[00:02:10] Patrick Donley: That’s what we’re going to get into for sure. The different, small business advantages, real estate advantages, different things that people can do to take advantage of just saving and taxes, which I think we’re all for. I wanted to start off first . I found out that you played college baseball, which I’m fascinated by.

[00:02:25] Patrick Donley: I really love interviewing guys that have been athletes. I’ve had some professional, NFL football players, and I just really enjoy talking to athletes. So I just wanted to hear just a little bit about maybe the lessons that you learned. Playing both high school, college, baseball, and how you’ve applied those lessons to what you’re doing now, like how has that impacted your life and career?

[00:02:47] Grant Dougherty: There’s like several lessons that I would have learned. You gotta learn how to be a good teammate. And work together where, to, with a team to achieve a common goal, and, that’s what we probably want. And that really applies to business now, but some of the other things. In baseball, if you are a pitcher, you’re going to give up a bomb that just comes at the wrong time.

[00:03:05] Grant Dougherty: You may lose the game. You may be a hitter that goes, Oh, for his next 20 at bats, or maybe you’re the one that strikes out and ends the game with a strikeout. You have to come with that humility. And I think that was something that I also learned. Baseball is definitely a very humble sport and you have to take that humility and apply it to business, but probably the biggest lesson I learned was in college baseball.

[00:03:26] Grant Dougherty: Yeah, you have freaks of nature and you have guys that are just like unbelievably talented athletes, but the broad majority of people, right? Are all, once we can get to that college level and even go to the next level, everyone is good at that point. But the thing that really separates the good from the great.

[00:03:43] Grant Dougherty: Who makes the less fundamental mistakes, right? It’s the fundamentals that really separate the good from the great. And, yeah, you can make the diving play. You can be. Super fast, super strong, but if you can fundamentally be very sound. And try to make as few mistakes as possible, you will see success.

[00:04:01] Grant Dougherty: And that lesson right there is really transferred over well for life and just business in general. 

[00:04:07] Patrick Donley: I interviewed a guy named Chris Koerner, who’s on Twitter, that’s how you and I got connected, was Twitter, but Chris had a post where he talked about his preference in hiring people, specifically salespeople, were college athletes, D1 athletes.

[00:04:22] Patrick Donley: He’s by far, those are the best guys to hire. Can you speak to that a little bit? Like, why that is, do you think? 

[00:04:28] Grant Dougherty: I’m not too sure, scientifically, what the reasoning would be behind, but I do know that whenever you. are involved in any type of college athletic sport or in my year and a lot of college athletes can’t test in this, but you have to be very disciplined and you have to be very meticulous with your time.

[00:04:43] Grant Dougherty: Constantly throughout the day, you got to go to class and you got to go to workouts and you got to go to practice. Then, at my school, the freshmen, sophomores and juniors who didn’t have a certain GPA, you had to go to study hall, right? So we had to learn how to use our time wisely and use it to the best of our abilities. You have to be multi-skilled, right?

[00:04:59] Grant Dougherty: You can’t just only be a good athlete. You don’t. Get the grades, I can be playing. That would probably be my reasoning behind it. I’m not too sure if that’s really what it is, but yeah, that was something that I learned whenever I was young, it was time management and, I feel like that transfers over, not just the sales, but just business and life in general.

[00:05:17] Grant Dougherty: That’s another great skill that people need to learn how to have. It’s just time management, using their time wisely, focus on your strengths and outsource your weaknesses. 

[00:05:26] Patrick Donley: I like that. My wife, I told you, is a therapist and one of her favorite books is a book called Grit and it’s, I think that’s another factor.

[00:05:33] Patrick Donley: It’s just athletes developing grit. They develop perseverance and, like you said, getting the fundamentals down and just sticking to it and just learning to grind is like such a big part of success in anything. It doesn’t matter what it is. 

[00:05:45] Grant Dougherty: having that competitive nature and just like that killer instinct.

[00:05:48] Grant Dougherty: If you’re an athlete, you definitely have that instinct. I call it the killer instinct. I don’t actually mean killer. I’m talking about just that competitiveness to always want to win. 

[00:05:57] Patrick Donley: Yeah. The NCAA basketball tournament is going on now as we’re recording this. And I just love to watch the athletes, both the men and the women, just like their drive.

[00:06:05] Patrick Donley: And I just, I think it’s like such a fascinating sporting event to watch. 

[00:06:09] Grant Dougherty: I almost feel like it’s more intense than like sometimes, with the professionals, right? Once more money gets involved, we’ll start. Now, granted, college athletes are getting paid for like their endorsements and stuff now, but it’s still a little different.

[00:06:20] Grant Dougherty: I feel like you have more to prove when you’re still a college athlete versus, now you’re a multimillionaire professional athlete. 

[00:06:26] Patrick Donley: Yeah, no doubt. I want to talk a little bit about you, so you’re playing baseball in college. When did money and investing and all of that, what are your, some of your first memories of that?

[00:06:36] Grant Dougherty: Growing up, we didn’t really talk too much about budgeting, it was more, more very basic budgeting, not really too much on investing. But when I went to school, I studied business, I majored in management, I minored in finance and accounting. And then I went and got an MBA.

[00:06:52] Grant Dougherty: So I was in a school, constantly around business and money. So it was funny because back then when I was in school, I was just trying to get good grades. I got the hang of how this thing is supposed to work and I can make good grades, but it wasn’t until I got my first corporate America job.

[00:07:08] Grant Dougherty: That’s when I was finally all hit and I’m starting to get paychecks and I have a 401k. And, I have to pay tax and all this other stuff. That’s when it’s like, Oh, this is what is really going on. So there was that experience that really finally tipped me over. And once when that started happening, that’s when I started talking to my parents about Hey, do y’all invest your money?

[00:07:26] Grant Dougherty: And that’s when they told me they had a financial advisor. So then I started looking into that and that, that was like essentially my first real exposure to just handling money in general. Whenever I actually started to legitimately earn money at, like corporate America, because I, in college, coming up I worked retail, I work retail jobs.

[00:07:42] Grant Dougherty: So that was a little bit of money that’s still budgeting. I didn’t, wasn’t making enough money to like, okay, now I can, I have free mind to go and invest in. the four, 401k or I was basically just making a nut to essentially pay my bills and pay my, my, my food and kind of keep it moving, man.

[00:07:56] Grant Dougherty: But yeah, that was probably my first exposure to actually investing. And so a lot of the research I had to do on my own, or I would have learned about it in school. And then once when it started to apply personally to me, now it’s just I’m taking that next step. So maybe I will focus on Intelligent Investor, which was a great book that I read.

[00:08:13] Grant Dougherty: Now, granted, you need a little bit of background knowledge going into Intelligent Investor to be able to read it, right? But that, that to me was probably, The tipping point is Oh, okay. I think now I know how to invest. Oh, I’m getting into life insurance because I have three kids. So I don’t necessarily invest in life insurance as like an investment per se, but for my three kids and my family, I know how important that is to an overall portfolio.

[00:08:38] Grant Dougherty: I got life insurance to cover that. I got my investments in both 401ks and a taxable IRA, not taxable, just taxable brokerage accounts. That’s it. And then, you start to learn a little bit about real estate, right? And so you start getting involved in the tax world. So now you’re like, that’s what I didn’t just immediately come out as a tax advisor, right?

[00:08:57] Grant Dougherty: And I had to get my, my, my interest spark. I wanted to learn how to file more taxes. So I started reaching out to different mentors and I knew, Hey, can I file your tax return? I won’t even charge you. I just want to get used to it. So that’s now you start learning about real estate investing. You start learning about how I could passively invest in this business, right?

[00:09:14] Grant Dougherty: And then you start really liking getting access to, like, all sorts of different ideas and just experiences. 

[00:09:21] Patrick Donley: It’s a whole world out there that I think a lot of business owners, they just rely on their CPA hoping that they keep up on everything. And it’s hard even for a CPA to keep up on everything. I feel as a small business owner, you’ve got to take the onus to be a little bit on you.

[00:09:36] Patrick Donley: You’ve got to pay attention to all the different things that are out there. or at least be able to ask some questions about it and figure out what’s going on. I wanted to hear, were you pretty set on becoming an accountant, CPA, financial guy, like going, when you’re in college or it just unfolded?

[00:09:52] Grant Dougherty: No, yeah, it just unfolded, man. Of course, whenever you’re young and you’re an athlete and you can run fast, you think that you have a chance of going to the pros. That was like always my initial Oh, I want to go pro. And then even after that, I was like, wow, I’m going to be someone’s sports agent, or I’m going to be someone, some professional agent and it didn’t work out like that.

[00:10:10] Grant Dougherty: So then that’s what I took the corporate America route. And, I just got exposed. So what else is all out there? And that’s where I really changed my focus. It started off, the whole tax business really started off with something very small. I didn’t think it was going to get as big as what it did.

[00:10:24] Grant Dougherty: So one of the things that I researched is, whenever I was first getting started out, what business could I actually go and start? That’s when I figured out that oh, I could probably own my own business and kind of make more money than what I’m making. What business could I start? And I already knew I was very skilled at accounting and finance and taxing, but I needed the experience.

[00:10:41] Grant Dougherty: So that’s when I started reaching out to People who I knew, local firms that had a pretty, pretty decent, sizable number of returns. And I actually would, tell him like, Hey, can I just file for free? And so that’s how I essentially got my exposure. I started to get my practice, and started to see different situations.

[00:10:58] Grant Dougherty: And when I was ready, that’s when I started taking off and then trying to do my own return. Start off again, very small. It’s not like I just immediately jumped right into I’m going to be a real estate tax No, I’m just trying to. And then you start to build connections with different CPAs and enrolled agents.

[00:11:15] Grant Dougherty: And then you start finding out like, okay, you can actually niche down and focus on this specific sector. And I’m like, okay that’s not a bad idea. So you started learning more. And now you’re like, okay I’ll put my money in there. So now you’re getting exposure from not only helping your clients, but also real life exposure.

[00:11:30] Patrick Donley: I wanted to take a little step back though, like what was that first like the corporate career job that you initially took, like your W2 job? What was that? 

[00:11:39] Grant Dougherty: Yeah, it was so I worked at a company called Cisco. Sysco Foods is actually headquartered here in Houston, and I was working in it’s hard to describe.

[00:11:46] Grant Dougherty: I would call it their finance, accounting, tax division. It’s what I was doing. It was called bill backs with a very Cisco generic term that probably doesn’t apply to anywhere else, but it was very corporate specific. Now, I didn’t learn great skills when I was there, but it was. Something like the key things that I learned would have been very specific to just Olin Sysco, wouldn’t have applied anywhere else, but I got pretty good at what I did there.

[00:12:11] Grant Dougherty: I had enough free time. I would just go into work clock in clock out, go home. I got all this extra free time. That’s where I started to pick up. Okay, hey, what else can I really do? Can I invest my money? Oh, hey, maybe I could start this small business and let me get a little bit of exposure and tell like, how the industry works, but I could probably start off swapping my W2 and have a side tax business.

[00:12:32] Grant Dougherty: But I had no idea it was going to grow and eventually I would just solely only focus on my tax business and I’m just, it’s just continuing to grow. Now it’s to the point where I need to probably start hiring out and having other people come in and help. 

[00:12:45] Patrick Donley: I want to get into that a little bit. Like how did you grow it?

[00:12:47] Patrick Donley: You’re in this W2 Cisco job. What stage did you leave that where you felt comfortable to be like, I can give this up. I can go a hundred percent whole hog into this new business. And how did you grow the business? 

[00:12:59] Grant Dougherty: Social media, so I had started the journey back in 2018, 2019 is when I first started that journey, but once when COVID hit and we’re at home and it’s now we really got a lot of time.

[00:13:10] Grant Dougherty: And that’s also when people are now on social media. So I then created a page dedicated solely to just I’m going to give people. Good text tips, right? I’m not trying to like, you find all sorts of things on social media, but I try to keep them pretty by the book and just give people ideas and it just grew, it didn’t grow overnight, I had to, consistently post, I had to build relationships on my biggest page is actually my Instagram, but I also, I’m starting to get a little bit of a follow on Twitter as well.

[00:13:36] Grant Dougherty: I would say like 85 percent of my clientele come straight from social media. And so that’s basically where I essentially grew the business from. And I officially went full time in 2021 sometime. I can’t remember now. That’s when I first officially started focusing solely on the business.

[00:13:52] Grant Dougherty: And even when I did that, now I have all my time to focus on, I started noticing all these different inconsistencies in my business. 1 of the things I quickly wanted to do is I need to take my, I need to like, stop touching as much stuff. I need automation. So that once I learned automation, that opened me up to a whole new realm.

[00:14:10] Patrick Donley: I wanted to get into that too. Like your tech stack, for a small business person, there’s a lot of people that have a small business that listen to this or want to have a small business. What kind of tech stack do you recommend for somebody, let’s say they’re a real estate investor or let’s stick to a real estate investor.

[00:14:24] Patrick Donley: What would you say their tech stack should be? 

[00:14:27] Grant Dougherty: The key to a real estate investor is definitely going to be, you need to have a profit and loss statement and a balance sheet, but that’s going to be almost like your compass to do anything. And most commonly, I think most real estate investors would really like Stessa.

[00:14:40] Grant Dougherty: Stessa is a bookkeeping software that is really dedicated to real estate investors. However, probably the most common and widely used software out there is going to be QuickBooks. And if you will ever need it to hire a bookkeeper. You can probably find someone a lot easier if you already have QuickBooks on versus I think they can, some bookkeepers are good at stuff, but QuickBooks is more widely used.

[00:15:02] Patrick Donley: Talk to me more about your ideal client right now. What, what’s your specifically focused on? You said you wanted to niche down. So what is that niche that you’re going to focus on in your ideal client? 

[00:15:14] Grant Dougherty: Yeah, so I do try to go towards a lot of people that are investing in real estate. I do still work with a lot of small business owners because small business taxes will never go out of style.

[00:15:23] Grant Dougherty: You always have, that’s the backbone essentially of America is the small business. So I still do work with small businesses, but. I tried to once when you start making like, depending on how everything is, but once we start making five, 10 million or more, I’ll probably have to cut it off and okay, Hey, I think I’m probably getting a little too big for what I really want to handle.

[00:15:42] Grant Dougherty: Because now you need to start looking at other things, like maybe you should be a C corp or things can get a little complicated, unless you have a strategy to then devote, maybe take your profits and funnel it over to real estate. I’ll probably just hand you off because of real estate in my experience.

[00:15:58] Grant Dougherty: is definitely where a lot of like, whenever you have hundreds of thousands of dollars of potential tax deductions from things like cost segregation, you can use that to potentially offset your income. That’s a mile of what I’m very familiar with. I’ve studied the passive activity loss audit type meat guide and all the different IRS publications they have out there.

[00:16:18] Grant Dougherty: So that’s just whenever you get more in depth into taxes, there’s everyone who has a miniaturized. So you have trust taxation, you have nonprofit taxation, maybe you want to focus on retirement income. There’s all different niches and I just happened to really like real estate.

[00:16:34] Grant Dougherty: And then I don’t discount my small business owners. So a lot of people that I work with, high W 2 that invest in real estate or a high business. And when I say high business, no more than five to 10 million that also invest in real estate. That’s going to be my typical client now. 

[00:16:50] Patrick Donley: Let’s get into that. The advantages of a high W 2 earner married to real estate, what is it?

[00:16:57] Patrick Donley: A real estate professional, R E P S, I think it’s called. Talk to me about how people can think about that and like the advantages of it. 

[00:17:04] Grant Dougherty: So if you’re a high W 2 earner and hands down, one tax strategy just never goes out of style if you have one, one spouse is a high W 2 earner and the other spouse can manage rental property, right?

[00:17:15] Grant Dougherty: So the idea is that you’re one of the qualifications of a real estate professional, which alone is all nuanced. You probably have an entire topic on just real estate professional status. But the idea is that. You can take the high W 2, that the one spouse can, manage the rental properties, qualify for real estate professional status.

[00:17:33] Grant Dougherty: That would then unlock any losses that are generated from the property. So now you can do things like cost segregation and bonus depreciation to really draw up that loss. And if you use that to offset the debt to income. Now, there’s all sorts of different ways in this to go, because what if you have 2 spouses and both of them have had hard debt to incomes, then that probably takes that strategy off the table.

[00:17:56] Grant Dougherty: But now you could look at something like maybe a short term rental, which is. There’s a special carve out under section 469 for short term rentals, and so that’s another option there. 

[00:18:06] Patrick Donley: So say more about that. If it’s two W 2 high, two high income W 2 earners, they buy a short term Airbnb, can they then, if they’re managing it, doing the day to day, I forget what the percentage is, I’m not sure, but if they’re doing most of the management of the Airbnb, can they then become a real estate professional status?

[00:18:25] Grant Dougherty: So the terminology, it means everything, like the tax world, whenever you have an Airbnb, generally, the average tenant is going to stay for only a few days. The IRS. They have section 469, which talks about passive activity losses, but they have special exceptions to the rules of what is considered a rental activity.

[00:18:46] Grant Dougherty: And 1 of those special carve outs is that the average tenant stays for 7 days or less. And if that is true, you don’t have a quote unquote rental activity. And so if you don’t have a rental activity, you actually don’t have to qualify for real estate professional status. Instead, you have more of an active business, and in order to treat it as non-passive, you would have to just meet one of the, one of the seven material participation tests.

[00:19:11] Grant Dougherty: Now, generally you can meet that test. If you manage the property, if you self manage the property, but you have to document your time and you have to understand which test are you going to go for? Because like I said, there’s 7 of them. You only need to meet 1 of them, but each 1 has their own nuance to it.

[00:19:27] Grant Dougherty: So it’s definitely something you want to work with a tax advisor. That’s very familiar with it because he started talking about what is material participation? What is actually considered active management of the property? And when I always try to tell people. If I try to go through what is not considered material participation.

[00:19:43] Grant Dougherty: And so generally, if you want to sum it up, considering investor related hours, or travel time. Driving to and from these properties, general bulk count. And then sitting down and just reviewing tax returns and income statements, bills and things like that.

[00:19:59] Grant Dougherty: Generally, unless it’s part of your day to day activities of the property, that would be considered investor related hours. And the hours wouldn’t count that. Generally, what I’d like to see is, you communicate with guests, going and maintaining the property. Maybe if you had to fix anything or do some renovations on it prior to getting it ready, that would be material participation.

[00:20:19] Grant Dougherty: That’s what I like to generally see. I have to pull it back through those tests. 

[00:20:23] Patrick Donley: You had mentioned cost segregation and bonus depreciation. There’s a lot of our listeners that have no idea what that is. Can you go into that a little bit? What is cost segregation and the advantages of that? 

[00:20:35] Grant Dougherty: So before we get started, bonus depreciation, Depreciation is just a deduction you can claim.

[00:20:40] Grant Dougherty: So whenever you have an asset, let’s say you buy a car, in a few years, that car is not going to be as good as what it was when it was brand new because of the wear and tear. The IRS allows you to claim a deduction based on what they generally consider is the wear and tear of an asset over its life. For example, a car has a 5 year lifespan, depreciable lifespan.

[00:21:00] Grant Dougherty: Now, every asset has a depreciable life, and if it’s 20 years or less, it qualifies for bonus depreciation, which is just a way where, okay, if you, I probably won’t use a car because those are special, but let’s just say you have a 5 year asset, generally, you just divide by 5. If it’s a 100, 000 property, You get 20, 000 deduction every year, but with bonus depreciation, if let’s say it’s a 100 percent bonus depreciation, you can get that full deduction up front in year one.

[00:21:29] Grant Dougherty: That’s basically what bonus depreciation is. 

[00:21:31] Patrick Donley: Which creates a huge loss for the property or potentially, right? 

[00:21:36] Grant Dougherty: Yeah, but here’s the trick with real estate So whenever we buy a rental property Rental properties if they’re residential depreciated 27 and a half years and commercial properties are depreciated 39 years But when we buy a rental, you’re not only buying the structure of the building, you know Sometimes it comes with a parking lot.

[00:21:54] Grant Dougherty: Maybe it comes with A driveway, or a sidewalk, or landscaping, or furniture, or carpeting, or lighting. It comes with all these different things that could technically fall under 5, 7, or even 15 year property. And that’s where the bonus appreciation aspect comes in and, you can go in, do a cost seg.

[00:22:13] Grant Dougherty: Go and analyze the property and say hey, this is the 5 year property and depending on what the bonus appreciation is that year in 2024, it’s 60%. If you have 100, 000 of a 5 year property, you’ll get a 60, 000 upfront deduction. Plus any remaining straight line appreciation after that, which is huge.

[00:22:33] Patrick Donley: I talked to, I mentioned Mitchell Baldridge. I had him on the show half a year ago or so, but he said that only about three to 5 percent of real estate investors take advantage of cost segregation, which I found shocking. 

[00:22:45] Grant Dougherty: Yeah, that is shocking. I probably have a warped perspective just because I work with a lot of the clients who I work with, I’m always bringing it up to them.

[00:22:53] Grant Dougherty: The people who I work with aren’t informed, but if I had to put a number on it, that’s really interesting. I wouldn’t be able to tell you that if what percentage of people know about it and then don’t, I would believe that though, I’m definitely not discounting. 

[00:23:04] Patrick Donley: It’s an interesting thing. And is it something that you typically would recommend to your clients?

[00:23:08] Patrick Donley: If they own real estate, if they’re going to hold onto it, because there is this thing called recapture tax, right? 

[00:23:13] Grant Dougherty: It depends, a few factors that I would look at. So number 1, are they in a low tax year? Are they expecting their income to be higher next year? That would be 1 thing that I look at is, okay, if we are going to be able to, I guess the 1st thing is is this going to be a non passive loss?

[00:23:26] Grant Dougherty: Or is this going to be a passive loss? That’s probably the very 1st thing I look at. But then after that, I’m going to say okay, Let’s just say you can use this loss against your income. Are you in a high tax year or are you going to probably have more income next year? We probably need to spread out this deduction over a few years.

[00:23:41] Grant Dougherty: Then we also look at exit strategies. How are we planning to hold this property? And here’s the thing, that conversation can be tough for people because of course you talk to someone, they’re like, Oh, I plan to hold this property until I retire. But then I start talking to them about how financially in a crunch is it to actually meet the bills and take care of this property?

[00:24:01] Grant Dougherty: And you quickly find out that, there are a few rentals that absolutely boom with cash flow, but then. The majority of them are going to be pretty consistent, and it’s not going to just be bull. And if there comes a hard time, right? And what if all of a sudden people start going on vacation and now you’re not meeting your bills?

[00:24:18] Grant Dougherty: Are you going to sell your property? Then that’s where people don’t understand, right? And people never see that aspect of things. And so that’s where that conversation comes into play . If you’re going to do a cost seg, I want you to hold this property for at least a year. It depends on five, six, seven years before it actually starts to make sense.

[00:24:35] Patrick Donley: The reason I found you was you did a post on all the different tax advantages of real estate that really caught my eye. What are some other ones? We’ve talked about cost segregation. Are there some other ones that you can talk about that are great for real estate investors? 

[00:24:49] Grant Dougherty: There’s a ton of them out there, man.

[00:24:51] Grant Dougherty: So let’s just say that you’re unbelievably profitable. your rentals and you have 100, 000. of rental profit when it’s all said and done. That rental profit is not subject to Social Security and Medicare tax. So if you take someone who has a W 2, yeah, maybe the federal income tax rate is about the same, but the W 2 earner is paying Social Security and Medicare, whereas the real estate investor doesn’t have those taxes.

[00:25:14] Grant Dougherty: So that’s a big advantage that I always tell people is that, you have that passive treatment of rental income, but even after that you start getting into, if you sell a property, you get capital gains. Of course, you do have to worry about depreciation recapture, but here’s the cool thing about just depreciation recapture and capital gains in general.

[00:25:34] Grant Dougherty: Depreciation recapture, I’m not going to say that it is a capital gain, it’s a type of capital gain. It will be recaptured at your ordinary income rates, but tax loss harvesting can actually offset not only capital gains, but also your depreciation recapture. So there’s ways that you can mitigate, if you dispose of a property, you could tax loss harvest against it.

[00:25:53] Grant Dougherty: Maybe you could do a 1031 exchange into a new property. 

[00:25:58] Patrick Donley: Go into that a little bit, because a lot of people might not know that terminology. What is tax loss harvesting? How’s that come about? 

[00:26:05] Grant Dougherty: Yeah, so tax loss harvesting, if you have a capital gain, that’s whenever you have an asset, let’s just say you got some stocks or bonds or even like a rental property.

[00:26:13] Grant Dougherty: If you buy it at 100 grand and you sell it for 300 grand, you have a 200, 000 dollar capital gain. Now, if you also have stocks in the stock market, it’s like a rough year. And maybe you sell some stocks at a 150, 000 capital loss. You can use that loss to offset some of your capital gain. And that’s essentially what tax loss harvesting is.

[00:26:36] Grant Dougherty: Now, here’s the thing. A lot of people get caught up in oh, I should just go. Invest in some really bad stock and just draw a loss, and no, that’s not the idea if you have a diversified portfolio and if you have a diversified portfolio and you’re in the US you’re in this market.

[00:26:50] Grant Dougherty: I’m not a financial advisor. Lemme just get that out. So don’t take my advice, take it with a grain of salt. But the idea is you have a diversified portfolio and whenever that happens. Some of your portfolio was up, some of your portfolio was down. So you could actually use the part that’s down, sell that off, and lock in that capital loss and use that to offset your capital gain.

[00:27:09] Patrick Donley: What about a 1031 exchange? You hear that a lot, real estate investors talking about that. Explain what a 1031 exchange is and if you recommend that or not. 

[00:27:18] Grant Dougherty: Yeah, so 1031 exchange is just essentially the way that a real estate investor can essentially sell their property and then they could use the gains and roll it over into a new property.

[00:27:28] Grant Dougherty: Now, if you sell a property at 300 K, you have to then go, you have to basically trade up. So if you sell a property at 300 K, you have to go get a new property. That’s at least 300 K or more in value. Otherwise, if you sell it at 300, you go and get a new property at 250. You’re going to have 50, 000 of taxable gain.

[00:27:47] Grant Dougherty: Now, there’s a lot of nuances to a 1031 exchange. They can be great. I do think that. 1031 exchanges can be great for investors, but there’s, like I said, a lot of nuance. Number 1, I think probably the biggest mistake I see people make may or not necessarily be a mistake, but misconception is that. They can just sell the property.

[00:28:06] Grant Dougherty: They can take all the money and they can just roll it over to a new property to qualify. And you actually need a qualified intermediary to essentially take that money from you. And they will hold the money and they’ll essentially continue the transaction for you. But that’s like something that I ran across, man.

[00:28:21] Grant Dougherty: And then if you boil it down to like different states have different clawback rules. So you have to file those forms with the states every single 

[00:28:26] Patrick Donley: year. And you also only have what, about six months, right? To make that next purchase, which I can bite people in the butt too, if they don’t, haven’t identified something.

[00:28:37] Grant Dougherty: And it’s crazy. So whenever you are, depending on when you’re trying to do this, right? Because number one, you never want to tell someone that you’re trying, besides your qualified intermediary and your tax advisor. Don’t tell your real estate agent. Oh, by the way, I’m doing a temporary exchange because guess what?

[00:28:52] Grant Dougherty: Now, if they know anything about real estate, they’ll know that you are in a time crunch. And if you don’t think they won’t leave that to their advantage, they certainly will, right? So have some planning involved because like I said, you have 45 days until they end up buying. And then of the ones that you identify, you have 180 days to close.

[00:29:09] Grant Dougherty: So you can identify multiple properties if you wanted to. But You can’t identify some and then say, oh, I’m not doing that. I’m gonna go get someone else and buy that one. That it doesn’t work that way. So that’s another nuance you have to keep in mind. 

[00:29:22] Patrick Donley: Let’s get into small business owners and some of the different tax strategies that you recommend to your new clients.

[00:29:29] Patrick Donley: Right off the bat, like here’s 1, 2, 3 things. Oh yeah. Should be doing, 

[00:29:33] Grant Dougherty: oh, I’m big on retirement accounts. So if you’re self-employed, you have no employees. I like the solo 401k. I think it’s huge. There’s also SEP IRA. There’s simple IRAs if you have employees, but definitely goes with retirement accounts.

[00:29:47] Grant Dougherty: It’s 1 of the very 1st things I look at. Let’s just do the IRA. I always tell people that it’s not something that you need to take advantage of, but at least you have it in your back pocket. If you ever want to pull it out and use it, you can do that. And then, of course, I’m all about investing back into the business and trying to repay your time back.

[00:30:04] Grant Dougherty: I’m big on hiring employees, like hiring employees or contractors to essentially save you on work time. You can get a tax deduction that way. And then, depending on the type of employee you may get credits for. Starting up a retirement plan or like whatever the case may be, there’s different employee prices you can get, but then if you use, maybe you have a business where you have to use a vehicle a lot for your business, now we started looking into like different vehicle types deductions and, do you want to get a vehicle that’s over 6, 000 pounds, that’s under 6, 000 pounds?

[00:30:33] Patrick Donley: If it’s over 6, 000 pounds, what’s the advantage of that? 

[00:30:37] Grant Dougherty: Whenever you get a vehicle you can claim deductions for using a vehicle. There’s two ways to go about it. There’s the actual method. There’s the standard method. The standard method just calculates the total business miles in droves. You multiply by a set standard rate, boom, that’s your deduction.

[00:30:51] Grant Dougherty: Then there’s the actual method where you got to go in, you still have to track your miles, but let’s just say you use it for 60 percent business usage. You can deduct 60 percent of all the expenses we went into that vehicle and put in things like gas, tire changes, oil changes, things like that, including depreciation.

[00:31:08] Grant Dougherty: All right now, the depreciation is a huge part of why people don’t get vehicles. And the reason why 6, 000 pound or greater vehicles are more strategic is the IRS actually allows them to claim more of a depreciation deduction. It’s a section 179 expense. on heavier vehicles on the 6, 000 pounds and more versus if they’re under 6, 000 pounds, like that’s the big benefit.

[00:31:32] Grant Dougherty: to go on after yeah, I like F-150s. I’m a Texas guy. F 150s, F 250s. That’s what I see a lot, but yeah, there’s all sorts of vehicles out there that are 6, 000 pounds or more. 

[00:31:42] Patrick Donley: I wanted to get in, if you have time a little bit, like how you structure your own portfolio, like how do you invest? I wanted to get into some specifics.

[00:31:50] Patrick Donley: Like you talked about insurance a little bit, but I wanted to hear, you talked about You’ve got some, since you’re self employed, you’ve got some 401ks or things like that. What do you think about investing for yourself? Are you an active investor? Are you an index fund investor? Do you do real estate?

[00:32:06] Grant Dougherty: Yeah, I’m a pure passive man. Index funds. I got some bonds also. Yeah. That’s, I don’t know why I got the bonds. They’re not the best before, but I got some bonds too. I got the life insurance as like a, it’s I got, I have the best minutes of syndication with real estate. So I’m pretty well diversified, but hands down, Where I probably put most of my investments.

[00:32:26] Grant Dougherty: So if it were hard to get 10, 000 right now, how would I invest it? I would probably only put maybe 2, 000 into one of those buckets. Cause the other 8, 000 is going to go to my business because hands down, the largest ROI that I’m personally seeing right now is actually investing back into my business.

[00:32:42] Grant Dougherty: And yeah, it’s hard. You can’t really quite see like the green number that tells you how much you’re up. But I can look at tax returns and I can see how much more money I made this year. Last year and so on and so forth. So for me personally, I’m constantly investing into different softwares, different contractors, finding ways to like, not only make more money, but then save time just because time is very precious.

[00:33:06] Patrick Donley: Especially now you’re in the thick of it with tax returns. I wanted to, let’s see, what do we want to talk about? Bookkeeping thoughts, like how not to procrastinate on filing taxes. I know I’m guilty of just putting off taxes. I dread it. Honestly, administrative stuff is not my thing.

[00:33:21] Patrick Donley: Bookkeeping stuff is not my thing. It just backs up. What kind of recommendations do you have for small business owners, real estate owners to stay on top of their taxes? 

[00:33:31] Grant Dougherty: I would outsource to a bookkeeper. If it’s taking up too much of your time, hire someone to take care of it for you.

[00:33:37] Grant Dougherty: That way you can take that stress off of your plate. Now, 1 thing, whenever you’re looking for a bookkeeper, because they have crunch deadlines as well. So they want to get it, they have plans and they get their stuff done. Because they need to take that information and get it to the tax advisor so that we can get them projections.

[00:33:52] Grant Dougherty: So I would make sure that you have someone who is good at what they do. You trust them and then have good open communication with them. Have quarterly, at least quarterly meetings with them. So you can stay up on top of your numbers and just know in the back of your head. Okay. This is possibly what I may owe come tax time, so let me start setting some money aside, right?

[00:34:12] Grant Dougherty: Take that stress of crunching the numbers and doing the work off of your plate and go get a bookkeeper. If that’s something that you want to do, that’s fine. Just make sure that you stay on top of your schedule. Maybe dedicate one day a month to just solely doing your bookkeeping. 

[00:34:25] Patrick Donley: How would you go about finding a good bookkeeper?

[00:34:27] Patrick Donley: Recommendations from other people, or how would you go about finding somebody? 

[00:34:32] Grant Dougherty: Yeah, I got some recommendations that I always refer to people, but you just have to ask the right questions, do you handle someone that’s similar to me? What is your experience with people in my industry?

[00:34:42] Grant Dougherty: What is your experience in general? You’re gonna have to ask questions, that’s a tough 1, right? Because a lot of times, people will tell you whatever you want them to hear. So sometimes you actually have to get your feedback and like actually experience what it’s like to work with them, which is a drag, because everyone knows what it’s like to work with the wrong person at times, but the best we can do is just try to ask the right questions.

[00:35:03] Grant Dougherty: I know people whenever they’re looking to work with me, they ask me. Things like, do I work with other people in real estate? Have I worked with others, maybe I have a doctor or a physician? They asked me like, Hey, have you ever worked with other physicians? And heck if they’re down to give like referrals Hey, can you give me a referral of someone who you’ve worked with?

[00:35:19] Grant Dougherty: Maybe that, some people are okay with this. Some people aren’t. So you gotta be cautious with that one, but I think it’s an option. 

[00:35:26] Patrick Donley: Yeah, how do you view referrals? That is a tricky situation as a CPA, for example, like cost segregation stuff. I’m just curious. In my own situation we would like to give people a referral, but how is that viewed in the referral fee?

[00:35:40] Patrick Donley: How is that viewed in the tax preparation world, is that kind of a no, or I’m talking about you referring to, let’s say, Nick Huber’s sweaty startup company and he gives you a kickback from that. Is that how it is viewed in the industry? 

[00:35:54] Grant Dougherty: I found like my general small group of people who I work with, so I always refer them to those same people and if they can’t take them, they’re very open with them, but I generally give them like 4 or 5 contacts.

[00:36:04] Grant Dougherty: Hey, try these people out. They’re all very good. Generally, one of them can work with them. 

[00:36:09] Patrick Donley: Got it. So Grant, I wanted to get into some of the biggest mistakes. You’re right in the middle of tax season right now. Stressful time for everybody, but I wanted to talk about just the biggest mistakes small business people make, real estate investors make.

[00:36:22] Patrick Donley: What are some of the things that you see that could easily be avoided? 

[00:36:26] Grant Dougherty: I see all sorts of different ones, but I guess it depends on what level they’re on, if you want to talk about fundamental mistakes. That bookkeeping, I don’t know how often I run across people that combine their personal and their business expenses, and it just makes it very difficult.

[00:36:42] Grant Dougherty: It’s very easy to let expenses slip through the cracks that way. So hands down that’s probably Whenever we talk about the basics, that’s one of the most common mistakes I see. Other than that, whenever I like to work with people, especially if I’ve worked with them previously, I like to look at all the documents you gave me in the previous year.

[00:36:59] Grant Dougherty: And then now the following year, if you don’t give me those documents, I’m going to be asking about them. All the time, people just, it’s a lot of tax forms, right? So it’s easy to forget, but that would be another one, right? Just simply forgetting tax documents that are sent to you. That happens all the time, man.

[00:37:13] Grant Dougherty: But it’s also, there’s a lot of misconceptions, right? Because, so for example, the whole vehicle, we were talking about the vehicle deductions a little bit earlier, but essentially a lot of people just have this misconception when they can just go and buy a vehicle and then they can, all right, I’m going to get a tax write off, but they don’t realize all of the documentation that kind of goes into it.

[00:37:31] Grant Dougherty: So that would be like another misconception. A lot of people think I got this 50, 000 vehicle, so I’m going to save 50, 000 in taxes and don’t even realize that they’re not going to get 50k in taxes. They’ll get maybe what 10 to 15, maybe they’re lucky 20k in tax, tax able. So it’s a lot of misconceptions and then a lot of mistakes that I see.

[00:37:50] Grant Dougherty: So it’s like a combination of 2 creates a perfect storm. 

[00:37:54] Patrick Donley: Yeah, I also wanted to touch a little on, you said that the best way that you’ve grown your practice is through social media, through Twitter. Sounded like Instagram was more your focus, but you’re also focusing on Twitter. Talk to me a little bit about somebody who is listening to this, who’s trying to just get on Twitter and start providing value.

[00:38:13] Patrick Donley: What did you do? Who did you copy? Who did you study? Things like that. 

[00:38:17] Grant Dougherty: The biggest thing is just putting out valuable content. Of course, it’s always great to hit them with that wow factor, but sometimes people just need to know the basics. Hey, no, don’t forget to separate your business and personal bank accounts.

[00:38:29] Grant Dougherty: That right there is a ton of value for someone who’s not even doing it. Get out there, put out good content, just go in there and look to improve other people’s situation. So whenever I initially started, a lot of people get likes on social media and they’re like, they’re constantly trying to sell themselves.

[00:38:45] Grant Dougherty: Hey, sign up for my service. Hey, do this, do that. I rarely ever asked. People sign up for my service. I provide value. Hey, here’s an example. Hey, here’s the value. And yet every now and then once when I’ve really built up that trust, and now they’ve seen me provide good content multiple times.

[00:39:02] Grant Dougherty: Oh, hey, by the way, I’m still accepting clients or, hey, we have 3 spots left or something like that. So that’s usually. The way I go about it is don’t create a social media page to try to sell yourself, but do it by providing value. People will learn to trust you whenever you provide good, useful content.

[00:39:20] Grant Dougherty: And that’s how you get clientele off of like social media is constantly providing good value. 

[00:39:26] Patrick Donley: So are you doing any kind of customer outreach other than that, or are you relying strictly on social media to bring in clients? 

[00:39:33] Grant Dougherty: Yeah, man, I’m actually turning people away at this point. Wow. Yeah every now and then you get referred.

[00:39:38] Grant Dougherty: You work with someone and they really like you. They usually have a group or they know, work with, so they’ll start referring to some of the people that they know. But even then, they refer to them and they go and they check out my social media and then they end up reaching out to me on social media somehow.

[00:39:53] Grant Dougherty: Yeah, I don’t do any direct customer outreach. It’s almost solely, now it’s basically solely just social media or, referrals or people that I’ve worked with previously. 

[00:40:02] Patrick Donley: That’s awesome. It’s true. Like the best marketing is just word of mouth. Like people telling each other about what you do and Hey, this guy does a great job for me.

[00:40:10] Patrick Donley: I’m really happy with them. Yeah, that’s awesome. I wanted to hear, like when you are first onboarding somebody, like what does that look like? They reach out to you on social media. They say, Hey, Grant, I want to, I need a new accountant. I’m not happy with my old guy or whatever. I’m just looking to, I’ve never used an accountant before.

[00:40:25] Patrick Donley: Talk to me about things like the onboarding process, the questions you ask them, things like that. 

[00:40:30] Grant Dougherty: Usually I start off with a free call, just get on it. It’s a free discovery call and just like talk, see if we need to be a good fit. So I do look for indicators, right? Because I only want to work with people who I actually would like to enjoy working with, man.

[00:40:43] Grant Dougherty: I’ll ask them about their previous tax advisor. I’ll listen very carefully. I try to listen to what people say and take that and improve my skills. But if too many red flags start to pop up, that would be like an indicator of or maybe I should start during this conversation towards hey, we’re booked up right now.

[00:40:59] Grant Dougherty: I don’t know if we can take you on, but, I’ll ask the questions like, hey, have you worked with the tax advisor before? What was your experience? What did you like about them? What did you dislike about them? You can tell a stand up person by the way, how they give you a response to what they didn’t like about a person, right?

[00:41:14] Grant Dougherty: Because it’ll still somewhat be positive, maybe a little constructive criticism, but. A red flag for me would be someone, there’s. It’s just the way they go about it. It’s hard to describe. There’s a way you can tell they seem a little unrealistic, with their expectations.

[00:41:28] Grant Dougherty: So that’s something that I’ll look for. But then. I start to talk to them, like I’m really trying to gear in towards more of that real estate investing. So I tell them, I don’t really hide anything from them. I always tell them like, Hey, I could help you set up the foundation and get your 401k and make sure that we optimize business deductions.

[00:41:45] Grant Dougherty: But if you really want to get the most value out of me, you’re probably going to want to start investing in real estate. So I at least consider it and just hear what I have to say. Hands down when it comes to tax savings, that’s usually like my route to go. Other people don’t need that. Sometimes people just want to know hey, how much am I going to owe? I just want someone to contact so that whenever I need an estimate, I can run you the numbers. You can just tell me, Hey, I’m going to owe 10 grand or whatever the case may be. 

[00:42:10] Patrick Donley: So you said you were talking about ramping up and growing the practice. What will be your first hire?

[00:42:15] Patrick Donley: I’m curious, like when you think about your first hire, who would that be? 

[00:42:18] Grant Dougherty: So there’s so many different thoughts that go through my head, but right now I have a lot of administrative work. So I want to hire someone who could take on avenue work, but I’m really looking for one. Maybe someone who’s like fresh out of school in college that has somewhat of a background in business and finance or accounting because yeah, the admin work will be easy, but now I can start introducing them to Hey, why don’t you try filling out this debt me to tax form for me, just show me how it works and then slowly try to build them up into another specialist.

[00:42:49] Grant Dougherty: I would consider myself a specialist. I would want to get someone who handles the admin, but essentially they would be another specialist. 

[00:42:56] Patrick Donley: So are you in the interviewing process now? Is that coming up maybe next season? 

[00:43:01] Grant Dougherty: Yeah, so really I’m trying to get them on board by the summer so that I can take care of them.

[00:43:05] Grant Dougherty: You guys, the busy seasons for tax prep, January through April are absolutely crazy, right? But then it slows down in the summer. And then we get into now the extension deadline, September, August, September, October, right? I want to hear them up and get them ready for that September, October busy season.

[00:43:22] Grant Dougherty: It’s busy, but it’s not as crazy, that’s that way, whenever I get them for the January through April, now they’re like, they’re primed and ready to go. 

[00:43:31] Patrick Donley: Yeah, I can imagine this time of year for you is just busy. So I really do appreciate your time. I wanted to put my last touch on cryptocurrency stuff.

[00:43:38] Patrick Donley: So like. People that are trading, let’s say, maybe Bitcoin or these altcoins on Coinbase or whatever. How do you recommend people keep track of that? I used to do that in 2017 and got totally burned, in terms of my losses and I swore off of it. But, there are people obviously that are doing it.

[00:43:53] Patrick Donley: What do you recommend in terms of keeping track of all of that? 

[00:43:57] Grant Dougherty: Yeah, you want to keep some type of software like coin tracker or coin ledger or something like that to help track your basis and your total proceeds from never, like exchanging crypto. So high level, most of the time, if you’re trading crypto, trigger short term or long term capital gains.

[00:44:15] Grant Dougherty: And one little caveat is that the wash sale rule is actually crypto. So you don’t really need to be mindful of that.

[00:44:21] Patrick Donley: So explain that for people that don’t know what the wash sale rule is. 

[00:44:26] Grant Dougherty: Essentially, what it is, if you sell a security at a loss, you cannot turn around and buy that same security within 30 days or something like that.

[00:44:32] Grant Dougherty: Otherwise, that loss can no longer be used to offset your income. But that loss doesn’t go away. What ends up happening, it gets added to your overall cost basis whenever you repurchase the stock. Tax loss harvesting, if that’s a strategy, we were talking a little bit about that earlier, tax loss is a risk.

[00:44:48] Grant Dougherty: Wally Michaels, Washsell, Lost World, but that does not apply to crypto. 

[00:44:53] Patrick Donley: Lastly, I wanted to ask you, you’re a married guy, you’ve got kids, how do you guys manage your own finances at home with you and your wife? I just got married about a year and a half ago, so we’re blending our finances and that’s a challenge.

[00:45:04] Patrick Donley: And I just wanted to hear some of your tips that you have for couples working together. 

[00:45:10] Grant Dougherty: We have joint accounts, so I’m the only source of income in the household. So a lot of the income, it comes in through the business and then, that’s where most of the income is. And then I trickle that out to the personal accounts.

[00:45:21] Grant Dougherty: Now, where most of the bills we have actually, it’s all joint accounts, so she can get in there whenever she wants, but I do have her own, I call it her account, but it’s still a joint account. So I could still go in and access it, but. I have the money to transfer from the business over to like our big main joint account where like the mortgage and stuff gets paid.

[00:45:39] Grant Dougherty: And then she has her own personal account that I’ll transfer to maybe like a thousand dollars a month over there. It’s where she can just go freely spend. 

[00:45:47] Patrick Donley: This has been fun, Grant. I really appreciate your time. Anything you wanted to touch on that we didn’t get a chance to talk about? 

[00:45:54] Grant Dougherty: Oh, one thing, man, so we talked a lot about real estate and like using the non passive losses to offset your income, but one idea out there for Everyone who may not be into the whole non passive option, because again, real estate is going to be a passive activity, generate passive losses.

[00:46:11] Grant Dougherty: And so a lot of people are like, what am I going to do with these passive losses? Maybe shift your mindset a little bit. Try to find a service business. For example, I have a buddy. He owns a dog poop street business. It’s just absolutely chilling. But if you were, if you had been an investor in his dog poop, he needs some more trucks to hire out.

[00:46:28] Grant Dougherty: So it needs funding and you get a 25 percent share of his profits. That profit is all passive income. And now, if you have rentals, you can use those passive losses to offset that passive income. You can build up a portfolio of passive businesses and passive lentil sites. There’s all so many different routes that we could go with the real estate now, but.

[00:46:49] Grant Dougherty: That’s just one little tip, right as we are, wrapping everything up. 

[00:46:53] Patrick Donley: Yeah, there’s so much out there and it’s just, again, I think you just, you got to stay on top of all this stuff and learn about it, read about it, study about it. You’re providing great content on Twitter. I just think that by looking at people’s profiles like yours, you can learn a ton.

[00:47:05] Patrick Donley: So it’s just like staying on top of it, but where could people find out about you? We’ve talked about your Twitter account, but how could they reach out to you and get in touch with you? 

[00:47:13] Grant Dougherty: Yeah, you can find me on Instagram at DoughertyTaxSolutions. On Twitter, it’s D-O-U TaxSolutions. Twitter has that handle.

[00:47:21] Grant Dougherty: You can’t go past. And then you can also just always reach out to me via email at DoughertyTaxSolutions at gmail. com. 

[00:47:27] Patrick Donley: Awesome. Grant, thank you so much for your time. I really appreciate it.

[00:47:37] Patrick Donley: Okay, folks, that’s all I had for today’s episode. I hope you enjoyed the show, and I’ll see you back here real soon. 

[00:47:56] Outro: Thank you for listening to TIP. Make sure to follow Millennial Investing on your favorite podcast app and never miss out on our episodes. To access our show notes, transcripts or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.