Practical Tax with Steve Moskowitz

• #57 | Green Tax Initiatives and Side Hustles for Businesses feat. Congressman Jared Huffman & Chris Westfall

  On this episode of Practical Tax, Congressman Jared Huffman joins us to discuss green tax initiatives and Chris Westfall joins us to discuss side husltles for businesses. Episode Transcript Intro: Welcome to the Practical Tax podcast, with tax attorney Steve Moskowitz. The Practical Tax podcast is brought to you by Moskowitz, LLP, a tax law firm. Disclaimer: The information contained in this podcast is based upon information available as of date of recording and will not be updated for changes in law regulation. Any information is not to be considered tax advice or legal advice and does not form an attorney/client relationship. Further, this podcast may be construed as attorney advertising. You should see professional consultation for your individual tax and legal situation. Chip Franklin: Hello and welcome again to another edition of Practical Tax with tax attorney, Steve Moskowitz. Steve, hope all is well. Steve Moskowitz: All is well and there is so much going on in the tax world. It just keeps us happy because we're getting back so much money for our clients. For example, this ERC program, employee retention credits where the federal government is giving away their grants, they're not loans, up to $26,000 for every employee that you have that qualified is tremendous and is helping out so many small businesses. Chip Franklin: We have been talking about this for four years, right? That's been going on for a while. Steve Moskowitz: It hasn't been that long. It may seem that long, but it hasn't. And the bottom line is that... The important part is you have to know, and there are some real differences of opinion, who qualifies and who doesn't. There are two tests. One test is a certain drop in gross revenue. That's easy. It's math, either above or below a certain number. But there's a second test called full or partial closure. And that's really a facts and circumstances test. For example, even an essential business like Safeway could only use 25% of the inside of their business, as was mandated by the state of California for all businesses from the beginning of the pandemic until 6/15/21. That may qualify them supply chain disruptions and so on. But it takes some work to figure that out and a lot of firms are ignoring that. If you don't meet the math, they say no ERC for you, that's wrong because the test is either/or. On the other hand, the IRS is warning that there are a bunch of fraudulent firms just making stuff up and like anything else in your tax, obviously, you want to take everything to which you're legally entitled, no more and no less. You'd never want to put anything on any tax return or anything you give to the government is fraudulent, yet some companies are doing that. And there are these popup companies, they just came into existence to file ERC and then they're going to be gone when the IRS is asking questions whereas we're a law firm and we've been around for over 30 years. Chip Franklin: Well, all of these trails lead to Washington DC eventually, right? I mean- Steve Moskowitz: Yes, they do. Chip Franklin: ... [inaudible 00:02:28]. And we're nice enough to be joined today by US representative from California, Second Congressional district since back in 2013, Congressman Jared Huffman. Congressman, good to have you here. Jared Huffman: Good to be with you. Chip Franklin: I understand- Steve Moskowitz: Congressman, thanks so much for joining us. Jared Huffman: Thank you, Steve. Chip Franklin: And you're in the neighborhood just a little north of us and enjoying again, California. Whenever I hear about people saying, "Oh, we're moving to Texas." I'm like, "Don't let the door hit you on the way out." I love it here, right? Jared Huffman: Yeah. Yeah. California is still going strong despite the detractors out there who don't wish us well. Steve Moskowitz: You know there are always detractors for everything. You can have the greatest product in the world and somebody is saying it's horrible. But I live in California, the weather is great, it's so much physical beauty, there is so much here, and I know the taxes are high. However, as a tax attorney and one of the things that you do in Washington, I tell everybody that when we talk about the tax code, there are two purposes. One everybody knows is to collect money from us to run the government. But the other thing is, in a democracy, the government can't order us to do something, even if it's good for the economy and the government wants it. So how does the government get us to do something that they can't order us to do? They pay us and they give us tax incentives. And that's what tax planning is all about. When you see sometimes the Fortune 500, they're making billions with a B in profit and not paying taxes because they're doing something else that's worthwhile for the country through the form of tax incentives and that's why I went to law school. I was a CPA first and I said, "Hey, I want to be able to do those secret things that I see the Fortune 500 is doing." And that just fascinates me. Chip Franklin: So Congressman, your district goes essentially almost right up the coast to Oregon and it's a unique environment here in California. Some of the most beautiful shoreline in the world, I would argue. But to Steve's point about incentives, I know that you're a big supporter, if not of legislation, but in general towards green initiatives, which like anything, whether it's the early parts of DARPA where we were trying to inspire companies to build or to create things that would help the entire nation and then lead the world, which I think we have an opportunity now to do because climate change is a real thing. There are real obstacles we face because of that. We have the kind of people and brain power here in California within 15 miles where we sit right now to really make that sort of change. How does Congress look at this and are we moving toward really rewarding those minds, many of them here in California, that want to create; are we helping them with tax incentives? Jared Huffman: I think so, Chip, and it has been a busy two years in that regard. We have put some really powerful incentives on the table for all sorts of clean energy and domestic manufacturing. I believe we are finally beginning to reimagine what a decarbonized economy should look like and to put things on the table that match the scale of this climate crisis. We got a lot more work to do, but the work we have done in the last couple years is way more than anything we have ever seen before. Steve Moskowitz: And Congressman, you've done so many good things like with the new credits in the new inflation act where you're saying, "Hey, be more efficient with energy in your new building and we'll reward you." That's terrific. Jared Huffman: Or buy an electric vehicle, including a used electric vehicle. It's great to now have a tax credit available for working class folks to liberate them from the tyranny of the pump. We have got incentives to decarbonize your own home with heat pumps and other electric appliances, incentives at the industrial policy level to try to drive the investments in grid modernization and battery storage and other things. It's a really thoughtful package that kind of covers all parts of this challenge. Chip Franklin: Congressman, but the truth is, without the rest of the world, we can't even begin to get our hands around climate change. And I get back to my original point, I think that we have to become industrial leaders in this new technology. And to do that, it kind of pushes against... And I'm more left than these days, but it kind of pushes against the left. Always saying, "Oh, you're giving these companies these big breaks." Some of these companies, the right companies, are the ones that are going to make this happen that are going to change the world. How do you make that argument? How do you differentiate that? Jared Huffman: Well, I don't ever want to just light money on fire and give it to people who don't need it. But I think we can do things like loan guarantees that leverage private capital and direct it in the right way to invest in the right kind of technologies and there's an awful lot of that in this batch. The tax incentives though, or the other ones, Steve knows how these work far better than me. But what I know is that we heard from the folks who develop renewables and clean technology and they told us that these are the incentives that will have the greatest impact. And so I'm hoping that plays out and that it works well. But if it does, we're going to see massive amounts of private capital flood into this space. We're going to see innovation, we're going to see breakthroughs, and hopefully we will preserve a livable planet for our kids and grandkids. That's what this is all about. Chip Franklin: Yeah, obviously, I know that China wants to change. I know the young people there... I read a lot of the blogs that come from around Beijing where you can't even breathe on a midday. But it's not just there. Obviously, as we see developing nations in Africa and South America, we want them to do it right. We want to be those leaders. Al Gore was talking about it 40 years ago and even though we didn't know what it was going to look like, and it's still hard to tell what the immediate future is going to be like, we do know here in the North County about fires. We know that these wildfires wiped out a town. They threaten it every year. Knock on wood, we didn't have it this year is bad. Yeah, right? I mean, what can we do before we get to that point that might be 20, 30 years away? What can the federal government do to help Northern California stem the wildfire issue? Jared Huffman: Well, look, it has been decades of mismanagement that have put us in this catch up mode on fuel load reduction and healthy forests and other things.

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• #56 | The Cost Of Poor Health and Tax Advantages of Philanthropy feat. Dr. Gregg Larivee & Les Winston

  Dr Gregg Larivee gives their insight on the cost of poor health, while Les Winston discusses the business philanthropy. Episode Transcript Intro: Welcome to the Practical Tax podcast, with tax attorney Steve Moskowitz. The Practical Tax podcast is brought to you by Moskowitz, LLP, a tax law firm. Disclaimer: The information contained in this podcast is based upon information available as of date of recording and will not be updated for changes in law regulation. Any information is not to be considered tax advice or legal advice and does not form an attorney/client relationship. Further, this podcast may be construed as attorney advertising. You should see professional consultation for your individual tax and legal situation. Chip Franklin: All right, welcome to Practical Tax with tax attorney Steve Moskowitz. I'm Chip Franklin and Steve, boy, I tell you, I'm excited about today's show because we cover a wide variety of areas, all which have at some heart of it, like most things, to do with the taxes we pay and what that means about our quality of life. And I mean, obviously with the extensions and the tax, even this has been a really busy time for you, this time of year. When you see people that are filing these extensions, I mean, I'm one of them. Well, what happens to people that they would file this late in the year? Steve Moskowitz: Oh, that's very common. And for example, we oftentimes tell clients, we advise them to file extensions because you know how I've talked about retirement accounts and how that's such a benefit? Cash flow. So what happens is you have with a lot of the accounts, you have up to the time of filing the return plus extension to set them up and fund them. So I suppose you have this situation: you're a business person, and this is a tiny little bit technical because it gets into the accounting and the tax. You've made a big profit on your taxes, but you don't have any cash because you spent your money on inventory, which is an asset on the balance sheet. So they say, "Well, wait a minute, I've made all this money on my tax return but I don't have any cash because I reinvest it in the business," and that's sitting there in inventory. So you say, "Well all right, that gives me an extra half a year to earn," and then the money that I earn, I can put into the pension plan on or before the due date, including extension. Again, that date varies depending on the form of entity and the plan you have. But that's a good reason to do it. Chip Franklin: Yeah. Steve Moskowitz: And then you legally greatly lower your taxes with money you've earned three quarters of the way into year two, that you're deducting from year one where most things you have to write the check in year one. This is an exception, that's one of many. Chip Franklin: Yeah. I think I've filed an extension for 20 straight years now. And it's not for any of the reasons you said, it's most- Steve Moskowitz: A lot of times you're waiting for documents from others. Chip Franklin: Right, and that happens too. All right. One of the biggest issues facing not just Americans but almost everybody in North America and in Europe, is healthcare and how it affects not only obviously businesses and individuals, but our society as a whole. Our first guest today is Dr. Gregg Larivee, I almost messed his name up, Dr. Gregg Larivee, and he's created the Integrated Medical Center in Florida and he's been treating NFL, MLB, PGA, and NBA athletes, plus people from all sorts of life for more than 20 years. And he is nice enough to take the time to join us here on Practical Tax. Doc, good to have you here. Thank you so much. Dr. Gregg Larivee: Thanks for having me. Chip Franklin: We had a great conversation before we came on about sports and I think sports is for many Americans, is an escape, but for many of these athletes, obviously it's something they can't escape as when they leave the sport later on and the injuries that they've had. But I think you can draw also a slight parallel for Americans too with the way we, and how we don't exercise and the things that we carry throughout our lives and in some cases, shorten our lives. I guess I want to ask a question, start out with a question for both of you. The societal costs that poor health inflicts not only on a personal level but to society as a whole, it's a problem for both individuals and of course businesses. Let me start with you Gregg, in your opinion, how serious is our national healthcare establishment and also the way that people eat and maybe don't exercise enough? Dr. Gregg Larivee: Yeah, I mean, I think as a society and as a workforce, we're unhealthy as a whole. We sit too much, we eat a lot of unprocessed food, we consume too much alcohol, and we don't exercise enough. The cost in terms of dollars, managing unhealthy behavior is astounding. The cost in terms of dollars, in terms of lost productivity is monumental, so all these things have an effect and a trickle down effect, which affects everybody from a personal level to different companies and organizations. Chip Franklin: Steve, obviously the money part, when you look at this for whether it's a large corporation or a small business, how do you treat an issue like this? If you're starting your business, you're bringing employees in and you and I had this conversation yesterday about information and the value of your health information across the board, it's a difficult balance, right? Steve Moskowitz: It is, and here's the way I'd resolve it. I think the employer should pay for healthcare. I pay for healthcare for my employees, I always have. But what you have to be super careful about is, in my opinion, you don't want the employer involved in the healthcare of the employee because then the employer gets too much information and then the employer says, "Well, wait a minute, now you have this condition and I don't think you're good enough to work for me," or, "I demand that you do this and stop doing that." How intrusive can that be? And then the employer says, "Well, wait a minute. Now this would really be good for your health if you did A, B, C, D, and E," and all of a sudden they're regulating your life. So the minute you say get involved, the problem is that gives them access to your, what's more personal than your health? Chip Franklin: Yeah, well, I mean sports franchises, they have a vested interest in what people do. In your experience Doc does for example, the Dolphins tell a player, you can't smoke cigarettes because your athleticism is a big part of your contract and we don't want you to do it. Do they have that kind of decision making abilities? Dr. Gregg Larivee: Yeah, I mean there's all kinds of clauses in the contracts from, for example, one of my players just didn't cut weight, so he missed one of his bonuses. So there's all kinds of clauses in contracts trying to manage players' weight and behaviors as well, I mean so a lot of guys are not allowed riding motorbikes or going skiing, it's a great way to tear up your knee. So these are organizations like any other company obviously dealing with big time dollars and they have a vested interest in the behavior of their employees. Chip Franklin: It's funny, I think about some of the baseball players and football players from the past, maybe before your time Doc, but I know Steve would remember. You remember a guy named Sonny Jurgensen? Dr. Gregg Larivee: Oh, of course. Chip Franklin: All right, Sonny had a pot belly, right? And Sabathia, the pitcher for the Yankees and he was way overweight, but he could perform.And I was not viewing him from the stands, I want to get that straight, but look at Babe Ruth's belly. But boy, he sure could hit home runs. Steve Moskowitz: And I was not viewing him from the stands, I want to get that straight, but look at Babe Ruth's belly. But boy, he sure could hit home runs. Chip Franklin: I wonder how heavy he really was because he was so athletic. And I think maybe that came along later on, and it's much more romantic to think of this fat guy being such a great athlete. He has World series pitching records in addition to 714 home runs, but looking at medical coverage, and I agree with you 100% Steve, that corporations should pay for it. But I also think that when they do, it says something to the employees and it's also in their best interests. Would you agree, Doc? Dr. Gregg Larivee: Yeah, absolutely. I mean, and the thing that is important, if you look at society right now, let me tell you this number, 42%. 42% of Americans are overweight. Wow, that is unbelievable. The top three most expensive chronic diseases to manage are heart disease, diabetes, and arthritis and the number one cause of all those three is being overweight. So I think we have to step in and encourage companies to implement not only the care, but also preventative type measures to stop these trends from moving forward. At some point, we have to step in and we have to educate. We have to educate people on how to manage their diseases, but also the lifestyle changes so the younger population that's getting into the workforce doesn't end up with all these types of chronic problems. And the other thing too is adding to that, is mental health. We keep on talking about all these physical ailments, but mental health is a big one as well. Chip Franklin: Steve? Steve Moskowitz: And I firmly believe in education is wonderful. We say, "Look, if you eat these foods, it's better for your health. And if you do this and abstain from that, that's terrific." But where it has to stop is that the employer doesn't get to mandate the well, you don't smoke. Now, again, I don't think there's anybody that doesn't know about the dangers of smoking, but if you mandate that you don't smoke,

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• #55 | Learning To Manage Growth and Productivity feat. Meghan Watkins

  Meghan Watkins of CEO Coaching International joins us this week to discuss the intricacies of managing your businesses growth and productivity. Episode Transcript Intro: Welcome to the Practical Tax podcast, with tax attorney Steve Moskowitz. The Practical Tax podcast is brought to you by Moskowitz, LLP, a tax law firm. Disclaimer: The information contained in this podcast is based upon information available as of date of recording and will not be updated for changes in law regulation. Any information is not to be considered tax advice or legal advice and does not form an attorney/client relationship. Further, this podcast may be construed as attorney advertising. You should see professional consultation for your individual tax and legal situation. Chip Franklin: Welcome to another edition of Practical Tax with tax attorney Steve Moskowitz. I'm your co-host Chip Franklin. That would be the host to my left or right there. You get it. I love talking about productivity because I know that there's a lot of different ways to measure that, right, Steve? I mean- Steve Moskowitz: Absolutely. Chip Franklin: Yeah. And as a business grows, obviously they want their people to be more productive. One of the things though about coaching and training employees is, are you ready for success? I mean, a lot of people, they're worried about what's coming around the corner, of the bad thing, but sometimes successes then comes, and you find out that you're just not ready for it. Well, joining us to start this show is somebody that does this for a living. She's a CEO of Coaching International with more than two decades in building cohesive teams, and she's very passionate about this. Meghan Watkins, it's nice enough to join us. Hello, Meghan. Meghan Watkins: Hey, good afternoon- Steve Moskowitz: Hi, Meghan. Meghan Watkins: ... [inaudible 00:01:14] Steve, nice to see you. Steve Moskowitz: Pleasure. Chip Franklin: Good. Thank you for being with us. Let's just jump right into that. I mean, because you both have a lot of experience in this. Steve has had many employees over the years. Your job has been to try to get employees to be top producers. But there's another caveat that too, you want to be happy. How is that, how do you achieve that balance, Meghan? Meghan Watkins: Yeah, I mean think it's really, I think that a lot over the last couple of years has really encouraged leaders to understand that really knowing their team, and taking the time to really understand what motivates their team, is really vital to the overall happiness. And for some that are looking for maybe the opportunity to work from home, that could be really something that's really important to them. And others really actually want to have the ability to work together in an office. And so what we found is typically that hybrid model is usually the most optimal, and sort of allows the ability to have a level of accountability with their team, but also give them that level of flexibility that a lot of people are really demanding at this point. Steve Moskowitz: That's what we have in our office. Prior to the pandemic, as a traditional law firm, everybody was under one roof. With the pandemic, we all had to go home initially for three weeks, we were told. And then when the pandemic dragged on, a lot of people got used to working from home. And a lot of clients said, "Wow, you mean I can just talk to you on the phone or your computer?" Just like we're doing now. Physically, where are you? Meghan Watkins: Physically, I am in Dallas, Texas right now, and I'm in my home office, but I also do have a shared workspace that I go to as well. And that really speaks, I think to, at the root of it, what we're all craving. We're all ability to have flexibility in our day to day. But we're also still humans that crave the ability to connect directly with others, and be able to interact with others face to face on occasion as well. So for me, it kind of gives me the best of both worlds. Chip Franklin: Have you ever read the Peter principle, you guys? Steve Moskowitz: Yes. Chip Franklin: Okay. Meghan Watkins: I am not familiar. I'm very intrigued. Chip Franklin: It's a book that's 65 years old. This is, it says that person will rise to their level of incompetence. And in essence, here's the perfect situation. You have a great group of salesmen, really sales people, really good people. So you want to promote one to a management. Well then they're no longer selling. And because they're so good at selling, and they see the ins... And everybody knows a great salesperson, the people that are not as good as the others, well they just become, they're a poor manager. They're no longer selling. So what they end up doing is they promote the people who aren't great salespeople, who are inferior, who aren't as good, to management positions. And then the salespeople resent it. And so you have this thing, and it seems to me it's like for you guys trying to understand this and define an answer here, I mean a nihilist would say, just promote the best person and let it all work out. And that's kind of how I look at it. I don't want to go too deep on that. I've hired people before from a 10 minute meeting. I look for the cues. Talk to them about their parents, talk to them about their goals, and try to get an insight. But Steve, you've hired dozens and dozens of people over. How do you solve the Peter principle problem? Steve Moskowitz: So the first thing is, this isn't real scientific, but probably, for me, would be gut feel. Chip Franklin: Well, social science is both of those. It's social and science. Steve Moskowitz: And also talking to people with what's really important to you. For example, suppose somebody says, "Look, what's really important to me is skiing on the weekend." Well, okay, so they're really happy Monday through Friday, but they're not going to be available for much things outside of traditional business hours. Somebody else says, "What's really important to me is producing the absolute maximum. And I'll be there day and night." Well, that person could fulfill a different role. Also in the, not just the hours they're working, which is part of it as lawyers, but also what do they like or dislike doing? You could have somebody say, I like doing A, B and C, but I hate X and Y. Well okay, is there something we can do to have you really concentrate on A, B and C. And X and Y, you know what, there's a guy sitting next to you. It's like when I started my practice, [inaudible 00:05:56]- Chip Franklin: Can I interrupt you, Steve? How do you know they don't like X and Y? Steve Moskowitz: They tell you. Chip Franklin: I mean if you're not a boss that allows that kind of communication, how do you know? They just do bad? Steve Moskowitz: You find out the hard way. Chip Franklin: Yeah. Okay. Steve Moskowitz: You'll find out. What I've always said with my employees is the worst thing you can do to me is lie to me. I'll eventually find out and we'll both suffer. If you tell me the truth, we could both avoid the suffering. And that's really worked out well. And the bottom line is that's so important because I started out, when I started my office many years ago by myself, and then I started hiring people. And I'm not so foolish to say that I know how to do everything or like everything. And I'd say, "Well, all right, I like doing this and that. And I don't like doing so and so. I'm going to look for somebody that likes doing what I don't like to do. And he or she can do that. And we'll both be happier and more productive." And think about it, if you have an employee that can spend a hundred percent of his or her time doing what they're best in, measure the productivity against another employee with equal skills that you force them to do something they hate. They do it because they need the paycheck until they can find their next job. Look at the productivity. Chip Franklin: Well can I ask you this, Meghan, and Steve too, I guess in a way. So how do you balance pushing teamwork but also rewarding individual accomplishments and achievements? Steve Moskowitz: So first you can have team meetings where you discuss things, and you say, "Look, I really hate to do X." And somebody says, "Well I actually like X." And you can shift as much as you can. And there's also practicality. Sometimes you have to do something that you don't like to do or hate to do for the good of the team, but can we limit it? Okay, is there a project where you have to do x? I know you hate X, but we really need it done and we need it done by next Thursday. But it's rare that we get a case like that. Chip Franklin: Were you doing this personally, Steve, or did you have an office manager doing this? Steve Moskowitz: I learned the hard way, Chip. Chip Franklin: Okay. Meghan, real quick. So is that a real problem about rewarding, talking about, everybody talks about the team, but then you see somebody, like I go back to my Peter principle thing, somebody that you think is not as good as me gets the job above me. That seems to me that when you grow, sometimes you grow so fast, you're not prepared and you make the wrong decisions here. How do you not make those wrong decisions? Meghan Watkins: to me to say that they are disappointed in someone's performance and that they're not meeting expectations. And then I will go back and say, "Can you show me the job description laid out for that individual?" And I'll take a look at the job description and I'll say, "Okay, what part of this is not meeting expectations?" And often they'll have forgotten about the job description. They don't even realize what's on that job description. They probably didn't even write the job description. And so truly the expectations that that manager has in place for their employee is often very much like this.

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• #54 | Thinking Outside The Box and When Personal Injury Business Meets Tax Law feat. George Nagle & Gregg Goldfarb

  George Nagle is a former Global Executive Director of Marketing with responsibility for a portfolio of over $352 million. He’s joined by Personal Injury Attorney Gregg Goldfarb who discusses where injury and taxes intersect. Episode Transcript Intro: Welcome to the Practical Tax podcast, with tax attorney Steve Moskowitz. The Practical Tax podcast is brought to you by Moskowitz, LLP, a tax law firm. Disclaimer: The information contained in this podcast is based upon information available as of date of recording and will not be updated for changes in law regulation. Any information is not to be considered tax advice or legal advice and does not form an attorney/client relationship. Further, this podcast may be construed as attorney advertising. You should see professional consultation for your individual tax and legal situation. Chip Franklin: Well, welcome to another edition of Practical Tax with tax attorney Steve Moskowitz. Steve, it seems that every week we have a couple guests on, and we're always trying to find a way to help viewers and listeners understand taxes. And as you've said so many times, and so well, taxes are a part of our life. As Ben Franklin once said, that and death are unavoidable. But it is unique the way that we find that they do come into our lives. Steve Moskowitz: It really affects every aspect of our lives, because money is so important. It affects, literally, the food you eat, the place you live, how you- Chip Franklin: Stress? Yeah, try not having any of it. Steve Moskowitz: That's when it's a real problem. Chip Franklin: Yeah. Steve Moskowitz: And taxes wants to take a big chunk of that away from you. So the amount you pay is directly going to affect not only your life, but how your family lives as well. Chip Franklin: Well, let's just jump into our first guest. Again, that's Steve Moskowitz. I'm Chip Franklin. This is George Nagle. He's a former global executive director of marketing. His portfolio had a responsibility of over 352 million, and he used a lot of creative innovative ways in a business to drive profit and loss. And we're always interested in profit loss, right? Steve Moskowitz: Absolutely. Chip Franklin: Yeah. Joining us right now is Mr. Nagle. Hi, George. Where are you right now? What part of the world? George Nagle: Hi. So I'm out of Lansing, Michigan, so the state capital here in the wonderful state of Michigan. Chip Franklin: Great state, yeah. Let's talk about this right out of the get-go, and talk a little bit about the idea of profit and loss, and how- Steve Moskowitz: I prefer profit. Chip Franklin: Right, right. Although it's nice to have losses on paper at the end of the year as well. Steve Moskowitz: The sweetest thing in life is a positive cash flow with a tax loss. Now you're talking my language, Chip. Chip Franklin: Let's talk a little bit about ... this goes back decades ... but the idea of positive thinking, and the other one too, thinking outside of the box. When you hear that phrase, I'm kind of curious from both of you ... Let me start with you, George. What does that make you think of when you think of thinking outside the box? What does that mean to you? George Nagle: So to me, that really means that people recognize that they may be a little stagnant and they feel a need for change. And Chip, the funny part about that is when you say that to people, they're like, "Yeah, yeah, we need to change." And then as soon as I say to them, "Great, who's going to change first?" Dead silence. And a lot of that comes down to ... When organizations are usually saying that, what they are lacking isn't necessarily a need for change; it's a need for better execution within the field that they already play in, and then they can bring in some different thinking, some breakthrough thinking, not necessarily thinking outside of their box. Because, Chip and Steve, the best present you can ever give a kid is a box, because they can make it anything that they want, and companies miss that. You can make your box whatever you want it to be. You don't have to be outside of it. As a matter of fact, being inside of it gives you structure and allows you to execute. Chip Franklin: Yeah. Steve, what do you think? That's a really interesting point. What's your take on that phrase? Steve Moskowitz: That's so important, because the whole idea of being an entrepreneur is you think things up. If you're in a box, somebody already did that; there's really not any money in it. Thinking outside the box, when you think of something that somebody doesn't, that's where you make the money. And how many times have you heard a friend ... somebody thinks up something simple. When you and I were infants, the pet rock came out, and how many people came out and said, "Oh, why didn't I think of that? My God, you take this little stone and people are paying you so much money for it." Because nobody else thought about it. And when you go to business school, they don't teach you, "Create a pet rock." That's creative; that's outside the box. Chip Franklin: Well, remember Jackson Pollock, who put just that white frame up with nothing on it? And he goes, "More people talked about that than all of my works combined," and that was the point. So, that's truly outside. And as a writer, if you told me to write 2000 words, I have the freedom now, because I know where I can start, where I begin, and how much is there. Speaking of numbers, when you're talking about this innovative way of thinking, Steve, how often does that happen in your practice, that somebody comes in and you see a brand new way that they can go with their income, their investments? Is that a common occurrence for people who come in [inaudible 00:05:08]? Steve Moskowitz: It is. And what I'd say is, it's not that I think up something new for each new client, but a lot of the things we do, the clients and their advisors never heard of it. So I'm doing something new for this client that I've done for a lot of others, and that's why I became a tax attorney after I was already a practicing CPA, because I wanted to say, "Hey, if you do X instead of Y, you can really save a lot on taxes." Look at the Fortune 500. Chip Franklin: Yeah. George, you've launched products in difficult times. It looks like we're in and headed for maybe possibly some more difficult times. Another bad day in the market this morning, and I don't know how much that ... It reminds me of 1978 when the stagflation ... We have the beginning of a recession, but we still have inflation. When you're going to launch something in a market like that, what are some of the challenges in the way you think and the way you approach that kind of period in this kind of time? George Nagle: So, there's two setups to that. So, the first setup is what many companies currently do. They see that, they start to look at where their costs are, and then they'll start to look at where their people are and try to reassess and spread them out and get a little bit thinner so that they're taking a defensive stance to whatever's coming. The other side of that, which is just some different approach or a different way to think about it, is instead of doing that, get into conversations with customers who are doing that. Find where they actually have value. And a lot of companies, Chip, will talk about how they do VOC, and they really don't. They just don't do it right. But when you can get to that value and bring them in as part of what you are creating ... and I don't mean just an ancillary phone call, I mean literally bring them in ... and get them excited, you'll have orders on the books before you ever launch, and then you don't have to worry about what the market's doing because you just created a new one. Chip Franklin: And that's funny, because this next question, Steve, is right down your bailiwick, which is, are there innovative ways to use capital to grow, or protect it in times that we might be- Steve Moskowitz: Oh, absolutely. And I remember an old story about a real estate agent who said they took all their capital ... brand new real estate agent, they were starting out in business ... and she spent it all on a fancy car. People said, "You spent all your money on a fancy car. What's wrong with you?" And she said, "I have to show the clients that I'm successful." And in her particular case, she became very successful and that worked for her. Or look at Mary Kay in her pink Cadillacs, or other things. And again, what you're trying to do is distinguish yourself. What ever sold you when a person came to you and said, "Hi Chip, I'm just like everybody else"? "Okay, what do you have to offer me?" As opposed to, "Hi Chip, I have something better for you than all the other people are offering you." Chip Franklin: Let me ask you guys, what do you think of this thought? Because this is kind of where I've come to in my life. I don't trust easy. I had a friend that was just telling me about a stock the other day, and it looks like in a perfect position to buy, and everybody's saying, "This is it." And my radar automatically flips on when ... If somebody tells me something incredibly difficult, but they say, "If you achieve it, you'll gain a reward," that I can trust. And in both your guys' fields, it seems to me that trust is such a big part of this. You're messaging innovative ways for people to grow. And in the word "innovative," obviously, nothing's new, but some things have a new coat of paint. For both of you, do you kind of subscribe to the thing that when somebody says, "It's easy," your radar should go up? Ask you first, George. George Nagle: So absolutely if I hear the word "easy," my radar is just off the roof, because I need to make the distinction between something being simple and something being easy. Simple concepts are often the most difficult to execute,

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• #53 | Understanding Profits and Guiding Your Business Through a Recession feat. Rocky Lalvani & Stephen Patterson

  Rocky Lalvani joins us to discuss the ironic twist that businesses need to focus more on profits and Stephen Patterson tells us how to guide your business through a recession. Episode Transcript Intro: Welcome to the Practical Tax podcast, with tax attorney Steve Moskowitz. The Practical Tax podcast is brought to you by Moskowitz, LLP, a tax law firm. Disclaimer: The information contained in this podcast is based upon information available as of date of recording and will not be updated for changes in law regulation. Any information is not to be considered tax advice or legal advice and does not form an attorney/client relationship. Further, this podcast may be construed as attorney advertising. You should see professional consultation for your individual tax and legal situation. Chip Franklin: Well, welcome to another edition of Practical Tax with Tax Attorney Steve Moskowitz. I'm Chip Franklin, and this is where we talk about issues surrounding taxes, and obviously that's a wide area, and it covers everything from individuals to multinational corporations and everything in between. And also, of course, you'll find this on our Ask a Tax Attorney segments, there are spaces in between that we try to fill in the cracks on the show, and Steve does a great job, and we love having great guests. Our next guest today is someone who can talk a little bit about what we love to talk about, which is profitability. And he's taught this to business owners for years. He teaches them how to ensure how they get paid and make a profit a priority. As a certified profit first professional, he implements these profit first systems and we'll talk about that coming up in just a second. Rocky Lalvani joins us here on Practical Tax. I'm laughing because I hope I got your name right. I didn't ask you in advance. Did I get it? Rocky Lalvani: You did wonderful, Chip. Thank you. Chip Franklin: Well, that's good because I took me a while for Moskowitz, but I don't mess that up anymore. Steve Moskowitz: You did perfect, Chip. Chip Franklin: All right, so let's talk about, you said the profit answer, man. Let's kind of jump in with a question, and obviously profit comes first in business. You can't stay in business long without a profit, but there's also growing pains, hard times and salaries. How do you balance that? How do you balance the need for profit with the people and everything else that goes alongside that? Rocky Lalvani: We have a simple saying, profit is a habit, it's not an event. And I think too often for business owners in the back of their mind, it's always I'll be profitable when, right? I'll be profitable when I hit maybe a certain dollar amount in revenue or I'll be profitable in three years. But if they don't have a plan to get there, then I think that's a major, major problem. Yes, we have to pay our bills, we have to pay our employees, but we also have to pay ourselves. And I think this is much more of an emotional issue than it is sometimes a numbers issue because the business owner wants to pay everyone else first and they kind of leave themselves to last. And that's one of the things we're trying to say, "Hey, you as the business owner also need to get paid and you need to get paid well for your efforts. You took the risk to start the business. You put probably in more time than anyone else into your business. And yet, why are you leaving yourself to last?" Chip Franklin: Huh. Steve, when you get small businesses approaching you for help and consultation and tax, obviously advice, are they usually starting out or are they switching from another firm? Or did they just decide to you bring in money and grow? Steve Moskowitz: All over the map. People that are just in every phase that you've mentioned and then some. Chip Franklin: And obviously that's a great point you made because some people just love the business so much. And I think of restaurants, they love having their friends. Steve Moskowitz: Yeah, that's where you really have to be careful because most people go into business to make a profit greater than they would make in wages. But the ones that go in, because here's what I've seen, somebody says, "You make the best souffle in the world." And he said, "I just love making those souffles." And they open up a little restaurant and they're making souffles and they're losing all their money. And I remember I had a client that, fortunately they asked me before they signed anything, and I looked at the restaurant they wanted to rent and the rent and I said, "Well, assuming you do multiple seatings in a night and assuming you work seven nights a week and assuming every seat is filled, this restaurant is so small that you won't even cover your rent. You can't sell this product in this space. It physically doesn't work." Chip Franklin: You guys ever see- Steve Moskowitz: You can't put a gallon of water in a pint [inaudible 00:04:27] container. Chip Franklin: There's a great movie, if you haven't seen it, called Midnight Run with Charles Grodin and Robert De Niro. It's a comedy. And De Niro keeps talking about wanting to open a coffee shop. And he's like, "No, you don't want to open a coffee. It's just a horrible thing. Everybody loses their money." But we're so inspired to have our own businesses. Steve Moskowitz: It's the American dream, have your own business. Chip Franklin: Right, but- Steve Moskowitz: And it turns into the American nightmare because unfortunately almost all small businesses go out of business and they usually take all their savings and everything they could borrow from friends, relatives, a bank or anybody else who will lend money with them. Now, I went into my own business over 30 years ago. I believe in it. And when clients say to me, "I am firm believer in going into your own business." But there's things you can do. For example, when I opened my first attempt, I had some money coming in on the side, I had a corporate job for a while. I was doing tax returns on the side and the business got busier and I couldn't do the corporate job anymore. So I was a professor at night, so at least I had some money coming in before I said, "Okay, I feel confident enough that I can rely on the business a hundred percent for earnings." And I was able to do it doing taxes. But you take a look at other things. Sometimes somebody's married and one spouse has the business and one spouse has wages. Sometimes they're older and they have a nest egg and they say, "Okay, I'll risk part of it." And some people just jump in and see what happens. Chip Franklin: Yeah, you know Rocky, it's funny because- Steve Moskowitz: Those of you, the ones don't pay their taxes. Chip Franklin: Well that, yeah, but it's funny too, the word profit for people that aren't self-employed often makes them feel resentful. This kind of that word has gotten an unfair shake in the last 30, 40 years. Why do you think that is, Rocky you? Rocky Lalvani: I think it come, we said- Chip Franklin: I mean, you must know what I'm talking about, right? Rocky Lalvani: I know exactly what you're talking about. I mean, we had that internal struggle when we market our company because it's profit first and you get people who look at you and go, "Oh, you're evil." But at the end of the day, if your business isn't profitable, how are you going to pay your employees? Chip Franklin: Boom, boom. Rocky Lalvani: How are you going to make the souffle? How are you going to pay the rent? Steve Moskowitz: And it gets even worse than that because that's what I was talking about before. People don't pay their taxes, they do pay the employees, then all of a sudden they have a horrible debt that they can't pay and they go out of business. Whereas if they said, "Well wait a minute, but before you get in the hole of signing a 10 year lease and not paying your taxes and having other debts you can't pay, to try to, they are not going to eliminate it. But you want to try to minimize those risks and yeah, you do have to pay your taxes and you do have to pay your rent, but could you get a best possible deal? What can you do?" Chip Franklin: A lot of people, a lot of small businesses get in trouble by not paying their taxes and I mean not a sort of a, they don't do it with the evil intent, it just happens. They get to a part where they've overextended, how do you save for taxes and still make that money work for you? And that's a question for both. I'll start with you Rocky. Rocky Lalvani: So what we do for our owners, as soon as money comes into their business, we have them set a percentage aside for taxes. Steve Moskowitz: Perfect. Rocky Lalvani: So hopefully they've sat down with the CPA and they've projected, "Hey, if this is what we do this year, this is about what our tax bill is. So we know the percentage." Whatever that percentage is, every month we have them take that percentage and we put it aside. So it builds a little bit of an emergency fund, it builds a little bit of cushion. And when the CPA calls and says, "You owe taxes." They look at their tax account and they go, "Okay, I can cover it." And this is really weird, but what business owners tell me is number one, it takes away so much anxiety because they're like, "Whatever my CPA tells me, I feel confident I have the money to pay it. And I don't feel stuck over that." So I think that's a big part of it. And then the second thing is they're just proud that they have the ability to write that and stroke that checkout and that they don't have to worry about it. Chip Franklin: That's a great point, right Steve? Steve Moskowitz: I couldn't agree with Rocky more, and this goes back to what you and I have talked about before, it's the old envelope system. Chip Franklin: Yeah. Steve Moskowitz: And what I say to clients is, "Look, you have a minimum of three checking accounts,

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