Tax Reduction Podcast

Episode 34. Tax Strategies for Attorneys

• Boris Musheyev • Episode 34

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If you're a law firm owner or practicing attorney, this tax strategy breakdown is a must for you. Learn how using reasonable compensation can keep your S-Corporation compliant while reducing unnecessary payroll taxes. We also dive into how paying your spouse a salary can unlock powerful deductions and write offs for your business. Discover the benefits of the self rental strategy, a smart move that turns your office rent into a tax advantage. For those planning long-term wealth, the defined benefit retirement plan can be a game changer in your tax planning strategy. These advanced tax strategies are tailored specifically for legal professionals looking for smart tax savings. Owning a law firm means you're leaving money on the table if you're not optimizing these tools. Start building a smarter tax plan for your firm today.

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7 Write-Offs Every S-Corporation Business Owner MUST Know
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*Disclaimer This material & presentation content is for informational and educational purposes only. This material and presentation content is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Because each individual’s legal, tax, and financial situation is different, specific advice should be tailored to the particular circumstances. For this ...

Speaker 1:

So I just came back from a scale workshop with Alex Hormozy and I met an attorney there. Very great attorney do great in their business, high gross income, revenue and very high profit. And, as a matter of fact, she tells me, boris, my husband runs operations. And she said what do you do, boris? I said, hey, I help millionaires keep their millions instead of giving it to the IRS. She's like oh, boris, I just wrote a check for $225,000 to the IRS for the last two years. I am definitely paying a lot of money in taxes and I think I want your help. Anyways, I'm gonna break down the three most effective tax strategies that you, as an attorney, can use in your business and what I have used for my attorney clients that help them save up to $100,000 or even more by just using these three top tax strategies. Let's get started.

Speaker 2:

Welcome to the Tax Reduction Podcast for Money-Making Entrepreneurs with Boris Mushaev. Boris has helped entrepreneurs across the United States collectively save millions of dollars in taxes with the power of tax planning and advisory. The only way you, the business owner, can save money on taxes is by using proactive tax strategies, and this podcast is all about saving you money on taxes. Boris will share with you in-depth and easy to understand tax reduction strategies that you can implement in your business within 30 days or less. Let's jump into today's episode.

Speaker 1:

Let's get into it the top three tax strategies that you, as an attorney, can use in your business to save up to $100,000 or even more in your business.

Speaker 1:

Now, strategy number one that we're going to cover is compensation package. You, as an attorney, can actually restructure compensation for yourself and your spouse if your spouse works in your business to significantly save money on taxes. The second thing is that if you are that attorney that also owns a building in which your law firm operates, this could be a huge nugget, a treasure, gold treasure, whatever you want to call it. This is called a self-rental tax strategy and I'm going to talk about that in a lot of detail as well. And the third one is if you have a 401k in your business, then I'm going to show you how you can actually combine it together with what's called a profit sharing and defined benefit plan to absolutely maximize your retirement contributions and really save big on taxes. All right, let's get started with the first tax strategy, which is the compensation package. If you are an attorney that has their business as an S-corporation, then the salary that you're taking out from the business can be restructured. Now, if you don't have an S-corporation for your law firm, I definitely recommend getting one, because it will absolutely save you a lot of money on taxes. Now, what do I mean by that? Every attorney has to pay themselves a reasonable compensation. Now a lot of attorneys they write themselves out a check for a W-2 salary as an attorney. But IRS says that you have to pay yourself a reasonable compensation for the duties that you perform in your business. So in your law firm you're probably not only an attorney but you're also a paralegal right. You're also doing administrative work, maybe some sales and some marketing. So you're not 100% attorney. You're about 50% of the time an attorney and the other 50% you do all of those things. So what we do for our attorney clients is that we take their salary, we bring it down from being a 100% attorney to a 50% attorney and everything else, and that what allows that to do for us and for them is to lower their salary, which means they will pay less social security and Medicare taxes. Same goes with your spouse.

Speaker 1:

If you have spouse that's working in your law firm, a lot of attorneys pay their spouse whatever they think that spouse should get paid, and that's totally cool with me. But what we have found that a lot of times attorneys and business owners in the same situation. They overpay their spouse and in most cases we've actually reduced the spouse's salary by 50%. Of course we have a backup for it to prove that, but whatever the spouse is doing, it is not the same amount that they're getting paid and in most cases that's because you may have not been educated properly by your accountant what to do in these scenarios and you know, if you don't have a tax advisor and somebody who's tax planning for you, you should get yourself a tax advisor right away. So what do we do, for our attorney clients as well, is that we reduce the salary for the spouse. So, number one, we restructure the owner's compensation, the owner's salary, we reduce the spouse's salary.

Speaker 1:

And if you pay for health insurance for yourself and for your employees, what happens is that, especially if you're an S corporation owner, you can qualify for what's qualified excuse me, for what's called a self-employed health insurance deduction, even though you've got employees and even though you're paying for their health insurance. You add that health insurance not only on your W-2, not only to reduce your taxable wages, but also to reduce down your social security and Medicare wages. You can do this for your spouse and you can do this even if you pay for the health insurance for your children can do this for your spouse, and you can do this even if you pay for the health insurance for your children. All of that can be part of your w-2. Not again, not only reducing your taxable wages, okay, it's also reducing your social security, medicare wages.

Speaker 1:

So after this, pick up your account and be like hey, I pay for health insurance, right? Yes, is it part of my W-2? Yes, is it reducing my Social Security and Medicare wages? If the answer is no, fire them. Okay, maybe not that extreme, all right, so just these three things very easily, something that can be implemented right away could potentially save you $12,000 to $18,000. I know it has saved tons of our clients this amount of money by just restructuring these little things. Now the second thing that we're going to get into is self-rental, and we're going to do this right after this break.

Speaker 2:

If you have a tax preparer and you do not have a tax advisor, the only way you can save money on taxes is by using proactive tax planning strategies that only a tax advisor can give you. Bora's put together a free PDF for you, the business owner Seven tax write-offs every S-corporation business owner must know. In this PDF you can find seven tax strategies that you can start using in your business to instantly start saving money on taxes. Click on the link in the description below for a free download.

Speaker 1:

All right, cool, welcome back. Let's talk about the strategy as self-rental. If you are that attorney that owns a building in which your law firm operates, this could be a huge tax strategy for you. Now let's take a step back for a second and let me explain the strategy for you. If you have not had your business in that building, that you own, the LLC or whatever that may be it could be a commercial property or residential property If your rental property produces a loss, technically speaking or in general, you can't take those losses because they are considered passive losses, so you cannot deduct them on your tax return. If you're actively participating in your business and if you're an attorney, I'm guessing you are actively participating in your law practice and so is your spouse so the losses generated by that rental property or commercial building or whatever that may be, are not tax deductible unless you are operating your business in this separate LLC or in that building. Now what happens is that you're probably paying rent from your S corporation and I'm assuming you may be an S corporation, because most of the attorneys that I know are an S corporation If not, speak to your tax advisor and become an S corp. Now back to us. So you're probably paying rent for this LLC. Now what happens is that IRS says look, if you're operating your business in the property that you own in that building, you can group these two transactions under quote section 469. What that allows you to do is that this LLC in which your building is located is going to have a loss and mainly it's going to have what's called a paper loss, and that's gonna happen from the depreciation. And on top of that you can add another tax strategy, which is called cost segregation, which allows you to accelerate your depreciation. And on top of that you can add another tax strategy, which is called cost segregation, which allows you to accelerate your depreciation. Now this loss typically again, typically it is not tax deductible. But because your business is operating in the same property that you own, this loss now going to be combined together what's called, if we use irs term, it's called group together with your S-corporation on the code section 469. And you would have to make an election on the tax return and attach a statement. So your accountant hopefully you have a good accountant that would know that and what happens is that this loss will now be deductible against your S-corporation profits. So if you are a seven-figure attorney that makes millions of dollars and has millions of dollars in profit, this could be a huge tax strategy for you. We've seen average savings anywhere between $20,000 to $30,000 in just taxes saved. Again, you don't have to spend money to use this tax strategy. It's a very simple tax strategy, kind of like you have to know how to prepare a tax return and know a tax code to be able to implement this. So definitely speak to your tax advisor. If you're that attorney that operates in a building which your law firm is in, speak to your tax advisor about grouping these two activities together.

Speaker 1:

Now let's talk about a third tax strategy that could save you big on taxes, and that is a retirement plan that is combined together with a profit sharing and defined benefit plan. Now, if you have a 401k in your business I'm not sure if you know this, but you can actually, without doing anything, put away up to $23,500 into your 401k. That is a deferral from your paycheck. Remember, this is part of that strategy where you do compensation package. Now let's say, like Boris, I've got a lot of money, a lot of cash coming in and I want to be able to put away a lot more money. So what you can do is speak to your financial advisor, but together with your tax advisor okay, you definitely need a tax advisor for this. So do all the proper calculations for you.

Speaker 1:

Now what happens is that they can open up what's called a defined benefit plan that has a profit sharing plan in it. Now how it works is that with a 401k, you can do $23,500. With a profit sharing plan, you can actually max out your 401k at $70,000. Again, we're assuming that you're under the age of 50. If you're over the age of 50, your contributions are actually higher. Okay, so 70,000. Now, with defined benefit plan, actually higher, okay, so 70,000. Now, with defined benefit plan, your retirement contributions combined together could be $225,000 or even more.

Speaker 1:

So I actually pulled out a real life example for a 37 year old individual and his contributions are $125,000 into defined benefit. So altogether it's about $225,000 that he can put away into his retirement. Entire thing is 100% tax deduction. If you have a spouse in your business that is helping you in your business, you can do exact same strategy for your spouse and this $225,000 contribution could be double that, which is $450,000. Mind-boggling. Right Now there is some caveat to it.

Speaker 1:

If you do have employees. You have to contribute into the profit sharing for your employees as well. So this is a live example For this client. We actually have a requirement to put away $50,000 into the employee's account as well. So you might be thinking, oh, that is too much money, I'm going to have to put away for employees,000 into the employee's account as well. So you might be thinking, oh, that is too much money I'm gonna have to put away for employees. That is great question and that is a good thinking. But let's do savings right. So if we have $225,000 in this particular client situation, again your situation may be different.

Speaker 1:

Times two, that's $450,000 in contributions plus 50, that's half a million dollar write-off. At 37 percent tax, federal tax bracket, that's 185 000 in taxes saved. So would you pay 50 000 into your employee's account to save 185 000? Most of my clients say yes to that. All right. So these are the top three tax strategies that you can use in your business, in your law firm, to start saving a lot more money on taxes. But again, if you do proper tax planning with your tax advisor, I hope that you do have a tax advisor and a tax planner, somebody that you work together with, being proactive, doing it throughout the year and not at the end of the year, not hoping that after you finish filing your taxes, that you somehow miraculously will save money on taxes, because, remember, hope is not a tax strategy. Get yourself a tax advisor and I hope that this was super helpful to you. Thanks so much.

Speaker 2:

That's it for today's episode. Be sure to check out the description below for some free tax reduction resources that Boris put together for you. If you're ready to work with a tax advisor on your tax planning, be sure to schedule your call by heading over to wwwtaxplanningcallcom. That's wwwtaxplanningcallcom. And be sure to subscribe to our podcast to be notified when the next strategy is released.