Neal McSpadden on 5 Proactive Tax Strategies and Cost Segregation for Solopreneurs

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Have you ever dreamed of being able to make more money, live a better life, and have the financial freedom that’s rightfully yours? Well now is your chance. With an engaging perspective in tone, your host Ryan DeMent will guide you through your journey to financial freedom one step at a time. Let’s get to it. Here is your host Ryan DeMent. Hey guys, Ryan DeMent from Chasing Financial Freedom Podcasts. Hope you guys have a great day. Today on the podcast we have Neil McSpadden. Neil is saving solar panors and small business owners tens of thousands of dollars on their taxes all without earning any more or spending any less. Sir, welcome to the show. Thank you. Glad to be here. You’re welcome. I know it’s a little bit of a wait, but look forward to talking about our favorite topic. Everyone loves taxes. So before we get into that, can you give the listeners a little bit of your background

and then we’ll get into some rabbit holes as they say. Yeah, absolutely. So I got into a tax role in a very non-traditional manner. So I went to school for engineering and I interned in industry and I could pinpoint the moment that I decided this whole thing is not for me. We were having a corporate award ceremony and that will go to all the backstory. But basically there was a award getting to a guy who was a great company man. He had canceled a pre-apprecied prepaid vacation to Europe with his family for two weeks and said he came into work when the company needed him. It isn’t he’s such a great guy. Let’s give him a hand. Here’s a plaque. Right? And so that started my entrepreneurial journey because I was like, that’s not how I want to live. And over the next decade or so, I tried a whole lot of different things.

But in 2007, I started getting nasty letters from the IRS saying I owed them $1.3 million. Yeah. So like most people though, when you get a mess litter from the IRS, you just put your head in the sand and ignore it and I did the same thing. So I went through the whole process where first you get letters and then you get certified mail and then you get phone calls. And then if the number is big enough and a million dollars is big enough, they will start going after whatever they get. And at that point, they started garnishing my paycheck and I couldn’t afford a pay rent. Supposedly, I got to give this six. So in fixing my own problems, I ended up finding the baby who eventually became my mentor who was a family Wall Street tax attorney. And he only fixed my problems that it took about a year.

And in doing so, he showed me this whole world of Wall Street style tax advisory work that I have never knew existed. And his business was starting to grow. So I had taken the last decade of entrepreneurial learnings, applied them to his business and we tripled his business over the next few years. And then the doing so, I learned tax game in a very kind of old school apprenticeship type of way. So over the last 15 years now, I’ve worked on over 50,000 tax returns on billions of dollars worth of client earnings. And in 2020, went off on my own with TechShirt, but because I’ve always been a small business person for myself and that’s who I resonate with. I understand their struggles and their issues. So TechShirt was really targeted towards that small business solar entrepreneur, independent contractor, kind of level to help them apply those lessons from Wall Street, actually,

[03:11]

and bring them down to that solar entrepreneur small business level. So I got to ask Johnny, obvious question. How did you get $1.3 million worth of back taxes owed? I had tried by hand the day trading way back when I was just like, oh, three, oh, four. And in those days, prior to 2011, when you sold a stock, the IRS got a notice from the broker saying, hey, Neil sold stock and they added up and then they did not get the cost basis as far as their concern. It was 100% gains. I sold everybody millions of dollars with a stock, which I did. And I made all this money and I never paid taxes. And so what happens is if you go up few years, it’s usually four to five years without filing taxes, which I did. They will file with Colton SFR, a substitute for return.

Basically, they’ll take all the information they have on you from third parties and they’ll construct a fake TechShirt with the worst assumption possible. And if after they do that, they figured that they would have given you a refund, you will never hear from it. But if they determined that based on their assumptions that you would have owed them money, then you’ll start getting letters. And that’s what ended up happening. That’s one of my one of my hobby horses where every taxis and we’ll hear people say it’s like, oh, the IRS already knows what I owe them. Why should I have to fill this form? Why do I do this and that? Yeah, you don’t actually have to. You can just wait and they will again, they’ll do the worst assumption possible. And if you do a refund, you’ll just lose it. And that’s it. So that system does exist, but it’s just not very good.

That what people think it is. It’s putting your head in the sand is tough with the IRS and believe me. I’ve had some years where I couldn’t pay my IRS bill, but it was small enough. I think it incorrect me if I wrong it if it’s less than $10 or $12,000 that let you go on a payment plan or something to that extent. Yeah, that’d be up that recently. It’s now $50,000. Okay. So mine was under $10,000. It was like $5,000 and I paid it off in three months, but I had to pay a little bit of interest. I just didn’t have the cash flow at the time. But no, I get it. And it sucks when you owe the IRS and it’s they hound you and hound you and just don’t let you go. I can’t put your head in the sand on that one because they’ve got the power to like

you said, garnish your wages. They can levy your bank account. They can lean your properties. They pretty much have car blanche pretty much. It is that’s how the feds make money. They have all the powers needed in order to go after. Yeah. Once you got taken only it’s you only took you a year to get rid of the $1.3 million to go away as in forgiven or you had a settle. What could you tell a little bit about that? No, my my issue was that I never filed originally. I did because you know back that I didn’t know anything about taxes. I thought, oh, I lost money. I don’t have to file. I’m good. And I didn’t know that was wrong until I started getting the letters. So in my case, I just had to submit the corrected returns and wait for the process. And there’s some language they put into it says, hey, you’ve already made your assumptions.

This is the correct return. It that’s to replace that. And so it goes through and because at that point, it’s already in the hands of the revenue agent that person has to go through everything and approve it. And but once all that’s done, then as it turned out, I did lose money. So I was correct. I didn’t know anything. And I just had to prove that to the base. That’s good. But she had to go through that journey and then how long did it take him to actually release your wage garnishment? Oh, they never give that back. So here’s a fun, fun fact. If the IRS owes you money, you have up to three years to claim that. And if you’re if you wait for after three years, they’ll send you a letter saying yes, your claim was correct. However, past statute of limitations go Pounds and if you owe the IRS money, it’s 10 years.

[06:49]

Guess which side makes the move. But so in my case, the way they split it was that the garnishment happened within three years, but it was for a tax year that will pass the three year limitation. And so they just held the money and never got that back. I probably could have pursued that more aggressively if I wanted to, but at that point, it wasn’t worth the hassle. That sucks. You get into this space because of what you want to do or what you’ve gone through. So how can we as entrepreneurs, small business owners be better at handling taxes and tax returns? Yeah. So there’s a couple things. So as we’re recording this, this is actually September 16th. This is the extended due date for escorps and partnerships with which a lot of entrepreneurs will have. So being on top of your due dates is probably thing number one, because even if you file

something and you find out later, it’s always supposed to add this and that didn’t include this, you can always amend later to the hassle, but it can be done. So making sure that you are up to date on your calendar filings is critical. If you do that, Bill pretty much leave you alone, to be honest. So if you have a big bill due because of some strange thing, but you definitely want to get into a paying the plan, it’s available. But yeah, if what the IRS really wants is compliance. So as long as you’re in the system, you’re making their filings, they’re pretty happy to let you proceed as you see fit. And you know, if when it comes to large tax bills, usually because something was done wrong, because if you have a large tax bill, what that’s saying is that you’ve made a

whole bunch of money. And if you made a whole bunch of money, hopefully you didn’t immediately blow it all. Yeah, absolutely that happened a few, but not too often. So if it’s an unexpectedly large amount of money that you owe, then the thing you want to look at first is was everything recorded correct because chances are there’s some kind of error there. And once you fix that, that goes away because cash flow should be relatively sufficient to pay the tax bill on it. But then beyond that, what most people do for taxes and this is probably 95% of tax filers. You go through the year, you get your paperwork together. If your fault is this person, a lot of times that will involve spending a very frantic weekend or so trying to go through your big statements, trying to come up with the numbers to give

to your tax guy. But at the end of all that, you hand over a bunch of documents to your tax preparer, tax for a puts to the computer and they fill a tax return. They say, here you go. You owe $6,000 or you’re getting refunded of $3,000 or whatever the numbers are. And that’s the beginning and the end of the whole process. So a much better idea is to actually work with a tax preparer who’s had actual tax advisor who coaches you throughout the year as far as, oh, this is what you have going on. We can apply strategy one, two, three and we can reduce your overall tax liability significantly. And that’s really what we do. Yeah, we’ll do the filing, sure. We’ll do your brokey big short. But the real, when the rubber hits the road is on the advisory side where we are looking

[09:54]

at your situation holistically and say, what strategies can we implement given your particular facts and circumstances? Take what would have been a larger net income and crushed it down as much as possible. I like that. I think that’s a great idea, not just a great idea, but that’s great planning because I know from our CPA and our bookkeepers, they don’t do any of that for us. I’ve got to tell them or talk to them and I’m not a tax guy. I get that. If I’m a solo player or a small business owner and I’m just getting right to the meat of all this. What would that look like from a service perspective? Let’s say you’ve got a small business that’s on a tight budget. How does a small business pay for your services? Yeah, all the global scale. We’re always free because we’re going to save you way more of whatever we cause.

But there is obviously a careful image with that. So that’s something to figure out. It depends on the situation because our process is four basic steps. So the first step is the survey. And that’s where we get to know your situation. We figure out, okay, you’re married, you’re single, you give kids, you have investment property, business, whatever else you have going on. And from there, we plan the route. So we figure out your starting point and then we say, okay, based on your starting point, where can we go? And we figure out what’s the most tax division thing to do so that can minimize your costs as much as possible. Go ahead, go ahead. So once we have the route, the next step is the track. And the track is actually doing the work where we have to implement various tax strategies. And that’s going to depend on what the strategies are.

Some of them, like a lot of sole pro-ours, will be filing us what’s called schedule C, where it’s just there’s no separation between them and their business. It’s part of their tax returns. That’s a bad idea for a whole lot of reason. But so we might do some entity structures. Okay, you need a new LLC. We need to set it up as an S-Core, work hard to shit, have you. And starting to get all those things in motion because anything dealing with government takes time, right? So there’s pick work to file. We’ve got way through the process and all this going to. Everything that we can do internally is one of my favorite strategies is what we call the sub-it strategy sessions. And this is a huge missing piece for small business people because most small business voters, whether they’re so low or they have a small team or whatever, they are just operating

on their bank accounts. So they’re, yep, they bring it up. They say, hey, there’s money in there. Great. We can buy some ads. I can make my payroll. I can pay my contractors, whatever it is. And that’s all they’re looking at. But the sub-it strategy sessions does is it makes the business owner look at their books in a systematic way. So we can see, okay, last month we did this, compared to the month prior, things were up, things were down, whatever it was, compared to the quarter prior, compared to the year prior, what happened. And the goal there is to basically just run their businesses better. So you, as you track that over time, you’re able to increase what is working and decrease what is not working. And if you do that over and over again, then by a year down the road, you have a much

[12:58]

different business than you did over those previous 12 months. Our goal is to do things as tax-efficiently as possible. Oh, and by the way, the strategy sessions creates a tax deduction as well at the same time. So that’s why we get a double benefit. What business to be better and better over time and pay less and less tax at the same time? That’s the goal. And as far as what we charge, it’s going to depend on what it is that we do. But typically, what most people end up doing is we take whatever the total fee is between the filings themselves, the advisory work, and if we’re doing bookkeeping here out, and we just break it up into a 12 month engagement. And usually that’s easy enough for businesses to handle. And then the last step of the process is what we call compass checks because things

change. So along the way, we’ll sit down usually quarterly, sometimes twice a year depending on the particular needs. And we’ll go over, say, OK, here was our plan. We’ve done x, y, z, how are things looking now? Because we’ve had cases where we had one client last year, they’re in online e-commerce kind of stuff. Q1 was terrible. We did projection based on that. Q2 was fantastic. We did projections based on that. And then they said, OK, Q2 is how it’s going to be. We’re going to make a tons of money for Q3, Q4. And then along the way, things happen. They got a Google account shut down so they couldn’t bring in the revenue like they thought they would. And so Q3, Q4 were like middleing. And so the projections we made on that second quarter numbers, and then it’d be raw. And we had to adjust for Q3, Q4.

And we ended up with a lower, lower revenue lower if that’s along the way. Just the only cost of the life is change. So we got to make sure that we were up to date with everything. So yeah, but as far as our engagement works, typically we’ll do that 12 month kind of thing. So we’ll do it one time. Either way is fine by us. The net result is that by the time we implement all of our strategies, we’re going to save you two, three, four times a year. We’ll definitely have to talk after this. What would be three nuggets you could share with the audience about just tax planning in general? I know we don’t put a lot of effort and time into it, but I’m sure there’s things that we could be doing. On our own on a daily basis to be better with tax planning for a better yet be more

efficient with our business too. Yeah. Yeah. So everything starts with the record keeping. So for a business person, that means keeping the books. I’ve seen a million dollar businesses having no financials, no anything. Just here’s my bank statements. And then we’re going to have a lot of money. We’re going to have to have a lot of money. And then you structure. So do you have an LLC? Do you have a corporation? How is a treated for tax purposes? And the schedule sees a partnership? Is it an S corporation or regular corporation? It’s the corporation. Most of the time, you’re going to want to have an S. And that’s 90% of the time. It’s going to you go to want that. You might have other things too, but S. Corp is probably going to be your main vehicle because the difference there is that S. Corp.

[16:25]

S. Corp. Profits do not carry self employment tax, which is the Social Security and Medicare. And that is a 15.3% difference between partnerships, schedule sees, and then S. Corp’s. See, corpse is a different thing because there’s dividend rates and things. But so most of the time, you’re going to want an S. Corp. And if you’re an entrepreneur type, where you have lots of ideas and you’re pursuing new business opportunities, a lot of times you’ll find yourself in a joint venture. And instead of owning that joint venture directly or your LLC S. Corp, which should be owning your interest in that joint venture. And there’s a couple of different reasons for that. But basically, it allows you to apply strategies before they come and hit you personally. That’s probably the most important thing. But there are lots of benefits for doing that way. Another thing is that at the base, we implement up a suite of strategies for pretty much all all.

All clients and that’s going to be the summit strategy sessions where you have administrative meetings with the management team, which usually that’s just going to be yourself. And then having reimbursement plans. So as a small business, you have a lot of flexibility as far as the reimbursement to employees. It’s going to be mostly you maybe some maybe a little team members as far as the business use of their stuff. So, you know, the home office deductions are a big red flag when it comes to schedule Cs. But if you take those same expenses and put them through an escort through a reimbursement plan, that audit risk disappears. Because it’s just a different form, different way of capturing those same expenses. You want to make sure that you have those in place so that you’re able to maximize the expense of all the things that you do.

Because every entrepreneur out there is talking about business all time, thinking about business all time, and probably working most of the time with God. But so by taking those legitimate deductions that you’re entitled to and reimbursing them from the company, you are able to capture them, pay less tax and do it in a way that actually reduces your audit risk. So that would be the three kind of basics that we want everybody to. There’s a lot in there, but those are great. Those are great topics. But in the real estate space that we are in, because we are in affordable housing developer. And that’s one of the things we do is we create an LLC when we go into a joint venture. It’s not tied to true vest. It’s, you know, we call it whatever the property name is versus whatever. But it just makes it so much cleaner. So it’s arms length away, but also at the same time as we still have control.

So we’re usually in with a joint developer or an investor. So I love those. They work very well. I’ll just make one point about about real estate specifically. We get a lot of people coming to us asking us about cost segregation for the audience. If you don’t know when you buy or build a property, there’s a lot of components to that. It’s not just a building. And so what cost segregation does is it splits up the different pieces of building into you’re going to have wiring and cabinetry and furniture and you’re going to have landscaping, you’re going to have heart’s landscaping and all these other things. And the idea of doing this is to capture more depreciation in the early years as both late. And so you’re able to get more deductions up front rather than later on, which works great. If you have the tax liability to meet it. So I have seen many cases where people come to me. They’re all excited and they say,

[19:58]

I got this cost segregation report. Isn’t it going to save me? That’s the money is no because you need to have tax liability in order for those for those deductions to be useful. You still have them, but it didn’t get you any extra money because you were you were a little bit quick on the trigger there to get that kind of what done. But if it does apply to you, it’s an incredibly powerful strategy to a few doing commercial development of multifamily and things like that could be hundreds of thousands of dollars worth of extra depreciation for you that can be really powerful. That’s cool. We’re getting to the bottom of the hour, but I wanted to ask you a couple of other questions. One, are you guys working? Are you working with new clients or bringing on new clients? Yeah, absolutely. And two, where could those individuals or companies reach out to you at?

Yeah, you go to techshurper.com and you can book one of our survey calls where we figure out your situation there. I was also going to put together a resource for your listeners at techshurper.com slash freedom. And you’ll be a year end kind of planning worksheet where you can start putting your numbers and give yourself an idea of what’s going on. It’s not as bully fleshed out as doing an actual tech teacher, but it’ll give you an idea of what it is that you’re looking at. And you know, especially now we’re coming into the end of the year. You want to avoid those surprises. You want to know what’s happening so that you know, at the very least you can plan or make adjustments or do whatever it is. Placed you and you will make that resource available for your listeners so that they’ll be able to keep themselves from being suppressed.

Awesome. I will make sure those links are put in the show notes so people can reach out and also connect with you but also download the resource. Sir, thank you very much for coming on. Love what you’re doing because you’re taking taxes and actually making it work for us entrepreneurs and small business owners, but also educating us because I don’t think there’s a lot of education going around on taxes right now. Not a whole lot, but there are some people who want to know every I being dotted every T being crossed and there’s other people who say just do it. And we’re here for both. So whatever level you want to learn, we’re here to help you. All right, sir. Thank you for coming on. Thank you. Great.