When you’re doing…now you don’t have to buy new construction. You can buy an existing place. And so, when you buy, let’s say, a residential property, whether it be an apartment complex or a single family home or even a little condo unit, those are all residential first of all, and this where people get confused. So, residential real estate for tax purposes, and this isn’t a bank or anybody else, but for tax purposes it’s residential if people live there, if they don’t live there, then it’s commercial. So, by even that definition, a 100 unit apartment complex is still considered residential for tax rolls. So, normally a residential property, we depreciate it over 27 and a half years. So, you take the purchase price, you break out a little something for the land because even the government’s not crazy enough to let us depreciate land, but take the purchase price, breakout something from land, divide that by 27 and a half and that’s how much you’d get to deduct every year, as long as it’s been 12 months. So every 12 months you get to deduct that amount.
But when you buy a property, a building, you really buy more than just the building itself, the building is what we get to depreciate over 27 and a half years. But there’s also personal property inside that building. And that personal property, we can depreciate if it’s inside a rental over just five years. And so what’s personal property? Personal property is basically defined as anything you can remove without causing damage. So it’s going to be things like kitchen appliances, like you said, Jack, and cabinets and countertops and ceiling fans and window treatments and shelving, and sometimes the flooring, all of these kinds of things. Even though you might watch some of those rehab shows on TV…I know my wife loves her HGTV stuff, and when they take out the cabinets and the countertops and all that, they take a sledge hammer and destroy them, you don’t have to do that. The IRS…at least the IRS thinks you can just remove them without damaging them. So they are considered personal property. We can depreciate those over five years, which means they qualify for bonus depreciation. Also, those things on the outside of your building, there’s going to be driveways and sidewalks, irrigation and landscaping, walls, fences, pretty much everything that you’ve done to the outside, those are considered land improvements, and land improvements can be depreciated over 15 years. So that still qualifies for the bonus depreciation. So, you could… And bonus depreciation is an election, you could choose to do it or choose not to. And some people for some reasons decide they’d rather have 5 and 15 year depreciation than taking it all at once and that, just part of strategizing. But, yeah, that’s…
Jack: So, the beauty of that is that now with the new tax law, if you buy a property, an improved property in like December or 31st of a year, you can literally still do the…use all the depreciation in that year. Now, that’s extremely important for particularly high-income earning people, because high-income earning people can now either become a partner in such an investment. They invest some money, perhaps become a partner in one of these apartment complexes, in these investments, and then get a good part of that depreciation. Or they can find their own deal and buy them themselves or even a passive investor. So like in our deals, our investors also get a portion of that depreciation. So, literally right now we bought a property on December 19th, 2018, and we did the cost segregation study, which is a study where they actually go through and an independent company goes and catalogs basically what is all there and what is the value of that.
So, they break out piece of the part of the land, they catalog, what’s the problem, what’s the rest of it, how much of that is that 5 and 15 year kind of property. And then they give you a report and there, if the IRS ever comes and says, “No, no, we challenged it,” they’re helping you defend that against that because it wasn’t me coming up with some crazy numbers. It was them as an independent party. You pay him a little bit money, but it’s not even that expensive to do that and all of a sudden you get a bit very big depreciation. So all our investors that invested with us, right at the beginning on that deal, they’re getting a very good depreciation right from the get-go that literally will wipe out their income on the property for a really several years. They can even… When they don’t use one year. You understand that you can roll over to the other years, right?
Warren: Right. And that’s what is… And we won’t get into all that because it starts getting complicated in all the passive loss rules likes, not here, but in theory, the way depreciation works, and I use this example a lot with a lot of people. I’ll say, let’s say you had a property that cash flows positive cash flow, $5,000 a year, just to make up a number. And let’s say the depreciation is $8,000 a year. That means for tax purposes, you have a $3,000 loss even though you put $5,000 in your bank. Now, whether or not you can use that extra $3,000 loss is going to depend on a few things. And so, some people look at it and say…well if they don’t qualify to be able to use that $3,000 loss, they look at this whole thing is negative. So, but you’re forgetting that you put $5,000 in the bank that you’re not going to pay taxes on.
Jack: All right. And the other part is couldn’t you use the $3,000 and apply into next year?
Warren: Right, the $3,000, we’ll look and see if we can use it next year. It rolls forward indefinitely until, and here’s the key point, until you sell the property. When the property sells, that loss that’s been accumulating, if you haven’t been able to use it, frees up that year and you could use it that year. So it’s just a matter of timing. It’s not necessarily… It’s not if, it’s when.
Jack: And I love that, I mean, this is exactly the kind of thing that you want to discuss with your CPA as your complexity of your business grows. If you’re a beginning investor…and we’ll wrap up right now, but if you’re a beginning investor that just basically has like done a few flips, well, there’s ways that you can even save some taxes through certain structures, save some of the self employment tax and things like that, but you got to have the right structure in place then. Having said that, I always have a second saying that Michelle and I always say, and that is, “Faster is better than perfect.” So, I always…we always have favor of like, we get that question all day long and perhaps you can chime in on that. Like if somebody says, “Well, do I set up my structure first or do I wait until this is all set up before I start getting my first deal?,” what do you tell them?
Warren: Yes. Yeah, get… Would I… Yeah, you should get the structure set up, but it should be a structure that grows with you. You know, a lot of people that I know… Jack, you were very generous and are very transparent and you share with people your structure of how you’ve done set up the business. Doesn’t mean you need Jack’s structure day one. Jack, as you can tell, has done a few probably more transactions than someone who’s just starting. So, you’re going to grow, you’re going to be back some day, but you’re not going to start there. So yes, we’ll get the entity set up. But what I don’t want to have happen is you teach…is people to use that as an excuse not to start.
Warren: So there’s people who… I had a mentor who used to say, you know, “People plan to plan, to plan, to plan, and they never do it.”
Jack: Exactly right. So that’s why I was like, “Faster is better than perfect.” Just get started. And when you see the first deal is starting to happen, go set up the stuff. Setting up a legal entity structure doesn’t take forever. So, literally by the time that you have a deal under contract, be it by the time you sell it, by the time you have your first profit, you can have that set up. You can do it ideally parallel while you get started and so on. But the most important thing is consult with a good CPA because as soon as you’ll be doing more things, there’s so many different things that you can think of or that your CPA, if it’s a good one, like, can think of to optimize your structure and to add additional pieces to it that will allow you to keep your tax rates legally, 100% legally and 100% above board. We’re not doing anything shady here. You can keep your tax rate way below what most other people do it.
Like we have brought on one person a year ago that had a W2 job where he made very good income for many years. And he couldn’t believe the different options that are not available to him as a W2 income owner that are now available to him as a self-employed person, because we basically groomed him and taught him how to get his own apartment complexes and stuff like that. So, he literally is like a lot of his tax liabilities…he’s making the same money, but he’s paying like a fraction of the taxes he made before and it’s just like mind blowing. I spent a lot of time during that year reminding him. He’s like, “No, no, no, you no longer pay 50% taxes if you take state and federal analysis together. You’re no longer taking 45% taxes. You are now in the 20% range or something like that.” And he’s like, first he wouldn’t get it. But then over time he understood that very quickly. I mean, he would get it, of course intellectually, but deep inside it took a while for him to really internalize this. He was like, “Oh my God, Oh my God. For years I’ve been basically paying through my nose when there’s so many different ways.”
Warren: We see that a lot…when people are coming and they’re like, calm straddling. So they’re still working their W2 job and they’re running their land business. So, I’ll use that as the example. But so, and people always say, you know, “Your goal I assume is to leave your W2 job.” And they’re like, “Yeah, yeah, yeah, yeah. But I got to wait till I replace my income.” I was like, “Well, if you’re making, let’s say, a $100,000 in your W2 job, that doesn’t mean you’re a land business has to generate $100,000 for you to leave it. It’s going to be quite a bit less than that. And when we work those numbers it’s really fun to see how close people are when they think they’re like three years away from ever being able to quit their job and they look and they’re like, “Oh, I’m one more good deal away from quitting my job.” It’s amazing when you look at the after-tax numbers.
Jack: Wonderful. And obviously you are the CPA and have a lot of our accounting for a lot of our land students. And I always love when you tell me that what your staff tells you about our land students, and is it…are allowed to repeat that?
Warren: Well, basically, I guess this will sound a little patronizing, but it’s true. It’s like…and we’ve worked with…and this will probably get me in trouble, Jack. But, so we’ve worked with other people that do some real estate training as well, a few. And we’ve seen them come from even ones that we don’t officially work with, they still find us and they come to us and yeah, no, what they tell me is…So Jack’s is the only one that has successful people, really. I mean, I don’t know, probably “only one” is a little exaggeration, but the land business as Jack teaches it, works. Some of these others, yeah, they spend a lot of money but the results…
Jack: And then there’s nothing against the people that teach this. The facts are in the house-flipping world, there’s a load of competition, and I don’t want to use bad words here, but you know what kind of a lot, it starts with an S. A lot of competition out there. So, even go-getters out there are struggling. We had to…we had a few weeks ago…we had our live event in Tampa, Florida, and there was front row. There was a guy sitting that had spent $15,000 in marketing for a house deal. He had paid for the indication, for everything. Spent $15,000 in marketing for a house deal and he got zero for this. Now he went to…came over to us, he got our course and he spent a fraction on that. He spent something like five, well let’s say that $5,000 or less, $3,000 or so, and I think he said something like $6,000, $6,000 letters, it cost like $3,500.
So he spent $3,500, plus, minus, on letters. And he walked away within four…within 90 days he had 40, four zero, deals under contract. And that’s just the difference. So it’s not him dinging other people, it’s just that teaching the house flipping world, really 1 out of 100 students are going to be successful. In our land flipping world, I mean, the success rate is off the charts, like in our mentoring, 90% plus of our students have success, and the other 10 that don’t have success is because they don’t do what we tell them no matter how hard we tell them what to do. And, but it’s literally…it’s like off the charts how successful it is. So it’s the method more than…it’s not the people. I think the people you work with, if I know them, they’re good, honest people.
Warren: Oh, yeah. No, they’re not [inaudible 00:42:50].
Jack: It’s just the technique behind the scenes. . If it doesn’t work well, it doesn’t work well. If it’s hard, if there’s a bunch of competition with thousands of people working in it, it’s hard to get a deal. But I love what you said because that’s where the staff comes to you tell you is like, “What’s going on? Jack’s people are all successful.” So it didn’t come from me, it came from Warren. And so…
Warren: And it didn’t even come from me. That came from my staff behind me, just through their casual observation.
Jack: So, that’s…I love that. So with that, thank you very much. Warren, just a couple of quick questions and we wrap it up. Question number one. It’s almost like a quick fire round of questions. What is your favorite book right now that you’re reading or that you read already? What’s your favorite book of all times?
Warren: My favorite book of all time because it changed my whole life and it has nothing to do with business, and my wife will tell you, Tim Ferriss’…not “Four Hour Work Week,” which was an awesome book, but his book, “The Four Hour Body,” it started me on a whole health kick. I don’t follow what he teaches in that book anymore because it’s a starting place. But, yeah, since reading that book, I’ve lost 80 pounds. It hasn’t been overnight, but my whole life has changed from that. My wife will tell you I have a man crush on Tim Ferris, but, anyway, that book would have to be it.
Jack: That works. Eighty pounds. Congratulations. That’s no easy feat. Secondly, what book are you reading right now that you’ll enjoy?
Warren: What book right now? Right now I’m reading “The Tax Code.” So, we’ve spent the last three, five…there’s just so much new material on the tax law and just, yeah, not been having fun. I’ve just been [inaudible 00:44:30] actually that is…
Jack: Sometimes if it’s tax season, it was just right now, you got to put books on the side and do what you need to do for the benefit of your clients, right? So, what’s your favorite app on your phone?
Warren: My favorite app on my phone? Goes along with the books, is…right now it’s Audible. I love my Audible.
Jack: Audible, I’m right there with you. And every time when I drove off, drop off my daughter in school, which is like half an hour drive because she goes in downtown Phoenix. It’s one of the best schools in town, I drive back home. I turn immediately, the moment I get back in the car, after dropping off I turn on Audible and I use that time as an educational time. Favorite vacation spots for you?
Warren: Favorite vacation spot? Well, as long as it’s warm, and sand is involved… Our last vacation we took a walk with some really good friends and it was just such a blast, so it was very short, but we were in the Dominican Republic and that was just…
Jack: Awesome, very good. Sand and sun. That’s good. There’s a…this gives you some options. Do you have any hobbies other than tax code reading?
Warren: Yeah. I love…I’m an avid hiker. I love hiking, that’s where sort of…I use my Audible so much as, you know, I know you’re supposed to be out enjoying nature and listening, but after a while especially if there are some monotonous parts of the long trail that’s where my Audible comes into place. But that’s kind of my personal meditation time when I’m just walking in the mountains locally. That’s… You know, some people see a chant or whatever you do for meditation. Me, it’s just walk up into my mountain.
Jack: That’s beautiful. And you live right next to one. So, with that, we’re done. Now, Warren, people are probably going to be interested in how do they get a hold of you and you might not be able to read what’s on your cap. Tell us, how do people find you? How do they get in contact with you? Both social media and perhaps off social media.
Warren: tacpas.com is our website. You can go to our website. I like our Facebook page. It’s Taryle Accounting’s Facebook page, tacpas. I don’t know how you do Facebook slash, whatever. I could…I can send that to you guys and if you wanna…if you have program notes, wherever, you can put it there, but…
Jack: Yeah, we’ll put it in the show notes. We’ll put them underneath there so you guys can have access to that.
Warren: Yeah, come to that. Please, please come like my Facebook page. We try to do…we do some live…we do Facebook live and try to not make it boring. It’s not all tax. Sometimes just me or anyone.
Jack: And Warren is actually a very funny guy. So we’re really good friends and obviously he’s an excellent tax expert. So, wonderful. So, Facebook… Again, was it Taryle Accounting? And Taryle is spelled T-A-R-Y-L-E. So make sure you have that T-A-R, but we put the links below there into the show notes on iTunes, into their description on YouTube. So with that, thank you very much, Warren. That was a great session and you guys see the importance of having a good partner, a good teammate on your team. You can’t run business alone. You run business alone… And even like highly successful people sometimes use the wrong tax accounting firm. So make sure you surround yourself with a team that is good, that includes a very good and creative and smart CPA. And with that, thank you very much, Warren.
Warren: Thanks Jack. Look forward to seeing you soon.
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