Steven (00:54):

Hello everyone, and welcome to the next episode of the Retirement Tax Services podcast, financial Professionals edition. I’m your host, Steven Jarvis, CPA, and as we release this episode the day before the tax deadline. So excited to have back on the show with me, Ted Jenkin from JPTD Partners. Ted, welcome back to the show.

Ted (01:11):

Hey, thanks for having me, man. I always love talking taxes.

Steven (01:14):

Yeah, well, I love kindred Spirits who can nerd out on taxes with me. We had a great time. You came on the podcast last year and then phenomenal feedback from your session at the summit last year, and obviously you guys are coming back for the summit again this year. We have another event coming up in June that we’ll get to, but really what we wanted to talk about today is, again, this episode’s coming out on April 14th. We want to give advisors listening things that they can be talking to their clients about, especially their business owner clients, which for the smart listeners, you’ll also be thinking about this for yourself. Okay, the tax deadline is passed. Let’s not ignore taxes for a year. Ted, what should we be talking about?

Ted (01:48):

Listen, I think it’s interesting because a lot of advisors, they don’t really look at all the differences between doing SEP IRAs or when they can actually fund out even employer contributions on solo 401 Ks for smaller business owners. I just find that a lot of advisors sometimes just stick to the one retirement plan they know and they don’t necessarily look at all those retirement plans. Plus a lot of owners, they really don’t file by April, a lot of owners will file extensions and it may give you a time to go back through their p&l and really see what makes sense if they’re not going to file the corporate returns until September versus March.

Steven (02:29):

Yeah, that’s a great reminder. And geez, for my own personal return, yeah, I extend every year. I’ve got some K ones I wait on, and so if we’re proactive, we can take advantage of this with our business owner clients in particular or again for ourselves to say, okay, we’ve got a little bit longer before we finalize these taxes. Have we really thought about what’s in our p&l? Because we talked about it a little bit the last time you were on, but whether you’re a year from selling or 50 years from selling, you need to start taking your business seriously now. You need to clean up your slush funds, you need to categorize things correctly. You need to make sure you’re leveraging the enterprise value that you’re creating by having good records.

Ted (03:04):

Yeah, I think this is one of the big wide open blue oceans for advisors over the next decade is simply understand how to teach their clients to set up an LLC and make a separation of church and state between people’s personal finances and the business finances. Because today, whether people are setting up a shop on eBay or they’re reselling tickets, everyone’s got some kind of side hustle today. I guess what it is, and you should know how to use those entities to be able to minimize taxation and most advisors still don’t.

Steven (03:34):

That’s a great point. And even for the advisors who feel like they understand it themselves, I promise you your clients don’t understand it. You can’t take these things for granted. I was just having a conversation literally a week ago with a client, very sophisticated, very good at what he does, but what he does is not taxes and he’s going through a shift in how his employment structure works and he used to be W2 and now he’s going to be 10 99 and then he’s going to become a partner in this business. And again, very educated, very sophisticated person, but the questions he had around an LLC and an S corp and some different entity structure, things were so basic that if this wasn’t something I did all the time, I might be even a little bit taken aback that these are the questions he’s asking me, but this is what we hear from most people unless someone has taken the time to really explain how it works.

Ted (04:16):

Well, when I was an advisor and doing it every day, I really learned that if you have a choice to get better at investments or taxes, investments are a lot sexier, but taxes often are what get people to move their money over to you and they always say, don’t let the tax tail wag the dog, but I would let it wag away. I would teach people about this stuff, and a good example you mentioned here is just knowing the forms. So if you’re an LLC and you’re going to get taxes and and you say to a client of yours, have you done form 25 53 to elect SCORP status as people go, why would I do that? So well, let’s talk about the difference of being in not an S-corp, but an LLC taxed as an S-corp versus an LLC. You just went from here to here versus talking about some portfolio or what stock to buy, which is just, again, it feels sexier, but it’s not what brings in the money. I came up with a guide for 60 tax deductions for business owners that you might be able to take, and I used to hand it out to people all the time as one of the biggest things that generated leads for me.

Steven (05:16):

Yeah, absolutely. We say that all the time ourselves, even just working with advisors, one of our most downloaded resources is a 37 point checklist for reviewing tax returns. We don’t have to get carried away. To your point, it can feel like we’ve got to do all the sexiest things. It’s got to be move to Puerto Rico, do the qualified small business stock exception. But the simple things are what helps most people. We have to commit to talking about them all the time. They’re not going to hear this once and remember it forever. We’ve got to lean in, become experts and how we communicate this. This isn’t about committing the tax code to memory. It’s about being able to effectively communicate on the topic.

Ted (05:47):

Well, let’s look at a simple example. I was talking to somebody the other day since we can geek out on taxes, and I said, if you’ve got an LLC, let’s just say it’s taxes and S corp, it’s your wife and you put your kids on the board. I’m not talking about a 4-year-old, but your kids are teenagers or they’re in their twenties and you decide to call a board of director meeting in The Bahamas, or you have a board of director meeting in another country, is the board of directors meeting tax deductible or not? Because your corporation of two, are you different than what Coca-Cola and IBM do or not? And I just was trying to explain to ’em saying, listen, you have to try to look at dotting every I and crossing every T because there may be more deductions in here provided that you follow the law.

Steven (06:31):

Well, and that’s a really important reminder in there dotting our i’s and crossing our T’s because especially in the age of social media and podcasts, I mean people, anybody can get on a show like this and say whatever the heck they want. We’ve got to remember that the documentation is key because you see a lot of people hold out these strategies like, Hey, just do it and you’ll get away with it and it’s no big deal. But that’s not at all what you’re saying. If you we’re going to have our kids on payroll on a board, we didn’t have documentation of what they’re actually doing for the company, which great news to your point. I mean, companies of all shapes and sizes have advisory boards. They have these planning meetings, there’s strategic sessions, and then yeah, they have those on location, they deduct the expenses, but there’s an agenda, there’s meeting minutes, there’s some kind of documentation of what the involvement was. So if the IRS were to ask questions, it’s a really simple matter of, yep, here’s what we did and why we did it.

Ted (07:16):

Yeah, and I’ll tell you, I really loved working with business owners and one of the huge money management mistakes that advisors make, this is a massive one that everyone should write down. It’s very simple. It’s called managing the corporate cash. When you run a balance sheet, most of your operators are going to have everything in a commercial checking account, and hardly ever does the bank say, do you want to open up a money market account? And for those of you that have never seen a balance sheet, you’d really only have two line items where it says cash, it might say Bank of America checking, and then it would say Bank of America Money Market, but that money market account could say Charles Schwab at your firm or Fidelity at your firm, and you could manage the cash in that account and charge a fee to do it. And advisors never think about this stuff, but you want to bring in millions of dollars of business, just manage your client’s cash that sit in their operating account and almost never leaves.

Steven (08:07):

I love the recommendation because again, it comes back to doing the simple things consistently. We don’t need a strategy that no one’s ever heard of. You need to execute like no one ever does. And most people get bored with the simple things or they just don’t spend the time on ’em. We’ve got to just consistently do those things over time.

Ted (08:22):

Yeah, I agree. And I think this is, again, when you think about the value you’re going to provide to charge for financial planning or even for your money management tax advice, it’s always in client’s minds and it’s actually an easier way to get referred. If you’re at a party, are you going to tell someone more about a really cool tax idea that your advisor told you or basically that your advisor said, Hey, we’ve got to rotate from small cap to large cap from this to that. Nobody ever talks like that at a party.

Steven (08:50):

It is fascinating because I think my experience completely aligns with yours. People are much more willing to talk about taxes and what people have done for them on taxes because money is still this taboo topic. Nobody wants to bring up investments at a party then, then somebody’s going to ask, well, how much do you have invested and where do you have invested and which stocks? And it gets into these conversations that nobody wants to have, but the shared pain of paying taxes is so universal that anyone will gladly complain about taxes and brag about how they didn’t have to pay whites much.

Ted (09:18):

And I would say, and I know there are a bunch of states where there are no state taxes, but obviously there are states that still have a lot of state taxes. Whatever state you’re in, you should really understand the state tax rules and the tax credits and the state of Georgia right now, as an example, you can buy tax credits, both film credits and low income housing credits at 88 cents on the dollar, which immediately is a 12% return on your money. But if you own a corporation, you can take that tax credit through a pass through entity and as a deduction. So you basically get the credit and you also get the deduction, and it’s like making 50% return on your money for just buying a tax credit. 99 out of a hundred advisors that I competed against in Georgia had no clue how it worked. These are the things that can really separate you even in your state just by knowing the state rules.

Steven (10:06):

Now, Ted, real quick, let’s dive into that because for people who didn’t listen to the last episode, tell me if I’ve got this wrong, but you’re not a CPA, you’re not a tax preparer by background. You didn’t get your doctorate in taxes. So what did you do to know enough to be able to set yourself apart from all those advisors you’re competing against?

Commercial (10:23):

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Ted (10:53):

I didn’t stay at a Holiday Inn for one night. It was multiple nights I stayed at a Holiday Inn. No, listen every year, and these product companies, the insurance companies, mutual fund companies generally send you an outline of all of the taxes and the tax codes, the brackets and everything for a year. So simply read those fact sheets to see what changes are happening in a given year. I’m surprised how many advisors this year still don’t know the CATCHUP rules for Secure Act 2.0 people turning 60 this year. That’s just a simple example. If we told somebody the number I think was like 81,000 as a maximum contribution to a solo K, people are like, you can’t put 81 grand in a solo K. Well, yeah, if you look at where the FICA wage base is and you look at what you can do if you’re 60 years old, et cetera, et cetera. So I would read a lot of blogs. I used to love to read the White Code Investor, I would read other tax blogs. Obviously there are other advisors that put out pieces to learn strategies.

(11:55):

And oddly enough, if you want to learn great strategy, Steven, I’ll tell you where you go, go to an insurance conference because insurance salespeople, it’s like some same strategy to sell cash value life insurance, but it’s all this concoction of other tax strategies. But I would learn just about various things that existed. It doesn’t mean I would sell ’em, it doesn’t mean I would necessarily recommend them, but your job as a fiduciary is to provide optionality for your clients and saying, listen, whether or not you want to do this, these are great ideas. And then lemme tell you the best medicine by far, start investing your own damn money and start opening up your own businesses. Set up an LLC, get it to be an S corp. Start investing in different things. And by the way, you’re probably going to lose some money here and there, and you want to become a better investor and a better advisor is going to sound weird with me saying this on a podcast, lose some money or figure out how to invest in a business and it doesn’t work because you’re going to be much more savvy if you want to discuss about real estate, which I can.

(12:57):

I own lots of real estate properties. I’ve set up a holding company. So the only way you get good at this is you got to basically do it. And the more that you do it, I would tell you, I’m not saying I’ve done it all, but I’ve done a lot of it. And I can advise through experience, not with necessarily what I read from a book.

Steven (13:14):

I love how you went immediately from the learning part is important, the listening to podcasts, the reading blogs, those kinds of things, that is really important. I think you’re right. A lot of people skip over it that this change is so rapidly you have to stay on top of it. But I love that you pivoted immediately into where that stuff is great, but that’s the foundation where the real value comes from is through the experience that you can share, which Ted, that’s one of the reasons we love doing events and we’re so glad that you and JPTD partners have partnered with us on events is because getting a bunch of people in a room who can learn from each other, just elevate that so much more because then we go from you and I having a conversation to you and I in a room full of 80 advisors or 300 advisors who then can say, wait, Ted, talk to me a little bit more about how this particular thing worked. And then you’re taking away action items that you can go back to your office and implement, go back to your own business and implement. So I love doing this stuff

Ted (14:04):

And this is where it’s like as an m and a broker now as a business broker, if I ended up selling one of your clients that are listening to this podcast, if your client’s generally not going to come to you when they want to sell because they don’t see you as that person to A, help them sell the business, or B, advise them on who should sell the business, when they start selling the business and you’re out of the loop, you’re going to be so far behind from giving financial advice that giving advice the day they transact and they get a bunch of money, that money is going to end up at UBS at Goldman Sachs is going to end up at JP Morgan. But more importantly, a lot of the technical tax advice needs to be done pre LOI.

(14:44):

Good example for those of you want to do some homework. If your client has to do a reorg, which happens a lot, and you want to set up a charitable trust and donate some of the stock into that trust, if you don’t do it before the LOI, you’re cooked. So it’s important to talk to your clients that own a business about when they’re going to sell and have advocacy, right? Having someone sell the business that has you along for the ride as opposed to blocking you out of the ride. And that’s where I work with a lot of advisors across the country. I just finished a transaction a couple weeks ago for a hundred million bucks. The owners ended up getting 70 million at close, and the advisor I think is going to invest $40 million.

Steven (15:22):

Wow.

Ted (15:23):

Right? But they were along the ride, so they were all along. The money ended up getting deposited in their brokerage accounts. So it just makes a big difference.

Steven (15:31):

Yeah, it’s got to be an early and often conversation. You can’t wait until the deal’s done. I love that recommendation, and since you mentioned there, you do a lot of work with financial advisors and really appreciate how generous you are with advisors and sharing information and then working alongside them through the work that you do. So for people listening, you can go to retirementtaxservices.com/jptd to connect with Ted and his team to get resources, whether it’s for your own firm or you’re looking at how do I help other clients with this? I mean, make sure that you’re getting resources that are effective. And again, whether you’re a year from selling or 20 or 30 or 40 years from selling, starting these conversations early is worth it. So if nothing else, you need to be asking these questions about your practice and potentially for your clients as well.

Ted (16:11):

Yeah. Well, you bring up a good point in here, right? There are a lot of advisors that are always like, when should I sell? How should I sell? Here’s an interesting tax analysis for the advisors that are listening to this, right? Maybe they’ll have you do it for ’em. You’re 45 years old, you’re doing a million, you’re doing 2 million in revenue, and you think to yourself, why would I sell now? Because I can double the firm and let’s forget about the X factors for a second. If you sold today a $2 million firm and I got you 10 to 12 million, and you basically are paying all capital gains, I got it to be 97% goodwill,

(16:48):

And you put that money in your pocket and you’re getting paid ongoing compensation, how much money would you have after 10 years relative to paying ordinary income maybe at 35, 37%, wherever that number is for you, and where would your net worth be 10 years from now? This is an analysis every advisor should do, and this doesn’t include the X factors of margin pressure, regulatory changes, capital gains rates going back to 40%. If any of those things happen, you’re toast. And this is why advisors need to look at these kinds of analyses. If you’re interested in building your own net worth, which isn’t that what we do anyway for clients? Aren’t you trying to build their net worth?

Steven (17:30):

Well, that’s what I was just thinking as you’re describing that, Ted, which obviously sell your businesses a much bigger decision, but in concept it’s the same thing. It’s telling your clients to do Roth conversions. We’re looking at the levers that we can pull and we’re saying, Hey, does it make sense to take money off the table now at today’s rates, or are we going to risk having this money be bigger in the future at unknown rates that we expect will probably be higher than they are now because how can they possibly go down? And so it’s at much bigger scale, certainly more complexity. It’s the same concept of where we can make decisions. Are we making intentional decisions or are we just letting this happen to us by default?

Ted (18:03):

Yeah. I just look, our industry, I’m not going to say one out of two advisors get divorced, but a lot of people get divorced. They end up getting into a second marriage, they get too big of a house, too big of a boat or too many toys. And I see a lot of advisors get into their fifties that are broken rebuilding again. And if you’re thinking about building your net worth, remember the biggest asset you have is not your house or your 401k, it’s the value of your business.

(18:29):

And business owners in general, really only like two asset classes. They like their business and real estate and generally real estate that they occupy. And it kind of makes sense if you think about it. It’s the best asset class to own is owner occupied real estate. You’re just betting your business won’t go broke. So it’s that kind of philosophy. As an advisor, what I would encourage all people to be thinking about, it’s not how you invest in the stock market. How do you build a big net worth? And I’ve personally built a big net worth by being a business owner, not by how well Apple did or Nvidia or whatever might be the case. And so don’t go for the fool’s goal that way. Continue to think about how you build enterprise value.

Steven (19:07):

Everything we do has to be intentional. If you really want to win, if you want to set yourself apart and separate yourself, it’s got to be intentional. You got to be regularly thinking about this. You got to be learning from the people who are doing the best work in this area and finding ways to keep leveling up.

Ted (19:20):

I think so. And sometimes when we work with advisors, everyone like your clients are fee sensitive, but I’d ask most advisors, why don’t you just send all your clients to Vanguard? You don’t because you believe that your 1% makes sense, and could you try to broker a deal on your own? Sure.

(19:39):

Are you going to know as much as me if I did 40 deals? No. And that’s what we get paid to do. Just like you get paid to manage a client’s account, and I did too. It’s the reason you don’t send your clients to Vanguard because you think overall you can do better, not only tactically, but emotionally. And we do the same. And I saw a deal the other day, Steven, one of the biggest deals I’ve seen, 10 million of revenue, $92 million nine times on revenue, right? Wow. No other industry in the planet. Maybe veterinarians are close, but that’s it. The way that we trade today, if any advisor believes that the multiples of financial services companies will trade at a 20 to 25 on EBITDA forever, you’re dreaming, pal. You’re dreaming. These things do not last forever. So you got to capitalize, and that’s what smart business people do.

Steven (20:28):

Yeah, absolutely. And as we’ve worked with advisors who have worked with you and we’ve seen that success come through, it makes me more excited to have those conversations. That’s why we partner with you on the summit. These different events that we do, because there is a real opportunity and doing the deals is not an area of expertise myself. And so like anything else I do in life, I want to make sure I’m with people who are experts, which is why anybody listening to the podcast can go out to retirementtaxservices.com/jptd, get connected with Ted, have these conversations that the form you fill out to get some more information does not lock you into a sales agreement. You’re not giving the farm away on day one. This is being proactive and intentional. It’s the same thing you do with your clients. Having the conversation every year of what makes sense. Are we doing pre-tax, we doing after-tax? Are we changing our investment portfolio? Whatever these proactive conversations you have in other areas of the client’s life, you also need to have them for yourself around your business.

Ted (21:21):

I’ll give you a double geek out one today on the taxes. Okay? One of the things that we set up for other business owners and now advisors can do this, is that a lot of business owners will look at doing an installment sale for tax eight, but under section 453, we have two companies now that provided that the buyer’s okay with it will allow you to defer part or all of the lump sum you get at sale, and basically it’ll look like a quasi deferred comp plan, which means that over the course of a couple of years, or as many as 30 years is how long you can take your money out. So if you got 10 million at close, you could basically say, Hey, I’m going to take 5 million and the other 5 million, I’m going to stick in a deferred trust, and I’ll be like putting a lump sum into a 401k plan and just let it defer until I’m ready to take it out. Is this something you’ve ever advised to your clients? Right? A lot of people haven’t, but you could do it for yourself.

Steven (22:16):

Yeah. I love learning all these different things that we should be looking at. Ted, before we wrap up, I want to make sure that we talk a little bit more about these events coming up, because as we’re recording this, we’re about two months away from doing, I think it’s the first event of its kind is this geared towards advisors. I mean, there’s m and a conferences out there. What I’m really excited about, what we’re going to do together in June, June 2nd through fourth in Atlanta, we’re calling an m and a university. And it’s not just show up and sell your practice, although Ted and his team can help with that, this is how do we understand how to leverage up our enterprise value? We’ve got an attorney coming who’s going to talk about the legal side of it. We’ve got recent podcast guests who’s coming to talk about the emotional and psychological side of it.

(22:56):

If just sold a business, how do you navigate what comes next in your life? And then of course, myself, my brother, Matthew, our friend Micah, and then you, Ted, and your whole team, we’ve got an amazing lineup of sessions all about how we leverage up enterprise value and how we think about this eventual sale of your practice. I’m super excited for this event. You go to retirement tech services.com. We’ll get you the information on getting signed up for it. We’d love to see you in Atlanta, Ted, so glad that you had partnered with us on this.

Ted (23:23):

Yeah, thank you. We’re glad to host it in our city. And I have to tell you, if you want to come to a conference where you can get really granular and learn everything there is to know about what’s happening on the street today, I’ll also tell you why your FP transitions valuations are garbage and they’re not worth anything. No, they’re not garbage. But why really outside of doing a buy sell doesn’t make sense. And I’ll also try to help you separate the egg from the yolk about what matters if you’re going to build and what does not matter, and the way that all these buyers are looking at businesses today. I see so many advisors focuses on things that do not create enterprise value. And I’ll tell you specifically at the conference, the three most indicative factors to getting extra multiple when you sell.

Steven (24:07):

Oh, I love that. Yeah. So go out to retirementtaxservices.com, get signed up for our event in Atlanta. It’s going to be fantastic. If for some reason Atlanta is farther than you want to go, we’re also still going to be in Phoenix to see Ted will be there with us again September 30th through October 3rd. Again, all those events are at retirementtaxservices.com. Ted, thanks for taking time to come back on the show, talk through this with me. I always love nerd out on these things. Anything else to add as we wrap this up for people thinking about getting past the tax deadline and what they should be talking about on taxes?

Ted (24:35):

No, man. Just appreciate the opportunity to talk to everybody. I’ll get forwarded over to you and they can get it from you, the guide that we put together for those small business owners. If anybody wants to use it, please feel free. It’s an extra document. They may help you bring in some more AUM.

Steven (24:48):

Love it. Thanks, Ted. And to everyone listening, until next time, good luck out there. And remember to tip your server, not the IRS.