Journey to Multifamily Millions

How To Minimize Taxes And Maximize Profits In Multifamily Real Estate with Shauna Wekherlien, Ep 112

• Tim • Season 1 • Episode 112

Share episode

Use Left/Right to seek, Home/End to jump to start or end. Hold shift to jump forward or backward.

0:00 | 39:30

Looking to dive into real estate investing and level up your financial game? 

       In this episode, we talk with Shauna Wekherlien, aka "The Tax Goddess," a Certified Public Accountant (CPA) and founder of Tax Goddess Business Services. 

She shares powerful tax-saving strategies for real estate investors and entrepreneurs, focusing on boosting profits, reducing costs, and maximizing cash flow. Learn about hiring family members for tax benefits, separating operating businesses from ownership entities, and overlooking deductions that could save you thousands. 

Shauna's expert advice ensures you're making the most of your real estate investments while staying tax-efficient. Tune in to optimize your tax strategy and take control of your financial future!


Episode Topics

[01:09] Meet our guest, Shauna Wekherlien
[01:47] Shauna's Journey from Astrophysics to Taxation
[06:22] Understanding Tax Designations
[18:17]  Tailoring Tax Strategies to Individual Needs
[23:10]  Common Misconceptions About Tax Deductions
[30:10] Overlooked Tax Strategies for Real Estate Investors
[32:31] What is one red flag every investor should look out for?
[33:17] What is a myth about the real estate business?
[37:13] Connecting with Shauna




Notable Quotes

  • "CPAs hate being asked if they do taxes because basically only about 10 percent of us actually do taxes." – Shauna Wekherlien
  • "For real estate professional status, I can take deductions greater than just my investments, especially if I'm filing jointly with my wife who has a regular job." – Tim Little
  • "For two years I was able to take advantage of real estate professional status because I was making most of my money from real estate." – Tim Little
  • "In Canada, your taxes are a percentage of what you make. Period. There’s no strategy, there’s no planning." – Shauna Wekherlien
  • "The IRS will split passive income and passive losses from active income and active losses. And those two things are kept very distinct buckets." – Shauna Wekherlien



👉Connect with  Shauna Wekherlien



#RealEstateInvesting #MultifamilyInvestments #PrivateEquity #WealthBuilding #InvestingTips

👉 Connect with Tim

 Subscribe, Rate, and leave a review here 🌟
https://podcasts.apple.com/us/podcast/journey-to-multifamily-millions/id1634643497

[00:00:00] Shauna Wekherlien: One of the, we always call it the golden rule, right? When you have one spouse that's doing W 2 making money and you get the other spouse that's a real estate professional, you will never pay tax again ever there's so many options with the category, but you're right. we get calls from people that, both the husband and wife are W 2s or you're single. You don't have somebody to play tax games with, right? And so you've got a W2 and you've got a couple, three, four rental properties, right? What do we do? You have an operating business, right? Maybe, you set up an operating business for your kids to go do a car wash, right? What can we do there?

[00:01:09] Tim Little: Hello everyone and welcome to the journey to multifamily millions. I'm your host founder and CEO of ZANA investments, Tim Little. And on today's show we have Shauna, the tax goddess, Wekherlien. Shauna is a certified public accountant and founder of tax goddess business services, where she helps business owners, investors, and entrepreneurs create plans of action to increase their bottom line, reduce costs, reduce taxes, and increase cash flow. Shauna, welcome to the show.

[00:01:39] Shauna Wekherlien: Aw, thanks so much for having me. We're talking about some of my favorite subjects, so I'm excited. 

[00:01:43] Tim Little: All right. Now we'll get into some creative tax strategies and all that stuff. But before we go there, please tell us more about your background and how you got started on your journey. 

[00:01:53] Shauna Wekherlien: Absolutely an interesting story, but I'm sure most are. so I actually started off in astrophysics, of all places, not, not anywhere near tax from that standpoint, and I've got to give you a little bit of background, right? I'm German, if you couldn't tell from the Weckerlein last name, big. Big, long last German name, which means that both my mother and father are very, stoic, very, specifically organized, right? And there's a reason for this. So here I am, happy little Shawna. I'm off at college. I'm doing astrophysics. Okay. I'm absolutely in love with my life. My dream was to go work for jet propulsion labs. That's what I was going to do, right? Come home one, one summer and I'm sitting across the kitchen table from my mom. And she's opening the mail, right? And now, a stoic woman, okay, she makes a sound, puts down the mail on the kitchen table, pushes back, throws that chair back, and walks away. And, it's a little shocking for a German daughter to see a German mama do that, right? I was not expecting that in the slightest. And, Mom, are you okay? Ugh, I got a notice from the IRS. Oh, the tax CPA said they have this. The tax attorney said they have this. They want more money. Blah, blah, blah, just frustrated and upset, right? Because, Who wants to get a notice on a Saturday morning from the IRS as you're opening the mail? It's not exactly most people's favorite cup of tea.Thought went through my head as she's explaining that her so-called experts couldn't do anything for her. And I said, okay, listen, I'm astrophysics, right? But I think I may be smart. Okay, let's go check it out. Let's go see what I can find. So being a scientist, I started digging into everything, right? getting my hands on everything I could find. Accounting, finance, tax, the legal side of tax, court cases, all of this kind of thing. And it did take me a few years, okay? I will admit, unfortunately, I am no longer 18, okay? It's a little bit past that at this

[00:03:39] Tim Little: You and me both.

[00:03:40] Shauna Wekherlien: isn't that the truth, right? a little bit past that, but as time went on, I went through KPMG, so I'm the ex KPMG,a big accounting firm. I always call it the Goldilocks, right? Big accounting firm, medium accounting firm, small private, learned a ton, switched specifically into tax, started getting, gathering all those letters after my name, so CPA, Master's in Tax. Certified tax coach, certified tax professional, certified tax strategist, which basically in the long run means that if you look at according to Google, there are 660, 000 CPAs. They do all sorts of things. There are 15, one. Five. 15 certified tax strategists. I am in the top 1 percent in the country for what I do now. And at this point, and this is actually the title of the book that we just published last year, my mom is now a proud member of the 6 percent Life group. Her tax rate, along with our client average, is 92 percent per year. no longer any tax fee. issues or concerns. And, that's how I ended up here. I had an upset mama and I don't know about y'all, but when my mama gets upset as a daughter, I do everything I can to fix it. So

[00:04:50] Tim Little: Okay. That's awesome. And we're definitely going to get into some of that tax stuff. Cause I have some questions on that specifically. but I think it's funny that you started with astrophysics. When I was in middle school, I was obsessed with astrophysics. Astrophysics. It used to drive my parents crazy because I'd sit in the back of the car and talk about how black holes were formed. my favorite book at the time was a universe, the universe in a nutshell, Stephen Hawking. but yeah,it faded at some point, probably as I got much worse at science as it started to get. math involved. and I did not like that at all, once the two collided. Then you got into the tax space and you talked a little bit about, I hesitate to say pedigree. but there, there is this kind of line for people that are in the accounting space. there are some, the top four, I think they are, you got your KPMG,

[00:05:38] Shauna Wekherlien: Pricewaterhouse. com. Yeah, so KPMG, Pricewaterhouse, Ernst Young, and, This is terrible, but my brain always dies on the fourth one because they're, like, way at the bottom of the list. I always, I feel bad for anybody that's out there that's, Oh, Deloitte Touche, there we go, Deloitte Touche.

[00:05:52] Tim Little: yeah. I was going to say Deloitte, right?

[00:05:54] Shauna Wekherlien: T, yep, Deloitte Touche.

[00:05:56] Tim Little: yeah, so I was, in a way, I was a little bit blessed from that standpoint. I was gonna join Anderson, and then right before I joined Anderson, interviewed with KPMG, and I'm like, I like them better, and, Now we know why, because Anderson went under, for doing very bad things in the tax world. Yeah. And that's a whole nother conversation. If people don't know about that, it's pretty impressive. And Ron, et cetera, et cetera. but all So talk to me a little more about those designations that you. That you just spoke of because again, that was a long list of letters and the one you settled on was the tax strategist one, which I had never heard of. But before you go into that, could you talk a little bit more about the ctc and ctp?

[00:06:37] Shauna Wekherlien: You got it. So yeah, the easiest way to think about this is, and they all the conversations all go together. So I think we can work through that all together. CPAs in general, most people know what a CPA is, a certified professional account, right? It's a very common designation. but CPAs do a million different things. So they could be a bookkeeper. They could be an auditor. They could be a tax person. They could be a CFO. They do a million things. And, side note, little tip for anybody in the audience there, CPAs hate being asked if they do taxes because basically only about 10 percent of us actually do taxes. Right? Most of us do other things. The baseline is the CPA. That's where you start really, maybe an enrolled agent. CPA, you really start looking at numbers and finance and that kind of thing.the next designation up when you start to specialize in tax is the Masters in Taxation. Now, there's only 60, 000 people with Masters in Taxation. So you're already at 10 percent of the total number of CPAs that do tax, specifically tax. When you go up from there, you start looking at the certified something, right? CTC is a Certified Tax Coach, okay? These are people that again, now they've specialized even more than the Masters in Taxation. They're good, they've written tax plans. Average savings working with a CTC is typically anywhere between 25, 000 a year. for a standard taxpayer, a typical taxpayer. Okay, so it's still pretty good money, 25, 000 to 100, 000 a year is a lot of money to be adding back into your pocket. When we talk about CTP, that's Certified Tax Professional. Okay, so CTC, there's only 607. So now we're down to one percent, okay. CTP, there's only about 150 in the entire U. S., so that's certified tax professional. CTS, which is the top of the top of all the tax strategy people, there's only 15 of us. And so I think the actual calculation works out to something like point, Nine zeros and then a two. Okay of how many of us exist in the US but yeah We get ranked the cts people get ranked on how much money we save our clients So for example tax goddess of me my company, right? this past year We're at 1. 57 billion in savings for our clients So we get ranked based on how much money we save and keeping people very happy above board out of jail You Legal, all the good things.

[00:09:09] Tim Little: Yeah, and help me understand you know because you talked about the six percent tax rate and you know for most people that At least seems unattainable. So help me understand who that is even possible for. Cause you're also talking about businesses. You're talking about individuals, some amalgamation of the two, where does it make sense for you to tell a client that you can get them that low? and I'm sure there's a spectrum there that you can probably talk about 

[00:09:39] Shauna Wekherlien: 100% and let me back up here. I'm originally Canadian. Okay, and so this comment will make sense here for a minute. In Canada, your taxes are a percentage of what you make. Period. Okay, there's two deductions. That's it. There's no strategy. There's no planning. maybe you set up a separate company. it's very strict from that standpoint. One of the things that I'm, I am now a proud American. Okay. One of the things that I love about being an American citizen is that with all of the rules that are written, it applies to everyone. Everyone. It doesn't matter if you're making 10, 000 or 10, 000, 000. The rules that apply to the government apply to you, apply to businesses, and there are thousands of tax deductions, of tax strategies that apply to everyone. To everyone. Okay. Now I do always have to throw in a little caveat. Okay. Something like, for example, this is real estate, right? We're talking real estate, something like cost segregation works best for real estate professionals. Okay. But if I'm a W2 employee working for Apple and I have a rental property as an investment, I can still do cost seg. It just means I might not get the same benefits you do. So when we look at who, who can get to the 6. 92%, right? Anyone can get there. And it's really a question of how much, and I hope I'm allowed to be a little, a little risque here, right? How much of the pain in the ass do you want to put into working with strategies? Okay. Because there are some strategies that are super easy, right? Like we, People tell me the goddess waves the magic wand, right? Wave, poof, done, I've saved you 6, 000. Okay, the little strategies tend to be really easy to implement. The bigger strategies that save you 100, 000, 200, 000, 300, 000 in tax, those are a little more complicated, right? they're not hard, but they're complicated. You got to fill out forms, you got to set up businesses, you got to do things with them. Now, if you were to say, Shauna, what is the Kind of that sweet spot, right? Really, what you're looking at is people that are paying about a hundred thousand dollars a year in tax. Because at that market, that hundred thousand dollars a year in taxes, now this is how much you've withheld, how much you've paid in quarterly estimates, all the taxes you pay. If you're paying about 100, 000 a year, this is where it makes sense to use above and beyond the basic strategies that your normal CPA who does taxes is going to give you. Things like putting your kids on payroll, buying a new car, buying that one extra rental property and doing cost seg, right? These are the low hanging fruit, what we consider baby basics. Tax strategies. Okay. So when you hit that 100, 000 and you've already implemented the baby basic strategies, that's when you need a strategist, right? That's when you start to want a specialist. Cause at that point you've done everything you can think of. You're still writing a hefty check. So how do we get you down? And what do we do?

[00:12:31] Tim Little: Okay. And obviously everyone's situation is different, right? You have some business owners, you have someone like me, who's an operator, right? I am a general partner in multiple multifamily deals. And then you have my counterpart, who is the passive investor. who has a full time job, but they passively invest in these deals. And I think it's important for people to understand that there are tax advantages to both of those individuals, but in very different ways. And I'll just give a quick example. we hear a lot about real estate professional status.and for two years I was able to take advantage of real estate professional status because I was making More money, most of my money from real estate versus a full time job, i.e. I was doing it full time. Now there are certain requirements like you talk about, seem like a pain in the ass, like logging time and all this stuff to show if the IRS comes asking for it, to prove that you went to these meetings or and how long were they and et cetera, et cetera. But the payoff is. That again, and I'll simplify this, but for real estate professional status, I can take deductions greater than just my investments, especially if I'm filing jointly with my wife who has a regular job, gets regular pay. Now I can write down her income as well to lower our overall taxable income, which can be a huge advantage, especially if they're pretty decent earners.

[00:14:11] Shauna Wekherlien: 100%. One of the, we always call it the golden rule, right? When you have one spouse that's doing W 2 making money and you get the other spouse that's a real estate professional, you will never pay tax again. ever there's so many options with the category, but you're right. we get calls from people that, both the husband and wife are W 2s or you're single. You don't have somebody to play tax games with, right? And so you've got a W2 and you've got a couple, three, four rental properties, right? What do we do? You have an operating business, right? Maybe, you set up an operating business for your kids to go do a car wash, right? What can we do there? So I think one of the most important things for people to take away.really two pieces here. One is what kind of, we always call it a chessboard, right? Every single person has different chess pieces on the board. The rules are the same, right? The rules apply to you, apply to me, apply to Bob, right? Everybody has the same set of rules. But if you're married with three kids and I'm single with two dogs, How do those rules apply to us differently? What are we investing in? What are the goals? What do we want out of our money? Are we charitable? Do we want to pass on an empire to our children and have them build it for the next 30 generations? Do we want to pay off debt? all of these pieces, the chess pieces of life change which strategies apply to any given individual. So

[00:15:30] Tim Little: Yeah. And so in terms of that passive investor, it's pretty straightforward regarding W2. Hey, passive Mr. Passive Investor, Mrs. Passive Investors here are, sorry, here's your K1 showing. your paper losses, for this property and any gains distributions that you might've received from this investment. Are there any other creative ways that they can work down their taxes,that you've run across or that you immediately think of oh, you haven't done this yet. That's the first thing. Is there anything else?

[00:16:08] Shauna Wekherlien: love it. if we're specifically talking about passive, so just a little broadening here for the audience today, your W2 is active. If you were a real estate professional, that's active, right? And so the IRS will split passive income and passive losses from active income and active losses. And those two things are kept very distinct. Buckets. Okay. So let's go with this example. We've got a passive investor. The K one is showing a loss, right? Passive losses. Now those losses are going to get trapped because there's no passive income, right? There's no additional cashflow. Nothing else is creating passive income. So let's go look at a business that creates passive income. passive income. Now you might be able to buy some interest income in a partnership. That would be passive. You might be able to join a real estate syndicate, which would be passive, and it would be positive income to offset the losses. So you're gaining income, but you're not paying any tax on it because the loss from the original K 1 is offsetting. Now you can also look at other types of businesses, other types of investments. If you want to diversify one of my personal favorites specifically for passive is Turo. So Turo is a car leasing business. Okay, and we have quite a few clients that want Their own Lamborghini and they want their own, whatever, right? They're the brand new Tesla, whatever it is, the G Wagon, whatever.

[00:17:35] Tim Little: wagon. Yeah. you gotta say the G wagon.

[00:17:36] Shauna Wekherlien: It's all about the G Wagon, right? There is a business model out there called Turo, which allows you to rent your cars to somebody else. It is more like a turnkey business, depending on how many cars you have and how you set it up. but it is considered passive for most people because you are normally not the person actively cleaning the car or maintaining the car, doing all those active activities. So if you want the Lamborghini and the G Wagon sitting in your front drive and you want to be able to drive it, consider setting up a Turo business that is passive income against passive income. passive losses from your real estate. So you're getting all that cash but you're not paying any tax on the cash. So pretty cool options.

[00:18:17] Tim Little: Yeah. And I think that's where it comes down to a tax strategy. too many people just think, Oh, here is the situation. no, you have to take in that whole umbrella. There's all these different things under the umbrella. This is just one. So when I talk about this, it's in a broader context, right? I'm assuming most passive investors have other investments. Like it's more likely than not, but even for the sake of simplicity, when I'm explaining to someone who doesn't, who has never done any kind of passive investment before. Yeah. if I'm explaining to them, I do it like you just did to say, Hey, again, oversimplified. But imagine you made 2, 000 from this passive investment over the course of this year, and then you get a K one that says you've had 2000 and losses. guess what? You just made 2000 tax free. It's a little oversimplified, but it gets the point across and then you could do any combination of different investments the same way.

[00:19:16] Shauna Wekherlien: Yep. 100%. And I think really that's a part of the key, specifically of tax strategy is, what is it that the person themselves wants? And I feel like a lot of people get into investments, strategies, options because they heard about it on TikTok. You heard about it on this podcast. Okay. Hey, she was talking about this Turo thing. Let me go check that out. not every strategy works for every person. So be very careful that if you're going to get into a strategy, you're doing your due diligence with actual professionals that can tell you in your case, specific to you, based on these investments, 80 other factors that you have in your life. Is this really going to work for you? and especially for passive because the iris is on the lookout for some of these passive going active things. And so you want to be really cautious and just above board with whatever it is you're doing.

 

[00:20:38] Tim Little: Yeah. And that was actually segues quite nicely. And what I was going to ask you with regards to how much, reeducation, I guess the right word based on what people are seeing on either YouTube Tik TOK. because I watch a lot myself on YouTube shorts,tax attorney who watches like, Tik TOK influencers giving just. Horrible advice. and I'm wondering how much of them, how many of them come to you? How many people come to you? Hey, I heard I should be doing this. And you're like,no, don't do that.

[00:21:13] Shauna Wekherlien: all of them. so let me back up here. Okay. Before TikTok, before YouTube, right before we really went to a social media world here, people would come to you and say, Hey, my neighbor is doing this, right? So it has happened since the dawn of time, right? When fire was invented, the guy living next to the guy who created fire went, Okay. Oh, hey, that's pretty smart. I'm going to, I'm going to copy the thing. so it's not like it's a new concept from that standpoint. I, and I will come at it from this standpoint. Okay. I love TikTok and I love YouTube. Okay. However, there is a big caveat here. Okay. Watch TikTok and YouTube to get the idea. Oh, hey, I can pay my kids. It is a great idea. It's a valid idea. There is no problem with the idea. Do not, under any circumstances, use TikTok and YouTube, even GPT. Everybody's oh, take the idea, go to GPT and it'll tell me what to do. No, the doing of it, you absolutely need a professional. You might need an attorney. You might need a real estate broker. You have professionals for a reason. And I understand a lot of people, Oh, GPT is going to wipe out all the professionals in the next five years. There's something to be said about somebody who's got experience. They know how the IRS agent is going to react if you use this word or that word on the return, cause they've seen it and they've done it right. And I could be wrong in five years. I could be listening to this podcast, laughing at myself going, Oh, GPT just totally killed my job. for right now, guys, please, Get the idea from TikTok and YouTube or wherever I love it ideas are gold And that's how you make money because we have seen case after case of people bringing ideas Wall Street Journal Harvard Business Review, okay bringing ideas to their CPA And the CPA is, Oh, I'm getting all worked up about this. The CPA tax preparer says,no, that's not going to work. It does, they just don't know, or they've never seen it, or they aren't willing to do the research. I love ideas. How to do it, what, where, when, how, why? You want the professional.

[00:23:10] Tim Little: Yeah. So what is the most common, TikTok influenced advice that you've heard, from people that they come in with? Is it buying the 80, 000 pound car so that they could get a 100 percent or is it one of the other ones?

[00:23:26] Shauna Wekherlien: I would say it's typically buying something. Buy the Rolex, write it off. Buy the yacht, write it off. Buy the car, write it off. It's typically buying a thing. And they're typically the luxury things that everybody wants to buy. I think one of my favorite ones I just saw recently was, How to buy a Louis Vuitton and write it off. And let me backup. You can, I will be a 100 percent tax goddess. I think I know the guy you're talking about, the Edward Verify dude or whatever. He's awesome. I love listening to his stuff. But,you can write off the Louis, but do you want to know how? Cause I do not want you to just go to the Louis Vuitton store and buy the 80, 000 bag and put it on your business credit card as an expense. That will not fly. I promise you a loan. But if you know how to do it, Then, yeah, why not, right? If it's a valid business expense, there's really three key words anytime you're looking at anything that you're trying to buy. Ordinary, necessary, and reasonable. Why is that Louis Vuitton purse ordinary, necessary, and reasonable for what you do in your business? If you can explain that, and you can, and you just laughed, if you can explain it and keep a straight face and the IRS agent believes you, let's do it. Let's deduct it, right? But it better meet those three qualifications, otherwise you're cooked.

[00:24:39] Tim Little: Yeah, and I think most people,they tentatively get over the first two, but that, that reasonable hurdle,I could go buy a Patek Philippe, 100, 000 watch just cause I'm like trying Timex, man! Yeah. Just because I'm trying to flash it during my podcast doesn't make it necessary, reasonable. You know what I mean? So people need to be careful with that. And I find a lot of people think that being able to have a tax deduction means that they should have bought the thing. Like, I've talked to small business owners who are like, yeah, I just bought a truck. For 80, 000, I do lawn care. I'm like, okay, that's great. As long as you absolutely need that truck, like it, but I'm going to, I'm going to get a deduction. Yeah. But couldn't you have bought a 40, 000 truck? Like

[00:25:27] Shauna Wekherlien: 12, 000 one that's going to get

[00:25:29] Tim Little: right. It's not.

[00:25:30] Shauna Wekherlien: sitting in the back of it. Are you kidding me? yeah, no. and you hear this all the time. Oh yeah, this is my eighth truck that I've bought in eight years. I'm like, so you're telling me that, listen, if you have eight crews, Great. Let's do it. Then you need it. That's fine. But it's you and your house with your wife and one son. And I'm, this is a real example, okay? It's you and your wife in a house with one son. And you need eight cars. You need a fleet of trucks that you can't even drive on the same day. Why? you know it literally depreciated the instant you drove it off the lot, right? oh. That's what my CPA told me to do. and it breaks my heart. It breaks my heart because that cash way, way early on in this podcast, you said cash flow. Cash flow to you, not to the dealer, not to the government, not to a bank, to you. How do we get cash flow to your pocket so that you can buy another property, expand your business. Hire the assistant that you desperately need, not hand it over to a car dealer. Sorry, you got me on my soapbox. I apologize.

[00:26:24] Tim Little: no, absolutely. I wanted to make sure it wasn't just me.

[00:26:27] Shauna Wekherlien: Nope. Oh no.

[00:26:29] Tim Little: What, one of the ones that I hear a lot in real estate circles is the hiring your kids one. So maybe you could just quickly explain where that makes sense and where it doesn't. I think we can all agree that if they're not old enough to walk, then we can't say that they were working in our properties. I'll give you the court case for that one. I'll give you the court case for that one. I love it. so there's really, there's two. There's two different ways to look at this. Okay, seven years old is the current accepted You know, they're old enough to do a thing. Okay, because at seven years old, they can empty trash cans, they can sweep the front path, they can pick up gravel, whatever, right?

[00:27:11] Shauna Wekherlien: at seven years old, they can plant plants in planters. They can do things. seven years old is the cut off line, the dividing line. Now, there's a court case that specifically talks about five levels of cute. Okay, so there's one exception to the seven year old, at least in my opinion, right? Every CPA and strategist has their own opinion. For me, it's seven, and then this court case. If your child qualifies as a child model, okay, so think about the Gerber baby, okay? The way the court case basically reads, the judge said, listen, this kid literally, Cute,cute, verified by a modeling agency. So basically, you have to take your kid to a modeling agency and say, would you hire my child to be the face of Gerber baby food or whatever, right? If your child is five levels of cute, then great, let's do it. Hire the kid, less than seven, I'm in. you've got it verified. Third party modeling agency signed. Yes, we're in. We'll hire this kid. that is a. Third party external proof of why are you doing that so then the question becomes okay? if you really do have this super cute kid, how are you using that kid in a way? That's ordinary, necessary and reasonable to your business. So we come back to those three key little words, right? You might be able to get away with one two Three photo shoots every year of the baby on the couch in the rental home looking all happy and cute. Like maybe that goes on your website, whatever, right? A photo shoot can cost, if you were to hire a child model, a photo shoot can cost anywhere from 500, 000 to 15, 000, depending on the age, what are you shooting, how many shots, right? you can see some rather large numbers, and of course you can do photo shoots with older children. Seven and older. The biggest place where people get into trouble here is that they'll pay their seven year old 150, 000 a year to sweep the front porch or whatever. we go, but reasonable, ordinary, necessary, reasonable. You have to be able to prove that you would pay somebody else. At the, you'd pay somebody else's seven year old that amount to do that job. So 150 is probably not valid, but 10, 000 a year to sweep the front porch of 15 properties? Yeah, maybe, right? So a lot of it's going to be dependent on where you live, right? big differences between the Midwest versus Manhattan. but yeah, it's, it goes back to reasonable.and the kid has to do the job. You can't just say they did the job. They actually have to do the job. Time records, just like the real estate professional, time records, dates, pictures of them sweeping the porch, looking all upset because they're cranky. You know that they have to sweep the porch. Those are good things in your IRS file.

[00:29:39] Tim Little: Okay, awesome. And I appreciate that you added some of those things that you need to back up your case, right? Because a lot of this comes down to cataloging evidence, time, et cetera, paperwork, so much of that, not necessarily because they'll ask for it up front. But if you do get audited, then you will need it. And that's, you don't want to go looking for it after the fact, right? Cause that's a bad place to be. And I imagine luckily it hasn't happened to me yet, but,all So we discussed a few of those. Please talk to me quickly about just the most overlooked tax deductions or strategies when it comes to multifamily real estate.

[00:30:21] Shauna Wekherlien: I think that there's two really big ones that I want to point out. One is. Separating your operating business from your actual ownership. entity strategy and structuring can be a big deal. it actually means some really important things for not only your tax return, but also you as a person. If the only way you have your rentals is separated for legal purposes, the separate LLC and here's my duplex and my separate LLC, and here's my fourplex, whatever it is, by having an operating company, you are now creating active income. Okay. so these guys might be passive. This might be active with active income. Now you can use other strategies, things like the master's exemption, which would be my second favorite, probably my favorite tax strategy in the code, to be honest with you. The master's exemption allows any individual to rent out their property. So your primary home, secondary home, vacation home, whatever it is, you can rent out any property you own mortgages. Okay. You just can't rent it. Okay. Any property you own for 14 days a year and any amount of income that you receive In those 14 days a year is 100 percent tax free. Now, a lot of people think, okay, listen, I've got my rental property and I already have somebody living there 300 days a year, right? So that's, it's not going to work on that property. But if you have an operating company, Your operating entity can, let's say once a month, do a vendor management meeting in your home to go over with your vendors. How do you want the landscaping done? How do you want the driveway cleaned? How do you want your seven year old, who's now an employee of your company, to manage taking out the trash, right? You can have vendor meetings, business meetings, networking meetings, staff meetings, whatever it is. That is a business purpose. It is reasonable. It's ordinary that you would have meetings with your team, your vendors, your partners. Maybe it's a mastermind group with other real estate professionals, right? having that operating business, the operating business can pay you personally to rent that space. Again, depending on where you are in the country, we've seen as low as 500 per event. The highest I've ever seen was Manhattan now at 19, 500 per event. If you can do 14 of those a year, we're looking at some big dollars that are 100 percent tax free for you.

[00:32:36] Tim Little: It's a deduction for your business. There's some really pretty things you can do. Okay. That's interesting. So you're saying even like your personal residence.and my mind starts going to, okay, how do you defend that from a reasonable perspective? Is that just a matter of looking at Airbnb prices and showing what the rental rates would be for something of equivalent size? Or

[00:32:59] Shauna Wekherlien: So be very careful about this. And I'm so glad you brought up Airbnb. When you rent an Airbnb, why are you renting an Airbnb?

[00:33:07] Tim Little: because you want to stay overnight there,

[00:33:09] Shauna Wekherlien: You want to stay overnight there. Typically, you're renting an Airbnb in a place where you are not, you're not, typically you're not holding a business meeting, typically you're going somewhere, you're going on vacation, right? That is a different kind of rental, okay? If you were going to hold a business meeting, and you had to rent a space for a business meeting, typically that means you're going to be in a business center, in a conference center, A hotel,

[00:33:31] Tim Little: room, something like that.

[00:33:32] Shauna Wekherlien: and those are not cheap. And so this is where a lot of people underperform for themselves, if they go, oh, Airbnb, because that's when they know, an Airbnb is 150 a night, or, whatever the rate is. A conference center for a four hour event can be 3, 000. So you need to be looking at the use of this space. Now, I have seen some people use a combination. So let's say for example, you have a staff member that lives in North Carolina and you live in California, right? And they're coming out, they're flying out, they're gonna stay with you in your home for three nights. you may spend, of your total of 14 days, you may do three at the Airbnb night rate and the other 11 at the conference room. So you do want to. Track, write it down. my favorite way to document, honestly, is to take a picture, take a selfie with everybody sitting around the table, and selfie! Click, and Here's everybody and we were having a meeting. Take agenda notes, those kinds of things. Have them sign in. it's one of the things I even have at the front door of my home. I have a little red book and everybody signs in and says, why are we here?

[00:34:34] Tim Little: What's the purpose of the meeting? So yeah, any of that kind of corroborative Documentation is really good for files, Okay. No, that's really awesome. I had never thought of that before, but it did make me think of some of the other, sketchy, stuff that I've seen on tick tock where people say, Hey, I fly to Hawaii. I stay in the four seasons with my family. And while I'm there, I do a couple of social media posts and have my The annual meeting for my business and then I write off the entire thing and I'm like, that's not how that works. But it's like a piece of it, but not the whole thing, right? So I

[00:35:12] Shauna Wekherlien: That's TikTok. That's TikTok, that's YouTube, right?

[00:35:15] Tim Little: that nugget of truth

[00:35:17] Shauna Wekherlien: Yes, it's there. You can do that, but not the way they're describing it, right? So if you're going to fly to Hawaii and you're going to take your family, first things first, what's the business reason for your family to go? So you better have hired your wife and your two kids. in the business and they have a business reason to go, right? The second bit is you need a business reason to go. So I will hold a meeting with a vendor on Thursday. I would go look at a property, maybe five properties on Friday. I would spend the weekend because I'm not going to fly all the way back stateside to fly all the way back for another business meeting on Monday with a mastermind group that specializes in multifamily or whatever. Get all of your meetings lined up. Attend those meetings. Take notes. Take education. Why are you there? The wife, the kids, better be scoping out rental properties in whatever district of Hawaii, like wherever it is you are. So we go back to, and that's what I love about those three basic keywords, the IRS comes back to it over and over again in court cases, ordinary, necessary, and reasonable. So whatever it is you're trying to do, for your business, for what you do, is it ordinary, necessary and reasonable, and if you've got a good story and it's airtight and you've got proof. You're probably pretty safe. I can't say 100 percent all the time, but ordinary, necessary, reasonable, if you can get that, you're probably pretty good.

[00:36:35] Tim Little: All right. So listeners, if you walk away with nothing, walk away with ordinary, necessary and reasonable.

[00:36:42] Shauna Wekherlien: Nailed it. Yep.

[00:36:43] Tim Little: All right. All right. This has been an awesome conversation, but we do need to move on to the turbo round. So I'm going to ask you three questions that I ask every guest. I just asked for a quick, honest answer. Are you ready?

[00:36:55] Shauna Wekherlien: ready.

[00:36:55] Tim Little: All right. What is one red flag every investor should look out for?

[00:36:59] Shauna Wekherlien: If your CPA doesn't know what cost segregation is and can't explain it, you run away.

[00:37:04] Tim Little: All right. Absolutely. second question. What is a myth about this business that you would like to set straight?

[00:37:10] Shauna Wekherlien: Oh, the myth about this business. That if you, oh, that you can do it on your own. You can do it on your own. If you want to do it well and you want to get big and you want to make money at it, you need a team. Absolutely need a team. Hands down.

[00:37:20] Tim Little: Yeah, no, I 100 percent agree. Like you may be able to do it yourself on TurboTax, but I guarantee you're missing benefits and you're, what is it like stepping over dimes to

[00:37:32] Shauna Wekherlien: Oh, penny, yeah, penny wise, pound foolish, I think. Something like that.

[00:37:36] Tim Little: Yeah, all of those things, because you're not prioritizing the right stuff. All right, final question. What does success look like to you?

[00:37:44] Shauna Wekherlien: Hitting whatever your dreams are. For you. Your dreams. Not anybody else's dreams. Your dreams. What do you want? And hitting those and having your entire life be a dream. Every time you wake up in the morning, you get to do exactly what you want. Sounds like a plan.

[00:37:57] Tim Little: Awesome. All right, Shauna, thank you for making tax advice exciting and engaging. That's not the easiest thing in the world, but you did an excellent job. Please tell our listeners how they can get ahold of you and if there's anything else that you'd like to share with them.

[00:38:11] Shauna Wekherlien: thank you! we are super easy to find, taxgoddess.com, and let's see, the only other thing I can think to share, I have an app launching on September 16th, in a couple of days,it helps people save money automatically, so if you are looking for ways to put cash aside for yourself first, profit first, check us out, Cash Goblin, it's free.

[00:38:32] Tim Little: All right, we'll have all that information in the show notes. Again, Sean, I appreciate you coming on and I look forward to continuing to see you do big things on your journey.

Head Shot

TIM LITTLE (FOUNDER/ CEO)

Host