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Rocky Lalvani joins us to discuss the ironic twist that businesses need to focus more on profits and Stephen Patterson tells us how to guide your business through a recession.
Episode Transcript
Intro:
Welcome to the Practical Tax podcast, with tax attorney Steve Moskowitz. The Practical Tax podcast is brought to you by Moskowitz, LLP, a tax law firm.
Disclaimer:
The information contained in this podcast is based upon information available as of date of recording and will not be updated for changes in law regulation. Any information is not to be considered tax advice or legal advice and does not form an attorney/client relationship. Further, this podcast may be construed as attorney advertising. You should see professional consultation for your individual tax and legal situation.
Chip Franklin:
Well, welcome to another edition of Practical Tax with Tax Attorney Steve Moskowitz. I’m Chip Franklin, and this is where we talk about issues surrounding taxes, and obviously that’s a wide area, and it covers everything from individuals to multinational corporations and everything in between. And also, of course, you’ll find this on our Ask a Tax Attorney segments, there are spaces in between that we try to fill in the cracks on the show, and Steve does a great job, and we love having great guests. Our next guest today is someone who can talk a little bit about what we love to talk about, which is profitability. And he’s taught this to business owners for years. He teaches them how to ensure how they get paid and make a profit a priority. As a certified profit first professional, he implements these profit first systems and we’ll talk about that coming up in just a second. Rocky Lalvani joins us here on Practical Tax. I’m laughing because I hope I got your name right. I didn’t ask you in advance. Did I get it?
Rocky Lalvani:
You did wonderful, Chip. Thank you.
Chip Franklin:
Well, that’s good because I took me a while for Moskowitz, but I don’t mess that up anymore.
Steve Moskowitz:
You did perfect, Chip.
Chip Franklin:
All right, so let’s talk about, you said the profit answer, man. Let’s kind of jump in with a question, and obviously profit comes first in business. You can’t stay in business long without a profit, but there’s also growing pains, hard times and salaries. How do you balance that? How do you balance the need for profit with the people and everything else that goes alongside that?
Rocky Lalvani:
We have a simple saying, profit is a habit, it’s not an event. And I think too often for business owners in the back of their mind, it’s always I’ll be profitable when, right? I’ll be profitable when I hit maybe a certain dollar amount in revenue or I’ll be profitable in three years. But if they don’t have a plan to get there, then I think that’s a major, major problem. Yes, we have to pay our bills, we have to pay our employees, but we also have to pay ourselves. And I think this is much more of an emotional issue than it is sometimes a numbers issue because the business owner wants to pay everyone else first and they kind of leave themselves to last. And that’s one of the things we’re trying to say, “Hey, you as the business owner also need to get paid and you need to get paid well for your efforts. You took the risk to start the business. You put probably in more time than anyone else into your business. And yet, why are you leaving yourself to last?”
Chip Franklin:
Huh. Steve, when you get small businesses approaching you for help and consultation and tax, obviously advice, are they usually starting out or are they switching from another firm? Or did they just decide to you bring in money and grow?
Steve Moskowitz:
All over the map. People that are just in every phase that you’ve mentioned and then some.
Chip Franklin:
And obviously that’s a great point you made because some people just love the business so much. And I think of restaurants, they love having their friends.
Steve Moskowitz:
Yeah, that’s where you really have to be careful because most people go into business to make a profit greater than they would make in wages. But the ones that go in, because here’s what I’ve seen, somebody says, “You make the best souffle in the world.” And he said, “I just love making those souffles.” And they open up a little restaurant and they’re making souffles and they’re losing all their money. And I remember I had a client that, fortunately they asked me before they signed anything, and I looked at the restaurant they wanted to rent and the rent and I said, “Well, assuming you do multiple seatings in a night and assuming you work seven nights a week and assuming every seat is filled, this restaurant is so small that you won’t even cover your rent. You can’t sell this product in this space. It physically doesn’t work.”
Chip Franklin:
You guys ever see-
Steve Moskowitz:
You can’t put a gallon of water in a pint [inaudible 00:04:27] container.
Chip Franklin:
There’s a great movie, if you haven’t seen it, called Midnight Run with Charles Grodin and Robert De Niro. It’s a comedy. And De Niro keeps talking about wanting to open a coffee shop. And he’s like, “No, you don’t want to open a coffee. It’s just a horrible thing. Everybody loses their money.” But we’re so inspired to have our own businesses.
Steve Moskowitz:
It’s the American dream, have your own business.
Chip Franklin:
Right, but-
Steve Moskowitz:
And it turns into the American nightmare because unfortunately almost all small businesses go out of business and they usually take all their savings and everything they could borrow from friends, relatives, a bank or anybody else who will lend money with them.
Now, I went into my own business over 30 years ago. I believe in it. And when clients say to me, “I am firm believer in going into your own business.” But there’s things you can do. For example, when I opened my first attempt, I had some money coming in on the side, I had a corporate job for a while. I was doing tax returns on the side and the business got busier and I couldn’t do the corporate job anymore. So I was a professor at night, so at least I had some money coming in before I said, “Okay, I feel confident enough that I can rely on the business a hundred percent for earnings.” And I was able to do it doing taxes. But you take a look at other things. Sometimes somebody’s married and one spouse has the business and one spouse has wages. Sometimes they’re older and they have a nest egg and they say, “Okay, I’ll risk part of it.” And some people just jump in and see what happens.
Chip Franklin:
Yeah, you know Rocky, it’s funny because-
Steve Moskowitz:
Those of you, the ones don’t pay their taxes.
Chip Franklin:
Well that, yeah, but it’s funny too, the word profit for people that aren’t self-employed often makes them feel resentful. This kind of that word has gotten an unfair shake in the last 30, 40 years. Why do you think that is, Rocky you?
Rocky Lalvani:
I think it come, we said-
Chip Franklin:
I mean, you must know what I’m talking about, right?
Rocky Lalvani:
I know exactly what you’re talking about. I mean, we had that internal struggle when we market our company because it’s profit first and you get people who look at you and go, “Oh, you’re evil.” But at the end of the day, if your business isn’t profitable, how are you going to pay your employees?
Chip Franklin:
Boom, boom.
Rocky Lalvani:
How are you going to make the souffle? How are you going to pay the rent?
Steve Moskowitz:
And it gets even worse than that because that’s what I was talking about before. People don’t pay their taxes, they do pay the employees, then all of a sudden they have a horrible debt that they can’t pay and they go out of business. Whereas if they said, “Well wait a minute, but before you get in the hole of signing a 10 year lease and not paying your taxes and having other debts you can’t pay, to try to, they are not going to eliminate it. But you want to try to minimize those risks and yeah, you do have to pay your taxes and you do have to pay your rent, but could you get a best possible deal? What can you do?”
Chip Franklin:
A lot of people, a lot of small businesses get in trouble by not paying their taxes and I mean not a sort of a, they don’t do it with the evil intent, it just happens. They get to a part where they’ve overextended, how do you save for taxes and still make that money work for you? And that’s a question for both. I’ll start with you Rocky.
Rocky Lalvani:
So what we do for our owners, as soon as money comes into their business, we have them set a percentage aside for taxes.
Steve Moskowitz:
Perfect.
Rocky Lalvani:
So hopefully they’ve sat down with the CPA and they’ve projected, “Hey, if this is what we do this year, this is about what our tax bill is. So we know the percentage.” Whatever that percentage is, every month we have them take that percentage and we put it aside. So it builds a little bit of an emergency fund, it builds a little bit of cushion. And when the CPA calls and says, “You owe taxes.” They look at their tax account and they go, “Okay, I can cover it.” And this is really weird, but what business owners tell me is number one, it takes away so much anxiety because they’re like, “Whatever my CPA tells me, I feel confident I have the money to pay it. And I don’t feel stuck over that.” So I think that’s a big part of it. And then the second thing is they’re just proud that they have the ability to write that and stroke that checkout and that they don’t have to worry about it.
Chip Franklin:
That’s a great point, right Steve?
Steve Moskowitz:
I couldn’t agree with Rocky more, and this goes back to what you and I have talked about before, it’s the old envelope system.
Chip Franklin:
Yeah.
Steve Moskowitz:
And what I say to clients is, “Look, you have a minimum of three checking accounts, a business account, a tax account, and a personal account. You find out what your marginal tax rate is.” and I recommend this on a weekly basis, every week you take a look at your day profit and then you say, “If I stop business today and close the doors, I need to have enough cash in my tax account to pay these taxes.” And if you do it on a weekly basis, you have the best shot of doing it.
The problem on a monthly basis for most business owners, cash flow is so important and cash flow can be thin. If you do it on a monthly basis, most business owners can somehow do it. But if you take the same numbers on a monthly basis, “How much do I have to pay? You know what? I had a bad month, I’ll make it up next month.” And then next month doesn’t happen. And then all of a sudden they’re calling me, “Hey, an IRS agent wiped out my bank account. Hey, an IRS agent knocked on my door.” So the bottom line is it’s the envelope system on a weekly basis and you’ll be just fine.
Chip Franklin:
And Steve, you don’t want to put too much in there. You don’t want to put more in there than you have to, right? Because that’s something you can obviously consult them with.
Steve Moskowitz:
Nothing wrong with putting money in the bank, Chip.
Chip Franklin:
So this money will be working for me while I’m saving it, right? Theoretically.
Steve Moskowitz:
And remember, you only have to make those estimates four times a year, 4 15, 6 15, 9 15, and 1 15. And one thing that really trips people up, the first estimate is due April 15th, the same as the taxes and the mistake a lot of taxpayers make is they say, “April 15th, how am I supposed to pay my taxes? I don’t have enough money for that. Oh the estimate, I’ll double up in June.” Well June’s two months later and they don’t and then all of a sudden they didn’t pay for this year and then all the bad stuff happens if they don’t file the return. You have to keep up with this stuff minimum every week, at a minimum.
Rocky Lalvani:
Okay, tax time is bonus time. Because if you think about it, if I own overfund my tax account, once I pay my taxes on 4 15, we can look at the account and go, “Hey, there’s an extra $50,000. Have fun. Get it out of your business. Go live.”
Chip Franklin:
You are an optimist. I love that. I love that way of thinking.
Rocky Lalvani:
My clients are sitting on big fat tax accounts and we look at them and we’re like, “Hey, we don’t know yet.” And they’re like, “It’s okay. I’m hiding this money from myself.”
Chip Franklin:
Well let me ask you a question I was reading in your literature, Rocky, about a thing called profitable tax planning. Is this kind of what we’ve just been talking about?
Steve Moskowitz:
Sounds great.
Chip Franklin:
Yeah. What is that?
Rocky Lalvani:
So what unfortunately happens more often than not, right? Is the business owner maybe picks up the phone and calls the CPA sometime way too late in the year, “How do I save taxes? How do I save taxes?” And invariably the discussion is, “Oh go buy a vehicle or something, right? I can section 179 it out.” And so they’re spending money they don’t need to spend on something they don’t need and three months later they’re in a cash flow crunch because now they got payments and everything else.
Steve Moskowitz:
And for the rest of us, 179 is where you get to write something off in its entirety as opposed to appreciated over a period of time.
Rocky Lalvani:
So they get a big hit. The problem is they still have to pay for it. What we talk about with profitable tax planning is what about retirement accounts? Why don’t you pay yourself and get a tax deduction? At least you keep your money.
Steve Moskowitz:
Rocky, you need to watch some of my other clips. I love retirement accounts.
Rocky Lalvani:
I know you do.I love it when these work together because in effect, Steve’s acumen is what a lot of what you’re talking about is based on, I mean you have to understand the law and what you can do and you can go right up to the limitations, right?
Chip Franklin:
I love it when these work together because in effect, Steve’s acumen is what a lot of what you’re talking about is based on, I mean you have to understand the law and what you can do and you can go right up to the limitations, right?
Steve Moskowitz:
And Chip, with the retirement accounts, that’s what I call the big four. One, you pay less taxes. Two, your earnings are not taxed while it’s in the retirement account. Three, cash flow, almost all expenses if you’re doing tax planning, you have to write the check by 12 31 year one, deduct it in year one. With most of the retirement accounts you get up to the time of filing the return plus extension. So with most of them you get basically about three quarters of the way into year two before you have to write that check and you can still deduct it from year one. And last but not least, there’s special federal protections so that if you get sued and the plaintiff wins an amount in excess of your insurance, they can’t touch your pension. Although I hate to mention his name, look at OJ Simpson. He’s had a multimillion dollar judgment against him for many years. He’s not lost a penny of his pension.
Chip Franklin:
I can’t tell you how many people I’ve told that story that you’ve told me many times we’ve talked about it and not just with OJ. There’s many, many examples of that. Rocky, thank you so much for being here. Obviously Profits First is your book. We will have your email address or website for people to see when they see this and also when they hear it on iTunes and Spotify. Thank you so much for being here. Again, Rocky Lalvani, the profit answer man. Thank you. You have a great weekend and we’ll talk to you again soon, I hope. All right.
Rocky Lalvani:
Thanks. Have a great day.
Chip Franklin:
All right, well thank you. That’s really interesting to me, me to hear you guys talk back and forth on that because and especially the idea of being able to do the envelope system, having seen my mom do it when I was a kid and hear you talk about it now, it made me feel, it makes me feel better because it was hard because we’d see that, we knew where those envelopes were as kids, but no one would ever touch him.
Steve Moskowitz:
Well in life, discipline is very important. Discipline is what basically removes us from the lower life forms.
Chip Franklin:
Or include some of us in some cases. If I owe money, if it turns out I owe money to the IRS, how long the IRS have to collect back tax debt?
Steve Moskowitz:
Generally they have 10 years and it’s 10 years from the date of assessment. What’s the assessment? Generally the assessment is anytime you file the return up to three years later, in most cases there are exceptions. So the bottom line is the government has quite a while, but if you run the statute then you legally don’t have to pay the taxes. Although the government usually will ask you to voluntarily extend the statute and that’s why we have to advise our clients should you or should you not make that agreement.
Chip Franklin:
Yeah, I mean obviously you made a big point about the assessment. It’s not from the last time you didn’t pay it. So it could be longer than 10 years theoretically, right?
Steve Moskowitz:
Correct. So if you think about it, the assessment can be any day from the day the tax return was filed up to three years later generally.
Chip Franklin:
Gotcha. Wow.
Steve Moskowitz:
Sometimes even longer under special circumstances.
Chip Franklin:
There’s a lot of people that say though the economy isn’t as bad and it will recover quicker than some analysts say.
Steve Moskowitz:
But Chip, the economy is not the same for everybody. In any economic times, somebody is having a horrible time is something else. For example, when the economy is awful, it’s actually a good time for people that work in unemployment offices because they need more helpers there. So what’s horrible for somebody is good for some. In the pandemic, look at Zoom.
Chip Franklin:
Well I know for lenders right now, I know some alternative money lenders that are getting more business where other lenders who are dealing with 6% are having a hard time. So it’s really interesting to see. Stephen Patterson is a Financial Strategist and the Director of Client Relations for KeyCity Capital and in this tough year and where we’re headed, he had some interesting takes on that and he’s nice enough to join us here on Practical Tax with Tax Attorney Steve Moskowitz. Hello Stephen.
Stephen Patterson:
Hi Chip, how are you?
Chip Franklin:
I’m well. Steve and I talk about this a lot and he just made a great point about a rough economy is not always bad for everyone. Do you see that in your work and do you see some of the people caught in the middle, they don’t know if it’s going to get better for them or worse for them?
Stephen Patterson:
No, I think it’s a great example. In every market there’s a winner and a loser. Sometimes when we see a down market, the natural human response is everyone’s losing and that’s not necessarily so. And I’ll give you a point in case that’s driving the CPI right now was rent. Rent was a significant factor that is higher. But if you’re a landlord right now, I would say that rent being up is not a bad thing, right? Even though it’s contributed significantly to the 8.1% year over year, that was just calculated.
Chip Franklin:
Well we saw, and also some of the legislation that came out of the pandemic though took some of those options away for landlords and it made it more difficult for people to get some of the money from their tenants. And anybody that’s ever owned rental property knows that it’s not just collecting tax, it’s not collecting a check once a month. There’s a lot of work involved in it. But you make a great point.
FedEx is warning of a global recession and they’ve cut their sales forecast by almost three quarters of a billion dollars. What should all of us be doing? And Steve, I mean the same question to you. I mean I’m sure people, is this thing, if inflation stays where it is and doesn’t start, prices don’t start coming down, it’s fine it stops rising. But if they don’t start coming down, what advice do you guys give people? Let me start with you Steve, what advice are you giving people when this is cutting into their profits?
Steve Moskowitz:
Adjustments, evolve or die. And if you look at any time period in our history, and I swear I was not practicing law at the time or even alive when Henry Ford went ahead and raised the pay rate to $5 a week, that was, oh my god, that guy’s paying $5 a week. That was a lot of money but maybe a steak was a nickel. So what happens in these times, you have to make an adjustment and you take a look at do you have to raise your prices? Are there things that you can save? And I don’t know if this is a dirty word or not, but you have to do what a lot of the big companies have done, you have to shift things overseas if you can and you make adjustments. And again when you’re talking with your customers or clients, you explain to them why.
And look what some of the big companies have done. They’ve kept their prices the same but they make the packages smaller. I think, you and I remember when we were toddlers the size of a candy bar you get for a nickel, it was huge, candy bar for a nickel and then they kept the nickel price for a while but the candy bar kept getting smaller and smaller. So when you’re up to the point you say, “Well in order for me to have enough candy, I have to buy two nickel candy bars.” You just really raised the price of the chocolate to 10 cents, didn’t you? It’s adjustments, there’s always adjustments. That’s what an economy’s all about. It’s always adjustments.
Chip Franklin:
Stephen, it’s funny, I heard a guy say, this guy said this with a straight face, he goes, “If you think if Putin launches a nuclear war, what will that do to the market?”
Stephen Patterson:
There you go.
Chip Franklin:
Some people lose a little bit of perspective in these times. If somebody was asking you what should we be doing? Obviously there’s a million right and wrong answers. What do you lean toward though right now with inflation being where it is?
Stephen Patterson:
I like hard assets and investments that are counter correlated, right? So energy has been a nice play. Passive investment real estate has been a very nice play. I think commodities.
Chip Franklin:
You’re in Texas, right?
Stephen Patterson:
I am in Texas.
Chip Franklin:
But energy, I remember 10 years ago when oil, I worked with a company was drilling oil wells and then when oil dropped down to 42 they were gone.
Stephen Patterson:
Absolutely.
Chip Franklin:
Obviously everybody knows what’s good and what lasts and the prices are higher for that and to reflect that.
Stephen Patterson:
Well, I think it goes back to what Steve was saying, it’s adjustments, right? And so in this current cycle you’ve got to go to assets that make sense in the cycle you’re in. Cycles do not last forever. They do repeat themselves though. And so if you look back at times when you saw this, whether it was in the eighties or whether it was in the mid nineties to where we are now and it’s been quite a while since we’ve seen something like this, ’94 to be exact, what did well in that cycle? And that’s where I’m going to advise people to run to.
Chip Franklin:
Interesting.
Steve Moskowitz:
And Chip, what Stephen said is so true and a lot of times people are making investments, they forget that. The markets are not always up or always down. A lot of people they see the stock market going up. They say, “Oh well I’ll just keep making more and more and more.” Well sometimes it goes down, but when it’s down it doesn’t always stay down. And a lot of investment advisors say, “Well this is a tremendous time to buy when it’s a down market because eventually it’s going to go up.”
Now you talk about eventually then you talk about time value of money and of course Stephen, I couldn’t help when you were talking about passive real estate, I think about the tax deduction and if you have a spouse in there that can be qualified as a real estate professional, you have what I think are the sweetest words in the language, positive cash flow with a cash loss. That you actually, you’ve made cash from your investment but according to your taxes by all types of things, whether it’s additional depreciation through accelerated depreciation, cost attrition, whatever, you legally have a loss on your tax return and then you take it one step further and say now I’m taking part of this paper loss and offsetting it against wages or profits from a business, dividends, interest and you can do all that. And that’s why I became a tax attorney because I was a CPA first and I was looking at the Fortune 500 company, I said, “Hey how come those companies are making billions with a B?”
Chip Franklin:
That’s right.
Steve Moskowitz:
And they’re legally not paying any taxes and mom and pop on the corner are paying taxes. And I always say that to, and that’s why I became a tax attorney to do some of that stuff. And I always say to a new client say, “So do you think you make more or less than Apple computer?” We all laugh haha, “We make less than Apple computer.” I said, “Do you think you pay more taxes than them?” That’s when they stop laughing. And that’s when you get into tax planning and with the stuff you’re doing, there’s some great opportunities there.
Stephen Patterson:
No, I mean I think to expound on your point, I mean when you can take the depreciation on an asset, pass it back to that investor and offset any type of preferred return or operating income, that’s a tax free win. If you can get, like you said, a spouse to be qualified as a full-time real estate professional, it changes the game even further because it offsets other income. And in an inflated market, real estate’s a beneficiary of that. So why not get into an asset class, whether that’s real estate or energy or commodities that is exactly is experiencing a gain where a stock is experiencing a loss.
Steve Moskowitz:
Plus what other investment can you live in.
Stephen Patterson:
That’s right.
Chip Franklin:
Yeah, let me ask you that, you mentioned that, what about buying rental properties right now? If you have a lot, if you’re sitting on a lot of cash, is that a smart move? What do you think, Stephen?
Stephen Patterson:
I do like it. Now you’ve got to be intelligent about it and understand the cap rate on the property and the area that you’re living in. But I mean if you look across the southeastern United States right now, you have Texas, Florida, Tennessee, Alabama, those states are booming, job growth, relocation. I mean in our home state right here in Texas, Governor Abbott released just a remarkable statistic. You have 57 national companies relocate their headquarters to the state of Texas. And of those 57, 21 were Fortune 200 companies. That’s astonishing to me.
Steve Moskowitz:
That’s why so many people here in California are moving to Texas because instead of paying our 13.3 tax rate, they’re paying your tax rate of zero. And I like zero better.
Stephen Patterson:
You got it. And I mean let’s take that as even a step further. You’re seeing some states that have put, COVID revealed a lot of things, and this isn’t a political comment, it’s just a factual comment. States that put a premium on personal liberty and low taxation have exploded in the COVID economy and the immediate aftermath. States that didn’t, you can look at the 2020 census and they’ve lost considerably in population. I mean here in Dallas when I drive to work, I see as many California license plates as I see Texas license plates.
Steve Moskowitz:
Dallas is a great place. I’ve been a visitor there a few times. And another advantage with real estate, you can trade up and up and up and do 10 31’s and not pay taxes. And then you can get into an opportunity zone and make beaucoup, cash out and not pay any taxes. And I was quoted on this in the Wall Street Journal, you can do DSTs, Delaware Statutory Trust, get out and now you’re not a landlord anymore, you have a stock portfolio of real estate, but it qualifies for 10 31 so you don’t pay any taxes. And the big check that you would’ve written to the IRS is in your portfolio instead and you’re earning money on it.
And then somebody says, “Ah, those 10 31’s, gee, they’re only for business. And I have this house that I bought for $100,000 4 years ago and now it’s worth $5 million, the capital gain, but it’s too big to live in now.” And I say, “It’s so easy to convert a personal residence into 10 31 property because the Congress is so differential to real property. And then you do the DST with the 10 31 and now you’re sitting on this big wad of stock that’s earning you money and you don’t pay any taxes and it’s all legal.”
Stephen Patterson:
That’s right. I’m doing it.
Steve Moskowitz:
What a country.
Stephen Patterson:
No, I’m doing a tremendous amount of 10 31 business right now. People have seen their home values or their rental property values accelerate, their cost basis was $400,000. They can take it off the table for 6, 7, $800,000. Well that should be a long term capital gain, right? No, they go into a 10 31, they come into one of the properties that we can put them in and there’s no taxes on that, right? And so for the next, well indefinitely until they move on to the next item that they want a 10 31 into, they’ve avoided the long term capital gain on that.
Steve Moskowitz:
And you can avoid it forever because you do that the rest of your life and then in your estate, you leave it to your beneficiaries, you get a step up in basis, they can sell it the next day and they pay zero taxes.You got it.
Stephen Patterson:
You got it.
Chip Franklin:
So-
Steve Moskowitz:
Welcome to my world.
Chip Franklin:
So listening to you guys, it sounds to me that-
Steve Moskowitz:
It’s [inaudible 00:28:59], isn’t it?
Chip Franklin:
Well it is. And that’s my next question. Do most people, even in tough times still have opportunity? I mean maybe working another job to get more capital and take advantage of the tough time. Is that a fair thing to say across the entire economic strata, do you think?
Stephen Patterson:
Well, here’s the unfortunate part of what’s happened right now and you know have Jerome Powell that is responsible for monetary policy, right? And he has a tool and his tool is to either raise or lower interest rates. That’s the sum total of it. But then you have a congress and you have a President that has the ability to affect public policy that could also play into this inflationary situation that we’re in. So the unfortunate part is the middle class and the lower class are suffering during this time. And you have a fed going one direction and you have a federal government going another direction and frankly, we’re not moving the needle one inch. That’s why we haven’t had a year over year change.
Chip Franklin:
And didn’t a lot of this, you mentioned the COVID economy that kind of played into this too, with the trillions of dollars that were thrown at Americans. I mean we hear all about this, all this PPE money that people didn’t need that they took and it was not done very well.
Stephen Patterson:
No.
Chip Franklin:
Right? We’d all agree that.
Stephen Patterson:
Absolutely.
Chip Franklin:
And that played into where we are right now. And I mean COVID was unavoidable I guess. But I mean, I guess do you guys feel optimistic though moving over the next 18 months?
Steve Moskowitz:
I always feel optimistic. And one of the things that I would say to you is you say, “Well, do people have these opportunities?” And I have to give you a lawyer’s answer. It depends. Look at our economy now. And what I find is the middle class continues to shrink and you have more poor people that sadly don’t really have opportunities for anything. I mean, sometimes they’re not even living inside and you have another group that are making tremendous money.
It’s like in the same day you can pass by a guy who’s literally a minimum wage worker that’s living with six other people in a studio apartment and he’s serving a hamburger to a guy that just made $20 million on a real estate deal. We’re all American citizens, we’re all in the same room but there is such a tremendous diversity of wealth or lack thereof. And it depends the guy with the 20 mil, he can do all the fancy stuff that Steve and I are talking about, the guy that’s working at the minimum wage job other than really feeling for these people with all of our hearts, what opportunities they’re trying to pay the rent and feed themselves.
Stephen Patterson:
Well, let’s take it a step further and let’s call the real inflation number 10%, right on the CPI, yeah let’s just call the real one 10%. So a family that’s making $60,000 a year, that’s a significant number. So now not only have they seen their grocery bill, their gas bill and their rent increase substantially, but we’ve also seen if there was a 401K there, it’s taken a significant hit as well. And so-
Steve Moskowitz:
Or as we call it in the industry, it becomes a 201K.
Stephen Patterson:
Yeah, absolutely. And then when we’re talking about these opportunities that exist out there, what is the opportunity for a passive investment real estate for a middle class family. Chip, I think that’s the path you’re going down and that’s the scary part of what I see being enacted right now. These rising interest rates are hitting us with credit cards, they’re hitting us with mortgage rates that are going to dramatically impact the middle class, which is shrinking us as Steve pointed out. And then on top of that, any retirement savings that may have been there has been hit significantly. So they lost on both ends.
Chip Franklin:
You guys offer great insight on this and I think it’s very helpful for people like myself and others that are outside looking in and believe in this system and believe it can work for everyone. It’s just obviously more difficult where you are on the ladder, but I love a system that allows people to pick themselves up and to change their lives. And I think you guys do as well. Stephen, thank you so much, man. Will you come back, please?
Stephen Patterson:
Oh, absolutely. Thank you.
Steve Moskowitz:
Great talking to you.
Chip Franklin:
Say hi to Texas for us, will you?
Stephen Patterson:
Absolutely.
Chip Franklin:
Okay, bye-bye now. Again, That’s Stephen Patterson. Great stuff as always. Steve, great job man. Really good stuff today.
Steve Moskowitz:
A real pleasure as always. Thanks Chip.
Chip Franklin:
Well that’s another addition of Practical Tax. That’s Steve Moskowitz, your Tax Attorney. I’m Chip Franklin, little of that, that’s what I do. But it’s fun. It’s always fun. And we’ll see you next time. Follow us on YouTube or go to moscowitzllp.com. See ya.
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.