Business Innovators Radio - Interview with Linda Jensen Principal and Owner of Heart Financial Group Discussing Exit Planning Tax Mitigation

Episode Date: March 24, 2024

Linda has been self-employed for her entire life. A successful financial advisor since 1994, she has enjoyed all aspects of entrepreneurship, especially problem-solving, sizing up dilemmas, and working through complexities with creative solutions. She is a lifelong learner. In addition, she has a passion for establishing a good rapport with business owners and clients helping them access a wide range of resources. “Business owners are in a lonely place,” says Linda. “I want to develop a relationship with the business owner, offer counseling, and serve as a referral service.” Linda began her career in 1994 with Prudential Preferred Financial Services; for three years Linda was an agency leader in Tacoma, Washington.Since starting her own firm in 1997, Linda has enjoyed working with individuals and business owners helping them achieve their financial dreams and goals. She is an expert in all aspects of retirement planning.Linda has lectured widely on financial topics to both the general public and business professionals. She is passionate about helping business owners leverage corporate cash to create benefits for the owner(s), and key employee(s) and to identify estate-planning solutions.Linda calls the Pacific Northwest home. She married her college sweetheart. She and her husband Brad have two children and five grandchildren. Linda loves learning, reading, hiking, sewing, and cooking.Learn More:https://www.heartfinancialgroup.com/   https://www.LowerYourTaxesToday.comInvestment advisory services are offered through WealthWatch Advisors, an SEC registered investment advisor. Wealth Watch Advisors and Heart Financial Group are independent of one another. Please note that the registration with the SEC does not guarantee the success of investment advice.Influential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-linda-jensen-principal-and-owner-of-heart-financial-group-discussing-exit-planning-tax-mitigation

Welcome to influential entrepreneurs, bringing you interviews with elite business leaders and experts, sharing tips and strategies for elevating your business to the next level. Here's your host, Mike Saunders. Hello and welcome to this episode of Influential Entrepreneurs. This is Mike Saunders, the authority positioning coach. Today we have back with this Linda Jensen, whose principal and owner of Hart Financial Group, and we'll be talking about exit planning and tax mitigation. Linda, welcome back to the program. Yeah, thank you, Mike. Hey, you are welcome.

I'm happy to chat with you about this because I think this is such an important topic like we mentioned in our previous conversation. So many business owners don't know what to do about the exit planning. And a huge consideration personally in retirement is tax prep, maybe making sure that you're handling your taxes the right way, not the preparation of it, but preparing to pay taxes in retirement. So the same thing goes for exit planning. when you get ready to exit your business, sell it, or whatever the decision is, whatever that option,

they're going to be tax mitigation strategy. So talk a little bit about the significance of that tax planning in the overall exit strategy for a business owner. Yeah. And like, really, the first aspect of exit planning is to increase the value of the business. If you increase the value of the business, you're going to increase the profitability. And if you increase the profitability and the valuation, when you are ready to exit, you will be able to get a higher multiple on the sale of that business. And so tax mitigation actually is a great way to both increase the profits, the valuation of that business.

And so with my partners, if a business employs all of the strategies, we can help them double their profits within two years. In fact, over the last 20 plus years, we've saved $3.5 billion in tax dollars. That's an interesting correlation because as you were describing it, I was thinking in my mind, okay, tax mitigation is lowering your tax bill, but you just mentioned increasing the value of the business, but that's different, but it's not. Because if you see it before and after and go, hey, last year we paid X number of dollars in taxes, this year it was reduced by 30, 40%, whatever that number is, that makes that business shine. And the value is more than just perceived value.

It's actual value because a new person coming in to buy that business goes, oh, my goodness, look at that profit margin because you're paying out less taxes. Yeah, and I'll give you a good example. We have a program that mitigates income taxes. The requirements are the business must be privately held, have at least a minimum. of a dozen non-related employees, and the owners need to be paying at least a half a million dollars in taxes. We can eliminate, Mike, 80% of those taxes. So let's just do the math on paying $500,000. That's eliminating $400,000 in tax dollars that can be used for the owners or plowed back into the business.

I mean, that's a staggering statistic. And I think if someone heard that and said, okay, if that's even a stretch, even if it's lowering it by 20%, that still is 100,000 of the 500,000. But 20 to 40%, 30 to 40% is staggering. And yeah, like you said, that can go back to dispersing to the owners. That can go to capital improvements for, oh, we need some equipment. but the point is it increases that cash flow and the books look that much better for that business valuation calculation.

Absolutely. Another program we have is something called a wellness strategy. You know, employee retention is really important, especially nowadays, right? It is making sure you're keeping the right employees for the job. And part of that wellness program actually provides benefits paid for by the U.S. government, including permanent life insurance. That's really fantastic. There's also aspects of the wellness program that are going to help that employee, their additional benefits for them, like mental health benefits, or, you know, if they have a family member, they get sick. But the FICA tax

savings, the payroll tax savings, are $500 per employee. So right now we're implitting one of these plans for business that has 600 employees. Just the payroll tax savings a lot. loan is $300,000 every year. It's a $5 to $600 payroll tax deduction for every employee every year. And we can lower workers comp by as much as 50% and medical insurance premiums by as much as 20%. And so these are huge savings for a business, Mike. So that calculation right there you mentioned, that business has been paying that amount of FICA taxes for years and years and years because that's what they do. We have this many employees.

We pay the tax. We move on. You're saying by putting this wellness and this program into place, it's going to make that much of a savings in that example, $300,000, purely to their bottom line, meaning, you know, oh, I can help you increase your revenues by $300,000, but now I've got to go and do more work and do more this and pay taxes on that $300. No, you're saying by not paying as much in FICA, you are saving 300. Like Ben Franklin used to say, a penny saved is a penny earned.

That's 300,000 of cold hard cash, pure money to use in their business. Yeah, and let alone, you know, medical insurance premiums are so high. Being able to save as much as 20% in medical and 50% for workers' comp, these could be enormous savings for that business owner, Michael. And that benefits, all these things we're talking about, right there in this example benefits the business, but talk a little bit about how that wellness program benefits the employee because it's not just like the employees rolling their eyes going, oh, one more thing we got to do or fill out. They get benefits, right? Yeah, I mean, permanent life

insurance, Mike, permanent life insurance builds cash value. So, and that's, that average is a $100,000 death benefit per employee. And what's really fantastic is that the business does, doesn't have to write that check. That's actually a profit paid for by the government. Wow. So I know that we've talked in the past about having key person insurance and buy-sell agreements and things like that. And that permanent life insurance is a tool that can be considered.

You're saying in this scenario, you're not even tapping the owners on the shoulder going, let's set it up and the premiums will cost you X. you're saying let's set it up. The employee gets the benefit of this, and the government is going to pay this on the business's behalf. Yeah. And I will tell you, you know, for our audience here, if a business has less than 100 employees and they have a 401K, the government doesn't even recommend that a business of that size

have a 401K. And Mike, the reason is because of the cost to have a 401K. And Mike, the reason is because of the cost to have the third party administrator and all the liability that that business has. There are an awful lot of class action lawsuits into the billions of dollars for companies that have 401Ks because the businesses have found themselves liability for the performance of those plans. And so if a business has less than 100 employees, we can basically eliminate those admin costs and provide plans. where they've got a good 401 plan for the employees, and they actually are getting bonuses on all the contributions too. So that's another little added aspect we do for those types of employees

that have 100 employees or less. And so in that scenario, when there's a business with 72 employees, for example, and there is not a 401K, or maybe there is, that's just one way that you're taking the admin off the liability off the business. They love that. It's saving money. Now the employee gets a better plan because maybe they didn't have a 401K and now they've got one.

And then also with some of these permanent life insurers like you mentioned paid for by the government, I'm reading between the lines thinking, okay, if this change is implemented for a business, these employees are loving it so much because they appreciate how they're being treated. And that, wouldn't that tie to job satisfaction and increase, you know, that's a employee retention, right? Yeah. Employees, I mean, I'm an employer. Believe me, my key employees, I do not want to lose them.

I pay them well. I give them bonuses. So, you know, I really very much appreciate the fact that businesses sometimes are struggling trying to keep really good employees. And so this is an area where we can definitely step up. and offer some assistance. And that's an intangible, in essence, you know, that job satisfaction. But it actually becomes a huge HR benefit because when a key employee leaves, I know that

statistically, it costs a lot of money, actual dollars, when a key employee leaves because you lose momentum and production and whatever they were doing. And then you got to hire someone and then it takes time. So all of these things you might look at like, ah, it's just work to do. But if you can save a bunch of money and make your employees happier, now they're staying longer. And in fact, while they're staying longer, aren't they doing better work as well? And now your output and your, you know, company's reputation is being improved as well. Absolutely, Michael.

You know, all of this is really tied together, isn't it? To have a really good workplace and have basically your employees working like a team. Yeah. They're happy. And the wellness program also provides some benefits in that area because life happens, doesn't it? You know, an employee might have a parent who's sick or a child who's sick or they might have some mental health issue and they need other resources.

So that wellness program actually provides additional resources that go beyond the medical insurance that an employee has. And so it's really a win-win. And those added benefits are not. not costing the employer a dime, you see. So they've got premium savings for medical and workers' comp. They've got tax savings on the payroll side, right? And then they have added benefits that are provided at no cost. Now, and when you think about exit planning, you know, exit planning, I think every business should really think about that aspect because things happen, life happens,

increasing the value of the business, increasing the profitability of the business, is also going to increase the multiples of that business. And when that business goes to transition, if they own real estate, typically when you own real estate, commercial real estate, you depreciate it down to nothing, Mike. And when you sell it, you have to recapture all of that depreciation and pay capital gains tax. You also have to pay capital gains tax on the sale of the business. And so that's another area that we can basically mitigate capital gains tax.

That's another huge point because while your noses to the grindstone churning out your work, you're told by the tax professional depreciate that building and you're like, okay, good, good, good, I get the benefit today. But you don't really realize that then when it depreciates all the way down and you sell, all of a sudden it comes back like a big wave to hit you. So if you can address that ahead of time, now all of a sudden it's just a gentle wave. It's not a crashing, you know, a wave tsunami. Yeah, and we have different ways to mitigate taxes.

We have a variety of strategies and programs, and it really depends on the circumstances. And so, you know, depending on what's going on, how much capital gains tax is going to be paid, you know, when the property was purchased. and, you know, we have a questionnaire that we need completed. And believe it, and I'll tell you, capital gains tax, I think, Mike, is definitely on the radar of Congress. Back in 2021, Congress was debating raising the top rate of 20% to 39.6, almost doubling capital gains tax. And so the top rate is 20. I'm in Washington State. Washington State actually passed a law.

for capital gains tax. And so, and by the way, the U.S. Supreme Court let it be with upheld. And so not only could the business be subject to federal capital gains tax, but in Washington, you could be subject to a Washington state tax. This gets pretty expensive. And so, so we can actually mitigate those taxes. In fact, one of the programs, if you have a lot of taxes to pay, we could get that down to one percent cost. And what's really cool, Mike, is that the owner gets to keep the proceeds of the sale, they'll never pay the taxes, and their heirs won't either. The other way to do this is something called a 1031 exchange.

But if you do a 1031 exchange, you still own the real estate, you see. So for a lot of people, they would rather cash out and use that cash for retirement, for example, and to maintain their lifestyle. So we have strategies that can really be very helpful in that area. So many of these things you're mentioning reminds me of the concept of money falling through the cracks, meaning you're already, you know, you wake up and you go and you grind out and you at the end of the year, you finish up and you do your taxes and you look at the books and then, okay, it was a great year and you just keep paying and doing and money comes in and money goes out. But you don't really take time to grab that microscope or magnifying glass and go, are there ways that we're paying money out that we don't have to? And so many of these, like the 300,000 in BICA savings and all of these things, you're already paying these. And the thing that I find intriguing is you're not saying I'm a business consultant that can help you increase your revenue so that you make more money.

Well, if that's the case, you might still have money falling through the cracks. You're focusing first on plugging up those cracks as much as possible, which then gives you the same benefit, if not better, more cash flow to use the way you want. Yeah. And another thing we offer is something called an R&D research and development tax credit. And most businesses have no idea that they could qualify. Even a dentist could qualify, believe it or not, Mike, from R&D tax credits. And technology companies, software companies, manufacturing companies. So there's a lot of industries that could qualify for an R&D tax credit that they can get, you know, let's say now,

or on an ongoing basis. And then some businesses can give you an example, like a car dealer, they can get benefit from LIFO and cost segregation. And that's other tax benefits. And then another area are businesses that do, they sell, let's say, to multiple states. They've got, you know, they're doing business in maybe three to five or more states. sometimes there's a problem with the different state taxes that have to be collected. So we have a partner that can come in and they can for compliance, they could do an audit,

and they can see if it's possibility to save those businesses some tax dollars. So definitely these are additional areas that we have good resources for because our entire focus is saving businesses, either expenses or taxes. And when we do that, we're going to increase the profitability and the valuation and the multiples for the eventual sale of that business. That is so powerful because you're not just focusing on bringing in top line revenue. You're focusing on, let's plug up those holes, which in the calculation of please value my business, the multiple goes up so much because it's a nice tight. The books look good. The expenses are improved.

The taxes go down. and when you keep mentioning these taxes and we can mitigate and mitigate, you're not saying eliminate because that's impossible, but you're mitigating. You're lowering them as much as ethically and legally possible. And I think what's astounding is I've heard statistics of the tax code is like 50,000 pages. Who in the world as a business owner would know what's in them and how it could benefit them? So when you're pointing to some of these things and you're saying it's right in the tax code, we can do it this way and this way. that should help a business owner to sit up and take notice. Absolutely.

And even estate taxes, those are death taxes. So when you're dead, you've been taxed your whole life, the government comes in and they're going to tax you again. We can help mitigate those taxes as well for estate taxes. And I will tell you, Mike, I think probably the big question your audience has right now is, is this legal? And I'm here to tell you, I've been at this for 30 years. and I've never had one complaint for any recommendation that I personally made,

and I would never, ever, ever do anything that's not legal. So these strategies that I'm describing have all had at least a 20-year record, a 20-year record, okay, of working, and they're based on IRS code. And also, we provide audit protection for any of these strategies. In fact, the team of lawyers that we use were high, by the IRS, and for 12 years, they prosecuted businesses that were employing abusive tax strategies. And these guys had 100% tax record for their prosecution. And so they've come alongside of us now.

They've evaluated every one of these strategies, and they're providing the legal recourse for any auto protection for our clients. That's pretty powerful because this same group that was like the sharks to, you know, put the clamp down on people. You're saying, okay, does this pass mustard? And they're looking at it going, yep, we're good, we're good, we're good. Yeah. And I think that, you know, if I was a business owner listening to this, that would be my big concern. This all sounds too good to be true, doesn't it? Yeah.

But when there's history and legal precedent of, you know, like you mentioned, these. people that were auditors, you know, going after people, now they're reviewing the strategies from the other side of the table and they're given the thumbs up. That's a, that's a good piece because I think that a lot of times people like, yeah, I'm just too worried that I'm crossing a line and that's not the case. Exactly, Mike. And that's a really important aspect, you know, to be able to give comfort to that business owner. And you see, by employing these strategies, we can literally help double the profits of that business within two years. Wow. Well, Linda, as you've said, if a business owner is listening to this, wondering if this is beneficial, too good to be true and would like to have their profits doubled in the next two years, what's the best way they can learn more and then also reach out and connect with you?

Yeah. Well, our office phone number is 360-908-0612. And I would encourage you to check out a website. It's lower your taxes today. com. And be honest, Mike, I don't think there's a website out that has as many tax strategies as we've incorporated on that website. Wonderful. Well, Linda, thank you so much for coming back on. It's been a real pleasure talking with you. Yeah, thanks so much, Mike. You've been listening to Influential Entrepreneurs with Mike Saunders. To learn more about the resources mentioned on today's show or listen to past episodes, visit www. www.influential entrepreneurs

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