Episode Transcript
[00:00:00] Speaker A: You welcome back to the real estate and more show. I'm your host, Michael Hatfield. As our next guest, I have to tell you, we have an incredibly intelligent, accomplished professional on the show today. She's been 25 years, a high level experience in the fields of accounting and taxation. An amazing lady. She's worked with Fortune 500 companies, with mergers, acquisition, tax services to medium and little bitty businesses like my own in our community. In fact, if you were Spider man, you would hire this amazing CPA to reconcile your net income. Just fun. Welcome to the show. Suzanne Eichel of Eichel Financial Solutions.
[00:00:47] Speaker B: Well, thank you, Michael. Thank you so much for having me.
[00:00:49] Speaker A: Well, Suzanne, I've had the pleasure of knowing you for several years now. And I have to say, I've not known many people that work as hard as you do at your craft. And you work hard also at helping other people. You're a very giving person. And when I think of accountants, I think of somebody walking around with a green visor with a pencil behind their ear and kind of mumbling to themselves most of the time. Well, that's not you. Where did you get your drive and desire to help people at the same time?
[00:01:20] Speaker B: I think I've always been that way. I think this is the way God made me. So I know I just found accounting at an early age, stumbled across tax when I was about 16, and I've been doing it ever since and love it.
[00:01:34] Speaker A: Some people read about taxes and they do it to sleep.
[00:01:38] Speaker B: Yeah, well, back when I was doing it, we didn't have computers, so you had to really understand and dive into it and get to know it. And I found my jam at a young age.
[00:01:48] Speaker A: 25 years you've been doing it. It's unbelievable. You're still a very young age, and I got to watch myself. She's married to a friend of mine, so I got to be careful about that. Just fun in on that one, too. Earlier in your career, you worked with Price Waterhouse, Cooper's, and also the carlyle group. You worked with several startup companies. You have. What a heck of a resume, young lady.
[00:02:10] Speaker B: Oh, thank you.
[00:02:11] Speaker A: Yeah. What type of service work do you enjoy the absolute most?
[00:02:16] Speaker B: That's a trick question. Depends upon what chapter of my life you're talking about. So my younger days, when I worked for PwC as well as Carlisle group, I was doing due diligence and turnarounds. Love that. That's my biggest joy I've ever done in my career. But after having kids, it's really hard to do that kind of work. On that level. So I started my own practice. But I love working with my clients now and seeing, know, helping them save money and figure out how to really keep their business at a high level. So it's been know.
[00:02:51] Speaker A: I had a friend of ours, you may know him, Marty Sherman. A Sherman Arabians. I had him on here. And, you know, what's the secret of your success? And he, hmm. I just love. I said, well, you know, I've said this on the air once, said, well, Marty, give me an example of what you do because you love people. And he says, I see somebody walking down the street in the morning, and I say, oh, hi, how are you? And I says, what if you see someone you don't like? And he says, I don't walk down that street. You're the same way. You love, love people. And it just comes through loud and clear. Very unusual for a CPA to be like that. Very unusual for someone to have your level of background in mergers and acquisitions and turnarounds. That's an exciting area right there. And if you can get all of the feral cats that circle around that piece of meat to go in the right direction, it could just be an amazing accomplishment. Self accomplishment as well as accomplishment for any shareholders that it may be.
[00:03:52] Speaker B: Well, thank you.
[00:03:53] Speaker A: So I found you to be incredibly diligent in your work. How do you ever just keep all those tax laws in your heads, the dates straight in your memory, for all of your clients? How do you do that?
[00:04:06] Speaker B: You know what? It's a good question.
I just do.
I read every morning the new tax codes that come out and tax laws and notices. I do a lot of reading every morning, and just, I try to stay up on top of it. But also, to me, tax is like a chessboard. It's like when you're looking at someone's account, no two accounts are the same, and you're looking at all the different pieces and trying to figure out what's the best strategy to maximize their.
To reduce their taxes. Right. And to maximize their deductions. And I love doing that. It's fun, but also to working with the client. And they're not a number, they're a person. And I enjoy getting to know them and get into the weeds and helping them along the way.
[00:04:52] Speaker A: Well, you certainly do a great job of it.
[00:04:54] Speaker B: Well, thank you.
[00:04:54] Speaker A: Now, Dale, tell me, how do you actually, for a small business, how do you go about assessing where they are, what they do, and what you can do for them as their CPA?
[00:05:06] Speaker B: Oh, that's a great question. I have an intro meeting with them and really getting to know who they are. And like I was saying earlier, there's no two companies the same. They could be having the same type of product or same kind of business, but they're going to run their business completely different. So understanding how they run their business and really diving into it with them and helping them, giving them best practices or figuring out the best strategy, not just for tax, but for running their business, because I can't tell you how many companies I have helped out, not on the tax side, just helping them because of my background of the work I used to do is bringing that knowledge forth to help them. Like, what's your five year plan? Are you planning on selling your business? Let's make sure we tee it up for that. I can't tell you how many companies are like, they're winding down. They didn't realize they could even sell their practice or sell their company. And now it sets them up for a good retirement plan. But getting them and helping them and just spending that time, I think that's the lost trade in my industry. That's one of the things that have been lost is the communication and working with the clients and really understanding where they're at and not just keeping them as a number and processing it through as quick as possible.
[00:06:18] Speaker A: And you have some really high level clients, very, very wealthy clients. At the same time, you have some ones that are not so wealthy. So how do you address the difference between the wealthy client and the ones that are not so wealthy? How do you do that? Is there any difference?
[00:06:33] Speaker B: Well, for me, I have a philosophy in life. We all put our pants on the same way. So therefore, I don't care if it's a $50 million company or a $5,000 profitable company, I'm going to give them their attention that they need and deserve. But obviously, the company that's doing 50 million is going to have a lot more needs, and there's a lot more chess pieces to work with. So there's going to be a lot more time.
But still the one that's starting up, I still give them the time that they need to help them, because someday that $5,000 company could turn into a $50 million company, and I want to be part of that team along the way.
[00:07:09] Speaker A: Boundless energy. You have boundless energy. The best chief pilot that I ever worked with, and I was in flight standards, but the best chief pilot, I heard him say one time to an assistant chief pilot, he says, whether or not it's someone's parent that has died or whether or not it's someone that wants to get off to go skiing. You have to attend the same way to that pilot and deal with it in the same way. You do the same thing. You're absolutely of that same nature. Talk about vehicle deductions. I always get so confused with those things. How does that actually work?
[00:07:46] Speaker B: Okay, vehicle deductions, for starters, you got to have a business, whether it be, since this is real estate, if you have rentals, if you have rentals or you have your own business, then you have a card that is dedicated for, that doesn't have to be 100%, it could be a percentage. Let's say you only have one vehicle. Obviously it's not going to be 100% for your rentals or your business because you only have one and everybody has some kind of personal life. So you figure out based on miles, what the percentage is and then you can deduct accordingly. And it also determines too if you're leasing it or if you're buying it and onto depreciation if you are buying it. There's all these different rules for depreciation, but the biggest key is what is the percentage and what you're using that vehicle for.
[00:08:33] Speaker A: Got you. And I know some families have been hit hard by medical expenses. You want to say a few words about how one can deduct those medical costs now. And what about the dental also?
[00:08:43] Speaker B: Okay, so dental, medical, and then also, too, that the definition has expanded. It includes massages. And if you're doing acupunctures, there's like a whole wellness side to it as well. And there's a whole list of different type of expenses that are, I mean, it's a very vast list, including if you're going through and trying to get pregnant, so you're doing that whole process. Or after you have a baby, you have all these other types of expenses. All of that can be included.
[00:09:13] Speaker A: Is this new?
[00:09:14] Speaker B: It got issued during the CARES act, so it got expanded. But with that, how you deduct it depends upon do you have your own business or are you w two? And if you're w two, then you itemize on schedule a and it's reduced by 7.5% of your agi. So chances are if you live around here in this bay area, there's not much to deduct because your agi is too high. But if you have your own business, that's a different story. You can work out a program through your company to do a reimbursement ah, very interesting. Yeah.
[00:09:50] Speaker A: Let me ask you a question. There's something new that's called cost segregation. I have no clue what that is. Would you help us with that?
[00:09:58] Speaker B: So cost segregation has been around for quite some time, but it came very popular in the last few years under this CaRES act when they elected. It's called a special depreciation, which means that if you have depreciation in the three, five and seven and 15 year bucket, you can elect to depreciate all of that year one. So what cost segregation means in real estate is that if you have a rental property or a commercial property, you can hire a company that does cost segregations, nicknamed cost Seg, and they come in and they take the value of the property that you purchased and then they break it out between land and building. And building is depreciable. So if it's residential, it's 27.5 years. But instead of saying it's all 27.5 years, they break that property down into the three, five and seven and 15 year buckets. And then some will go in 27.5. So as I was just saying, the three through 15, you can deduct all that year one. So basically you're front loading a big percentage of that depreciation in year one.
[00:11:05] Speaker A: Wow.
[00:11:05] Speaker B: So if you're a real estate professional and you've got rentals and you do a cost egg, you can create a huge net operating loss for yourself the first year. The only caveat is if you're not a real estate professional, a cost egg doesn't do any good because you can only claim the loss either zero or maybe a small portion of the loss, depending upon what your agi is.
[00:11:28] Speaker A: Real estate professional, there's an actual definition for that?
[00:11:31] Speaker B: Yes, there is. And it's not just being a realtor.
[00:11:33] Speaker A: No. In fact, you don't even have to be a realtor.
[00:11:35] Speaker B: Right. The rule is, if you're in the real estate, if you're doing something, interacting with real estate, like a contractor or in the trades, mortgage broker, so forth, you're in real estate, then you qualify. Or if you have 750 hours that you're working in the. So in other words, if you have five rentals and you're self managing, you more than likely are spending at least 750 hours managing. It means accounting, running supplies, collecting rents, taking care of your taxes, all that stuff. You track your hours, 750 or more, you qualify as a real estate professional. Now you can claim all that depreciation on a cost seg.
[00:12:12] Speaker A: Amazing.
We're going to take a short break. We'll be right back.
[00:12:19] Speaker C: Welcome to the real estate minute with remax expert Michael Hatfield. What does an agent do to get a home sold?
[00:12:25] Speaker D: Typically, an agent will prepare a comparative market analysis so he knows the home's value, then creates a marketing plan tailored just for your home. With these plans, he promotes the home globally and locally in social media, publications, open houses, all for the purpose of getting your home front and center with prospective buyers.
[00:12:44] Speaker C: As an agent, how do you get it sold?
[00:12:46] Speaker D: Michael we do each and every item in the plan, negotiate vigorously on the client's behalf, on inspection, repairs, staging, and importantly, the deal itself. We do everything we can to get the deal done and closed.
[00:13:00] Speaker C: Call 925-32-2775 now to schedule an appointment or complimentary home analysis for excellence in real estate. Call the Michael Hatfield remax team at 925-322-7775 or go to michaelhatfieldhomes.com.
[00:13:17] Speaker A: Now back to our show.
We're talking with Suzanne Eichel. She is CPA extraordinaire. Her offices are in San Ramon, California. It's Eichel financial Solutions. Suzanne Eichel, just an amazing CPA. She does not. At least, I've never seen her wear that green visor with the pencil behind her head.
A lot of energy, a lot of very, very positive person. Which leads me to my next question. Suzanne, you give a mean, you like charities, I think, and you like to give to people that are not doing so well. And lately my heartbeat has been into that. You may have known I've supported city team ministries as well as another lady that has had some problems and tried to help them wherever I can.
You're the same heartbeat. You walk to that same heartbeat. I believe your husband does, too. You'd like to expand on that a little bit.
[00:14:23] Speaker B: What you like to do, well, especially during the pandemic, it wasn't just the Bay Area, it was across the country, but especially in California. We were on a lockdown for over two years. And during that lockdown, a lot of businesses could not be in business.
They had to have their door shut. So what do you do if you're self employed? What do you do? You have employees. You got to feed your family, your doors are shut. What do you do? And where do you turn? And so I really spent, I mean, I was working around the clock and not even working with clients, even just helping out in the community with businesses, helping them figure out what to do.
It mostly was first of all in their heart, what can you do? Change that mindset? Because they were spiraling in depression because they were scared. So how do you turn it around to find the light? So that way, now you can turn something that's going to be a bad situation into a positive situation, and let's figure out a way to survive. And so that was my charity work that I did in the last, actually last four years was really working with companies and how to turn this situation around, because even when the mandate was over and they were able to open back up, business has changed. Everything's changed. So how do you survive the new norm? So I've really dedicated a lot of time helping people with that. Like I said, not just clients, but just people who need the help.
[00:15:47] Speaker A: Wow. Everyone can actually determine how dedicated and tenacious you are. There's something about the way that you walk, your husband, the way he walks. You've got something in your heart. You're out of that darkness, you're into the light, and you're on the positive side of things. And I have to applaud that from a personal standpoint.
[00:16:05] Speaker B: Well, I do have to say, though, that every company I worked with, not one person had to close their doors. Like, not one person had to just shut it down. Everybody survived.
[00:16:13] Speaker A: So did they call you banker Suzanne? Is that what it was at the time? I'm just kidding. Now, there's another one that's out there on the Internet now, and a lot of buzz about, it's called the Airbnb tax code. What's that all about?
[00:16:26] Speaker B: Okay.
On the IRS code on the Internet, apparently there's a lot of articles and there's been some podcasts out there. It's talking about this Airbnb IRS code. There is no actual IRS code called Airbnb. But what it is is they're talking about rentals that are 14 days or less. So people who have homes that they're using for Airbnb, because most people who rent a home, it's less than 14 days, they think that they qualify to claim it as a short term rental. And that's what it's all about. The problem is it's designed for if you have your personal home and you rent it out for 14 days or less, then it's a short term rental and you can follow those rules. But if you have a second property or more and those properties are designated as a rental property and you do Airbnb all year round, it might not be rented out all year round, but it's available. The purpose of the property is that then that's a real estate property. That's a business property, that's schedule e. That's a long term rental. There is no short term on that. But that's where the disconnect is, because I'm getting a lot of people asking me about that. I'm hearing about this all the time. Well, it's an Airbnb. It's short term. But yes. What's the purpose of the property? And why that's important is if it's a personal property, then you can claim when you decide to sell it, the 250 or $500,000 exclusion. But also, too, it's a personal property. You sell it, you have capital gains. It's capital gains.
[00:18:02] Speaker A: Right.
[00:18:02] Speaker B: Versus if it's a business property, there is no exclusion.
[00:18:06] Speaker A: There's no credit either.
[00:18:08] Speaker B: And if it's a gain, it's ordinary income. So it's a huge delta there.
So this whole misconception about short term versus long term, that's one that people need to really realize, like, okay, doesn't matter how long someone's in the house, it's what the purpose of that property is.
[00:18:25] Speaker A: Wow, howie, just summarize it right up there. Don't you give us some tips on how you can work better. A person can work better with their CPA. The good word is avoid legitimately, per the tax laws. How can a person work better with a CPA to reduce those taxes?
[00:18:44] Speaker B: That's a really good question.
Best ways is to maximize your deductions, is get organized, keep track of your expenses. I'll give you a quick tip.
If you have your own rental property, you're self managing, or you have your own business, when you go to the grocery store, pick up some clean supplies or Kleenex or coffee or creamer. If you have your own home office and part of your groceries, highlight those, throw them in a file. End of the year, tally it all up. You just picked up a whole bunch of more deductions. You just qualified your car for more ride offs, right? Because now your car is used for business as opposed to personal errand. But on top of it, it's keeping track of the expenses and giving them to your accountant. That way, now you're organized and you're giving things to your client. You're not just giving your CPA all these receipts. You've got everything tallied up and ready to go. And that's the best way to work with the CPA, because when you throw a whole bunch of stuff at them, most of them are not going to spend the time to go through it and really figure out what you're giving them.
[00:19:49] Speaker A: So the end result is garbage in, garbage out. And that's not what you want when you deal with a professional at your caliber and your level.
[00:19:57] Speaker B: But just one more thing I want to add to that too, is when a CPA is very common to give their clients what's called a tax organizer, and they're asking you to fill it all out. Question that. And the reason being is most cpas are taking those tax organizers and giving them to a staffer to data entry in. There could be a huge disconnect there. So if you have your own business or you have rental properties, make sure you give that information outside of the organizers. That way they understand what that information is for. And that way there's no disconnect between what is going to go on your return versus what is what you have.
[00:20:35] Speaker A: Always hearing that don't deduct your home office if you have a business because it triggers an audit. Is this true? How does that all work, that home office thing?
[00:20:44] Speaker B: Okay. And so in 2018, the home office got expanded. And basically the law is saying now the definition and what it is is the law hasn't changed. It's the tax courts that redefine the home office deduction. And so if you have a place in your home that the primary purpose is to do your work, whether full time your work, or even answering phone calls and doing emails. But it's an area that's designated, it's not your kitchen table, it's an area or a room, then that qualifies for home office if you have your own business or you're managing your own rental properties. And when I say that it's because some people who have w two income, they're not aware that they could actually claim their home office for managing their rental properties.
[00:21:30] Speaker A: That's interesting. Now, I got a couple of real estate questions. One is, what is a stepped up basis on a home, and when is that usually applied?
[00:21:39] Speaker B: Okay, stepped up basis. Great question.
This is one that a lot of people do not understand. Step up means that when someone passes and the property is then transferred to the beneficiary, it is stepped up in basis. And that step up in basis at either time of death or six months thereafter. But it's stepped up.
That's one that you really want to work with your CPA. And then also too, you work with whoever is on the handling, like the trust or so forth, to make sure that the values are being qualified.
[00:22:23] Speaker A: Gotcha. And also having a great realtor to sell the home within that six months. Is also very helpful because it establishes the value of the stepped up basis.
[00:22:31] Speaker B: Absolutely.
[00:22:31] Speaker A: So, regarding the administration of a trust after the primary trustee or the settler has passed. Settler. Sorry, you got to say it right. What tax returns is the successor trustee required to file?
[00:22:45] Speaker B: So it depends on how much this state is. So if the state is right now over twelve, the estate tax credit is a little over 12 million. So if the state is over that, then they have to file an estate tax return because there will be taxes owed. I always suggest to file one anyway, because that way when the assets. It lets the IRS know where the assets are being transferred, whether it's being transferred to a trust, or if it's being transferred to a beneficiary's, individuals or a combination.
If there is a trust set up, then a trust return needs to be completed and filed for every year that the EIN is open. That's a big, huge misconception too, because people think that if there's no activity, a trust return does not need to be filed. But that's not true.
And then, of course, you need to also prepare that the person who deceased their final 1040 and state return and marked final, because that's how you close out Social Security.
[00:23:42] Speaker A: Good to know. Good to know. Question. After a person has owned a home for a long period of time, what are the steps in establishing the value? Thus the gain on the home? In California, it's normally a gain on the gain on the home. And then how does that work? Married credit, single credit?
[00:24:00] Speaker B: Okay, how does that go? Great question. So the basics. And there's little caveats behind this. That's why it's always advisable to talk to a tax professional. But it's basically you take the self price minus the closing fees and closing expenses, or selling expenses. Like, did you do re landscaping or fix up the kitchen or whatever those expenses are your improvements for that property and the purchase price. And then that gives you your gain or loss. And if you still have a gain, depending upon if you've owned the house for five years and you've lived in it for two of those five years as your primary residence, then you can claim the 250 or $500,000 exclusion. However, there's a caveat to this, and that is, if that property was your personal, and then you transfer it to business and you had it as a rental, it's now a rental. So you have to reestablish it as a personal residence in order to get those personal exemptions.
[00:25:00] Speaker A: Good to know. That's really great to know. I'm going to jump back for just a moment and I'd like to talk about those food and beverage deductions. Tell me what's going on with those.
[00:25:09] Speaker B: Okay, so starting last year for meals and entertainment, the laws got expanded and changed. So for meals, if you go to a restaurant, it's 100% deductible. But if you buy food to do a dinner party, that would still be 50% deductible. However, as a realtor, when you do open houses and you go to the grocery store and you buy some food and drinks to have for your open house, that would be 100% deductible for you because it's part of your supplies.
[00:25:42] Speaker A: Wow, that's just fabulous. Talking about small businesses, I heard one piece of advice one time. The biggest mistake a small business can make is to think like a small business, and having a person that is your CPA work, your business, which is maybe a small business like you would a large business, is going to be a huge, huge benefit.
[00:26:03] Speaker B: No? I wanted to say thank you so much for having me. This has been great and I really admire what you're doing.
[00:26:10] Speaker A: Miss Suzanne Eichel, CPA Extraordinaire, Eichel Financial solutions in San Ramon so much. You've been listening to real estate and more show interesting people like this amazing CPA topics of the day like tax and accounting at year end and of course, real estate. You can listen to archive real estate and more shows at Michael hatfieldhomes.com radio. The real estate and more show is now available on demand on Spotify, Amazon, iTunes, iHeart and other podcast directories as well. Tune in next week and until then, have a blessed week.
[00:26:46] Speaker E: The views and opinions expressed are based on current economic and market conditions and are subject to change. Information on the show provided for illustrator purposes only and does not constitute professional or legal advice. Information from sources deemed reliable, but accuracy and completeness not guaranteed. Michael Hatfield and the Michael Hatfield Remax team have no liability for information discussed on the show. Consult with qualified professionals prior to taking action.
[00:27:15] Speaker F: We at the Michael Hatfield Remax team enjoy representing our valued clients. If you or someone you know is interested in buying or selling and wishes to schedule a complimentary appointment with the Michael Hatfield remax team, call us at 925-32-2775 that's 925-32-2775 or go to our website, michaelhatfieldhomes.com.
[00:27:39] Speaker A: I'm Michael Hatfield. Thank you for listening today. Join us next Saturday for the next real estate and more when we again sharpen our focus on house the market.
[00:27:49] Speaker F: Join us next Saturday and have a wonderful week. Best wishes and blessings to you.
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