Jack Thursday – Trial Run Your Taxes Before December (LA 1901)

Never Miss an Episode!

Subscribe to the Land Academy podcast

Transcript:

Steven Jack Butala:
Jack and Jill here.

Jill K DeWit:
Hello.

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

Jill K DeWit:
And I’m Jill DeWit, broadcasting from the Valley of the Sun.

Steven Jack Butala:
Today’s Jack Thursday and I’m going to talk about trial running your taxes before December.

Jill K DeWit:
Do you know how nice it is to have you?

Steven Jack Butala:
That’s very nice to hear.

Jill K DeWit:
Yeah, especially when it comes to stuff like this. If you didn’t get taxes, we would be in big trouble.

Steven Jack Butala:
Taxes are our most expensive cost is cost of goods sold, the price of the land. Our second is possibly…

Jill K DeWit:
Staff.

Steven Jack Butala:
… Labor or staff, but that’s not because of our land businesses.

Jill K DeWit:
You expect that.

Steven Jack Butala:
It’s because of Land Academy.

Jill K DeWit:
It’s true.

Steven Jack Butala:
Our second largest income statement amount, dollar amount, in our land business is taxes, so it’s got to be managed and manipulated. Manipulated meaning just reviewed and… Well, I mean manipulated, within the limits of the law and ethics.

Jill K DeWit:
Managed.

Steven Jack Butala:
Managed. The same way that you manage your acquisitions and how much they cost.

Jill K DeWit:
Right.

Steven Jack Butala:
Before we get into it, let’s take a question posted up by one of our members on the landinvestors.com online community. It’s free, and please don’t forget to subscribe on the Land Academy YouTube channel. Comment on the shows you like.

Jill K DeWit:
Joseph wrote, “I have a developer looking to sell a commercial parcel, 3.7 acres, that’s anchored by a Super target, Petco and Wells Fargo. Anyone have any experience with this? With an anchor, does this heavily reduce its selling ability? It’s been listed for two years, but with no price, so that makes it even harder to gauge a value.”
What the heck?

Steven Jack Butala:
Well, there’s a few things.

Jill K DeWit:
So, we sent out an offer, so let me back up here. Let me see if I’m right here. It sounds like you sent out an offer. The guy says, “Yeah I want to sell it. Here it is. Do you want to buy it?”
So, that’s the point where you have to say, do you want to buy it? And then the whole no price thing. I’m like, well you made an offer, so that’s the price. It’s either yes or it’s no.

Steven Jack Butala:
There’s a few things going on here. This is Jill’s nightmare deal. Jill would just say no. She would.

Jill K DeWit:
And it’s been on the MLS or on lists, whatever.

Steven Jack Butala:
This is 180 degrees different on the other side of-

Jill K DeWit:
LoopNet.

Steven Jack Butala:
Of regular Land Academy deal.

Jill K DeWit:
Not doing it.

Steven Jack Butala:
I had to chuckle when I read this, we have to talk about it now and clear it all up. An anchor tenant, an anchor in a boat as it goes down in the water and it holds everything down, an anchor tenant quite opposite, in the opposite is the best thing that a landlord could ever have. And so you’ve got Sally’s beauty box in a strip mall, Sally’s beauty box and you’ve got maybe a little grocery store next to a Walmart and your Walmart’s that anchor tenant. And everybody’s going to that Walmart in and out all day passing the beauty box and passing all these little stores that might be, that’s the greatest thing a landlord could ever ask for. That landlord will keep all those other retail spaces open because of the draw from that anchor tenant. So when someone says, I have an anchor tenant in this building or this facility.

Jill K DeWit:
It’s great.

Steven Jack Butala:
They’re banging their chest and they’re clinking their glasses. I got an anchor tenant. So anchor tenants are great. What ends up happening is a lot of strip mall or regional malls or there’s always left over land. That’s what this deal is. And it’s not that it’s land that’s unusable, it’s just land that they put the all together, they put the strip mall together, maybe they bought it that way and it’s an outlier piece of property, might even be in a parking lot. A lot of times it’s a right smack in the parking lot for whatever reason it’s a separate APN. Maybe it might have been a bank branch back in the day and it’s just not there anymore. Who knows why. But they’re separate APNs all around major commercial real estate projects and they get your letters and in this case, this guy has had it listed, who knows why. What personality disorder he might have to have him listed without a price for two years. We don’t know.

Jill K DeWit:
And just people just call every time someone calls you just say, nope. And then nope, what the heck?

Steven Jack Butala:
Maybe he likes to brag to people like you. What he doesn’t want to do is sell it. If he wanted to sell it, he’d have a price. It would be a rational price. And this again, Jill wouldn’t waste the time to call this person because they’ll talk to you, they’ll probably talk to you for two hours.

Jill K DeWit:
Yeah, about how great it is.

Steven Jack Butala:
Look how great he is.

Jill K DeWit:
Yeah. So here’s the point. You made an offer. If you want to follow up with this person, say clearly, obviously you made an offer. Did he even say there’s communication? Did he say that? Let me go back here. So I have a developer looking to sell. Okay, so the question is really, Joseph, what’s this guy’s price? That’s great. He told you it’s got this and this. It’s been listed on the MLS for two years. Happy to sell it to you. Well that’s great. I’m happy to buy it. Again, this is my offer. You like it or not? And if not, what’s your price? Give me a number and I’ll see if I can make it work. That’s it.

Steven Jack Butala:
Certain subsections of people and certain groups and cultures that are really comfortable talking about money and prices of stuff because it’s part of our success in sharing and all that. I include myself in all of those groups.

Jill K DeWit:
Right.

Steven Jack Butala:
And there are a lot of cultures and sections, subsections of the country that would never talk about how much anything costs or it’s just not part of who they are. And so when you call a seller and they don’t want to talk about the price of something, it’s because they’re just wired not to talk about money. We have friends that are like this. We’ve had … It doesn’t matter, we all have friends like this. It’s like they do not want to talk about how much anything costs. They think it’s private.

Jill K DeWit:
I think this guy has a number. I really think there’s something going on. The guy doesn’t want to sell. Come on. That’s really what I think.

Steven Jack Butala:
Brag.

Jill K DeWit:
No. Yeah.

Steven Jack Butala:
He’s really happy collecting a check every month from Petco.

Jill K DeWit:
He’s the first guy that offers me north of 2 million, I’m going to say yes. Well then tell us that. What’s your number? And put it in there.

Steven Jack Butala:
So we can laugh at you.

Jill K DeWit:
I don’t care how crazy it is, just put a number in there.

Steven Jack Butala:
Tell us that, so we can laugh in your face.

Jill K DeWit:
And then we’ll all move on. That’s fine.

Steven Jack Butala:
The point is, and I’m making Jill’s point, what’s your freaking number?

Jill K DeWit:
Yeah.

Steven Jack Butala:
Or say here’s my personality disorder and I don’t talk about money.

Jill K DeWit:
I’m not going to sell it.

Steven Jack Butala:
Either one of those is fine.

Jill K DeWit:
I’m just bragging about it. I’m just going to brag about it. You know what this could be, this could be the guy’s listing it. Maybe there’s a tax play that he used to have it listed for sale because to show for the IRS he’s trying to sell it. But nevermind doesn’t put a number there. There could be some play there. I don’t know. So maybe that’s it. And he’s hoping to have it for 10 years from now and then he’s going to get serious about it or hand it down with to the kids. I don’t know.

Steven Jack Butala:
All of that’s possible. But here’s the point. If people aren’t willing to in the first let’s say 60 seconds of any conversation, talk about price, because you talked about price, you sent them a letter.

Jill K DeWit:
Yeah, true.

Steven Jack Butala:
I’m willing to offer you $38,000 so we’re not price shy.

Jill K DeWit:
Yeah. What’s the number?

Steven Jack Butala:
Yeah, so what is your price? It’s not $38,000. What is it? Well something more. We don’t play that game. Today is Jack Thursday and I’m going to talk about trial running your taxes before December. As I said, and this is why you’re listening. As I said in the opener, if you do everything right in your land flipping business, the amount of taxes that you pay, federal and state taxes, it will be the second largest expense in your company.
You’ll have top line revenue, which is your sales price. All the property that you sold. Your cost of good sold is that the cost of that actual property that you sold or bought, depending on how you file your taxes. And then you’re going to have labor and some other things. Communication, your cell phone bills, computers, all of that stuff. You’re going to find that that is absolutely insignificant to the amount of money that you pay for land and the money that you pay for taxes. And so you need to manage this, like Jill said earlier, and the good news is that these little companies that we have, these land flipping companies, allow us to really, really take advantage of some stuff that’s in the internal revenue code about taxes in and reducing your regular tax liability.
It’s not a paycheck. And a lot of new people come to us thinking that, well I’m going to collect, I’m going to get my W2 or my 1040 or whatever it ends up being just like I’ve done for years and years and years from my employer, shove it to my accountant and they’re going to file my taxes and I’m going to get some money back. This is the absolute opposite of that.
What’s going to happen is you’re going to find out your taxable income is a lot, hundreds of thousands of dollars and millions of dollars in some cases. In our case it’s millions of dollars. And your accountant’s come back and say you owe $400,000 in taxes this year, so please pay this and send it in. Here’s the instructions. And the first time that happened to me, I fell apart. And I have an accounting background, I should know better. This is many, many, many years ago. First time it happened to Jill, she fell apart too. And that was after I managed it. So you need to get ahold of this thing before it really rattles you loose from your money.

Jill K DeWit:
And it’s November, you have some time.

Steven Jack Butala:
Exactly.

Jill K DeWit:
To make some changes is why we’re doing

Steven Jack Butala:
This. So in the simplest form, in its simplest most 101 form, this year you had revenue, what you sold land for, you had expenses, what the cost of that land. And then you had other stuff, like I said earlier. And theoretically it’s all in a bank account. One bank account that says Joe’s Land Company LLC. And it’s all in there. And you take all the activity, the entire activity of that bank account from January 1st to December 31st and there’s going to be either money left over or there’s going to be a deficit. So if Jill did $5 million in land sales, she bought $3 million worth of property and spent a bunch of money on cell phone bills and other stuff, she has $2 million that she made that potentially could be taxable income. All right, so it’s November. I’m predicting that I have $2 million of taxable income. What can I do between now and the end of the year to make that $2 million taxable income number smaller?
And this is when this whole debate starts to happen about cash basis, filing on a cash basis financial statement or an accrual basis financial statement. And if you have a real estate designation, which is really now, I guess they call it a dealer’s license, it is not too late to talk to your accountant about these two things. Am I on a cash basis or an accrual basis? Or do I have what I call a real estate designation? Because we got one a lot of years ago. I’m having members come back to us now and say it’s called being a dealer, a dealer designation so that you’re not subject to capital gains tax.
If you’re very confused by this, you’re not alone. This is complicated as hell. So you need to, my point is it comes back to staffing. Everything comes back to staffing and recruiting. You got to find an accountant that understands this. And I have never found one of those. I have always taught, I would look on the internet, figure it all out myself and then go teach my accountant about how it’s going to go. And many accountants, especially if they have gray hair, are not going to be responsive to that. There’s a lot of work in it but it’s so important and it’s important to do it before the end of the year.

Jill K DeWit:
Yeah, you can’t do it in January. You can’t effectively make shifts and changes in January because then it’s too late for December for the year before. This is why we’re talking about it.

Steven Jack Butala:
So what I really want you to do is even if you did had a fantastic year and you got real high taxable income, so what? What happened is you learned how to buy and sell real estate. Maybe you didn’t plan for your taxes as well as you should. Maybe it’s too late in some cases to do all this stuff. It probably is quite honestly. But you’re going to pay the taxes on what happened this year. You’re going to do it in January or February for 2023. And you’re going to have a fantastic tax year because you’re going to buy and sell a lot of land, especially because the market’s the way that it is. So what I’m saying, I’m begging as much as I can beg as a talk show host, I’m begging you to address this and not avoid it. That was Jack Thursday.

Jill K DeWit:
I like that as a talk show host.

Steven Jack Butala:
What the hell? I don’t know. Is that what I am not?

Jill K DeWit:
That’s Oprah.

Steven Jack Butala:
What are we? Whatever I am. You are too, so be careful.

Jill K DeWit:
It’s not a talk show host.

Steven Jack Butala:
Schmo on the internet.

Jill K DeWit:
That’s it.

Steven Jack Butala:
Okay.

Jill K DeWit:
Schmo on the internet.

Steven Jack Butala:
Schmos on the internet.

Jill K DeWit:
Schmos on the internet. That’s us.

Steven Jack Butala:
Okay.

Jill K DeWit:
Happy you could join us, schmos today. Five days week, you can find us here on the Land Academy show.

Steven Jack Butala:
Tomorrow’s Jill’s Schmo Friday.

Jill K DeWit:
Yeah.

Steven Jack Butala:
Jill’s Schmo Friday and she’s going to talk about land mailer panic.

Jill K DeWit:
Yep.

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

Jill K DeWit:
Yeah. Talk show host. That’s James Cordon. That’s David Letterman, that’s Johnny Carson, Oprah. Even Drew Barrymore.

Steven Jack Butala:
Oh my. Geez, Jill.

Jill K DeWit:
I’m sorry. Dr. Phil.

Steven Jack Butala:
Yeah.

Jill K DeWit:
You know what? You get an A plus for ambition.

Steven Jack Butala:
This is a televised business meeting. That’s what this is.

Jill K DeWit:
Yes. That’s really what this is.

Steven Jack Butala:
Between you and I.

Jill K DeWit:
Sometimes this is a therapy session. It might be that. Sometimes it’s just venting. It could be that. Thank you for tuning in and as we said in the beginning, we hope you find our content valuable and we really appreciate your support. If you haven’t already, please check out our YouTube channel, hit the subscribe button. And don’t forget, if you are in Land Academy and you’re not in Discord, you need to get in there. You’re missing out. Go to support@landacademy.com and they’ll hook you up,

Jack and Jill:
We’re Jack and Jill.

Steven Jack Butala:
Information.

Jill K DeWit:
And inspiration.

Steven Jack Butala:
To buy undervalued property.

 

Thanks for listening, and finally, don’t forget to subscribe to the show on Apple Podcasts.

Perfect Land Mailer Planning for 2023 Investors (LA 1908)

Transcript: Stephen Jack Butala: Jack and Jill here. Jill DeWitt: Hello. Stephen Jack Butala: Welcome to the Land Academy Show, entertaining land investment talk. I’m Stephen Jack Butala. Jill DeWitt: And I’m Jill DeWitt, broadcasting from the Valley of the Sun. Stephen Jack Butala: Today

Read More »
Top
Start down the path to success: FREE eBook Download!