Jack Thursday – Ordinary and Necessary (LA 1572)

Jack Thursday – Ordinary and Necessary (LA 1572)

Transcript:

Jack Butala:
Steve and Jill here.

Jill DeWit:
Howdy.

Jack Butala:
Welcome to the Land Academy Show, entertaining land investment talk. I’m Steven Jack Butala.

Jill DeWit:
I’m Jill DeWit, broadcasting from cool, incredible Scottsdale, Arizona.

Jack Butala:
Today is Jack Thursday, and I’m going to talk about ordinary and necessary as it applies to business expenses and Jill’s going to fall asleep.

Jill DeWit:
That’s exactly right.

Jack Butala:
Before we get into it, let’s take a question posted by one of our members on Landinvestors.com online community, it’s free. If you’re already a land academy member, please join us on discord.

Jill DeWit:
Aaron wrote, “I stopped telling my friends, outside of this group, I used to try and motivate friends to get into the land game with these crazy profit stories, but they’re all like, “What’s the catch? Are you dealing drugs? Are you on drugs, et cetera?” That’s funny. “We can give someone a winning lottery ticket, but they’re too skeptical to even check the damn numbers.” This is what you guys call rich guy problems? This is hilarious.

Jack Butala:
If that’s your question? Yes.

Jill DeWit:
Oh my gosh.

Jack Butala:
This is Aaron and Liz, Aaron.

Jill DeWit:
Oh, good. That’s so funny.

Jack Butala:
Not using their last name.

Jill DeWit:
Okay, thank you.

Jack Butala:
Long, long time members. I had him on the show a couple of times. They’re a lot of fun.

Jill DeWit:
Isn’t that true though? We had this discussion the other day in Career Path. We were talking about things that people just don’t get. It was along these lines too. We were talking about investing. We were talking about if you need money, you get going, you’re starting to do great, you’re doing some deals, you start to share with your family members, “You’re not going to believe what I did. I asked made $20,000 last week.” Next thing you know, they’re saying, “Can I give you $5,000 and you do that for me?” You have to be careful, because it just always, in our situation, backfires. We don’t do that anymore. It’s better to say, “If you want to do this, just go do it.” Then, like Aaron shared, most people don’t get it.

Jack Butala:
I have couple of things to say. I stopped telling people what we do for a living a lot of years ago. It’s not possible. For a while, my answer was that we buy real estate, we buy land, and then we sell it for more. They look at you cross-eyed. The super smart ones will say, “How do you do that?” I send a bunch of offers out. Thousands and thousands of blind offers to everybody who owns land in the area for a price that I’m willing to buy it, then I see who calls me back. It ends there for the smart people.

Jack Butala:
Here’s my second point. I learned the hard way that when people get to know you, whether it’s online like this, or whether it’s in person, and they see that you’re successful, you can put a couple of sentences together, speak in full sentences and your grammar’s reasonably okay, they want to be a part of it. They don’t want to send out letters. They don’t care about real estate. That’s all just noise to them. The real work is noise and difficult. They just want the fun stuff. I just want to live in a house on a beach, have a fast car or a hot girl like Jill. They don’t care. Here’s what I learned. Ultimately, they have to find us. We can’t find them. They have to find us, because they’re interested. Members who are successful find us because they’re interested in real estate, money, land, data, and the whole process of all this. Not-

Jill DeWit:
Perfect.

Jack Butala:
“Wow, I love your car! How’d you get it?”

Jill DeWit:
That’s the wrong approach.

Jack Butala:
It won’t work.

Jill DeWit:
That’s, often, how it is. They’re like, “I can learn this too. My cousin’s a real estate agent. Is that all it is?”

Jack Butala:
Jill, you’re nailing it on the head. Nailing it.

Jill DeWit:
I’m like, “That’s not it at all. Have you ever had your own company?” “No.” “Have you ever done this?” “No.” “Do you know what this is?” “No, but I got this.” “Okay.”

Jack Butala:
After three sentences of this, usually with a drink in their hand, they just say some version of this, and Jill nailed it. “Can I just give you $10,000?”

Jill DeWit:
That’s exactly it.

Jack Butala:
Please, don’t ever do that. That’s my advice to you who’s listening and watching tonight.

Jill DeWit:
Don’t take it. Don’t do it.

Jack Butala:
Let’s say you pull the slot machine handle and they win. You return $20,000 on their $10,000 three weeks later, or a month and a half later. Guess what’s going to happen then? How about I give you $100,000? You do it and it’s returned $200,000. It’s a huge mess.

Jill DeWit:
You should be doing it with your money.

Jack Butala:
Or our money, because we understand you.

Jill DeWit:
That’s was my other thought was, because we talked about this, again this week, last week on Career Path. When you take money from people, along these lines, it’s so hard to get them to understand and get it. They want to get involved. Usually, they want to get involved and-

Jack Butala:
I had somebody say a couple of years ago, to me, “I would like to shadow you for a week and see what you…”, and I’m like, “No, you would learn nothing.”

Jill DeWit:
There’s nothing I got.

Jack Butala:
“You would learn how to go to the bar, have fun, take an Uber Black somewhere and go shopping with Jill for curtains.” Something like that. You’re not going to learn anything about buying and selling real estate.

Jill DeWit:
That’s hilarious. It’s so funny. We should do that, a day in the life of d-d-duh. Our day in the life is comical. You don’t realize it’s all in here. There’s stuff getting done, but I can’t properly convey it.

Jack Butala:
You can stand behind me while I throw cold water in my teenagers face, or he’s late for school.

Jill DeWit:
Did that happened today?

Jack Butala:
No, but it’ll happen tomorrow.

Jill DeWit:
I’m waiting for it. All right.

Jack Butala:
I was like, “Let me at him.”

Jill DeWit:
That’s good.

Jack Butala:
Today is Jack Thursday, ordinary and necessary. This is why you’re listening.

Jack Butala:
When you have a business, or you make any kind of income or revenue, it’s taxable. If you own a convenience store and your top line revenue is $100,000 for the month and you place an order because your stock is low for beans or whatever you sell, ramen noodles, phone chargers, you have to ask yourself, or at least the IRS is going to ask themselves, is this ordinary and necessary? Is this a rational… they asked you, “Is it ordinary to buy a phone charger to resell it in a convenience store? Is it necessary to make money?” The answer is yes, yes and yes. If you have a chain of convenience stores, is it ordinary and necessary to have a new Porsche every year to go pick up the stuff from the warehouse where you’re buying it? Nope. If you have a Porsche dealership, is it ordinary and necessary to buy Porsches? Yes. If you have a talk show like this, is it ordinary and necessary to buy specifically designed makeup to be on a camera for Jill? Yes. And on and on and on and on.

Jill DeWit:
Equipment and lighting.

Jack Butala:
If you have a land business and you’re buying land, is it ordinary and necessary for you to have a pickup truck to go look at that land? Yeah, it is, to some degree. Can you use it for personal use? Not, necessarily, in the eyes of the IRS, but it is reasonable for you to have a truck to go look at land. Is it reasonable for you to have a cell phone to communicate back to your partner about this land and whether or not you should buy it? Yeah, to some degree. If you have a huge land business, like many of our members, where you’ve got 10 or 15 people on staff, is it ordinary and necessary for you to have office space? You only use it for this. You don’t live there. Yeah. Heck yes. Employees? Heck yes. That’s the question you should ask yourself, because the IRS is going to ask it, if and when they look at your stuff. What’s the moral of the story here for us? What are you getting at Jack? Jeez.

Jill DeWit:
I was wondering that too.

Jack Butala:
I started off buying and selling land and very quickly realized this was incredibly profitable. There are expenses involved, but the profit margins are amazing. We’re consistently doing 100%-200% gross margins on every single deal. We need equipment. We need stuff to get this done, but nowhere near what we need to get to where it’s in a rational tax scenario for us. Do I have a talk show now to make it ordinary and necessary to sell land at the rate that we sell it? Yeah. Now that opens me up into a whole different… because there’s no revenue associated with the show. There’s a reason that Jill and I don’t have sponsors on the show. People approach us all the time. “We want to advertise on your show.” No, no, no. We don’t want any revenue on the show. We have another revenue source over there buying and selling land.

Jack Butala:
There’s a lot of equipment and a lot of stuff that we need. We need outsourcing for video production. It’s all in the name of is it ordinary and necessary to sell land? For us, it is. We’ve been doing it for years. This is show number 1,600 or something. That’s still not enough. What else can we do, from a marketing standpoint that’s ordinary and necessary to increase the volume of selling land?

Jack Butala:
This is what I want you to do. You’re buying and selling land, and it’s early in your career. I want you to really start making this part of your thought process. What else can I associate? What else can I, very ethically and legitimately, use as marketing that’s a real expense and it actually increases the amount of property that I sell? This is endless. It’s not something that you get there and it’s like, “Wow! My revenue is $1,000,000 and my expenses are $980,000.” It’s never that. It’s always shifting up and down and you’re trying to figure it out. Some stuff you sell and some stuff you don’t. There’s all kinds of things and little decisions to make along the way. I bet you a dollar. Do you know that I do this all the time?

Jill DeWit:
I do now.

Jack Butala:
Your eyes were all glossed over. I just looked over. “What is he talking about?”

Jill DeWit:
I’m sorry, were you talking to me? Are you surprised that my eyes are glossed over?

Jack Butala:
Is it ordinary and necessary for us to pay each others salaries? I helped Jill with her companies. She helps me with my companies. We pay each other’s salaries. It’s necessary and ordinary, especially, because the two of us are a package now, from a marketing standpoint.

Jill DeWit:
More than a marketing standpoint.

Jack Butala:
You have a wife.

Jill DeWit:
We’re a package.

Jack Butala:
You have a husband. He’s got a W2 job. You’re making a ton of money. Enough money for him to completely quit his job. A year ago, in fact, he should have quit his job. Is it ordinary and necessary to bring him on because he’s got some other profession that’s going to enhance your business acquisitions or sales? Heck yes. Should you pay him a salary to replace his W2 salary? Oh my gosh, yes. That is ordinary and necessary. How about your 18 year old who is now clerking for you? Is it ordinary and necessary to pay them a reasonable market salary so that you can get whatever you have to get done? You’re not as good as computers as your teenager? That’s totally ordinary. You need some tech help? Now they get a salary.

Jill DeWit:
That’s fair.

Jack Butala:
They need to deliver on the tech help.

Jill DeWit:
Don’t just give them the salary.

Jack Butala:
I’m not encouraging anyone to be unethical or to push the boundaries of this. What I’m saying is, we as land business owners, or small business owners, have a lot of opportunity to increase our sales by using more expense and to keep moving up and forward. Your expenses go up with your revenue and you have tons and tons of opportunity to use this ordinary and necessary concept to your benefit. Here’s who doesn’t have any possibility of applying ordinary and necessary. You’re an incredibly successful day trader. You buy stock for $10 and you’re so smart on every stock, on every play. You sell it for $20. You have a two bedroom apartment in Manhattan, New York, and one of the bedrooms you use is for an office. You have a desk, a computer, a phone and a headset. That’s the limit of your expenses. If you generate $10,000,000 that year, what’s ordinary and necessary to do that? Nothing. Nothing is, except that room full of furniture.

Jill DeWit:
You’re not driving anywhere. Nobody’s seeing you. You need the equipment.

Jack Butala:
That’s $3,000.

Jill DeWit:
That kind of thing I understand. The electric bill. That kind of thing.

Jack Butala:
Not even that. A portion of it. That’s home office expense now.

Jill DeWit:
That’s a tough one. Very interesting.

Jack Butala:
How about your surgeon? Anesthesiologists make $700,000 a month in some cases. Can I write off my scrubs? Yeah. What else? Nothing.

Jill DeWit:
Can’t write off my haircut. Can’t write off anything.

Jack Butala:
What if I’m a plumber. I’m an independent contractor plumber. I’m a 1099. I worked for six different plumbing companies that are always calling me to go out on jobs and they pay me when I’m done.

Jill DeWit:
This is a good one.

Jack Butala:
Amazing opportunity for ordinary and necessary. You need a truck. You need a communication. You need all kinds of tools. You need booties for your feet. You need-

Jill DeWit:
A uniform shirt.

Jack Butala:
Six or seven clean uniforms, boots, your haircut needs to be correctly cut or they’re never going to call you back.

Jill DeWit:
That’s cool.

Jack Butala:
The plumber needs to smell good. He’s going to need two assistants sometimes. And on-

Jill DeWit:
Nice underwear because you’re a plumber.

Jack Butala:
Huge, huge opportunity for ordinary and necessary, massive opportunity. Here’s one of my favorites, and it’s actually Aaron who asked this question today. Aaron and his wife, Liz, own this company before they were land academy members. They own a nursery. They live out on the nursery and they’re people managing these plants. They only, as I understand it, raise plants that are conducive to sending them in the mail at a certain time when they can survive that mail trip to the end-user. It’s a mail-order internet nursery type company. Think about the ordinary and necessary for that. I think they live on site in a trailer, honest to God, which I have massive respect for. There’re all kinds of ordinary and necessary there. Then, they join land academy and proceeded to smash it out of the park. They’d been at both of the Live of our events. Think about all of the additional ordinary and necessary expenses that are tied-

Jill DeWit:
All around cool people.

Jack Butala:
To a nursery. If you think about this stuff before you launch into whatever you’re doing, don’t just think about the revenue. Think about… I spend a lot of time every year managing legitimate, ordinary and necessary company expenses. If necessary, I’ll start another company that will legitimately enhance our revenue for these other companies so we have the opportunity to pass that ordinary and necessary test. Hope I made my point.

Jill DeWit:
Yes, times five. Thank you. Happy you could join us today. Five days a week, you can find this right here on the Land Academy Show.

Jack Butala:
Tomorrow, thank goodness, it’s Jill Friday and she’s not going to talk about what I just talked about.

Jill DeWit:
Oh my goodness.

Jack Butala:
She’s going to talk about, “Don’t be that guy.”

Jill DeWit:
Don’t be that guy. That’s what it sounds-

Jack Butala:
I’m that guy right now.

Jill DeWit:
It sounds like, “Till Friday, don’t be that guy. Don’t do what just happened to me.”

Jack Butala:
You were not alone in your real estate ambition.

Jill DeWit:
Hey, people are asking me to share the email too, by the way. You have a deal. You need the funding. You need to go to Landfunding.com. Guess what? There’s an email for that to Landfunding@landacademy.com. That’ll get you there too. The other place is 480-855-0045. You have the deal? You need the cash? We can help. Like that? We are Steve and Jill. Information and inspiration to buy undervalued property.

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