Business owners and high-income W2 earners, if you’re curious how to minimize the amount you owe come tax season, this episode of The Agent of Wealth Podcast is for you. In it, host Marc Bautis is joined by Mark Myers, the Founder and CEO of Peak Profit Solutions. Mark helps individuals reduce or eliminate tax without replacing their CPAs or financial investment advisors.
In this episode, you will learn:
- How Peak Profit Solutions works with business owners and high-income W2 earners to reduce their tax bill.
- Two tax-saving solutions for high-income earners.
- Multiple tax-saving solutions for small- to medium-size business owners.
- And more!
Resources:
Peakprofitsolutions.com | Bautis Financial: 7 N Mountain Ave Montclair, New Jersey 07042 (862) 205-5000
Disclosure: The transcript below has been lightly edited for clarity and content. It is not a direct transcription of the full conversation, which can be listened to above.
Welcome back to The Agent of Wealth Podcast, this is your host Mark Bautis. On today’s show, I brought on a special guest: Mark Myers. Mark is the founder and CEO of Peak Profit Solutions. Mark helps individuals reduce or eliminate taxes without replacing their CPA or investment advisor. Mark, welcome to the show.
Thank you, I appreciate you inviting me on.
My pleasure. Today we’re going to talk about how you can reduce your tax bill, and I don’t think you’ll find too many people who aren’t interested in this topic. But before we get into the details, can you tell me about your background – how did you come to start Peak Profit Solutions? I know you have some background in the Marine Corps as well.
Absolutely. The Marine Corps gave me discipline, which was much needed. As a feisty 19-year-old, going into the Marine Corps is probably one of the best things I could have done, above and beyond my relationship with God.
I went to the University of Florida and got my undergraduate degree in exercise physiology, then got my master’s degree in sports management. People always ask, “Well, how are you in tax efficiency? Why are you a tax specialist?” It’s an interesting story. For the first 15 years of my career, I ran very successful health clubs in New York and Los Angeles. In that process, I opened numerous clubs and ultimately became a business operator.
I knew how to drive revenue, reduce expenses and increase EBITDA margins. I really understood how to operate in a successful business, open them and duplicate them. I learned the language of business ownership through that process, and I realized that I really enjoyed the process more than the fitness.
So I decided to work with business owners to do more advanced planning, so I began working in this tax savings niche. Literally for the past seven or eight years, because I started this work in 2007, I’ve really focused on where I think there’s a need: among small to medium sized business owners and high-income W2 earners.
I’m able to bring in some additional elements of planning that don’t disrupt what they’re currently doing. We don’t replace CPAs. We don’t replace Wealth Advisors. We just create new pathways to save more of an individual or business’ income in a tax efficient way. It’s been a lot of fun.
Has a CPA or a Wealth Advisor ever thought that you were stepping on their toes, or that you were trying to replace them? Has that been a challenge for you?
That’s a great question. Because of the way that we drive our solutions, there’s no downside for Wealth Advisors to get us involved with their client. There’s only upside, because we’re going to uncover opportunities to save more money. Then, that money can be redirected into wealth acceleration or preservation solutions and products that the Wealth Advisor offers.
Now, some CPAs put their shield up when they hear about us. They’re like, “Wait a minute, this is my client of 15 years. You’re going to come in and tell them that I’m doing a bad job.” But that’s not what we do.
I’d say three out of 10 CPAs appreciate our work. They tell me that they’ve been waiting for someone like us to truly integrate into their current client base for that extra layer of support. The other seven out of 10 – who might not truly understand our value – are closed off and don’t want to give the green light to their client. That’s just how it works on this.
A Typical Engagement with Peak Profit Solutions
What does an engagement look like? I assume you have to get a feel for what the person or the company has been doing in order to make suggestions. Is it a consultation, then an analysis?
I gave myself my own title: a tax savings architect. In acting as a tax savings architect, I need to review your current structure and see how we can create more reinforcements… or more efficiency.
The initial process is a Q&A that takes 10-20 minutes. The secondary process is analysis. I’ll look at some financials, like tax returns, to see how they’re currently structured. Then I will present the layers that the individual or business could integrate in.
It’s a simple process that revolves around understanding their current situation. High-income W2 earners are the hardest to work with, because they don’t have as many solutions. But we are still able to offer some pretty unique solutions for them as well.
Are your engagements a one time engagement or are you working with clients over multiple years?
It depends on the solution that is appropriate. It can be a multi-year relationship or it could be a one-time plan. Some solutions require an ongoing partnership, but again, none of our work replaces Wealth Advisory. None of them replace tax preparation, tax filing or bookkeeping. It really is just an additional layer that fits in when the opportunity presents itself.
Yeah. I would imagine one of the questions you get from prospective clients is if they make a bunch of changes to how they file their taxes, will they get audited? How would you answer that?
Nothing that I would recommend is going to flag an audit. Based on the way we structure our solutions, you should not get flagged. We’re not doing anything that the IRS is scrutinizing. We’re basically just applying the tax code in a creative and engineered way that creates results.
Judge Learned Hand says it best:
“In America, there are two tax systems; one for the informed and one for the uninformed. Both systems are legal. Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.”
That said, if you do get audited, our solutions are tailored in a way that you can easily present the codes that apply and you’re good. The IRS might say, “Hey, look, tell me a little bit about this.” And so you do.
Right. Let’s go into a couple of the solutions that you have.
Tax-Saving Solutions for High-Income W2 Earners
Sure. Let’s start with the high-income W2 employee. Maybe they’re an executive, or they have a lot of bonus income, or they have a lot of commissionable income, but they’re still considered W2. There’s a couple of routes we can go, above and beyond how much they defer into 401ks, or those types of solutions.
I always ask them this question, “Did you know that you can make the world a greener place and reduce your taxes at the same time?” They’ll say, “Well, that’s interesting. How does that work?”
A really powerful group I work with can help a W2 earner redirect their tax bill to acquire solar assets. By doing so, they get their investment tax credit, which the federal government wants to provide, because they want to increase the solar grid. In doing this, the individual will have a new business, but it’s only a hundred hour per year requirement. It’s not hard to hit, but we’re able to help them hit that requirement through a lot of ways.
With a hundred hours of active involvement, they can essentially redirect a $150,000 tax bill. Instead of paying that $150,000 to the federal and/or state government, they can send that same $150,000 to the business they’re structuring that is going to acquire solar. Through the bonus depreciation that you get in the acquisition of a solar via the business and the tax credit, we can zero out that tax. Literally dollar for dollar.
The next question is always, “Well, why would I want to do that? What’s my benefit?” Well, your benefit is that you just purchased 30 years of a very low-risk cash flow. The people that will use that solar energy will pay you, as opposed to the power grid, which is going to be 30-40%+. So you just locked in 30 years of payments from a solar panel project that you own.
Can that tax solution be used by anyone, whether they’re a W2 or business owner or paid on a 1099?
100%. Why don’t you let the IRS in the federal government fund your long term cash flow? Right? Because essentially it’s money that you would have sent away and never seen again, other than in your schools and your roads…
Those dollars come back to you over the course of the power purchase agreement, generally up to two times the amount. If it’s a $150,000 acquisition, you could get up to $300,000 in cash flow over that 25-30 year period of time. It’s dollar for dollar.
Now, is this solar energy solution something that a person can only do once? Or can they do it every year?
Most of our clients do it every year. We have clients that are in their seventh year of doing it. It’s great, because it does add up. If you think about a $150,000 investment that will produce $275,000 over the course of 30 years, you may not think it’s too special. That’s a few thousand dollars a year in cash flow. But you have to remember that cash flow is coming from dollars that you would’ve never even had. We call it an infinite return.
When you do that two, three, four, five+ years in a row, you have this escalator approach. Instead of $5,000 per year over that period of time, at year five you now get $25,000 per year. This is all from dollars that you would’ve never seen.
It really starts adding up if you do it year over year. But of course, this is only available while the tax credit is pretty sweet. Right now, it’s still 26%. So long as it stays in the twenties, we can keep this efficiency going. Once it starts dropping down, it won’t affect someone long term, as long as you acquire the solar, when the tax credit is where it is, you’re good. Because you get all of your benefits in the first year.
Another way to save, and this is a fun one, is charitable deductions – or charitable giving made profitable. High income earners in New Jersey, New York and California, between state and federal, might be paying 45-50% of their profit to the IRS. Well, if you give a dollar to your favorite charitable organization, you save 50 cents in California at the highest tax bracket. You spent the dollar to save 50 cents.
If you’re charitable, this is obviously great, because you got to give a whole dollar to a charity you love and you got 50 cents back from the IRS.
Let’s take this another step further. What if you could give a dollar to a qualified charitable organization, but get a $4 deduction? Now that makes a lot of sense. If you’re in California or New Jersey, you’re basically paying a dollar or you have a $100,000 acquisition, you’re getting a $400,000 deduction. If you’re in the highest tax bracket, you’re going to get $200,000 in tax savings. Who wouldn’t pay $100,000 for a $200,000 tax savings? A hundred percent ROI literally in a matter of days.
That’s the other W2 approach that we take. It’s charitable contributions that we can actually make profitable.
Yeah, definitely appealing. What about on the business owner’s side?
Tax-Saving Solutions for Business Owners
There’s a lot more opportunity with business owners. I don’t want to bore you with all of our solutions, but there are some fun ones that are low hanging fruit.
There are about 20 different tax-free fringe benefits that have been in the code for years, I’m talking 40, 50, 60 years. There’s 70,000 pages of tax code. Right? You have to know them and how to apply them.
The tax free fringe benefits, we do analysis work there and most of the time we can pick up anywhere between $60,000 to $150,000 in deductions that business owners are missing. If you have a deduction that has no expense attached to it because of the way the tax code reads, well then you actually have significant tax savings.
I’ll give you an example. There is a way for business owners to create policies in their business in which – if structured correctly – if they work outside of business hours, they have a stipend that they can pay themselves that’s not taxable. But there’s nowhere in the code that says you have to show that you had an expense or a receipt. You just have to log that you worked outside of these regular business hours. That’s one of the 20 that could potentially add up to save $15,000-$20,000 per year.
If you’re at a 50% tax bracket and you can move $20,000 to yourself with no expense and no tax, you just save $10,000. We just add those up. If we could get those to $75,000, $100,000 and $125,000, now you’re looking at the lowest tax brackets, $20,000 a year in tax savings. But when you work up the line and you’re at that 37% federal and maybe the 8% state, you’re looking at $50,000 in tax savings, which is completely liquid.
This is why advisors love us, because we just gave the business owner they work with the dollars they needed to fund their kids’ college education or catch up with their retirement. And that’s just an example of low hanging fruit. We have some more sophisticated things that we can do, as well.
Right. Now, if we look at the tax proposal that was introduced last year and got shelved, we can assume a portion of it is probably going to come out again. Is there anything in there that would be of interest to you, in terms of how you work with clients?
Everything that we see in the upcoming tax bill creates more of a reason for people to want to talk to us, particularly when you’re shifting that capital gains tax to potentially as high as the regular income. If that actually goes into effect, that’s a huge reason to structure your sales appropriately prior so you can significantly reduce that long term capital gains tax.
There’s nothing that’s being changed on the active income side that really affects what we do. Everything that we have that we apply is rooted in tax law. If you’re doing it correctly, it’s just like anything else. The federal government has to follow the same rules that we do. The IRS has to follow the same rules that we do. We all have the same playbook.
Going back to how you engage with clients, do you actually help them implement the solutions, maybe with their CPA, attorney, Wealth Advisor, etc.?
In most cases, there is an implementation process. We’re not going to just give you an idea, throw a tax code at you and say have fun. For a lot of our solutions, there does need to be specific implementation on the front side, and maybe even some support.
With that being said, we do have full implementation in almost every solution we bring forth. Of course the processes to identify all the different opportunities, present those opportunities along with their economic value. Right? Because it’s not what you earn, it’s what you keep.
The great news is it’s all evergreen. You don’t have to try to figure out something new next year. Once you put these new pathways and structures in place, every single year you’ll be able to use them. It’s nice that they’re evergreen, so long as the tax code doesn’t change. When the tax code changes, we do what all the big companies do. We use our knowledge of tax law and we look for another pathway.
Are there any specific income requirements for working with Peak Profit Solutions?
Yeah, absolutely. The low hanging fruit, the 20 different tax-free fringe benefits, starts making sense when a business owner is paying north of $30,000-$40,000 per year in taxes. At that point, it makes sense for us to do the work, put it together and charge a fee.
On the W2 earning side, we really need to see them paying north of $125,000 in tax before those solutions start to really make sense. On the charitable giving, if you don’t have at least $600,000 of adjusted gross income, you can’t use the charitable deduction strategy because of the limit on the AGI. Those are, I’d say $125,000 or more in taxes out the door as a W2 earner or a $600,000 AGI or more to get both of those solutions on the business owner side.
As long as a person is writing a check for $35,000+ in income tax, we can at least look at the low hanging fruit. But a lot of our clients were writing several seven figure checks before we got involved. In those cases, we have a lot more solutions available, because now we start integrating in what the larger companies do. We just scaled it down and helped that small to medium sized business implement what they can never implement on their own, but it’s available for them to implement if they do.
Alright, we’re just about out of time. Mark, I want to thank you for being on the show. You gave some great insight into taxes and ways to potentially reduce them. How can an Agent of Wealth listener find out more about what Peak Profit Solutions does?
Absolutely. Your listeners can go to my website, peakprofitsolutions.com. There, you can read more about me, read case studies, and of course I offer a 20-minute consultation free of charge. If you do book a 20 minute consultation, all you have to do is come ready to talk. Within the timeframe, I can usually identify paths to take and give them an estimate of how much more they could save in taxes if they were to implement solutions.
Great, we’ll link to all that in the show notes. Thanks again, Mark. And thank you to everyone who tuned into today’s episode. Don’t forget to follow The Agent of Wealth on the platform you listen from and leave us a review of the show. We are currently accepting new clients, if you’d like to schedule a 1-on-1 consultation with our advisors, please do so below.
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