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What are both the practical and strategic advantages of financial planning for young children, and how are women CEOs faring in the world of CBD start-ups?
Episode Transcript
Intro:
Welcome to the Practical Tax podcast, with tax attorney Steve Moskowitz. The Practical Tax podcast is brought to you by Moskowitz, LLP, a tax law firm.
Disclaimer:
The information contained in this podcast is based upon information available as of date of recording and will not be updated for changes in law regulation. Any information is not to be considered tax advice or legal advice and does not form an attorney/client relationship. Further, this podcast may be construed as attorney advertising. You should see professional consultation for your individual tax and legal situation.
Chip Franklin:
Welcome to yet another edition of Practical Tax, with tax attorney Steve Moskowitz. Steve, you’re looking well my friend.
Steve Moskowitz:
As you Chip, thanks so much.
Chip Franklin:
There’s a lot to talk about with taxes. I know you see tax implications in almost every human behavior, which makes sense.
Steve Moskowitz:
Of course.
Chip Franklin:
It is, right? Joining us right now, again, this is an interesting guy. Brandon Neely is not only a financial planner, but he’s got an interesting niche, and he joins us here on the Practical Tax Show. Brandon, welcome. Say hi to Steve.
Brandon Neely:
Hey Steve, thanks for having me.
Steve Moskowitz:
Hey Brandon, how are you doing?
Brandon Neely:
Good… go ahead.
Chip Franklin:
Let’s start right away, if we can, with the whole concept of financial planning, and this goes out to both of you guys. I know that they say, “Start young.” Are there any other advantages to starting a financial plan for small children? Maybe Steve, you can also explain why the IRS now wants us to have social security numbers out of the womb. Start with you, Brad.
Steve Moskowitz:
The government likes keeping track of us.
Chip Franklin:
Yeah.
Steve Moskowitz:
As far as doing that, for example, if mom and dad have a business, and they employ their child under the age of 18, they don’t have to pay social security taxes on that. That’s just a little wrinkle in the law for employing your kids under age 18.
Chip Franklin:
Trump’s dad did that, didn’t he? If I recall correctly.
Steve Moskowitz:
They take advantage of every law, which we all should.
Chip Franklin:
Right.
Steve Moskowitz:
The other thing is, the banks always have these posters up. If you take a kid, and the day that kid is born, you have an account set up for him, and you make little deposits in there, but regular deposits, by the time that kid has graduated from college, that account can be enormous. Instead of coming out of school saying, “Oh, how am I going to pay all these? That’s for my basket weaving classes and these other things,” the kid says, “Hey, look at me. I have a big, fat bank account. I can do what I want. I’m not forced to take a job to pay my student loan, and my rent, if mom and dad kick me out.”
The bottom line is, and I’d love to say, “I just figured this out, get your pencils out,” but the financial people over and over and over again have said that if you have a small amount… but regular, that’s the trick. It’s like exercise. It’s got to be regular. There’d be a tremendous amount here, then we can get into, how do we invest the funds, and how much is conservative, and how much is aggressive? I won’t even get into that part.
Not to mention Chip, I’m always preaching about the benefits of companies having pension plans. How much more if the kid comes to work for mom and dad, and they say, “As part of being an employee here, now you’re entitled to the pension plan.” It’s just tremendous savings. To me, that’s a no brainer.
Chip Franklin:
Brandon, you’ve obviously been dealing with this a lot, too. What’s your take?
Brandon Neely:
I agree with him. It’s not about rate of return, it’s about volume. The more volume that you can put into something, the better. The power for me is thinking through, how am I doing that volume from the early age, and not just looking at, am I making this rate of return over here, or here? It’s all one wallet, so how does all of this play with each other, to help you go where you want to go? That’s why. I think, being that strategist versus just a planner, a planner oftentimes is, how can I get as much for you in the market? Whereas, a strategist, for me as a cash flow management strategist, I want to look at all the pictures.
I’m a caretaker of my mother-in-law. I have a life insurance policy for her, making sure that there is long-term care needs, or any of that stuff, and she’s going to pass that on to me. I do this thing called infinite banking. I have some policies that I use for businesses. I think about taxes all the time, whenever I’m designing these things.
Steve Moskowitz:
My favorites.
Brandon Neely:
Always thinking about taxes. My hope is that I always have a tax problem, because I’m growing my money, and I’m growing my wealth, not shrinking. I was going to say, my mother-in-law bought a policy on my son, who is four years old. I’m already thinking about future his name, I’m not going to tell you his name, because I don’t put it on there, but he has an adulting fund.
Chip Franklin:
Wow. Let me ask you this: as we grow and mature, and we decide on the type of income that we’re going to seek, a lot of people want to have their own business, it’s been the American dream. Obviously, that dream can turn into a nightmare. You owned a coffee shop. Let me ask you, and then Steve, part of this, both of you, what small mistakes did you make Brandon? What are the common ones people make Steve, and how can they avoid them? We’ll start with you Brandon, with the coffee shop.
Brandon Neely:
How long do you got? When you go into any entrepreneurship or business ownership, most of the time you have to have some idealism to go into it, especially if you don’t have a rich relative or anything like that to help you go ahead. I didn’t have a rich uncle that gave me a loan. I had to take on debt to do that, and that was a challenge for me. We were idealistic. We started a coffee shop of all things. The way in which money, how much money can go through your hands is insane. I will tell you, and I’m on a tax podcast, I swear to God, I felt like Uncle Sam made more money than me. Every time I did a transaction, I’m like, “Holy crap, I’m writing checks to this guy who doesn’t even show up to work, ever.”
Steve Moskowitz:
He’ll show up if you don’t give him the checks.
Brandon Neely:
I know, and I was like, “All right, he’ll come and arrest me if I don’t pay him, but, he doesn’t actually-“
Steve Moskowitz:
It probably wouldn’t be an arrest initially, but they would start seizing things.
Brandon Neely:
Right.
Steve Moskowitz:
Your bank account and other things.
Brandon Neely:
Not that they’d have much to seize, at that point.
Chip Franklin:
Steve, obviously, you’ve had hundreds if not thousands of different clients that have their own businesses. My brother-in-law was in the restaurant business, and they were really successful, but they worked, honestly, 18, 19 hours a day for 20 years.
Steve Moskowitz:
Why did they only work part-time Chip?
Chip Franklin:
Exactly. He used to tell me that every new restaurant, they ended up having 12 of them, but every new restaurant put all the others on the line. If that failed, the whole thing went down.
Steve Moskowitz:
Absolutely. One of the things that I tell people that are thinking about going into business, I said, “If you’re married, or you have a partner, you’ve got to talk to them. When you switch from being an employee with a quitting time to being a business owner, there is no quitting time When you’re a business owner. Be prepared for that to have a major effect on your personal relationships, to the point where some of them are going to break up if they’re not strong enough.” A business is like a baby. It’s a child, it’s living, it’s screaming, it’s demanding, and its needs come first. Your baby eats first, and if there’s not enough food to go around, you go hungry, but you feed the baby. What happens a lot of times with a small business, like Brandon was saying, you take everything you have, you can borrow, you put it in the business, and you may have also borrowed money from your parents, or friends, or the bank, whatever, and it is a constant struggle, and you don’t get time off.
In your business, a lot of times, at least initially, or for a long time into it, you’re talking about a 24/7 commitment. I wasn’t kidding about, before you do it, have a chat with your significant other, because your significant other might not like sitting at home by themselves while you’re closing up the restaurant, and talking to some customer, and some employee, and ordering something. It’s a major thing. Now, the reason that you stand to make so much more by being a business owner than being an employee is to make up for all the risk that you take, and all the hours, and everything else. These are all basic principles. The risk reward/principle, the more risk you take, the more reward you can get.
The bottom line is, I know it’s everybody’s dream, because everybody looks at a business and says, “Look at the boss. He makes all the money and I do all the work. I sure wish I was the boss.” A lot of times, what the employee doesn’t understand is, if the boss makes a million dollars a day in gross revenue, and his expenses are a million dollars and a penny, he’s going to come up with that penny. They don’t realize that. Again, I’m a business owner, and I have been for over 30 years, and for me, that’s the right thing. That’s my personality, business owner. You have to make sure that’s the right personality, and by talking to guys like Brandon and Huss, we can really give you some guidance along the way, and avoid some of these pitfalls.
Chip Franklin:
If I came to one of you two guys, and I said, “I’m thinking of starting a restaurant.” I used to grow up dreaming of having a hardware store, because I thought, people always need that, and if they don’t come for a couple of weeks, the hardware is still good, as opposed to the fish and the meat that I’ve got to throw out.
Steve Moskowitz:
Or, really use a lot of spices.
Chip Franklin:
Do you guys have a checklist if somebody comes in, and wants to do it? Brandon, do you?
Brandon Neely:
There are three things I tell every business owner or entrepreneur, and then, there’s the want-entrepreneurs, the people who want to start a business, who actually don’t. It is, know that you know that you know that you’re called to it, because it’s going to suck for a of couple years, or maybe even when you’re 20 years in, and you’ve still got to do some of the cleaning the toilets, even though you don’t want to, because you’re the leader. You have to have a team around you. Some are those people that just care about you, not necessarily just the business, they care about you. Good tax attorneys, tax people. For me, I do profit first. Those people on your team that want to help you succeed in having a team approach. That’s my second thing.
The third thing is, know your numbers. I talk to business owners all the time that say, “I don’t like numbers.” I’m like, “You better at least understand what a P&L statement is, so when you are going through this, you understand what’s happening.” I hear business owners who forget that they owe money in taxes when they made a lot of money.
Steve Moskowitz:
I see that all the time Brandon. Another thing that I see, and I just want to say how much I agree with Brandon, I had a client come to me, and he was a great chef. You would love to go to this guy’s house for dinner. He had the ideal spot, it was a charming little place. He came to me for advice, and I said, “No doubt about it, you’re a great cook, and that is a charming little spot, but here’s the problem. It’s a little spot. Assuming you had two dinner settings seven days a week, and you filled every chair, that spot is so small you wouldn’t even cover your expenses.” He never considered that. There’s so much you have to consider in a business.
Chip Franklin:
When you talk about moving forward, let’s talk about the debt that a student gets when they go to school. I think about this, too. A friend of mine’s daughter went to Boston College to major in theater, and spent $75,000. Maybe that was just for two or three years, it was a lot of money. Now, there’s a lot of debt. Obviously, that kind of advice is difficult, to tell somebody, “Maybe your kids shouldn’t be going to college. Maybe trade school, or maybe something else,” because everybody wants to think their kid is the next Einstein, when obviously, it’s not true. Brandon, Steve, do you have advice for people that are facing that?
Steve Moskowitz:
To me, education is like a trade school. When I went to college, I took the course in accounting because I wanted to start off as an account, and I was a CPA before I was a tax attorney. To me, when I went to college, taking the accounting courses, and yes I was forced to take a history class, and some other classes that I didn’t want to. To me, college was a vocational, a trade school, it was teaching me how to be an accountant, just like law school was teaching me how to be a lawyer. What you want to avoid, some people say it as a joke, but it’s a cool joke. You want to avoid the degrees where, when you graduate, you have to learn to say, “Do you want fries with that?”
Some kids, they love taking a course in something, and I say, “What jobs are available for basket weavers?” Again, I was a poor boy, and you know Chip, I was a New York City taxi cab driver before I was a professional person. I was a poor boy that didn’t want to be a poor boy. My way out of being in, basically, the gutter, was to get educated. I wanted to be a professional man. I thought education was the way out, and for me, it was.
The other thing I say is, before you invest all that money in a degree, there are people like Billy Gates and Steve Jobs and a number of others, they didn’t graduate from college, but they did okay. I would say, “What is it you want to do?” If you say, “I want to be an engineer,” what do engineers make? You look at that, and you say, “What’s the degree I have to do?” Also, don’t forget that initial investment, those four, six, eight, how many years you’re in school, and getting school debt, what if you had a job? Then, I make it as a business decision. If you said to me that if you went to engineering school, your earnings over a lifetime would be so much more than if you had a lower job without the education, get the education.
I find history fascinating, but unless you want to be a history teacher with a history teacher’s salary, what are you going to do with it? I see all kinds of kids taking degrees that might be worthwhile studies in some areas, like political science. All right, maybe somebody wants to be president of the United States, but barring a few really key jobs, what is that education going to buy you? To me, forgive me, I look at all education like a trade school. Yes, I would go to the trade school that taught me how to be a lawyer. No, I wouldn’t go to the trade school that taught me how to be a basket weaver.
Brandon Neely:
I think-
Steve Moskowitz:
Chip, I can’t hear you.
Brandon Neely:
You’re muted.
Chip Franklin:
I have to mute myself sometimes, my wife makes me. You guys are right, though. In California, you’ve got community colleges for a fraction of what state schools are. Kids can go there for two years and learn a lot.
Steve Moskowitz:
Chip, my first two years in college was community college.
Brandon Neely:
Here’s the thing I find interesting. We talk about inflation right now, and how things are going up. If you look at the education system over the past 20 years, the amount of inflation that has gone into the cost for college, and the amount of income that we get for that specific degree doesn’t necessarily correlate. I think that’s a challenge. Also, we don’t know our kids when they’re four or five, where they’re going to be, and we put money into a 529, hoping they’re going to go to college, and hoping college will exist, maybe. Maybe they’re going to be an entrepreneur.
Steve Moskowitz:
Bear in mind, that college fund could be seed money for a business. I think of all these people that didn’t go to college, they got a computer, and now they’re multi-billionaires because they created some app.
Brandon Neely:
That’s why I have mine as an adulting fund, as opposed to a college fund that I’m setting up.
Steve Moskowitz:
I like that term.
Brandon Neely:
I don’t know, and I want him to be a part… the other thing, it’s really interesting that a kid can rack up so much debt to go to college, who doesn’t even understand the money system, or how the budget. Yet, a business owner is pulling teeth to get a loan when you’re starting a business, and you’re like, “Wait a second, isn’t this backwards?”
Chip Franklin:
Brandon, can we get you back again? There’s so much more I want to talk with you about. Can we set it up again, and get you on sometime later?
Brandon Neely:
I would love it, yeah.
Chip Franklin:
Be well my friend, talk to you soon. Thank you. Again, the name of his website, being at the end of the show, it’s grandmaswealthwisdom.com. You’ve got to love that.
Chip Franklin:
What is the number one mistake that people make that causes them to be audited?
Steve Moskowitz:
I wouldn’t call it a mistake, and we could do a whole show on what causes people to be audited. The most common one is a computer program called DIF, discriminating income function, where all of our tax returns go through computer that looks at 66 different areas, some are well known, some are secret. Then, the computer scores the returns for what they call audit potential. Think of audit potential like a Turkey having Thanksgiving potential. The bottom line is, there are certain things that get more attention than others. The higher your income, the more likely you are to be audited, just because of the income.
Chip Franklin:
We can’t help that, though.
Steve Moskowitz:
You can’t help that. Although some deductions are more likely to get you audited than others, I’ve always, my whole career said, most people cheat on their taxes. They cheat themselves by not taking everything to which they’re legally entitled. If you’re legally entitled to something, you should take it. Most people listening to us today probably drive a car or a truck. At some point in your driving career, a police officer is going to pull you over and want to talk to you about something. Is your response to that, you will never drive a vehicle again the rest of your life, because you don’t want to have to talk to a cop? Or, “Okay, a cop wants to talk to me. Here’s my driver’s license, here’s my registration, insurance. No, I’ve not been drinking officer. Let’s chat.” Probably, after a few minutes of conversation, you’ll drive away without a problem. The bottom line is, if you’re audited, so what? Just like, if that cop stops you, so what? You haven’t done anything wrong.
Chip Franklin:
Keep your records, and be honest about everything, and you’ll do fine, right?
Steve Moskowitz:
Take everything to which you’re legally entitled.
Chip Franklin:
Gotcha.
Steve Moskowitz:
No more, no lesson, and you’ll be fine.
Chip Franklin:
Our next guest, I’m really excited to talk to her, she is a CEO of a company called Stillwater Hemp, and they specialize in CBD, but white labeling, and products, and E-commerce, and she’s nice enough to join us here. Melanie Kossan, hello Melanie. I got that name right, didn’t I?/p>
Melanie Kossan:
Yep, Close enough. Hi Chip, how are you? Thank you for having me on.
Chip Franklin:
Thank you for being here. Let’s get into this real quick. What is CBD, and what is not CBD? We’ve heard so much about that. Can you give us a little layman’s explanation?
Melanie Kossan:
Yeah, CBD is one of many compounds that are in the hemp plant. The 2018 farm bill defined basically two different kinds of cannabis plant. The cannabis plant that has high THC is called the non-hemp cannabis plant, and the low THC, high cannabinoid plant is the hemp plant. That’s what we work with here. We work with lots of different cannabinoids. A lot of people are using it for a variation of things, they’re getting better sleep, or maybe they’re living a better lifestyle than they used to live, when they had a lot of pain and inflammation.
Chip Franklin:
We talk about this with some frequency, because as Steve I know will tell you, this is not something that we believe should have this classification with the DEA.
Melanie Kossan:
Mostly, the difficulty is with the confusion by and large between the THC and the CBD, and the fact that the CBD, the rest of the compounds besides the THC have all been removed from the Schedule one, and regulation is over with the USDA now, and not the DEA, at the federal level. I think that’s probably the largest difficulty I have.
Chip Franklin:
Steve, let me ask you one of the questions about white labeling. The question is this: is white labeling more or less relevant with the opportunities and range of social media now? In other words, when people can get exactly what they want, and know what it is, do, do you tend to go to the source of that product? You know what I think of with white labeling? I play golf, and I can go to Costco now and get golf balls that perform as well as Titleist Pro V one for about a third of the price. Why does a company Titleist do something like that, Steve? Do they just have extra golf balls?
Steve Moskowitz:
The answer is, it depends. I will never forget, when I was a beginning accountant, and I worked for a giant CPA firm, and we had to go to the client’s plant for inspection. This big truck came in, unloaded some canned fruit, they put it on the forklifts, and they divided it into two areas. One got the fancy label on it, and the other one got the store label on it. It was physically, literally the exact same thing. It’s all about marketing and maximizing profits. The bottom line is, some people are very price conscious, that’s all they care about is the price. They won’t buy surgery above a certain price. They just won’t spend the money. There’s a market for that, too. The company says, “Okay, we can make some money on them, and we can make more money.” The bottom line is, somebody somewhere determined that X percent will buy at this price, Y percent will buy at this price, and even though Y is a lesser profit, it’s still a profit. It’ll increase our profit.
Chip Franklin:
Melanie, is that… I’m sorry Steve. Is that the future of CBD, in a way? My son was talking to me, he said, “We’re going to see major tobacco companies come in to the market with a lot of money, and they’ll offer a product that is inferior, and you won’t know that it comes from the tobacco companies.” Is white labeling going to be a problem in your business?
Melanie Kossan:
I feel like white labeling… what we do is exactly what Steve was talking about. We still have a healthy profit margin when we make the product, to put somebody else’s label on it. For us, it’s a great way for people to get the product out to the public, and basically, we are utilizing the benefit of our great product, and our great lab results with the positive reputation and trust of the brand that we’re putting on it. It always is a win-win. I get plenty of profit, the other business gets plenty of profit. I do feel like with big tobacco, I think big tobacco is probably going to come in when the non-hemp cannabis, the marijuana, is fully legalized. They’ve already bought up a ton of property in California, they’re already doing a lot of grows. I think that’s where probably the big tobacco-
Steve Moskowitz:
That was my prediction as well. Years ago, the tobacco companies were all set up to get into this business, just waiting for it to be legal. They were ready for a long time.
Chip Franklin:
Is the government going to be ready tax-wise, Steve? They tax it pretty heavily now. When the floodgates open, will the taxes go up or down?
Steve Moskowitz:
Once again, it depends. You have to see, are they doing something economically, or have they gotten greedy? For example, in California, where it’s legal at the state level, a lot of places said, “They’re going to put a special tax on this, and a special license on that,” and they basically drove the price up. What’s happened is, a lot of people still went to the illegal black market. As an attorney, I’m always going to tell everybody, comply with all laws, whatever they are, and that’s that. Not everybody listens to that advice. Not everybody cares.
The bottom line is, I think we should have it as any other business. If you sell petunias, or you sell chocolate candy, or you sell groceries, or you sell anything else, all the rules should be the same. One of the big problems with the cannabis business is that you have an internal revenue code section that only allows for the reduction of cost of goods sold on non-operating expenses, which leads into all types of torturous things, where somebody says, “If I have a store, and I sell pot, I can’t deduct the rent. But, if I have a store, and I sell T-shirts, I can deduct the rent. I’ll sell both pot and T-shirts, and I’ll deduct part of the rent.” Then, you go fight with the IRS over how much rent should be allocated to T-shirts, and how much the pot. I think all that’s ridiculous.
Chip Franklin:
As a female entrepreneur, are there any advantages or disadvantages? I brought that up a few minutes ago, but I was raised by a single mom and four older sisters, so I know that women have spit, and they have all of the acumen, some of it is inherent, some of it’s learned, to be successful. What has your experience been?
Melanie Kossan:
I was very welcomed into my community, as a business owner. I also am a single mom, and my youngest son was raised with two older sisters. I found that oftentimes, there are marketing opportunities, and other beneficial opportunities for women-owned businesses that simply aren’t around for a male-owned business.
Chip Franklin:
Steve, are there tax advantages for women that have their business?
Steve Moskowitz:
It’s not tax advantages, but there are certain counties that give preference to people in different categories, whether it be gender, race or other things. Again, when that happens, there are people that sue, and say, “That’s unfair, and you can’t do it.” There was a tax law, the restaurant revitalization fund, that preferential treatment was given to certain people, and somebody sued, and the appeals court agreed with the people suing.
Chip Franklin:
Yeah.
Steve Moskowitz:
Again, so many questions that you ask a lawyer, the answer is, “It depends.”
Chip Franklin:
Melanie, thank you so much for your time with us today. I really appreciate it. Will you come back on again with us?
Melanie Kossan:
I would love to. Thank you so much for having me.
Chip Franklin:
Thank you.
Steve Moskowitz:
Thanks so much.
Chip Franklin:
All right. Steven, you are so right. There are so many things that find their way at the footsteps of tax, and understanding that path, and navigating that path is all the difference between success and failure in business, and in some ways, life too, right?
Steve Moskowitz:
Absolutely.
Chip Franklin:
That is Steve Moskowitz, and I’m Chip Franklin, and that’s another edition of Practical Tax. Stay with us, and we’ll see you next time.
Outro:
Thanks for joining us on the Practical Tax podcast with tax attorney Steve Moskowitz. To hear more and view more podcasts, go to moskowitzllp.com/practicaltax.