JF1051: Better Tax Strategies = Better Retirement!! With Travis Jennings
WOW!! This guy knows his taxes! Travis is all about saving his clients money in every LEGAL way possible, and he’s not even a CPA! He has built a company and is surrounded by smart CPA’s so that he doesn’t have to be one. So many golden nuggets in this episode, whether planning for retirement or just wanting to save money, every investor should be listening to this episode right now! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Travis Jennings Real Estate Background:
-Creator & President of Finance Concierge and Profit Experts (Finance CAPE)
-Over decade educating the wealthy on better techniques improve finances, investments, and taxes
-Has created an automated online platform with the ability to share the solutions used by the top 1 percent
-Served in the United States Air Force
-Based in Wesley Chapel, FL
-Say hi to him at financecape.com
-Best Ever Book: The Alchemist
Click here for a summary of Travis’s Best Ever advice: Three Tax Strategies You Didn’t Know About to Save You Thousands
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Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any fluff. With us today, Travis Jennings. How are you doing, Travis?
Travis Jennings: I’m good, how are you doing?
Joe Fairless: I’m doing well, nice to have you on the show. A little bit about Travis – he is the creator and president of Finance Concierge and Profit Experts, otherwise known as Finance Cape. He has served in the U.S. Air Force, so that you for your service, sir. He has also created an automated online platform with the ability to share the solutions used by the top 1%. You can say hi to him at his company’s website, which is in the show notes page. With that being said, Travis, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Travis Jennings: Sure. I basically jumped in the Air Force, I thought I wanted to do computer programming, I realized that wasn’t very much fun; I found economics through college, I realized that money interested me quite a bit, and I’ve been doing financial planning for about a decade now, specializing in pretty much everything but the basics, so taxes and all the other fun stuff.
Joe Fairless: Let’s talk about your focus. How do you currently make money?
Travis Jennings: Basically, when you get into investing in the markets and just investing in general, there’s a lot of people around that have a lot of really good advice, right? You can go to stock brokers, investment advisors, insurance people and all that stuff. That well of knowledge doesn’t go all that deep, so what I’ve decided to do is I thought “You know, probably the world could use the same education that we sell to the wealthy, and we’ve just gotta find a way to give it to them.”
I spent my time developing systems geared towards things that are more measurable, specifically taxes. If I could save money on taxes to help the transactions work, then we have measured success. So short answer would be typically taxes, and everything other than investing.
Joe Fairless: And you own a CPA practice, correct?
Travis Jennings: Yeah, so we have, in my opinion – and this is directed directly at you and all of your listeners… When was the last time that your accountant brought you an idea that saved you thousands of dollars in taxes? Doesn’t it feel like that’s more of a foreign concept, even though we lean on them as our tax experts?
Joe Fairless: Absolutely.
Travis Jennings: So for me, I saw that as a problem, and yes, I am in the process of building out a network of accountants that provide more proactive, holistic solutions.
Joe Fairless: And you’re not a CPA yourself, so how are you able to build that out and be able to talk the talk without actually being a CPA?
Travis Jennings: Well, because I have a lot of really smart CPAs around me, and the cool thing about CPAs in the industry as a whole is that it isn’t quite what everybody thinks it is. If I was a CPA, then I would have to pass a big ol’ test, and the book that we study to pass that test is 1,700 pages long. It teaches you all about regulation and auditing and how to work with the client and how to file a tax return. How many pages in that book, that was created through the guidance of the IRS do you think are dedicated specifically to helping investing like your listeners reduce their tax bill?
Joe Fairless: Zero.
Travis Jennings: There’s one.
Joe Fairless: Oh, I missed it! What does it say?
Travis Jennings: It talks about shifting, so kind of like how you put money into an IRA; you’re moving it from one side to the other and getting some advantages. That’s called shifting. So out of 1,700 pages, there’s only one that really talks about reducing someone’s tax bill. It’s no wonder our accountants typically don’t provide that service, because where did they learn it?
Joe Fairless: Right.
Travis Jennings: So that industry as a whole intrigues me, because all of us look at our accountant professional and we go “Yeah, they’re our guy. They’re the one that’s gonna help us with taxes”, but it sure feels like when I give them my W-2s from last year, it kind of feels like they’re just recording it onto a 1040 and then filing it with the IRS, almost like a historian would, right? So in my opinion, I wanted to start to provide for everybody, not just my local clients. I think that everyone should have access to the best solutions that drop their tax bill, even if their accountant hasn’t taken the time to learn them. So that’s kind of the stuff that we offer for people.
Joe Fairless: Well, you have piqued my curiosity, my friend. What are some ways that we can implement right now that will drop our tax bill, as real estate investors?
Travis Jennings: As real estate investors I would assume – and please correct me, I don’t wanna go down this big tangent if I’m wrong – that most real estate investors probably have set up an LLC of some sort, right?
Joe Fairless: Yup.
Travis Jennings: Okay, so then at that point, by definition, you’re now a business owner. Congratulations! As a business owner, there are so many different ways to drop your tax bill. One example – I know that most of the listeners have heard of “Okay, you can deduct square footage at your house, as a home office”, and that’s normal. But what most people don’t know is that you can literally rent your house – the entire house – for events for your business.
For example, let’s say that I threw a pool party and I invited a friend of mine that was potentially going to become a client. Well, as long as we discuss business and we take notes, I get to rent my home to my business for that day.
We all have heard of Zillow, I assume, if we’re talking about real estate, right? That’s a pretty popular one. So if we go to Zillow, we can literally look up what our house would rent for. If our house rented for (let’s just say) $3,000 and there’s 30 days in a month, well that means that we can rent our house to our business for $100 a day. If we did that 14 times in a year, we would have just saved $1,400, right? That’s an easy one, why isn’t everybody doing that?
Joe Fairless: I don’t know, I like that idea.
Travis Jennings: Yeah, and then having a good time at our house with a friend.
Joe Fairless: Yeah, I’m hosting a poker game at my house, not this Friday but next Friday, with some people locally, and they’re all real estate investors. Would that qualify?
Travis Jennings: Absolutely, but there’s some structure to that. You wanna take notes, you wanna have minutes… You kind of wanna briefly write down what you discussed that was business, and just in case one day you ever get audited, you’ll have some proof as to what you did. But yeah, it’s absolutely above board and within the code of the IRS. I’ve got much more if you want to…
Joe Fairless: Yeah, keep on hitting us.
Travis Jennings: So I personally have three children and I do pretty well financially. The youngest of my kids is seven, and I’ve got a 16-year-old (wow!)…
Joe Fairless: You’re gonna put your youngest to work, aren’t you?
Travis Jennings: I’m gonna put all three of them to work at the home office, right? Once they turn seven, we’re allowed to hire them. You may have heard this, but I’m gonna give you a twist that’s even more fun. So what if we hired our kids at the 0% tax rate? What if we paid them $6,300 a year? Well, then effectively what we would be doing is shifting dollars off of my tax return and putting it onto their tax return. And if we’re paying them just enough to be in the 0% tax rate, if I’m in the 40% tax rate, I’ve just saved myself 40%. So on 3 kids at $6,300 a piece, I’ve just saved myself about $8,000 in taxes. It’s a big deal.
Then we take that one step further – don’t the kids now have working income? And when somebody has working income, they’re allowed to contribute to their retirement. With the Roth IRA, we pay the taxes today, so that in the future we don’t have to pay the taxes in the future. But if they’re in the 0% tax rate, doesn’t that mean they don’t pay taxes on the front and they don’t pay taxes on the back?
Joe Fairless: Makes sense.
Travis Jennings: Why wouldn’t everybody do that?
Joe Fairless: You lost me.
Travis Jennings: Well, why wouldn’t everybody do that? They just don’t know. So then the question is why aren’t our current accounting professionals sharing that kind of stuff with us?
Joe Fairless: Sorry, I’m a little dense… Will you succinctly say that last point?
Travis Jennings: Okay, well if I have three kids and I pay each one $6,300, that would be almost $19,000. If I save 40% in taxes, I’ve effectively saved like 8k. If they then turn around and put that money into their own Roth IRAs, then they’re not paying taxes on the front side or the back side.
Joe Fairless: Oh, got it.
Travis Jennings: The question then becomes “Why don’t we all know about this?” Why aren’t our accounting professionals sharing this? I would say that’s probably because they’re busy. I don’t know any accountants that have a ton of free time, so where are they supposed to go learn? They’re supposed to shut their business down and travel the country to go learn this stuff?
Joe Fairless: Got it! Okay, what’s another one? You’re nailing us with some good stuff.
Travis Jennings: This is the best one, and I was saving it for the uppercut, right? [laughter] This is the real estate investing best advice that I could give you, and this is specifically speaking to people who own their own commercial real estate, their own building. Whether it’s their own or it’s an investment, if you own commercial real estate, how do you depreciate that building?
Most accountants do not have teams of engineers sitting on staff, would you agree with that?
Joe Fairless: Yup.
Travis Jennings: Okay, so I’m gonna explain to you a strategy and I do wanna point out that it requires a team of engineers to actually do the work. So if you’re unsure if your accountant is doing this stuff, it’s very easy – do they have engineers on staff? If the answer is no, you’re not doing this.
Okay, so let’s just pretend – and I’m gonna make the numbers inflated and huge, because it’s easy to understand, and then we’ll dial it down to reality. Let’s pretend that you and I were buying a commercial building for 39 million dollars. Huge number, but 39 is very important. The way that it works is we would depreciate that building one year, one million dollars, because the way that it works is we take the value of the building and we divide it by 39, and that’s what we’re allowed to deduct every year. Well, how many of your investors probably keep a building for 39 years? Not many, right? So then we’re missing out on a substantial portion of the depreciation. Wouldn’t it be great? Because in common sense world our buildings don’t depreciate evenly, one-thirty-ninth per year, right? The drywall may wear out prior to the tile floors wearing out, prior to the carpet. So there’s all these different systems in the building.
What I would recommend – talk to your accountant specifically with regards to that process called “cost segregation.” Cost segregation – we hire engineers that go into your building, they break apart every system in that building to assign it with how long it will actually take to depreciate. What happens is that 39 years’ worth of depreciation gets pushed up to the first five or ten years… So then your deductions for the first 5-10 years are massive. We’re talking about out of 39 years worth of depreciation getting maybe 75% in the first five years.
So for anyone that has commercial real estate and has not ever heard about cost segregation, give me a call, or just jump on Google and type in “what is cost segregation and what value does it provide.”
Joe Fairless: And you can also go to episode 750, where we talked to someone who focuses on cost segregation. So episode 750, titled “Why you are losing money not understanding cost segregation.” I love that.
Alright, so we’ve got a lot of great tips, a couple of them I’ve never heard of… The renting your house thing I had never heard of, that’s for sure, and it’s good to have a refresher on others.
Based on your experience, what is your best advice ever for real estate investors?
Travis Jennings: You live on what you live on… So we have our expenses, and we need our income to pay our expenses. Everything else above the money that we use every year is voluntary to pay those taxes; there are strategies to cover up almost all of those dollars, no matter how much extra money you’ve made… So I would say if you’re paying your taxes above and beyond what you’re living on, you need to get a second opinion on what your options are with regards to your tax bill.
Joe Fairless: That’s a bold statement, obviously… You know that. So all of your clients – do they pay zero in taxes at the end of the year?
Travis Jennings: No, because if they live on $200,000, you have to receive 200k to live on that, right? So then we can come up with deductions to minimize that. Say somebody made 1.2 million dollars and they’re living on 200k – you’re gonna pay the taxes on the 200k. But if you get a true tax reduction blueprint and you actually go in and refine it out, you should be able to defer that other million, whether you’re putting it into real estate through like a 1031 exchange, whether you’re using cash balance plans… There’s a ton of different options. People that pay taxes above and beyond – it doesn’t have to be that way.
Joe Fairless: What’s a cash balance plan?
Travis Jennings: A cash balance plan would be — let’s say that I’m an attorney and let’s say that I’m living on my little cases. People come in, little fender benders and stuff, and then one day I get this massive personal injury claim and it pays me like a million bucks. Well, my taxes are structured on the mom and pop small deals; maybe I live on $200,000, so when I get this huge million dollar influx, wouldn’t it be great if I could kind of shove all million dollars into an IRA all at once? Then you wouldn’t have to pay taxes on any of it.
Cash balance plan is the way that I identify with that type of planning, because yeah, you could shove it all into a retirement plan and then worry about the taxes later, or start to implement solutions to reduce that tax plan for later. Essentially, you would save yourself like 400k in that example.
Joe Fairless: What’s a mistake you’ve seen real estate investors make prior to coming to you?
Travis Jennings: Lack of knowledge; we’re in the age of information, man. You are fantastic – you’re providing people with education, you’re teaching them, you’re bringing on experts… It’s not that difficult to go and find education. I would say the biggest thing is just being great real estate and not really looking for other ways to grow your knowledge base.
Joe Fairless: Let’s talk tactically speaking… What’s a typical real estate investor not doing from a tax planning or saving standpoint?
Travis Jennings: Well, I would say that most investors – real estate included – don’t start off with the ten million dollar projects, right? They build up to it. So then the accounting professional or your tax advisor is typically the advisor that you had in the beginning. I would say that most people don’t grow or they don’t reevaluate their trusted advisors enough; they just roll with what they’re comfortable with.
The person who specializes in the new commercial real estate developer and the person who specializes in the mature – they have two different skillsets.
Joe Fairless: I actually have a meeting with my accountant tomorrow, and I’m about to ask you this question because I’m gonna ask him the questions that you say… So what questions should I ask my accountant when I meet with him tomorrow to see if he’s doing what he should be doing?
Travis Jennings: Are you gonna get your tax bill tomorrow, or is it just a drop-off meeting?
Joe Fairless: It’s just a drop-off; I have a monthly meeting with him.
Travis Jennings: Okay. I would just say “Can you tell me about one of the solutions in the last month or so that you implemented with a different client to save them a bunch of money in taxes?” If they stutter, if they seem unsure how to answer it, then they’re probably not doing a lot of proactive tax planning. Does that logically make sense?
Joe Fairless: Yup.
Travis Jennings: So that would be the way that I would approach that situation. And if they do stutter, what is the downside to just getting a second opinion?
Joe Fairless: Well, one challenge – or I don’t know if it’s a challenge; it’s just the reality – for my business, and I mentioned my business because there are some Best Ever listeners who are in a similar situation where I have a bookkeeper… So you have a bookkeeper who’s also an accountant, they’re filing taxes and keeping the books; if you get a second opinion, does that second opinion also have a bookkeeper involved, so everything would have to be then transferred over again? Or is it just more of a strategic consultation? Basically, I’m asking your business model and how you work with people.
Travis Jennings: I would say if we relate it to something with real estate, because that’s the common theme here, say I was gonna go build a custom home; it’s the house of my dreams, I’ve always wanted it, I’m gonna make it exactly what I want it to be. Would you recommend that I go to see an architect first, or go to see [unintelligible [00:18:54].02]?
Joe Fairless: I’d say you go check out some homes.
Travis Jennings: Yeah, go check out some homes. But when it’s time to put the dream home in my head on paper, I wouldn’t typically do that with the builder. I would go to see an architect, and the architect would work with me to customize the plans to make it exactly what I want. I would say that if your accounting professional isn’t building out a tax blueprint, a foundation, a plan, and if you haven’t ever seen a written plan for how we are attacking the taxes, he’s probably just being reactionary. He’s probably just responding as you bring in data.
If I went directly to a home builder, that home builder probably has 4, 5, 6 plans that they use frequently, and they offer adjustments. If I want truly custom solutions, then I would have to go to a specialist. So what I would say is if you have an accountant that you really like, you don’t have to leave him; you just might need to integrate a specialist who designs custom tax reduction blueprints, and those people exist all around the country.
Joe Fairless: Got it. How much does it cost for that, for your form?
Travis Jennings: Well, with ours what we do is if we could save you $10,000, we give you a bill for $5,000. If we can save you $20,000, we’ll give you a bill for half of that, so $10,000. The most we’ll ever charge is 10k; most of the time it’s between 2k and 10k, and our fee is always half of the savings.
Joe Fairless: Up to 10k.
Travis Jennings: Up to 10k, and that’s a one-time fee, so next year you have the blueprint and you can have it adjusted. You don’t have to repay that fee, it’s a one-time deal.
Joe Fairless: And I imagine if you can’t save any, then it’s just no cost and you’ll be on your way.
Travis Jennings: Yeah, it’s actually pretty neat… We used to do — let’s just pretend if it was you, and I ran through your analysis and it was determined that I could save you $10,000 and I charged you five. And let’s say that after doing all of the hard work, it only came back to where I could save you $8,000. Well, that isn’t fair, because you paid five, so we would refund $1,000. We’ve gotten thins thing so dialed in that what we’re doing now is if we don’t get you at least what we promised you, then the whole thing is free.
Joe Fairless: Sounds like a good deal. Travis, are you ready for the Best Ever Lightning Round?
Travis Jennings: Let’s do it!
Joe Fairless: Alright. First, a quick word from our Best Ever partners.
Joe Fairless: Best ever book you’ve read?
Travis Jennings: The Alchemist.
Joe Fairless: What’s the best ever way you like to give back?
Travis Jennings: Knowledge, teaching, education.
Joe Fairless: What’s a mistake you’ve made on a business deal?
Travis Jennings: Marketing… 100% of the time it’s typically marketing.
Joe Fairless: What do you mean by that?
Travis Jennings: I fall for a lot of the marketing gimmicks… I don’t know. To me, marketing is legal gambling, but you kind of have to go through it to figure out what works. I would say that I have failed on a lot of marketing ideas.
Joe Fairless: What’s something that you’ve learned from one of those where you would implement or approach differently next time?
Travis Jennings: Every single time I learned something, right? once upon a time I built out an online portal that would push people through a sequence of videos. Well, I thought if I built out the entire funnel all at once, then I would be able to put someone in the front end and they would come out the back end. What I learned through that is that rather than build the whole thing all at once, why not just start at step one, tune that to where it should be, and then go to step two, and step three… Progressively work through it, as opposed to building the whole thing. I wasted about $40,000 on that idea.
Joe Fairless: Where can the Best Ever listeners get in touch with you, Travis?
Travis Jennings: FinanceCape.com, or any of the social media sites. We put out financial hacks and tax hacks every couple days.
Joe Fairless: Nice. I think you just coined a new term accidentally…
Travis Jennings: Tax hacks?
Joe Fairless: Yeah. [laughter] Well, Travis, it’s been a pleasure talking to you, learning some ways to drop our tax bill as a business owner… One is to deduct the square footage for our house, two is to rent our entire house for events that we have where we discuss real estate or business, three is to hire our kiddos (should we have them) at a 0% tax rate; four is the commercial real estate cost segregation approach, and then you sprinkled in a couple others in there as well – I was taking notes as quickly as I could – and talking about the questions that you should ask your tax professional… “Can you tell me about one of the solutions that you implemented with a different client last month or so to save them a bunch of taxes?”
Thanks so much, Travis, for being on the show. I hope you have a best ever day, and we’ll talk to you soon.
Travis Jennings: You too, thanks bud!
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