Business Innovators Radio - Mark Nicholas – Managing Partner of Insight CPAs & Financial, PLLC and Strategic Navigators Accounting, PLLC

Episode Date: November 22, 2023

Mark Nicholas CPA, CVA, CFE, CFF, MAFF quite literally has more letters after his name than in his name. He is a certified fraud examiner and the Managing Partner of Insight CPAs & Financial, PLLC as well as Strategic Navigators Accounting, PLLC. Mark joins us to talk about the history of taxes in the United States and the direction that he believes taxes are heading – encouraging business owners to find the proper guidance to reduce their tax burden. After gaining decades of tax accounting expertise, Mark met SNI CEO, Josh Sherrard, through a shared client and has since become a close business partner of Josh and the Strategic Navigators network.Learn more about Mark and his accounting practices: https://insightcpafinancial.com/about-us/https://www.stratnavacct.com/aboutThere’s an old adage that says you should pay your fair share of taxes but not a penny more. We believe that to be true.We help business owners and high-income earners realize their savings by deploying time-tested tax strategies with decades of case law to back it up.Each strategy must pass through our sift of being legal, moral, and ethical.Get your complementary analysis to see how much you overpay on an annual basis. Click the link below to schedule your complimentary analysis.Learn More: https://www.stratnavinc.com/Schedule Call: https://www.navigatesni.com/NAVIGATEhttps://businessinnovatorsradio.com/navigateSource: https://businessinnovatorsradio.com/mark-nicholas-managing-partner-of-insight-cpas-financial-pllc-and-strategic-navigators-accounting-pllc

Find the ways that you can lower your tax bill. And frankly, you're actually helping your country in a better way by having more money in your pocket that you spend generating, sharing money in the economy, which actually helps the economy more than paying more taxes. Hey, guys. Welcome back to the Navigate podcast. This is Mitch Solanti. We're sponsored by Strategic Navigators where we save entrepreneurs 40 to 60% on their income taxes. I'm your co-host, Adam Dirkson, and on the show today, we have none other than the Mark Nicholas. He has more letters after his name than in his name, not your average CPA. He's a forensic CPA.

He's a fraud examiner and business valuation expert. Mark, welcome on. Thank you for having me today. Yeah, thank you. So we could go into a lot on your background and your qualifications that could probably take up this whole half-hour podcast. But can you just give us a little summary, who you are? and put some fun things in there. What do you like to do?

As a CPA. I am a CPA. Taxes are fun. That sounds funny to say because usually we hate taxes, but the field is fun for me and my team. We like to help people figure out ways to reduce taxes. More of that, we'd like them to increase their cash flow because that's really what drives wealth.

And managing your taxes and keeping them low is one of the things that drives cash flow and drives wealth. So the podcast is based off of the navigate the book that the owner of our company Josh Gerard wrote and you did the forward in it. Mitch, do you want to read that little part there in chapter one here to start us off and we'll ask some questions. Yeah, Mark, I want to read a quote by Judge Lernandhan and just hear your thoughts on this. So for those who are listening, he was an American jurist, lawyer, judicial philosopher and the most famous judge that never became of Supreme Court justice. So the quote goes, Anyone may so arrange his affairs that his taxes shall be as low as possible.

He is not bound to choose that pattern that which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again, the courts have said that there is nothing sinister and so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor, and all do right, for nobody owes any public duty to pay more than the law demands. What are your thoughts there, Mark? That is a great quote, and that is also in practicality how it should be viewed.

Pay what you do owe, but certainly only pay what you need to owe. There's no responsibility to go beyond that. Like Mitch said, that was a quote from Judge Lernerin, that was from 1872 to 1961. He served as a famous judge, but something a little more modern. I wanted to bring everyone, a lot of people know, Grant Cardone, real estate guru. I have a picture here that I pulled up that he, I think is on Twitter or Instagram here. He said, so let me get this straight. I'm paying taxes on my wages, then paying sales tax to spend my own money,

then paying income tax on money that was already taxed. Then when I die, my kids pay the death tax on my money that was already taxed. And then people hate me for doing everything I can, to reduce my taxes. So he got some heat from that, but I think that resonates with a lot of business owners. He's exactly right, though. That is how our tax system is built. Yeah.

One of the things you have to understand about the tax system, it is not designed to be fair. It is designed based on moving the economy in a direction the government thinks it should move, so trying to influence the economy, as well as for political reasons. Both sides do it. it is about votes to some extent, and often it's about special interests. Could be for politics. It could simply be for economics, but it is not designed to be a fair system to all. Okay, with that, Mark, can you go a little bit into how taxes have evolved from all the way back to the inception of the United States to today and just give us, I know that's a lot, but give us a little bit of an overview of what the journey has looked like?

So initially it did start out as just kind of a simple tax that people pay on certain items of income. So even at the beginning, it was not a tax on everything. There were exceptions to it. What's happened over really since 1913, which is about as far back as I'm going to look, what's happened since then is there's been all kinds of, of tweaks to the tax code and tax system for all different kinds of reasons. Some selfish and some truly trying to help the country. Certainly during times like World War I, World War I, World War II, Korean War, Vietnam, those are times where the tax system is used in order to get more

revenue to pay for things like that. In great times of economic growth, you look back, sometimes actually of taxes were lowered to spawn economic growth. The most recent... Yeah, I know. Ronald Reagan's time as president, especially his second term, he lowered tax rates incredibly. They went down from the 70% range down to the roughly 39% range. And most people are paying much lower than that. What happened then?

All of a sudden, the economy boomed. There's more money and taxpayer. there's pockets. There's more money to spend, grow your business, spend on whatever you want to do in your life. And that's part of navigating the current tax system. Find the ways that you can lower your tax bill. And frankly, you're actually helping your country in a better way by having more money in your pocket that you spend generating, churning money in the economy, which actually helps the economy more than paying more taxes. Mark, a second ago, you just mentioned 70% tax range.

Speak to that a little bit more because I think most people listening, most people today probably don't have much of an idea of what taxes are like today versus how they've been really in the not so distant past. So going back to the 70s, which is where I was in school and becoming aware of taxes and such, we're at a 70% top rate. Now, granted, the average taxpayer was not paying 70%. They were somewhere in the 15% rate. But the high end was 70.

So you had high income earners paying 70%, which, guess what? High income earners are often the people that are putting the most money in the economy. They're the entrepreneurs often. They're the ones building businesses to employ people and such. and we're taxing them at the highest rate. Well, it just stifled the economy. It was terrible back in the 70s for any of us that remember that.

Today's high rate were at 37%. I still think that's too high, but it's much, much better than 70%. Why do you think that's too high? Just for that reason, you're punishing those who have the money that spend it on new businesses, on creating jobs, on helping to cause new investment and new business developments,

real estate ventures, whatever it is, if they have less money to spend because they're giving it to the government, they're going to pursue business interests in a smaller way. Yeah, imagine for some very wealthy people, too, there's more incentive to leave the United States and put those dollars elsewhere, whereas obviously as Americans, we'd rather have that in our economy. You're exactly right. There are certainly many offshore options for people. Fewer today than there were in the past. But people look to that. Some people do to find offshore investments and such. Now with that comes some more risk. So, you know, if you could create the environment within the borders of the U.S. that creates a stronger reason to invest in the economy

me here. I think that's better. Nothing against supporting the other countries. It's just a little bit less risky with things that may be volatile in other countries. Mark, can I take a step back? One of the first things you said when you talked about how this was shocking to me, just to hear you say it, that the tax code is not fair. And the reason I want you to expound on that a little bit is because one objection that I get when I'm talking to potential clients, business owners, to do a complementary analysis to see how much I can save them on their taxes, they say, you know what? I don't mind what I'm paying the taxes.

I'm paying my fair share. Can you speak to that a little bit on what the fair share is? And, you know, like you said, the tax code is not necessarily fair. So, for example, there is this thing called child tax credit. and appendicare credit. So two things that benefit those with children are those two tax incentives. Just simply because you have children and or if you pay for daycare, you get certain reductions in your overall tax bill if your income is at a certain level.

So not everyone in the country gets that benefit just because they have children. It all depends on your income level. You can have too little income and you can have too much income to qualify. So it benefits a certain niche of taxpayers and a dozen others. You can take the high income level of things. Just for the fact that the lowest income tax bracket is zero. So some people at a low income pay zero. Some people are at a 15% bracket.

And some people are at the highest bracket of 37%. So they make more. They may work harder to make more. yet they have to give up more to the government just because they worked harder and made more money. On the other hand, there are about seven different tiers of tax brackets. I just mentioned the three just to give you an idea of the range of tax rates out there. Mark, when we started the podcast at the very beginning, you said taxes are fun. They're fun for you and they're fun for your team.

Can you give an example, give us a story of a client you've worked with, you know, probably a business owner who you've gotten to go on that journey with them from, oh my gosh, they were paying such a ridiculous rate in taxes to something that they didn't think was possible. So a lot of tax accountants like us enjoy puzzles. We enjoy problem solving. And so the tax code is one big puzzle. You have to find where the pieces fit based on the scenario you have of the client in front of you. So a client has a single business, but in today's world, taxation involves often multi-state issues. You have to figure out the rules in each state and how to structure all the things that this business does to, number one, make the most money they can make.

Number two, pay the proper taxes to each of the different jurisdictions. It's a puzzle. Navigating the tax code and all the different gray areas and all the different loopholes that only apply to certain people in certain situations, like the dependent care, like the child tax credit, like many other things in the tax code, you have to find the right thing for the right client in the right situation, and then, of course, make sure you get the information and report it correctly in order to minimize the taxes, certainly to pay the fair share as well, but also to minimize it. There's a lot of exceptions in the tax code that let you lower your tax bite, and yet it's

kind of hard to find some of those exceptions. So again, it's a puzzle and it's a search and it's problem solving. Why is it hard to find? And why, like when certain people hear that, I think a lot of people who probably don't have a ton of education around taxes, just they think, oh, a CPA is a CPA. and they're all going to do taxes relatively the same and they're going to figure it out. Can you kind of break that myth for us a little bit and talk about why it's harder to find some of these things and put that puzzle together for a client?

Yeah, there's none of us CPAs that know the tax code inside and out, federal, level on all the state city tax codes that are out there. You have to be able to research, understand the situation, and know all the different scenarios that exist. There's thousands of them. And there's no magic book that tells you do this and this circumstance and do that in that circumstance. There's all kinds of tax laws on the books that benefit certain pockets of people, even certain geographies. If you live near river development areas, there's certain tax credits that have been developed to help people that are in those types of areas.

If you're into certainly something in the environment, there's all kinds of tax. benefits if you're doing something that benefits an environmental concern that the government agrees it's an environmental concern. So you've seen a lot of those in the last 20 years. Those are just a couple examples of thousands of tax. I won't call them loopholes, but they're truly just tax laws on the books that people don't know about. So Mark, for the listeners, anyone that's a business owner here, maybe their blood's boiling a little bit talking about, they're thinking about that big tax bill or that quarterly bill that they have to pay. And maybe they go to their CPA and say, hey, is there anything else I can do

to mitigate my taxes? And the CPA says, no, maybe that's a red flag. How can you talk to us a little bit about how you are different from the average CPA? I've heard you call yourself a cash flow accountant. Talk to us a little bit how that's different from a typical CPA that you see in a lot of clients that move over to your firm? So first and foremost, most CPAs who are doing taxes, they're dealing with 85% of the people that all fall in the same bucket. They have W-2 jobs. They get a W-2 from their employer.

They might own a house and have mortgage interest and real estate taxes and some charity contributions, maybe a little bit of interest. A very vanilla, just mainstream type of tax return. that is the majority that's out there. So most tax accountants really only focus on that typical 85% of the country that their returns are all the same. So it's the remaining ones that have unique situations. They may have multiple businesses.

They may have businesses in certain industries that have all kinds of tax laws written specially for them or rules written specially for them. or rules written especially for them that they have to follow. So most accountants don't work in that area. It's a smaller number that work. And those are the type of clients that we work with are the ones that have the more unique situations, the ones that often take a little bit of research to say, let's find the right place where you fit and we can find the best benefits for you. Again, the puzzle.

We're looking for the right pieces to fit together for an individual client situation. not just for the average taxpayer out there. So the business owners that are out there thinking, you know, is it ethical to lower my or reduce my income taxes? What do you say to that business owner? I'll go back to the quote that Mitch read at the beginning. It's absolute by the judge. It's absolutely ethical.

Nothing says you need to pay more than what you owe. You need to pay what's required, but the rules are written on purpose. to create certain benefits and certain requirements in the tax code and in what we pay. And they're written for a reason. So you know what? If you are a parent and you have children, you could certainly not claim your children on your tax return and pay more tax. Is it fair necessarily that just because you had children, you get an extra credit? Well, in my mind, not necessarily fair to everybody because of that.

A lot of people don't have children. or the children are grown. Is that necessarily fair? No, but for whatever reason, Congress decided that we're going to benefit families with young children. And so they created this. You should take advantage of that. You have a right to take advantage of the credits that are given to you because you're a parent.

Nothing wrong with that. Nothing wrong with a business owner taking advantage of the deductions they can take. under the tax code. It's just that a lot of those deductions are hidden. They're just not out there for the average person to find. Earlier, you talked about how not every CPA knows the tax code front to back. There's a lot of publications and everything in the tax code. You like puzzles. Can you tell us how big is the tax code? If it were a book, how many pages does it have? I do not remember that. I should know that, but the thousands and thousands of pages that it is. And what people, when they quote the number of pages, they don't realize all the case law that helps define the tax code. So it's not just about what's written

in the literal code. It's then there's so much gray area and so much area for interpretation. Then legal cases that challenged various provisions of the tax code actually governed the day in a lot of areas and not the tax code itself. So you have to be a student of not being necessarily an attorney, but you have to be a student of the law and be able to read tax court cases that go all the way up to the Supreme Court and everything in between

and understand how they impact whatever issue it is that you may be looking at for a given client. So it goes far beyond the tax code, which you're now into... frankly, millions of pages if you were to print everything, tax law cases that impact the tax code. So that's where it helps to have a tax attorney on your team when lowering your putting a tax plan together. Oh, 100%. There's not a lot of tax attorneys out there. We refer to, refer to tax attorneys. They know more about the intricacies of the law and how it applies to the tax code than even us CPAs do.

It's an extra area of study and practice that they have. It is absolutely wonderful to have a tax attorney within your referral network. So you mentioned that the tax code is written with a lot of gray area, but it's governed by case law. Do you think the tax code is written purposefully with gray area? And if so, why? In most cases, I would say no. It's written with intent to solve a certain problem. or create a certain outcome without thought as to far-reaching effects.

Yeah. And so then it gets challenged. Sometimes it's just a stupid tax law and somebody decides to challenge it. So that happens as well. Mark, we talked a little bit about the history of taxes in the U.S. We talked a little bit about taxes today. can you give us an idea of what your prediction is for what taxes will look like in the future going forward, especially with a climbing national debt and some other factors that would potentially create higher taxes in the future? So there's no question. Biden, when he's running for president, made it very clear he was looking to raise taxes on the wealthier, $250,000 plus, which I don't necessarily consider wealthy.

but those that make that amount and more. He clearly is back to the 1970s outlook on how to deal with the rising national debt and all the costs that COVID have cost the government. That is his desire. He has helped encourage Congress to give the IRS $10 billion to spend over the next 10 years with 70% of that should be designated for enforcement. So they're looking to enforce the tax code to look to get the maximum dollars they can from people

in every which way. So maybe those that aren't quite doing their taxes right are going to get more scrutinized and looked at and they're going after that. Well, that's great. If you are in a very gray area or doing something you shouldn't, stop doing it. Then go investigate.

ways to legitimately, safely, decrease your taxes. There's so many avenues people haven't investigated. They took the easy way out and maybe not quite doing everything they should correctly, as opposed to a little bit more effort, bringing in the right people to help you figure out the right solution to pay less taxes. I've read part of that publication that you just mentioned. I think that came out September 8th of this year. So for those out there that I are making above the 250 AGI, you might want to get a team together to help you get under that 250 AGI. Exactly.

I would agree with that. Or you have $10 billion worth of enforcement coming after you. Maybe, maybe not. Depends on if your name gets drawn out of the hat. You know, that's a good point you make, though. The risk of audit is still low. Having said that, if your number comes up, it's going to be a lot bigger penalty. see than what it's been in the past.

So, you know, you're rolling the dice if you're just simply playing the odds. And with the IRS now requiring more 1099s, more reporting from everyone you pay money to, and more interactive databases of computers and such searching to see that you've reported your income and done what you should, they're using technology to try to identify things or relationships in your tax returns or what gets filed in your name and your ID numbers, they're trying to connect the dots to pick the people who they do audit. So in the past, it was very random. Now it's a lot more focused. And they're using technology to help with that. Where AI goes in the next few years, I am sure the government's going to use every bit of that

that they can, again, to try to identify problems, things that look odd and try to identify people that they can audit that give the biggest bang for their buck, which means back taxes, penalties, et cetera, if they can do so. So cross your T's and dot your eyes. I would agree. And get a good team behind you. Yes. Or in front of you, actually, to be that firewall between you and the IRS.

I would agree. Another question for you, Mark. You've done thousands of tax returns, maybe tens of thousands. I don't know what your number is. But typical business owner problems that you see on those tax returns of clients that leave their CPA and come over with us. What have you done to correct? Talk about maybe one or two issues that you've significantly helped a business owner correct an issue and save significantly on his taxes. You know, the biggest thing is communication as opposed to a specific tax item.

It's amazing how us accountants are mostly nerdy introverts. So engineers, accountants tend to be more introverted. They tend to not communicate well and they love to simply do the work. Well, that doesn't foster the knowledge and understanding that taxpayers and business owners especially need to have to understand how they can impact their tax situation. So from our standpoint, we simply communicate. We educate and we teach clients about their situation and what they can do with it, whether it be how to deduct mileage of a business vehicle, how to deal with business meals, how to take advantage of other deductions that they may be missing and how to record those, including how to plan structure for the best outcome that maximizes their cash flow. again, there's not a magic formula on a piece of paper. It's talking, strategizing, and educating the clients and how to help them manage their business decisions to make the best tax decisions.

Communication is the key. I agree with you 100%. And it brings to mind a client that we just referred over to you, Mark, that said that he had been trying to get a hold of us. This is a business owner, I think over on the West Coast, and he has been trying to get a hold of his CPA for months and filed his taxes October 15th, but he was on the phone with the CPA till midnight on October 14th correcting issues that he caught on his return before the CPA submitted it to the IRS. And that just 100% goes to what you said. Communication is key. Now, do you guys wait to the last minute or kind of what is your plan?

typically to communicate. Yeah, we're different. We take a planning approach. So throughout the year that's currently in play, we're meeting with clients minimum two times, maximum, whatever it takes to get it done to work with them through the year and strategize and plan through the year instead of getting to February or March and going, oh, I wish you would have done this certain thing last year. Now, the key is plan, think ahead. plan ahead. When you come to tax time, everything's already worked out. You're just putting numbers on the tax returns at that point. You're not making major decisions or catching up. Again, it's about communication. And like you say, it's about the timing of the communication is not when

the year's over. It's when the year is in play, beginning to end. Yeah, that's well said. Adam, you have any more questions here? I asked a lot of questions. I'll shut my mouth now. man, I guess, Mark, can you just wrap us up talking about your relationship with Josh Gerard and how you work in the Strategic Navigators Network? So I met Josh several years ago through a potential client and started basically just listened in on what he had to say. And frankly, what's happened is what we talked about earlier. He and his team at Strategic Navigators found some niche. items in the tax code that can benefit a lot of different clients in a lot of ways, things that people don't know just through normal channels of searching on the

internet. And they looked at the scenarios, they researched the tax code, and they found this family of things that can help clients out in a special way. Well, of course, I was skeptical. I went, yeah, right. He, you know, I've been doing this for, you know, a few decades. I've never heard of these things before. And I'm like, yeah, whatever.

I then went and researched them. I went, oh, well, I guess you can teach an old person new things. And I learned a lot. And it opened my eyes to some things I hadn't heard of before. And found out, you know what, he was right on everything he told him. And he and his team had put together some. really nice niche areas of the tax code that can benefit certain clients in certain situations, mainly business owners, and then trickles down to the individuals from there and found out,

wow, yeah, the high level, they know what they're doing, they know what they're talking about. And I was hooked right then. Josh and I had a few referrals back and forth, and since that time, we have quite a few common clients and work in concert for the benefit of the, the client in lowering taxes and maximizing cash flow. That's great. Thanks for sharing that story. I didn't know that that's how you guys met and that you were met with the skepticism

initially. So I'm impressed with your growth mindset there too. You know, you easily could have just said, you know, whatever, I haven't heard this before or there's no way that this is legit. So good on you for going and doing some research. And obviously it's benefited you in your business as well. It has. It's, you know, we've grown a lot from there.

I do credit Josh in that meeting him and helping to make that happen. But that certainly helped us in helping clients in a better way and looking for different things that we thought we knew a lot of things. And it just goes to show that none of us know everything. And there's always more to learn. And so keep investigating to find the right situation for the client. That's a good word. Well, thanks for coming on the podcast today.

Thanks for sharing all these stories. I know I learned a lot. I'm sure Adam learned a lot too. And we're grateful that you're in our network and that we have the privilege of doing work with you. And glad that we could have had you on today. Well, thank you very much for having me. I had fun talking about Texas.

We love it. Thanks, Mark. Thank you. Thanks for listening to Navigate. If you're interested in learning more about strategic navigators, feel free to click on the link in the description.