Intelligent Investing - Year End Tax Planning with Bill Baker Part 2

 In this episode Bill Baker and Glenn Leest discuss year end tax planning for Small Business owner and Self Employed Individuals. 

• Why it is important to have a plan for your taxes come the end of the year
•  Why having your investment advisor and Tax Person on the same page or Team can benefit you 
• The most under utilized investment tool 
• The most under utilized tax benefit 
• What are the deadlines for tax benefit contributions?
• The concerns for the 87,000 new IRS agents

 Glenn Leest
  Senior Investment Adviser
  WT Wealth Management
 928-225-2474 Office
 813 North Beaver Street, Flagstaff, AZ
 86001
  
  
  Granite Mountain Accounting, LLC
  Bill Baker
  https://granitemtnaccounting.com/portfolio-item/bill-baker/
  https://granitemtnaccounting.com/contact/
  
  CONTACT
  Bill H. Baker, Jr.
  Enrolled Agent
  928-699-6096 – cell
  billbaker@granitemtnaccounting.com
  
  Arizona
  2717 N. Fourth Street, Suite 160
  (Dahl Professional Building)
  Flagstaff, AZ 86004
  928-699-6096 office
  
  
  New Mexico
  2990 N Main St., Suite 2D
  Las Cruces, NM 88001
  575-521-7700 office
  575-521-7702 fax 

Thanks for joining us on Intelligent Investing with Glenn Leest! Your go-to source for navigating the complex world of finance and becoming an intelligent investor. We appreciate your trust in us and your commitment to your own financial future.

Connect with Us:

Glenn Leest
Senior Investment Advisor
WT Wealth Management
Office Phone: (928) 225-2474 Office
Email: intelligentinvesting@wtwealthmanagement.com

Website: https://www.wtwealthmanagement.com/team/glenn-leest
Instagram: https://www.instagram.com/intelligentinvestingwithglenn/
Facebook: https://www.facebook.com/GlennLeestIntelligentInvesting/
YouTube: https://youtube.com/@IntelligentInvestingGlennLeest?si=d6S0y14lghz0eaHa


**Don't forget to subscribe, rate, and review our podcast on your favorite platform.
Your feedback helps us provide you with more valuable content.

We'll be back with more insights into intelligent investing and how it relates to your world.
Stay informed and make those smart financial choices.
Until next time, this is Intelligent Investing with Glenn Leest, helping you make your money work for you.
...

Transcript

All right, you're listening to Intelligent Investing with Glenn Leest. This is a two-part series, a second part here, uh, year end tax planning for business owners, and Glenn is here. Glenn's got Bill Baker. Who is with Granite Mountain Accounting Offices in Arizona, also in offices in New Mexico. Yep. Yep. Uh, granite mountain accounting.com.

Uh, he's an enrolled agent and I, maybe we should start with that because it came up last week. Yeah. Enrolled agent versus CPA. Yeah, they, um, one of the main differences is a CPA can certify financial statements, but you know, really that's only the main difference. Um, they both are accreditation's, both have taken tests and study for, but, um, yeah, they're, you know, an enrolled agent can almost do everything that a CPA can except for certify your profit and loss or your, you know, balance sheet, something like that.

And that, that probably only takes and comes into play as your business starts to get pretty, pretty big, you know, where you start to need. . Well, bill your niche is kind of dealing with a lot of small business owners. Mm-hmm. , um, which is the really still the backbone of our country. I believe it is the backbone.

Hopefully it'll hopefully continue to be. Yeah, yeah. Yeah. So, okay. Last week we covered strategic year-end tax planning for business owners. Um, why don't you remind us. Why this area? I guess, Glenn, we'll start with you. Why is this so important for people? Yeah, so, um, yeah, the holidays come up, seems like right around Thanksgiving is just like a blackout for the rest of the year.

Everyone's like, oh, the holidays, you know, like, I get it, like I've got kids and stuff's busy and dances and whatnot and recitals and parties. Um, but it. Doing some strategic planning now. Um, an ounce of prevention will give you, what is it, a pound of? Uh, what's the, how's that saying go? I don't know. Oh, yeah.

I, I'm blanking on that. I, I started tuning out after Thanksgiving, to be honest with you,. But a little bit of planning now will really pay dividends in the future. And there are some things that you need to implement, uh, if you want to before the year end. Some specific types of retirement. Have to have funding before the year end.

Certain purchases that the business does for capital investment or growing the business or renovating, investing in the company, whatever it may be, have to be done in the calendar year. So, you know, if you look at kind of your tentative profit and loss for the year and have an idea and going, wow, I'm going to have a huge tax bill.

Maybe this is a year that I do want to make that purchase to kind of offset so I can depreciate some assets, or whatever the case may be. Now is the time to start thinking about it, not. Of next year or September of next year. Because then you, you may have already missed your, your window of opportunity and the difference between being efficient with your taxes and inefficient as a business owner can make all the difference in the world.

It can make the difference from you being very profitable and you just being somewhat profitable if that makes sense. And it just came to me, uh, an ounce of prevention is worth a pound of cure. Yes. Well, it came to me via Google, but. If we, if we didn't have that to look everything up. Right. Uh, well Bill, and like I said, bill Baker is with us with Granite Mountain Accounting.

Uh, your profession collaborates with other professionals, such as investment advisors like Glenn here, Glenn Leest. Uh, talk about the teamwork. How does it benefit, um, everybody around? When you're working with a team of people like this, it primarily benefits the client. Uh, uh, it, it's, it's super, whenever we have a, a financial advisor, investment advisor, uh, check in and say, okay, uh, what's the, the tax situation looking like?

Should we be converting any, uh, traditional IRAs into Roth IRAs? Mm-hmm.  for this client? Should they, uh, uh, be making any contributions? Those are, those are super helpful in, in terms of reducing their taxes and, and taking really kind of more of a long-term look. Also, uh, uh, uh, bringing in attorneys from time to time, uh, are very helpful.

Businesses should have a relationship with an attorney. Before they need him, or her, uh, in relation to contracts and retainer. Mostly. Yeah. Well at least have a relationship with something going on, uh, relation to contracts and the employee, uh, matters. And then, uh, uh, as time goes on, estate matters. That's becoming more and more of a thing.

And and it's the, the, the pound of prevention. No. Which ounce of cure. Ounce of of prevention. , uh, it's coming to me again. Yeah. Ounce of prevention is worth a pound of cure, right? Worth a pound of cure. Yeah. And that probably in the legal world, it's maybe a ton of cure. Uh, really, uh, having a.  having that team around you.

Right. And interesting that we just picked up an estate planning, uh, division within our company. So now we have, uh, multiple different divisions. So, we're hoping to be a one-stop shop eventually where you can have that whole entire team approach. Cause we've already been working with CPAs for years and working with the state plannings for.

You know, estate planning attorneys for years and, you know, can we kind of start to synergize, you know, all into one roof. So, we're kind of hopefully moving towards that direction as a, as a firm too. And it's become so complex, it's hard to, especially a small business owner, you're not putting it in the, the Quicken and figuring this all out and getting it filed.

And each, each owner has a different, uh, objective that they want to reach, different situation they want to retire or be financially in. 30. You know, so that's different than the fellow who's saving up to give it all to his church. Mm-hmm., uh, later on in, in life. So yeah. Everybody's got different goals. Yeah.

Well, Glenn, what, what do you think's an under-utilized investing tool that can benefit business owners to re reduce their tax impact while being able to save, invest at the same time? Um, so, Most people have heard of a 401k. Mm-hmm. , but I don't think as many people have heard of a solo 401k or an individual 401k.

And that is a, uh, a tool that I've been using tremendously. So how it works is, um, you can't have any employees, so this would be perfect for a one person shop or a husband and wife combo. Um, and, and it basically has all the same benefits. Full 401k as horse contributions and deductions and all that. Um, but it's just focused on the owners only so you can really max out, um, both sides of it.

So, I'll kind of give you a painted scenario. So, uh, say you have a solo 401k, and you have two business owners and they're in their fifties and say the. Each pay themselves a $50,000 salary. So in that example, they would be able to contribute, uh, basically 27,000 as an employee contribution, and then another 12,500 as a profit sharing or employer contribution, which they're one and the same.

They own the business. So, in that circumstance, they're going to get 30. 39,500 worth of tax reduction on a $50,000 salary. And that's for each one. So, you can see sometimes maxing out these programs can have tremendous tax, uh, uh, you know, benefits Sure. If, if they need to really play catch up. And the nice thing with the solar 401k is there's no.

No funding requirements, you could fund it max one year and not fund it the next. Um, there's no cost to set them up. Whereas when you do a full 401k, you have to hire what's called a third-party administrator and they have to file taxes with the department or 5,500, uh, tax returns with IRS plus, you know, meet Department of Labor and ERISA requirements.

And so there's a little bit more cost to, you know, do a full 401k. Now there's still great plans, but that solo 401k, they don't have to, um, do the same requirements cause it's just. Owner only or owner and spouse, so. Okay. All right. And I bill similar question for you, I think here, uh, but I do want to preface that just what you said, Glenn, or, or really focus on everybody is very different.

The situations are different and can be very complex. Mm-hmm.. So, anything we talk about here, they're examples. Informational purpose information. Yeah. Because you really need to. You need to fine tune your individual situation, talk to a, a tax professional, uh, talk to financial planners, all that you have need to have the whole team that bill's been talking about for your individual situation.

But Bill, similar question. I guess, what's the underutilized tax benefit or program that you see for small business owners that they're overlooking? It, it is the deferred compensation element. That there are a lot of different types of plans. It's never too late to get it going. Uh, you can do it all at the end of the year.

You can do. Every week a little bit. You can do it, uh, monthly. The, uh, there are a bunch of different time deadlines that you got to consider. Uh, December 31st is the biggest one, but there's other deadlines and sometimes there are some programs that you could, uh, you don't realize till next year that uh, uh, you could.

Contribute to it. And, and there is a, uh, a type of program that you can actually do that, uh, when you actually file your return. So maybe let's break down what a deferred compensation program is for our listeners. Cause some of 'them may have heard of it, but they don't really know if you're the small business owner, you know how that, you know.

It affects them or how to implement it, that sort of thing. Yeah. So basically, what occurs is that you, uh, uh, are able to contribute money into this savings account. Let's call it a savings account, a retirement type savings account. That contribution creates a deduction, is what that does. So, you keep the money, but yet you de, you're reducing your taxable.

and, and, and you're going to have pay in the future though at some point it's deferred, right? Yeah. Yeah. It's deferred. That's why we call it deferred compensation. Yeah. But just make sure everyone knows it's. . Yeah. Never. So, so say you're a business owner and you have just an absolutely amazing year, um, you may say, hey, some of this compensation I want to defer for a later part.

Say you make 500,000, you're going to say, I'm going to defer a hundred thousand of it to, you know, kind of create this account down the road to pay me. Then, um, well, if I understand correctly that a hundred thousand dollars is actually a contribution from the employer, or is it an employee contribution? How does that work?

Well, it depends on the type of plan. Mm-hmm. , that's why. Generalized. Yeah, yeah, yeah. So it can vary, but the, the end, the end of it is it'll have a great taxable, uh, benefits to that individual in that tax year. Now they're going to have to pay taxes eventually down the road, but that'll be in a year where they're not making, you know, huge, amazing returned or, or, or growth or profits, and they're maybe in retirement and they're in a much lower tax bracket.

Yeah. So that's kind of the strategy. In the, they want their pound of flesh, though. Eventually even we're talking about pound of cure. Pound of flesh. Right, right, right. At some point, the, the basic tax strategy is always deferred income, accelerate deductions. Okay. That's it. Bottom line. And one, one more point on this.

Deadline's coming up. Obviously, December 31st is a big one for mm-hmm.  for a lot of stuff, correct? It is, yeah. Yes. , is there another, I mean, know, and then in April you have like funding deadlines, is that correct? Yeah. For, um, where, where you can contribute. Yeah. For like your traditional IRAs and step IRAs, you can fund all the way up till April 15th and or your, uh, tax filing, uh, deadline extension.

So Okay. If you file an extension, sometimes you, it depends on the situation. You may get a little bit more time to fund. Um, and then on the employer side, um, you have September 15th to fund any kind of profit sharing. So, in that 401K scenario, I gave. Employee contribution has to be done by December 31st of that calendar year.

But the employer contribution can be all the way up until September of the next year. Why? Because to calculate profit sharing, you have to end the year to go No. What? May know what it was. Okay. To give you a little bit of time to kind of do that component of as well, so, so you still got time.

Yeah, I was thinking September that we just passed. Okay. So that I, I would also give a plug for the folks here in Arizona, we, we have a number of Arizona tax credits that are. Unique to Arizona, and, uh, you, there's the school tax credit. Mm-hmm., there's the, uh, private tuition tax credit. There's the, um, uh, you can give to the working poor Well, what, what used to call it, say it's called.

Yeah. Yeah. They don't call it that anymore. It changed it, but, but that's correct. So, the, the food kitchen, uh, the, the Flagstaff Family Food Center. Yeah. Uh, I believe the Salvation Army. There's a number of, of charities that you can guide where the money goes. Yeah. And my understanding is well, well not guide where the money goes.

You, you don't. Well, versus sending it to the, the legislature. Correct. It can go to the school or to the soup kitchen or something like that. So, say, Thousand dollars tax bill and that particular, you know, charity. You can, you know, send $400, you'd write a check directly to that charity. They would get the $400 and your tax bill would now be $600 if I'm understanding it correctly.

Yeah. Just like that. So yeah, you get to, you get to decide where it goes, but you are the one that writes the check. . Lots of questions. Okay. If someone, someone wants to talk. With you, Glenn. Yeah. They should give you a call 9 2 8 2 2 5 24 74. Also email. Uh, Glenn’s happy to do a free no obligation consultation.

Absolutely. Anytime. Yeah. In intelligent investing, uh, at WT wealth managthement.com. That's intelligent investing@wtwealthmanagthement.com. All right. A lot more to come. Don't go anywhere. We'll be back in a few minutes.

You're listening to Intelligent Investing with. Leest. Give Glenn a call right now at (928) 225-2474. That's 9 2 8 2 2 5 24 74. More intelligent investing with Glenn Leest when we come back.

All right. Welcome back to Intelligent Investing with Glenn Lace. We're here with Bill Baker, who is an enrolled agent, and we're talking obviously year-end tax planning. We could probably do 18. We could do more shows in time. We had left in the year for when it comes to tax planning, Glenn, uh, let me ask you this, Glenn.

How has investing in your accounting and tax knowledge benefited you over the past few years? Uh, well once a, uh, first start on the personal side, uh, I, I kind of had to start learning how to do so many things because I was a business owner and I went from a sole proprietor to an LLC and that was just something I needed to do.

So, the big three financial documents that most businesses have to become proficient at doing is your profit and loss. Your balance sheet and your income statement, and they're not as scary as they look or, or see them. And once you kind of understand what each area is and how to calculate it and what not to do, you know, they become a little bit more feasible.

So, I, I do my, uh, profit and loss every quarter, sometimes every month, just to kind of keep a pulse. Cause then I can see what my potential tax liability might be before I even give Bill a call. I can kind of say, oh, here's kind of a basic idea. And, um, and, and get a, get a kind of handle on that. And then also from.

Standpoint of SBA and lending mm-hmm. , if you, if you're going to need those statements to submit to you, uh, small business administration or lender to potentially get, uh, corporate lending, which I'm actually in the process of looking at some options right now with the small business administration is I kind of gave 'them all my financial documents, all my information.

They kicked it all out to all the providers and they said, okay, we got a lender that'll come back and give you X amount of your revenue, uh, per year as a loan. And for me, that's a lot more inexpensive than some of the other options I looked at from the corporation side. Yeah. Um, bill, when it comes to tax professionals, there's a wide variety, uh, and you hear these phrases like, my tax, my tax person, he's conservative, or she's conservative, or they're aggressive.

Uh, I guess what does that mean and, and can you give us a better understanding on why there's such a vast spectrum of tax professionals out there? Sure, sure. So, so first off, the tax code. The tax code. I mean, it, it's what it says, right? All tax practitioners are are governed by something called Circular two 30.

And within Circular two 30 is a whole bunch of rules that we, uh, have to operate by, or, or, or, or, or live by, uh, as tax practitioners. And then in addition, uh, every year we're required to take, uh, ethics courses and, uh, uh, those tell us how. Supposed to operate and and govern. I have noticed that, uh, in our profession, there's an engagement letter.

Mm-hmm. . Okay. And in the engagement letter, it specifies the scope of the, uh, uh, what we're going to do. And everyone that I've read says that if, uh, there's a judgment to be made, uh, we're going to make the, a judgment in favor of the, uh, Uh, client, not the IRS. So, if there's a, if there's some kind of deduction, we go, okay, uh, should this, how does this work?

We look for the most favorable outcome for the client, not for the IRS. Hmm. But but that's because we have that relationship. I mean, that responsibility, uh, what's you're probably looking at is the amount of work required Yeah. To, to make something happen. So that's the difference really. It, it, there, there's a lot of work in making.

uh, uh, get getting money moved from one type of business or one type of an account to another type of an account to accomplish things. So anyway, we're, and there's quite a range. There is, yeah. And I've actually seen that too, where in that same example, not to knock on h and r Block, but say you just have a person that's really focused on volume, you know, they just want to give as many tax returns done as possible, and hopefully as simple as, And we've all, all probably been to that doctor that, you know, you go to the sit in and see the doctor and they got a patient every 15 minutes and they're just kind of seeing like, you know, 20, 30, 40, 50 patients a day.

Yeah. And then there's that other doctor you went to that says, hey, I'm going to spend two hours with you. Just learning your situation, really coming up with a comprehensive plan, going the extra mile. Now you're going to pay a little bit more for that, you know, uh, that in-depth, you know, attention. But as far as taxes, it will pay, in my opinion.

Great dividends as far as the service that you get and, and potentially bottom line of what you owe in taxes too. So I think that's maybe where we get that phrase, you know, conservative aggressive is based on the amount of work that they're going to be putting in, uh, on behalf of the client. So, okay. Well, is that one of the things that's changed for you, Glenn, over the years?

Uh, and, and maybe talk about when it comes to taxes, to kinda your point of view, how it's changed over the years as, as your business has grown and evolved. I never liked taxes to begin with. They were kind of overwhelming and scary. And, uh, it's still on the top five list of, uh, my wife's views as the IRS.

You know, irs, public speaking, you're like, not, not snakes, not like tornadoes or King Kong, IRS, IRS. But, um, I guess my, my. , my knowledge has changed because I've got a little bit more information and I've invested in my, my knowledge in the area and I have gained a little bit more comfort level to say, okay, this is realistically what it looks like.

Here are the penalties if I don't. And it just helps me be more comfortable in that, that space. And um, and then seeing the value of working with, uh, a professional in that area saying, hey, I really can't do this alone at all, is I need to have a professional that does all this and. Being able to even look at clients and say, okay, here's your, you know, your needs.

This CPA really focuses, or this tax person really works well in this box. Or, hey, this person really needs some complicated stuff done. You know, that's something that definitely, you know, this, this person can help with. Like something like Bill. Yeah. So, I think knowing how to direct each, each business owner or or person to the right.

If you will for, for tax professional has also been something that I've grown over years. Well, and you mentioned the big box tax return people before. Sure. That might be great when you have a W2 and you're just doing something simple. Oh. Versus, versus bill who specializes in small businesses. Mm-hmm.  and much more complex, complicated, uh, tax returns Right.

Then yeah. Those facts and circumstances are unique to you. Yeah, absolutely. Let me just ask you what, because you've been doing this for a long time as an enrolled agent. How has you’re out view and outlook changed on kind of the taxes and tax code? I mean, from when you started. Yeah, so, so a tax, the tax code has become more and more convoluted, and ominous and oppressive.

And it, uh, uh, one of the things that I've observed more and more is that the tax code is used to, uh, by Congress and, and the state legislatures to, uh, manipulate, uh, behavior and. I, I, I just personally find that offensive. I, I appreciate that they need taxes to operate the government. Mm-hmm. . But the, uh, the whole manipulation of the, uh, of the population seems to irritate me personally.

Yeah. Anyway, uh, and, and just the whole complicated part of it. Oh yeah. Just, uh, uh, I just don't think that's right. But that's a, that's a couple more shows. That's like a, it was a, we should come from 10,000 pages, the tax code. Yeah. I mean, imagine that in a book. Yeah, that's a big book. 87,000 agents, things like that.

Well let, let's end with this and maybe get both of your takes here. And we're, we're with, uh, bill Baker and, uh, Glenn. I'll start with you. Kind of fun question of, kind of wrap things up. Why do.  people have a fear like Bill saying, or like you said, with the IRS, and is it justified or is it over exaggerated?

We've heard a lot about the 87,000 new IRS agents coming online. Mm-hmm. Oh, that's, should we all terrifying? Yeah. I mean, talk about that a bit and I, well, I think it's just on the surface, 80,000, 87,000 new agents, uh, sounds a little bit scary. But then if you peel back the layers and go, okay, well wait, what exactly are those people doing?

Are they.  all just for enforcement and knocking on people's doors and checking their, you know, wallets to make sure they pay the taxes, or are they just back filling positions of people that were retiring, and they're underfunded to begin with? I think having some more knowledge about what, you know, challenging your perceptions.

Um, so I think sometimes the fears can be justified, like, oh yeah, I get it. You know, I, I would see that as being alarming on the surface, but let's maybe peel back the layers and make sure we have a good understanding. So, um, but yeah, the IRS is, uh, if you get on their bad side, they can, they.  do a lot. They can freeze your assets, they can garnish wages, they can throw you in the, you know, uh, penitentiary.

Slammer, yeah, I was going to say slammer. Yeah. But that's an old term. Yeah. Yeah. Well, bill and I, I think that as a small business owner, like myself, like Glenn, like many others, and like many of your clients, you might be a sole operator or you might have a few the employees and you have a certain amount of resources.

But when you hear the IRS in a complicated tax code and you know you're trying to run your business at the same time and they have virtually unlimited resources, that's a scary thing. It's, yeah, it's a legitimate problem. Uh, and, and being a government agency, they really have, there's no recourse. They can make a mistake and you have the consequences of that mistake, and there's really no Yeah.

Recourse to that. Oops. Oops. Yeah. Oops. Sorry. We didn't mean to, it cost you a hundred grand in legal and, you know, counting fees, all that stuff. Yeah. Or, or just flat out take your money. So, so the, uh, the good news is really only thing the IRS wants is your, so that's really it. Bottom line, give 'them all your money and that's it.

they're, they'll go away. But I, I don't take that flippantly because I know it really represents the hard work folks do. Yeah, yeah. Right, right. Yep. So, so these 87,000 agents is a real deal that it, they're going to try to do. And it's for enforcement. Now. Enforcement isn't knocking on your door necessarily, it seems it has a lot to do with, uh, , uh, computers and programs, and they have more ways to enforce than mm-hmm  than just knocking on the door.

So, knowing that, what I'm reminding folks is that we have a business, we operate like a business. So operate like a business, it'll be fine. Keep your documentation, yes. Keep all your money in your business, account for business, and then move it to your personal, and then spend it over there. Disneyland or wherever you're doing mm-hmm.

uh, uh, uh, so keep your documentation, keep you operate like a business. Have a plan. Yeah. Okay. Um, you want to learn more about Bill Baker? Sure. Um, granite mountain accounting.com. Mm-hmm.  and, and he'll, he'll talk with you about all this stuff. Complicated stuff. Yeah. Yeah. If you also call me and do an appointment and that makes sense to have a, you know, get connected.

Happy to do that as well. Like I said, I, I got connected with Bill actually through. A client of mine years ago, I kept, you know, having to interact with Bill and I was like, you know, this is kind of, I know, let me talk to him a little bit more. I'm kind of intrigued. So yeah. Good history ever since. So, yep.

All right. Lots of information there. You can listen back. Look up Intelligent investing with Glenn Leest on your favorite podcast provider. Like Glenn said, give him a call 9 2 8 2 2 5 24 74 or go. Um, email 'them Intelligent investing WT wealth management.com. Uh, bill. It's been fun. Taxes are always fun.  went back here next week.

Thank you, guys. See you soon.

The following has been paid programming brought to you by WT Wealth Management. Nothing we've discussed. It as investment advice. This conversation was for informational purposes only. Please do your own research and speak to an investment advisor, financial planner before making any investment decisions.