Jeff Socha: The Tax Strategy Genius Behind Ultra-Wealthy Entrepreneurs

[00:00:05] Charles Eide: A lot of people call you the tax strategy genius, 

[00:00:09] Introduction: The Tax Strategy Genius

[00:00:09] Jeff Socha: Jeff Soha.

 Let’s say you make 10 million bucks a year and you say, man, I’ve got this big life. And I need a million bucks for my lifestyle spending. Okay, cool. We’re gonna pay tax on that million bucks. The other $9 million, you don’t have to pay tax on it today. 

[00:00:30] Charles Eide: Whoa. 

[00:00:31] Jeff Socha: You know, we had a new client come in and he is like, okay, cool.

I have this 30 million in my brokerage account. First of all, what the heck is it doing in your brokerage account? You’re a walking lawsuit. Target private placement life insurance allows you to get the benefits of the life insurance tax treatment. Let’s say you’ve got some great investments. That money grows from 30 to 60, and then let’s say you wanna sell it, that $30 million gain would get taxed at about 23.8 Federal plus state.

You do that inside of a private placement life insurance, there’s zero tax. What most people walking around this planet are not clear about what they want in life. From doing the work about getting clear about what you want in life, we can start to back in to figuring out what it is that you need. We oftentimes talk about that as the freedom threshold.

And the freedom threshold is you getting to a place where your financial life is supported from your balance sheet, from your assets. I no longer have the question of, will I have enough? But how do you define enough? It’s from that place of clarity about what you want in life. Let’s rewind now. How 

[00:01:24] Charles Eide: do we get to that level of money and income?

The first thing you have to realize is there’s not,

before we get to the episode, will you do me a favor and subscribe to Cleared for takeoff. It’s one little thing that you can do to help us in our channel so that we can continue to give you great content. Thanks so much and I hope you enjoy the episode, Jeff Soha. It is great to have you. Thanks. I’m so happy you made the trip up here to our studio from Austin.

It’s been a minute 

[00:01:54] Jeff Socha: since I’ve been in Minneapolis and, good. 

[00:01:57] Charles Eide: Well, at least you came during a nice time of year. 

[00:01:59] Jeff Socha: Yeah. This weather’s tempting, right? It’s like taking you to Austin in March, right? Oh, I know. And then you’re baited in right before it’s 117 degrees. I know. I’ve 

[00:02:08] Charles Eide: relocated a couple of people here.

[00:02:10] Tax on Surplus Income is Optional

[00:02:10] Charles Eide: Yeah. During the summertime. Yeah, because I know in the winter they’re not gonna do it. January’s not good for recruiting to Minneapolis. Not good. Probably not. No. We, we just pause our recruiting efforts. Uh, a lot of people call you the tax strategy genius. I mean, you do tax strategy for huge names, people who are worth insane lifetimes, amounts of money, which says, you might know a couple things for me when I think about tax strategy.

You and I’ve talked. You always say most people, business owners, CEOs, most people are paying way more in tax than they should. Yeah. What does that even mean? 

[00:02:56] Jeff Socha: Well, if you think about, um, how much tax you pay and how much, how much taxable income you make, if you could draw a line, take your total income and draw a line for, for what you need for consumption.

Let’s say you’re consuming a portion of your income for lifestyle, et cetera, and whatever that amount of consumption is, let’s just go ahead and say you’re gonna pay tax on the consumption amount. Everything above that line, paying your taxes today is optional. Okay? What do you mean paying taxes optional?

So when you need, when you make money and you’re gonna con, you’re gonna consume a portion of that, just use some numbers. Let’s say you make 10 million bucks a year. You say, man, I’ve got this big life and I, uh, need a million bucks for my lifestyle spending. Okay, cool. We’re gonna pay tax on that million bucks.

The other $9 million, you don’t have to pay tax on it today. You can pay tax on it, but you could also take that 9 million and defer it, restructure it, change the nature of it. Uh, you could find deductions, offsets. There’s a number of things you can do that makes paying tax on that $9 million today optional.

Hmm. Now some of it might be deferred to a future point, but then we get the time value of money. So, um, whatever amount that you’re earning, whatever amount that you’re making that you’re not consuming, just start from a place of understanding that tax on those dollars is optional. 

[00:04:29] Charles Eide: Hmm. So you’re saying there are tools that if you have surplus income that you want to.

Save for later, right? Or build interest or use, there are tools that make that 

[00:04:41] Jeff Socha: possible, right? Because you could take that kind of discretionary income, we’ll call it, that’s above and beyond what you need for consumption. And you can structure that in a way where, let’s say you’re, you’re, if you’re not consuming it, then most likely you’re going to be investing it mm-hmm.

In some form or fashion. And the structure by which that money is held can, uh, in effect, make the tax not necessary today. So, so 

[00:05:06] Charles Eide: what investments do you like when you look at that surplus and you’re like, Hey, you know, here are our options, here are my favorite few options to do that. 

[00:05:17] Structuring Income vs. Choosing Investments

[00:05:17] Jeff Socha: Well, I, I think what investments it goes into is a secondary question.

The first question is, how are we gonna structure that income? You know, you know, think about large corporations, take like a Microsoft or something. Huge, huge companies, right? And there are structures that they use for their income and profits that are going to help them with tax. You know, if, if you go all the way back, like this is not a new thing, you go all the way back to like Henry Ford and he was doing something that was really smart, but you can’t do that anymore.

The, the IRS said, no, we’re not gonna allow that. He would basically go around and find all these companies that you could buy that had existing losses, but the, there was no benefit of those losses to the owners. So he was buying up all of these losses to roll into his company. Now you can’t just go out and buy losses like Henry Ford did back then, but the point is that figuring out a, an intelligent way to, uh, not pay tax on the income that you don’t need for consumption is not anything new today.

It might be something like Microsoft says, Hey. We have a ton of employees, so we’re gonna set up our own health insurance company. Well, why do you think people like Buffet like an insurance company? Because insurance laws require a reserve of premium, so you don’t have to report it as taxable income. And if you’re reserving the premium for future liability, you still control those reserves, which is why Buffet likes owning a, an insurance company because he gets to invest and control all of the reserves.

So when you get into major corporations like a Microsoft, they could do things like that and set up their own health insurance through a self-insurance, uh, pool or vehicle that they own and control. So now they have this massive, uh, pool of money that they set aside that otherwise would’ve been taxed as profits and now they get to invest it and control it.

So, you know, with the big corporations, whether it’s Ford or something like Microsoft Today, or, or why, why somebody like Buffett would go and buy these companies, you know, entrepreneurs like you can use that now. There’s just different structuring that takes place. But you might say, okay, well, well, if I don’t need to receive, uh, the income, you know, maybe there’s a way that I can change the nature of the income.

[00:07:30] Charles Eide: Interesting. So like, what do you mean by that? 

[00:07:33] Jeff Socha: You know, so let’s say, uh, I know you and I are pretty charitable people, so if, if we say, Hey, I know, I’ll, I’ll tell you something. We’re, we’re doing for one of our clients. They’re, they’re extremely charitable. Um, you know, their income is great. They probably will make $30 million this year, and they’re super charitable.

So the tax code allows them to put up to 30% of their taxable income into what’s called a charitable lead trust. So since their charitable, they know they’re gonna continue giving away a lot of money. We can take 30% of the 30 or $9 million, put that into a charitable lead trust. What does that allow them to do?

[00:08:07] Charitable Lead Trusts for Tax Deductions

[00:08:07] Jeff Socha: It allows ’em to take the deduction today. Of the 9 million, they still control the 9 million in the trust 

[00:08:13] Charles Eide: so that that can make, they can earn interest. They could do projects, they can 

[00:08:17] Jeff Socha: invest it. They can invest it in land real estate development. They can, they can invest it however they want to invest it.

For the most part, they’re going to grow their wealth. And then not only growing the wealth, they’re going to give that $9 million to away to charity over a term. But all of the excess that they grow above and beyond that 9 million during that period is gonna come back to either their estate or a trust they set up or maybe a trust for their kids.

So now it helps with wealth transfer down into future generations, maybe even their grandchildren. ’cause once you start getting into planning for wealthy families, you’re looking at not just one person, not just, not just the, the founder. You’re looking, they might be G one, but you have generation two, generation three.

And so then you start thinking, how do we do this multi-generational planning? So let’s satisfy maybe some of their charitable desires, but, uh, we’re not gonna pay tax on that 9 million. Now we’re gonna put that 9 million into a trust. We’re gonna invest it, we’re gonna grow it to the extent that we exceed sort of the hurdle rate of the charitable, uh, obligation that can, now I can skip a generation and put that in a trust for my grandkids.

Right? And, and, and. Other, it’s, it’s, it’s dollars you were going to donate anyways in the future. So there, there’s a number of tools that you can use like that, that help you, uh, offset the tax. You just have to be proactive and intelligent in how you approach it. 

[00:09:35] Charles Eide: So when you think about, Hey, do I, you know, I made this much, I made a million dollars, you know, that I’m gonna set aside and I don’t want to pay tax on it now.

Right. Wouldn’t some people say it’s better to pay the tax now and then grow what’s left over? Or are you saying no, defer the entire thing and then pay the tax later as a capital gain? You might do some of both. 

[00:10:01] Jeff Socha: Right. So it’s not one or the other. It’s no, it, it, it’s rarely a one size fits all type solution.

It’s usually a combination of multiple things that we’re gonna look at saying, all right, how, how do we put maybe some of this and some of that? And you’ve, you figure out the three or four big things that are gonna work together based on your goals that are gonna help you get where you want to go. But, you know, I mean, when you think about, Hey, how do I, how do I not pay tax in the future on my investments?

Let’s say you’re sitting here and you already have, you know, we had a new client come in and he is like, okay, cool. I have this 30 million in my brokerage account. 

[00:10:32] Private Placement Life Insurance

[00:10:37] Jeff Socha: First of all, what the heck is it doing in your brokerage account? You’re a walking lawsuit. Target. You know, attorneys love the fact if you have liquidity sitting in a, in an account in your personal name, so we can move that.

You know, one of the best structures you see out there for wealthy people, most people don’t have enough capital to use. This is called a private placement life insurance structure. The private placement life insurance allows you to get the benefits of the life insurance. Tax treatment means it can grow tax free.

You can take it out tax free, the death benefit that pays to your kids income tax free. You know, you can structure the ownership inside of a trust, but literally you could take that and say, let’s, let’s get this 30 million moved into a, uh, private placement. Life insurance. Usually you have to have at least 20 million liquid for, to, to get a good deal with one of these.

So most people don’t have that. But let’s say you do, you put the 30 million bucks in there, you grow it. Let’s say you’ve got some great investments. Uh, maybe it’s some private equity investments, some venture capital investments. Maybe you just good trading strategies. That money grows from 30 to 60. And then let’s say you wanna sell it well.

Under normal conditions, like the way the guy’s structured right now, that $30 million gain would get taxed at about 23.8 federal plus state. So he’s gonna give up, you know, seven, $8 million in taxes. You do that inside of a private placement life insurance, there’s zero tax. What? So then the 30 million gain, he can sell it, reposition it, reallocate it, and do it all over again.

You get a big win in, uh, your private equity fund grows 10 x, the 30 million turns into 300 inside of the private placement life insurance. That $270 million of gain zero tax. 

[00:12:09] Charles Eide: And that’s safer because it’s not sitting in some sort of brokerage account that’s, uh, accessible to predators. Right. Right. 

[00:12:15] Jeff Socha: So from you, 

[00:12:16] Charles Eide: you’re getting some benefits from 

[00:12:17] Jeff Socha: asset protection as well.

[00:12:20] Charles Eide: So now 

[00:12:20] Jeff Socha: we’ve protected the money and we’ve 

[00:12:21] Charles Eide: removed future tax on the money. Okay. So let’s rewind now to get to how do we get to that level of money and income, right. When, when that part’s on you. Right? Yeah, I understand that. But there’s, there was some things that you and I are talking about regarding, uh, the, the, the time spent to come up with what your money plan is basically for your life.

Sure. Right? Yeah. So you’re, you’re an entrepreneur. Either you’ve been doing it a while or you’re just getting started and you’re thinking, man, I want 30 million in the bank liquid. How do I come up with what my money plan is for my life? Because you are really good at explaining 

[00:13:04] Getting Clear About What You Want in Life

[00:13:04] Jeff Socha: that. I, I think the first thing you have to realize is there’s not the same answer for everyone.

You have to get clear about what you want in life. And this is a reality that I don’t think most people understand is that most people walking around this planet are not clear about what they want in life. They have not put the considerable time and effort into reflecting and thinking through what is it that I actually want in life?

What is it that needs to happen while I’m alive so that when I’m on my deathbed and I’m about to exit the planet, I can do so without regret. 

[00:13:35] Charles Eide: Hmm. 

[00:13:36] Jeff Socha: And most people haven’t done that work. That’s real work. And I think from that place, getting clear about what it is that you want in life that’s gonna fuel and drive your decision making and your goals and, and you’re gonna get to a place of peace by approaching that, those goals versus in the absence of that clarity, you just, what’s the answer?

It’s always just more. Mm-hmm. Why? Why is it more for what to what end? Right. So I think that that’s step one is getting clear about that. 

[00:14:09] Charles Eide: So getting clear about it, spending time reflecting. So how do I figure out how much money that is and how much income I need to take home versus leaving the business?

How do I know the, the, the real number I need to be shooting at 

[00:14:24] Jeff Socha: from, from doing the work about getting clear about what you want in life, we can start to back in to figuring out what it is that you need. Right? And, um, you know, we, we, we oftentimes talk about that as the freedom threshold. Okay? Freedom threshold.

And, and the freedom threshold is, is you getting to a place where your financial life is supported. From your balance sheet, from your assets, not from your earned income and your labor and trading your time for money and your, your p and l, right? It’s no longer about those things. It’s, Hey, the assets, this balance sheet is going to support me.

I no longer have the question of, will I have enough? Right? That question has been solved. We have addressed that. But how do you define enough? It’s from that place of clarity about what you want in life. And so from that place of clarity, you can start to figure out where that threshold is in your life so that you know, hey, this is, this is the measuring stick that I’m trying to accomplish and why I’m trying to accomplish it.

[00:15:20] The Freedom Threshold Concept

[00:15:20] Jeff Socha: I just, I, I think about my own 

[00:15:22] Charles Eide: life, and when you’re in this mode of growing a business or a company, it’s really easy to forget about stepping back and going, what do I want financially for my, my financial picture, my family, my kids, my grandkids? How do I get into a place where I’m creating a reasonable understanding of what I need?

Like people that don’t know how to even start down the journey of figuring out, do I need $10 million? Do I need $50 million? I don’t know. Do I need a billion dollars? 

[00:15:56] Jeff Socha: You know, there’s a couple. I know that they are just amazing people and uh, it’s probably been six years ago, they said, Hey, we’re gonna take a break from kind of corporate life and whatnot.

And they had 2 million bucks. And I said, okay. Uh, sure. And, um, anyways, it’s been about six years now, that six month break. And their lifestyle is really interesting. I mean, they volunteered to work on the Appalachian Trail and lived in a, you know, whatever housing that was provided, and they went and lived in a, uh, like a shack in Hawaii and would spearfish for their food and stuff, you know, and.

So it doesn’t have to take a whole lot. 

[00:16:38] Charles Eide: Yeah. 

[00:16:39] Jeff Socha: It’s, it’s really about what is meaningful in your life. And so for them, they figured out that they have all the peace and joy that they’re looking for in their life. And it doesn’t take as much. There’s other people that, what they want out of life, the lifestyle they wanna live, what they want to give or provide their kids or their spouse or their grandchildren, you know, has a greater financial cost.

Mm-hmm. So it’s, it really is dependent on what it is that you want in life and what kind of lifestyle you wanna have and what kind of lifestyle you wanna live. But in the absence of getting clear, the answer’s always just gonna be more, which is gonna not gonna lead you to peace and joy. It’s gonna lead you 

[00:17:18] Charles Eide: to stress.

So I was gonna ask the people that took the time off and went spearfishing, of all the people you know and work with, are they happier? 

[00:17:30] Jeff Socha: I don’t, I don’t know. They would say spearfishing sounds pretty awesome. I think they’re very happy people. Um, but I think they’re happy because they’re content and the reason they’re content is because they know what they want out of life and they’re getting it.

And it doesn’t cost a lot of money for them to do that. 

[00:17:44] Contentment vs. More Money

[00:17:44] Charles Eide: And that, that 2 million bucks is structured so that it’s providing them income every year. Right. Yeah. And they don’t 

[00:17:49] Jeff Socha: need 

[00:17:49] Charles Eide: much. So they have basically freedom in a way. Right. Right. Does it allow the money to grow as well or is there is 2 million bucks the type of thing that, you know, 

[00:18:00] Jeff Socha: for them it’s enough?

[00:18:01] Charles Eide: Yeah. 

[00:18:01] Jeff Socha: For them it’s enough. You know, for you it’s probably not enough. 

[00:18:07] Charles Eide: Definitely not. When you think about your freedom threshold. Right. Explain that concept to me better about how you behave in the workplace. ’cause you, you and I talked about this and I was like, that’s really good. 

[00:18:22] Jeff Socha: Yeah. I think from working for so many entrepreneurs who are self-made and creators.

You, you know, a lot of entrepreneurs have something inside of them that’s driving them, and maybe it’s formed in childhood. Maybe it’s, you know, s some early experience in life that’s fueling it. And most successful entrepreneurs I know didn’t, they’re not in it for the money, the money follows because of what they’re doing.

It’s the, the, the goal wasn’t the money. And so, so whatever that is that they’re trying to prove and whatever that is they’re trying to make of themselves. You know, they set out to do that and, and they have this high tension, and I’ve been there where you have this stress of feeling of need. Hmm. And it’s like, well, I need this to happen and I need this deal.

You know? And you’re working your tail off and you’re trying to figure out like, how do I get the right people? Whether it’s I need this client, or I need this employee, or, you know, it’s just everything is from a place of need. Right. Like almost desperation. Yeah. Like borderline. And it’s, it’s like, I need all this stuff to work because I’m trying so hard.

And if you think about being an entrepreneur, it is literally, especially a successful one. It is like a superhuman thing that happens. You’re, you’re literally taking an idea from your head and you’re like, birthing this thing into existence. Okay. That it was just, it was just a thing that you made up and, and you’re going through this crazy effort to bring it to life and scratch and call your way outta the mud and figure it out.

You know, the ups and downs and uh, you know, I almost went broke and I almost went bankrupt. And this almost happened and that almost happened. And you’re fighting and fighting and fighting, right? And so entrepreneurs, they, all of that is like very real in who they are. Very real. And, and, and they want to get to a place where they say, okay, listen, I might be willing to do that again, but I want it to be optional.

[00:20:23] Charles Eide: Mm-hmm. 

[00:20:24] Jeff Socha: And most successful entrepreneurs are not very employable. So they know that if this thing doesn’t work, that they’re going to be forced to do that again. And they do not wanna be forced to have to go through that again. The sacrifice, the pain, everything they’ve been through to build something out of nothing.

[00:20:41] Operating from Need vs. High Power

[00:20:41] Jeff Socha: And so they’re like, how do I get to a place where if I ever want to exert that effort again, it’s optional. And so to get there means like we have to get that balance sheet and those assets to a place to where they know, okay, I will be sustained, my family will be sustained. And so now I can operate from a place where things are optional.

And so instead of being before crossing that threshold, this place of high need, which causes you to really approach your decision making from low power, where you’re like, alright, um, well I need this thing enough that I’m gonna compromise where I really shouldn’t compromise. I’m gonna compromise some values or some principles or some decision making, or my logic or the wisdom or whatever.

I’m gonna start making compromises, just trying out of this place of need. And that’s low power. And when you, when you get across that threshold and you realize that that’s embodied inside of you, that we have enough, well now the need goes away. Or maybe it, maybe if it doesn’t go away, it’s minimized, which changes all of your behaviors and decision making so that when you approach life, you’re approaching it from a place of high power.

[00:21:44] Charles Eide: Hmm. 

[00:21:45] Jeff Socha: Because you’re saying, I don’t, I don’t need this. I, I might wind it, which is different. I might be okay doing it because I enjoy it or I like it, you know? And most entrepreneurs are wired for work. They’re wired for creation. They’re wired for building. So crossing the threshold isn’t about retiring and doing nothing.

I, uh, show me a successful entrepreneur who just like, gave up on life and said, well, no, I’m just going to fish. I don’t think that happens. They’re gonna continue building and creating. It’s just a difference in that they’re building and creating from a place of low need and high power, because now they’re saying, Hey, I’ve got this great idea, but I don’t really wanna execute it unless I have the right team.

Or I have this thing I wanna build, but you know, I can, I can be patient until I find the right operator. Right? Or, you know, if the deal doesn’t fit, I’m fine walking away. And, and you know, and I think, I think whoever ends. Needing the deal more when you’re sort of like in a negotiation standpoint, is the more vulnerable person, more likely to lose the negotiation?

Mm. Whoever cares more is gonna be the one that ends up paying the price. Right. And so if you can get to a place where you’re like, I’d like this to happen, but I’m totally okay if it doesn’t. 

[00:23:04] Charles Eide: Mm. 

[00:23:06] Jeff Socha: You know, 

[00:23:07] Charles Eide: it’s so relatable. You have 

[00:23:08] Jeff Socha: so much negotiation power that you’re more likely to come out ahead in your negotiations, in your decision making.

[00:23:13] Charles Eide: And that comes from being in a place financially, that you’re strong enough that you don’t need any one thing to happen. Yeah. Or, or need anything to happen. Right. Because you say I’m good. Yeah. Now, there was a rule of thumb you gave me earlier about how much liquid someone should have on hand compared to their income.

[00:23:36] The Liquidity Rule of Thumb

[00:23:36] Jeff Socha: Yeah. And I think, I think that plays into especially, but I, I like that rule of thumb and I’ll talk about it, but I, I, I like it. Regardless of what stage you’re at, but you, you know, before you’ve gotten yourself across that threshold. I think that, um, uh, maintaining this rule will give you a greater sense of power, even though you’re still maybe haven’t crossed the threshold.

And that is to maintain at least as much liquidity as you have in income. Make a million bucks a year, have at least a million liquid. You make 10 million a year, have at least 10 million liquid. I have seen multiple times now, people on their way to being billionaire who are totally crippled, I mean, brought to their knees, like on the verge of bankruptcy due to a lack of liquidity.

One client, she, uh, was probably worth around 500 million and, um, it, it was, everything was going great in the right direction. She had zero appreciation for liquidity. Didn’t appreciate liquidity at all. Had 5 million liquid. Everything was, everything was parlayed, everything was at risk, you know, and, and liquidity was viewed as this, as this dead asset.

That’s not productive. ’cause my business is growing at 2050, a hundred percent and liquidity only grows at five or 10. And this is, this is a waste. And a few chips fell the wrong way at the same time. And what, what started happening? Oh, well next thing you know, we’ve gotta fire sell the vineyard or we’ve gotta fire, sell this asset and that asset.

And you don’t get top dollar when you fire, sell. And it was sad because it was something like 15 million of liquidity would’ve made all the problems go away and we couldn’t get it together. And the thing is, you, you think, oh, I can always get a line of credit or borrow it. No. Funny thing, banks don’t lose.

So banks wanna give you money when you don’t need it. 

[00:25:33] Charles Eide: Right. 

[00:25:33] Jeff Socha: They don’t give you money when you’re desperate. You need it. Isn’t 

[00:25:35] Charles Eide: that the funniest thing? Yeah. It’s like when you don’t need the money, they’re like, Hey, you should take something. You should take some money. Yeah. When you need it. They’re like, 

[00:25:43] Jeff Socha: I don’t know.

I don’t think so. Yeah. So nobody, nobody’s, they’re saying, here, I’ll, I’ll lend you the 15 million you need. Right. ’cause you’re in a weak spot. 

[00:25:53] Charles Eide: And they’re like, I don’t wanna be a part of that. ’cause I might lose my butt. 

[00:25:56] Jeff Socha: Super high risk. Super high risk. Yeah. So then they don’t want a loan. So then next thing you know, your 500 million crumbles to 50 because you’re fire selling things left and right.

Just to keep it together and stay outta bankruptcy. Like, wow. And, and a small amount of relative liquidity would’ve gotten outta that. And I’ve seen that happen multiple times. 

[00:26:16] Charles Eide: Yeah. 

[00:26:16] Jeff Socha: With people. And so, you know, it goes against the grain of an entrepreneur. ’cause an entrepreneur wants to build, build, build.

But you have to remember this, you will always run out of ideas and opportunity. You’ll always run out of time and money before you run out of ideas and opportunities. Hmm. So a, a relatively like, new, successful, or, or maybe, you know, if we could be so bold as to say a more immature entrepreneur has a false belief that if I just do a little bit more, if I just push, if I just try, if I just work, whatever, if I just this and this, maybe I can get all those ideas and opportunities.

[00:26:50] Running Out of Time Before Ideas

[00:26:50] Jeff Socha: But you can’t. ’cause the more successful you become, the more ideas and the more opportunities you’re gonna have to pursue. So once you accept that, I will always run out of ideas and I always run out of time and money before I run out of ideas and opportunities. Once you accept that what I believe to be true, it empowers you to say no.

Hmm. 

[00:27:13] Charles Eide: To new ideas. 

[00:27:14] Jeff Socha: Yeah. And stay focused on that. And when you have clarity about what you want in life, you’re making those decisions from a place of this like vertical alignment of does that fit what I want in life or not. Hmm. So my yeses become more clear. My nos become easier. Because I’m, I’m not trying, trying to chase every idea and opportunity.

[00:27:33] Charles Eide: Yeah. 

[00:27:34] Jeff Socha: You know, could you say, Hey, maybe let’s look, who knows? But you know, that, that’s the liquidity trap is, um, thinking somehow you can just get to all of those ideas and opportunities and you’ll always run outta cash. And then that also causes you to play small. I mean, the, the, the best things you can get into out there require you to, at a minimum, be a qualified purchase service is having 5 million.

So if you don’t even have 5 million liquid or saved up in investments, like you’re not even participating in the good stuff. And then the good stuff usually has large minimums million, $2 million minimums. So then, because if you’re trying to chase all these ideas and opportunities, you end up just like buying a bunch of $50,000 lottery tickets.

How’s that gonna get you anywhere? You know? Um, so I, I, I thinks really, she keeps me thinking about all 

[00:28:18] Charles Eide: the stuff I’m doing. I’m like, geez, okay. Yeah. I wasn’t gonna 

[00:28:20] Jeff Socha: say names, but 

[00:28:23] Charles Eide: that’s really interesting. So you’re saying you’re confirming. Focusing on the main thing. Yeah. And not letting distracting ideas and shiny objects take you off track.

Right. Right. Like, and sometimes I see people who are, who are really on the brink of success and they just cross over into greatness if they’d let go of these three other stupid things that are wasting their time. 

[00:28:49] Jeff Socha: Totally. Right. And, and it’s because we all like sort of this idea of get rich quick. 

[00:28:58] Charles Eide: Yeah.

[00:28:59] Jeff Socha: And I, I mean, I’ll tell you another interesting truth. I, I don’t know. I’ve met with countless wealthy people at this point. Consulted them, seen behind the scenes, the intimate, the vulnerable, the details. And here’s an interesting thing that, uh, that I find to be true. I have yet to meet a single family or person who became wealthy from investing.

Whoa. So tell me that again. I haven’t met a single person or family that became wealthy from investing, so it’s through businesses. That’s where all of it comes from. It’s not that wealthy people don’t increase their wealth through investments they do, but the original wealth, the first 50 million, the first 20 million, the first a hundred million that’s gonna come through the business, that’s their golden goose.

[00:29:59] Wealth Comes from Business, Not Investing

[00:29:59] Jeff Socha: And they think that there’s some investment that’s gonna do 27 x and I can just go get this $50,000 lottery ticket and then it’s gonna, you know, it’s all gonna work out 

[00:30:11] Charles Eide: fairy tales. 

[00:30:12] Jeff Socha: You know, I’m not saying there aren’t lottery winners, there are lottery ticket winners. It’s just like, what are the odds?

[00:30:18] Charles Eide: Yeah. 

[00:30:18] Jeff Socha: Right. Like, if you and I had had, could just go back and time travel, maybe would’ve borrowed all the money we could 10 years ago and bought all the Bitcoin in the world, you know, for a hundred dollars, whatever, $5, whatever it was. So it’s not like there are people that get lucky and, and things work out sometimes.

Um, but that, that’s not what we’re talking about. We’re talking about, you know, the wealth creators. They’re gonna create it through their business. It’s their best investment. It’s gonna do more than any investment ever does. And, and if I usually, if I tell people that, they’ll push back and say, well, what about like somebody like Warren Buffett?

He, you know, he’s the world’s greatest investor. Surely he made his money through investing. And I say no, he made his money through the business of investing. Mm. A business. Where did his wealth come from? Yeah, his wealth came from creating a business that was an investment company. And because of the profits of that company is where his wealth came from.

Yeah. And then he invested it and then he invested. 

[00:31:16] Charles Eide: Right. So when you think about all the people you’ve worked with who are very, very, very wealthy, is there a trend you see in what kind of business 

[00:31:29] Jeff Socha: that they have? I would say most of the wealthiest families that we’re in are in boring things. They’re not in the most exciting new, you know, party conversation businesses.

They’re in businesses that you know he’ll, he’ll be like, well, um, yeah, that guy does all the concrete in Texas. You’re like, well, that’s. Good business. How long have we had concrete? A long time. We’ll keep, we’ll keep using concrete. Yeah. So they’re not interested in necessarily impressing someone else from their business activity and saying, I have a cool business.

Yeah. They could care less if you think it’s cool. Yeah. What’s cool is the money they make. Yeah. Yeah. 

[00:32:16] Charles Eide: Yeah. So th that brings me to another really important topic, and that is, you are in the business of helping these ultra high net worth people navigate the waters of their future, but you have to first get the trust and credibility with those very people.

[00:32:36] Building Trust and Credibility

[00:32:36] Charles Eide: And so I wanted to ask you, when you think about how you build trust and credibility, aside from your past record of all the successes you’ve had, how do you build credibility and trust 

[00:32:48] Jeff Socha: with these people? Man, that’s the, that’s, that’s, uh, that’s probably the hardest thing, you know, because when people.

Come to us, you know, they get referred, they get introduced to us, whatever. They come to us. And, um, and they’ve been so beat down by people in their financial life and their CPAs and people that basically tell ’em, Hey, paying a lot of taxes, part of making a lot of money, and all this stuff that just irritates ’em.

And so it, it’s kind of like the, the best analogy I can think of is this, Charles. It’s, it’s like, it’s like they have been convinced the world is flat. And so then they meet us and I’m like, well, I’ve been around and what if it’s round? And they’re almost like nervous to think, everyone I’ve ever known has told me the world’s flat.

You just have to pay all the taxes and then you die. And I’m like, well, what if it wasn’t that way? And there’s just sort of this like skepticism around that. And so our competition really isn’t like someone else is going to help them. The competition for us, the number one competitor we have is Do nothing, is don’t change.

So they first have to take, the first leap of faith they have to take is like, what if, what if there’s a different way? And so in our process when we’re working for clients, something that I’m super proud of that I I have yet to see any other professional firm do is we literally put it in our engagement that if we don’t more than pay for ourselves, we’ll refund the difference.

I don’t know how to to be any stronger in putting your money where your mouth is than that. And I think these entrepreneurs get so fed up of all these people that have a bunch of talk and, and they, they can’t back it up. And so we literally put our money where our mouth is and say, yeah, we we’re gonna deliver, or we’ll give you the money back.

So you give ’em a 

[00:34:29] Charles Eide: money, you’re like, Hey, if it doesn’t pay for itself, you know, don’t Yeah. We’ll refund the difference. Don’t, yeah. 

[00:34:33] Jeff Socha: Right. So, so we literally write that in there to, to hope to get them to take a chance. But then we measure it like crazy. So we have something we call a quantified value in our firm.

And so everything that we do that makes money and saves money, gets tracked meticulously and reported on so that they know, Hey, I basically made an investment in hiring this firm, this engagement, and what’s the return on my engagement? So that’s something that we wanna measure and report on and say, yeah, you, you’re, you’re paying a lot of money to engage our firm, but what’s the return on that engagement?

And I think that builds credibility because, and, and it builds the trust you’re talking about individually, regardless of what we’ve achieved in the past, is they’re able to see, okay, these are real tangible results. And so what I find that happens is that we actually do what we say we’re gonna do, and we back it up and we put those guarantees and promises in our relationships.

[00:35:33] Money-Back Guarantee and Quantified Value

[00:35:33] Jeff Socha: And then when we deliver in a quantifiable way, a tangible, measurable, real dollars way. That is, that’s when the people really open up their trust. Like, whoa. Because I think even when they hire us, they’re still like kind of going, is this gonna work? Because everybody convinced me is this isn’t possible.

Right? And, and it’s kind of unfortunate ’cause we, we probably work for like the most successful people you’ve never heard of. And, and so, you know, big corporations and whatnot, they’re gonna go hire big four firms and they’re gonna pay millions of dollars a year for their tax team and their, their financial team.

And those teams can do what we can do. But the difference is like, how do you bring that down to like, you know, the concrete guy in Texas? 

[00:36:13] Charles Eide: Yeah. 

[00:36:13] Jeff Socha: How do you do that? 

[00:36:14] Charles Eide: Yeah. The family business That’s killing it. It’s killing it. Yeah. That, 

[00:36:17] Jeff Socha: you know, we got, we got clients that make 20, 30, $40 million a year.

You’ve never heard their name in profit. Yeah. In taxable income. Yeah. You’ve never heard their name. It doesn’t matter. But the point is they’re going, how do I get access? Yeah. And you have this huge void in that country. So you have this main street. You know, like, like, like think large brand companies, every major financial, national brand and bank you can think of that’s involved in financial planning and tax stuff.

And that’s for like your average, you know, professional family. Hey, husband and wife work, they each make a hundred grand, they have a couple hundred grand and they wanna like save and have this retirement and whatnot. And that’s great. That’s great. Those people need help. We’re not for that. But then you have like the, the really high, like the deca billionaires, the people worth 20 billion, you know, stuff like that.

And, and, and the Fortune 500 companies and they all go and get the big four consulting firms. Great. We don’t play there. Well, what about all the people in between? What about the people who are like, man, I, I don’t know if you know the statistic, there’s only about 23,000 taxpayers in the United States that make over $10 million a year in taxable income.

In taxable income. Yeah. Where do those people go? 

[00:37:26] Charles Eide: Yeah. 

[00:37:27] Jeff Socha: You know, there’s about. There’s about, uh, 500,000 that make over a million. Where do those people go? They know the national brand. You know your cousin’s neighbor who’s trying to knock on the door and say, can I do this financial thing? Can I sell you some stuff?

[00:37:44] Why Isn’t My CPA Doing This?

[00:37:44] Jeff Socha: They know those people aren’t gonna help ’em. 

[00:37:46] Charles Eide: Mm-hmm. 

[00:37:46] Jeff Socha: And they’re tired of it and they can’t find help. So 

[00:37:49] Charles Eide: that, that, that always comes back to the question that I’ve heard lots and I, before you and I met this very question, why isn’t my CPA doing this stuff for me? And what is the difference between what you do and what A CPA 

[00:38:07] Jeff Socha: does?

I mean, so. Most CPAs are in the business, the ones we’re talking about that file, prepare and file your tax returns. Yeah. That is a compliance function. Okay. That’s, Hey Charlie, you’ve got all this activity in your business. Cool. And, uh, so you’re gonna send us all that information and we’re gonna populate these forms and, and we’re gonna make sure all the correct compliance forms are filled out and they’re all filled out correctly, and they’re all submitted on time and they’re all, you know, and tell you how much you have to send in with these very black and white.

It’s just a compliance, like, like data reconciliation process. Okay. Yeah. It’s, it’s, uh, fairly commoditized and, and routine and, and, um, you know, you have ones that are better and worse, but you know, it is what it is. Right. And that’s the business that they’re in, and that’s great. We don’t do that, you know, for, for us, we’re looking at things proactively.

So we come in from a place of, you know, my undergrad growing up in engineering, you know, looking at, uh, say we take your business and we look at your business and start asking different questions. Why does this have to be that way? Well, what if we change this? Well, what if we, uh, change how the cash flows?

What if we change how the entity’s structured? What if we change how you pay your people? What if we change this? What if we change that and we start understanding what it is that you’re trying to accomplish, your goals and your priorities, and what are the changes that we can make with, with minimal adverse effect?

That by making those changes, it literally changes the data that will hand to the compliance person so that when they fill out those forms, that the calculation, the, the, the result is different. And so by being proactive, creative problem solvers, those kinds of things, critical thinking, you know, not compliance function of filling forms out.

Filling forms out better isn’t gonna get you where you want to go. It’s about questioning why you’re doing things the way you are and if there’s a better way. And I just kind of always had this belief that there’s always a better way. And so if you have this relentless pursuit of I’m going to believe it’s possible, uh, then we will find a way.

Right? But, but if you give into this whole, well, everybody told me I can’t, so therefore I, it must not be true. I can’t do it. I don’t believe it’s true. Well, then you’re gonna get stuck paying more tax than you should. 

[00:40:19] Why Haven’t I Heard About This?

[00:40:19] Charles Eide: Yeah. So you’ve been asked this question a lot, I’m sure of it. If this is so great and it’s legal, why haven’t I heard about this?

[00:40:29] Jeff Socha: Yeah, well, um, you might be the most successful person in your social circle. Um, maybe you haven’t upgraded your, uh, outside professionals and advisors in a long time, you know, because. As you’re growing a business, you don’t like day one, you’re not successful, right? You’re just trying to make it, and there’s certain necessary functions you have, like maybe, maybe you make a little bit of money, and so you get one of those main street advisors and you make a little bit of money and you get one of those regular compliance CPAs, you know, and, and, and that’s good.

Like you probably made a good decision and it was the right decision at the time, but you maybe have outgrown them and if you’ve outgrown them and haven’t upgraded them, well that’s most likely why you’re not getting it. But you, you know, I think one of the biggest values we’re able to bring people is by being in the mix in the, in behind the scenes, you know, with the vulnerable, intimate information of wealthy families, is that then we come along and you say, oh, hey, cool.

Nice to meet you and you wanna hire us. We’re able to confidentially sort of bring best practices from amongst the clients we’ve worked for to help you see the things that people don’t talk about. And our society people are pretty, um, uh. Well, well, they’re not very transparent with their finances, and so it’s not normal in our society for people to just walk up and talk vulnerably in detail about their financial life.

And so we walk around with a lot of assumptions about other people’s finances and, um, so we don’t really know and we don’t really talk about it. And so I think there’s a huge value in being able to say, well, from working for all the families we’ve worked for, if, if you know where you’re going and we’ve worked with families who are already there, we can sort of bring those best practices into your financial life.

Okay. 

[00:42:20] Charles Eide: So I’m sure you’ve heard a lot of these, but what assumptions do people make about tax that they really should rethink? 

[00:42:29] Common Tax Assumptions to Rethink

[00:42:29] Jeff Socha: I mean, one that we already talked about is the assumption that it just is what it is and you can’t do anything about it. Right. Um, the assumption is that another assumption that we kind of touched on a little bit is.

Maybe my CPA is the problem. They’re not, that’s not their job. Right? Um, so you have some kind of basic assumptions like that. There’s, there’s, there’s some assumptions by default that I think people, uh, think that you can deal with this after the fact, like after you sold your company or after the calendar year over.

That’s not true either. You have to be proactive. You have to do this before the sale bef during the calendar year, not after the, not after the game’s over you. It’s hard to change the score after the game’s over. So some of those things are fundamental, but all in all, I think if somebody’s willing to say, Hey, I’m going to prioritize this.

You know, I’m getting nailed in taxes. I’m paying more in taxes than I ever thought I would make an income. Well, you know, what are you going to do about it? And step one is you have to find the right people. You have to find strategists who are critical thinking problem solvers, who are gonna engineer solutions that change the outcome.

And you have to do it proactively. That’s probably the biggest piece. If you just do that, you’re gonna make progress. Think like, you know, that’s how you run the rest of your company. 

[00:43:47] Charles Eide: Yeah. 

[00:43:47] Jeff Socha: You don’t run your company thinking, man, I don’t like our sales from last year, and then I’m gonna do nothing but complain to the salespeople.

Yeah. Yeah. You change 

[00:43:58] Charles Eide: something, 

[00:43:59] Jeff Socha: you gotta look and analyze and say, what am I gonna change this year so that I’m happy with the sales results at the end of the year? 

[00:44:05] Charles Eide: Yeah. 

[00:44:05] Jeff Socha: What am I gonna change about our product or service or offering? Right? And so you tackle things. The, the only reason you have a successful growing, thriving business is by tackling those key issues proactively.

And it’s natural that this part of your life would be ignored for some time because it wasn’t a big issue until it becomes a big issue. And next thing you know, depending on what state you live in, you’re paying half of your income in tax. 

[00:44:30] Charles Eide: Yeah, that’s, I mean, that’s insane. I mean, we live in Minnesota Yeah.

And our state income tax is insane. Yeah. Okay. So when you think about, um, people that are prepping to exit, right? Or they’re like, Hey, you know, someday I’d like to sell my company. You told a really great story to me earlier about that guy who assumed value on his company. I wanna start by asking how long out, how far out should I start planning to sell?

And then how do I figure out what it’s worth and how do I make sure that’s reasonable for my life? 

[00:45:05] Planning Your Business Exit

[00:45:05] Jeff Socha: Yeah. I think the farther out you can plan a sale, the better. The farther out you can get. If you can get five, six years out, not only can you take advantages of like, you know, um, but this just got changed In a recent law section 1202 of the tax code got updated where the first $15 million of capital gain, uh, if you qualify under the qualified small business stock sale is tax free.

That’s if you $3 million per taxpayer. Now imagine if you had a trust for each one of your kids and they’re all part owners. Now it’s 3 million for you, 3 million of tax savings for each kid, right? Um, it also allows for 10 times the basis. So if you bought this business for 10 million and then you sell it for a hundred, that entire hundred is tax free.

Whereas otherwise, that 90 million you would’ve paid, you know, roughly 18 million in tax. So it saves you $18 million in tax on that deal. So. You know, um, the farther out you plan, the more you can start to take advantage of those things. But not just that, you can then start to understand the value drivers in your business.

You can start to look at, okay, what are the things that are gonna move the needle on the valuation so that when I sell, I can get as much money as possible for it? And you give yourself a little bit of runway. Most of the time people just start to think, man, I’m tired of this. I’ve had enough. Let’s just sell it this year.

Well, that’s not how you’re gonna get maximum value. You’re gonna get maximum value by planning ahead and working towards that exit, so that you’re saying, cool, I’ve, I’ve already understood what are the things that are gonna add to the value or take away from the value. And I’m proactively addressing those so that when I take it to market, I’m gonna get maximum value.

And that might double or triple the value of your company. So how do 

[00:46:41] Charles Eide: I know if I’m. Asking the right amount of money for my company. Is it, do you look at EBITDA or, well, yeah, there’s, 

[00:46:48] Jeff Socha: there’s valuation experts. You know, you can start working with some investment bankers proactively to start getting ideas of how the market would value your business, but more importantly, starting to dig in and dissect and understand whatever the valuation they tell you, okay, I think it’s worth X today.

Y is it worth X? You know, what would need to change to make it worth two x? You know, and they say, oh, well you’ve gotta get rid of this thing or do more of that thing, or fix this over there. That’s really good information to know. Wouldn’t you want to know that proactively so you could get it ready?

Maximize that value. Yeah. 

[00:47:22] Charles Eide: Yeah. 

[00:47:23] Jeff Socha: So. Again, it’s about, you know, creating the space to prioritize these things that are gonna add a lot of value. So that could make me make you think, well, why do I not have the space? And it’s like, all right, well that gets into a whole different thing about how you’re building your business and building your team, et cetera.

[00:47:38] Charles Eide: So when you see people exit, ’cause you work with people on both sides, right? People who are getting ready to sell or people who just sold and are planning the rest of their life. What is the difference you’ve seen between people who are thriving after the sale versus people who are regretful? 

[00:47:57] Jeff Socha: You know, I don’t know that I’ve met a lot of people who are regretful post-sale.

’cause I mean, even if you pay the tax, sure you pay the tax, but maybe you had a great exit and that, that’s still fantastic. You know, it’s, it’s kind of special to say, Hey, I built this thing that somebody’s willing to pay me a hundred million bucks for. That’s, that’s a, that’s an event that most people will never experience and that’s a pretty cool thing to do.

[00:48:19] Post-Sale: Thriving vs. Regret

[00:48:19] Jeff Socha: So. I don’t know how, I don’t know that I’ve seen a lot of regret. I mean, maybe people wishing they would’ve done something differently and, and most of that is probably wishing they would’ve been more proactive. Paid attention to the structuring, paid attention to the transaction. How do you know if they, there’s some power that comes with the knowledge of just understanding what’s capable, you know, what’s the difference if I sell stock versus sell the assets?

What if I, you, you know, what are all the options available? You know, entrepreneurs are so gifted that I think if they understand the options and they understand the rules of the game, they can sort of play that game to their advantage. And what happens in this arena of tax is they don’t know the options.

They don’t know the rules. And so they’re trying like hell to do as good as they can and then they, they kinda look back and go, well, if I would’ve known that I could have done this well, but hang 

[00:49:11] Charles Eide: on, we. We pay so much money in tax throughout our lifetime. Clear. Probably one of the biggest expenses of your life, right?

So my question is, why is, why are taxes so cryptic? Why if it’s so darn important, is it not clearer to everybody on how it works? Why is it this like mystical, you know, SH taxes? You don’t know. I don’t know. We don’t know. I don’t know. Is it legal? Well, maybe it’s le it’s like, you see what I’m saying? Yeah.

[00:49:46] Why Are Taxes So Cryptic?

[00:49:46] Charles Eide: If it’s so damn important, which it is, you can go to jail if you don’t do it right, please. Why don’t we understand it? Why isn’t it public knowledge? Why aren’t we taught this stuff? Why don’t we get it? ’cause it drives me nuts. And then we gotta engage some firm to like read the crystal ball. It’s like, why?

Yeah. Um. Sorry. Taxes. I don’t know what, I just blacked out there for a second. 

[00:50:14] Jeff Socha: I don’t, I don’t know if we have enough time to get into my experience lobbying congress on tax legislation, but, um, you know, uh, re recently, uh, Elon was talking about the government from his time there and he said something like, Ima imagine the DMV.

And he said, okay, your experience with the DMV. He goes, so, um, the, the, the big government that we think of, you know, that’s just the DMV at scale. And so that’s what makes me think of, and you’re like all. What’s your experience like with the government and is, does anything have that simplicity or clarity, uh, that your, your wish that well for 

[00:50:57] Charles Eide: something you could get in jail for?

You’d think it’d be a little more clear. I mean, it’s clear that if you break the law in these ways, you go to jail. So, but when taxes happen, it’s like, well, I don’t know the tax codes like 

[00:51:07] Jeff Socha: 7,000 pages, so let’s demystify the fear of jail. Okay. ’cause I think, I think there is maybe a myth that people think, Hey, if I get my taxes wrong, I go to jail.

That’s not the case. Um, you, you, you know, the IRS is, well, that’s good. The, the, the IRSs is essentially the collections agency of the government. Okay. They, they more so care about getting your money than putting you in jail. For sure. The, the main, their main job is to get your money. Okay. So they just need to make sure they get their money.

Now they can threaten you with jail, but really they just need your money. The jail is more for like. People who are promoting tax fraud, they have a, they’re a tax promoter of some scheme or some scam, and they’re, they’re sort of, you know, causing a lot of people to, um, uh, do their taxes incorrectly. They wanna stop those people.

So they wanna put those people out of business. They wanna shut their practice down. They, you know, maybe they have to put ’em in jail, but, you know, they’re really, that, that’s, that’s not what’s gonna happen for most people. You get your taxes wrong. That doesn’t mean it’s fraud, it just means it’s wrong.

And the IRS is gonna send you a bill and say, okay, you’re gonna owe some interest and penalties ’cause you got it wrong. And then if you don’t agree that it’s wrong, you can get into a debate or take it to tax court. But jail isn’t like the first thing. It’s not, but I think that somehow, um, like if you think about this with

[00:52:32] Demystifying the Fear of Jail

[00:52:32] Jeff Socha: the tax code, this is really interesting for entrepreneurs.

The tax code’s basically an honor system. Okay. If you have W2 employees that the, the government says, we’re not gonna trust a single W2 employee. So what they do is they come to you, Charles, and they say, Hey, you’ve got W2 employees. We don’t trust them at all. Um, so what I need you to do as their boss is before you give ’em their paycheck, I need you to take our money out, and then just you send it to me because I don’t, you give it to them and I don’t know what they’re gonna do.

So I need you to take it out before you give it to them so that you, and then you just kind of batch all that together and just send me like a, just a lump sum. Just say, Hey, this is, I took all the tax outta my employees check and I sent it to you because we, we don’t wanna, we don’t even wanna mess with them.

I mean, that’s, that’s a, you know, that, that’s the approach there. But then, oh, for you, Charles, you own the business. So listen, this is what I would suggest you do. Okay. Hey, can, can you, uh, can, can you keep track of all the money that came in? And then keep track of all the money that goes out. And then can you, uh, add and subtract those together?

And then if, you know, once a year, would you tell us how much was left over and then uh, put it through the tax calculation and send in a some send in, send in some money for your profit? Would that be okay? That’s a totally different system, right? That’s the honor system. 

[00:53:52] Charles Eide: Yeah. 

[00:53:52] Jeff Socha: Right. Now granted, I mean, think back to like your grandparents day cash business.

Hey, can you just kinda tell us how much was left over? Send it in. So the government loves that everything’s digital, right? They would love to get us on like a digital currency. They would love to eliminate paper currency. ’cause they’re like, now we got, you know, we know. Yeah. You know, but like there’s no body coming to see if what you added up that came in and added up that went out was legit.

[00:54:21] The Honor System for Business Owners

[00:54:21] Charles Eide: Unless you get audited. 

[00:54:22] Jeff Socha: Unless you get audited, which is a tiny percentage of people will ever get audited. Something like 4% of businesses maybe, I think Yeah. Get audited. 

[00:54:30] Charles Eide: Yeah. 

[00:54:30] Jeff Socha: So there’s like a 96% chance no one’s ever gonna question your math. Yeah. Of, well, I I’m just gonna tell you, this is what came in and this is what went out and here’s what’s left and I’ll pay you some tax on that.

[00:54:41] Charles Eide: Mm-hmm. 

[00:54:42] Jeff Socha: Right. So an audit is literally them just going, since we’re operating literally on the honor code, uh, we’re just gotta spot check some people. Yeah. And, um, and if people realize that as an entrepreneur, uh, the whole thing is just operating on an honor system, uh, and they realize that we don’t have a good way or resources to efficiently check them all, uh, people might cheat a lot.

So, uh, let’s let, let’s encourage this myth of fear of jail to be like, you get it wrong, you’re going down. And it’s like, that’s not the case. It’s like they just need you to have that fear so that you’ll participate in the honor system of adding up what came in and what went out and sending in some money.

[00:55:29] Charles Eide: Yeah, 

[00:55:30] Jeff Socha: right. So you just 

[00:55:31] Charles Eide: kind of demystified the IRSA little bit, which is nice because I think a lot of people have a negative idea of them. ’cause they’re writing checks for a lot of money to them. But I guess you’re right. I mean, it is just a collection agency for the seller. It’s the collections agency now.

They’re not trusting the W2 people. 

[00:55:47] Jeff Socha: That’s kind of No, they’re like, Hey, uh, take it out on Friday and send it in next week. Okay, thanks. Yeah. But you, the business owner, like, hey, like once a quarter, would you kind of like. Throw us a bone, like just kind of estimate how it’s going. Maybe send in a little bit, it’s 

[00:56:05] Charles Eide: like quarterly filings, right?

Kind 

[00:56:06] Jeff Socha: of, yeah. Send us a quarterly estimate of what maybe you think, you know, and then like we’ll kind of settle up next year and it’s a totally different deal. Yeah. But if, if they, if they talked about it in that way, you might be like, well now I’m kind of encouraged. Like, well, I might think about how I do this a little differently.

Yeah, 

[00:56:22] Charles Eide: for sure. Yeah. And you want people to be responsible about this and you want business owners to take it seriously because it’s, yeah. So they need an 

[00:56:29] Jeff Socha: element of fear in there, but at the end of the day, they just want your money. 

[00:56:31] Charles Eide: Yeah, 

[00:56:32] Jeff Socha: yeah, 

[00:56:32] Charles Eide: yeah. Man, this stuff is so good. Are there any other, um, any other financial things that you wanna leave with us?

Things that you think we should really think about when it comes to our overall financial picture or our wealth as, as entrepreneurs, business owners, CEOs? 

[00:56:49] Jeff Socha: I would do this ’cause we’ve talked a little bit about tax. We haven’t gotten super granular, but So you, you might be wondering like, okay, well. How much am I overpaying?

[00:56:57] The 10% Overpayment Formula

[00:56:57] Jeff Socha: Like if, if, if we really did the work to become efficient, like what would the delta be? So let’s do some easy math. I want you to think about your income that you expect to have this year, your taxable income, whatever that total number is, and based on all of the families that we’ve worked for to create tax efficiency.

You take that number that’s in your head right now, multiply it by 10%. Okay? You got that number? Mm-hmm. That’s how much you’re overpaying. So I 

[00:57:28] Charles Eide: mean, that’s not a little amount of money. 

[00:57:30] Jeff Socha: So if that number is motivating, then you should get proactive immediately and do something about it. 

[00:57:36] Charles Eide: Hmm. 

[00:57:37] Jeff Socha: If that number doesn’t bother you and you’re fine, send it.

You know, paying for the new, you know, air Force one remodel, or whatever your money is gonna end up getting used for, uh, then great. You have nothing to worry about. Just pay your tax and go on not worrying about it. If that little formula, if the, if the resulting number from taking your taxable income times 10%, if you don’t like that number, then what are you gonna do about it?

[00:58:02] Charles Eide: Yeah. Yeah. And that comes in a variety of forms, right? Hiring a firm like yours, doing a lot of research, maybe pushing your CPA to be proactive right after tax year so that they can really work with you on it. In the year there’s probably a bunch of 

[00:58:18] Jeff Socha: routes, but now you, now you have a target to know that’s what’s on the table.

Yeah. Sometimes we get better results than that, but I would say that’s an average result. Wow. That’s not even a best case scenario result. 

[00:58:29] Charles Eide: Wow. 

[00:58:30] Jeff Socha: And so, you know, you start with basic things that are gonna be looking at entity structure, cash flow changes. You start by thinking about, okay, what are the basic accounting practices and methods that we can use and levers we can push and pull And that’s gonna get us a part of the way there.

And then you start layering in simple strategies and then you start layering in more advanced strategies and you start to get there and you start to make a real difference. And I would say on average, we probably cut people’s tax bill in half. Wow. So if you don’t like your bill, like what are you gonna do about it?

[00:59:00] Cutting Your Tax Bill in Half

[00:59:00] Charles Eide: Yeah. 

[00:59:00] Jeff Socha: You know, but it takes work. There’s not, you know, people like, it’s kinda like we’re talking about a lottery ticket or get rich quick and everybody wants it to be, everybody wants a, a thi and a and a, a transactional relationship that looks like this. I don’t like my tax bill. Cool. Can I just like pay you something?

You give me the secret and my. Bill gets cut enough. It doesn’t work that way. But is anything that you’ve ever accomplished of significance work that way in your business? No. It takes work. It takes effort. Right. So fortunately our team has the ability to do that work and put that effort in, but you’ve gotta give us a chance to do that work for you so that we can produce that result.

[00:59:34] Charles Eide: Yeah. 

[00:59:34] Jeff Socha: Right. And, and, and if you think about, like, you could take the rugged individualist route of, let me go try to learn everything myself. I don’t think any successful entrepreneur is gonna tell you the way they got successful is by knowing it and, and being an expert at everything. 

[00:59:48] Charles Eide: Yeah. 

[00:59:49] Jeff Socha: You have to understand the unique ability concept.

And so the unique ability concept is basically if you take what your, what revenue or income you’re producing for the year, and divide that by, let’s just pretend that an entrepreneur worked 40 hours a week or 2000 hours a year. Divide that by 2000. So let’s just say you say you made 10 million bucks.

[01:00:08] The Unique Ability Concept

[01:00:08] Jeff Socha: Divide that by 2000. Well what’s your time? It’s $5,000 an hour. So if you decide to go spend your time becoming knowledgeable at something that you could have paid someone else less than $5,000 an hour, why are you doing it? Yeah. It’s a net negative for you. You should put your time into the things that are worth 5,000 or more per hour, hopefully more.

Right? 

[01:00:30] Charles Eide: Yeah. 

[01:00:31] Jeff Socha: And focus on your unique ability that’s creating the business, that’s gonna create your wealth that you’ll have to invest and grow and scale and legacy and everything else we’re talking about. How do people reach out to your team if they’re looking for help on this? I mean, uh, they can obviously go to our site, soho capital.com.

[01:00:46] How to Get Help: Talk Tax with Jeff

[01:00:46] Jeff Socha: You know, we have a, we have an offer we do for people where they can go to talk tax with Jeff and we’ll do a one hour tax strategy session that, you know, it’s not uncommon for us to come outta there saving somebody 50 grand or a hundred grand in the one hour, just on an initial call. Yeah. Because those calls, we will get their information ahead of time.

We’ll digest it, we’ll tear it apart, and, and it’s a real working session. It’s not a, it’s not just a fluffy conversation. It’s like, we’re gonna, we’re gonna work 

[01:01:11] Charles Eide: Yeah. 

[01:01:11] Jeff Socha: In that meeting, and we will identify those opportunities. Now granted, they’ll have to go execute them, but we’ll identify those opportunities in the first call.

[01:01:19] Charles Eide: Yeah. If they hear from you here, they could just mention the, the podcast. Yeah. Yeah, yeah. Yeah. Cool. Well, it’s really good having you. I really appreciate this. I learned so much about this crazy crystal ball of taxes. I really liked it. It was a good conversation. Thank you, Jeff. Thanks. Hey, if you like this episode, make sure you subscribe, share it with somebody you like, and of course, make sure you check out my company I’d come.

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