Reduce Tax Liability Strategy for High Earners

[00:00:00] Hey, this is Laurel. And a lot of you have been giving some feedback and saying, I want to make some money. I actually need to grow my business and I really need to understand millionaire structure. So go to asklaurel.com forward slash podcast, grab two free tickets to my millionaire intensive. I'll see you there and teach you every one of those topics. Good afternoon. Good afternoon. How are you, Ken?

[00:00:27] I'm doing well. Thank you for the invite to join you today. Oh, I've left you some messages already. I know who you are. You're amazing. And where do you live in Louisiana? Denham Springs, right outside of Baton Rouge. Mm-hmm. I love it. I just went on a big gator hunting trip for the first time. I think I told you that in my message. It was a blast. Sure.

[00:00:54] So you've been working with Laura and your question, I've paid into the millions in taxes these past three years. Would like to know the best ways to leverage my assets and lessen the tax liability. I have a lot of credit that you use on your investments and have a lot of equity in your real estate and unsure how to utilize. What would you do with this? I also feel like I've gotten a reasonable amount built up in your 401k, still contributing the max amount. Is there something better that you could be doing with that money?

[00:01:23] So, yes, we can help you with all of these things. The tax planning is enormous. So, like I said on my message, you would go to a guy that I've been using for over 20 years, and he went to school in Louisiana, and he's a specialist in gas and oil. So, I mean, you're in that whole space of gas and oil real estate. You're already in the depreciating asset schedules. I would bet your current team isn't, or even applying some of the depreciation schedules.

[00:01:51] The bonus depreciation that just came into effect 2025 and really going to be available for even better tax strategies in 2026 is enormous. That's one piece is how you invest that money and how it's held, whether it's in LLCs, S-corps, or partnerships. And then the other side of the entire equation is your corporate structure. So, just in general, tell me what they are. But do you have two companies, three companies, five companies, 10 companies? What do you have?

[00:02:21] My main company is S-corps, and then I have three other LLCs. No C? No C. Yeah. My main company, I'm a 50-50 partner with. I have a partner in that one. Okay. So, were you on the whole time? Did you hear me talk to the guy who's buying into that plumbing business? I did. Yeah. So, how you own at that 50-50 level is the start of the problem.

[00:02:48] So, if you don't have a company that owns your half, and he should really have a company that owns his half. So, it's company to company owns a company. That's the best tax structure. So, that could be redone. Right? And again, like I said to him, I say the same thing to you. I would help with those agreements and how that lines out. And then you would have your own company. And you're going to need – I mean, again, I don't think our tax teams would put it in Louisiana. They would probably put it Wyoming and Nevada. But you're going to need the big asset protection, C Corp.

[00:03:17] That's why your taxes are so high. You don't have a management offset fee. So, we do a lot of contractual arrangements between the companies. So, you don't have enough companies. So, you have too much money going into a small amount of companies. You've got to have more companies to spread the revenue, which spreads the expenses, which takes your whole tax strategy down. Does that make sense? It's not a huge change. It's not a huge shift. It's a little bit of a shift.

[00:03:42] And then behaviorally, after those agreements, you're back on the phone with me, and I'm teaching you how to use and spend in each company. Like, which should each company really be paying for the best tax plan? And then I work really closely with the tax team and you, your family, on how you're going to spend the money. Because how you spend it, you either spend it personally or you spend it as a deduction at a company. And that is, for higher net worth people, the biggest problem.

[00:04:06] Because you got kind of comfortable in a pattern of just spending the way you spend versus spreading the money contractually, very strategically, and then how you invest. I mean, I think your investing seems better. It seems like the strongest part of it. It's this lack of corporate structure. When Laurel sent me over, you know, your initial profile, that's what I saw. And then reminding me, do you have a trust even yet? Yeah.

[00:04:29] You see, while I'm cautiously very optimistic about working with y'all, and I say cautiously just because I've been trying to find a solution for years. Yeah. I mean, for years. And I've spoke with tax attorneys, CPAs, you know, investment professionals and all that. And, you know, I'm not the brightest bulb in the chandelier, but I'm smart enough to know that I don't have it right. And I need to surround myself with people who know more about it than me.

[00:04:58] I am a college dropout. So everything I've learned, I've learned through the School of Hard Knocks, and I can't seem to get my diploma from that, you know? So I really— You're just going to skip the high school diploma straight to a master's degree. Yeah. So, you know, I have—I knew I needed to set things up. So, I mean, I have wills. I have stuff right now, revocable trusts.

[00:05:25] But I have an irrevocable trust set up, but I haven't put anything in it yet. But it's a tool for me in place there, you know? I have my investment advisors, but no one can give me the whole picture. And, you know, the one thing I did know, my father always taught me the importance of having to save and pay yourself first. So I did that since my first job working in a snowball stand, even if it was $5, you know? I did that. So I've accumulated that.

[00:05:55] But in my circle, I do not have what I would feel people who could mentor me. Now I need to be educated in how do I switch from saving to understanding how to run my own family business and build a legacy. Something that's very important to me is I have three children. They're all grown, but two of them were in the military, so they have a late start.

[00:06:20] They're all great kids, but struggle—I mean, they're struggling to survive. So I want to create a legacy, hopefully a family company, and figure out the best way to help them transfer some money to them. Or, you know, I could spend forever with you, and I know I don't have that time. But I'm looking for the whole solution. I'm looking for someone who can mentor me and teach me how to manage my business. I will. I will. I got you. And how old are the kids?

[00:06:52] 42, 37, and 33. Okay. And are they aware of your desire to bring them in and help them? No, I've talked to them about years. Again, I'm not a financial guru, but I've done well with basic knowledge of saving, you know, the importance of saving and stuff, and managing their debt and stuff like that, and trying to meet with them.

[00:07:20] I know my daughter's very interested. I know my son would, too. But, no, I have not sat down because I don't have a plan, and I don't want to talk to them until I have a plan. Perfect. Well, and I would just say that that'll be part of the education, is not only mentoring, teaching you, but teaching you how to support them. And if they want to come to some of those calls, they, I would say, just are welcome to, they need to. So it's easier just to, you know, for them to listen in on how things are going to go and how it's going to work.

[00:07:50] But definitely your structure is where we've got to start. And I would structure knowing that you want the legacy for them. I mean, the whole structure would start right out. The good thing is you have the trusts are correct. How they're funded is not correct. And how these companies, as you expand the revenues, that makes sense? Just conceptually, we're going to take what you make in four companies, and we're going to spread it probably at least with six. We're going to spread at least two more companies got to get in there. One's that big specific asset company.

[00:08:20] And then that's where the kids could work. And then a percent of that is held into that irrevocable. So, I mean, it's a lot what I have, and I have how I've built mine. And that's why I give you my guide, because we're going to duplicate and custom to what you guys want and include the kids. And then we'll look at the 401k. Where's the 401k? Is that under one of the company structures? Or is that your partner? Is that the 401k from your partnership? Yes, that's from our main company.

[00:08:51] So the problem with maximizing is, I mean, we're in a really interesting and volatile tax time. And you know when you start pulling that money and you're going to end up with minimum required distributions, then you've got to pay tax at the rate that you're being pulled at. So a lot of times with the kind of revenue you have and you could do it, like my tax guy would actually look at that whole 401k and probably with a different company you own, have another 401k. But this one's a Roth.

[00:09:21] So you're going to pull out and pay tax now because it's a little more predictable. So you might balance between two 401ks, if that makes sense. Yeah, and I do have part of it, at least part of some what I paid in my wife's in a Roth. But since when our tax rate got high, we just went back to deferred. But I know I'm concerned about the minimal required distributions, what it would do to my tax rate.

[00:09:48] And also my legacy, when I die, my kids don't have 10 years to take it out. It would increase their tax rate. So it might be time to stop. Like I'm stopping at least for this year. I mean, I make it like, again, same thing you'll be going through is a regular meeting with the tax team. And then, you know, the difference is they're not the educator. They're going to do the strategy. And then that's where I come in and I'm going to help teach you how to live in it.

[00:10:15] Because a lot of times when they just show you the strategy, you're still like, it's a lot. And you don't know how to ask the basic questions, which I mean, not these are basic to you, but they are from a, you know, which credit cards do you use? How do you spread that out? And do you keep contributing knowing that? So you, do you know a lot? You just don't, you have a lot. Here's what I say. You have a lot of the puzzle pieces are just not gelling into any sort of a masterpiece at this point. Exactly.

[00:10:41] I have different companies, but you know, I don't know how to, how to get money to the different ones and how to use it. So I don't know how to live that lifestyle. I don't know how to live at this level. All right. Well, I will teach you. I mean, I'll show you how to do from expense reports between the companies is a big part of it. There's notes between the companies. There's loans, especially when you get to just you and the kids, you can get way more creative. You and the partner. I mean, your partner might be interested in some of these strategies and then go along with more.

[00:11:10] But what I find is when one party of the partnership joins and the other ones are kind of stuck in the ways, we just, you don't leave it alone. But we have to include what that is. And then we get really strategic on you and what you're doing with your family. Does that make sense? My business partner, too, him and his wife always way conservative, not even to be investing well. You know, they're changing a little bit now, you know.

[00:11:39] But, no, it's kind of hard to deal with on the financial side of it because he's just so conservative and afraid to lose a dime. And unfortunately, from the school of hard knocks, I've lost several dimes, you know. But if I wouldn't have done the things that I did, I wouldn't be where I am now, you know. No, it's good. No, and congratulations. You've done amazingly well. I'd love to help with this next chapter. It'd be fun. And, yeah, and we can do it all like phones, Zooms, things like this.

[00:12:10] Well, I appreciate that. Yeah. Any other questions for now? I know you have a million is how we get into it. Yeah. Yeah. No, I know I have a call after this one with Laura. You know, I have that call scheduled. I know whatever y'all do for tax strategies that has to happen now before the end of the year, if there's anything we can do to make this year better for us.

[00:12:39] But, you know, my problem with planning has been, you know, because you come from all the gas industry and most of our business is dealing with the Gulf of Mexico, all the gas industry. We have good years and we have bad years. And when we had good years, the government took all our money away. And the last couple of years have been rough years, but they don't give it back to you in those years. You know, so I need to learn how to take care of myself with all of this.

[00:13:03] Well, yeah, and one of the first things we're going to ask for is the last three years of all your business tax returns and start looking at that and what can be. Can we do any, you know, corrections from the last three years? But more importantly, that actually will take a back burner. The most important thing is this year, because this year you have, you know, we only have, what, less than 60 days or so to make some really serious decisions. And, you know, and then that's going to adjust it quite a bit. Next year we get way more strategic because we have all year to work.

[00:13:32] By 2027, young man, you will be golden with your kids enacted. I mean, it'll all start. You can only move so much at one moment when you're 60 days from the deadline. Yeah. Okay. Well, I definitely appreciate it. And look forward to seeing what I can do to learn from you. Yeah. I'll do it too, Ken. And I know I will be around, Laura, so I know you guys are talking right after this. And same with Sandy. I know you guys are talking, so just let me know. I'm here in the office and here to help you.

[00:14:02] Thank you very much. Good to meet you. Thank you. Thanks for listening to the Real Money Talks podcast. For some special wealth building gifts only for Laurel's podcast listeners, visit asklaurel.com slash podcast. Do you have a burning question for Laurel? Visit asklaurel.com to submit your question, and it just may be covered on a future podcast episode. Until next time.