118 - Make More. Keep More. Be Smarter. Shop's Leaving Money on the Table with Derrick Van Ness

118 - Make More. Keep More. Be Smarter. Shop's Leaving Money on the Table with Derrick Van Ness

April 16th, 2025 - 00:51:31

 

Show Summary:

In this enlightening episode, Jimmy Lea welcomes tax and wealth strategist Derick Van Ness to help auto repair shop owners uncover overlooked strategies to save thousands on taxes every year. From foundational tactics like business structuring and paying your kids legally, to advanced moves like cost segregation and research & development (R&D) tax credits, Derick shares proven tips that can dramatically increase your financial efficiency. With humor, clarity, and decades of experience, he breaks down how shop owners can shift from reactive to proactive tax planning, and reveals how seemingly small changes can add up to $25,000+ in savings annually. The conversation also explores how financial literacy can be passed on to the next generation, and why working with the right advisor makes all the difference. If you're tired of overpaying the IRS and want smarter strategies for your business, this episode is a must-listen.

 

Host(s):

Jimmy Lea, VP of Business Development

 

Guest(s):

Derrick Van Ness - Wealth Strategies, Investor, Life Adventurer at Big Life Financial

 

Episode Highlights:

[00:02:12] - You don’t have to keep having bad experiences with your CPA, there are better advisors and strategies out there.

[00:04:02] - Derick will show how shop owners can save at least $25,000 a year in taxes with the right strategies.

[00:06:09] - Quick self-assessment: How well do you understand taxes, and how strong is your current tax team?

[00:13:11] - The way you pay yourself, through W-2 vs. distributions, can save you thousands in self-employment taxes.

[00:14:53] - The Augusta Rule: Legally rent your home to your business for up to 14 days a year, tax-free.

[00:20:18] - Pay your kids legitimately and tax-free while teaching them financial responsibility.

[00:26:01] - Using just a few of these strategies can result in $23,000 - $31,000 in annual tax savings.

[00:30:10] - How structuring real estate ownership separately from your business can reduce taxable income.

[00:34:00] - Cost segregation accelerates depreciation and significantly increases your short-term tax write-offs.

[00:39:02] - R&D tax credits aren’t just for tech firms, they apply to innovative auto shops and can yield five-figure refunds.

 

In every business journey, there are defining moments or challenges that build resilience and milestones that fuel growth. We’d love to hear about yours! What lessons, breakthroughs, or pivotal experiences have shaped your path in the automotive industry?

Share your story with us at info@wearetheinstitute.com, and you might be featured in an upcoming episode.

 

👉 Unlock the full experience - watch the full webinar on YouTube: https://www.youtube.com/watch?v=B5N1zO3cDAc

Don’t miss exclusive insights, expert takeaways, and real talk you won’t hear anywhere else. Hit Subscribe, drop a comment, and share it with someone who needs to hear this!

 

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Episode Transcript Disclaimer
This transcript was generated using artificial intelligence and may contain errors. If you notice any inaccuracies, please contact us at marketing@wearetheinstitute.com.

 

Episode Transcript:

Jimmy Lea: So excited to be here today with you as we are gonna have some phenomenal discussions about your business, about taxes, about the things that you'd love for your CPA to tell you, but they really won't do it.

Jimmy Lea: I've got my very good friend with me here today that we're gonna have an awesome discussion. Now, before we get into this, because this is to be an interactive. Webinar. Put into the comments whether you are watching us on Facebook, Instagram, LinkedIn, YouTube, wherever you're watching us from today, put into the comments where you're joining us from today.

Jimmy Lea: I'd love to give you a shout out to your shop, to your business, to your location. Shop name, city State, love to give you a shout out. Thank you so much for doing that. I gotta tell you a quick little story. Two days ago I went and got my hair cut and it was probably. One of the worst haircuts that I had gotten in quite a while.

Jimmy Lea: So why am I gonna tell you that? 'cause I, you know what, haircut looks pretty good today. Yeah. Because I had to go back and get it fixed, not by the same person. I went to somebody else, I went to somebody else. I found my old stylist and I found her at the salon. And it was just a boon of a haircut because I walked in and she was there and it was like a great reunion.

Jimmy Lea: Why? Why tell you this story? Well, because you don't have to keep having bad haircuts. You don't have to keep having a bad CPA. You don't have to keep having a bad experience with your taxes, with your advisors. I wanna introduce you to a very good friend of mine, and as we have a discussion today to talk about your business and your taxes.

Jimmy Lea: My good friend is Derek VanNess. Best man at my wedding. Best man that I know. He and I, together at Fraternity Brothers way back in the day, met up our freshman year. Derrick, it's been a long time together, brother. A long time going. It has. Thank you for being here, Derrick. I'm so excited for this presentation today.

Jimmy Lea: This is information that I have not seen you present before, mixed in with a little bit that you have done before. So I'm super excited for what you've got to share with us today. 

Derick Van Ness: Me too. This is gonna be fun. Very special on the day after tax day. Right? So.

Jimmy Lea: Very strategic on our part.

Derick Van Ness: Yes, it is. We were talking about that before the show here. 

Jimmy Lea: Yep. So I'm gonna turn it right over to you, Derek. Everybody's cringed. Everybody's winced. Everybody's upset about having to file their taxes. They're feeling the pain. Yeah you've got a special offer for everybody here by the end of the presentation, so everybody needs to stay tuned in for that special offer.

Jimmy Lea: And Derek the floor is yours, brother.

Derick Van Ness: Well, let's do that. And just so you guys know, my commitment to you is I think I'm gonna be able to show you how to save at least $25,000 a year in taxes if you're paying that much yet because there are enough strategies out there that apply to shop owners.

Derick Van Ness: That you can do right away, that we're gonna show you how to get that kind of value. So definitely gonna be worth your time today. And I'm excited. And we're really just gonna be talking about smart tax strategies. Every shop owner needs to know, because listen, every dollar that you make is important, but every dollar you keep.

Derick Van Ness: It's the same as a new dollar you make, it stays in your bank account. Now, my disclaimer is I own, I'm a part owner in an accounting firm, but I am not a CPA myself. We have CPAs and EAs and tax professionals that do the work. But I am a tax and wealth strategist, so I know the strategy piece. I just don't file returns.

Derick Van Ness: Right. I'm obviously, I own a couple of businesses, consider myself to be a life adventurer because. Listen, that's something Jimmy and I have in common. We both love adventure. So before we get started, I just wanna do a quick tax quiz with you guys, right? And so on a quick piece of paper or in your mind, or if you don't have a place to take notes, you should do that today for sure, right?

Derick Van Ness: But I want you to write down, on a scale of one to 10, how much do you personally feel like you know about taxes? So one being I don't know anything. I show up at the shoebox and my CPA just takes care of it from there, a 10 being I should probably have my CPAI live and breathe taxes and you know, that's what we do for Christmas is give each other tax code books.

Derick Van Ness: Second question, on a scale of one to 10, how good is your tax team? Now I bring up the term team because a lot of shop owners have enough going on. That you might need more than just a tax person, right? You might need a tax attorney, you might need entity structuring or investment advisors who understand taxes.

Derick Van Ness: How good is your tax team? Once again, a one being terrible, a 10 being best of the best. The Rockefellers would be excited to hire this team. Right. And then the third one is, over the last three years, how good have you been at keeping your taxes optimized? Right. We're not talking about going into gray area or doing a bunch of crazy stuff.

Derick Van Ness: But really, like, are you proactively doing strategies that are gonna help you to reduce taxes? Once again, one being we haven't done any of that. 10 being, we're literally looking at it, you know, every single month looking for opportunities to reduce taxes. So the question with those or the thing I want you to look at is, do you like your answers?

Derick Van Ness: If you're more on the 1, 2, 3 area, there's a ton of room for improvement. If there's an 8, 9, 10, hey, we've got a job, maybe we can hire you. Right? But most shop owners I talk to are somewhere between a one and a six, right? They get their taxes done. They may know a few things, but they're really not doing a lot.

Derick Van Ness: My goal today is to help you up your game, and the reason I'm so passionate about this is I have been. Very successful in my life. Had a couple of different success stories, but, you know, where I really got passionate about this was back in 2008 up to that point from 2001 to 2008. I was a house flipper.

Derick Van Ness: I was those guys like, you know, flip this house, buy a house, fix it up, make it look cool, resell it, make more money. I know some of you do that with cars and other kinds of things. But the reality was I was making really good money. I just didn't realize at the time that I didn't know that much about taxes or finances.

Derick Van Ness: And what happened was I had a good income, but I did not have a good plan for building wealth, even though I was in real estate. Right. That seems like one of the easier places to do it. So when the oh eight came, I was unprepared. I thought I was prepared. I had a bunch of money set aside. I had a bunch of things in place.

Derick Van Ness: It was not nearly enough that tidal wave. Of the mortgage meltdown wiped me out. And at that point I became really passionate about understanding as a business owner, how do I translate my income into building wealth and taxes is a huge piece of that because quite frankly, I went from being a multimillionaire to filing bankruptcy in about 18 months and it sucked.

Derick Van Ness: And it was a really hard lesson, but it also put me on this path of helping small business owners 'cause I know so many of us, so many of you. Work so hard for your money. I wanna help you keep a lot more of what you make because efficiency matters, right? And you guys know that so already, disclaimer, I'm not a CPA.

Derick Van Ness: We do own a firm, but I don't do the filing. Okay? So what does make me a little different than a typical CPA, and this is where we're gonna start to divide, this is your typical CPA does taxes, right? They're what I would call a tax recorder. And so what that means is they, you bring your stuff to them, they take your stuff, and they basically copy it from your profit and loss onto the tax return.

Derick Van Ness: And maybe you do a couple of things with depreciation and interest write offs and so forth, and then they tell you what they owe. What we really do is we pick it up way before that, and we kind of do a lot of the work that they don't do with how do you structure your business, structure your life? I'm gonna be giving some examples as we go through this today.

Derick Van Ness: What are things that you can proactively be doing and really that gap that if you have a tax pro, you probably think they should be helping you. And all they do is do your taxes. We fill that gap, right? So we create the tax breaks rather than recording them. And we coordinate this because ultimately taxes is part of your financial life, and your financial life is part of your real life, right?

Derick Van Ness: So we wanna help that. A couple of quick statistics that I think are important here. 70% of small business owners believe they're overpaying taxes, so you can ask yourself, do I think I've had this right? My guess is if you came today, you feel like there might be room for improvement. What's wild is the real number is actually about 95% of small business owners are overpaying.

Derick Van Ness: When we've done internal audits with our firm or other firms that I've worked with. More than 95% of them were significantly overpaying taxes, and I'm not talking about a couple hundred bucks here. Typically per a hundred thousand of income we were seeing without even getting into the advanced stuff, just the basic stuff, they were overpaying $11,300 per a hundred thousand dollars of income.

Derick Van Ness: So if you make a couple hundred thousand, multiply 11,300 by two or three or four, that seems to be pretty consistent. Actually, the more money you make, the worse it gets because taxes get more expensive. But I just want you to do some mental math there real quick. If you're making a couple hundred thousand bucks, then you're probably overpaying 20,000 or more.

Derick Van Ness: And I'm gonna show you how to save that. So the three things that you need to master to build wealth, and this is going to be one of those categories, is you need to make more money. And that's where the institute comes in, right? They help you guys run your shop, be more profitable, keep more of that money that's coming through the door, but then after that, keeping more of the money you make through tax efficiency is key.

Derick Van Ness: And then something I want to encourage you to do is as you save the taxes, rather than going and buying a fancier car or a swimming pool, put that money to work and help it to start to build more income for you. So that you don't always feel like everything has to come from the business. I know a lot of shops feel that way.

Derick Van Ness: So we're gonna help you to create a bunch of money that you can then use to reinvest in the shop or to build wealth outside of it. So today's going to be more about the keep more of what you make component, right? Okay, we just went over that. So let's get right into strategies. I'm gonna cover seven or eight direct strategies that you can use this year to keep more money in your pocket.

Derick Van Ness: So the first thing I wanna talk about is how you pay yourself matters. A lot of you are doing this and a lot of you aren't. So if this doesn't apply to you, that's great, but ultimately it comes down to this. Once you're making more than about $75,000 a year there, you want to consider having some sort of entity, not just a sole proprietorship, right?

Derick Van Ness: If you have an LLC. Or you have an S-corp. The LLC can file as an S-corp, but s corporations allow you to take money that's not your W2 income, but your distributions or your, you know, the money, I call it your business income for being the business owner. And you don't have to pay the self-employment tax on that if you take it that way.

Derick Van Ness: So you pay yourself a W2 where you'll, you're gonna pay full blast on those taxes, but on the dividends or distribution income. You're going to save six, six and a half percent roughly on that money. So if you're paying yourself $250,000 a year, you take 150 thou or a hundred thousand as a W2, you get the hun other 150,000 this way, that's probably gonna save you about $10,000 in taxes.

Derick Van Ness: Just that one move. By having the right entity structure and paying yourself effectively, and this is something you wanna work with your tax pro on, like how much should be W2 and how much can you take as distributions? Some people get weigh to one side or the other. I think there's a proper way, ideally, I like to think of it this way, if the IRS or someone was to look at this and they would say, how much are you paying yourself as a W2, you'd wanna say, well, it would cost a hundred thousand dollars to replace myself with a key person in the business.

Derick Van Ness: So that's what I pay myself as a W2. Then the rest comes as my, as a result of me being a business owner. In other words, that's money that is made on top of what I would have to pay someone to do my job. Right. I've heard other CPAs say. Roughly 30% of your overall income should be taken as a W2. You can talk to your tax pro and see what they say, but if you are way outta whack on those things, one way or the other, I think you should consider it.

Derick Van Ness: 'cause it can be a pretty huge tax savings. And listen, an extra five, 10, $15,000 a year is not so bad, right? Just for doing it that way. Plus, I'm not an estate planning or entity structuring attorney, but. If you have a sole proprietorship right now, if you're not just getting started, you probably want some liability protection.

Derick Van Ness: Entities can do a great job at that and, you know, you could talk to someone about that. So, strategy number two this is something a lot of people have may have heard of. It's affectionately known as the Augusta Rule, but what it is it is a way that you can take your home and you can rent it out and the code tax code says you can rent your house out.

Derick Van Ness: Up to 14 days a year. Tax free. 

Jimmy Lea: Question, Derek? Yes. Okay, hold on a second before we get into the Augusta rule. I wanna go back to strategy number one. You talked about $75,000. And I wasn't, I, my mind went way down a trail. I don't know if you said 75,000 as I pay me as an owner or as my business is making or producing 75,000 a year.

Derick Van Ness: Yeah. 

Jimmy Lea: What were you talking about there? 

Derick Van Ness: The reason I say 75,000 is it'd be hard to hire an employee who could run your business for a lot less than that. Yeah. So at that point, it's hard to justify a W2. Too much lower. Even if you paid 'em 65 and you take 10 as dividends, like there's not a huge amounts, maybe 600 bucks of tax savings.

Derick Van Ness: But once you start getting above that, it's like, oh, I can pay myself. Let's say you get to a hundred. 

Jimmy Lea: Yep. 

Derick Van Ness: Now I can pay myself half W2 and half distributions, and the numbers are worth the change. So I feel like 75,000 is about where it really starts to make sense to use that strategy. That's why. 

Jimmy Lea: And I love this Augusta rule because not only can I do this from.

Jimmy Lea: The business point of view, isn't this also something that we can do on a house? 

Derick Van Ness: Well, so what you do is you actually rent your personal home, your primary residence. 

Jimmy Lea: Okay?

Derick Van Ness: You rent it instead of renting it to strangers. You can rent it to your business. Right now, a lot of shop owners, very community oriented.

Derick Van Ness: They use their home anyway, right? And so they may be doing team building barbecues. They may be doing retreats or bringing their management team or their key employees to the, to, to their house. But where this really comes in is if you're already spending money. Let's say you do team building, you do holiday parties, you do trainings or retreats for your team.

Derick Van Ness: That kind of stuff. And you normally go somewhere and you rent a hotel room, like a hotel conference room, or you go to an event center, or you rent the back room at the local steakhouse or whatever. You can do those things at your house, and then your business pays you personally, just like you would've paid the restaurant to rent that back room.

Derick Van Ness: Your business pays you, and you can take that income tax free up to 14 days a year. Right now you can't pay yourself a million dollars. Right. You can pay yourself market rates. But if you say, Hey, my house, we're gonna be using 500 square feet for this, you know, for this holiday party you can look at what would it cost me to get a space that's equivalent for 505, 500 square feet.

Derick Van Ness: Yeah. And you can pay yourself that, right? And so for a lot of people, that might be a thousand, 2000 if you've got a really nice, beautiful house, it could be more than that. In your area. 

Jimmy Lea: Well, especially if you spill out into the outsides and you've got parking and you've got people on the street and 

Derick Van Ness: Sure.

Jimmy Lea: It does take up your whole house. 

Derick Van Ness: It, it can. Right. I don't want to over exaggerate and tell people to get crazy, but the reality is what you're really using, you can, and honestly, if you wanna document it, a, you should have a real lease just like you would with any other entity. Right. Treat it like two third parties.

Derick Van Ness: That don't know each other. Yeah, do some paperwork. Obviously you don't need some kind of airtight lease because it's you renting to you or your business renting to you. But take some pictures, show that it, show what's going on. If you ever got audited or whatever. It's like, Hey, here's the pictures, here's what we did.

Derick Van Ness: It's clearly business. We've got a lease. Everything's, all the boxes are checked. But this is something, this is another way to get an extra 10 to 20 grand a year, maybe a little bit more if you've got a nice house into your h into, your personal bank account from the business tax free. And in a lot of cases, this is stuff you're already doing, you may as well get the tax breaks for it, right?

Derick Van Ness: Yeah. If you're not doing this, you can look at it and say, well, do we want to have our team retreats and other kinds of things offsite? If we do start using your house for this, you know? And you don't have to hit 14 days, but that's the limit. So obviously if you're doing this stuff, you may as well, you may as well be tax efficient, right?

Jimmy Lea: That's right. 

Derick Van Ness: And that's the name of the game here. This is not about beating the IRS. This is about knowing the rules, taking a lot of the stuff you're already doing, and just doing it in a way where you can get the tax breaks, right? They want you to take tax breaks. The tax code is as big as like the Harry Potter book series.

Derick Van Ness: It's super thick, like the first 30 pages are on how you pay taxes. The other. 4,000 pages are on how you cannot pay taxes. The government uses the tax code to get you to do things. They want you to start a business. So they give you tax breaks. They want you to have kids. 'cause when people have kids, they're not so crazy and they're a little more stable, right?

Derick Van Ness: They give you tax breaks. They want you to own a home. 'cause that creates stability in the country. They give you a tax break. That's how they do this. So let's take what the government wants us to do. And let's do it in a way that works for us that we were gonna do anyway and save the taxes, right?

Derick Van Ness: Everyone calls 'em loopholes. They're not loopholes, right? Okay. Strategy number three here. Paying your kids, right? This is one that brings up, like everybody raises their hands, and I'll be honest with you, we have a whole system that we've developed teaching people how to pay your kids and then use that as a way to start educating your kids on money.

Derick Van Ness: A whole nother thing. We call it the family Fortune formula. But the idea here is you can pay your kids up to, it changes every year, but it, so I don't know what it's for twenty five, twenty five yet, but let's call it a between 13 and $14,000 a year that you can pay your kids income tax free.

Derick Van Ness: Right now. This is where this comes up. People are like, how, you know, what can my kids do for this? Because if you're going to pay your kids, they need to be earning some money for kids who are. 12 and older, they can help around the shop, they can do social media, they can file things, they can clean up, they can do a lot of that kind of stuff.

Derick Van Ness: But another thing that allows you to pay your kids is use them in your social media. Almost every shop has social media. You've got a website, you've got Instagram, you've got Facebook. You've got these kinds of things to build that community feel. Use your kids, put 'em in the pictures, have 'em hold up signs that you put stuff on.

Derick Van Ness: Get your social media team or whoever handles the marketing for the company to, to do that. Put 'em on the website. 'cause almost every shop I know, it's like a family brand, you know, it's very community oriented. So put the kids in that stuff and pay them. Like you would pay a spokes model or like you would pay a, you know, someone who's gonna be a representative for your company.

Derick Van Ness: And you can pay them that money. If you're making a lot of money, you might be paying 30, 40% or more in taxes. Your kids will pay pretty much zero. Right? Even if they make a little bit more than that. Or have to pay some payroll taxes. It's super, super low compared to it. And then let your kids, you know, if you want them to save for college, that money can go toward that.

Derick Van Ness: If they wanna pay for their own baseball or dance or music lessons or whatever they're into, you can let the kids pay for the stuff, but a much lower tax bracket of dollars. Use it as a chance to teach your kids about money. People put it into Roths, they put it into life insurance. There's a million things you can do with this, but the key is.

Derick Van Ness: How do we legally get money from the business where it's gonna be taxed at a higher tax rate into the household at a much lower tax rate or tax free. And do that in a way that's consistent, right? And I like to use it as a way to teach your kids about money anyway, but that's a whole nother thing.

Derick Van Ness: But yes, once again, if you've got three kids, you know, paying yourself, paying them 13,000, that's $39,000 that can come into the household. At a zero or a very low tax rate, that can be huge for you. Right. 

Jimmy Lea: Well, and Derek, I love what you were talking there as well about teaching the kids about money.

Jimmy Lea: Uhhuh, I, a buddy of mine down in St. George, he pays his children and his children have to buy their own groceries. They have to pay for their own sports events and their own sports equipment. Yeah. So. It while he's using it in his business and he is paying the kids are paying for their own groceries.

Jimmy Lea: They're paying for their own clothing. Their own sports events. Their own sports equipment. Yep. They wanna go out, they wanna buy a, a bike. They wanna buy a new jigsaw puzzle. They wanna buy a new video game. Hey, that's great. It's your money and as long as we all approve it. Yeah. Because they have family banking going. 

Derick Van Ness: Yeah. The, these are all exactly what I'm talking about. And you can take it to the next level. Have your kids saving for their own college and planning for that. Have your kids doing their own investments and different kinds of things, even if it's at a small level to get the experience, because these are all super valuable experiences and you can take a lot of what you know 

Jimmy Lea: Yeah.

Derick Van Ness: As a business owner and pass it on to your kids. Right. And it means something when it's their money. 

Jimmy Lea: Oh yeah. Oh yeah. Yeah. It was eye-opening to discover how willing they were to spend my money and how frugal they were to not spend their own. 

Derick Van Ness: Yeah. It's great. Right? It changes the whole conversation and listen, I know a lot of people, they don't have their finances totally together, so they're a little bit afraid to like include their kids on some of this stuff, but.

Derick Van Ness: You gotta start somewhere. And this is a great place to give them a chance to have a real world experience. And like you said, Jimmy, they have to make the decisions. Not you, do I buy this or do I buy that? If I want a new car, I've gotta save up for it. Whatever it is. These kinds of things really start to matter and if you can teach them at an early age, they're just miles ahead of other people.

Derick Van Ness: So, so, yeah, getting the kids involved. So strategy number four, and we've all heard of this, right? As a home office. Now I bring this one up partially 'cause there's a little bit of a tax break there. But the big question is something like a home office, a red flag? And the reality is if you're lying about it, it's not a red flag.

Derick Van Ness: You're just lying, right? I don't want you to lie or make stuff up on your taxes. If you have a real home office, like quite frankly, I'm working from a home office. I literally have a lighting setup in here and cameras, and I've got all the screens and all the stuff. This is a home office. Write off. If you have a laptop in your bedroom, probably doesn't count, but if you're really using your home space, dedicated space for your home office, then you can write it off, right?

Derick Van Ness: It's not going to be a huge part, but generally how it works is, let's say your office is. 400 square feet and your house is 2000, right? So that's 20% of your house is your office. Then you can write off 20% of your costs, of your mortgage, right? I bring this one up, not because it's a huge tax saver, but if you are doing it, you can write it off, right?

Derick Van Ness: It's not a red flag if you're really doing it. But the bigger thing is, if you're really doing these things, you can write them off. And if you're not, you shouldn't. And some of them, it might encourage you to do certain things. But I want you to be aware that you don't need to be afraid if you're really legitimately doing something of writing it off, right?

Derick Van Ness: So that's the bigger point here. But this can save, you know, a couple thousand bucks a year depending on how big your office is and how big your mortgage is. So, so if you just use these three strategies, right? And I've kind of given a range here based on your tax bracket, but if you know, if you did a salary versus owner's draw took a hundred thousand of that.

Derick Van Ness: As passive versus W2, that'd save you 7,500 bucks. If you did the Augusta rule at 1250 a, you know, a day for 14 days, that would save you between 52 and $7,800 depending on your tax bracket. The average family has 2.5 kids, so I went with 2.5 kids, right? $30,000 coming into your household, depending on your tax bracket, that's gonna be between nine and $13,000, and then a home office.

Derick Van Ness: 500 bucks a month, that's $6,000 a year. You get to write off that could be between 1,820 600. So if you look at that at the bottom, that's 23 to $31,000 a year just by using these really basic strategies that apply to almost everybody, almost all the time. Right? And I realize that 23 to $30,000 one time isn't gonna totally change your life, but here's the thing.

Derick Van Ness: You can do this every year. Most people I meet aren't even saving that much money. So if you can just take this outta what you were gonna give to Uncle Sam, leave it in your bank account and now put that money to work and add it to what you were already going to save anyway. Suddenly you can just massively supercharge the amount of money you've got working for you, or the amount of money that you have to build your shop or add to it or hire that extra employee or put it into marketing or a million other things.

Derick Van Ness: Or one of the best things is run your shop better, right? Work with someone like the institute and learn how to be more profitable. You can do this every single year. Over the next 20, 30 years. I mean, we're talking about half a million to a million dollars. That's a lot of money. So just that alone, everybody can do.

Derick Van Ness: Now we're gonna get into some other strategies here that may not apply to everyone every time, but will apply to a lot of shop owners based on the hundreds that we've worked with. So I want to jump into that. I think this is such a great one. If you've started making good money. A lot of people ask their CPA, what do I do?

Derick Van Ness: How do I save taxes now that I'm making a couple hundred thousand or more? And the CPA usually says, just get used to paying more taxes. Right. That's not true. There's a ton of things you can do. We won't get into everything today, but but we're gonna, we're gonna tackle a couple more here, right? The first one is, as often as you can, you want to turn active income.

Derick Van Ness: To passive income. So what's the difference? Active income is like that W2 income, right, that you pay full blast on. Passive income is taxed at a lower rate, more like your di dividends, but also has the ability to be written off against against passive losses. So this is, this comes into play a lot with how you structure your entities and a lot of times if you have real estate.

Derick Van Ness: It gets into this, right? So how you structure your entities can allow a lot of income to become passive. So the most common example of this is if you own your shop real estate, and I know a lot of shop owners do, instead of you having the same entity own the business and own the shop, and all the money just goes in one bucket and it comes through to you for taxes, if you have the business.

Derick Van Ness: Have an entity and the real estate have an entity, the business will pay the real estate company. And then you still get the income from the real estate company. But now that income is passive, so it's taxed differently and you can take the depreciation from the shop and you can write it off against that income.

Derick Van Ness: So it makes a lot of that income feel like it's tax free. Right? So here's an example of how I would structure that. The business pays the W2 income. The owner's distribution into, we call it a wealth reservoir 'cause I think it's worth it too. Instead of just paying it straight into your living account, you pay it in here, then you put the money into your account that you spend out of.

Derick Van Ness: So that way if you're got extra, it stays here instead of coming over here and burning a hole in your pocket. And then of course, everybody should save. We're not going crazy into all of that, but the money that for the real estate company comes here and it's paid as passive income into that. So it ends up in the same place.

Derick Van Ness: Now you can take losses against it, like the real estate company gets to depreciate the value of the real estate. We're gonna talk in a minute about how to accelerate some of that depreciation, but it can make a huge difference in how much of that money you get to keep, right. So this is a very simple version of how you can structure entities and how you pay yourself that's going to allow you to keep more money.

Derick Van Ness: And once again, if we just do some simple math here. Let's say you're paying. 5,000 bucks a month for the shop. That's $60,000. That's passive income. Let's say the shop is a million dollar building. You get to write that off over 39, 39 and a half years. So you get like $25,000 a year of depreciation.

Derick Van Ness: So now you're only gonna pay that first $25,000 that you get as the 60 grand of income. You aren't gonna pay taxes on it. It's gonna be offset by the losses. So you're only gonna pay taxes on like 35. Now that's really. Basic math, but I want you to see that first 25 grand basically feels like it's tax free because of the depreciation that you get to use it against.

Derick Van Ness: So hopefully that made sense that I didn't go to make it too convoluted. Right? And this works if you own any kind of commercial real estate. It's a good strategy. So now what's even better is if you have, like in that case you have 60,000 of income, but you only have $25,000 of write-offs. There's a strategy to accelerate depreciation on real estate.

Derick Van Ness: And I would say if you've owned your shop for less than I'd say seven or eight years, this is a really powerful strategy. As long as the shop's worth more than a couple hundred thousand, the real estate itself what cost segregation is it's taking your costs of your real estate and you're breaking it up into pieces, right?

Derick Van Ness: You're segregating it out in layman's terms. What happens here is you take the shop. And it's classified as real estate, but you have someone come through, usually it's an engineer and there are companies that do this and we can refer you to someone if you don't, you know, don't wanna go find your own person.

Derick Van Ness: They come through and they classify as much of the building as they can, as equipment. Instead of real estate. So all the build out the garage doors, the plumbing if you've got AC units, all these kinds of things that are a huge part of the value of the real estate, not the structural component, but a lot of the other stuff can be classified as equipment.

Derick Van Ness: That equipment can be depreciated much faster, right? Maybe 5, 7, 10, 15 years. It is not that you necessarily get more depreciation, it's just if you can get depreciation and keep the money today instead of 30 years from now, that's worth a lot. You get to use that money, grow that money, put it to work in your business, a lot of other things.

Derick Van Ness: So this is a strategy where you get that depreciation faster. And once again, if you can do cost segregation, maybe you get to write off that whole $60,000 against passive losses. Instead of only 25,000 of it. Right. So that's another 35 grand you're not paying taxes on, or you're paying a lot less tax on because you've accelerated the depreciation.

Derick Van Ness: Right. So I know there's a lot of probably numbers and things going through your head. I just really want to open you up to the idea that there's a lot of stuff out there. That is not proactively being brought to the table. Like I think every tax pro should be talking to you. And if you have real estate, they should at least be bringing up cost segregation.

Derick Van Ness: If they're not bringing this up, and lemme tell you this is a pretty obvious one then you gotta wonder what else they might be missing. Right? So passive, the key here is passive losses can only work against passive income. And this is important because. Let's say you do cost segregation. You get $120,000 worth of write-offs, but you only have 60,000 of passive income.

Derick Van Ness: You can only use it against that 60,000. It doesn't do anything against your W2. So as often as we can, we want to take money and shift it from active income to passive income, it will allow you to get a lot more of these losses, and that's just something a lot of people don't know is you can't take that depreciation against your regular income.

Derick Van Ness: So, so we wanna find legal and ethical ways to shift it whenever we can. Strategy number seven, and this is something we've done for a ton of shop owners, is the research and development credits. Now, there's been some interesting things. We did research and development credits for a long time, and then in 2022 the rules changed just a little bit.

Derick Van Ness: The credits are still there, but there's a little bit of an offset short term on those. We actually think that's going to change. With this new tax rewrite that's going on right now basically it got kind of screwed up with the tax rewrite from 2017. It took place in 2022, and for the last two or three years, we've just had a lot of people sitting on the sidelines.

Derick Van Ness: But here's the good news, with research and development credits, especially if they changed the tax code, you can go back and claim this. You can also go back and claim depreciation like cost segregation in arrears so you can actually get money back from the IRS. We've done this for a ton of shop owners, and even if it doesn't get changed, it still continues to produce credits for you.

Derick Van Ness: You just have to understand the little bit of offset that happens in the first couple of years that you do it. But at the end of the day, you end up getting the same amount of credits. So I want to talk through this real quick because it's a really powerful strategy that almost no tax firms are doing, right?

Derick Van Ness: This is something that came about in the eighties, so this isn't like some new thing. This isn't like one of those CO credits or whatever. This is a completely different thing that basically the government wants you to be innovative in what you do. Or people who create new products, they want you to bring those into your business so that you can continue to improve.

Derick Van Ness: So these actually were established in 1981 to help American automakers compete with a lot of the foreign cars. And they wanted to make sure that the US companies tried new stuff, essentially, right, to keep it really simple and and did research and development. So they said, we'll give you credits if you do that.

Derick Van Ness: It changed a lot over the years, but ultimately it comes down to these four questions. This is called the four part test, and I won't get too deep into the weeds, but basically is it for a permitted or qualified purpose? Which really means are you trying to improve something? Are you looking to develop or improve a product or a process?

Derick Van Ness: As shop owners, I know that you're always looking at. How do we bill faster? How do we, you know, quote better? How do we figure out how to get in front of people more effectively? How do we improve our communications and follow up? How do we use better equipment for better diagnostics, more accuracy? All of these kinds of things.

Derick Van Ness: Anything in that realm is probably going to qualify for improving your service or your process. Right. Does it reduce technological uncertainty, really? Are you looking to get more consistent outcomes when you run a diagnostic or when you're trying to figure out what's going on with someone's car?

Derick Van Ness: Do you get the right answer more often? Right. Is it more certain? Almost everything you do is probably working that direction, especially in the shop. Is there a process of experimentation? In other words, is this new to your business? And this is a big misconception. People think it needs to be new to the world.

Derick Van Ness: It doesn't. It just needs to be new to your business, right? So if you're bringing in something new and is it technological in nature? Does it use engineering, computer science, biology, or physical science? You guys obviously have a ton of engineering and computer science that goes into a lot of what you do.

Derick Van Ness: So if you're buying new equipment, if you're trying new processes, if you're adding new software or creating custom software, there's probably credits on the table for you. And most shops we look at that's happening. Now, these credits, the more you make, the bigger they get. But I think it really starts to make sense to look at it if you're doing 500,000 of top line revenue, right, or gross revenue, and if you're paying more than $10,000 in taxes, you are probably big enough that these credits will add up to something.

Derick Van Ness: It's not that you can't do them if they're smaller, it's just not necessarily worth the work. Usually shops if they're less than two years open, they probably aren't big enough or making enough money. There are exceptions, so you could still qualify but usually it's for shops that are a little more established.

Derick Van Ness: 'cause usually the first year or two, you have a ton of write-offs. You didn't pay taxes, so there's no credits to get that money back for. Right. Couple quick examples of shops. We had a an MSO up in Minnesota. It was two brothers. They got about $171,000 when we did a three year look back in their RD refund.

Derick Van Ness: So ton of money, four shops, pretty awesome stuff. Another one in New Hampshire, they had a couple of auto shops. They got about $31,000, so about 10 grand a year. And then we had someone with a little, you know, a little bigger single shop in Oklahoma. He got $26,000. You know, so these guys are getting between 2030.

Derick Van Ness: Thousand dollars a year type of type of credits for a typical size shop. We do have some bigger shops, you know, 2 million plus that are getting a lot more than that per year. So the question I wanna ask you is, I mean, when we're looking at this, $25,000 a year for the first four or five strategies, 10 to $15,000 for r and d credits.

Derick Van Ness: Plus if you own the real estate. I mean, what would that kind of money every single year do for your life? Right? An extra 30, 40, $50,000 that you just don't have to give Uncle Sam, because you can write it off, right? You can use the tax code in your favor, and ultimately it's not how much you make.

Derick Van Ness: I hear people brag about this all the time. I mean, I have a client, he's in California. California is a high tax state as you know. He made 1,000,002, he paid nearly $600,000 in taxes, you know, and he wanted to complain about it like it was a badge of honor. It was terrible, right? Who wants to give $600,000 to Uncle Sam?

Derick Van Ness: So it's not about how much you make, it's about how much you keep, and that's the golden rule, right? How much gold do you get to keep? So. I think it's pretty clear that these could be worth $25,000 or more per year. And I'll be honest with you, especially if you make over $400,000 a year, there is a ton of stuff you can do.

Derick Van Ness: 'cause at that point you get into some pretty big tax brackets. So adding a little more complexity is totally worth it. But even for those of you who are newer in business, you know, this could easily be worth 20, 25, $30,000 a year, every single year for as long as you're in business. So. Those are the key things I wanted to cover today.

Derick Van Ness: 'cause we didn't want to go too long and maybe leave a few minutes for questions. But if you're curious to see how much have you been overpaying Because of our affiliation with the the institute and our relationship, we're willing to do a free three year tax review to explore what have you been overpaying.

Derick Van Ness: I'm not gonna tell you that we can go back and claim all that for you. There may be things like the RD credits like. Honestly, you know, if you've been in business for a while, we can still go back and claim 2021 and it's super clean for the next six months or so, and maybe help you get 10, 15, $20,000 back depending on the size of your shop.

Derick Van Ness: Depreciation is another one we can go back on. But the bigger thing for you is if you've been overpaying in the past, how do we help you to not overpay in the future? Right. Even if we start from here, forward 2025, and you can keep an extra 20, 30, 40, $50,000 a year, that's a ton of money. Where I come from that makes, I mean, they'll pay for your kids' college that'll pay for, I jokingly call it a government sponsored retirement plan, right?

Derick Van Ness: Because it's the tax loopholes, the tax opportunities they're giving you that you're using. To pay for your retirement. So all you gotta do is scan the QR code or you can see the link down here at the bottom. It's just big life financial.com/the-institute. You can just sign up there, you'll meet with myself or someone from my team.

Derick Van Ness: We'll gather your tax returns. We'll go through 'em with a fine tooth comb, and we'll give you an exact number of how much. And we actually do a range of high to low, like if you did everything or if you just did some things. How much is on the table? I think if you're overpaying, if you're paying 10 or $15,000 or more in taxes, it's definitely worth looking at, you know, so that's our gift to you is we'll do all the work for free, and if we can save you a bunch of money, great, you can take that.

Derick Van Ness: You can go to your existing tax person or you know, if you feel like you really want someone more proactive, we can talk about what that looks like. But I think it's important for you to know if you're massively overpaying taxes. I want you to keep a lot more of that money. It just makes such a huge difference over time if you can keep that much more money. 

Jimmy Lea: This is huge. Derek, this is amazing and thank you for putting this up there. An offer to review the last three years. Everybody that's watching this. You need to scan the QR code, scan it now, scan it and get on Derek's calendar so that you can have this conversation. Now, Derek, here's a interesting question for you.

Jimmy Lea: I meet with a lot of shop owners Sure. And we talk about taxes, we talk about accountants, we talk about what's working for other shops around the country. And one of the interesting questions that I'm asked by a lot of shop owners is there a list of items. Statements, financial statements, concepts, ideas that I should have on a piece of paper that when I come to my tax advisor, they're able to advise me better because I'm listing out things that they might not think to ask.

Jimmy Lea: Is there a list of items that we can bring to a tax advisor? 

Derick Van Ness: Yeah, so there, there are definitely a topic or topics that we cover all the time, right? Equipment's a huge one. So any equipment you have purchased or any equipment you're looking at, purchasing and making sure you're doing that optimally is a key one.

Derick Van Ness: Anything once you understand the RD credits that's related to new technology, new advancements. Different things you're bringing into your shop, being sure that you keep track of that along the way can be super, super proactive and really help to optimize those credits. And then anything else you're looking at investing in like real estate or buying additional shops.

Derick Van Ness: I know you guys work a lot with that. Planning those things out in advance because then you can optimize, Hey, we don't need to be paying so much in quarterlies 'cause we're gonna take, you know, we're gonna buy a bunch of equipment, we won't have any taxes due this year. We're gonna get those write offs.

Derick Van Ness: No reason to pay that into Uncle Sam and then have to wait a year to get it back. Right? Yeah. So just being aware of what's really happening. And I think in a perfect world, you wanna meet with your tax pro, I would say three to four times a year throughout the year, so that you can bring these questions up, they can help you to structure things and think about them and make informed decisions along the way.

Derick Van Ness: We don't have a specific, like we have. Forms that we use with our tax reviews and with our quarterly meetings, but we don't have a specific checklist of like, what should you be prepared to bring to your person? But I'm sure we could put something together. 

Jimmy Lea: Yeah. And I'd love for us to put something together, Derek, because what is second nature to you?

Jimmy Lea: Seems to be. Groundbreaking to 95% of other businesses or other accountants or other bookkeepers. They don't understand that. And Shayla, there you go. There's the QR code again for you, so you can scan that and get on Derek's calendar. Yeah, Derek I think we ought to create something because Yeah, it's second nature to you.

Jimmy Lea: It's groundbreaking to everybody else. So I think we ought to come up with something and maybe that's our follow up email. We can send a list that people can bring to their accountants or tax advisors to start the conversation because they if I come to my CPA and I say, Hey, I want to take advantage of the Augusta rule, and they say.

Jimmy Lea: What's that? 

Derick Van Ness: Right, right. 

Jimmy Lea: Chances are you might not be talking to the right person. 

Derick Van Ness: Well, and what I see that's more common, Jimmy, is you go to them and you're like, Hey, can we do this thing? And they're like, oh yeah, we can totally do that. And you're like, well, why haven't you been telling me? Right. I hear that all the time.

Derick Van Ness: 'cause we tell people strategies and they take it to their person. Their person's like, oh yeah, that'd be great. You should totally do that. And we're like, where's this guy been the last 10 years? And so, and then you start to wonder if they're missing this, what else are they missing? You know, that, that starts to really leak in and truly, you know, to defend CPAs and tax people, most of them have been trained to file taxes on time and accurately.

Derick Van Ness: It's not, yeah they're not trained when they get their CPA and when they go to school to save you taxes. They're trained to record accurately and on time. And so sometimes I think we're expecting too much of them. We think it's their job, but a lot of them don't think it's their job. So, you just, you have to kind of separate, Hey, strategy and recording are actually two different jobs.

Derick Van Ness: Some CPAs, some tax pros are proactive and are strategy driven. A lot of them are not, especially if they don't own their own business. And they're just like working at a firm. Yeah. They just they, you know this, you're a business owner. You think differently as a business owner than you do as an employee.

Derick Van Ness: So I'm not trying to bust on these guys. I'm just saying it doesn't serve you well as a business owner if you don't have somebody who understands this and is really looking out for you from an advice perspective, not just a recording perspective. 

Jimmy Lea: So true. So true. Thank you, Derek. Any questions, comments, concerns from those who are listening to this live?

Jimmy Lea: Go ahead and put them into the chat. This will be available on YouTube. It'll be available on Facebook and on our website. We are the institute.com. Of course. You wanna get ahold of Derek VanNess? He is At Big Life. You're at big life financial.com. 

Derick Van Ness: That's correct. Yep. 

Jimmy Lea: Yep. So let's get in touch with him.

Jimmy Lea: I know a few shop owners that have worked with you and a few, I mean, quite a few that are working with you and have taken that up to that next level. 

Derick Van Ness: Yep, yep. I mean, we've had a couple of shop owners who have saved six figures in taxes. Obviously they run pretty big shops and have good things going on, but the reality is the opportunities are there for people who are interested in it.

Derick Van Ness: For sure. And the more you make, the more you can save. 'cause they just, they get more expensive. 

Jimmy Lea: Yeah. Yeah. No, that's awesome. And thank you Crystal. She, thanks for the information. Be reaching out. They have records. Nobody can really answer questions.

Jimmy Lea: Come to Derek Crystal. I think you'll be very happy with the information you get.

Jimmy Lea: I have yet to hear anybody who was not pleased. That's not true. I think they're upset. They're upset that they just barely got introduced to you. Where have you been for my last 10 years of business? That's the question they're asking because the strategies that you have and that you put into place with these shop owners is life changing.

Jimmy Lea: And I applaud you, and thank you for doing that. Thank you for working in the automotive industry. I'm so glad that we were able to recruit you away from anything chiropractic or doctors or whatever it is you were doing for that. You are in the automotive world. I'm glad that this is such a good fit for you, man.

Jimmy Lea: Thank you for being here. I really appreciate it. 

Derick Van Ness: Me too. Loved working with shop owners and just appreciate the opportunity to share this stuff, jimmy. 

Jimmy Lea: You're awesome. Well, thank you very much. Thank you everybody for joining. And make sure you connect with Derek. Get on his calendar, big life financial.com/the-institute.

Jimmy Lea: Get onto his calendar so we can get some things going here. And thank you to everybody watching live. Thank you very much. We'll see you again soon. 

Derick Van Ness: Thanks, Jimmy.