Posted by Matt Register

Jeff Socha, Senior Advisor and Partner at Ark Financial Group, joins us to talk taxes and some tax strategies your CPA probably hasn’t told you about.

Please excuse any typos in this hasty transcript.


Matt Register: Welcome back to the show, Texas Business Radio. Texasbusinessradio.com is the Web site. 844-814-8144 is our 24 hour call in line. Get your calls in, we’re going to get the experts in here to get those questions answered. If you’ve listened to this show for any length time, you know that we like to have occasionally a segment, we like to call National Advisors Showcase. We have a lot of smart guys that come into Texas, that talk to CEOs and give them strategies and tips and things they can do to build and improve on their business. Today’s no different, although this guy happens to not be from out of state, he is within the state. But has, travels around, all over the country, talking to groups of CEOs about how they can save money on their taxes. A lot of different ways to take a look at the entire tax structure of your business, of yourself and find ways to lower that burden. I’m your host Matt Register. Jay Curry’s over there giggling in the co-host chair. What do you think sir?

Jay Curry: Well, I’ve got to tell you, the reason Jeff’s in town is he presented to my two Vistage groups the last two days. And they walked out, in both cases everybody saying “He’s going to save them $35,000 to $50,000 minimum.” You’re going to want to hear this folks. There are ways to legally say money on taxes.

Matt Register: Yes.

Jay Curry: And that’s what this is about.

Matt Register: No doubt. Jeff Socha is with Ark Financial out of Austin. Jeff welcome to the show.

Jeff Socha: Thanks for having me Matt.

Matt Register: So talk to me about Ark Financial.

Jeff Socha: Yeah. So, Ark Financial was started to change the game in financial planning. And what we found is that the market is really crowded with insurance salespeople and stockbrokers. People just pitching a portfolio. And we had to differentiate ourselves and find a value people really cared about. And so the clients we want to work with are successful entrepreneurs. And what we find is their biggest complaint is about their tax bill. You know it’s probably the biggest expense they have.

Matt Register: Sure.

Jeff Socha: And so nine years ago, we started researching to find any way possible. And today there’s probably about 70 different things we can do to help a successful entrepreneur lower their taxes.

Matt Register: Now a successful entrepreneur, odds are he has a flow through entity with his company. Right?

Jeff Socha: Right.

Matt Register: So, you’re looking at…

Jeff Socha: Or he will after talking to us.

Jay Curry: Yeah.

Matt Register: Yeah, right. But a whole lot of them even start that way. Right? But…

Jeff Socha: Right.

Matt Register: If you’re looking to lower the tax burden, you can look everywhere from the company side on, on lowering net income. Right? That flows through to him.

Jeff Socha: Right.

Matt Register: Or on his personal side, other deductions and things that he can do.

Jeff Socha: Right.

Matt Register: To do. It doesn’t really matter where it comes from, you’re trying to holistically look at the, just the entire bill.

Jeff Socha: Right.

Matt Register: And how can we lower that burden.

Jeff Socha: Right. Lower the taxable income.

Matt Register: So talk to me a little bit about some of the, you know, I know your talk was about, you know, 10 things your tax adviser isn’t telling you. We don’t have time for 10. Give us the highlights.

Jeff Socha: Yeah. So I would just start by asking everyone “Hey, when is the last time your tax adviser gave you a great idea to save some money on your taxes?” There might be a lot of questions out there.

Matt Register: Yeah.

Jeff Socha: When, when people start to think about it. And then go “Wow! Never.” So, you know, I’ll tell you some of the most egregious things that I see that really just make me shake my head and go “How did this happen?” You know, excess payroll tax, that’s one that really gets me. We’ve had clients come in that have as much as say maybe $2 million a year of taxable income and they’re paying it to themselves 100 percent in W-2 wages.

Matt Register: Right.

Jeff Socha: So, you can do what’s called a reasonable compensation wage study and create a report to document how you came up with your wage for your salary.

Matt Register: Sure.

Jeff Socha: And you’ve got to separate the compensation from your day job versus the benefit you get by owning a business. So there’s, there’s a difference like if you own a stock, a publicly traded stock, you get a benefit from that, that’s different from the wage. Right?

Matt Register: Sure.

Jeff Socha: So, over about 125 thousand dollars of income, you’re going to pay about three percent in payroll tax. So, you know when clients come in like that and they’re paying 40, 50, $60,000 dollars a year in excess payroll tax, after doing the, the wage study, you know it’s just like “How did you let this happen?”

Matt Register: Sure.

Jeff Socha: “Who told you to do this?” And so, you know, that, that always surprises me. But it’s way more common than you would imagine. You know, the government gives deductions and credits to incentivize certain things. And one credit that seems to be really overlooked in a lot of businesses is research and development tax credits.

Matt Register: Okay.

Jeff Socha: So, the government wants to incentivize innovation. They want to incentivize you going out and creating something that’s going to benefit the country. So, research and development. But when we hear that we think about a scientist in a lab.

Jay Curry: Right.

Jeff Socha: It doesn’t have to be a scientist in a lab. It can be a guy that owns a concrete company trying to figure out different mixes of concrete. It could be, you know, a consulting firm that’s really honing in on some proprietary processes or building some internal software to help make them more efficient.

Jay Curry: Or a client. One that you brought out, that was great yesterday, was a client who in their day to day, they monkey around because a customer comes and says “We need something like this.

Jeff Socha: Yeah.

Jay Curry: That turns into R&D right?

Jeff Socha: Yeah. Yeah.

Jay Curry: And they’re not even thinking about it all. It’s, it’s wonderful.

Jeff Socha: Yeah. They’re not even thinking about it. And they don’t realize it’s a tax credit. So they go “Well.”, they don’t think there’s going to be any additional deduction because you’re deducting the expense of it.

Matt Register: Right.

Jeff Socha: But there’s an additional tax credit, which is dollar for dollar reduction of your tax bill, not the income deduction.

Jay Curry: Wow!

Jeff Socha: So, it’s really powerful. And you can amend your tax returns for three years. So right now, you could go back to 2014, 15, 16, amend those returns and carry forward all that and get a large refund, if, if you qualify for it.

Matt Register: In really, really tiny businesses, guys who just have a job. There isn’t enough there to move the needle. When you have a significant size company, there’s certainly enough there to move the needle. Right?

Jeff Socha: Right. Right.

Matt Register: You’re talking about being able to move… Give me an example of like your biggest, the biggest you were able to sway a tax bill.

Jeff Socha: Sure. So the two largest refunds that our clients got this year were both over a million dollars each, from bringing those forward.

Matt Register: Yeah, nice.

Jeff Socha: So… So, but you know it kind of scares people when they get a seven figure refund from the IRS. They go “What is this? What should I do with the check?” And I say “Deposited in your bank account.”

Matt Register: That’s it. “I’m scared to do it. They’re going to want it back.

Jeff Socha: Yeah, yeah. No, but that’s not the case. You know and another one that, that seems to be overlooked often is, you know most of these entrepreneurs, these men and women that have whatever great business they have, they’re producing something. And there’s a tax deduction called domestic production activities deduction. And essentially the government says “Hey, if you’re going to produce things, if you’re going to manufacture or assemble things here in the United States, we’re going to give you an additional tax deduction on that line of your business.” So if you’re making concrete or if you’re making medicine.

Matt Register: Yeah.

Jeff Socha: Or if you’re making gaskets, it doesn’t really matter what you’re making or assembling, you know. Then you can get an additional deduction there. And just ballpark, it comes out to around 9 percent of the net income on that line of business.

Matt Register: Wow.

Jeff Socha: That’s a significant deduction.

Matt Register: Yeah. No, no, no kidding. There’s a, there’s a couple of things that we were talking about quickly during, you know during a break. One of them is, being a mergers and acquisitions guy, being an investment banker…

Jeff Socha: Sure.

Matt Register: When a company goes to exit there’s a lot of things that can be done in the year or so prior to that exit, that can affect greatly the tax outcome of it. Talk to me a little bit, very quickly, about what you do in, in a liquidation situation.

Jeff Socha: Sure. So, a lot of our clients, you know they have more than they need. And so there’s a little bit of charitable intent. And so we can leverage charitable philanthropic strategy to help mitigate the tax bill on that exit. Another way that we go about it is using section 453 of the tax code. And looking at some sort of installment sale. Or using third party intermediaries in the sale to defer the tax. Which gives you the ability to invest it while it’s being deferred because you don’t have to recognize at all today.

Matt Register: Sure. Sure. No, makes a whole lot of sense. We’re talking to Jeff Socha with Ark Financial out of Austin, Texas. I want to thank you very much for joining us.

Jeff Socha: Yeah, thanks for having me on.

Matt Register: So this is interesting Jay, I mean…

Jay Curry: Yeah, it’s just the first. I mean he gave us a couple, I mean there’s 70.

Matt Register: Yeah.

Jay Curry: And folks, if you’re not into this, you need to get into this. Give Jeff a call or somebody.

Matt Register: Yeah. The Web site to learn more is Ark Financial. Correct Jeff?

Jeff Socha: Yeah. ArkFinancial.com.

Matt Register: Arkfinancial.com. ARKfinancial.com. We’re going to have it linked right there from Texasbusinessradio.com. if you’re driving and don’t have a chance to take notes. Hey, I’m all for it. Nobody likes paying taxes. Nobody likes paying more taxes than, than you’re supposed to. And having a clearinghouse with the smart guys that know the entire range of it, because that’s a tough thing to find, is somebody that knows the entire range of taxes you’re dealing with. Not just one specific, you know, piece of it. It’s having all of that together that’s going to be able to save some very, very significant money. So interesting stuff. We’re going to be right back. We got to go pay a couple of our bills right now but we’ll be back right after this. Texasbusinessradio.com guys, see the entire thing in beautiful high definition video. We’ll be back right after this.

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About the Author
Matt Register

Matt Register

In addition to hosting "Texas Business Radio," Matt is an investment banker and serial entrepreneur from Montgomery, Texas. He is the owner of RREA Media and Register Real Estate Advisors and a Managing Director and Principal at Corporate Finance Associates. He has a BS from the United States Military Academy at West Point and an MBA from Rice University in Houston. You can read more about Matt HERE.

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