How To Maximize Your Wealth Through Tax Strategy With Justin Maxwell

April 19, 2023




CWS 244 | Tax Strategy   To live a BIG LIFE, you must have the proper resources to be your best. One of the resources you may need is money. So, how will you build wealth to live a big life? Today, Justin Maxwell, the President of Small Business Incentive Consultants, shares his insights on maximizing wealth through tax strategy. He also emphasizes that saving money does not matter if you don’t capture and allocate it to growth opportunities. So take conscious control over your income to consume or grow with it. Join Lauren Wells and Justin Maxwell today to help you navigate the world of building wealth.

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How To Maximize Your Wealth Through Tax Strategy With Justin Maxwell

Joining me is Justin Maxwell. Hi, Justin. Thanks for joining us. Hi, Lauren. It’s a real pleasure to be here. Thank you for having me. Justin is a husband and father of three crazy boys located in Utah. He focuses on helping business owners use government programs and laws to keep more of their hard-earned money. He’s focusing on helping these business owners put systems and automation in place to capture the savings and put it towards wealth building instead of being mindlessly spent. We talked a little before I did the intro and I’m fascinated by this. Tell me how you got into this. For me, it’s a pretty wishy-washy road. It wasn’t like I chose out of college to end up here. It wasn’t the case. I was a school teacher. I taught physical education, so nothing on the finance or wealth-building side at all. It’s pretty much the opposite end of the spectrum. I thought I wanted to be a college professor, and I had this event occur where this isn’t what I want to do anymore. It sparked something in me that I need to do something else. After that event, I attended an event of a thought leader in the financial industry. His name is Garrett Gunderson. His words resonated at a deep level with me. It’s very much the principle of what we’re going to be talking about here. That’s what sparked my change into this. It drove me into this industry and allowed me to find a way in without having to go back to school and get all my stuff, the typical licenses like what you’d see with a CPA or something like that. I can be in the industry, make an impact, and still be a valuable voice. I help people focus on keeping more of the money that they’ve already made and be more efficient with it. As you’re more efficient with it, you can then take the efficiency and make more wealth out of it. Chris and I have hosted this show quite a bit. I don’t think I’ve had anyone say it was a linear path. Mostly everyone never sets out to end up in real estate or investing, or very few. I love to hear where people started and what was that turning point. After you attended the conference, what was the first iteration of what your business is now? How did you start? For me, I chose teaching because it was safe. I could get a consistent income, but teaching has a ceiling. It’s defined. As you go into teaching, you know what your impact or overall income potential is. It’s budgeted out and you know what it’s going to be for the next 30 years because you’re already on the scale. I chose that purposely. I don’t know if I was afraid of failure or what it was at the time, but when I listened to Garrett speak, it was like I can go make income for myself and I can be selfish. Actually, it’s not being selfish. It’s being selfish to myself so that I can help more people and bring more value to the world. The first thing that I did as an exploratory try was I thought real estate would be a great place to go. I started a real estate investing company. We did fix and flips. We brokered seller finance notes a little bit. We did all sorts of different things. In the process of that journey, I met my business partner who was also a real estate flipper, but he hadn’t always been a real estate flipper. We joined up. We wanted to do something together and we built this. It started from real estate, but more people are always complaining about, “I’m always paying too much taxes. I don’t have solutions.” There are always people complaining about stuff so we wanted to solve that problem by, “There are things available. We’ve learned a lot from our experience in the real estate industry. How can we then bring this type of stuff?” It started out as a few specific simple strategies like cost segregation, research and development, and tax credit, and then it has grown to other more robust programs of, “Here are specific and complex trusts you can issue. Here are some other varieties of combining different things with donations and all sorts of stuff to keep more of the money you make.” It has been a long journey but it started in real estate. I started my own business a while ago. I remember thinking a few years in that I’m paying so much in taxes. It might make sense to go back and get a W2 job, then I don’t have to worry about the nightmare of bookkeeping and all of that. That’s another story. I should have outsourced for that. I wish I had something like this to tell me, “You can take advantage of these programs that will help do exactly that.” If I was a business owner to come to you now, what does your process look when you work with business owners? The first thing we start with is helping them understand what the tax code is because I think it’s this mysterious document. What is it and what is its purpose? Simply the tax code is the rule book on how United States citizens are taxed. The very first couple of pages is, “This is how people are taxed.” The rest of the tens of thousands of pages are, “How not to be taxed.”
CWS 244 | Tax Strategy

Tax Strategy: The tax code is the rule book on how United States citizens are taxed.

  The easiest example I like to give is most people that have children understand that when you have a child, you get a tax credit for having a child. The reason you get a tax credit is that in the tax code, there’s a rule that says if you meet the criteria for having a child, you receive a tax credit. What you need to do with the tax code is you need to approach it very similarly. How can I meet more of the criteria of the tax code? The more criteria I meet, the more I’m going to pay less in taxes because I’ve done something that the United States government values more than tax dollar money. The United States government values families more than tax dollar money, so they give you a tax break. They value real estate. If you buy more real estate, they value landlords because they know people need a place to live, so they give you a tax break for owning real estate. The more criteria you can meet, the less you’re going to pay in taxes. We start there, and then we help people meet more criteria so that they can pay less in taxes. Does this work regardless of the way a business is set up? Would you say better structures whether it’s S-corp or LLC? There are a variety of strategies. The S-corp provides us with a very simple strategy because it allows you to differentiate your income between ordinary income and passive income. You can take W2 income and you can take dividends or distributions. Your distributions don’t have to pay FICA on it, so you can distribute and divide that line so that you can minimize your W2 and get more of your money as distribution. That’s a simple strategy for people. S-corp is like the tax strategy. If you’re an LLC, that’s like asset protection versus tax strategy. S-corp adds a tax strategy to your entity protection side of things. How do people find you or how do you find people? What we go about doing is we typically work with business owners that are paying, I guess not necessarily a payment amount, but they’re making $250,000, $300,000, $400,000, or $500,000-plus a year. At that point, you’re starting to feel more pain in the taxes you’re paying. Prior to that, it always sucked to pay taxes, but you start to feel it way more because a larger percentage of your income starts to disappear. It feels like you’re making more money but you still are living in the exact same boat as you were when you were making $150,000. That’s our clientele. We typically find people by going and speaking at events, doing podcast guesting, and getting referrals from our clients. That’s our clientele who we’re speaking to because we know that they have a pain point here and we know that we have a solution for them. What are some of the most common misconceptions that they have when they start working with you? The biggest one is, “I already have an accountant, and I don’t need to switch.” They think we’ll take over their accounting, which isn’t the case. The biggest thing that we help people realize is that as your tax bill increases, you need to increase the size of your tax team. It needs to go from just an accountant to a tax strategist. You probably need to start bringing in tax attorneys eventually. The more money you make, the bigger your tax team is going to get. The biggest misconception is the more money you make, the bigger your tax team will get. It doesn't need to be massive all the time, but you need to start adding more people because you need to do more specialties. Click To Tweet It doesn’t need to be massive all the time, but you need to start adding more people because you need more specialties. Those specialties can help you meet more areas of the tax code so that you can access them and pay less tax. The biggest misconception is that they’re going to switch over to us for their accounting. We’re not that. We’re just the tax strategist person that’s going to work with their account already in collaboration to help them pay less tax. You mentioned that a facet of this is if a business owner has student loan debt because I noticed you talked about student loan debt in the bio you sent over. You say you work with them on programs that can help them pay off that debt. As we know, student loan debt is a debilitating debt that feels like a burden on a lot of families, business owners, and individuals. What are some of the strategies to help mitigate that burden? This is a big issue for a lot of people. It’s one of the reasons that the Biden administration tried to do the forgiveness. It’s because so many people are complaining about this and so many people have this. It’s a shame that even the government doesn’t understand what is available and already passed into law for a lot of people. Forgiveness, which is what President Biden is trying to offer with $10,000 to $20,000 is already built into the law. It has already been passed by Congress and by the presidents in the past, but to access forgiveness, you have to be in specific government programs. What we help people strategize around is, can you get into a government program that has forgiveness built into it and allows you more flexibility around the way that you pay back your student loans? When I say more flexibility, what I mean by that is typically people will say, “I’m going to pay off my student loan in 25 years. It’s going to give me a $ 1,500-a-month payment, but I’m going to have to pay a ton of interest. I’m going to pay hundred plus thousand dollars and interest on top of what I’ve already owed.” A lot of people don’t elect for that. They go down, “My strategy is I’m going to pay it off in ten years, so I’m going to pay it off faster.” It takes more of their cashflow, but they do get out of debt faster. They paid less in interest, but they still missed out on all of the growth those dollars could have become had they been allocated elsewhere. It took way more of their cashflow. They could have been buying real estate. They could have been investing in building wealth with those dollars but instead, they were paying off their debt. What these programs allow you to do is it has timeframes. Typically, they’re going to be 20 or 25 years in there. Specifically, the business owners are like, “We’re going to be able to make the payment either $0 to $500.” Instead of it being $1,500, $2,000, or $2,200, it’s $0 or $500 for the entirety of the program. When you reach down the program, your loan gets forgiven, and the government takes your loan balance and gives it in the form of tax. Instead of you paying $300,000 in total loan balance, I have to pay taxes on $300,000, so the out-of-pocket on my end is significantly less. What is great for people is that they reduce their total output of how much they’re going to pay in their student loans. Instead of paying $300,000, they’re probably going to pay $150,000 to $140,000. It cuts it in half. The real power in this is if I take the payment that I was going to pay and if I paid it off like everyone else the $1,500, and I allocate that instead of consumption and consuming it myself and doing expenses, and I take the $1,500 payment and I put it into assets, that’s $1,500 a month every single year for 25 years. That becomes a big powerful asset for the person. Oftentimes the simplest and easiest form is to put it into a properly structured whole-life policy. That form is the lowest form of growth. Even in that form, in the example we’ve been going with the $1,500 a month, after 25 years, you’re going to have over $600,000 inside your whole life policy at the completion. After you’ve paid the tax and got out of student loan debt, you have over $600,000 in there that can be utilized for the rest of your life. That wouldn’t have been there had you paid it off as fast as you could or paid it off normally because you didn’t control the dollar. These programs allow you to control the dollar and keep it in your court versus allowing it to go to the student loan payment. I’ve never heard of this and I’m sure most of your clients have never heard of this. Why do you think that is? It is like how I feel about self-directed IRAs that you can invest in real estate. You don’t hear about it, and then you do and it blows your mind. Why aren’t more people taking advantage of this? The problem is the government sucks at delivering messages of what they’ve created. You have these pretty smart people in Congress. You have pretty intelligent business owners that are making these laws in Congress. Almost every time in Congress, you have people that are self-serving. If they had an experience in life prior to Congress, they’re going to try and solve a problem that they felt they were going to create a law around it that benefits them.
CWS 244 | Tax Strategy

Tax Strategy: In Congress, you have self-serving people. So if they had an experience in life before Congress, they try and solve a problem that they felt will create a law around it that benefits them.

  You have all these people that create these amazing things, but then no one delivers them to the general public. It’s the same thing with the tax code. You have all these ways to save taxes, but then everyone only uses the S-corp or everyone only uses buying real estate. Those are well-known, but there are hundreds of other ways to reduce your tax bill that never get talked about. You then hear of the billionaires like Musk and they’re not paying taxes. Everyone is like, “What the heck is going on?” It’s because they are using what these Congress people created. It’s the same thing here. The government doesn’t deliver what has been created by these smart people in Congress who had set up and established this law to benefit their situation. It’s not distilled, and then that person either leaves Congress or is elected, and then the new person that comes in doesn’t know what the heck was created and it doesn’t get perpetuated. These programs have been around since the ’90s. The Clinton administration was the first presidency to put one of these flexibility programs and income-driven repayment programs in place. Nowadays, the big misconception is that income-driven equals “That’s only for poor people who can use it.” That’s the mindset that comes with it. We have people that make $600,000, not all W2, that are still eligible for the income-driven repayment program. They’re utilizing it to drop their student loan payment and keep it low so they can control the dollar and drive it into wealth-building things. I think you’re right. There is a misconception. When you think of income-based, you think, “I’m probably not eligible. I make decent money. I may be taxed a ton, but I’m not eligible for these programs.” As you said, when you’re at that $150,000 a year mark, and then you say, “Double that.” You don’t feel this huge increase in the way you’re living because you realize a percentage of your paycheck is going to taxes. It is interesting but at the same time, you feel like you’re disqualified from a lot of the programs you maybe would have qualified for at $150,000. The other step is you don’t add team members. Oftentimes, we get a little bit obsessed or a little selfish with, “I chose my person in my team, and this is my team.” It’s not bad to add people that have more specialties as you get more sophisticated. When I say more sophisticated, I mean you increased your income, so you need to become more sophisticated. That’s why the Musks and the Bezos don’t pay as much tax because they’ve increased their team. You need to be increasing your team because your percentage of income is the same for them. You’re paying 37%, and they’re paying 30%. Maybe not in that tax bracket, but they’re paying the same percentage on those dollars as you are. They’re just choosing to be deliberate about adding team members and specialists that help them access those specific things. When you talk about these team members, I know you mentioned it earlier, what do you mean by that? I’m speaking in generality. I know this is not for everyone. Oftentimes, people are going to get a CPA. That’s who they’re going to choose, and their CPA is extraordinary. Every person I talk to has the best CPA on earth. It can’t be true because you can’t have everyone having the best CPA, but that’s who they choose. They typically would choose a financial advisor. This is very broad strokes and this isn’t always the case, but they’re going to choose like Edward Jones or the mainstream financial advisors. Those people are going to drive their dollars into qualified plans and the stock market. As they grow those things, having one CPA and having all your money going in the stock market don’t save you taxes. You can invest in things and save taxes at the same time, so you can kill two birds with one stone. If you have only those team members in your place, you’re never going to know they exist. It’s not like you have to replace them because some people like to invest in the stock market. You might want to have an advisor that helps you get into the stock market. You need to have an advisor that helps you get into real estate and other alternative investments like in energy, agriculture, or other small businesses. All of those I mentioned, if you buy into them right and get in the right situation, you can take part in all of their depreciation and save in taxes.
CWS 244 | Tax Strategy

Tax Strategy: You need an advisor that helps you get into real estate and other alternative investments.

  Even though you’re investing in those specific businesses and they’re not public offerings, they’re private offerings, it allows you to both invest and save taxes. You need to add a person that can access those things for you. You need to add a tax strategist so that they can be a little bit more open so the CPA can be aware these other alternatives exist. There are donations that can add not just a dollar-for-dollar write-off, but you can get a two-for-one. A dollar I donated, I get $2 off my taxes. If the CPA isn’t bringing those things to you, you have to add someone to your team that’s going to bring them to you. That’s what I mean. As you get bigger, you’re probably going to have to have a tax attorney and all that stuff. To me, that’s the way you keep more of your money. You increase your team. You’re not afraid to offend people. You’re okay that this person is good at the stock market. I’m not offended. I might offend them but I’m going to add someone else that’s going to let me have more variety, more diversity, and more opportunity. That’s such an interesting point because I know on our end of the business, we deal with a lot of financial advisors and it’s stocks, bonds, and mutual funds. I’m seeing this big gap between people who are only stocks, bonds, and mutual funds, and then there’s a new wave of financial advisors that are starting to look more at alternative assets. I think that the people that use them do have an advantage because they’re allowed by default because they’re investment advisors looking at these alternative assets. They’re able to capitalize on the depreciation if they invest in something in real estate, small businesses, or whatever that might be. Also, if they love the stock market, you still have that opportunity. I think it’s interesting because when you say expand your team, the first thing that I thought was I have to hire a full-time employee. The way you talk about it is it’s not necessarily like you’re bringing someone on full-time. That could be the case, but I assume that you could also have a vendor relationship with some of these. Your CPA doesn’t have to be in-house. Your financial advisor, you’re probably paying a percentage. When people think, “I have to expand my team,” there might be like, “Am I going to bring them on full-time? Am I taking on more cost in order to do that? Does it make sense?” I don’t know if that’s something you think. This is a big thing too when you’re evaluating these and adding team members. Are they bringing enough value to my situation to justify whatever fee I’m going to pay? There is going to be a fee associated with any team member you bring on, but if they’re not bringing enough value to the situation, then don’t bring them on. If they’re charging huge management fees or huge costs, I’m sure you could find someone else that is more reasonable and brings more value. Someone who meets the criteria of, “This is the value I want to be brought here. I want you to bring this much in tax savings, or else I have to go with someone else because this person can bring it and they’re at the same cost as you.” When you’re choosing these team members, it’s about value. I wouldn’t necessarily go about the cost because you could have someone that has a high cost but brings a ton of value. You could have someone that has low cost but doesn’t bring any value. You’re just wasting money on them because they’re not bringing enough value to even justify their cost. When we make these decisions, it needs to be based on the value brought by the individual, not how much they cost. Do you feel like there’s a range of income that is your ideal client? Yeah. I would say once someone crosses into the 30% tax bracket, so they jump from 24% to 32%, that’s about where you start to need to make these decisions. Maybe if you’re right on the threshold of jumping, we can get you in the 22%, but you don’t have a lot of tax savings available there when it comes to the grand scheme of things. If you’re single, you’re going to jump in sooner. If you’re married and filing jointly, you’re going to jump in later. It’s not until 30. Whenever you’d make that jump, that’s when you should start at least looking to expand your team and looking to get into other opportunities. Let’s take the student loan for example. My payment was $1,500 and I’m only paying $500 now a month. Multiply that by 12, I’m saving $12,000 a year. If I was to work with you, what would you recommend me to do with that money? What are some strategies that you help with? Can you talk about building that wealth on the side with that money? We have two that we go with first. Number one is saving money doesn’t matter if you have no way of capturing it. If you’re just saving money and you don’t do anything to put systems or automation in place, that money will be spent by you in some manner in your life. It’s the same reason why someone gets a raise, and then two months later, they’re in the exact same boat. They’re still living on the same paycheck. As humans, we’re unconscious spenders. The first thing we have to do is we have to put some automation, system, or way that we’re paying ourselves and capturing the savings so that it doesn’t leave us. We may consume it, but at least we controlled the process first. It wasn’t just unconsciously happening. The first thing we help people set up is an automated system with a phone application that allows them to insert a new bank account into their life. All income falls into that bank account, but the amount that spits out of the bank account into your normal spending bank account stays exactly the same every single month. What I’m living on stays the same, but as I save money and make more money, it all gets captured in savings inside this bank account. I can choose if I wish to send it down to my savings or my spending account. What we want people to think big about is if I can capture these savings, and then choose to allocate them to growth opportunities, I have taken advantage of something because I’ve transformed an expense into an asset. That’s what we’re trying to help people do. That’s step one. I’m thinking about this in a personal way. The money in my checking account, I view it as spending money. If it’s in my savings account, I don’t even look at it. It’s not there if it’s in my savings because that goes to other investment options. I know for a while when I was working in corporate, you had the option to split your payments and what bank accounts they went to. I thought that was genius because then as your salary increased, you still had a percentage that was always going to this other account that was out of sight and out of mind. There’s more than one way to skin a cat here, but the big thing is that you set up something that is deliberately establishing so you have conscious control over all new income and all saved income. You can either choose to consume it or choose to grow with it. We call this the wealth reservoir, the wealth capture, and the wealth preserve account as the first step. Set up something that is established deliberately. You have conscious control over all new and saved income, so you can choose to consume or grow with it. Click To Tweet The second step is we have people use a properly overfunded whole life policy as the first stop because it doesn’t take a dollar out of use. It’s not its final destination. As the whole life policy grows, I have an opportunity to use it again on something else that can do bigger and better for me. As I find a double-digit return opportunity, I can pull it from whole life and utilize it for that. It allows us a more deliberate approach to what we’re investing in, and it becomes the holding ground for a bigger and better opportunity. We get consistent tax-free growth with the potential to leave a legacy, which is a big component of what we try to preach anyways. We don’t want our generation to start over every single generation. The death benefits of life insurance can be means to help our families not to start over. It’s not just the money. It’s how I can bring all of the values, principles, wealth building, how to be a good citizen, how to be a good person, how to be kind, and how to be a loving family member with money. That’s the big impactful way to not start over every generation. That’s why we utilize whole life insurance. With student loans, that’s the vehicle we use as the first stop of the dollar. If I’m a business owner or someone with student loan debt tuning into this show, and I was to ask you for your top piece of advice, or how to make sure that I’m not giving the government all my money, what would you say? You have to add someone else besides your accountant. That’s the biggest piece of advice. Ninety-nine percent of accountants I’ve ever met are tax historians. You give them your data and they’ll tell you how much you’re going to get taxed. They might even say, “Let’s meet periodically throughout the year,” but they’re not giving you anything to do throughout the year. You have to add someone else besides your accountant. Click To Tweet The only way to save tax is to do something throughout the year. There are some actions as we talked about earlier with having a child. That’s an action. It’s the same thing with all tax strategies that are proactive. If your accountant is a historian, they’re never going to give you proactive things. They’re going to help you minus maybe, “Let’s go buy a truck” or “Let’s buy stuff.” Those are all spent $1 to save $0.37. When we do a tax strategy, we should be, spend $1 and save at least $1 in taxes. It’s useless to spend $1 on something we don’t need to save $0.37. That’s mostly what accountants do. To solve that problem, you need to add someone to your tax team to give you those things that give you the dollar for dollar right off versus the $1 for $0.37. If I was to google what the title should be of this person, what would some of those titles be? Tax strategist is probably the name that would pop up the most. For the income that we’re talking about, there are still not a lot of people that service them. The selections are still quite a few, but they are there. I know of three others outside of us that do a good job as well in this space. If you google it, you’d find someone that would be able to help you. Thank you so much for joining us. When I first started my business, I wish I had known a lot of these things. It’s one of those that I feel I’ve learned as I’ve gone and been mentored by some great people. This is something I definitely did not have in my back pocket. Thanks for talking to our audience about that. Thank you to our audience for joining us on this episode of the CWS show. Justin, if people wanted to reach out, where can they find you? How can they get in touch? I’m on LinkedIn, so you can find me on LinkedIn, Justin Maxwell. I believe tax strategist is the title thing. The other way is to go to our website at www.BigLifeFinancial.com/TRP, and you’ll end up on my calendar and we can have a discussion. There’s no cost to that discussion because we can’t help everyone but we can have a vetting conversation around, “Are the things that we can propose make an impact on your situation?” Thank you again, Justin, for joining us, and everyone for tuning in. If you enjoyed the show, make sure to share it with a friend, subscribe, or leave us a review. Thank you.  

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About Justin Maxwell

CWS 244 | Tax StrategyJustin is a husband to a beautiful wife and father of three crazy boys. He focuses on helping business owners use government programs and laws to keep more of their hard earned money. While simultaneously helping business owners put systems and automations in place to capture the savings and put it towards wealth building instead of being mindlessly spent. He and his firm have saved or recovered over $30 million dollars for business owners around the country. Big Life Financial is a niche financial firm that specializes in government programs ranging from the IRS to the Department of Education. We help individuals use the programs to save money on things like taxes and student loans, not just to be consumed, but for the purpose of further wealth and value creation. We think holistically about what we are trying to build and it’s much bigger than just simply saving people on taxes.

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