#58 - Tax Tactics: The TOP 5 Ways You Can Save with Toby Mathis

[00:00:00] Welcome back to Passive Income Pilots everyone. It's another week here with Tait Duryea and Ryan

[00:00:04] Gibson. What's up, Ryan? I'm doing good. I'm feeling relaxed. I just got back from Mexico

[00:00:09] and just went on a kind of a business retreat with a bunch of other business owners that

[00:00:13] I got to spend some great time with in Swap Stories and just iron sharpens iron kind of

[00:00:17] thing and glad to be back and glad to be recharged mentally to get back into the show.

[00:00:22] Yeah, I just got back from the Pilot Network Conference, TPNX up in Minneapolis. It was

[00:00:27] snowing in late April in Minneapolis. It's nice to be back in Honolulu for a few days here. But

[00:00:33] with that, hey, we've got our best guest ever, dare I say, Toby Mathis on today.

[00:00:41] Absolutely. No one more real too. I mean, Toby is the real deal. He

[00:00:45] invests in real estate himself. He invests in stocks, bonds,

[00:00:47] mutual funds, the whole thing. He's not just out there giving advice. I mean,

[00:00:50] he is literally doing it. That's what I love about him. He's actually experiencing

[00:00:54] the tax and legal aspects and the asset protection of life and then also helping people

[00:00:58] achieve that. And we mentioned in the show, there is a tax and legal workshop they put on

[00:01:03] in person. I'm actually going to be the one in Dallas. It's in June 27th to June 29th.

[00:01:07] So if you're like, hey, I want to meet Toby and see what this is all about,

[00:01:10] and you want to meet like-minded people, it's a great event. I've been going to it for

[00:01:14] a couple of times and just meet some great people and go out for nice dinners. And it's

[00:01:18] a lot of fun and you get to learn a ton about investing and things like that.

[00:01:22] So we're not promoting the show or anything like that, but it's just a great way to get

[00:01:26] out there and network, which Tate and I love to do. Absolutely. Well, with that, let's get into

[00:01:31] it. We're going to talk about the top five ways that pilots can cut their tax bill.

[00:01:36] So without further ado, let's get to the show. Welcome to Passive Income Pilots,

[00:01:41] where pilots upgrade their money. This is the definitive source for personal finance

[00:01:47] and investment tactics for aviators. We interview world renowned experts and share these lessons

[00:01:53] with the flying community. So if you're ready for practical knowledge and insights, let's roll.

[00:01:59] Toby, thank you so much for joining us. You are the number one guest that's ever been on our

[00:02:03] show. You've got the most number of downloads. You're the most talked about guest. So thank you

[00:02:07] for coming onto the show for a third time to talk about how we can kill our tax bills.

[00:02:12] Thanks for having me. I just like killed that. That's right. I like the way you're the man. So

[00:02:17] yeah, we appreciate you coming back on. Yeah, I appreciate you guys having me. And it's not

[00:02:21] about making your taxes go away. It's just keeping them to a reasonable amount and paying

[00:02:25] the least amount you're legally required to. I don't want to be one of those guys that says

[00:02:30] you don't have to pay the IRS. You do. You just don't have to leave them a tip.

[00:02:34] And zero can be reasonable, right? Like zero taxes is reasonable. Zero can be reasonable

[00:02:38] under your circumstances. It's hard. I would say you don't really want to be around zero.

[00:02:42] You really want to be between 100 and 200. Your audit rate's really low. You're paying a small

[00:02:48] percentage of your overall income. It's not horrible. Anything below 20%. I'm like,

[00:02:53] I'm not going to cry about it. The part that gets really painful is when you're making

[00:02:59] a dollar and half of it's going to your state and federal taxes. Then it makes you really,

[00:03:05] it's tough to want to go out there and generate more income when you're splitting

[00:03:10] it with your silent partners. Right? Can you reiterate that for anybody that doesn't

[00:03:14] have their head fully wrapped around the tax brackets? We're going to get real,

[00:03:16] real basic elementary level here. If you're in the 37% tax bracket, that doesn't mean that

[00:03:21] every dollar is taxed 37%. Right? So that's why we don't want to slam your income all

[00:03:28] the way down to zero because the first 100, 200, 300,000 if you're married,

[00:03:32] isn't wildly highly taxed. Right? Right. We're under the more you make,

[00:03:37] the more they take rules, a progressive tax system. So your first dollars might be zero.

[00:03:43] Then you have dollar, cause you have a standard deduction right now, close to 14 grand. Right?

[00:03:48] And then you get above that. You're at 10%, 12%, 22%, 24%. And then the more you make,

[00:03:58] the higher the dollars above that amount are taxed. So it's never retroactive. Like you

[00:04:04] never go back to the first $10,000 you made that's not going to be taxed at all and say,

[00:04:10] now we're going to tax it at 37%. What they're going to do is say any amount that you make over

[00:04:16] 500,000, whatever is now taxed at 37%. So then it starts getting more and more painful.

[00:04:22] And I always call that tax pain. It's an easy way. It's like, how bad is it?

[00:04:26] If you're making $150,000 and you have a few make an extra 10 grand, the tax pain is not

[00:04:34] vicious. Right? It's still annoying, but you're up over half a million dollars and you make an

[00:04:39] extra 10 grand. It depending on what state you're living in, that could be really annoying when

[00:04:43] you're given quite literally half of it away. Right. And then you're like, gosh, this stinks.

[00:04:48] Why would I even do this? Right. Which makes the strategies that we're going to talk about

[00:04:52] on this show ever more powerful, the more money you make. Right? So airline pilots are all

[00:04:57] everybody signing these new contracts with these really nice pay rates. The problem there

[00:05:01] is that it's all highly, it's all W2. Right? And so you make an extra a hundred thousand,

[00:05:06] you're already making half a million. So that last a hundred thousand is it's diminishing returns.

[00:05:10] Right. And the more you make, it's adding less to your bottom line.

[00:05:13] Tobi, I want to talk about aircraft ownership. Pilots love to buy airplanes and fly them.

[00:05:18] And they love to save on taxes. So here we go. Let's get into how you can own an airplane

[00:05:25] and how it can benefit you on your tax bill a little bit.

[00:05:28] It's the same thing you get into with cars, right? People buy a car and they're like,

[00:05:32] I'm going to buy a really nice car. Cause my accountant said I could write it off if it's

[00:05:35] over 6,000 gross vehicle weight. And they're kind of right. Right. You have to have over

[00:05:42] so much business usage, generally 50%. So when we look at the personal uses is still taxable

[00:05:48] to you. Like you're getting a partial deduction. It's not like I get to write the whole thing

[00:05:52] off. Oh, if I had a nickel for every time somebody said I bought a Land Rover at the

[00:05:56] end of the year and wrote it all off. And I'm like, how much of it was business use?

[00:05:59] Well, my wife's driving or whatever. You're like, gosh, bless it. You're not going to get a

[00:06:04] deduction. The same things kind of flow true for aircraft. So when you're buying an aircraft

[00:06:09] and it's personal use, you get no deduction. It's just personal use, no different than a car

[00:06:16] or your house, right? You're just not going to get to write off the cost of running it.

[00:06:21] If you switch it over into a trade or a business, then you need to actually engage an aircraft

[00:06:28] leasing company and put it into a pool to actually make it something where you are

[00:06:32] intending to make a profit out of the activity. Now we're into something where we can take

[00:06:37] pretty large deductions in the very beginning of its life. Up until the last couple years,

[00:06:44] we had 100% bonus depreciation on an aircraft. So even if you financed aircraft,

[00:06:49] let's say you financed a million dollar aircraft, you got a million dollar deduction in year one.

[00:06:54] It was nice. I had a client last year bought an eight million dollar aircraft financed,

[00:06:59] but his deduction was $8 million. And in order to qualify for it, he had to make sure that he

[00:07:04] was putting it out to be used when he wasn't using it and trying to generate income off of

[00:07:10] it. You do that, then you get the deduction. If you don't do that, then you don't. It's

[00:07:16] that simple. So if you're buying an aircraft, you got to somehow make it into a trade or business.

[00:07:22] Generally, you're putting it into an LLC and you're engaging an aviation lease company.

[00:07:27] There's one in Florida, I believe that they won a big case in Tennessee, not to get

[00:07:32] confusing, but they actually did it right. And what it really comes down to is making sure

[00:07:37] that here's this aircraft that I'm writing off 100%. So it's business use. Now my use,

[00:07:44] there needs to be a taxable event to me because I'm using a business asset. So it'd be like if

[00:07:50] when you're flying for Delta, Ryan, you said, Hey, can I borrow a jet for the weekend?

[00:07:54] They're not just going to say, sure. They're going to say, if you're here, we might lease

[00:07:59] it to you, right? They're not going to do, let's just pretend we might let you use it for

[00:08:04] a fee. The same is true when you're leasing your own aircraft. And the reason you're

[00:08:09] doing that is because you're going to fly it very few days compared to the days that it's actually

[00:08:14] there. And so you want to write off all of the maintenance, all the upkeep and having to rent a

[00:08:20] place to store it and all that jazz unless you're somehow putting it in your backyard.

[00:08:25] Right? So there's lots of costs plus there's the aircraft plus there's interest. You want

[00:08:29] to write all that off. Then the easiest way to do it is to treat it as a business. And

[00:08:33] then when you use it, you're actually those days. And I know you're thinking, I'm going

[00:08:38] to be flying it all the time. I don't know how many days somebody actually uses it, but my guess

[00:08:43] not very much. Yeah. It's going to be, you think a 10th of the time less. So now you're

[00:08:48] writing everything off and you can actually create loss on your return. I know there's

[00:08:53] a lot of folks that will lose their minds when there's a hobby loss rule. Yeah, it's a rule.

[00:08:57] It's three out of five years. You got to show you're gonna make a profit. So,

[00:09:00] but that's not the only thing. If you're actually running it like a trader business

[00:09:04] and you're keeping books and you're doing it right. You can actually incur losses.

[00:09:10] Longest case I've seen was 38 years in a row. That's not a death knoll. It's just a,

[00:09:15] it's just a hurdle you have to get over. So if you lose money every year with your aircraft,

[00:09:20] there might be an audit. So you want to make sure that you have your T's crossed

[00:09:24] and your I's dotted. Well, we know that ever since somebody flipped a coin to fly,

[00:09:28] who went to go fly first, the airlines have been no one's ever made any money in aviation

[00:09:32] when you sum it all up. So anyway, so let's get like hypotheticals. If the three of us got together

[00:09:38] and I basically said, Hey, my company is a leasing company and I'm going to lease your

[00:09:42] airplane for you. And we're the customers and we're the investors. Is that, does that pass

[00:09:46] the sniff test for something like that? You would have an issue with kind of, I think you'd

[00:09:51] have an issue unless you were leasing it at fair market value. If you were the only

[00:09:55] customers, it sounds like he kind of bought something for personal use and just divvied it

[00:09:59] up. You know, I'm not an expert in this area. I'll just put that caveat on there. Sure.

[00:10:04] You think it's really important that you still put it into a lease pool. And even if you guys

[00:10:09] were using it as long as the money was being paid in for that personal use and the intent

[00:10:17] was to make a profit. And maybe you guys were just hobarting all the days used. I think you

[00:10:22] could possibly scale that amount. But it was, I don't think facts are good. But it was

[00:10:26] available to the general public. Yeah. Really what it comes down to is am I putting that

[00:10:32] aircraft out to be rented at a fair market rate to make money? Right. If the answer's yes,

[00:10:39] then it's a business. And then we're looking at it saying, what percentage of the time is

[00:10:45] that the case? If it's personal use and there's four of you, I'm worried that if

[00:10:50] it's more than half that you're going to run into a big issue. I think you run into a buzz.

[00:10:53] That's great to know that rule of thumb. Another thing you said is fair market, right? Because I

[00:10:58] hear sometimes it's like, okay, well, I'll put it out to lease, but I'm going to make it twice

[00:11:02] as expensive as it should be so that it just never gets right. So that wouldn't pass the

[00:11:06] sniff test. I don't think it would pass this test. You have to make it fair market. Anything

[00:11:11] below fair market in real estate is considered personal use. So I think they're going to do

[00:11:17] something similar here. So just to walk the dog on this, I think you said something that

[00:11:21] was massively important. You could buy a million dollar airplane. You could put down a 20% down

[00:11:26] payment, $200,000. And then you could completely write off that million dollar airplane through

[00:11:34] depreciation. And I know that bonus depreciation is now 60% of what it was, but you effectively

[00:11:39] could write off 60% of a million dollars. So $600,000 in the first year. And that could be

[00:11:48] at one of the higher tax brackets. Let's just say it's 25% just to blend it. I mean,

[00:11:53] that's basically you're writing off the down payment you put down on the plane, which is-

[00:11:58] And you're still depreciating the aircraft. Even if you wrote off $600,000. And by the way,

[00:12:04] the house, as we're sitting here recording this today, the house has passed a fix to that law

[00:12:09] to make it 100% and sitting at the Senate right now. That could be passed. And they were

[00:12:13] talking about making it retroactive. So it could be a lot of fun there.

[00:12:17] Yeah. Yeah.

[00:12:19] Oh, yeah. We're all the CPAs. They can't wait to redo everyone's taxes.

[00:12:23] But you still write off the other $400,000. It's over seven years generally. So you're

[00:12:27] still going to be writing off pretty good chunk of that thing over the next few years anyway.

[00:12:32] But what an awesome thing. I mean, you can literally, you can buy a Cirrus for a million

[00:12:36] bucks, million two, whatever they are now. I don't know what the down payment is on

[00:12:40] aircraft loans, but let's just say it's 20% for all intents and purposes. And then you basically

[00:12:45] get that money right back in your taxes and then it's in service and making an income.

[00:12:50] Can I give you an idea? I'm going to throw something out. Nobody talks about it. It bugs

[00:12:54] the credit out of me. We're so used to going out and trying to finance things. Be your own

[00:12:59] bank. Right? I'm not going to schlep insurance, but you could do the IUL or if you save

[00:13:06] consistently, you can do a security back line of credit. So I've purchased a building and I bought

[00:13:13] out another loan and I did some other stuff with the security back line of credit this year.

[00:13:17] A typical loan might be seven or 8%. I think it's 7.5% right now at typical mortgage. I'm

[00:13:22] getting my money at 5% and it's my money. Like it's literally, I have the stock account.

[00:13:29] I'm just borrowing against it. I don't have to go through it approval. So I had a client

[00:13:33] do this last year. Same client, it was 8 million bucks. I think that he did it all. In fact,

[00:13:37] I know he did it all off of his security back line of credit. He just went to Morgan Stanley

[00:13:41] and said, hey, give me a loan against it. They'll do that in a heartbeat. And I remember,

[00:13:48] Ryan, we were in Hawaii once and I don't know if you remember the event, but the loan rates

[00:13:53] were less than 2%. And they go up and down depending on what the, it could be a variable

[00:14:00] amount. So if you think that rates are going to go lower, you could borrow and your rate goes lower.

[00:14:06] You don't have to do anything. Try doing that when you try to, like you'd have to refi

[00:14:10] another loan. But if you, I'm just always shocked that people don't do that or they'll

[00:14:14] say like, I need an aircraft loan while they're sitting on 100% equity in their house.

[00:14:18] Right. Yeah, that's a good point.

[00:14:20] Absolutely. Yeah. Especially you talked about a couple things there that I want to unpack for

[00:14:24] anybody that's not familiar. He said IUL, so that's index universal life. There's also

[00:14:28] whole life we've done episodes on this about doing high cash balance life insurance policies

[00:14:32] that you can borrow against. And then I love the idea of borrowing against stock accounts.

[00:14:37] I have, I'm working with a financial advisor, the only financial advisor that I've ever

[00:14:41] connected with that I see eye to eye with. And I love what he said was, hey, the only

[00:14:47] reason to have a big stock market account outside of your 401k is to borrow against

[00:14:52] it and buy more real estate. And I'm like, finally I found somebody who actually said that.

[00:14:57] So I love that. And then the equity in your house, so many people, I fly with so many people

[00:15:02] that say, ah, I'm almost done finishing paying off my house. And I'm like, what?

[00:15:07] I'm like, what's your mortgage rate? 4%. I'm like, why are you throwing money at a 4% loan?

[00:15:12] Which you know, hey, whatever you want to do if it makes you feel comfortable and it's Dave

[00:15:16] Ramsey, that's fine. But if you're sitting, like you said, we recorded an entire episode on

[00:15:20] this. If you're sitting on 100% equity in your home and you can put a new, a fresh mortgage

[00:15:25] on it at a very conservative loan to value ratio, 40%, 30%, 50%, whatever. And it's at seven

[00:15:32] and your aircraft mortgage, your aircraft loan was going to be at 12. Well, yep, there you go.

[00:15:37] Trey Lockerbie It's fun. I'll give you an easy one. If

[00:15:41] you have equity in your house, you can go to something called Figure. I think it's $400,000

[00:15:46] limit, but it's a AI loan tool. I did it. I got money in 48 hours. I just want to say,

[00:15:52] I don't like mortgages. So I'm one of those guys that's Dave Ramsey probably would be like,

[00:15:56] yeah, but I understand leverage. And if I could get my money out of my home and I could pay off

[00:16:02] my home that I wouldn't care. I'm using it as leverage. There's a difference between debt and

[00:16:06] leverage. Debt is on a depreciating asset at leverage is using it on an appreciating asset.

[00:16:12] So long and short of it is if I could go quickly and I began at figure.com,

[00:16:18] I think is what it is. You could figure out pretty darn quick. You could figure out pretty

[00:16:24] quickly how much money you could get out of your house. And again, they did are all AI.

[00:16:29] It was super less painful because I won't do a mortgage just because I hate doing the paperwork.

[00:16:35] Like I, it was even, it was 3%. I, the guy starts asking me for every document. I'm like,

[00:16:41] screw this. I'm just no, not going to jump through your hoops. I'm not a poodle.

[00:16:46] Figure was literally, I think I had the money in 48 hours and it's just AI. They look at your bank

[00:16:51] account to see if your income can be verified by your deposit and they can AI figures it out

[00:16:57] and says yes. And you get your money pretty quick. That's an easy and no, I'm not a

[00:17:02] representative of that company, but I just thought it was funny. It was like how quickly

[00:17:05] I could do it. I was like, wow, I don't have to talk to people. Great. Not everybody

[00:17:10] wants to go through that process. So keeping on the train of this buying an airplane

[00:17:14] and being able to write it off. I've talked to a lot of pilots who have,

[00:17:17] they're bringing up the next generation and they're making a lot of money and they figure

[00:17:22] why am I going to go pay a flight school 150 bucks an hour for my son or daughter to go

[00:17:28] bore holes in the sky when I just buy an airplane? So let's put ourselves in that person's

[00:17:33] shoes and figure out, okay, how does that end up being an active activity that can be

[00:17:39] right off to my W2? Oh, I'll tell you the steps of what I would do.

[00:17:43] I would A, number one, set up an LLC to own the aircraft. B, I would purchase the aircraft. C,

[00:17:48] I would have a aviation company that specializes in leasing of planes,

[00:17:54] manage my aircraft and put it on the public market to be leased. And then when I used the

[00:17:59] aircraft to train my son or daughter, I would pay the fair market value for those days and

[00:18:07] pay the company just like I was a regular customer. And the idea is I'm going to use it

[00:18:14] very few days. The benefit of it, it should hopefully pay for itself if not put a little

[00:18:20] money in my pocket. So I think the answer there would be lease it back to a flight school.

[00:18:28] Not everybody wants to do it. Like, and here's the thing, as I say,

[00:18:31] just going in with your eyes open. If it's going to be personal use, just don't try to

[00:18:34] write it off. But if you're trying to get a good aircraft and you want to do it,

[00:18:39] it might be that you do put it into the fleet and you say, hey, you know what?

[00:18:44] This is going to buy my aircraft and it's going to basically pay for it.

[00:18:48] Got it. All right. One quick question because I know Ryan's dying to jump in there,

[00:18:52] but very important. We've talked a lot in real estate about the difference between

[00:18:55] active and passive and material participation. That's a hurdle we have to get over in

[00:19:00] real estate. If that airplane is sitting in a lease back pool or in a flight school's fleet,

[00:19:05] would the IRS say, well, you're not actually, that's not an active business because somebody

[00:19:09] else is managing it for you? It depends on the level of participation.

[00:19:12] If you're working and it's always up to you as to whether you're going to say, hey,

[00:19:16] I'm meeting the time requirement to be a material participant. There's seven tests.

[00:19:21] One of them is I do everything, which clearly isn't the case. Test number two is I do 100

[00:19:26] hours and it's more than any other individual. Test number three is 500 hours and we don't

[00:19:31] care what anybody does. That could be combined spouses too. Whether or not you're a material

[00:19:38] participant really matters as to whether the money that's flowing through is going to be

[00:19:42] treated as self-employment income, or whether I have losses, whether those losses are going

[00:19:48] to offset my ordinary income. Right. Okay. How do we get over that hurdle

[00:19:52] with this example? You buy a Cessna. Now, Toby, for your information, we're not allowed to work

[00:19:59] on airplanes unless we've gone to a two year program for aircraft and power plant mechanic.

[00:20:05] It's not like you can get out there and do the engine overhaul in order to qualify that.

[00:20:11] How can we spend 100 hours a year on this business in order to make it active?

[00:20:16] You would still be managing the actual business itself. I could be talking to the flight school.

[00:20:21] I could be looking at and communicating with them on the numbers that are coming out from

[00:20:26] the leases. I could be approving things. I could still be working with them.

[00:20:30] And it's something I'm sure that if we dug deep on it, that there might be some

[00:20:34] better rules. Maybe there'll be something we can do where we do a deep dive on,

[00:20:39] maybe get an aviation school out here too. Because there are cases on it. There are some

[00:20:44] pretty good cases where people are trying to deduct their plane and quite often they're

[00:20:49] self-renting. So they're leasing it to their own business. And when you do that,

[00:20:53] if the ownership's the same, you can group them. Let's say that you owned

[00:20:58] a flight school and you bought a hangar and people are thinking, oh, the hangar is passive.

[00:21:05] If I leased the hangar to my flight school, that could actually be treated as one economic

[00:21:13] activity. And the benefit is there's no passive losses at that point. The write-off from that

[00:21:20] hangar could actually be used against the income that's being derived from the school.

[00:21:25] Gotcha.

[00:21:25] It could actually create a situation where I have a loss and I could actually have a nice

[00:21:30] tax deduction.

[00:21:31] Understood.

[00:21:32] So that's grouping. And you can certainly, you could do the same thing here.

[00:21:37] Understood. That's great. Ryan, I know you're dying to jump in there.

[00:21:42] No, I was just going to mention, I just love the fact. I mean, for me, I would probably be the guy

[00:21:46] that's passive, right? I'd want to be like, buy the airplane for my kids, take the deduction,

[00:21:51] enter it into the flight school and be completely passive with it. And I guess what you're

[00:21:56] saying is it a hundred hours per year or per month or what's the hundred hours?

[00:22:00] So the material participation rules for a typical trader business is the general rule,

[00:22:06] the bright line test is that 500 hours. So if you're spending 500 hours in a business,

[00:22:12] you're going to be a material participant. You're not passive. Anything below there,

[00:22:16] then we have these other little, we have a couple other tests you could run.

[00:22:20] Generally the workaround, when I see people doing planes, they're self-leasing it. They're

[00:22:25] using it for their business and we'll group it with that business. So those losses,

[00:22:31] then we don't care. But if you are a W2 employee, you're working as an airline pilot and you're

[00:22:37] trying to offset that, then we might have difficulty if all you do is buy a plane and

[00:22:44] put it into a rental pool, right? Because that could be very easily construed as a passive

[00:22:49] activity. Even your participation, though it's tough when you have sole proprietors,

[00:22:55] which is generally what you'd be if you set up an LLC and just ignored it. I've never seen

[00:22:59] a passive sole proprietorship, but in theory that could be an argument that would be made.

[00:23:04] I've never seen it. So just throwing it out there that you'd probably want to make sure

[00:23:08] that you were doing more than just idly standing by or that if you took a larger deduction,

[00:23:13] you might be in jeopardy. All right. Well, I think the takeaway there is work

[00:23:16] with your tax professional. If you're going to do this again, don't talk to your tax

[00:23:20] professional about this two weeks before the filing deadline the following year. Be proactive,

[00:23:25] create the strategy before you go out and buy that airplane so that you can be forward

[00:23:29] thinking. 100%. Like in all of this, it's not something I deal with on a day-to-day basis and

[00:23:34] I kind of do deal with these things periodically, but you want to make sure that you are crossing

[00:23:40] those T's and dotting those I's on this because the benefit is huge. So you want to

[00:23:44] make sure you don't lose it. Absolutely. Can we quickly apply this to a question that came

[00:23:49] in, which is from a pilot who recently moved to Montana. They're building a home and in

[00:23:55] order to save costs on rentals, they bought an excavator. And the question was how can I

[00:24:02] write this thing off? They bought it, I believe in this calendar year. So it would be subject

[00:24:06] to 60% bonus appreciation unless it comes back at a hundred. Would you just take

[00:24:10] the exact same conversation that we just had and apply it straight to that excavator?

[00:24:14] Yeah. It's going to be a tough one because it sounds like you bought the excavator for

[00:24:18] the personal use on your property. It's probably not going to be deductible.

[00:24:22] If you wanted to write it off, then you'd have to use it as a lease. There's like what?

[00:24:27] Turo for cars, right? And you'd have to manage it. You do, hey, I'm going to rent it out.

[00:24:31] And then on the days that I use it, I'm going to pay a fair market value. So if

[00:24:35] you're going to rent it out to people for 200 bucks a day, you do it. Yes,

[00:24:40] you could write that thing off so long as more than half of its use is business.

[00:24:44] And then when you have personal use, you just pay those for those days.

[00:24:48] You're going to find yourself in a situation where it should end up being a tax benefit.

[00:24:52] That's awesome. All right. Thank you.

[00:24:54] Yeah. I wish it was easier guys. Like the IRS does make it very difficult. When you're a W2

[00:24:59] employee, you have your schedule A, which is the mortgage deduction, your medical over

[00:25:07] seven and a half percent of your AGI. They get seven and a half percent. Sometimes it's

[00:25:12] 10. Sometimes I think it's seven and a half this year, you get to take a deduction for

[00:25:16] charitable donations and you get a state and local tax deduction up to $10,000. Right?

[00:25:24] And then you have to decide whether that amount exceeds your standard deduction.

[00:25:28] You get to pick one of them. So there's not, it's kind of slim pickings.

[00:25:33] Then you have to go look at your other schedules and you say like, oh,

[00:25:37] do I have capital losses? Okay. There's restrictions on whether I can write those off.

[00:25:41] I can use my capital losses against capital gain, or I can write off an extra $3,000 against

[00:25:47] my ordinary income. And you go to another schedule like schedule E and you're looking

[00:25:51] at your real estate and you're like, okay, I can write that off if I make less than

[00:25:55] $150,000 a year, I can write off up to 25,000. There's a phase out between 150. So it's

[00:26:03] realistically it's unless you're making under a hundred thousand, this isn't going to help

[00:26:06] you really that much, but Hey, maybe I can write off some of my real estate losses,

[00:26:10] or I need to be a real estate professional, or I need to not be in real estate.

[00:26:15] I need to be in something where it's business loss and that gets you into short-term rentals,

[00:26:20] those types of things. But it really is a small world or running a business

[00:26:25] where it operates at a loss for a few years. Okay. I can do that too.

[00:26:30] Like that's really what you're kind of limited to. There's not a ton out there.

[00:26:35] Investment wise, there is one other that people kind of miss. If I want an ordinary

[00:26:39] loss on an investment, it's either real estate professional or be an active participant in real

[00:26:45] estate and be underneath that hundred thousand dollar mark. Or I could always invest in oil

[00:26:50] and gas. And if I am doing a working interest, then that can be an ordinary loss that can

[00:26:55] offset your income. The problem is oil and gas is it's hit or miss, right? You could have

[00:27:00] a well that does really well, no pun intended again, or you could have all of them.

[00:27:06] Yeah, it's happening. But let's just say that I invest in 15 wells. I think probably

[00:27:14] four or five of them need to be producing to break even. If you get above that,

[00:27:17] you start getting a return, but that return is going to be stretched out over

[00:27:21] 15 years, right? You might get your money back after five or seven. You'll be excited,

[00:27:26] but you're getting a tax deduction. The world is pretty small when it comes to things that

[00:27:32] I can actually do to offset my income. And I know it's frustrating for a lot of folks,

[00:27:35] especially if they're making a lot of money. They're like, what the heck do I do?

[00:27:39] Okay. There's like four or five.

[00:27:41] Wow. That's why we spend so much time talking about real estate professional status and the

[00:27:44] short-term rental loophole.

[00:27:45] It is the juice worth the squeeze. And in both of those, if you are an investor,

[00:27:51] the answer is yes, because the numbers can be big in real estate and we're used to using

[00:27:57] leverage. In other businesses, it might be no. Like for example, if you're buying an airplane

[00:28:02] and I'm buying a hundred thousand dollar airplane, probably not, right? I'm buying

[00:28:05] a million dollar airplane. Probably. Yeah. Do I want to go through the rigmarole?

[00:28:10] The $5 million airplane? Yeah. It's going to be an income producer, right?

[00:28:15] It's just going to be a while, but you can get a really big tax deduction

[00:28:18] if you know what you're doing and you follow the rules.

[00:28:21] Toby, one of the things that we're all about here on the show is bringing on

[00:28:25] great guests like yourself to talk about these strategies. But then there's a whole element of

[00:28:29] a podcast where you can really connect the community and meet people face-to-face and

[00:28:34] get more involved. You guys put on a tax and legal workshop every quarter,

[00:28:41] every other month. And I think we're doing four to five. Yeah. I think it's like a four day

[00:28:46] tax and legal bootcamp basically. Can you talk about that? Cause I think a lot of pilots

[00:28:50] have benefited from the ones that I've met that have gone. Can you guys talk about how

[00:28:54] that works and what you guys go over and things like that? Yeah. Yeah. We've been doing the tax

[00:28:58] and asset protection workshop going on 25 years now. Oh, wow. Okay. Yeah. We've been doing them

[00:29:03] just for a minute. We do them online. There's a condensed version that we do in one day

[00:29:09] and almost on a weekly basis. You get us go to Anderson and I'm sure you guys will put

[00:29:13] a link or something. They can go check that out. But the one you're talking about is

[00:29:19] we're trying to do them four or five times a year where we get together and do more of

[00:29:23] a deep dive over a longer period of time. Sometimes they're four days, sometimes they're

[00:29:27] three days. I think we have a three day coming up in Texas in June and yeah, Ryan and your team

[00:29:33] are always there, which is fun. So if you want to hang out with Ryan, you could do that.

[00:29:37] But what we're doing is diving into land trusts, LLCs, corporations, tax planning, estate

[00:29:43] planning, special speakers. Ryan oftentimes comes up in talks. For example, we bring in vetted

[00:29:50] investment opportunities and things like that, that work for our type of client, which tends to

[00:29:55] be the investor. I don't have clients that are just, they work. They're almost all of them

[00:30:01] are investors. A lot of them are doing side gigs. Almost everybody's a real estate investor.

[00:30:07] It's kind of all paths lead there when you're doing tax planning anyway. And it's a great

[00:30:12] wealth builder. So that's what those are. They're a lot of fun. If you like figuring

[00:30:17] out how anonymity works, how to make sure somebody can't take the stuff that you're building up.

[00:30:22] It only takes one little misstep and you're dealing with some pretty frustrating situations.

[00:30:30] You don't even have to do anything wrong. Literally, you could just own property or

[00:30:34] have kids and then they do something wrong and you're responsible and you just want to

[00:30:37] make sure that you're not an easy target. Absolutely. Yeah, no, like I said, like

[00:30:42] as Tate and I met at a conference and so I look into kind of go, I think you have

[00:30:45] them in Dallas, you have them in Orlando, you have them in Vegas. You kind of move them around.

[00:30:49] So a lot of opportunities to meet like-minded people and make some lifelong connections

[00:30:54] really. And I think that's and learn a lot at the same time. Like-minded people.

[00:30:58] I think that's the biggest thing is you tend to go in groups and you need to have that

[00:31:03] support community because it's too much information to try to process by yourself.

[00:31:07] I'm one of many people here at my firm. I don't know everything for sure. I don't know.

[00:31:12] Every day I'm reminded of that fact. Right? It's just, there's so much out there, but thank God

[00:31:17] that we work with really good people and as a group, we'll be able to get the answer.

[00:31:22] You don't need to know everything yourself. You just need to have a trusted, it could be

[00:31:27] a smaller group. It could be like you guys where you can trust the information that you're

[00:31:31] being provided and say, all right, yeah, that and if they point you to somebody, then you

[00:31:36] can rely that they know that person that they're pointing to actually knows what they're

[00:31:39] doing. Yeah, totally. I want to use the time that we have to talk about five tax tip

[00:31:45] for pilots. So pilots are now making great money, great contracts, and they've got

[00:31:50] picker tax problems. So what would you say are the five things? And I would love to,

[00:31:57] well, I'd love to sneak in HSA somewhere in there. Maybe that's not in your top five,

[00:32:01] but kind of how HSA is because that's a very popular thing now with healthcare plans.

[00:32:06] But I was literally thinking about HSA is going, would I put that in the data?

[00:32:12] I think it's so easy to do. Right. So I mean, maybe we start there.

[00:32:16] If you have a spouse or time to be a real estate professional than real estate professional,

[00:32:22] and that's 750 hours, more than half of your time spent in a profession during the year

[00:32:27] in a real estate trader business. So it doesn't have to be your real estate. It could just be,

[00:32:31] Hey, I'm going to be an agent or I'm going to do construction on the side. Or my spouse is

[00:32:35] going to do that. As long as you did, they do 750 hours and it's more than half of their

[00:32:40] the time that their personal service time is what they call it. Then you meet prong one.

[00:32:46] Prong two is did I materially participate on my real estate? And you aggregate your

[00:32:51] real estate as one activity. And then it's the kind of those same tests that I told

[00:32:56] you earlier about. It could be, I do everything or I do a hundred hours. I do 500 hours. There's

[00:33:01] a few other tests, but those are the big ones. That's episode 14, right? I think it was episode

[00:33:06] 14. We touched on it on both 10 and 14. We've also done a deep dive with Billy Withers on

[00:33:11] that. I don't know the episode, but we can link to it. And then we also have another

[00:33:15] episode that we just recorded with Brandon Hall doing a deep dive. So we've talked a

[00:33:18] lot about that strategy. If you want more resources, Ryan and I have some that we can

[00:33:23] send you just reach out. Yeah. Brandon knows what he's talking about, by the way. That's

[00:33:26] real estate. I don't want to point out, but I like people that actually know what they're

[00:33:32] talking about. He knows what he's talking about. That's great. That's a big endorsement.

[00:33:36] Very few people do. I'm sure he'd tell you when he read across some of it,

[00:33:41] it actually has some semblance of an idea. It isn't shelling a bad concept. You say,

[00:33:45] yeah, they actually, they're solid. They know what they're doing.

[00:33:48] But real estate professionals, one short-term rentals is a loophole that if you're willing

[00:33:54] to put a property into service and make it a short-term rental in the first year,

[00:33:57] then you can get the bonus depreciation. Even if you've had a property for a while,

[00:34:02] you can do that same strategy. You're going to have to keep it as a short term for a year.

[00:34:06] But if you haven't done a cost segregation and bonus depreciation, then you could pick the year

[00:34:13] I could have bought the property five years ago and I could pick to do it.

[00:34:16] I'm going to do it. What if you bought it before bonus

[00:34:18] depreciation came in? What if you put it into service as a long-term rental in 2015,

[00:34:22] you still own it? Yeah. So if you put it into service in 2015,

[00:34:26] then you've been depreciating that pretty extensively. So when we do the bonus,

[00:34:33] we know without even, not bonus, if we do a cost seg, and a cost seg is a fancy way of saying

[00:34:38] is breaking an asset down into its five-year, seven-year, 15-year, and 27 and a half year life

[00:34:45] if it's residential property. So if it's a typical rental,

[00:34:49] if it's non-residential or hotel, it's 39 years. Right? Most people and most accountants

[00:34:54] instinctively go to that 27 and a half year as their depreciation schedule, which it's a fancy

[00:35:01] way of saying I'm going to deduct the improvement that is put on the land. I don't deduct and

[00:35:07] depreciate land. I only deduct and depreciate the improvement. But we start with this 27

[00:35:13] and a half years and that's not the way you're supposed to do it. That's actually

[00:35:15] impermissible, but they let you do it because it costs you money. You're supposed to go into

[00:35:20] that house and say here's its removable flooring, window covers, specialty electric to appliances,

[00:35:28] plumbing to appliances, all that stuff is supposed to be five-year, seven-year,

[00:35:32] 15-year property, land improvements. Ryan, you do with this in your storage. I can't even

[00:35:37] imagine how much land improvement you're depreciating. But my guess is that you're

[00:35:41] writing off a good 50% of your projects. Is that closer or is it more than that?

[00:35:45] Yeah, about 60%.

[00:35:45] About 60%. So the way to think about this is if you bought a $300,000 house, let's say

[00:35:52] 60,000 of its land, so you got 240,000, you're right off every year is probably about

[00:35:59] eight or 9,000 if you just did it over 27 and a half years. That same property,

[00:36:03] you would get a, let's say about an 80 or a hundred thousand dollar deduction in year one

[00:36:09] if you bonus depreciate it after a cost say. So if I can make that ordinary loss and it could come

[00:36:15] through and lower my W-2 income, it's going to save me 20 or 30 grand, right? So that's where

[00:36:22] you start looking at the numbers and if you're leveraging, you start going, hey, the tax

[00:36:27] savings are about my down payment. Exactly. So the government's basically buying the property

[00:36:33] for me. It pays for itself and all I have to do is sit on it for the next 20 years and I'm going

[00:36:40] to get all of the appreciation and I'm going to own that thing outright and it's just going to

[00:36:44] sit there and kick me cash into my retirement. Yes, that's exactly how it works.

[00:36:50] Which that right there, I just wanted what to just foot stomp on that right now because

[00:36:55] there's this age old debate like stocks versus real estate. And it's like in my mind,

[00:37:01] it's no contest just because and God, I'm not kicking the stock market whatsoever. We all should

[00:37:07] have a balanced portfolio but Toby, what you said right there is what people forget is that the

[00:37:13] amortization, right? Like even if it never cash flowed and it never appreciated over 20 or 30

[00:37:19] years, your tenants pay down your debt to zero, you own the asset outright and because of

[00:37:23] the tax benefits, the government subsidized your down payment. So anyway, I don't want to

[00:37:29] step on you but. I've done videos by the way on stocks versus real estate. I got to fight with

[00:37:35] you a little. So when you're illiquid and you don't have a lot of money, then I like stocks

[00:37:40] because you can make money several different ways on stock and you could be in it if you

[00:37:45] had 5,000 bucks. It's a little bit tough to enter real estate, 5,000 bucks right? You're

[00:37:51] not going to buy a house. You might be able to do some wholesaling things like that but

[00:37:55] that's work. So from an investment standpoint, a lot of people are really good but you could

[00:38:00] still do real estate in the stock market by doing REITs, doing private investments and things

[00:38:06] like we just don't have the time but you can't ever depreciate stock. The only way you

[00:38:11] make stock deductible is if you're doing it with an HSA or 401k or an IRA where you're

[00:38:17] going in there and you're saying I want a tax deduction and then I'm going to buy this

[00:38:22] asset, this cash flowing asset and I'm going to let it basically grow for many years and do that.

[00:38:28] But I'm a guy that I'm going to throw a term at you. I call it being a stock market landlord.

[00:38:33] I treat everything like I'm a real estate investor and I would not buy a house and

[00:38:36] leave it vacant. I would rent it right? Same thing with your plane, same thing with your

[00:38:42] stocks and then you're going to say well how do you rent a stock? Well you sell covered

[00:38:46] calls on it or you buy dividend producing stocks and sell covered calls on it but you

[00:38:51] just hope things get more value. You always got to have a kind of a focus on where they're

[00:38:57] producing cash flow and just to bring this all the way around that's why real estate kicks

[00:39:03] butt because for years and years it's gone up steadily like the last what four or five years

[00:39:08] we've had this massive increase in rents and all that because they printed so much money so

[00:39:14] you got to see what happens when they create inflation to real estate. You've seen it in

[00:39:19] everybody that was screaming that real estate was going to crash doesn't understand real

[00:39:24] estate and they don't understand inflation. They did it would they would be thinking

[00:39:28] it's going to crash. They'd have been saying oh my gosh real estate is going to get really

[00:39:32] pricey. I should own some of it now and everybody that said that to themselves

[00:39:39] pre-COVID during COVID is doing really well right now and everybody has said no it's going

[00:39:44] to crash. They're paying pretty high rent. Yeah very true very true well thanks for

[00:39:51] for expounding on that. I think we're at number three right? We got two down.

[00:39:56] What did we do? We did real estate professional short-term rental. I'm going to just poke in

[00:40:02] their charitable giving so a lot of folks don't realize that you can give and you can actually

[00:40:07] create your own charity at some point if you don't want to do it now like you're like oh

[00:40:12] I need to keep all my money. Well when you get in a high enough tax bracket there's something to be

[00:40:17] said for getting a donation for an asset. Let's say that I gave a stock that I say I was Elon

[00:40:24] Musk fan years ago and I ended up with a bunch of Tesla and it's gone up 500 percent.

[00:40:31] I could sell that and pay tax on all the gain and then donate some of that money or

[00:40:35] I could just give the stock and get the entire value as a deduction.

[00:40:40] So I'll use an example that I did recently. I had a house and I purchased it. Ryan you may

[00:40:46] have heard this story before but I had a friend whose mom is blind and she lost her

[00:40:50] house to the bank. They foreclosed on her and he came to me and said hey would you help me?

[00:40:55] I don't know what to do and I said okay how about this I'll go buy it from the bank if

[00:40:59] they're in the foreclosure let's see where they're at. I couldn't get it pre-foreclosure

[00:41:04] so I waited for the bank to foreclose on it bought it back for 90 grand. Let mom stay in it

[00:41:09] had to I had some imputed rent and stuff it was kind of annoying so I said this really

[00:41:14] isn't appropriate. I was gonna sell it back to him but he wasn't in a position to buy it so

[00:41:19] I waited two years and then I donated it to one of my charities that I operate and I was

[00:41:24] like here I'll just give mom it's a stewardship so it met its criteria. So I donated it and

[00:41:30] I said mom can stay there for the rest of her life. She's blind right like why would I but this way

[00:41:35] at least I get a tax deduction. Well here's the funny part that 90 thousand dollar house

[00:41:39] was valued by the appraisal at three hundred fifteen thousand dollars. Remember I bought it

[00:41:45] after the foreclosure, son went over there fixed it up a little bit, COVID comes along,

[00:41:51] prices go up and the tax deduction to me was worth more than I paid for the house

[00:41:57] and now I have a house in a charity that's right now I'm giving it to the mom but she's 88 years

[00:42:04] old there's going to come a point where that's either a cash flowing asset for the charity

[00:42:09] which I could take a salary out of or I just use it for my charitable purpose and allow it

[00:42:14] to grow. But I really like that even for folks that are two three hundred thousand dollars

[00:42:18] a year it starts to make sense because you get a nice tax deduction and I could be taking

[00:42:24] appreciated assets that I don't want to sell but maybe I'm a giver anyway I'm a big believer

[00:42:29] in giving a chunk of your income but instead of you doing it maybe you do it through either

[00:42:36] your own charity or a private foundation you could set those things up but I like that because

[00:42:40] I could add a stroke of a pen lower my taxes quite easily. I would say that's one

[00:42:47] I know you're gonna ask me number four a good number four is to have a business that

[00:42:51] creates a loss or to have a business that even if I'll use you guys as an example let's say that

[00:42:57] you work or a typical pilot is working w2 and I don't know do your does the airline reimburse

[00:43:03] your cell phone? Nope. Reimburse your cell phone or anything like that? No. So you have expenses

[00:43:11] that you're incurring along the way what if I set up a small little side business and it could

[00:43:16] be doing just anything you could think of even if you maybe you're going to do lessons

[00:43:20] on the side maybe you're going to do your plane on the side maybe it's producing a little bit of

[00:43:24] income. It doesn't really matter because what happens is things like this if you set it up

[00:43:29] correctly become deductible and it can reimburse you 100% of those costs. If I am set up

[00:43:35] correctly that means I'm an S-corp C-corp or an LLC tax desider and then I can do an

[00:43:41] accountable plan I could do an administrative office at my home I can do 288 I could do a

[00:43:45] whole bunch of things that create the ability of the company to pay me for something I'm

[00:43:52] already incurring and I don't have to pay tax on it. So it sounds kind of funky but if you made

[00:43:58] 10,000 bucks a year doing a side gig it could be Turo it could be doing anything on the

[00:44:04] internet you could be doing social media whatever fill in the blank run your own website

[00:44:10] where you have some subscription where they're learning whatever skill that you're really

[00:44:14] good at or create a pilot's forum and have to charge a small fee whatever it is that 10,000

[00:44:20] comes out to you tax-free and just about everybody could use that especially if you're

[00:44:24] W-2 and you're not getting reimbursed for a lot of the things whether it be travel whether

[00:44:30] it be the ability to go to conferences or things like that all those things become

[00:44:36] deductible to that business and all it means is pay something I would have paid for anyway

[00:44:41] but now it's tax-free and so I'm offsetting some income. And there's one additional benefit

[00:44:45] to that we don't have time to dive into it right now but I want listeners to sort of earmark

[00:44:49] this for later if you have one of those side hustles you can also start a solo 401k right

[00:44:53] Toby which is an incredible vehicle that we can get into on a different show. That was

[00:44:57] actually number five was tax deferred accounts and I was going to say that there's

[00:45:01] different flavors a lot of you guys are used to IRAs and they always hear about a Roth IRA

[00:45:06] and let me just put this out there depending on if your tax bracket is going to be higher during

[00:45:12] retirement or lower during retirement but let's assume that it stays the same.

[00:45:17] The numbers for a Roth IRA and a traditional IRA are virtually identical so don't stress over

[00:45:22] it I'm probably taking the tax deduction now because if I'm a pilot because chances are you're

[00:45:28] in a higher tax bracket than you're going to be when you retire most people like 80 or 90

[00:45:34] it's like that go down during retirement they always say what are you going to do what do

[00:45:39] you think they're going to do they're going to raise taxes that could be true but statistically

[00:45:43] people's tax returns the amount that they pay on their overall income

[00:45:47] is significantly lower during retirement than it is during your prime earning years.

[00:45:53] So I tend to want to take a deduction so that leads us to things where I get a tax

[00:45:57] deduction that's 401ks that's IRAs that's SEPs and Ryan's favorite the HSA. Thank you.

[00:46:04] And that HSA is your health savings account and it's a triple threat is what you call it and

[00:46:09] the reason it's called a triple threat is because not only do you get a tax deduction

[00:46:13] for putting money into it I think this year is it's right around 7800 bucks as a family if

[00:46:18] you have a high deductible health plan you could put it in there and cover your you can

[00:46:22] start reimbursing your expenses right away or get this you could just let it grow put it in

[00:46:28] a fidelity account a Schwab account or something and let it grow and whatever medical expenses you

[00:46:36] have from the point that you set it up on you could reimburse at any time so you could wait 10

[00:46:41] years. So you just track your medical expenses anything that you've had co-pays anything that

[00:46:48] you've had oh shoot I've had all these expenses you just can't pay your medical premium unless

[00:46:53] you're on Medicaid I believe that's the one rule but anything that's coming out of your pocket

[00:46:58] eventually you're going to be able to reimburse even if you incur it now and don't reimburse

[00:47:03] it for five years you could still do it but you get a deduction now for putting that money

[00:47:09] in there it grows tax-free and so long as you use it for health expenses you don't pay

[00:47:16] tax on it when it comes out it literally is tax-free money it's the only kind that we really know

[00:47:22] I get a deduction and it grows tax-free and I pay nothing out people will say well that's what

[00:47:27] a Roth is and it's like no that's not what a Roth is you pay tax when you're going into the

[00:47:31] Roth if you're a young person like you're 18 years old and you're making less than

[00:47:36] the standard exclusion so I make less than 14 grand a year yeah it's tax-free and then

[00:47:42] now I'm kind of like an HSA but that's not for any of us all of us are in a higher tax bracket

[00:47:48] that HSA becomes a nice tool especially if you're going to let it grow for 20 years it's amazing

[00:47:54] big chunk and you could buy a rental property with it yeah yeah you could go

[00:47:59] self-direct it you're not going to get it with the seven thousand right right right

[00:48:04] you're gonna have to wait a few years I put money in it I was it was a company that

[00:48:09] it was a smaller company and I knew one of the the folks that was a CFO in it and I was like oh

[00:48:15] this looks like a decent thing and it popped up and immediately go crap I should probably sell it

[00:48:19] if it's popping up and made a bunch of money in it you have Peter Thiel who did PayPal he

[00:48:25] owned PayPal inside of his Roth and it turned into what four billion dollars like you hear

[00:48:30] about those but it's hard to get the startup capital right there is a way to do it Ryan

[00:48:34] this is fun and take this like just stupid stuff that you can do in the tax world you

[00:48:40] could set up a 401k and you can overfund your account not take a deduction so I could put up

[00:48:45] to what's the max 69 it's like 69 yeah so I could put 69 thousand dollars into my 401k

[00:48:54] and then I could roll it into my Roth 401k right same plan just a different account I never

[00:49:00] took a deduction and because it was an in-service distribution no tax no nothing now I have 69

[00:49:06] thousand dollars in a in a Roth I never got a deduction for the 69 but I'll never pay

[00:49:12] tax on any of that money or the growth ever and that's exactly what I did when I left

[00:49:16] the regional airlines that I flew for is I took that 401k and I rolled it into a Roth

[00:49:23] when I switched airlines so it's like the yeah so you actually paid tax on the rollover

[00:49:30] well I didn't pay tax on the rollover itself but the money was already in a Roth bucket

[00:49:33] when it rolled over so and we got perfect so you did an in-service distribution yeah that's

[00:49:38] pretty well well that wasn't an in-service that was Ryan separated from his previous company he

[00:49:43] had the old dusty 401k that he was able to roll into an IRA rather than bring it into his

[00:49:48] major airline 401k which we talk about a lot and we have an episode coming up where we're

[00:49:53] going to talk about conversions and all of the intricacies around taking a traditional

[00:49:58] account and rolling all or some of it into the Roth do the math do the math on those if you're

[00:50:04] in a higher tax bracket so it would only make sense on those years where let's say you're a

[00:50:09] real estate professional you're buying a massive piece of property you're smashing your tax bill

[00:50:14] and you're like hey I've got room this year to convert some if you do that you just nailed

[00:50:20] it right on the head if you decide I'm going to do bracket management I'm going to get

[00:50:24] like you said earlier Ryan I think you said at the very beginning like one zero percent it

[00:50:29] could be reasonable yeah but if I'm at zero and I have two hundred thousand dollars in an IRA

[00:50:34] I'm converting yeah good point yeah yeah because I'm going to stay I know that this is the lowest

[00:50:39] tax now I'm never gonna have to worry about it again I'm going to use it up I hate leaving

[00:50:43] 10 12 22 brackets on that hold on a second that is like a number one tip I mean think

[00:50:49] about it if you're a new fo and you're at the bottom of the list and you're starting

[00:50:53] at Delta American whatever that's the least amount of money you're probably going to make

[00:50:58] ever again let's hope right yeah yep so if there's a time to convert your traditional IRA to a Roth

[00:51:05] that is the year to do it and it stings a little bit right because you're starting

[00:51:10] so you got to have the liquidity to pay the taxes and all this other stuff but and again

[00:51:14] this isn't tax advice or legal advice this is just friendly conversation right between a

[00:51:18] couple of pilots and and Toby but you know that might be a great year to do it if you

[00:51:22] can swing it because then you're going to be making way more than that and you're going to

[00:51:26] pay the worst tax the highest tax that you'll ever pay on that conversion yeah they're paying

[00:51:31] in probably about 10% on the first hundred thousand it's not huge yeah but remember this

[00:51:36] is what's federal income tax they're getting you on the old age disability and survivor

[00:51:40] stuff too so just a little kick in the shin but I think you're 22% between about 94

[00:51:47] and 200 or there about so like that's not horrible I'm probably converting at that you don't have to

[00:51:53] convert the whole amount but it's worth having the conversation saying man I'm going to be in a

[00:51:57] really low tax bracket and if it's a year where you're taking a loss and it's going to knock

[00:52:02] you down even farther hey I'm going to be at 80,000 bucks great convert it's probably the

[00:52:07] only time you're going to get to me yeah it's interesting how we started the show talking

[00:52:11] about hey pilots are making more money how do we save on taxes but there's also years that

[00:52:16] you need to think about when I'm making less money there's tax strategies you can do to mitigate

[00:52:21] your taxes in the future so it's not about making more or making less necessarily there's

[00:52:24] always something to do no matter how much you're making absolutely yeah just being smart

[00:52:29] about it and making sure that if I'm in a year where I am doing some loss harvesting

[00:52:35] I'm able to maybe I am getting into that plane and it is active participation it is

[00:52:41] and by the way I could do this in one year and then the next year go and be passive

[00:52:45] and everything else like I'm just this is a one-year strategy where this one year I'm looking and

[00:52:50] I want to make sure that I get a nice big fat loss fantastic be looking at that doing your

[00:52:54] bracket management and making sure that you're converting things if appropriate right don't let

[00:52:59] a 10% tax bracket go to waste or 12% make sure you're using it's fantastic well Toby

[00:53:07] thank you so much for coming on the show we're over on time we appreciate you being with us

[00:53:12] these sessions are just fantastic so thank you again hey my pleasure and hopefully next time we

[00:53:18] will do it we got to do a deep dive into the leasing thing you got to let me dig in

[00:53:22] all right it'll be fun we'll bring it back thank you again for joining us

[00:53:26] we'll see you on the next episode everyone