Real Estate Tax Strategies Every Investor Must Know

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Show Summary

In this episode of the Investor Fuel podcast, host Michelle Kesil interviews Chris McCormack, a tax planning expert specializing in helping real estate investors optimize their tax strategies. Chris shares his journey from working at a big four accounting firm to starting his own company, Better Books, which focuses on proactive tax planning. He discusses common tax myths, effective strategies for real estate investors, and the importance of bookkeeping. The conversation also touches on client engagement, service offerings, and the significance of building relationships in the business. Chris emphasizes the need for continuous learning and adapting to better serve clients, especially those just starting in real estate investing.

Resources and Links from this show:

• • • Investor Fuel Real Estate Mastermind
    • Investor Machine Real Estate Lead Generation
    • Mike on Facebook
    • Mike on Instagram
    • Mike on LinkedIn
    • Chris McCormack’s AppleCast
    • Chris McCormack on Facebook
    • Chris McCormack on Spotify
    • Chris McCormack on LinkedIn
    • Chris McCormack on Youtube

  Listen to the Audio Version of this Episode

  Investor Fuel Show Transcript:

  Chris McCormack (00:00)
  taxes are the biggest expense of your lifetime that’s a proven fact over the course of from 18 till you die taxes will be that that number one expense of your lifetime but I have a caveat to that and that’s that they don’t need to be and we can do a lot to save on tax like the

  things that you hear on social media, not all of them are entirely false. so real estate specifically, there’s the use of depreciation and a lot of people aren’t depreciating their properties to the best of their ability. There’s travel expenses that can be used to be written off when done properly, certain investment strategies that can be done to mitigate taxes. So I think…

  The one myth would be that taxes are the biggest expense of your lifetime and they have to stay that way. That’s not true, but the other myth would be that you can write off everything and nobody’s gonna think twice about it. The IRS is definitely auditing people on a regular basis and you need to make sure that you have your ducks in a row so that you’re not ending up on the wrong side of an audit as well.

  Michelle Kesil (02:32)
  Hey everyone, welcome to the Investor Fuel podcast. I’m your host, Michelle Kesil Today I’m joined by someone I’ve been looking forward to chatting with, Chris McCormack, who’s been making serious moves in the tax planning space, helping real estate investors strategize through tax strategies. So excited to have you here on the show today, Chris.

  Chris McCormack (02:56)
  Awesome, thank you Michelle for having me.

  Michelle Kesil (02:57)
  Absolutely, I think the listeners are really going to take something away from how you’re approaching helping people understand taxes and optimize them in the best way possible. So let’s dive in.

  Chris McCormack (03:10)
  Yeah, it’s exciting.

  Michelle Kesil (03:11)
  So just first off for those who are not familiar with you and what you do Can you give the short version of what is your main focus?

  Chris McCormack (03:19)
  Yeah, absolutely. So we help real estate investors keep more of their cash and give less to the US government. That’s done through proactive strategies where the typical CPA might prepare returns. In April of the following year, we’re really looking to build relationships and work throughout the year so that we can come up with some strategies that will see a return in the form of tax savings.

  Michelle Kesil (03:27)
  you

  Do you help these investors nationwide or in one particular area?

  Chris McCormack (03:50)
  Yeah, we serve investors all throughout the US. So I started my journey in the firm in Boston where I was living at the time. And then I even got up and moved to Monterey. My wife and I got engaged in Monterey, California, and we have now settled in just outside Minneapolis, Minnesota. So we have been more of a nomadic firm and

  Through that we also serve clients regardless of their location, which is very helpful. have clients all throughout the US ⁓ on both coasts and scattered throughout the Midwest and the Southeast as well.

  Michelle Kesil (04:24)
  Awesome. So what got you started in helping investors specifically?

  Chris McCormack (04:30)
  Yeah, great question. So I started my career at a public accounting firm. It’s kind of the typical track of people who want to become CPAs or already are CPAs. So fresh out of college and grad school, I went to a big four accounting firm, PWC in Boston, the billions and billions of dollars in revenue that firm does. And they do work for a lot of these big

  companies that everybody is familiar with. I personally was working with financial service companies, insurance companies, banks, helping them understand their finances, financials, and also prepare those financials. And then I got some tax work on the side as well. And so while doing that, I was kind of in the personal development phase of my life and reading a lot of books.

  from personal finances to real estate investing. The Bigger Pockets books was listening to those podcasts as well. And I started to see that

  there was kind of a gap in what investors needed and what they were getting. Every book that I read from Rich Dad Poor Dad to Brandon Turner’s books was really talking about like the tax strategies or the tax benefits of real estate. But the missing piece was always the CPA and how you needed a CPA who was experienced in that.

  that space. so I, while I thought that real estate investing was going to be the way out of my nine to five, I quickly realized that there was a better way to meet the needs of the market. And that was by providing that tax strategy and that tax expertise to those investors. So I jumped ship and started the company Better Books. And for about four years now we’ve been focusing.

  primarily on real estate investors or business owners who want to use real estate to mitigate taxes. And it started just by reading some of those books that I’m sure your listeners are familiar with and have been digesting along their journey as well.

  Michelle Kesil (07:12)
  Amazing, I love that. what has been the key to starting this business and keeping it running smoothly?

  Chris McCormack (07:21)
  Yeah,

  so I would say my wife honestly she joined me two years ago three years ago almost and she does a lot of the Client satisfaction back end stuff. So systems processes and just having a solid foundation of getting people in the door I meet with them, but she’s kind of helping get them get all their documents uploaded and

  Just making it a little smoother than it would be when it was just me. And so I think having people in their place, I’m blessed to have it be my wife and she has skills that I don’t necessarily have. But outside of that, we have an admin team and other people who are preparing a lot of the returns. So I think I’m learning now the importance of having the right people in the right seats and allowing the ship to kind of move in the direction.

  that the whole team is going, that would be the biggest thing at this point.

  Michelle Kesil (08:19)
  Yeah, absolutely. So what are like those common texts, maybe myths that you commonly overcome with clients?

  Chris McCormack (08:30)
  Yeah, absolutely. ⁓ There’s a few. mean, with the advent of social media, there’s a lot of people that know a lot of things or might think they know a lot of things. so I think some of the things are you get two sides of the street, if you will. On one side is the people that want to write off everything and they hear based on social media that you can pay zero dollars in tax by writing off

  all of your grocery bills or your clothing or your watches or your car, what have you. And so one myth is that you can write off anything and nobody’s ever gonna ask twice about it. And that’s just not true. A lot of people have ended up in a lot of trouble by thinking that they can write off more than they can. And then the other side is the person who says, well, taxes are just kind of a cost of doing life here in the United States and there’s not really much hope.

  about it and ⁓ that’s also a myth and I often say I have a little one-liner it’s like

  taxes are the biggest expense of your lifetime that’s a proven fact over the course of from 18 till you die taxes will be that that number one expense of your lifetime but I have a caveat to that and that’s that they don’t need to be and we can do a lot to save on tax like the

  things that you hear on social media, not all of them are entirely false. so real estate specifically, there’s the use of depreciation and a lot of people aren’t depreciating their properties to the best of their ability. There’s travel expenses that can be used to be written off when done properly, certain investment strategies that can be done to mitigate taxes. So I think…

  The one myth would be that taxes are the biggest expense of your lifetime and they have to stay that way. That’s not true, but the other myth would be that you can write off everything and nobody’s gonna think twice about it. The IRS is definitely auditing people on a regular basis and you need to make sure that you have your ducks in a row so that you’re not ending up on the wrong side of an audit as well.

  Michelle Kesil (11:03)
  Yeah, absolutely. That makes a lot of sense. What are some like simple strategies that you share with clients that maybe they are surprised or aren’t like so common that everyone knows about?

  Chris McCormack (11:20)
  Yeah, I think the biggest thing that people overlook is the power of bookkeeping and just a strong record keeping system. And I’m not saying that that’s going to give you every deduction possible. But what it does is that it creates a picture for us to see what are you writing off? What are you running through your business bank account and credit cards and what’s missing? So being that we’re in the real estate space.

  working with agents and investors and developers and fix and flippers. Like we have a pretty good idea of what expenses should be seen on those people’s profit and loss statement, their income statement. And when we don’t see those, we usually end up giving them a solid amount of savings just by telling them, hey, this is something that you can run through your business. So things like travel is a big one.

  meals and entertainment obviously, like home office deduction is one that gets that missed more than you would think when it comes to real estate specifically, like there’s this, the there’s it’s repairs versus improvements. So repairs you can expense in the year that you incur the expense improvements then have to be what’s known as capitalized and depreciated over time. And so

  ⁓ One thing people miss in the real estate space, especially investors who are long-term investors, they might have a portfolio of a sizable amount. They can often miss the difference between repairs and improvements. So we’ll come in and determine, hey, this can be a repair. It’s best for you to categorize it as a repair because it’s going to save you a couple hundred to a thousand dollars in taxes every year versus this needs to be improved.

  or capitalized and recorded as an improvement because that’s what the tax code says. I mean, it’s, mean, there’s no one case that’s the same throughout, but I can tell you that we, see hundreds of returns every year and there’s usually at least three to five things that somebody can be doing a little more, a little differently to make it more efficient. I’d say just the, starts though with the quality record keeping quality bookkeeping, having a system and a process that you’re

  you’re following so that somebody like us can come in and say, hey, great job at writing this off or like you could do better here. And here’s the plan to take advantage of it.

  Michelle Kesil (13:36)
  Yeah, that’s amazing. So how does your firm work with clients? Do you handle all of the bookkeeping and taxes for them? Or you’re doing education, what does your process look like?

  Chris McCormack (13:49)
  Yeah, that’s great. So it varies. We do offer all services from just tax planning and meeting on a regular basis to tax planning plus bookkeeping plus CFO services. Like it’s a wide variety. But I’d say what we start with is just we offer a free consult to those who are interested or we think it would be a good fit. And so when we do that free consult, we’ll take

  review of the important financial information. Obviously, the first one would be the tax return and we’ll review the tax return, identify any mistakes or missed opportunities, and then we’ll have a sit down with you and say, hey, this is what we found. This is if you did this one thing differently, it would save you this much in taxes. And then we would make recommendations based on that and based on what they’re saying. If we think that

  or if we’re hearing that bookkeeping is the biggest burden and they’re confident in what their taxes are or how they’re handling their taxes, then we’ll focus more on the bookkeeping side. But if we know that they’re stressed around taxes, they haven’t received the communication that they want to from their tax accountant, they know that they’re leaving money on the table, then we’ll point them to the tax planning. But it really comes with just an intro.

  And then what we call our discovery call where we’re getting into the numbers, getting into what they’ve been through, where they want to go and making sure that it’s a good fit. then from there it’s, hey, we would recommend that you enroll in our tax planning and tax maintenance services, which is usually a one-time tax plan where we’re going through all these strategies. And then the maintenance is typically quarterly, sometimes monthly, sometimes biannually meetings with

  us to discuss new updates in the business, new investment properties, new flips, new developments, and what that means from ⁓ a tax perspective and how we can mitigate that from a tax perspective. So it is a wide range of services, but it is the like if you’re looking for bookkeeping, we offer that if you’re looking for a CFO service, we can offer that if you’re looking for just tax planning, we offer that I think the smallest thing that we usually

  shy away from is just tax prep because we know that if you’re just coming to us in February or March or even January and you only want us to prepare your returns, then it’s probably not going to be a great fit because we know that the biggest return comes through those quarterly meetings and meeting throughout the year and building a relationship and having high level communication so that you’re not coughing up more money than

  than you need to when you’re just preparing. Chances are that money is being left on the table and we just don’t like seeing that happen to people.

  Michelle Kesil (17:11)
  Yeah, absolutely that makes sense to offer a more full scale service. So what are you most focused on solving or scaling next?

  Chris McCormack (17:22)
  Hmm.

  Yeah, I think, that’s a great question that it’s got me thinking a little bit harder than, than I was expecting. I think there’s, there’s two things really. one is how do we best help the, beginning investors? So people who are just getting started and maybe don’t have the real estate portfolio that some of our larger clients do, but they,

  Michelle Kesil (17:26)
  you

  Chris McCormack (17:44)
  have a desire to grow and they know that they want to get set up on the right foundation. And so we have a few, we have one service offering that would meet those needs. And so we’re just wondering what the best approach with that is. And that’s more of like a group level where it’s not as interactive as a one-on-one advanced tax planning, but it kind of meets the needs of the beginning investor. So.

  Thinking about how we can continue to focus on that if it’s if it wants to be or if it’s what we want to focus on and then we just brought on our our first additional tax planner here in the US who is going to be kind of building out his firm. So it’s an attachment to better books, but he’s going to be doing it with his expertise and building it the way that he wants to. So I think

  We have this vision of multiplying our ability so Better Books is not just Chris McCormack and Jasmine, my wife, it’s all of the CPAs that want to serve the mom and pop, sort of the smaller level clients and meet the needs and help them keep more money without having to go the route of the big PWC, EY, Deloitte and so…

  we’ll see how it goes scaling with the focus of allowing other CPAs to build their practice while not having to go through all the school of hard knocks that we’ve had to endure over the first three years. So I think those two things meeting the needs of the people that are just getting started while also building out this program for other CPAs to come under and see what’s possible for them as well.

  Michelle Kesil (19:17)
  Yeah, absolutely. So when it comes to growing your business and building relationships in this space, what do you feel has made the biggest difference for you?

  Chris McCormack (19:30)
  Hmm, that’s a good question. I hold pretty strongly to my faith. So I think the the faith that we have in God who we know to be Jesus, he tells us that every person is valuable and that relationships are extremely important and not to take the person that you’re meeting with for granted or see them as just ⁓ another

  number or see them as an opportunity to grow your mission or vision without caring for their mission and vision. And so I think for me as a person of faith, it’s just my belief in God and knowing that we’re accountable to Him, but also that He has created everybody in His image. And so no person you meet with is

  just another person, like they’re created in the image of God and they have something valuable to offer this world and seeing that is important and will keep you grounded in treating them as somebody that deserves your respect.

  Michelle Kesil (20:28)
  Yeah, absolutely. Relationships are everything in this space. Awesome. So before we wrap up here, if someone wants to reach out, connect with you, collaborate and learn more from you, where is the best place that they can find you?

  Chris McCormack (20:33)
  Yeah, 100%.

  Yeah, no, I appreciate that. think we have a podcast, I create a podcast every week talking about tax strategies, things that people often miss. So if you want to hear more about that kind of stuff, ⁓ Know Your Numbers, R-E-I, with Chris McCormack. It’s on Spotify and Apple Podcast. It’s also on YouTube. So that’s probably the best place to go to just see what we’re all about. And then if you are looking to…

  get further information or see if we have a service that’s fit for you, then you can find me on LinkedIn, Chris McCormack, CPA, MBA, CTP, I think is my LinkedIn name. And then Facebook, I post regularly on Facebook, specific to real estate. We also have a Facebook group. So yeah, I really appreciate the request and all of social media you can probably find me on, but Spotify and Apple Podcasts is where you can…

  Follow us for the most up-to-date tax news and see if that’s something that you’re interested in or maybe missing out on.

  Michelle Kesil (21:41)
  Well, I appreciate your time and your story and perspective. We need more people in this space doing things in this right way. So thank you again for being here.

  Chris McCormack (21:51)
  Absolutely. Thank you, Michelle, for having me. Appreciate it. And yeah, excited to see what comes of the podcast.

  Michelle Kesil (21:56)
  Awesome. And for those of you that are tuning into the show, if you got value from this, make sure that you’ve subscribed. We have more conversations coming with operators just like Chris, who are building real businesses. And we’ll see you all on the next episode.