Maximum Lawyer

Tyson Mutrux 00:00:02 This is maximum lawyer with your host, Tyson Matrix.

Tyson Mutrux 00:00:11 Jacqueline and Adam, I want to start with something that you may not see coming, but I'm going to ask you about something that's on your website. I think it's really interesting. I like the way that you break it into chapters, and I'm going to skip ahead to chapter two, which is enough's enough, and it's here. I'm going to read it out. It says Jackie, a licensed CPA, and Adam, a licensed attorney, had finally had enough. They began sharpening their skills, digging into the tax code, obtaining further certifications, and using their own business as an alpha test for a tax strategy business. In that first year, they reduced their own tax bill by over $250,000 when their prior tax preparer wouldn't do much more than calculate the estimated taxes they needed to pay. And in Parentheses you put. Which, by the way, he got wrong. So I found that really interesting, I think. I think the way you broke that down is really cool in the chapters, but let's talk more about that.

Tyson Mutrux 00:01:10 I think it's really just kind of the origin story. So let's talk about the origin story. And so whoever wants to go first go ahead.

Jackie Williams 00:01:17 Sure. So I'll go first. I joined Adam's law firm in 2019, the year before Covid hit, almost almost to the day. And so we had all of our eggs in one basket, basically trying to scale and grow his law firm. And that's when we realized we could help a lot of people with all the different Covid relief that was out there. And that was kind of our origin story from the standpoint of I have I was working in big companies, doing a lot of reading and implementing accounting rules, and Adam had a lot of background in, in the law. And so putting our heads together and trying to get together programs to help, to help our clients. And then from there we were like, oh, we can't have this, these tax savings stop. Let's see how else we can do this when we're not in a state of crisis.

Jackie Williams 00:02:05 And, you know, when the tax code allows for it.

Adam Williams 00:02:07 There is a if you look at the growth trajectory of our firm, it goes up into the right. And then there's this inflection point in 2019 when Jackie joined and we completely took off. So, you know, made the Inc. 5000 list, started making a whole bunch of money doing really cool stuff, and really got sick and tired of that same conversation once a year of congratulations, you made a bunch of money. So here's what you owe, and here's the estimates that you should pay next year. And like like any true entrepreneurs, we looked at a problem, said there's got to be a better way. And then we went out and turned that into a business.

Tyson Mutrux 00:02:40 How did you come up with that new way? Because it's breaking that mold can be difficult sometimes. So what was it that you all focused on and making sure that you created a better way?

Jackie Williams 00:02:51 It all comes down to planning, right? I think the reason why everyone paying taxes so much in taxes and so seemingly last minute when you're an entrepreneur is because you're not thinking ahead of time of what you can be doing to save on your taxes, you're reacting to your numbers.

Jackie Williams 00:03:07 So knowing your numbers and thinking ahead of what you have coming down the pike, having a plan, a business plan, and how you can structure it in a way that legally makes sense and also can save you on your taxes, is is really where it's at.

Adam Williams 00:03:21 I have a business management degree. I have an MBA. Jackie's got her her CPA. We both worked for a big four accounting firm and nobody teaches small business tax. A lot of people can go and figure out, like the individual tax filing, H&R block stuff. And then the really complex stuff is what we did at the big four firm. But there was this apparent gap in the market of like, well, who helps the small businesses? I, II was out doing tax work for mega corporations, saving them tens of millions of dollars on their taxes every single year. And it's like, but nobody does that for for us. And full disclosure, we're not the only business out there that does this, but it is. It is a small percentage of the accounting market that understands the value of proactive planning, that understands how to do the proactive planning and understands how important it is so that, you know, we have an obligation to get this in front of our clients so that they know the service even exists, because we didn't know it existed for our first ten years in business.

Tyson Mutrux 00:04:18 Yeah, especially for law firms. It definitely seems like a lot of a lot of the companies out there that tailored the law firms are really it's more for the the big firms, not not for the small firms. So I love what you all are doing. I want to ask you about the name. So Pennywise tax strategies. The it's funny it's a great name. The first thing I think of is the is Pennywise from the movie. You know from it. But I want to know who who I'm going to really test y'all's relationship who gets credit for the name.

Adam Williams 00:04:45 Okay. But I have to explain it. All right. First of all, our our daughter's name is Penny. Second of all, when I until recently, when I hear your Pennywise, I think of the band. They're a great punk rock band, and what was happening was we were getting ready to launch this and in in true entrepreneurial fashion, we said, that name's good enough, just run with it. We can change it later if we decide to.

Adam Williams 00:05:06 Right. So, you know, done is always better than than perfect. But it is. We get some funny comments on our Facebook ads from people that don't understand that Pennywise is actually a term that has meaning beyond the clown in the sewer.

Tyson Mutrux 00:05:19 Only a a a tax accountant and a tax attorney would name their child Penny. Let's just start with that, okay? But it is it is a great name though, like Pennywise because when you when you, it doesn't matter what your initial reaction is like once you step back and think, oh, what a great name. So it is really a really good name. So kudos to you, Adam. I want to shift back a little bit to sort of the differences in the vision when it comes to what most companies do, because you you did talk about how most business owners, they see their accountant once a year. Right. And that's during tax time. And your model is really built around that, you know, quote unquote trusted advisor. So in practice, can you give us some of the nuts and bolts as to what that looks like in practice?

Adam Williams 00:06:06 Ooh.

Adam Williams 00:06:06 Can I go first on this one?

Tyson Mutrux 00:06:07 Go for.

Adam Williams 00:06:08 It. So Jackie and I were just on vacation for five days, and we went without our kids. So it was our anniversary. We were. We were in northern Michigan. I've been there twice. I went to school in Michigan for a little bit. Like, I'm ready to buy a vacation home in Michigan. Fortunately, I'm married to my tax strategist, so the entire ten hour drive back, we can talk about how we can do this in a tax advantageous way. How can we get the lake house and the boat and have Uncle Sam help to pay for it? And that's that's what it that's what we like it to look like. Working with us is what are your goals? What do you want to do? Why do you even have this business? Now let's let's do it in a tax advantageous way. We bought an RV a little over a month ago, a really nice RV, and we. We just paid for it, right? There was no tax strategy around it, but we have our clients reaching out saying, oh my God, how can I do that? How can I write off part of my RV? And there's ways to do it.

Adam Williams 00:07:00 We just decided against it in this particular example, but that's what we want. Those are the conversations that we want to have. It's like lawyers, man. They they understand sacrifice better than anybody. It's it's seven days a week. It's always putting the client's interests first. But really, at the end of the day, the reason you have your practice, your business, your firm is to fulfill your personal goals. And we love clients that have a business plan and a budget and a hiring plan and a marketing plan. We throw a tax plan onto that mix and it really becomes jet fuel.

Tyson Mutrux 00:07:33 Nailed it, nailed it.

Tyson Mutrux 00:07:34 Yeah.

Jackie Williams 00:07:35 I will tell you, when people join with us, sometimes we get their prior year returns. We're like, okay, can you do our prior year returns and then plan with us going forward? And it's it's really hard to see all the things that we couldn't do for them the year before because we just got it. But when we are meeting with our clients on a monthly basis.

Jackie Williams 00:07:52 We are stepping on the scale with the numbers, and maybe we aren't going to execute on a tax strategy because the numbers aren't where we thought they'd be. Or maybe now we need to go find a different tax strategy to get to a better answer for the end of the year. So that trusted advisor role it's all about, you know, the accountability of checking in on your numbers and to be having that conversation more than at the end of the year after you can't do anything about it.

Tyson Mutrux 00:08:16 So this is a great segue, because the next thing I want to ask you about was some of the common mistakes that you see law firm owners and their accountants make year after year, because I can imagine, you know, you get these, maybe they bring you multiple years of tax returns from the previous years and you're like, gosh, what did they do? Why didn't they do this and why? Why didn't they do that? So I do wonder, what are some of those mistakes that you will see year after year that that people are making that they need to stop doing?

Tyson Mutrux 00:08:44 Well, I.

Jackie Williams 00:08:45 Think the biggest mistake that I see is just a lack of communication between your tax preparer and and the business owner. The business owner thinks that they're giving you everything you need as. As the accountant. Unless you're over communicating what you need or you ask more questions to get to the right answer. The best answer on the tax return. And so I just I really think that the biggest thing I see is that there's just maybe people don't want to fill out the questionnaire. So then they don't give all the information. They there's just this lack of connecting all the dots. And then big things are missed because the accountant didn't know, the business owner didn't know to tell them. So really being transparent and asking like, hey, these are the big things that happened this year. If you're just going for tax preparation, are there any savings I can get now or what should I do differently next year, I think is one of the biggest things.

Adam Williams 00:09:36 Yeah, I think I would put our clients into two buckets.

Adam Williams 00:09:39 You got the the one end of the spectrum where if it's a true solo doing 250,000 in revenue or a small firm doing a million in revenue, Those small. I mean, a million in revenue is impressive for a solo lawyer, but really is nothing in the grand scheme of small businesses, right? Those lawyers in particular, and we work in a bunch of different industries, they tend to hide out from their numbers. They don't want to know. They say, I'm not good at math and I can't figure this out, and I'm so big. But the reality is they hide out from their numbers because they're embarrassed by the fact that they're working their tails off and not making enough money. So we love having those conversations of stepping on the scale and making sure our clients become profitable. so that's one end of the spectrum. Now we've got the other end of the spectrum. We talked to owners of of eight figure businesses, 20 million in revenue, and the ones that become aware of the fact that tax season is not January to April, but tax season is year round.

Adam Williams 00:10:38 And there's things that we should be doing as we record this. It's August 14th. There's things we need to be doing right now if we want to reduce your tax bill this year, we can't wait until after December 31st to do that. So our clients who get a little bit bigger, meaning they have more revenue, they have more profit, they have more cash to to implement strategies with. When they learn that tax season is year round, it's hugely beneficial. Now there's truth on the inverse of that too, right? The smaller law firms also need to know that tax season is year round, and the bigger law firms need to stop hiding out from their their numbers. But those are the two biggest problems that I see in those two categories.

Tyson Mutrux 00:11:12 You are you are lobbying up these wonderful Segways for me, because the next thing I did want to talk to you about was, what are those things that they can be doing in the way I was going to ask is more on a quarterly basis, but maybe it's more on a weekly or a monthly basis.

Tyson Mutrux 00:11:27 But what are those things that can be done regularly to make sure that by the time it gets? I know tax times year round, but by the time they get to the actual deadlines, they're ready to go.

Tyson Mutrux 00:11:37 Yeah, I would expect that.

Jackie Williams 00:11:39 You're looking at your numbers and you have an idea of what you think you're going to pay in taxes. And if you're using something like profit. First, you're setting aside what you think you're going to have to pay. And if that number is like and just knowing that number tends to motivate you to find other ways to, you know, should I be looking into investing in something that I was maybe considering two years from now to invest in? Do I do it this year to reduce maybe my, you know, overall tax bill, but tax rate etc.. So I think it's really just the thing you need to be doing is knowing your number and knowing if you've had enough saved or paid in to the IRS. And then from there deciding whether it makes sense to execute on strategy sooner rather than later.

Adam Williams 00:12:23 Yeah, I think for me it's it's that initial stepping on the scale. Look at look at your last tax return that you filed your 1040. It's your personal tax returns where you pay your taxes. On page two of that form there's a line that says total tax. I think it's line 24. Most people are familiar with maybe what they wrote for that last check or if they got a refund, but they don't understand the full spectrum of what was withheld from my paychecks, what I made from my estimated quarterly payments. Like, really, what did this cost me? So I think that as a starting point is, is we have a law firm client that they were paying $1 million a year. Husband and wife team. The husband had no clue. He almost he like disappeared from the zoom screen as I was showing this to them, because I think he fell out of his chair. Stuff you can be doing throughout the years is a lot of the stuff that that you hear a lot of tax influencers talk about.

Adam Williams 00:13:09 So if you want to use the Augusta rule to to get tax benefits from renting out your house, if you want to go and buy a new vehicle. Jackie really spends a lot of time with our clients reviewing what they pay themselves as a reasonable salary if they are set up, for example, as an S corporation. So some of it is just sort of checking in, looking at the gauges, making sure everything's okay. And then the other stuff relates more to like what are the big projects you have going on? What are the big opportunities that you have? Are you are you finding ways to create new technologies in your firm that are going to utilize AI, or are you launching other ventures? Are you? Are you investing in in real estate or are you starting other businesses? Are you investing in other businesses? So really it's it's it's keeping an eye on what you have going on in your business, in your life and making sure that your your tax strategy aligns with that.

Tyson Mutrux 00:13:57 This one might be really tough, but I'm going to I'm going to throw it at you and see what you can do with it there.

Tyson Mutrux 00:14:01 Because we hear about this all the time. People say, hey, how much should I pay myself? How much should I pay myself? Is there an easy rule to go by, or some some simple way for them to to determine how much they should be paying themselves?

Adam Williams 00:14:14 Jackie's just a spoiler alert. She's going to say no, there's no easy way and I'm going to say yes, there is, but go for it.

Tyson Mutrux 00:14:20 I did notice you were both grinning whenever I asked that question, so I am curious to see what you have to say.

Tyson Mutrux 00:14:25 I think there.

Jackie Williams 00:14:27 There are a couple different schools of thought on it. I think the easiest way of doing it is look at the amount of time you're spending in the business and how much you would pay someone to replace you, and then kind of Figure out from there how much that is and if that's around what you're being paid, that's a great way to benchmark it. And you have something to show the IRS if that's why you're cutting your salary down.

Jackie Williams 00:14:53 There are other schools of thought. There's other benchmarks around that benchmark where you know, how much is your highest paid person making, and does it make sense that you be making more or less than them? You know, things like how much of your income is coming into your household through salary versus profit, and whether that ratio makes sense. Sometimes the IRS looks at stuff like that. But if you can any way that as a former auditor, not an IRS auditor, but a financial statement auditor, anything that you can tie to a source to, you know, is a good way to assess a reasonable wage.

Adam Williams 00:15:26 We've got we've got spreadsheets where we take the hours that you're working in our specific role and what that role is worth. Here's the oversimplification that will not hold up with the IRS, but just as a gut check for those of us who don't like to do all the math is, what would you pay somebody else to do the job that it like? Lawyers love the word reasonable and we're looking for a reasonable salary.

Adam Williams 00:15:45 And that's that's really what it comes down to. But it is a lot more complex than that. We have clients that own a really successful it's not a law firm, but professional services. There's three partners in the business and they're reasonable. Salaries range pretty significantly from mid five figures to to to mid six figures. So it's like it's the three partners in the same business all with equal shares but doing different different roles. So the salary ranges quite a bit there. But yeah I would start with what would you pay somebody else to do this. And we do the same analysis. One strategy that we love is putting your kids on payroll. Actually I need to rephrase that. Putting your kids to work in your business can be a great tax strategy. And it's the same thing. You have to pay them a reasonable wage. So what would you pay somebody else to do that?

Tyson Mutrux 00:16:28 That's something I hear about all the time. And it's something that you you see the TikTokers do too. So will you talk more about that part of it, like putting your people, putting your kids to work and how all of that works and the benefits of that.

Tyson Mutrux 00:16:41 Yeah.

Jackie Williams 00:16:42 So, I mean, everyone talks about putting your kids on payroll and really they do need to work, right? So that means making sure that you have a job that they can reasonably do. There's a job description and you're getting more out of just changing the, you know, the way you get paid taxes there. You're you're getting some life skills into the kids. But beyond that, the what the reason that people tend to settle in at a certain number there, whether it's reasonable or not, is because if you get income to them under the standard deduction, then that means that no taxes will be paid on it on their tax return. So people tend to shoot for it's around 15 I think it's 15. 750 for this year as the number. And then also if they have earned income of 7000, they can, you know, contribute that to a Roth IRA tax free as well. So that is another advantage of putting the kids on payroll. But we do recommend that they can can't actually work, and that they have a job description that they can do in their tracking hours, and it's at a reasonable wage.

Adam Williams 00:17:44 Usually when we talk about specific strategies, I'm the one saying it's it's simple, it's easy. There's so much opportunity. Look at how much money that you save. And then Jackie is the one who chimes in and says, yeah, but there's like a whole bunch of rules and stuff. I'll flip it on this one. People get stupid and aggressive with this, like they think they have to be cute because they know what the standard deduction is. And I'm going to pay my three year old $27,000 this year to be a model for my business. And in most cases, that's not going to hold up. So like even in our family, listen, I, I hate the IRS. I hate paying taxes. I like having the money more than I like giving it to them. We have two kids and only one of them's on payroll. The other one doesn't work in the business because it would just be too much work for us. We find other opportunities to save on our taxes. So I think too many people just put all their kids on payroll at the maximum standard deduction without doing the math behind, hey, they actually have to work.

Adam Williams 00:18:37 Like you need to. You need to employ them. And they need to provide value to your business. And you need to pay them, again, a reasonable wage. But yeah, on the flip side, huge tax saving strategy and huge potential wealth building strategy that if you're maximizing that, that Roth IRA contribution every single year until they're 18 years old or 22 or whatever, whenever you finally fire them, I mean, they're going to be millionaires by the time they grow up. So we like that one.

Tyson Mutrux 00:19:02 Yeah, that's a that's a massive one. That's really good. I do think it's kind of funny. And you did say before we started that you are the rule breaker. Jacqueline does seem like the rule follower. When you were talking about the IRS, she even kind of looked down and was like I did. I did notice that there's a theme there that it's a nice yin and yang, though. I think that's good. Yeah. So I want to ask you about we have a lot of, of our listeners.

Tyson Mutrux 00:19:25 They're really in growth mode. They're hiring staff, moving into bigger offices. Sometimes they're expanding their marketing. So they're spending a bunch of money on marketing. How how should they be thinking about tax strategy during the growth phases?

Adam Williams 00:19:39 Can I? Can I tackle this one first? All right. The accounting industry is completely broken for high growth businesses. Most small businesses are growing at 234 5% per year. I don't know if you you track it with the clients that you work with, but even growing 20% per year is like 5 or 10 years worth of growth in 12 months. Right. So the rate of change is so much faster. And I know that you work with firms that are doubling tripling year over year. So the speed at which we need to implement these strategies is so much faster than what most accountants are used to, because they're used to your cost of living, adjustment to your prices. So your revenues go up a little bit. They're not these high growth. You're working with these high growth enterprises like we are.

Adam Williams 00:20:27 So I think the important thing for the high growth mode and I'm talking anything over 20%, but again doubling year over year. We've got plenty of clients that are in that boat. I think the important starting point again is like, all right, what is your plan look like? What what will you what what is your hypothesis or what is your expectation from all this marketing that you're doing. And we're going to go build a plan based on that. Now like all great plans, we know it's not going to be 100% like business doesn't go exactly how you want it to. Right. We'd all be happier and wealthier and in better shape if that was the the reality. But by having a plan in place, at least as a starting point that we can pivot from and deviate from, that's the most important thing. We were in that boat of doubling year over year over year, and it cost us hundreds of thousands of dollars until we learned better. And I think the most common thing that we hear from a lot of our clients is, well, I wish I had done this sooner or I wish I'd known about this sooner, so at least I could I could look at it.

Adam Williams 00:21:24 So that's it's a it's a it's just the rate at which these things change for those high growth businesses, you've got to stay so much farther ahead of it rather than just waiting for your 5% growth rate again this year. How did I do on that one?

Tyson Mutrux 00:21:37 Yeah, good.

Jackie Williams 00:21:38 I do think, you know, if you think that you're building a lot, you're not taking a lot of money out of the business. You know, your salary is enough. I think it's it is something to think about if you're in the right entity structure, too. Right. So there are some considerations to give when, you know, I guess depending on your your filing status, whether you're, you know, single or married, filing joint some of the benefits of having a pass through entity aren't as great depending on a few factors. Right. Just given the industry of the legal industry. So if you are someone that is building and not taking a lot out of the business, and maybe you're looking to sell it one day, evaluating whether a C Corp structure makes sense initially it doesn't have the gate, but you might get into this situation where it does.

Adam Williams 00:22:26 Yeah, I we see a lot of our higher growth clients that, part of their growth is expanding into different states, additional states. So that can create some huge opportunities, because states all charge different rates and have other other quote unquote, loopholes that you can pursue or expanding into additional businesses. You know, the, the, the law firm who starts a marketing business or a coaching and consulting business or whatever it is. So there's a the more, the more the more growth, the more businesses, the more opportunities there are, the more tax savings there can potentially be. If you're if you're again staying ahead of it.

Tyson Mutrux 00:22:59 Love it. Before we wrap, I do want to I have one more question for you all. I want to tell people how to get Ahold of you if they want to work with you. You are a max Lacon sponsor, so we really appreciate that you help make Max Lacon happen. So really appreciate that. Pennywise tax, Pennywise dot tax which is a great domain.

Tyson Mutrux 00:23:15 Pennywise tax. You're also in LinkedIn Pennywise tax strategies on Facebook, also on Instagram at Pennywise. Any other ways to reach out to you if they if if someone wants to work with you?

Jackie Williams 00:23:25 There's a contact form on our website if you want to reach out that way and our team will reach out to. Directly.

Adam Williams 00:23:31 I find us personally on Facebook. We're way more entertaining on our personal accounts than the business account.

Tyson Mutrux 00:23:36 But here's what I want to end on. So on you're going to be you're also going to be on the couples panel at Max econ, which I think is really cool. And you're going to be sharing your insights about working together. So what's one piece of advice we can wrap this episode with that you would give to other couples that are either working together or that are considering working together?

Tyson Mutrux 00:23:54 I'm going first because I'm excited about this.

Jackie Williams 00:23:58 I what I love about working with Adam is that, you know, we talk about business a lot as it is, but I love the benefits that we get from a tax strategy perspective of being able to, you know, like when we go on a business trip, we can extend and enjoy some couple time that actually, you know, turn off the business and still have the life adventure together.

Jackie Williams 00:24:19 So, you know, have fun. I guess as I get my advice, make sure that you work hard and you play hard and there's opportunities in the tax code to do that.

Adam Williams 00:24:30 Yeah. I'm gonna. I'm gonna give this a lot more thought prior to being on the panel. I'm really looking forward to the event. But I think one thing that's really helped us is having boundaries. Like, all right, at 630 tonight, we're no longer talking about business. We're at 452. We're no longer talking about business. Or if we are talking about business, staying really focused on that. So, you know, there's family time. There's there's a couple time, there's business time. There's time with the kids. and we are very intentional about those times.

Tyson Mutrux 00:24:58 Love it. Great advice. look forward to seeing you both in a couple months at Max Lacon. If anybody wants to get tickets, still go to Maxwell Comm. go to Pennywise dot tax for any tax advice. I'll make sure I get that right.

Tyson Mutrux 00:25:11 Pennywise dot tax. Thank you both again for doing this and for being sponsors of Maxwell. And I really appreciate it.