19.5 – Finding your CPA
Start Here
Your CPA doesn’t have to know ALL of the answers, but if you ask them a question that they don’t know, and are not willing to look into strategies for you, that is a red flag! The saying “always learning” applies here as the tax code changes every couple years due to Senate bills and clarification documents from the IRS.
The answer from a CPA should be “hmm, I don’t know but let me look and I’ll find out!” We want partners in our network that are focused on HOW we can conservatively deploy strategies that are legal, and save us money as opposed answers such as “No” or “too risky”. And if they say NO, they need to provide case law on why not.
Here is a more recent video talking about depreciation recapture.
Some preliminary questions to start an on-boarding with a potential CPA:
- It is somewhat of an unfair question, but it's not like they are going to pull out the holy grail that they have been hiding from you… no, it’s that you want to know that they care enough to try and figure it out with you. Later on in your line of questions you can test their tolerance for “exotic” or “risky” things such as conservation easements.
- I don't know if I agree with this lead off question. Even if someone is a very aggressive and good CPA, they will likely start out with the default lame idea like a Roth IRA or IRA account for starters. They don't know their audience and don't want to scare you off. They are assuming you are like 99.9% of potential clients. Prove you are somewhat sophisticated and then pop this question - maybe mention you have rentals or are in a few leveraged syndication deals with a few K1s.
- It may seem basic, even if you have been with your CPA, but I was surprised by a bill! I highly suggest you stay away from hourly for simple questions, or at least make sure they set aside time that is NOT billed throughout the year so you can strategize & plan.
- I have seen a bunch of guys complain about $1500-$3000 packages and then see them reverse their thought process a couple years later after 3-5 calls at 45 billable hours. And worst it deters them from asking question that gives them the critical information to save 10-20x on taxes.
- Some people dislike the nickel and dime technique aka bill by the hour. This normally doesn't come with tax planning and strategy spread out over the year. To create that constant lifestyle shift & mindset shift, I like the package approach which spreads out the services and holds me accountable to staying on top of things quarterly.
- They should be able to clearly articulate. If they are focused around just doing your return, it can be a red flag.
- I would ask them if it's more of a white glove service or not. You might not need white glove service.
Maybe you are not paying for white glove business consulting... that is what the cost effective Mastermind is for if you can't afford a family office consultant.
This is where you have to get educated to be able to converse in high level conversation about the risks and rewards.
Very specific and the question is engineered at "how" vs "if", "can I", etc. because I have all you smart folks to develop the strategy and the CPA helps execute it.
What Makes a Good CPA?
- Get a second opinion on your taxes at least every three years.
- Contribute to the most appropriate retirement plan (SEP IRA, 401k, DB Plan, etc.) – see Lane’s Bucket theory where you fill up 1) today cashflow bucket, 2) QRP buckets, 3) Legacy buckets
- Strategically use “backdoor” Roth conversions once net worth is over 1-2M net worth.
- Open Self-Directed IRA LLCs or Sole401K
- Own income producing real estate – using passive losses to negate taxes on passive income (coming from alternative assets like real estate)
- Use cost segregation studies to recoup down payments on real estate acquisitions. Or use tax free exchanges (Section 1031 and 1035).
- Use the tax protected status of life insurance as part of an overall financial plan. Have a bank pay life insurance premiums, i.e. premium financing.
- Use a Donor Advised Fund to make charitable contributions.
- Create multiple entities to segregate income streams and/or assets.
- Shift income to lower tax jurisdictions.
- Participate in a captive insurance company if your income is over 1M.
- Make your spouse is a passive owner in your company thus paying yourself a K1 not 1099/ordinary
- Deduct 100% of medical expenses using a Section 105 plan.
- Take advantage of bonus depreciation and Section 179 accelerated depreciation.
Optimize your Section 199A that allows allows individuals, trusts, and estates with pass-through business income to deduct up to 20% of their qualified business income (QBI) from their taxable ordinary income - Shift income to lower rate taxpayers you already support financially. Hire children as employees. Have children save their earnings in a Roth IRA or Roth designated 401k account.
Switch from accrual to cash basis tax reporting. - Use gift-leaseback strategies.
- Research and apply all applicable tax credits (R&D, 179, Work Opportunity, etc.).
- Maximize section 121 – exclude from taxable income a gain of up to $250,000 from the sale of your principal residence (500k for couples)
This is where I tell my investors that it is YOUR job to understand what you can and cannot do. You need to lead your CPA, whose job is to complete the technical paper work. CPA/Lawyers are contractors, you need to be, or outsource someone to be your “Architect”. If you are a Family Office client, designing your investments and tax strategies comes as a full service.
In the Passive Investor Accelerator and at mastermind events you are empowered to be your own architect and are connected directly with the rolodex of able professionals. We (myself and our community) raise your financial IQ to be able to advise your tax professional on what to do. so they can implement the strategy. instead of them strong arming you into a conservative and poor tax play.
Easy Mode
Here is a special link for those who have been with me a while to book a complimentary session to the CPA/Legal team I use. I have a few other contacts that we share within our inner circle, but hopefully this has given you enough information to source a CPA on your own.
If you are doing things the right way, you are simply going off referrals from trusted, pure passive investors.