Do you know that over 4 in every 10 American taxpayers don’t understand how American taxes work?
Inevitably, with such a lack of clarity in taxation, these individuals miss out on tens of thousands of dollars they could have saved from their taxes.
Such lack of clarity in taxation is even more prominent in door-to-door sales reps. These reps are often more consumed with knocking doors and closing as much as deals as possible, caring so little in maximizing tax savings.
These bags of lost money (that reps could save from their taxation) motivated us to bring on Barbara Schreihans on this podcast.
Barbara has over 20 years in Corporate America, with her company, Your Tax Coach, having consulted over ten thousand businesses across the years.
In this episode, she generously shares valuable hacks – which her clients pay thousands of dollars for – on building wealth via strategic tax savings.
Building a good relationship with money
As Barbara explains in this podcast, the most sophisticated tax-saving techniques will do you so little good (regarding building wealth) if you don’t have a good relationship with money.
Barbara interestingly reveals that some of her clients who are families of four with a modest household income far below 100k have way more money to spend than some of her elite clients with family incomes running into $4 million.
She ascribes this to the mental capacity to retain wealth and strategically multiply it. Barbara challenges us to confront some of the financial myths (and habits) our early upbringing instilled in us to build healthier financial habits.
Maximizing Real Estate Rollover via 1031 Exchange
Barbara heavily espouses exploring tax savings by tapping into real estate rollovers.
It is common knowledge that many door-to-door reps in a bid to consolidate (and diversify) their income are soaking money in rental properties.
Barbara advises that door-to-door sales reps or managers exploring such investments should tap into 1031 exchanges to defer taxes on gains accrued.
The real estate rollover entails reinvesting gains from your previous real estate investment into another closely related property. By rolling over your gains, the taxes such gains typically attract would be deferred.
Of course, this doesn’t mean the taxes have artificially disappeared. It simply means that the IRS is willing to forget about the taxes until you liquidate the new property such gains were rolled over into.
This means you can invest larger sums of money into properties without the government having to slash your capital via taxation.
Making the best of your 401k
According to Barbara, every door-to-door sales rep should invest in a 401k.
Barbara recommends you start investing in your 401k as soon as possible and strive for a 401k match from your employer.
Commonly, you can get a dollar for each dollar you save on running into 6% of your salary.
It is also recommended that you stay until getting vested. There are circumstances where you can’t retain your employer’s match on your 401k if you are not entirely vested. This can cost you thousands of dollars.
Getting fully vested can span up to 6 years working in that company.
However, some employers wouldn’t mind you retaining a fair slice of your match (even without getting fully vested) if you have worked a reasonable amount of time at the company before leaving.
Leverage Self-Directed IRA
In this podcast, Barbara hits on door-to-door sales reps getting the best out of a self-directed IRA. A self-directed IRA closely mirrors a ROTH or conventional IRA.
This account helps reps enhance their tax savings and gives them a more prominent say in distributing their funds into investment vehicles.
While a traditional IRA typically throws your money into mutual funds and CDs, it is far more flexible with self-directed IRAs.
With the latter, you can put in real estate, precious metals, tax lien certificates, or even into more contemporary asset classes like cryptocurrency and tax lien certificates.
As of 2022, the maximum contribution you can make when 49 or younger is $6,000. For those above the 49, the limit is pegged at $7,000. It is worth adding that withdrawals from your self-directed IRAs attract no penalties.
Don’t miss out on an S-corps
In Barbara’s opinion, an S-corp is one of the most underleveraged means door-to-door business owners can tap into to raise their tax savings.
When you own an S corp, you get limited liability protection. This buffers your personal finances from the liabilities your door-to-door sales company can be exposed to.
So let us imagine you get sued. Your personal assets are insulated from being used in assuaging your liabilities.
S corp saves business owners from the horrors of double taxation by leveraging the pass-through entity.
Contrary to a C corps where the business owner and the business entity simultaneously pay taxes, an S corps owner only pays taxes with the business not needing to pay taxes on derived profits.
As Barbara put it, door-to-door business owners can save as much as $6k on just a 1099 income of $40k. Step it higher, and you can save up to $15k in taxes on an income of $100k.
However, Barbara emphasizes that you must have an LLC first before proceeding to an S corps.
Enjoying the underrated Augusta Rule
We bet you don’t know as a door-to-door sales business owner or manager, you can save up to $40k on rental income by tapping into the Augusta Rule Barbara recommends.
With the Augusta Rule, a homeowner can rent his space for two weeks in 12 months without his individual tax return comprising his rental income.
This rule applies provided you are not using your house as your main office for your door-to-door sales business.
This means that you, as the CEO of your company, can remove whatever expenditures, you spend at home when working, from your business income.
And yes, tapping into this Augusta Rule takes you just minutes in exchange for the tens of thousands it could save you in deductions.
Enjoy the podcast for a more emphatic representation of these tax-saving strategies Barbara (alias Your Tax Coach) recommends.