8 Tax Strategies for Real Estate Investors

Mike Hambright (00:00.733)
Hey everybody, welcome back to the show. Today, I’m going to be meeting with Melanie and Byron. We’re talking about the eight step tax strategy for real estate investors. So we’re at a point, obviously in the year now where 2024 is over. And now we’re talking about how to kind of move forward. And I think Byron will probably agree with me here that you shouldn’t wait till 1231 of 2025 to figure out your tax strategy for 2025. You should have already started that quite frankly, but if you’re listening to this now.

The second best time to start is today. So hey guys, welcome to the show. Always good to see you guys. So you guys are obviously have been a part of Investor Fuel for several years. We love having you guys in the group and I love the father daughter approach to business. As you guys know, we’ve talked about this a bit. I have a 17 year old son. I don’t think there’s no plans for him to be in the business. Maybe it’ll happen eventually, but he’s 17 right now. He doesn’t even like to hang out with us like period. We can’t even get him to come to the dinner table, let alone.

Melanie Sikma(@melaniesikma) (00:34.67)
Thank you, thank you.

Byron Lee Mcbroom (00:34.771)
Thanks for having us.

Melanie Sikma(@melaniesikma) (01:00.867)
Yep.

Mike Hambright (01:01.097)
Work with us, but he’s 17 so time will tell.

Melanie Sikma(@melaniesikma) (01:04.002)
You never know, I never thought that I would be the one working with my dad and now my sister does too, but I was the one that thought I’d be far away from this business. Here I am, yep.

Mike Hambright (01:14.171)
Yeah, and here you are. Yeah. Awesome. So maybe you guys could tell us a little bit about the background of your business. You guys are really run a tax strategy business and tax prep, of course. And I probably a few more things that I’m not doing you justice for there, but you guys are super knowledgeable and specifically for real estate investors that honestly I’ve known for years and I’ve been guilty of this. Like a lot of us spend so much time.

focus on making money that we spent almost no time trying to figure out how to save it. And that’s where you guys come in. So, but maybe tell us a little bit more about your, your background as well, if you don’t mind, Byron. Or Melanie, either one of you.

Melanie Sikma(@melaniesikma) (01:46.286)
Mm-hmm.

Melanie Sikma(@melaniesikma) (01:51.532)
Yeah, so I’ll start and then my dad can talk about his history in the business. But we have a full-service accounting firm, so we do bookkeeping, payroll, tax prep and planning. But the part where that clients are more excited to come to us for is the savings that we can get them. So our goal is to be a profit center for our clients and not a cost center. And if you have a good CPA, they should be a profit center for you. So I’d say we do a really good job at doing that.

Mike Hambright (01:57.67)
Yeah.

Melanie Sikma(@melaniesikma) (02:21.71)
My dad, dad, why don’t you share a little bit about your history and how you got into doing taxes? Because I think that’s kind of fun.

Byron Lee Mcbroom (02:27.379)
Oh yeah. So when I was in college, I bought my first house when I was 19, paid a whole 33,000 for it, and it was going up $800 a month in value. My payment was, I think, $312, and I got a roommate in that was two roommates that were paying $120 a piece, so it was just a phenomenal thing. And of course, I didn’t claim the money back then, so it was a really good deal. But yeah, one of my roommates happened to be a pathological liar. I mean, he would just, he’d say, oh, I saw

so-and-so at the store and he’d just make it up. He just lied all the time. But anyway, I was in the process of going through junior college, getting my, you know, all my undergraduate stuff, and he started telling me how his dad was a CPA and he started talking about all the things his dad did. And it was just a total lie, but it sounded pretty good to me, so I started taking a couple accounting classes. And my first accounting teacher was fresh out of school. She’s, I don’t know, probably 25 years old and she was really cute.

Mike Hambright (03:16.412)
Yeah.

Byron Lee Mcbroom (03:25.907)
So I thought, man, this accounting stuff is pretty good. I didn’t realize that most accountants are pretty, they’re nice people, but they’re kind of boring on the boring side. So I took accounting. actually took my first class, loved it. My second class, I failed it. And so I had to retake that class. And then I basically just, it took me six and a half years to get to school and I just never quit. Just kept going and going and going.

And I always knew I wanted to be self-employed and being an accountant, I knew that I could be self-employed and I think I was unemployable. So it just turned into a great business for me. And I think my kids liked it because, know, well, even while the kids were little, was still, you know, building up my firm and I was the president of swim team. I also coached soccer for 10 years in a row. And I think I did 40 hours a week of volunteering at the same time as I ran my practice.

Mike Hambright (04:19.738)
Wow.

Byron Lee Mcbroom (04:19.891)
I think my kids saw that it allowed me to be an active father and still accomplish everything I wanted to do financially. And so to me, it’s just been an incredible business for me. And I just thoroughly enjoy talking to people and trying to come up with solutions for them.

Mike Hambright (04:27.792)
Yeah, that’s great.

Mike Hambright (04:37.69)
Yeah, that’s great. And there’s not much that most entrepreneurs hate more than paying taxes. So you’re so you’re really helping people to obviously. Yeah.

Byron Lee Mcbroom (04:42.993)
it’s You know, it’s funny, I used to be a specialist in people with back tax problems and I had four separate people tell me that they would have committed suicide if I wouldn’t have been there for them. Which, that’s pretty impactful. mean, you know you’re making an, and that’s when I really realized how emotional taxes are.

Melanie Sikma(@melaniesikma) (04:43.096)
Yeah.

Yeah.

Mike Hambright (04:56.742)
Wow. Yeah. That’s crazy. Yeah.

Mike Hambright (05:05.404)
Yeah, for sure. Yeah. Yeah. And, you know, I don’t know if we’ll get a chance to, we got a lot of things we’re going to cover today to talk about kind of where things might be going here with the new administration and things like that. But I think a lot of us are hopeful that if there were ever going to be an administration that is going to simplify things for entrepreneurs, I think it would be this one. But time will tell. Time will tell. Yeah. So let’s, we’re going to jump into the eight different steps.

Melanie Sikma(@melaniesikma) (05:26.734)
I think so. Yes.

Mike Hambright (05:33.67)
for tax strategies for real estate investors. And so you guys wanna tackle number one?

Melanie Sikma(@melaniesikma) (05:39.182)
for sure. Well we made these just because, so my dad, he’s super creative and he had all these different strategies he’d pull out of a hat during conversations with clients and he found that these were the ones that a lot of people used and so that’s why we created this to make it nice and simple. Step number one is really not a sexy one, it’s not super exciting but it’s so important, it’s to get your books in order. If you don’t know your numbers then we can’t do any planning and so a lot of people really don’t

prop up or value bookkeeping as much as they should. And so that’s the first step is just have a good set of books. And so if you need us to look at that, we are happy to do that. But that’s number one is have a good set of books.

Byron Lee Mcbroom (06:21.875)
Well, and just.

Mike Hambright (06:22.236)
Would you say that a lot of people, lot of real estate, when I say real estate investors, that’s the primary entrepreneur I work with. So I don’t think most other entrepreneurs are that different, but they tend to let somebody, like they don’t necessarily have a bookkeeper. They’re like, well, I got Mabel in here in the office and she’s done some bookkeeping before, but has zero training on that and learned a way to do it, but not necessarily the right way to do it. I mean, that’s a pretty common, I guess the most common is,

Melanie Sikma(@melaniesikma) (06:31.651)
Yeah.

Melanie Sikma(@melaniesikma) (06:41.174)
Yeah. This, yeah.

Mike Hambright (06:51.61)
There’s nothing in the system. It’s in boxes.

Melanie Sikma(@melaniesikma) (06:53.346)
Well, this is one where a lot of people just go for what’s cheapest on the bookkeeping because they think it’s the same thing across the board, but I can tell you it’s not. We had one client that they had things miscategorized and it would have added $90,000 of income to their income if they had not, if we didn’t catch it. And so that happens often. And so if you don’t have a good bookkeeper in your back pocket, then it can really increase or mess up planning.

Mike Hambright (07:00.442)
Right.

Mike Hambright (07:14.225)
Yeah.

Byron Lee Mcbroom (07:21.959)
And also, people really don’t realize how easy it is to embezzle from people.

Mike Hambright (07:27.388)
Yeah.

Byron Lee Mcbroom (07:28.947)
I’ve caught in four embezzlements over my career, and most of the time, if the people would just looked at their books, they would have caught it. I had one gal that was, she got about 250,000 out from the client, and basically what she did is she would just write checks to herself, papered manual checks, and then in the QuickBooks, she would just change it to something else. And she was doing the bank recs, she was actually calling the IRS, and

Mike Hambright (07:35.345)
Mm-hmm.

Mike Hambright (07:49.286)
Yeah.

Byron Lee Mcbroom (07:54.035)
She was basically taking the money, not paying the payroll taxes. And then they’d get all these notices and she’d just call in the IRS and move the payments from one quarter to another quarter. So it got bigger and it got bigger and it got bigger. And this gal, I finally caught it because the gal was stupid enough to write two checks and she put two checks to measure my company’s name.

Mike Hambright (08:08.806)
Yeah.

Byron Lee Mcbroom (08:18.227)
And I’m kind of idiot savant with money because I remember every small thing, know, any payment anybody’s ever made to me in my lifetime, I can remember. But she wrote two checks to me that month. And on the books, it said accounting fees for, I was charging them 1200 bucks a month and it was $2400. And I said, I don’t remember that. So I called the owner. They actually looked up in the bank and found out that one check was made to the bookkeeper.

So if the gal wouldn’t have been stupid and used the accountant as the way to cheat, she would have gone on for a lot longer. And that same gal went and worked for another person. luckily, one of the gals that worked at that company, her husband, they knew, it was one of the spouses, and so they called us up. And within three weeks at the new company, she had already stole 8,000 from the new company.

Mike Hambright (08:50.192)
Yeah, wow.

Mike Hambright (09:08.624)
Wow. Yeah. Yeah, for sure.

Byron Lee Mcbroom (09:09.437)
So if you get a shark like that, you’re in trouble. But a good set of books properly structured with segregation of duties to where the person paying the bills shouldn’t be the one doing the bank wrecks. Unless it’s your wife and she’s gonna steal from you anyway, so that’s a good thing.

Mike Hambright (09:20.356)
Right. Yeah, for sure. So what’s the sec-

Yeah, well, yeah, she did. don’t even know how to I literally had to ask her today for the login to our bank account. So because she changed it like a month ago and didn’t tell me like I don’t even know. So but anyway, every once in a while, I get a little a little stipend, a little something might might get some new socks or something, you know. So what’s the second?

Byron Lee Mcbroom (09:31.943)
Yeah.

You

Melanie Sikma(@melaniesikma) (09:35.854)
You

Melanie Sikma(@melaniesikma) (09:41.858)
There you go. There you go.

Byron Lee Mcbroom (09:44.433)
Yeah. I don’t ever buy socks because every time I come to Investor Fuel, I get free socks. So yeah, we’ll work for clothes.

Mike Hambright (09:50.32)
That’s right. Yeah, we’re trying to keep you guys close, shirts and socks. So what’s the second step, Melanie?

Melanie Sikma(@melaniesikma) (09:50.414)
That’s right. I love it.

Second step is to look at your entity selections. So a lot of people don’t realize the importance of a proper entity setup. And so just looking at that, and that really is a case by case situation, but sometimes even like an S-Corp can save $15,000 of self-employment tax if it’s in the right, if they have a single member LLC and it should be an S-Corp. So just different scenarios like that.

Mike Hambright (10:22.352)
Yeah, it always amazes me in free in like free Facebook groups

Byron Lee Mcbroom (10:22.929)
And the

Mike Hambright (10:26.0)
how many people are willing to give tax and legal advice and they have no tax or legal profession behind it. So I guess the message there and honestly, I’ll tell you when we first started in 2008, we set up, own a bunch of rentals in an S corp, which is, you know, is not good, but we got tax advice and we got legal advice and we just chose one of them was an LLC, one of them was S corp and right or wrong, we chose an S corp from somebody that

Melanie Sikma(@melaniesikma) (10:29.076)
Yep. Yeah.

Byron Lee Mcbroom (10:32.443)
Yeah.

Melanie Sikma(@melaniesikma) (10:44.942)
Yeah.

Melanie Sikma(@melaniesikma) (10:53.912)
Yeah.

Mike Hambright (10:56.094)
probably was just wrong and we just kind of went with it. but you you get what you pay for. mean, and we probably didn’t pay for that advice, but yeah.

Melanie Sikma(@melaniesikma) (11:01.442)
Live and learn.

Byron Lee Mcbroom (11:05.235)
quite paid for it.

Melanie Sikma(@melaniesikma) (11:07.052)
Yeah. Another thing that I’ve seen a lot of people do along these lines, it’s not necessarily the proper, but they have, let’s say they’re just starting out in real estate and they get told the advice of having like a thousand different LLCs with the holding company and stuff. And that’s not necessarily like, it’s not a bad thing necessarily, but sometimes they overcomplicate it before it’s needed, before they even have any revenue. And so that they don’t realize that that jacks up their filing fees.

Mike Hambright (11:35.228)
my god, yeah.

Melanie Sikma(@melaniesikma) (11:36.212)
overpaying on filing fees, which we’re fine with, but you know, it’s not in the best interest of the client. So.

Byron Lee Mcbroom (11:40.849)
No.

Mike Hambright (11:43.118)
Yeah, consider that sometimes the attorney telling you to set up all these entities is the one that’s getting paid to set up every one of them. So you always have to look for that. Is there some ulterior motive that whoever you’re working with might have?

Byron Lee Mcbroom (11:49.651)
don’t know.

Melanie Sikma(@melaniesikma) (11:49.836)
Yep, exactly.

Byron Lee Mcbroom (11:56.563)
Well, when people go to these, they go to these asset protection seminars and all that, and they come back and they’ve got to set up, you know, three different types of trusts and all this stuff, all for liability protection. When you’re just starting out, you don’t need all that. Really, if you just go down and spend four or $500 for an umbrella policy, you’re going to have way more protection than you do have all these entities.

Mike Hambright (12:05.615)
Right.

Mike Hambright (12:17.754)
Yeah, yeah. And Byron, I know you’re I give a lot of analogies, and I know you’re like the king of analogies, too. I’ll say basically what we’re saying here is you don’t need a Ferrari to haul manure. So what’s the third one then? We’re moving on here.

Melanie Sikma(@melaniesikma) (12:19.382)
This isn’t legal advice. We’re not attorneys.

Byron Lee Mcbroom (12:21.798)
No.

Melanie Sikma(@melaniesikma) (12:33.282)
That’s a great analogy, I like that.

Byron Lee Mcbroom (12:33.504)
Yeah.

Melanie Sikma(@melaniesikma) (12:40.078)
Yep, the third step is to, is the Augusta rule. This one’s pretty commonly known if you’re on TikTok or Instagram at all, but it’s where you can rent your house to your business. so you can, anybody can rent their house. If it’s their primary home, you can rent that for 14 days and not pay any income tax on that. And so we just have our clients hold their corporate board meetings in their home and just, it could be even a schizophrenic conversation with me, myself, and I, but as long as I document it properly, then I can get that, that write off and not have to pay tax on that income.

Mike Hambright (13:10.182)
Yeah, that’s awesome.

Byron Lee Mcbroom (13:11.059)
And there was actually a court case on this and the key, was one corporation that had three owners and they all took the Augusta rule and actually one of them got totally disallowed, one got partially disallowed and one got totally allowed. And the key thing, the two key things you have to do is one, you have to charge a reasonable rate. You can’t charge $20,000 a day for rent in a $500,000 house. That’s just not reasonable. And we always use the test.

Mike Hambright (13:34.748)
Mm-hmm.

Byron Lee Mcbroom (13:39.877)
If you can talk to an auditor and not smile when you tell them the answer, it might be reasonable. The other thing is you have to show that you actually had the meetings. So it’s important, we always train people when we set this up, how to do minutes and how to document it, how to put it on your calendar, and just to show that you actually had the meetings. So you do two of those things to be reasonable and actually show that you had the meetings and that you’re gonna succeed with it.

Melanie Sikma(@melaniesikma) (13:45.166)
You

Mike Hambright (14:02.972)
Right. Yep.

Mike Hambright (14:09.754)
Yeah, that’s great.

Melanie Sikma(@melaniesikma) (14:11.074)
Yep, and then I’ve done an analysis on this with the Augusta strategy versus the home office deduction. If both are available to you, and there’s some rules around this, so we have a white paper we can always send out for this, but if you can do both, then the Augusta rule saves money the majority of the time. And almost 100 % of the time, there’s just some random rules like that that would make the home office better. But for the most part,

Byron Lee Mcbroom (14:36.253)
Well, and there are also, you can actually do both. If you call the home office expense, you have to do what’s called an accountable plan, and you can have the business reimburse you for all your expenses. That’s different than renting the home, because when you do a home office, you’re renting the house for every day of the year. So it won’t qualify for the home office. But if you do an accountable plan where the company reimburses you for that, then you can do both the home office and do the Augusta role and get

Mike Hambright (14:53.595)
Right.

Byron Lee Mcbroom (15:04.828)
you know, your cake and eat it too.

Mike Hambright (15:06.586)
Yeah, yeah, OK. So what’s step four?

Melanie Sikma(@melaniesikma) (15:10.478)
Step four is get your kids on the payroll and it’s technically not on the payroll depending on your company setup. But paying your kids, you can pay them up to 15 grand tax free this year, which is 2025. And so my kids, for example, I have a seven and nine year old. They’re my models for my business. And so I use them, you’ve seen me use them in my speeches. I use them on my social media and just use them in our marketing. So they’re pretty cute models.

Mike Hambright (15:34.438)
Yeah. And you usually, they’re usually 1099. Is that how you set it up?

Melanie Sikma(@melaniesikma) (15:38.776)
So if you have, it needs to be paid through you as a sole proprietor or a single member LLC. And so as a parent as a sole proprietor LLC. So if you have an S-corp, then you need a 1099 yourself. And then you basically pay the kids a W-2 from there. And so it’s the way to work it is it depends on your entity setup.

Byron Lee Mcbroom (15:58.771)
But the reason for that is because if you pay them out of the S corporation, you still get the money tax free, but you have to pay payroll taxes on it. So the payroll taxes cost you 15 to 20%. So you’re really taking a lot of the savings out of it by running it through payroll with an S corporation.

Melanie Sikma(@melaniesikma) (16:05.922)
Yeah.

Mike Hambright (16:15.3)
Okay. And the significance of that is that the standard deduction is 15K now, is that right? So basically, if you were gonna pay for your kids’ cars or school or whatever, that’s gonna obviously be post-tax. But if you pay it to the kids and then let them pay for it, they’re not paying taxes on the first 15,000 of income. So that’s the real play, right?

Melanie Sikma(@melaniesikma) (16:16.174)
Yeah, so it’s a couple.

Byron Lee Mcbroom (16:16.317)
So.

Melanie Sikma(@melaniesikma) (16:22.05)
Yep. Yep.

Byron Lee Mcbroom (16:22.739)
Mm-hmm.

Byron Lee Mcbroom (16:39.635)
Right. And something to consider is paying them even more than 15 if you can justify it. Because they’re going to be a 10 % … First 15 is zero bracket, then it’s a 10 % bracket, then it’s a 12 % bracket, but where the owner might be in a 37 % bracket. you just have to look at it and see how do I maximize it. The court case on kids payroll, again, was similar to the Augusta rule, reasonable salary for reasonable work.

Melanie Sikma(@melaniesikma) (16:39.918)
Exactly. Yep, exactly.

Mike Hambright (16:45.969)
Yeah.

Melanie Sikma(@melaniesikma) (16:58.317)
Mm-hmm.

Byron Lee Mcbroom (17:09.907)
And that’s why we like to, know, lot of people say, well, my 10 year old does all the filings and everything like that. Well, you not really. That’s why we like to hire the kids as models. Because I looked up a model and a model makes 125 to 175 an hour with a two to three hour minimum. So what we do for people is we’ll write up a modeling agreement where they get paid 175 an hour for a three hour minimum per photo session.

Melanie Sikma(@melaniesikma) (17:09.986)
documentation.

Mike Hambright (17:17.699)
Yeah.

Mike Hambright (17:21.798)
Yeah.

Byron Lee Mcbroom (17:37.435)
And the key is just to pay them all year long, not just, it’s much better to pay them all year long than just to do a big check at the end of the

Melanie Sikma(@melaniesikma) (17:44.398)
Mm-hmm.

Mike Hambright (17:44.41)
Right. Yeah, yeah. Okay. Awesome. So what’s next? What’s step number five?

Melanie Sikma(@melaniesikma) (17:47.32)
Yeah.

Melanie Sikma(@melaniesikma) (17:50.83)
Step number five, we like to call our ebb tide plan and ebb tide lowers all boats. So it’s basically where we look at the lower tax brackets around us. So you could do this with kids that are over 18, if they’re in school or even just at a lower bracket. And then if you have parents or in-laws at a lower tax bracket, you can do that. So my dad, for example, he helps my grandma financially. She’s what dad 92 now.

Byron Lee Mcbroom (18:15.795)
92 now, yeah.

Melanie Sikma(@melaniesikma) (18:17.326)
Crazy, so she’s 92, she’s still alive and kicking, doing really great, and she’s at the lowest tax bracket in California on Social Security, and my dad’s on the upper end, and so he just set up a marketing company that she’s a passive shareholder of, so she owns the stock, but she just doesn’t have to work in it, and so he hires that company for services, and then essentially that money has been taxed at her rate instead of his, so.

Mike Hambright (18:17.35)
Bye.

Melanie Sikma(@melaniesikma) (18:44.298)
He shifts about what dad 84 was last year, 84 grand last year. Yep, and so that was about 40,000 in savings. And so she pays about 10. So it’s a net profit of about 30 grand. And so with my grandma, he lets her keep some of that and then, you know.

Byron Lee Mcbroom (18:47.219)
84 grand, yeah.

Mike Hambright (18:55.483)
Okay.

Byron Lee Mcbroom (18:56.307)
And I give her money anyway, so this way I just take her money out of the S corporation. And then for whatever’s left over, she just makes a gift back to me every year of all the extra cash.

Mike Hambright (19:03.046)
Yep.

Mike Hambright (19:08.954)
OK. Yeah, you don’t even let her keep the savings. Yeah. You guys are hardcore over there. Yeah. Well, you’re like a big company marketing department. They have to spend it or lose it. You better spend that money or you’re going to lose it in the budget next year.

Melanie Sikma(@melaniesikma) (19:09.72)
So he profits on helping my grandma out.

Melanie Sikma(@melaniesikma) (19:15.022)
He splits it. He splits it.

Byron Lee Mcbroom (19:16.054)
Hey, this is capitalism,

Melanie Sikma(@melaniesikma) (19:20.174)
But we have people…

Byron Lee Mcbroom (19:22.951)
But this

Melanie Sikma(@melaniesikma) (19:28.077)
That’s right.

Byron Lee Mcbroom (19:29.895)
That’s right.

Melanie Sikma(@melaniesikma) (19:30.936)
That’s right, yeah. And then we’ve done this with kids in college, especially like, you know, if you have your kids going out of state and you have to pay out of state tuition, this is a great option to potentially get in-state tuition. We’ve seen that happen. It depends on the state, but that’s a good option too.

Mike Hambright (19:44.208)
That’s by having the company based in that state? wow.

Melanie Sikma(@melaniesikma) (19:46.69)
Yep. Yep. And usually it takes about a year.

Byron Lee Mcbroom (19:47.731)
Yeah, we had a client whose kid was going to Arizona and they were in California. And so what we did is we formed an Arizona company and that way they got out of California income tax too. But then they qualified as in-state tuition because they were showing that they were financially independent from the parents after. So after a year they got, yeah, because a lot of times it’s based upon your parents’ income and where the parents live. And that way you’re stuck with in-state tuition the whole four years or out of state.

Mike Hambright (20:04.124)
and they were an owner of an Arizona based company.

Mike Hambright (20:10.843)
Right.

Yeah.

Melanie Sikma(@melaniesikma) (20:14.242)
And then when you visit, it’s visiting a vendor. So you can write those trips off when they come home to visit. Same thing.

Mike Hambright (20:19.76)
Yeah. Yeah.

Byron Lee Mcbroom (20:20.913)
And you can go see a vendor, they can come see a customer. It just makes a lot of it a lot more tax deductible. There’s a lot of different options you can use this for. know, if you have the energy of brother-in-law who’s not real motivated or hasn’t found their way yet. You know, you can use this for adult special needs child to put money into their name. You can use this, we call this the baby mama plan. I have a couple other names that I won’t say on the podcast.

Mike Hambright (20:26.683)
That’s right.

Mike Hambright (20:45.34)
Hahaha

Byron Lee Mcbroom (20:48.371)
But if you have a baby mama or a baby daddy, and I had one client that was a romance novelist, they wrote romance novels. I was trying to get her to have an accountant in one of them, but she didn’t listen to me very much. But the gal made about $400,000 and her husband, her baby daddy was going to school, so he didn’t have any income. So what she was doing before was she was just taking him as a dependent and getting $2,500 tax deduction for it.

Melanie Sikma(@melaniesikma) (20:58.595)
What a bitch you saw me.

Mike Hambright (20:59.728)
Hahaha

Yeah.

Byron Lee Mcbroom (21:18.035)
This way we put 50 to $60,000 into his name, doing a service for her, know, editor or something like that. And that way we used all his zero bracket, we used all of his 10 % bracket, and then some of the 12 % bracket where she was going to be in the maximum 35 % plus 9 % for California. So she was almost in a 47 % bracket. And so she got to save the difference in the money there. It turned out really good. But there’s, you just got to look at everyone around you and what tax bracket they’re in and say,

Mike Hambright (21:36.112)
Yeah, wow.

Mike Hambright (21:43.985)
Yeah.

Byron Lee Mcbroom (21:47.943)
How do I make this reasonable and legitimate and just make a legitimate business out of

Melanie Sikma(@melaniesikma) (21:50.456)
Mm-hmm.

Mike Hambright (21:54.437)
Yeah, yeah, and just to put it out there, if any of my brother-in-laws are listening to this, I’m not gonna support your ass. They’re probably not listening, and they’re good guys anyway. So we’re on to number six now.

Byron Lee Mcbroom (22:01.957)
you

Melanie Sikma(@melaniesikma) (22:07.118)
That’s funny.

Melanie Sikma(@melaniesikma) (22:13.568)
Okay, so that’s our kick the can plan. this is where, and this really depends on your company, what expenses you have, but we use current expenses. So let’s say you have a lot of payroll, a lot of employees in marketing expenses. We could set up a new company with a November year end, and we would do a markup of those services. So now we have a payroll marketing company that’s providing service to your main entity. And since it’s a different year end,

And with a markup, we would basically just teach you how to funnel the funds back and forth between the companies. It’s a little complicated, but it’s a great way we can generate a big tax deferral. So if you have, let’s say, a million dollar payroll expense or marketing expense, we could get you a 2.8 million dollar deduction with pretty little cash that way. So it’s just basically invoicing all year long and then we teach you when to pay it off. So it’s a lot of detail.

Mike Hambright (23:06.618)
Yeah, that’s great. And a lot of entrepreneurs, especially real estate investors, are good at kicking the can down the road on all sorts of issues in their business.

Melanie Sikma(@melaniesikma) (23:13.973)
Yes. Yes.

Byron Lee Mcbroom (23:15.155)
It’s really no different than a cost seg study. know, cost seg study, you take all your depreciation upfront and you’re basically deferring the tax that you would have paid later and you have the use of that cash flow. So it’s really just a different version of a cost seg study, but you could just be more intentional with what you want. You know, if you have a big capital gain, you can do the kick the can plan to offset the capital gain. A lot of times investors have a poor year.

Mike Hambright (23:18.96)
Yeah.

Mike Hambright (23:36.016)
Right.

Byron Lee Mcbroom (23:45.235)
Well, they would just lower their deferral to not have as much, you know, because you don’t want to go on the negative because then you lose a lot of deductions. So it’s just a way to be very intentional with your taxes. I had a real estate investor, the guy owned a construction company. He was a pretty big player. had about 250 employees. He’s making about five million a year. He was going to owe $2 million. We set this up and got his tax down to only taxed on 250.

Mike Hambright (23:52.902)
Right.

Melanie Sikma(@melaniesikma) (23:57.774)
Thank

Byron Lee Mcbroom (24:12.595)
And then over the course of the next five years, he actually deferred the tax on up to 15 million bucks, which is seven and a half million dollars of savings. And he took that money starting in 2010 and bought real estate with it. But his portfolio now is, I mean, he’s got about 22 million in equity. And it’s actually only going to be 12 million in equity because he’s just getting a divorce and his wife gets half of it. So he’s lost half of it. But he was able to, his timing was…

Mike Hambright (24:37.262)
Mm. Yeah. He couldn’t kick that can down the road a little bit.

Melanie Sikma(@melaniesikma) (24:42.286)
you

Byron Lee Mcbroom (24:42.931)
Yeah, his timing was impeccable though. He started in 2010. And just imagine if you’d have had in 2010, seven and a half million dollars to invest, what you could have done with that. It would have just been incredible.

Mike Hambright (24:53.116)
Yeah, for sure.

Melanie Sikma(@melaniesikma) (24:54.048)
It works like an interest-free loan.

Mike Hambright (24:55.952)
Yeah, yeah, awesome. All right, and we’re on number seven now.

Melanie Sikma(@melaniesikma) (25:01.73)
All right, so this is where we cut capital gains. We also call these our hangover pills, because you have a big sale, so it’s a highly appreciated asset or business that we’re selling. We get that big high of selling it, and we have a lot of cash, but then here comes the capital gains. And so this is where we plan accordingly to either offset or defer those capital gains. We have several different options, and it really depends on what your scenario is, where you’re at in the sale, but if you’re having

over $250 a capital gain, then we can definitely do something to offset that. Dad, you want to share maybe an example of a client that we did this with?

Byron Lee Mcbroom (25:39.251)
Well, there’s really three different things we talk about here. One of them is called a charitable LLC, which basically I’m aware of someone that’s getting audited on this, so I’m actually postponing talking about that one till they finish their audit. But the one that is really easy to do and not a problem at all is what we call a deferred escrow trust. So what you do is you basically form a trust, has to have an independent trustee.

and you sell your property to the trust on the installment sale. When you sell something, a lot of you might be aware, but when you sell it on an installment sale, you only pay capital gains tax as somebody pays you for the property. So if you sell your property to a trust on a 20-year interest only, you don’t have to pay that capital gains for 20 years. And then what you do is the trust sells it for cash, so you just invest the money in the trust instead of investing it personally.

And what this does, it just gives you all that money to use that you would have paid in capital gains. You have the use of that to invest in properties and you can do cost segs on those properties. But the trust basically just becomes your banker. And you do have to have an independent trustee. But the nice thing about our program is that you can pick your own trustee. They just can’t be an employee or can’t be a relative. It can’t be someone you can control. And I actually sold

Mike Hambright (26:50.236)
Yeah, that’s interesting.

Byron Lee Mcbroom (27:05.446)
a prior business using this strategy and I just paid my attorney to do the trustee work for me. But this way they basically just collect the money. You set up the money so it gets automatically deposited from your investments and all the trustee does is set up, know, goes to the bank and sets up a memorized transfer you for the interest payments. And that way you pay, you have to pay tax on the interest, but the, do get a deferral of the capital gains for many, many, many years. I do this.

Mike Hambright (27:10.427)
Okay.

Mike Hambright (27:32.316)
Yeah, is that over 20 years? Is that what you said?

Byron Lee Mcbroom (27:35.249)
Well, in my example, I did it sold to the trust for interest only for 20 years. But who’s to say in 20 years that you don’t renegotiate that loan and add 10 years to it? Because people have done that with regular loans too. You just renegotiate, charge a new interest rate, and then do a novation of the loan, and that way you can continue that for 10 more years.

Mike Hambright (27:41.349)
Okay.

Mike Hambright (27:48.284)
Right.

Melanie Sikma(@melaniesikma) (27:59.214)
Can you give an example of savings, Dad? Because just so that they see the potential.

Byron Lee Mcbroom (28:02.225)
Well, like for instance, if you just had a, we just did this for a couple people, but I don’t have the numbers memorized. But if you’ve sold a property and had a $6 million gain, you could do this trust and then basically, you know, tax on in California on a capital gain like that is at 37%. Cause you’d have 20 % federal, you’d have, you know, California is up to 13%.

And then you have what’s called net investment income tax, which is 3.8%. So let’s call that four. That adds up to a 37 % rate on a $6 million gain. That’s 2.2 million or so. And you just have the use of that $2.2 million invested inside the trust because you don’t pay the capital gains tax. But you still owe it. But then if you’re someone like me, you can make it somebody else’s problem. Like it’ll become Melanie’s problem.

Mike Hambright (28:42.224)
Yeah, wow.

Mike Hambright (28:50.161)
Yeah.

Melanie Sikma(@melaniesikma) (28:56.689)
I love you.

Byron Lee Mcbroom (28:57.863)
after I passed away, which is okay with me, you know?

Mike Hambright (28:58.022)
Yeah. Yep. Yeah. Not your problem. You kicked the can down the road. Yeah. Yeah. So we’re.

Byron Lee Mcbroom (29:06.419)
It kicked the can, kicked the can and you kicked the bucket. But the nice thing about this is, you you could do a 1031 and do that, but with doing a deferred escrow trust, you don’t have to identify within 45 days. You don’t have to close within 180. You can time the market maybe a little bit better or wait for the opportunity to come along. You can also borrow money from the trust to purchase additional properties. And you know, with a 1031, you lower your basis by the amount of the gain, but you have a, when you,

Melanie Sikma(@melaniesikma) (29:09.345)
Yep.

Byron Lee Mcbroom (29:35.175)
when you do it this way, you don’t have to lower your basis. So when you start depreciating that new property, you get a lot more depreciation expense. So it kind of snowballs using that tax money to buy more properties, not have to lower the basis, and you get more depreciation. And you can do a cost seg on that. You can do a lot of things with that.

Mike Hambright (29:52.519)
Yeah, yeah, that’s great. So we’re on the eighth step of the eight step tax strategies. Melanie, what’s next?

Melanie Sikma(@melaniesikma) (29:59.436)
All right, this one we just added in for fun, it’s fund your dreams. So the whole reason why we get into real estate or business or anything is to be able to live life the way we want, right? And be able to live out our dreams. And so we just like to remind people that, you know, use the savings, not just to necessarily buy nicer things, unless that’s part of it, but use it to rapidly accelerate your dreams happening. So whatever that is.

Mike Hambright (30:10.811)
Amen.

Byron Lee Mcbroom (30:28.397)
A lot of times we talk to real estate investors and one of the main problems is they just never have enough cash. They’re always looking for money to do more deals and this is just a good way to provide money to you to be able to turn it over and make your 20-25 % ROI on that money and just grow a lot more rapidly. But it’s just being very intentional with your taxes instead of just getting what you get.

Melanie Sikma(@melaniesikma) (30:35.118)
Mm-hmm.

Mike Hambright (30:52.208)
Yeah, for sure. So while I’ve got you guys here, the tax experts, what do you foresee happening here in 2025? I know it’s still early as of the time we’re recording this. Who knows what’s gonna happen, but what do you think some changes are most likely gonna be?

Byron Lee Mcbroom (31:10.067)
Well, they did the budget and in the budget they did a few things, you know, and it’s all proposed. So none of this is going to, you who knows what’s going to stick or not stick. But basically they’re talking about reducing taxes on social security, which I for one, I’m pretty excited about, but a lot of the people are a lot younger than me. So they won’t be so excited. They’re talking about reducing taxes on tips, which now we got to figure out how you can make tips in a real estate business, you know.

Melanie Sikma(@melaniesikma) (31:36.45)
Yeah

Mike Hambright (31:36.908)
Yeah, that is funny because I heard that I was like, okay How do we define some of these things are just comes down to the definition, right?

Byron Lee Mcbroom (31:43.539)
Mm-hmm. And I’m sure there’ll be a lot of court cases and clever, clever, you know, like we used to do a tip clause when we’d save somebody a bunch of money, say, you know, we also take tips. But if you could, you know, have that structured to where, your fee is going to be 2,500, you know, but, but $1,500 tip too, you know, throwing 20 % or whatever. And I don’t know how that’ll be paid if it’s paid to a corporation. They’re looking at extending the bonus depreciation, all the items in

Melanie Sikma(@melaniesikma) (31:44.514)
All your membership fees are tipped.

Mike Hambright (31:55.078)
Yeah.

Melanie Sikma(@melaniesikma) (32:05.507)
Yeah.

Byron Lee Mcbroom (32:12.403)
In the tax act, they’re looking at extending to 100%. So cost, segs and bonus will become more valuable. We have mixed feelings on that because having higher taxes makes us more valuable. So we’re happy, but we’re also sad. There you go. And then they’re looking at, there’s just a lot of stuff gonna come down the pike. Who knows what…

Mike Hambright (32:25.436)
You might work yourself out of a job. Yeah.

Melanie Sikma(@melaniesikma) (32:30.104)
Yeah, exactly.

Byron Lee Mcbroom (32:40.669)
you know, is eventually going to stick. But obviously, you know, there’ll be changes and opportunities and, and usually the opportunities come to people that are informed. So it’s just a function of finding, you know, somebody that will do some research and try to figure out how the best way to manipulate and, and put things in your favor. I always

Melanie Sikma(@melaniesikma) (32:50.03)
Yeah.

Mike Hambright (32:59.78)
navigate? Well, it’s by working with great folks like you guys, right? So if folks wanted to learn more about you guys in terms of how you help other people, how you help entrepreneurs save money on taxes, where can they go to learn more?

Melanie Sikma(@melaniesikma) (33:12.718)
They can either follow us on Instagram. We have a one stop tax strategist account or just me, Melanie Sigma. I try to post regularly. Or they can just text 209-924-4192. They can text just the investor fuel and we’ll set up an appointment. We can always offer a free tax assessment for anybody that wants to see if they’re overpaying. Very low pressure. just, you know, run their numbers and see if we can save them any money.

Mike Hambright (33:41.56)
Yeah, save that number one more time. I want to make sure I wrote it down right.

Melanie Sikma(@melaniesikma) (33:44.202)
Yeah, 209-924-4192.

Mike Hambright (33:48.41)
Okay, we’ll put this down in the show notes for folks that want to reach out to you guys and a few other links as well. So, appreciate you guys joining me today. Always good to see you guys.

Melanie Sikma(@melaniesikma) (33:50.894)
Perfect.

Melanie Sikma(@melaniesikma) (33:56.002)
Yeah, you too. Thanks for having us.

Byron Lee Mcbroom (33:56.851)
Great, it’s good to be seen.

Mike Hambright (33:58.65)
Yeah, everybody, if you’re not, like I said it up front, if you’re not spending a little bit of time trying to figure out how to save more of the money that you worked so hard to make, you really should be. And you really need to work with folks like Melanie and Byron here at one stop because at the end of the day, if you’re an entrepreneur, you’re the salt of the earth in my mind. I know we worked really hard to make this money and you deserve to keep as much of it as possible. I promise you, most people listening to this show right now have easily paid your fair share. And so you don’t have to

about that phrase anymore. So, appreciate you guys for joining me today and appreciate everybody for listening in. Hope you have a great day. We’ll see you on the next show.

Melanie Sikma(@melaniesikma) (34:36.888)
Thanks Mike.

Byron Lee Mcbroom (34:37.971)
Bye.