120 | The Tax Strategies The High-Net-Worth Use That CPAs Won’t Talk About with Michael Moffa

Patrick: [00:00:00] What if the biggest threat to your wealth isn’t the market, but the tax bill you didn’t plan for and the creditor you didn’t see coming? Welcome back to another episode of the Vital Wealth Strategies Podcast. I’m your host, Patrick Lonnergan. And if you’re a business owner focused on keeping more of what you earn and building real long-term wealth, you’re in the right place.
Today I am joined by a peer, Michael MoFA, founder and president of Prosperity Tax Advisors and Prosperity Wealth Advisors. Michael is a nationally recognized financial strategist, tax planning expert and fiduciary advisor. With nearly two decades of experience helping business owners and high net worth families implement proactive tax strategy, investment management, and integrated wealth planning.
He’s been featured in Forbes, the Wall Street Journal, and he’s known for his forward thinking approach to financial planning. In this episode, we break down what it really means to stop playing defense with your finances and start building a proactive plan. We talk about how business owners can approach [00:01:00] taxes strategically before year end, how investment decisions and tax strategies should work together, and why having the right advisory team can make or break your wealth building future.
Stick with us until the end, because Michael shares insights that can completely change how you evaluate your own asset protection and financial strategy. And if you wanna dive deeper into tax strategy and wealth building tools, be sure to visit us at vital wealth.com/resources. That’s vital wealth.com/resources where we’ve built a vault of resources designed specifically for entrepreneurs who wanna save more in taxes and grow their wealth faster.
Also, if you enjoy the show, please take a moment to leave a review. It helps us reach more business owners who need to hear these conversations. Alright, let’s jump into today’s episode with Michael Maha. I’m excited about our conversation today. We’ve got Michael Moffa here from Prosperity Wealth Advisors.
Uh, this is gonna be a lot of fun. They do a lot of great work helping entrepreneurs, uh, and high income earners pay less tax. So Michael, thank you so much for, for joining us.
Michael: Well, thank you [00:02:00] Pat, for having me on.
Patrick: Yeah, this is, this is gonna be fun. So I think about the entrepreneur. They generally have some, some problems.
They, they, they get this fragmented financial advice. They’ve got their CPA maybe telling ’em one thing, financial advisor, attorney, you know, insurance providers. And, uh, there, there’s just not this integrated and coordinated planning. Uh, and at the end of the day, nobody’s really doing tax strategy. It’s very tax efficient.
Mm-hmm. Uh, we’ve got misaligned investment strategies, uh, just because, you know, somebody, uh, doesn’t pay any attention to, uh, the tax side. And so they, they might be driving forward doing great things from a return point of view, but then we’re giving lots of it to the IRS and then we’re often reactive instead of proactive.
On the, the planning side, you know, I think of so many CPAs. Uh, we had one client that, uh, we were doing some tax planning for at the end of the year, and, uh, the last week and a half, their CPA was just outta the office. It’s like,
Michael: yeah,
Patrick: this is when the tax planning needs to sort of be wrapped up. You know, we gotta get things crossed the finish line before the end of the year.
Um, and [00:03:00] so, you know, when we think about CPA, they’re, they’re looking in the rear view mirror trying to, to get things done. And I’m overgeneralizing there. But, um, um, you know, that’s generally where we, we see things and then internally, you know, there’s just this anxiety. We, we just look at the complexity that starts to happen with, uh, you know, somebody that’s, that’s growing in enterprise.
And it’s like, man, there’s just all this weight on me to try to figure it all out myself. And, uh, there there’s just concern about, man, is this thing gonna fall down? Am I gonna lose what I’ve built? And, uh, just decision fatigue. They, they’ve got so many decisions that they need to make in the business, and then when you start thinking about all the financial decisions, it just becomes a lot.
And then lastly, we think about the philosophical problems. Success should create freedom, not this financial confusion and more obligations. And so, uh, entrepreneurs deserve clarity and alignment, not necessarily chaos. So I am looking forward to getting into how you and your team help, uh, entrepreneurs solve all of those problems.
Michael: Absolutely, man. I, I can’t wait. So, so [00:04:00] you’re, you’re, um. You, you are almost, almost a hundred percent correct on a lot of what you just mentioned in regards to individuals and entrepreneurs and their existing traditional CPA team, right?
Patrick: Mm-hmm.
Michael: It’s not that that the CPA is not aware, um, and some maybe aren’t, but it’s not that they don’t do tax planning because they just wake up one morning and have a decision like, Hey, I’m not gonna do tax planning for my clients.
The issue and the challenge that a lot of traditional CPA firms have. Is that they are specialized in compliance and financial auditing. Right. And if you look at most of the statistics that are out there, um, being brought almost 98% of the time, uh, a traditional CPA firm, which is typically a CPA or an enrolled agent, EA and some staff.
Right. Um, for majority of the time they’re doing just compliance. And compliance is accounting, [00:05:00] bookkeeping, tax prep, return, uh, for those clients. Right. And a lot of that, a lot of that time is, is really in the beginning parts of the year like now.
Patrick: Mm-hmm. Right.
Michael: So we’re in February, so you have to gather up all your documents, all your 10 90 nines, your K ones, and then you meet with your accountant.
Now keep in mind, the year is already done. Right? Right. So we’re already past December 31, we’re in the next year, and you’re looking back and trying to say, what can I do before either I take an extension or I have to cut an additional check to the IRS in a couple of months?
Patrick: Yep.
Michael: Now a lot of times with ECPA firms is they’re just bogged down with hundreds, if not thousands of clients.
Patrick: Yeah.
Michael: So as you can imagine, there is no space in their, their calendar, uh, to do tax planning Yeah. Proactively. Right. And some do. Now I’m not discounting a, uh, a lot of them, but, but very, very small do.
Patrick: Mm-hmm.
Michael: Yeah. So that’s, that’s the challenge they have, right? Yeah. They have, they don’t have a lot of staff to handle the, the thousands of clients that they’re doing, [00:06:00] the hours that they’re putting in from, from looking at the returns and then plugging in the data in the accounting software.
Patrick: Yeah.
Michael: Uh, and then after obviously April 15th, right. A lot of the firms tend to take a little bit of break right. From beginning from May to June, and then they come back towards middle of the summer to work on the extensions that carries them through October. And then at that point, they’re either, they’re, they’re really tired, they take some mm-hmm.
They got the holidays. Yeah, the year is done, right?
Patrick: Yeah.
Michael: So what we do differently is we are tax advisory consultants, right? Mm-hmm. And so what all we do day in and day out is tax planning. Yeah. So we could come in coordinated with your existing CPA, we could work with them. Uh, I’ll tell you that a lot of times that that creates a little confrontation.
Yep. But that’s okay. Right? Yep. Uh, and then the other thing that makes our firm a little different, pat, is that I am a private wealth advisor by nature for the last 25 years.
Patrick: Mm-hmm.
Michael: So when I created Prosperity Tax [00:07:00] Advisors, I created it with. The, the thought process of having our staff, our, our CPAs are also CFPs, they’re also EAs enrolled.
Mm-hmm. They’re also certified exit planning advisors. Right. And so I make sure that the team I build through Prosperity Tax Advisors has the subject matter expertise in all areas of tax, wealth and business. Yeah. Why? Because not if, if we’re just focusing on tax planning for the entrepreneur. Well, I mean they, a lot of entrepreneurs are business owners.
Right. At some point in the future, they gotta sell that business.
Patrick: Mm-hmm. A
Michael: certified exit planning advisor, a right is ones who go in first into the business, reestablish, uh, that the order of the business, and then make sure things are running smoothly. You have employee handbooks done, process and procedures, workflows done Right.
Making sure the business, the ebitda, all of that looks good. And then we try and raise that multiple upon that [00:08:00] exit. So again, having conversations from a tax perspective, we already know in that field what to look for, right. So that’s what makes our firm mostly unique, is that we’re not just a CPA and staff
Patrick: mm-hmm.
Michael: Our qualified specialists in all areas. Right. To help that client make thoughtful advice. Yeah.
Patrick: Yeah. We, we, we’ve got so many things we need to talk about here, and this is great. I think one thing you hit on that is so important is just the, the CPA business model. Yeah. And, and, and, you know, we beat up a little bit on CPAs in the beginning, but it, it, their business model’s just not designed to do the strategy.
And, and unfortunately one, oftentimes we hear CPAs promise that they’ll do strategy. Yep. We’ll help you bring your tax bill down. Uh, but really at the end of the day, they’re, they’re just doing the compliance and, and you outlined perfectly why they can’t do the strategy. They have thousands of clients and their, their annual rhythm of all the filings, they’re just so busy throughout the year that they can’t stay on top of what.
The entrepreneur has going on. And that leads me to the second piece [00:09:00] that you were talking about is you’ve built a team around having people that understand the entrepreneur. Mm-hmm. They understand the rhythm of their business and how things work. And so, you know, I’m, I’m guessing, and, and I know you guys do this, is you’re looking ahead going, okay, let’s forecast how much money you’re going to be making this year.
Let’s forecast the tax liability and let’s forecast a plan to solve that problem. Right. And, uh, and, and so I think that’s a such a crucial part of this, this whole process is being plugged into the, the entrepreneur’s financial life in every aspect. Right? Like, I gotta know your free cash flow. I gotta know how the business is going.
I need to know the rhythm of the cash flow outta the business. Like we see some clients that have this nice monthly recurring revenue, you know, just kind of trends up and to the right. That’s awesome. We also have clients that have these seasonal businesses that have huge spikes. At different times of year.
And then they are losing money, you know, month over month, uh, other times of the year. Now annually they’re making healthy money, but you have to like plan for those things. And if you, if you [00:10:00] forecast it out on a monthly basis, it gets, uh, a little interesting. So I’d love to hear more about how you, uh, just work with the entrepreneur ’cause you guys do some forecasting and, uh, some planning ahead of time.
And I, I’d like to hear more about that process.
Michael: Absolutely. Absolutely. So again, what, what, what makes us unique is that we, we target proactive meetings, right? And so I’m gonna give you an example of three clients we’re, we’re working on right now. All three have a liquidity event. So they had an exit with a business, some sort of business, um, whether it’s real estate development, a business that they brought up and built themselves over time.
So we have three data having liquidity events and they have tax exposure, um, in the ranges of about 22 million. 45 million and about 127 million right now. That one has a liquidity event of about a $400 million real estate development sale, right? Mm-hmm. Liquidity event. Now he’s got $120 million tax exposure, right?
So we’re working with his team and he is got about 70 different [00:11:00] entities, but we’re working with their team now proactively trying to figure out how to attack and mitigate legally and ethically parts of that income that’s coming from that sale, right? And then slowly but surely on a proactive basis. So we meet with every client on a quarterly basis, uh, throughout the year, tracking their financial statements, right?
Patrick: Mm-hmm.
Michael: We wanna make sure that they’re, they, they’re, and, and for the seasonality ones, right? That flow, uh, in ebbs and, and, and Lowe’s, we wanna make sure that, that we’re tracking that, that revenue. Mm-hmm. Not waiting to Q4. And it’s like, oh, we, we have a big pop. We have all this money. What do we do, right?
Mm-hmm. Now, the problem with everybody coming at the tail end of that, which makes it much more efficient to do it from the beginning of the year
Patrick: mm-hmm. Throughout
Michael: the year, right? Is that, is that you have the holidays that come into order at the end of the year. Right? So going back to these three, these three clients with these very large tax bills, you know, we’re, we’re chipping away.
One strategy at a time, and we’re [00:12:00] knocking out 5 million of income, 15 million of income, 25 million of income, um, and even larger chunks right at the time throughout the year so that we’re not all crammed in at the last part of that year with the holidays. And, and then it becomes very stressful. There’s, there’s a lot of room to make errors and mistakes, right?
Mm-hmm. So when you plan out quarterly and throughout the entire year, you’re smoothing out all the errors and mistakes. Yeah. Right? So you’re really attacking the bi, the tax exposure upfront, um, throughout the year. Now, sometimes these liquidity events have earn outs that come out at different parts of the year.
Yeah. Sometimes they may not get all their money at once, but they’ll get it in sections. Mm-hmm. Um, and so that, that’s what makes proper planning important.
Patrick: Yeah. Yeah. No, I, I love that. And, um. I, I think there’s, there’s also something that, uh, you guys have done that I think is really, really good too. ’cause when I think about tax strategy, you know, there’s, there’s so many different opportunities out there from a, a tactical point of view.
[00:13:00] Uh, and aligning those tactics with the clients, uh, goals and objectives really starts to hit the, the, the strategy, you know, bucket, right? Um, and so I, I think about strategy and oftentimes, and this is a frustration I have with CPAs, their, their, their strategy is go spend some money, go buy some more equipment, go buy a vehicle, prepay some expenses.
Um, and I’m not a huge fan. I’m okay with prepaying. I’m okay getting a deduction for things that I’m gonna buy anyway. Uh, if I, if I’m gonna buy the thing, let’s do it in December instead of January, so I can, you know, sort of use that tax savings all year. But to just go out and buy a new piece of equipment because I, I need to write off, I’m not a fan of spending a dollar to save 37 cents, that, that math doesn’t work out very well.
So I, I see the way you’re structured. ’cause so many of the strategies that I think make sense for entrepreneurs is I invest the dollar, I get a deduction for that dollar, and now that wealth can grow, uh, over time. So I, I see the fact that that’s another problem that CPAs have.
Michael: Yeah. [00:14:00] So, so let me, let me, let me dive in a little bit more on that, right?
Yeah. So that, that’s where I get a little excited about Yeah. So you’re correct. So typically the, the one thing that that, um, uh, saddens me every single time, uh, is that when I hear a client state, you know, my, my CPA told me to go out and buy a, an SUV of 6,000 pounds depreciated under bonus depreciation, right?
Patrick: Mm-hmm.
Michael: So, uh, be, and I think a lot of those, again, I, I’m not speaking for all CPAs, but I’m gonna speak for the majority, is they’re not securities license like I am, okay? Mm-hmm. Or like you are, right? So we know, and, and again, CPAs and, and financial advisors always butt heads. We, we, they don’t like us being in their sandbox.
We don’t like them being in our sandbox, but prosperity tax advisors. I have a very big sandbox with everybody in it. Right? Yeah. And that’s the important piece because we’re not just saying, go buy something whether you need it or not, right? And just go get a deduction now, for that matter. You might as well just pay the tax bill and, and just be done with it.[00:15:00]
But we have strategies proactively that will look, that, that have more advanced, uh, operating, uh, efficiencies such as, you know. An entrepreneur may, may be an S corporation or a pass through, um, uh, entity. There could be a way, right from an advanced side to look at separating parts of that business. Maybe they have a marketing department, maybe they have a, a vehicle transportation equipment department.
Right? Um, we also look at the lens of separating multiple entities to also, um, do what we call, uh, income shifting, um, from, from one entity to another, right. To take more deductions in that entity there. But another thing we look at is asset protection, right? Uh, entity optimization. And I know we’ll come back to that in a second.
To help you protect against inside liability risk, outside liability risk, and lateral. Liability risk, and I could go through those later, but
Patrick: yeah, this could be good.
Michael: So, uh, but yes, in, in essence we [00:16:00] have, um, again, each client has their own risk tolerance. So we’re bringing the blend and flavor of both, you know, the, the private wealth side, the tax side for that client, because if they’re open to taking, um, and I don’t wanna say if their risk tolerance is a little higher, and I’m gonna give you an example, like an oil and gas, right?
Mm-hmm. So that is a typical go-to from a wealth side. Now that’s great. Um, it does come with some elevated risk, like any investment, right? Mm-hmm. Guarantee, uh, on the risk side there and the return side, however. When you have an oil and gas, it, it’s a wealth generating opportunity, but it does carry some risk that, that if that, uh, particular oil company is exploring, uh, for natural gas or oil and it hits, and it, and it has, let’s say one of the rigs have a fire, well, it’s possible that that damage and, and that lawsuit, if there is one, can extend and come into your scenario, right?
Mm-hmm. That’s the risk when I mean there, um. Just like anything, you invest in the market, right? The [00:17:00] markets go up, the markets go down. There’s risk with investment there, but this gives you a tax deduction. Mm-hmm. We have other strategies, more advanced, and dozens of them, and again, each client has their own custom sort of scenario, right.
That we apply these strategies for. So it’s really based on tax liability. So if they got a hundred thousand dollars tax exposure, we have certain strategies we can attack that with.
Patrick: Mm-hmm.
Michael: They got a million dollar tax exposure. In other words, a check, they gotta cut to the IRS in that amount.
Patrick: Yeah.
Michael: A more elevated set of strategies, and then obviously when we’re getting into the 20 to 30 and the a hundred million dollar tax exposure.
Mm-hmm. These are what the high net worth people are using left and right to replace that check. Cut to the IRS and, and turn those dead dollars into wealth generating opportunities.
Patrick: Yeah.
Michael: Where we come in and help with some of that. A lot of that stuff.
Patrick: Yeah. I love it. So, uh, I, I want to dig into this a little bit.
Yeah. ’cause I, I think you’ve got some really cool things going on. Uh, one of the things that we [00:18:00] see with, with entrepreneurs oftentimes that, that come to us, they’re, they’ve outgrown their CPA and, and what I mean by that is their CPA works with lots of, uh, folks that are, you know, W2, they’re, they’re doing okay, this might’ve been their dad’s CPA.
And so they’re like, cool, we’ll, we’ll get started. And, and now they’re to the point where the CPA just doesn’t understand, you know, they’re, they’re not keeping up with what’s going on. They’re missing quarterly payments. They’re, you know, there’s all sorts of things that are, um, that are happening that are, that are somewhat problematic.
So if somebody’s, because I think one of the things you do that’s really cool, and I think this lead us down a few different paths here, ishmm. You also help clients with the tax filing, right? Like if Correct you can help design the strategy and then help execute on the tax filing. So can you talk a little bit about that, about that side of the business and how Yeah,
Michael: absolutely.
Yeah. So, so, uh, I’m gonna give you an example of a client who, um, was about to leave their CPA, um, but they just, they did a tax [00:19:00] strategy with us, with a, with a, um, uh, depreciation style tax strategy, which mm-hmm. You know, we purchase a a a A software. Uh, or a movie film, right? Mm-hmm. And then so we take the depreciation side, that now if we include in our services, the tax, the compliance side of that, right?
The tax prep and, and file side. But this client’s like, listen, uh, you know, let me finish up with my existing CPA and then next year I’ll move everything to you guys. Mm-hmm. So we can, and we get that a lot in the beginning, right? Because again, CPA is one of the most trusted people, um, even if they don’t know tax planning and are not proactive in communication, right?
But they are one of the top five trusted people from to an entrepreneur.
Patrick: Mm-hmm.
Michael: So, uh, and you and I are more towards the bottom of the top 10, uh, as far as the trusted people from a wealth side, right?
Patrick: Yeah. Yeah.
Michael: So anyway, uh, they, the, the individual client, um, so we did our tax strategy and we have our, our tax savings.
Uh, and then we did the strategy and we [00:20:00] put, provided the tax form to the client so that we already did our section, right?
Patrick: Mm-hmm.
Michael: Well, their CPA. Filed it incorrectly on the state side. Mm-hmm. And so now this client, literally just last week, has a, uh, state notice stating that, uh, they’re gonna make an adjustment because that CPA incorrectly filed her return with our strategy.
Patrick: Yep.
Michael: And so now she’s got, uh, this state tax, which again, if we filed the return, we need, we know better. Yeah. Not to, you know, ’cause, uh, um, the particular state did not conform to the bonus depreciation or section one three K. So he should have knew that as a CPA in that state, but he didn’t. Right. And so that’s the complexity and the confusion that happens.
So we at first tell everybody, listen. You know, to build that relationship with you. Yes, we could do the tax strategy all day long and then provide that information to your CPA. We could even walk that situation through mm-hmm. With [00:21:00] your CPA, but a lot of times that CPA won’t pick up the phone. Right. They, I get it.
It’s a defensive mechanism from them, but in real, in reality, look what happened.
Patrick: Mm-hmm.
Michael: That client has, now we, now she’s gotta pay us from an audit resolution standpoint. ’cause now we gotta take over and go
Patrick: mm-hmm.
Michael: Question the, the state. Right. So that’s a perfect example why we do everything in-house.
Yeah. We do the strategies. They are very complex. They are a lot of moving parts and who knows better to file that return and if questioned randomly by the IRS
Patrick: Yeah.
Michael: Who was better than, than to to, to answer the IRS question. Right?
Patrick: Yeah. Yeah. This is great. And, and you’re leading me right where I want to go with this, this conversation.
So I think a lot of times when, uh. If the general public hears tax strategy, they’re like, Ooh, this sounds scary. You know, you, you’re going to, you’re gonna lead me into some path and it’s gonna trigger an audit. You know, that’s my favorite term. Like, trigger an audit. Like, there’s these things out there that like, you know, yes you can do foolish things, like of course, [00:22:00] get the wrong numbers in the wrong place and the IRS is gonna go, wait a minute, this is a problem, let’s go look at it.
Michael: Yeah.
Patrick: But there’s no strategies out there when executed properly, you know, are going to necessarily trigger an audit. So, um, I, I think there’s, there’s concern about, okay, man, what happens if the IRS shows up? ’cause this sounds scary, you know? Uh, at the end of the day, the IRS part of the government, the government controls the military.
The military can come show up at my house and take all my property. Right? That’s the story part. So, um, talk to us about audit defense and how, how your firm handles that. Yes. I think this is good.
Michael: Great, great, great lead way in. So, so, one thing we do differently for our services is we do, we do the implementation.
We do the documentation, we substantiate why the client is proving to receive the tax savings, the expenses, or um, or the deductions, right? Mm-hmm. And one thing we do one step further, uh, is audit protection. Now, what does audit protection mean to your crowd? Well, audit protection means that my [00:23:00] firm stands behind the, our tax strategies, regardless if questioned at any point.
Patrick: Mm-hmm.
Michael: Uh, uh, by the IRS. Right? And then how that process would work moving forward is we, would’ve the client sign a power of attorney? No. Different than a normal c uh, traditional CPA firm doing the same thing, except for we are not gonna charge you audit resolution pricing, right? Mm-hmm. Hourly rates.
Mm-hmm. What we do is we have a team of multiple law firms behind our firm that we bring in, and we respond to the IRS for you, and we do not pass any of, of those hourly wages to you. Mm-hmm. They can get as high as $1,500 an hour right Now, why do we do that? Well, we do that because I spend enough time doing the due diligence upfront, having multiple law firms get, uh, their tax opinion, um, uh, uh, analysis on the strategies, right?
Mm-hmm. Now there is, and I’m gonna get to the strategy, just remind me, pat that to get to, uh, social media, uh, and a lot of the [00:24:00] talk on strategies out there. ’cause I, I do wanna spend at least two minutes on that.
Patrick: Good.
Michael: Um, but yeah, so, so we, we spend enough time upfront doing the due diligence because I don’t wanna spend any more time with the IRS than I need to.
Mm-hmm. But again, we back up our strategies 100%, meaning that, again, we’ll take on that, and it happens a couple of times because again. Everybody can get randomly audited. There’s not one thing that can trigger in audit. Now, I will tell you what the IRS is using. They got ai, they’ve been using AI since 2024, um, as part of their, their wide open skin.
Now, what are they scanning for? They’re scanning for, um, um, misalignment in numbers. Mm-hmm. So example, you get a K one for a thousand dollars and you, you have that same K one for $600. You are reporting, there’s two different reporting numbers. Mm-hmm. That’s the AI scans immediately and says, oh, well there’s a flag here.
Now that flag comes. Right? They, then they’re gonna start asking questions and then they’re gonna start poking around. Um, [00:25:00] and so that’s, that’s, that’s the important piece of, of having the right firm, not rush anything.
Patrick: Mm-hmm.
Michael: Right? Making sure you take the extensions and you’re allowed to take the extension.
It’s legally allowed up to six months. Um, you know, whether you owe or not. Now you, if you still owe a tax bill, you’re gonna owe that same tax bill.
Patrick: Right?
Michael: Right. But what happens is that you make sure that all your, your documents are in order.
Patrick: Mm-hmm.
Michael: And there’s no mistakes or errors. You don’t wanna rush into that because again, that can open up more questions and then it can open up a full blown audit.
Patrick: Yeah.
Michael: So,
Patrick: yeah. I, I love this. This is so good. And I think there’s, there’s a few things, like we encourage every single client to extend, even if you have everything ready to go, the data supports the IRS audits more on time filers than they do extensions. So like, just from that fact alone, I should extend and file the next day if I’m ready.
Uh, the second piece is most of our entrepreneurs are involved in a lot of stuff.
Michael: Mm-hmm.
Patrick: And so they’re waiting for all their K ones to show up. Mm-hmm. And it’s like [00:26:00] those K ones have, unfortunately until the entity filing deadline to sort of get it all together. Now, hopefully, you know, they’re, they’re done well before that, especially, you know, when you have.
Sort of layered on top of each other. It’s like that, that can get really messy. So, uh, you know, puts sort all sorts of time pressure on the
Michael: mm-hmm.
Patrick: On the filing firm to, to get it all done. But I think, I think extensions make a ton of sense for all the reasons you just said. It gives you time to get it right.
It gives you, uh, you know, less likelihood audit. I think that, uh, that is, that is all fantastic. So I I you bring up social media. I, I love social media ’cause we’ll have clients send us a, a TikTok, an Instagram reel or something that’s like, you know, and we see these things and we’re like, there might be a kernel of truth in there, but if you execute on that thing the way that guy outlined it is gonna be a problem.
So can you talk through social media for
Michael: us? Yeah. So I, I, I love, I love the setup here, man. This is, this is too easy. Um, so no, you’re, you are absolutely [00:27:00] right. Um, I heard. Last week. And now, listen, I, I track all our competitors. I’m in the same communities as, as all our competitors, right? So I know a lot of them, and nobody has the, the firm set up like I do with wealth, business and tax kind of combined into one.
Patrick: Mm-hmm.
Michael: Right? So for the, for the advice and for the tax planning sessions moving forward, right? So with, with that in mind, I heard a, uh, a gentleman, I’m not gonna obviously name their, their names. Um, I have a social media, TikTok post or Instagram post, one of the two. Mm-hmm. And here’s what they said.
Listen, you can, uh, he, you know, he is walking and he is got the, the camera on him, right? Live, live, uh, live, live, uh, thing there. And then he’s like, uh, you know, you could go purchase, you know, a short term rental property, uh, and, and, and bonus depreciate the entire property. So let me, let me say that again.
He said you could go get a short-term rental, uh, now, and I’ll tell you [00:28:00] the difference between short-term rental and long-term rental. Right there, there is a difference between the two, but
Patrick: this is great.
Michael: Go, go get a short-term rental and, and then, you know, you bonus depreciate the, do a cost segment analysis and you can depreciate the entire property.
Patrick: Yeah,
Michael: that’s incorrect.
Patrick: Yeah. Yeah. This is great. Can we, can we slow this down for a second? ’cause I think this would be really, really good for, uh, people listening. So let’s start off with a short-term rental versus a long-term rental. Okay. Uh, if we define a short-term rental, I’m, I’m gonna do my best job at this, but the average daily or the average rental is seven days or less.
Is that correct? Correct. Um, okay. So, um, if I’ve got a short term rental that’s considered and I’m managing that, it’s considered active, um, participation, right? Is, is that the,
Michael: considered a trade or business per DIRS and so in very simple terms, they treat that short term rental as a hotel. Okay. So that’s how you get the active side of that.
Now, there’s a few other parts that, that have to happen, right? So you still have to participate 50 [00:29:00] more than, than any other person. Mm-hmm. In that entity one and two, you still have to, uh, participate a hundred hours a year. Now it’s not 500, it’s not 750 hours like a, like a real estate professional status.
Right. So it brings down a lot of the temperature
Patrick: mm-hmm.
Michael: The requirements that you need. And then, and then you could do a cost segment analysis, depreciate the property correctly. Yeah. Then that big qualified business loss can transfer over and offset other income and other W2 income as well.
Patrick: I love it.
Okay, so now I wanna, I wanna continue on, on this discussion on the, uh, the comment that you can, you can write off the. I’m gonna call it the a hundred percent of the purchase price. Okay. So, so if I buy a piece of property, and let’s, let’s assume it’s a standalone house that I’m, I’ve put on Airbnb. Okay.
And let’s say it’s a million dollar property to keep the mass simple. Sure. Actually, let’s make it 1.1. [00:30:00] Okay. Okay. And the land is worth a hundred K. Yeah. And the, the building’s worth the million bucks.
Michael: Okay.
Patrick: So can I, can I, can I write off all 1.1 million?
Michael: No.
Patrick: No. Okay. And,
Michael: but that’s, but that, and, and I’ll explain that, right?
Yeah. And that’s what this individual said in their TikTok Instagram session. Right? So typically the process, when you look at depreciation, there, there are multiple depreciation methods, right? Uh, and what the purpose of using what’s called a cost seg analysis is that it accelerates the depreciation from 27, 28 years, or if it’s commercial property, it’s over 30 years mm-hmm.
Down into the 1, 3, 5, 7 year time maturity. Right. And what that does is that it accelerates the depreciation.
Patrick: Yep.
Michael: Where the bonus depreciation comes in is some additional renovations or repairs to the property that you can, you know, you look at appliances, hvac, roof, right? Yeah. So there are additional repairs, renovations that you may have in that property that you could get a bonus [00:31:00] depreciation.
Mm-hmm. Um, deduction added on top, which raises your qualified business losses. Right?
Patrick: Yep.
Michael: Now, with that cost seg in line, now there are different cost seg analysis companies, but they range from anywhere from 15, 14 to 15% of the purchase price. Minus land. Yep. Like a cabin, for instance. Yep. And then it could get a little higher into the 20 to 25% range.
Of the purchase price minus land.
Patrick: Mm-hmm.
Michael: Is that a hundred percent of the purchase price? No.
Patrick: No.
Michael: So I don’t know where this individual gets their information from, but, but they are doing a lot of sessions on, on, on social media. Yeah. And incorrect. So it’s very important you work with a subject matter expertise firm because it’s, it what makes us different also, um, from a strategy to strategy session is how the implementation is done correctly.
Yeah. I, I’ll give you one extra e example if I may.
Patrick: Sure. Yeah. Well, can we, can we stop one second because I, I think one thing you highlighted, and I [00:32:00] just wanna put a dollar figure to it. So if I’ve got a million dollar property that I, I can write off 25%, I get a cost se for 25% of that building that I can accelerate the depreciation.
That means I can write off $250,000 off of my, my earned income if I’m. Participating in all the, the rules that you, you set out. So that’s still a, a fantastic deduction.
Michael: That is, that is wonderful. Right? Yeah. Yep. That is wonderful. But another thing to add on top of that is, um, you know, obviously you gotta look at what goes into that property, right?
You gotta put a down payment, you gotta go through underwriting, get a mortgage.
Patrick: Yep.
Michael: Right? And all of that, you know, we have some very sophisticated strategies that can do 3, 5, 8 times
Patrick: mm-hmm.
Michael: That deduction limit, right? If needed. This is how we can get into the upper tens and twenties and hundreds of millions of dollars of tax exposure that we can mitigate,
Patrick: you know,
Michael: pretty much close to zero, right?
If done pro, if done proficiently, depending on decline in their situation.
Patrick: Yeah. Thank you. Because I, I think there’s a very, very important thing that you, you mentioned there. I, I see [00:33:00] very much the same TikTok, uh, Instagram that, uh, you’re talking about these, these people talking about. And what they don’t realize is owning real estate is another business, right?
Like you have to have active participation, you’ve gotta be involved. You gotta have that a hundred hours involved. And so that’s not like buying, uh, Amazon stock, right? Amazon stock. I can buy it, forget about it, come back and go, oh, it’s worth more than I, you know, paid for it. If I do that with my real estate, I don’t get the tax deduction.
The thing will be worth nothing because, you know, the, the tenants and nature will just consume the thing. So, uh, I love real estate. We’re involved in, you know, hundreds of millions of dollars of real estate projects and we, we love that. Uh, but you have to have the infrastructure to make it work. And if you don’t, it’s, uh, uh, it’s the reason the average landlord lasts three years before they’re out.
So, that’s
Michael: right.
Patrick: This is, this is great.
Before we get back into the episode, I want to take a quick second to share something with you. If you’re listening to this episode right [00:34:00] now, chances are you are the kind of entrepreneur who wants to do more than just make more money. You wanna keep more of it, grow it, and build real long-term wealth the right way.
And the truth is, most business owners are missing opportunities every single year simply because they don’t have the right strategies or tools in front of them at the right time. That’s exactly why we’ve built the Vital Wealth Resource Fault. Inside, you’ll find powerful tools, guides, and trainings designed to help you minimize your taxes, increase your cash flow, and start building wealth with more clarity and confidence.
So if you want to take what we’re talking about in this episode and actually put it into action, go check it out right now at vital wealth.com/resources. That’s vital wealth.com/resources. Alright, let’s jump back in with Michael Maha.
Uh, I’m, I’m like super excited about the strategies that you’re talking about that are, I’ll say more passive, uh, don’t require my, [00:35:00] my, you know, active involvement.
Michael: So a lot of the strategies we have are on, on the active side and the passive side. So we, we have a blend of, of both right now, the reason for the active side is, and yes, the client has to be active in those, those entities, those businesses.
It’s not like we’re creating a shell company. Um, and, and you don’t have to do anything. No. There is some time that needs to put in, but if you think about it, if, if Pat, if I were to put it to you this way and say, listen, if, if you could save, and I’m just gonna throw a number down there. Let’s say we could deduct a million dollars of income, okay?
But one of a few different requirements needed is for you to spend two hours, uh, a weekend. Into that strategy. Would you, would you do that and that equals out basically a hundred hours for the year, right? Could you do that to, to remove a million dollars of your earned income? W2 or 10 99. Right, [00:36:00] which can equate to a very large tax savings.
Patrick: Yeah.
Michael: Would you put in that two hours a weekend?
Patrick: That’s a lot of money, that’s a really good rate of return on my, my time if I, if I can put that in. So I, I’m probably gonna find a way to get that done.
Michael: Right. Right. And, and, and 99% of our clients do, right. Again, IRS we’re not, there are a lot of requirements.
There are a lot of restrictions. Right. There’s a lot of fluff out there too. So that’s where we’re working with the right team and the right firm. And I’m building, continue to build this firm, uh, of about 11 plus employees with the right designations and skill sets that you won’t find in each traditional CPA firm.
Right. Because we wanna make sure we cover every aspect of the industry for that entrepreneur, um, or high wage W2 that needs that tax advice and that tax planning.
Patrick: Mm-hmm. I love it. This is, uh, this is,
Michael: if you don’t mind, we should get to the, uh, [00:37:00] the entity optimization. ’cause I could, uh, I say that’s, that’s one of my favorite, right?
Patrick: Yeah. And I think this is, this is one of the areas that we see consistently screwed up. Um, because there’s not somebody, we, we have sort of two competing camps here. Okay. And I’m, I’m gonna highlight some of these and then you can, you can clean up my mess, if that’s all right. Sure. So on, on one side, we have an, an asset protection, uh, structure.
And so, uh, I am protecting my assets with, uh, LLCs. You know, every, you know, legal counsel will say, yep, put, put every entity in, in, uh, every business or every property in its own LLC. It’ll segregate the risk. And, uh, you’ll be, you’ll be in pretty good shape. And then on the other side, we see some of the tax moves.
And, uh, like for example, we had a client came to us with four s-corps that all kind of work together. And I’m like, you kind of take a wage out of all these, what the heck are we doing? So, um. So like there was some cleanup there. We were able to sort of restructure that under like, uh, [00:38:00] one S-corp and uh, you know, we had Q subs in place and without getting all
Michael: say two subs Yeah.
Half,
Patrick: uh, dirty there. But it’s like, okay, you know, people hear this cool tax strategy, like, yes, I need an S-corp. And then they go just like start applying to everything. It’s like, slow down, stop doing that. Right. Um, so you know, then, then there’s like things like a C corp. Like C corp look pretty cool ’cause I only pay, you know, a 21% tax rate versus 37% tax rate.
But if I wanted to try to get the money outta that thing, it’s locked up forever. So, um, yeah, I think there’s all sorts of different things we can look at. And I, I love your. Uh, your entity structure? ’cause I, I think there’s some, there’s some asset protection things in here that, uh, most people are, are gonna miss, and I’m excited to hear you talk about it.
Michael: Yeah. So, so a lot of times, uh, again, over the 25 years of, of my experience, and this, this is what, what again makes us very unique. What our firm is, is more of the entity optimization side. So what, what people tend to, [00:39:00] to, so let’s go on that. Your example with, with four s corp, right? Yeah. What, what, how do you define an S Corp to begin with?
Right. How do you know? To, to file for an S corporation versus an LLC versus a C corp. Right. So that will just determine on the client and their scenario, of course. Mm-hmm. Because you have a sole proprietorship, which I, we have seen some clients start with that. Um, mm-hmm. And, and, and as far as risk protection, you are completely naked with that, right?
Patrick: Yeah.
Michael: There’s no, there’s no protection, both internal and, and external protection. So when I say external liability risk, right? What I’m meeting is a meeting, uh, is that the, uh, accidents, right? You get into an accident, texting, driving, DUI, uh, night driving, right? So any sort of accident there, um, a civil suit, it could be a slip and fall, it could be anything external out of your business in the personal life, right?
All of that can be affecting you individually. So. What lawyers have been been very keen on and very, very smart over the last 10 years is [00:40:00] they don’t only sue you and your insurances anymore, they’re going to sue the, the insurances. Whether you have an umbrella policy, auto policy, homeowner’s policy, short term renter policy, and then there’s you civilly, they will always bring you in civilly.
Right. Because now they know they can get paid by the, the insurances. Right. But now they come after you civilly. Now you gotta hire an attorney to defend yourself civilly. That is outside liability risk.
Patrick: Mm-hmm.
Michael: How do you protect that? Well, you gotta form sort of a structured hierarchy as, as far as all the assets and operating companies, divide them up between what is passive assets, what is operating companies.
Patrick: Mm-hmm.
Michael: Now they should all flow down in a hierarchy, into a, what we call a holding company. They should have a holding company in the operation side that holds. All of your operating companies, right? The companies that you’re active in, you know, um, and the reason for that is that you remove your personal name from [00:41:00] those entities.
Let me give you an example of somebody that, that, let’s just say you, let’s bring you in, right? Mm-hmm. Sure. You own A, B, CLLC, right, pat?
Patrick: Yep.
Michael: If there’s a li outside liability suit, somebody slipped and fold at your house, you were having a party and mm-hmm. And someone slipped and fold. Pretty, pretty damaging.
And they come after you. They sue you civilly as well as your homeowners and everything else, right?
Patrick: Yeah.
Michael: Now they, because you own A, B, CLLC in your name, they can come after, depending on the litigation deposition and the final result. If they win that lawsuit, they can come after the ownership of your entity, your business.
Patrick: Mm-hmm.
Michael: Come in. They now, they’re now a partner in that business with you. Right? And so how do you keep them out is by structuring layers of other entities in place. Now at the bottom layer. What we typically like to see is a revocable trust. Mm-hmm. Now, a revocable trust is not asset protection. Why?
Because you are the grantor and the trustee of that trust. But [00:42:00] it takes them a couple of minutes to figure out who owns that trust.
Patrick: Yeah. Yeah.
Michael: Then that trust owns the next layer up, which will be the holding companies.
Patrick: Mm-hmm.
Michael: Either on the operation side or the passive asset side. And then from there, that holding company owns your operations and that holding company owns the, the passive assets.
Could be real estate, could be your individual brokerage account, could be your crypto account.
Patrick: Yeah.
Michael: And, and on the passive side, let me just speak just 30 seconds on that. Yeah. That holding company we typically do in Wyoming. Mm-hmm. Now there are about eight states that we do asset protection, entity creation in.
Right. There’s Nevada, there’s Arizona, there’s Alaska, there’s South Dakota. Yeah. Right. There’s Wyoming, there’s Delaware, uh, there’s North Carolina. Right. So there are states that have different statutory protections. But also the state that the client lives in, whether that that law, that that jury, there can mm-hmm.
Uh, conform to some of the outside, uh, asset protection entities. Right? Yeah. Like Florida, for instance, doesn’t recognize what we call DAPs, [00:43:00] right? Mm-hmm. Domestic asset protection trust. There are 18 states that do that. What is a domestic asset protection trust? It is a combination, a hybrid of a little bit of a revocable trust and mostly irrevocable trust.
Patrick: Yeah.
Michael: That’s what I mean by that, because you could be, you could be in there as the beneficiary. Right. And typically, a irrevocable trust is an asset protection entity against creditors. Right?
Patrick: Yep.
Michael: So, and I get, I get deep into this, but yeah. Anyway, there are so many different trusts. There’s about 12 different trusts.
Patrick: Yeah.
Michael: Ations you could start your foundation with then those trusts need to own holding companies.
Patrick: Mm-hmm. I, I, I love this. So I’m gonna recap a few things and then I’ve got a few questions for you. Yeah. So. Um, I, I, I think about the, the inside protection and, and I’m going to, if I’ve got a rental property, it’s a short-term rental like we were talking about.
There’s somebody throwing a party, they have a few too many drinks on the front porch, and they fall off the front porch and get injured, right? Like, uh, that’s going to protect if I, if I’ve got that asset and that [00:44:00] LLC and I get sued, they can’t come after my other assets because they’re owned by different entities, right?
They’re gonna,
Michael: but they could, if it’s negligence, criminal, or fraud,
Patrick: okay?
Michael: You forgot to fix something that they not, that’s negligence, right? That could pierce the veil of that protection. LLCI
Patrick: love it. So in, in that case, now we’re talking about like, uh, if I’m negligent, if I’m driving my car and I run into a school bus full of lawyers, kids, you know, and then they start to sue me, now me individually and everything I own, which would be all those LLCs is at risk, right?
So I’ve gotta, I’ve gotta create a layer of protection there that, uh, protects me from. Uh, the stupid things, uh, right. That I do. So that’s, that’s really good. Okay. So, um, I, I wanna highlight something you said about the trust. Okay. ’cause there’s, I think I, let’s role play a conversation that, uh, that happens.
If, if, let’s pretend you’ve got a no trust structure, okay? You just own everything in your personal name. And I come in and, um, [00:45:00] uh, somebody gets hurt and they, they come into my office as an attorney and they say, Hey Pat, I wanna, I wanna sue Michael because, uh, you know, I got hurt. And I’m like, yeah, sure. I just gimme a minute.
And then I get on my computer and I search Michael Maa, and I’m like, oh, cool. I see Michael owns like 17 LL Cs. He’s got a very successful business. I would love to take this case. It, we will just do it on a contingency, a third of whatever we make mm-hmm. Is what we get paid. And if we don’t make anything, we don’t get paid anything right now.
That lawsuit started and they’re excited if I do that same search and I don’t find your name anywhere. I’m like, I would love to take this case. I just need a $20,000 retainer. You know? Uh, now that conversation is different. You know, that person’s going, I don’t have $20,000. Right? Like, I’m broke. I’m like the rest of America.
I don’t have any money. Uh, so that, that lawsuit can go away because there’s not the same clarity into the things that you own. Because all I see when I search your name is, you know, nothing, right? Like your [00:46:00] personal residence is in a trust. Like, I can’t find anything on you. No vehicles, no nothing. It’s like, well, geez, this is, uh, this is going to be tricky.
So I think that’s a key distinction there. I don’t know if you have anything to add to that, but I think that’s a, I
Michael: I do so, so you, you are correct. Right? So it does make an, an instant judgment from the legal side that if they, they quickly do a search on social security number and then try and find you, if you’re in, if you’re, if you own entities in your name, you’re easily found and you have assets, right?
And then that’s where they start the deposition, move through. Uh, the deposition into, uh, well, what assets, liabilities you have, let’s, and then keep pushing through that, and then go into the litigation, right? Mm-hmm. Uh, and then obviously a final, final thought on that at the end. So, one way to protect and create a wall, so that first layer, that foundation, which is usually a revocable trust.
Again, keep in mind it’s not asset protection, but why is that revocable trust there to begin with. One, if you name that trust in a different name, not your last name.
Patrick: Yep.
Michael: [00:47:00] Family revocable trust, right? Mm-hmm. Which I see a lot of.
Patrick: Yep. But
Michael: A, B, c, land trust or a BC two trust, whatever the name is outside of your last name, it’s gonna take ’em a minute to figure out if that’s you, right?
Mm-hmm. It’s like, well, this is a trust. They don’t know what kind of trust it is, right? And there are, there are the, the trust that protects against creditors and litigators are the irrevocable trusts, right? That’s where the DAPT comes into domestic protection trust primarily. So. That helps you just in the beginning to buy yourself a little time.
But then when they do a little more deeper research with that, that requires the, the retainer. Right? Now they do a little more research. Oh, well, it, it is Michael Moffa, right? Mm-hmm. Mike wants that trust. Okay, so what is the trust own then thereafter, right? If our holding companies we create on the passive asset side, pa, when I say passive assets, it’s real estate, commercial property, short-term rentals, long-term rentals, brokerage accounts, investment accounts, crypto accounts, all of that is passive assets, right?
Patrick: Mm-hmm.
Michael: We create a Wyoming holding company with [00:48:00] a, a mechanism called C-O-P-E-A, COPE that stands for charging order protection entity.
Patrick: Yeah,
Michael: you’re gonna love this. So what does that mean, and why is that that beneficial to a client to layer in that holding company in Wyoming? Well, I’ll tell you two reasons.
One, what The state of Wyoming has what’s called a privacy statute. You will never, other than the IRS, you’ll never find who owns that. What business or what. In the state of Wyoming, you have that privacy protection. Number two, that cope mechanism. It’s the charging order protection entity. It is legal language written in the operating agreement of that holding company.
What does that stand for and what does that mean? It it stands for that. If they were to penetrate through the revocable trust, or let’s say you didn’t even have a trust in the mm-hmm. In the foundation layer, you move right up to that holding company. Right. It what happens is that they can only go after the charging.
They have to come after you with a [00:49:00] charging order first. Mm-hmm. If they do not lawsuits dropped, so then they could obviously amend it and, and refile the litigation suit with the charging order language in it. Okay. Let’s say that moves forward now they come after you with a charging order, pat, do you know what all they can get from that wall, that holding wall in Wyoming?
The only thing they could get. Only thing is the distributions you take from that holding company’s bank account to you personally. Mm. So let’s just say round number, it’s $50,000. You collect $50,000 of income from your brokerage account, your crypto account, your rental account, your, the all flow in into that holding company’s bank account.
That is what the creditors can only come after is the $50,000 of income. Now, if you don’t take that distribution and you do not take that withdrawal, leave that money in that bank account, they can’t come after anything. They can’t force it.
Patrick: Yeah.
Michael: Because again, it’s legal language written in. It’s, that’s the secret [00:50:00] sauce in the operating agreement.
Patrick: Yeah. It
Michael: creates a second layer of determent and they will get what’s called phantom income tax. So they’ll be taxed accreditors. Yeah. On that 50 k. Even if they haven’t received one penny of it. Right. Yeah. It’s amazing. That will almost immediately from what we’ve seen in the very few cases that that that happened in lawsuits are dropped.
Why? ’cause that creditor is not gonna pay tax on 50 k of income when they haven’t received $1 from you. Right. Right. What’s the point? Right. They can wait. You could and you could hold out.
Patrick: Yeah.
Michael: And then once that lawsuit is dropped, wait a couple of months and then you can obviously take that, that withdrawal from that bank account to your personal bank account.
Love it. But again, love it. They never go after the assets behind that Wyoming holding company.
Patrick: Mm-hmm.
Michael: A fire sale force, anything. Nothing.
Patrick: Yeah.
Michael: So it’s very important to have that and a lot of people are not aware of that.
Patrick: Yeah. I love it. Now, I, I’m wondering if you have thoughts on, because sometimes we see people really fired up about their asset protection and they don’t, I’m looking around, I’m like, [00:51:00] you need to go build more wealth.
You know? Um, is there, is there a level like. These things need to happen, sort of as, as your wealth continues to grow, is there, is there sort of like phases to this thing? Um, yeah, I don’t know if you have any thoughts or comments
Michael: on that. No, sure. Yeah. I mean, I would always start, you gotta start with the foundation.
Mm-hmm. So a lot of people don’t have a revocable trust. And again, why do I say having that? If you got a family, um, and the reason why that’s the foundation that should own your assets is because if something happened to you prematurely, you know this, right? Mm-hmm. You have a state tax and you gotta go to probate.
Patrick: Yep.
Michael: If, let’s say a spouse or, or both, pass away. So the revocable trust is there. To, to, um, um, effectively, you know, disperse your wishes, right? And, and the trust. If you have kids, the beneficiaries, maybe you have legal language about age disperse to money, whatever the case may be. But you avoid probate and then you already have it in place to, to segregate your assets to your beneficiaries, right?
So that’s why that should always be the bottom layer. Now, there are [00:52:00] 11 or 12 different types of trusts, right? And we could, we could, obviously each client is different based on their circumstances and complexity, but yes, you should start with the layer of revocable trust first and then go with the holding company.
So let’s say you don’t have real estate.
Patrick: Yep.
Michael: You have in, um, and, and in some states of protect the, the IRAs and the Roth IRAs from erisa, right? So you have regulatory bodies that protect those accounts. But there are some states that the IRAs are vulnerable to from a state side. Um, so you gotta watch too what state that you’re in.
And if you’re a retirement vehicles are protected or not. But if you don’t have real estate yet, but you have a brokerage account of a half a million dollars or larger, I think that’s a good, that’s a good. Point in my opinion on that.
Patrick: Sure.
Michael: Good point. To start, get it outta your name.
Patrick: Yep.
Michael: Or worst case scenario, make sure you don’t have joint wit.
Rights of survivorship. Look at Tenants by entirety is another way to look at it. ’cause now some states look at that differently. So again, it’s on a state by state bus, um, pleasure. But when you look at, uh, tenants by entirety, you’re splitting that account in half [00:53:00] 50 50. So you’re in a car accident and then your spouse is not with you.
They can only come after that 50% of the count. Mm-hmm. But if that, if that uh, uh, combined account is a joint with rights of survivorship.
Patrick: Yeah.
Michael: You are in your car accident. Your wife is not with you. Well now they come after that entire account.
Patrick: Sure. Right.
Michael: So tenants by entirety is usually the first level.
And then again, the holding company in Wyoming should be created and then build your LLCs on top of that. Let me, let me tell you why accountants don’t do that. Or at least they’re shy against that.
Patrick: Yeah.
Michael: Because it, because of the filing status, right? Mm-hmm. So the accounts, the CPAs have to, uh, have to charge you for that tax form, that Schedule C, right?
It’s an entity, it’s a business. So they gotta file that form. So that could be another couple hundred dollars, right? And then you gotta file the annual minutes, uh, reporting every year. That could be a couple hundred dollars there. If you have a registered agent, you gotta pay for that. That could be another a hundred dollars.
So what, what the traditional CPA firms do [00:54:00] is they tend to talk out the clients in protecting their assets. ’cause one, they don’t have the knowledge and the skillset in the asset protection realm, or the entity optimization realm like we do. Two, they scare the client, like, oh, you gotta pay, you know, six, seven, $800 for, for just these entities, you know, just to file them and their tax return.
And then of course, the annual minutes for the oper, the entity itself in the state.
Patrick: Mm-hmm. But
Michael: is it worth five, $600 a year, $800? I don’t know what the number is, depending on how many entities. Is it worth? The protection of your assets that nobody can, can penalize as long as you follow. No negligence, no criminal, no fraud.
Everything is protected. Personal assets are protected from business claims inside the business claims and the way you structure the entities layered, like I mentioned before, you protect against outside liability claims.
Patrick: Yeah. So
Michael: to me, it’s worth spending that money.
Patrick: Yep.
Michael: And, and if high net worth people, entrepreneurs have wealth over time, they, you work your life [00:55:00] to build this wealth, why not spend a little bit, and it’s tax deductible, by the way.
Patrick: Totally. Yeah.
Michael: And protect your assets.
Patrick: Yeah. It’s a very, very inexpensive insurance. Is the way I look at it. So like,
Michael: speaking of insurance, sorry. Sorry to cut you off. Yeah. But this is super important for the ones that don’t have the setup, like I mentioned. Mm-hmm. Um, obviously they can, they can chat with us at any point in time.
We can have conversations about entity optimization. But there’s one thing I wanna point out that people keep forgetting and don’t know. So let’s say you have, uh, pat, I’m gonna use you as the example. You have an LLC, A B, CLLC. Yeah. You have a rental property. You own that pr, that rental pr uh, that LLC in your name, okay?
Mm-hmm. So as long as you didn’t commit fraud. Negligence or anything criminal, you protect your personal assets from a short term rental, slipping and falling on the property and suing you, right?
Patrick: Mm-hmm.
Michael: Here’s one thing that people forget to cover as far as liability insurance. So there’s something called d and o [00:56:00] liability insurance, it’s directors and officers liability.
Mm-hmm. Why do you need that on top of, uh, a short term rental policy or anything else? Because you are the managing member of that entity. You’re an officer of that entity. They can sue the entity and they can sue you as the officer. Now again, you’re, you’re going to civil court. Mm-hmm. Um, or federal court, depending where they, they take it.
Yeah. Now you gotta bring personal assets in to help fund your defense.
Patrick: Yeah.
Michael: So if you own anything right now in your individual name, uh, of an LLCS Corp, C Corp, it doesn’t matter what it is. You need to make sure what your property and casualty team is to look for directors and officers liability policy to protect you.
Now, if you have another entity that is the managing member of that entity, you don’t need that, right? Because you have another entity in protection, you’re layering down. So that’s something that, that I think would be a great tip for your, your base to look at. If you own an LLC in your name and you just haven’t had the time [00:57:00] yet to structure how I mentioned it earlier in, in the different layers, at least look for directors and officers as additional protection on top of, or whatever li general liability you have.
Yeah. Very, very important.
Patrick: I love this. Michael. We need to wrap up. Uh, otherwise we will talk for dates and uh, people will be like, when is this thing going to end? But, uh, I think this is, this has been fantastic. Uh, Sarah, on your team’s. Incredible. Uh, I think one of the things that people should do is just get plugged in.
Uh, they should reach out. Uh, when I go to prosperity ta tax advisors.com, so prosperity ta.com. Mm-hmm. Uh, you can book your intro call. I think that’s a great place for people to go. They can also look at some case studies and just, uh, uh, get overview of, of who you guys are and how you think. But, uh, you know, I look at the work you do on, on the tax strategy and it’s, uh, it’s incredible for entrepreneurs that need planning
Michael: mm-hmm.
Patrick: That are looking for new CPAs. You guys bring the whole, the whole structure and also just the [00:58:00] conversation we had about NND structure as well. It’s like, uh, it’s a total package. It’s, it’s, it’s, uh, it’s really good. And, uh, I think we, I’m a, I’m a fan of Dan Sullivan and Strategic Coach, and he’s, he’s, he says, you know, don’t, don’t learn how to do things.
Go find a who to help you, right? Like get an expert in your life to just take care of the things that you’re not good at. And, uh, you just stay in your lane and lean into your unique ability. And, uh, I look at the work you guys are doing and you take so many things off the entrepreneur’s plate, uh, that just allow him to sort of.
Just pay less tax, protect their wealth build, uh, for the future. I think it’s, it’s great. So is there anything else that, uh, people should be doing to connect with your firm that I didn’t mention?
Michael: No, I, that, that’s it. You can reach out to Prosperity Tax Advisors, um, and that’d be the west way to contact us.
Uh, we’re here in Tampa, Florida, but we, we service clients across the 50 states, so mm-hmm. Most of our clients are in more of the blue states that are more triple taxed. Right. Federal, state, and local. Yeah. I mean, there’s some states that get up to [00:59:00] 55% of your, of your money in tax between all the different layers.
So, uh, that would be the best way to reach out to us. Um, take a look at our, our tiktoks and our Instagram. Mm-hmm. Do them as well, um, correctly.
Patrick: Yeah.
Michael: And, uh, and if you guys have any questions, you know, you can always email me at m MoFA, uh, that’s MMOF as in Frank, F as in Frank, a@prosperityta.com. And, uh, we’re more happy to, to have a conversation discussion with you and see how we can help.
Patrick: I love it. We’ll, uh, we’ll make sure we have links to all that in the show notes, uh, so people can find you quickly and easily. ’cause uh, this is the time, right? Like, do not wait until October, November, December to solve your tax problem. Uh, this is the time to start the planning. You have plenty of runway, uh, to, to get things going for.
For 2026, if you’re frustrated by 2025, tax bill, right now is the time to get these things going. So thank you Michael, for, for joining us here today. We’ll, uh, we’ll, we’ll have to do this again ’cause I think there’s, there’s probably four
Michael: so much more topics we
Patrick: can talk about.
Michael: Absolutely, man. Uh, and I, and [01:00:00] I appreciate, uh, the opportunity.
So
Patrick: yeah, this has been wonderful. Thanks brother. Alright, that’s going to wrap up today’s episode of the Vital Wealth Strategies Podcast. First off, thank you so much for tuning in. I hope you found a ton of value in this conversation, and more importantly that you walked away with something you can actually apply to your business and your wealth strategy right away.
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That’s vital wealth.com/resources where we’ve built a vault of resources designed to help you minimize taxes, build wealth, and take control of your financial future. And remember, you’re a vital entrepreneur. You’re vital because you’re the backbone of our economy, creating opportunities, driving growth, and making an impact.
You’re vital to your family, creating abundance in every aspect of life, and you’re vital to me because you’re committed to growing your [01:01:00] wealth, leading with purpose, and creating something truly great. Thank you for being a part of this incredible community of vital entrepreneurs. I appreciate you and I look forward to having you back here.
I’ll see you next week right here on the Vital Wealth Strategies Podcast, where we help entrepreneurs minimize their taxes, master wealth, and optimize their lives.