Tax Hacks for Entrepreneurs with Neil Jesani

0:01Light that spark fire nation JLD here and welcome to entrepreneurs on fire brought to you by high level, the all-in-one sales and marketing platform. Today, we'll be breaking down tax hacks for the entrepreneurs. To drop these value bombs, I brought Neil Giasani into EO Fire Studios. Neil has been featured in the Wall Street Journal, CNN, Forbes, Inc. Magazine, CBS, NBC, Treasury, and Risk, and Fox Business, and has spoken at many medical and non-medical regional and national conferences, and has authored the bestselling book, Win the War for Money and Success. And today, we're going to talk about entity planning, income tax planning, real estate tax planning, and so much more.

0:37And a big thank you for sponsoring today's episode goes to Neil and our sponsors. Are you ready for the ultimate all-in-one platform for entrepreneurs, marketers, coaches, and agencies? Build funnels, automate follow-ups, manage clients, and even white label your own software. Say hello to our featured partner, High Level, and visit highlevelfire.com to start your free trial today. Fire Nation, success isn't a solo journey. It's about who you surround yourself with. That's why I built the Freedom Circle, a powerful community of entrepreneurs ready to support, inspire, and share the ideas that move you forward.

1:19Visit freedom-circle.com to learn more. Neil, say what's up to Fire Nation and share something that you believe about becoming successful that most people disagree with? John, first of all, thank you for having me on the show. So, you know, for me, I personally believe based on my experience is there's no substitute of hard work. It's hard work, hard work, hard work. That's been said, you know, once you put in enough work, you will get lucky in your life. So that other, you know, right time, right place will make you superstar. but hard work is your key to success. Well, Fire Nation, I always love to say luck is where effort meets opportunity.

2:06So if you're putting in the efforts, the opportunities are going to arise and then you dive on in. And today we'll be talking about tax hacks for entrepreneurs. And Neil, I want to start by talking about entity planning. Choosing the right business structure can make or break an entrepreneur's financial future. We But what key factors should founders consider when they're deciding between an LLC and S-Corp or C-Corp? And how does the wrong choice potentially impact both their taxes and liability? Absolutely. Great, great question, by the way. So the entity selection is very, very important. And I'll give you a quick example.

2:49Let's say if you ended up choosing the wrong entity, then you might lose the IRS Section trial or two, which is qualified small business, which is 15 million. And you can multiply it by four times, five times. Excuse me, my voice is not that great. I have some allergies, basically. But that's the power of entity selection. But this is the rule of thumb is, let's say, if you are starting out, you have no idea. It's just, you know, side gig, you start as an LLC. Once you get some traction, then that either you want to, you know, convert from LLC to S corporation, which is essentially you elect that you will be taxed as the S corporation.

3:36And let's say you are starting the business and you are planning to build something big. Let's say you are building some software products, you know, AI driven or that production, something like that one. At the time, you want to select the C Corporation from the beginning and that you want to probably create the C Corporation in Delaware because that's going to allow you to get the outsider money. It will allow you to create the employee options pool, so on and so forth. And there's so many other flexibility down the road. So it depends on what's your goal, what kind of business you're planning to build.

4:14And that's so many times, you know, you will start as a side gig and you stumble upon on something and it's going to become big. So it's not written in a stone that you need to do it right from the beginning. For certain things, you need to do it right from the beginning. But, you know, you can also fix it later on, too. Neil, I also want to talk about income tax planning because you've helped countless entrepreneurs navigate this complex world of taxes that we live in. What would you say is the number one mistake you see high-earning entrepreneurs make when it comes to income tax planning? And most importantly, how can they fix it before tax season hits?

4:55Sure. So the number one mistake, I guess, they make is they don't focus on the taxes. Because being the entrepreneur personally and going through that journey many times in my life, our focus, when you are an entrepreneur, only two things get your attention. One is new revenue opportunity or there's a, you know, landmine basically, right? To that other, you know, something is going to hurt to your business. Only those two things gets the attention. Tax, you know, HR issues, other things is not your priority. So, so many times by not even focusing on that one, you are living so many opportunities basically.

5:38So, that is number one. So the idea is obviously first focus on building the business, generate the revenue, generate the momentum. But once you start building the momentum, you need to make sure that you are putting the right strategies in place. And that other, you know, luckily, when you are entrepreneur or when you are a business owner, there are so many strategies you can utilize for yourself. Obviously, when you are high W-2 earners, then your options are limited, basically. But when you are an entrepreneur, you do have lots of options, basically. So one should look out, get the great counsel from the appropriate advisor.

6:25And I think they would be able to put in so many strategies in a place. Neil, I'm loving this perspective because entrepreneurs so often struggle with all of these topics because they're saying, well, how do I actually get the benefits out of not paying as much in taxes? But they're forgetting about the step about actually making the money that they would potentially have to pay taxes on. So I kind of love your perspective on that for a lot of reasons. And I really want to dive deep into estate tax planning. And I want to also talk about real estate for entrepreneurs. And we're going to dive deep into both of those topics when we get back from thinking our sponsors.

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9:24These statements have not been evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat, cure, or prevent any disease. Now, we're back. And as I said before the break, I want to talk about estate tax planning. Now, when it comes to preserving generational wealth, I mean, we work so hard to get this wealth. Estate tax planning is absolutely critical, but it's often overlooked. So what smart strategies should these successful entrepreneurs be putting into place today to avoid a massive tax hit tomorrow? Absolutely. So actually, first of all, so many a time, the entrepreneur or people in general thinks that, yes, estate planning is important.

10:08I need to do it, but they keep postponing it, right? Because it's not that something they believe it's going to happen tomorrow. We all know intellectually that we are going to die one day and we need to plan properly. But that we know that when we are not going to die tomorrow. So we always, you know, keep postponing. So number one is that you need to take action. Number two, the state plan don't need to be perfect. That's been said. You want to make it very smart and you want to have the best, you know, state planning attorneys. Do your state plan and the draftee document. Actually, by the way, we have three full-time state planning attorneys on our staff.

10:51and we believe in a really advanced level of that other university strategies. But the idea is that you don't need to have a perfect because so many a time you need to make a decision about who's going to be your trustee, who's going to be the beneficiary, what you want to give it to whom. And certain time people get lost in that process, basically. So I say that don't overthink it, get it done. You can always change. You know, that other, unless it is irrevocable trust and the irrevocable trust also you can change as long as the grantor, beneficiary and the trustee agrees, you would be able to still change basically.

11:32So that the idea is that to actually get it done. Now that is actually coming back to the once you are doing it, the estate planning can help you not only, you know, really creating the multi-generational wealth, but it can also help you with dramatically reducing your taxes. and that estate tax by the way it is on top of income tax right so you already paid income tax and now you're going to pay on top of the state tax also right estate planning goes and engloes with asset protection because if you need real estate planning it means that your net worth would be more than 30 40 50 million dollars it means that you also need asset protection right So that actually what happens is I personally believe that asset protection is probably more important than state planning to begin with because the state planning comes into play once you die.

12:32Asset protection, somebody can sue you and you can lose the entire things that you build that without having proper, you know, that actual firewall around your asset and your income. So that whenever you're doing the state planning, you're not doing the state planning, you are also actually putting the proper asset protection in place as well. Fire Nation, this is critical steps to put in place, again, before you actually need this to happen because you have to be prepared. Otherwise, it's going to come at you out of left field and that's not the time to start this process. essence. Neil, I want to move into what's one of my favorite topics, which is real estate for entrepreneurs.

13:22Real estate is often seen as a powerful wealth vehicle. I mean, a lot of us are using it to plan to use it in the future, but many entrepreneurs, they don't even know where to start. So how should business owners think about using real estate both as a tax strategy, but also as a long-term wealth builder? Sure. So real estate, you can look at two ways, right? So I'll give you my personal example. I personally never like to own individual piece of real estate. I always become part of the syndication of the deal and my tax return is crazy. I get 100K once and so on and so forth. So it is not right or wrong.

14:03On the other hand, we have so many clients who owns the individual real estate, either in a form of residential or the commercial real estate. So it's not right or wrong. Pick your battle, basically. My idea was to get into the syndication is that I don't have time and I don't want to spend any time on that one. On the other hand, certain people love to do that one. So you figure out what is that other something you like. But the real estate can be very, very powerful tool, part of your overall asset allocation. basically. Number two is so many a time, you know, it has been overhyped that real estate is a tax planning tool and real estate has a wonderful, wonderful tax benefit.

14:49But my rule of thumb is I would always try to buy the real estate thinking that I'm not getting any kind of tax benefit. still this deal makes sense for me or not if it makes sense to me without tax benefit i would gladly buy now that other i'm also getting tax benefit on top of that one that's become wonderful basically so just to give you the idea on the tech side and there are so many times people are not aware about this one so i think this is very very important that we clarify so whenever we are talking about the taxes with real estate, meaning real estate you can depreciate, right? So that real estate can be two kinds of residential or the commercial.

15:37So IRS says that when, hey, your residential real estate will be worthless in a 27 and a half years. So you can depreciate over the 27 and a half years. In case of the commercial real estate, IRS says your commercial real estate would be worthless over the 39 and a half uh you know 39 years so you would be able to depreciate over the 39 years now something uh you know called cost segregation study which most of your listener would have heard basically so uh you know that that's where you accelerate the depreciation so meaning you don't need to wait 27 and a half year or you don't need to wait the 39 years, you would be able to take some of the depreciation right away by the study.

16:23Generally, you will get somewhere around 20 to 25 % value of the real estate. So let's say if you're buying $5 million worth of real estate, generally, you would be able to get maybe say million, million or so that you would be able to depreciate now. And now that actually bonus depreciation being 100 % that actually available right away, you would be able to take that million dollar deduction right away on your tax return okay but the issue is that when most people don't realize to take the real estate depreciation right there is two three things number one either you are an actual business of real estate meaning you are doing that business for living then obviously you would be able to do it otherwise you need to qualify something called the real estate professional status, RAP basically, what does it mean?

17:17It means that you need to give at least 750 hours during a one calendar year behind the real estate management basically. And the second part of that condition is that 750 hours needs to be higher than any other activities. So meaning if you are entrepreneur, if you are say very successful executive or you know that actually senior level of the interaction person running the company, you are probably spending, generally people work 2 ,000 hours a year. So if you're at this level, you are probably giving 2 ,500 or so, 300 hours a year. So obviously you cannot qualify as RIP unless your spouse is not working and you can utilize that.

18:04And then you would be able to get that, you know, actually$1 million worth of that actual deduction. So even though you can do the cost segregation, study what you might not be able to utilize unless you have some passive income basically that other that other if you have the 750 hours then you can convert that passive loss or the passive depreciation in active and now you can go against your uh you know that actually k1 income from your business uh your w2 income from your business or any other sources and you can offset basically so this is one you need to know so that's why it is very tricky that you need to figure out that are you really going to able to use the depreciation or not basically so always start that can I buy this real estate without any tax benefit and if it makes sense buying the real estate without any tax benefit then absolutely everything is fine the second way you can utilize the real estate depreciation to offset your active income is something called short-term rental you would have heard about something called airbnb loophole basically so here that actually you don't need to that actually worry about 750 hours but here you need to worry about 100 hours which is anybody can do even though you're working full-time you can do that one here there's no conditions is that you should not be working anywhere else as long as you are giving 100 hours and your 100 hours is higher than anybody else, 100 hours in this, that actual real estate, then that you would be able to take that depreciation as the active depreciation and that would be able to offset against your W-2 income or your active source of income.

19:53So, these are the two ways you would be able to take a deduction. Otherwise, you would not be able to take a deduction. That's been said, you can always offset the passive income. So let's say you do have the bunch of other real estate or other sort of passive income, then that obviously you can utilize. But if you want to offset your active income, then you need to be either real estate professional or you are doing the short-term rental. Fire Nation, an absolute masterclass from Neil on entity planning, income tax planning, real estate tax planning, real estate for entrepreneurs. Love this. So Neil, if Fire Nation is listening, they're like, I need to tap into this brain.

20:38I need to connect with Neil and his company and his team. What is your call to action for our listeners today. Thank you. So we are more than, you know, 60 people, you know, majority of them, you know, actually work out from our 10 ,000 square foot office out in, you know, actually South Florida. You know, that anybody can go to neiljasani.com, N-E-I-L-J-E-S-A-N-I.com. And, you know, they would be able to call us, they will be able to send the email or they can schedule some time with one of our senior tax attorneys or the senior CPAs. Fire Nation, you are the average of the five people you spend the most time with.

21:22You've been hanging out with NJ and JLD today. So keep up that heat. And for links to everything that we talked about, visit eofire.com, type Neil, N-E-I-L in the search bar. The show notes page will pop right up. And Neil, thank you for sharing your truth, your knowledge, your value with Fire Nation today. For that, we salute you and we'll catch you on the flip side. Thank you for having me, JLD. It was absolute pleasure. Hey, Fire Nation, a huge thank you to our sponsors and Neil for sponsoring today's episode. And Fire Nation, what can 4 ,000 of the world's most successful entrepreneurs teach you?

21:57How about how to achieve financial freedom and fulfillment? My first traditionally published book, The Common Path to Uncommon Success, is a revolutionary 17-step roadmap that will lead you to the lifestyle that you've been dreaming about. This book took me 10 years of accumulating the genius of the world's top entrepreneurs, and you can get it all in one place when you visit UncommonSuccessBook.com. I'll catch you there. We're on the flip side. Are you ready for the ultimate all-in-one platform for entrepreneurs, marketers, coaches, and agencies? Build funnels, automate follow-ups, manage clients, and even white-label your own software.

22:33Say hello to our featured partner, High Level, and visit highlevelfire.com to start your free trial today. Fire Nation, success isn't a solo journey. It's about who you surround yourself with. That's why I built the Freedom Circle, a powerful community of entrepreneurs ready to support, inspire, and share the ideas that move you forward. Visit freedom-circle.com to learn more. Thank you.