How Can High Income Individuals Optimize Their Taxes?

[00:00:00] Ralph Estep, Jr.: Are you a high-income earner looking to optimize your taxes while staying true to your Christian values? Stay tuned as we dive into this crucial topic on today's Ask Ralph Show. What if I told you there are biblical principles that can guide your tax strategy? Intrigued? Well, you're in for a real treat today.

[00:00:25] Ralph Estep, Jr.: Before we jump in, let's take a quick look back at yesterday's show. We discussed social security earnings caps and how to correct your earnings record. If you missed it, be sure to check it out in our archives. That's at askralph.com.

[00:00:43] Ralph Estep, Jr.: Now let's hear from one of our listeners. This message comes from Dana in Trenton, New Jersey.

[00:00:49] Ralph Estep, Jr.: "Dear Ralph, I've been following your show for months now. It's been a game changer for my financial journey. I'm a successful small business owner, and God has blessed me with a high level of income. However, I struggle with the concept of tax optimization. As a Christian, I want to be a good steward of my resources, but I also want to ensure I'm giving back to society through my taxes. So the question is Ralph, how can I balance these concerns and optimize my taxes in a way that aligns with my faith? Thank you for your guidance."

[00:01:24] Ralph Estep, Jr.: Welcome everyone to another episode of The Ask Ralph Show, mastering your finances from a Christian perspective. I'm your host Ralph, and I'm thrilled you've joined us today. Whether you're a longtime listener or this is your first time tuning in, I want you to know that you're in the right place if you're seeking to improve your finances while growing in your faith.

[00:01:44] Ralph Estep, Jr.: Now before we dive into today's topic, let's start with a relevant Bible verse. This is what we do on the show. Proverbs chapter 21, verse 5 says, "The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty." This verse reminds us of the importance of careful planning in our financial lives, which is essentially that's what we're talking about today.

[00:02:11] Ralph Estep, Jr.: Today, we're doing something a little different. I'm excited to share with you a replay of my recent interview on the Weekly Wealth Podcast with David Chudyk. We've talked about a question that many of you, like our listener Dana have been asking and that's, "Ralph, how can high income individuals optimize their taxes?" Well now let's jump into the interview.

[00:02:35] David Chudyk: Okay, everybody. Well, welcome to this week's episode. I'm super excited to have a fellow podcaster and also a financial professional with me on the Weekly Wealth Podcast today. So Ralph Estep is joining us today. So, Hey Ralph, how are you?

[00:02:49] Ralph Estep, Jr.: Hi, David, how are you? It's great to be a guest here on the show.

[00:02:52] Ralph Estep, Jr.: I've listened to your show and I find it very useful. So I'm excited that we can dive into this and explore some things together.

[00:02:59] David Chudyk: Yeah, absolutely. So we're going to be talking a little bit about a topic that nobody likes and that's taxes today. And tell us, tell me a little bit about what you do during the day.

[00:03:09] David Chudyk: How do you serve clients?

[00:03:10] Ralph Estep, Jr.: So my main job, and I tell people, it's kind of funny. I'm an accountant, so I have a small accounting practice here in Middletown, Delaware. Here on my farm. I also tell people I'm an author. I wrote two books on finance. I'm also a black Angus cow farmer, which usually sends people for a loop.

[00:03:26] Ralph Estep, Jr.: It was like, Ralph, when do you find time to do that? And I'm a podcaster. I have a daily podcast. Yes, a daily podcast. And yes, it's more effort than I thought it was going to be, but I'm really enjoying it. And it's called the Ask Ralph podcast. It's mastering your finances with a Christian perspective.

[00:03:42] Ralph Estep, Jr.: And that's important to me because I really see it as my mission field. So I've been married for coming up on 24 years. I have two boys. One is 23 and one is 26. My oldest serves in the U.S. Coast guard. So that's a little bit about me. Oh, and one other thing. We have two German Shepherd dogs. So that's one thing that's important to me as well.

[00:04:00] David Chudyk: Well, that is awesome. I always say that there's a few things in life that if we get them right, our life is better. So obviously there's our spirituality, there's our physical health, there's our relationships. And then, you know, people say money's like not that important. I say money's really important.

[00:04:15] David Chudyk: And when they say money doesn't solve all problems, I say, name a problem that if you don't add some money doesn't get at least a little bit smaller. So how we handle our money should positively impact our lives and the lives of those around us. And I'm sure that you agree with that for sure.

[00:04:31] Ralph Estep, Jr.: Absolutely, and I say this to clients all the time, it affects you emotionally, it affects you spiritually, it affects you physically. It's all about getting everything in order, and it's not that complicated, but you've just got to take the time and put in the effort to do it right, and that's the key to the whole thing.

[00:04:49] David Chudyk: It is. It is. All right. So we're going to jump into almost rapid fire today. You have a list of 12 tax tips that we're going to jump into. So I'm going to hand the reins over to you and I'm going to ask a few questions here and there, but yeah, let's go through your 12 tax tips for mostly for high income individuals.

[00:05:12] Ralph Estep, Jr.: Absolutely. Now I get a little energetic, so if you need to slow me down, I'm cool with that, David. But

[00:05:16] David Chudyk: I will slow you down. I'll interrupt you. I'll do whatever I have to do.

[00:05:20] Ralph Estep, Jr.: Excellent. So the first one is, and it's kind of a no brainer. Number 1 is maximize retirement account contributions. If you have a 401(k), 403(b), simple IRA, SEP, whatever that is, you've got to focus on every year maximizing those contributions.

[00:05:34] Ralph Estep, Jr.: It's a no brainer. You got to do it. Number 2, invest in tax efficient funds. Now I am not a broker. I don't give brokerage advice, but I'm saying here is that look for tax efficient funds and tax efficient investments and go after those.

[00:05:48] David Chudyk: So what is tax efficient fund? Like, what does that mean? If I'm just listening, I'm like, that sounds awesome, but what the heck is Ralph talking about?

[00:05:54] Ralph Estep, Jr.: Well, I'm talking about things that are designed to mitigate taxes and there are certain investment vehicles. And like I said, I'm not an investment expert. I want to be very clear about that. But there are certain efficient ways to mitigate your tax costs. And that's what I'm talking about is that, and that's all about what you talked about and that stewarding your resources and meeting with a good financial professional that does this every day and saying to that person, Hey, What do I need to do to be more efficient in balancing my portfolio?

[00:06:25] Ralph Estep, Jr.: You don't want everything in one basket. And what I'm really getting at there is there are ways to minimize or mitigate your tax costs by going into tax efficient investments.

[00:06:33] David Chudyk: Perfect. I love it.

[00:06:35] Ralph Estep, Jr.: Let's go on to number 3 and that's utilize charitable giving. And a lot of people get caught up on this because, you know, a few years back they doubled the standard deduction and a lot of people aren't able to itemize anymore.

[00:06:46] Ralph Estep, Jr.: And what I really push a lot of my more higher wealth people, especially those who are retired, there's this thing called a QCD and that's a Qualified Charitable Distribution. So if you're in that place and I'm actually going to be recording a podcast episode tomorrow, all about RMDs, Required Minimum Distributions.

[00:07:01] Ralph Estep, Jr.: It's a way to get a charity those moneys and also comes off of your income. So you don't pay tax on that money. So that's why I say utilize charitable giving and consider it as QCDs. Number 4 and i'm not an attorney. Utilize estate planning and gifting. There are ways to reduce your eventual tax liability by giving some of the money away and by having good estate planning documents in place. My wife and I met with our attorney last fall. We put a lot of things together. Those are things like trust, revocable trust, all that sort of thing. Like again, i'm not a an attorney.

[00:07:35] Ralph Estep, Jr.: I'm not a law expert but there are areas there where you can really save money.

[00:07:40] David Chudyk: Let me jump in there and ask you a question. Because a lot of people they just don't want to deal with Will and trusts just because there's almost that thinking about dying. Right? So what triggered you? Like what, why did your wife kind of make that appointment and deal with that stuff?

[00:07:54] David Chudyk: Cause it is hard. It's easy to really just ignore it and not think about it.

[00:07:58] Ralph Estep, Jr.: So there are two certainties in life they say, David, that's death and taxes. So I do taxes every day. That's something I spend a lot of time on. But no, really, what it came down to is my wife and I have always taken a position and just so you understand, we've had wills and all this type of stuff in place since our kids were younger. And to be bluntly truthful about that is because we wanted to make sure that our kids were taken care of. So the thing is this, you can't control when you're going to die. You can eat healthy, you can do all the right things, but what you can control is how your legal affairs will take place after you pass away.

[00:08:32] Ralph Estep, Jr.: So the way I look at it is if you don't do that, you're letting somebody else make those decisions for you. And so that was the real impetus. In fact, the real reason we did it, we updated everything is my wife and I and my oldest son took a trip to Germany for two weeks last October. And it was one of those discussions where we're going to be on the airplane for 9 or 10 hours.

[00:08:50] Ralph Estep, Jr.: And I honestly don't really like to fly. So it was one of those things where I want to make sure my affairs are in order. Our youngest son was sticking around. So I kind of wrote him a note and said, well, if you're reading this, you got a whole lot of trouble on your plate, but the good news is mom and dad put together all these legal documents.

[00:09:06] Ralph Estep, Jr.: So call my attorney and he'll walk you through what needs to be done.

[00:09:09] David Chudyk: I like it. And that's a very compassionate thing to do.

[00:09:12] Ralph Estep, Jr.: It is. And I think it's important because like I said, I had an attorney on my show a few months back and we talked about this. This is the thing you can control. You can decide how you want your death to play out.

[00:09:23] Ralph Estep, Jr.: I mean, it shouldn't say it that way, but after your death, where does the money go? A lot of times people are hesitant to make that because they don't want to admit they're going to die. Well, guess what? It's a certainty. You are going to die someday.

[00:09:33] Ralph Estep, Jr.: Admit it or not. It's going to happen.

[00:09:34] Ralph Estep, Jr.: Yeah, and we can talk all about spiritual like I think you should be saved. I think that's a great thing.

[00:09:38] Ralph Estep, Jr.: So work on your salvation but at the same time, work on your legal documents so that you know your affairs in order. You don't leave somebody a burden. I see that so many times in my practice that people leave a burden for their kids or their grandkids. And it's stuff that could have been resolved so easily.

[00:09:54] David Chudyk: Awesome.

[00:09:56] David Chudyk: Cool. All right, what's our next one?

[00:09:57] Ralph Estep, Jr.: Let's move on to the next one. That's number 5. And that's take advantage of tax loss harvesting.

[00:10:03] David Chudyk: I like that one.

[00:10:03] David Chudyk: You might say,

[00:10:04] Ralph Estep, Jr.: what is that one?

[00:10:05] David Chudyk: Yeah. Yeah. So what is tax loss harvesting and I'll just put a plug in there. Tax loss harvesting can be screwed up if you don't know what you're doing.

[00:10:12] David Chudyk: So if you don't know what you're doing, get with someone who does.

[00:10:16] Ralph Estep, Jr.: And i'm going to start my conversation by exactly, that you need to talk with a professional to do this. David, I see this all the time on my practice. A client will come in, they'll bring their 1099-B at the end of the year. That's the form that reports what stock sales you had or mutual fund sales and they have this huge loss and I say to them, unfortunately the way the IRS code is written, there's a cap on how much you can take in losses. But what you could have done is spoken to your financial planner, your broker and said, you know what?

[00:10:43] Ralph Estep, Jr.: I've got these gains over here. It seems like the right time to sell those and I could have offset those gains against these losses so that you don't have this carryover that just goes on in perpetuity. So that's exactly what I'm talking about, but it's a conversation you need to have with your financial professional in October, November.

[00:11:02] Ralph Estep, Jr.: Now, I'm not saying to go sell stuff just for the sake of selling it. I think there's still a discussion that you need to have, but it's a way to really help you on your taxes. So you don't have these suspended losses. I got a couple of clients right now that are carrying a hundred thousand dollars, short term carryover losses.

[00:11:17] Ralph Estep, Jr.: And unfortunately, they might not have anything to offset against it, but they need to have that conversation.

[00:11:23] David Chudyk: Perfect.

[00:11:24] Ralph Estep, Jr.: Number 6 is invest in real estate. My dad always used to say they're not making any more land. So I think that's a good investment as well. Number 7 is max out HSA accounts. That's what's called a Health Savings Account.

[00:11:36] Ralph Estep, Jr.: And it's what they call the triple threat. Let's talk about why they call it the triple threat. Number one, it's tax deductible when you make that contribution. Number two, it's tax deductible. So that means

[00:11:46] David Chudyk: your income goes down. Absolutely.

[00:11:48] Ralph Estep, Jr.: I'm sorry. I told you I

[00:11:49] David Chudyk: get a little energetic, David. I love it. I just want to know.

[00:11:51] David Chudyk: I mean, this is really good stuff and I want to make sure that people understand. So tax deductible means that it's lowering my taxable income and I'll pay less money because I'm contributing to it?

[00:12:00] Ralph Estep, Jr.: Absolutely. Now we're talking about nickels and dimes to be blunt. It's not millions of dollars. It's not thousands of dollars, but I think right now you can put up to about $8,300 if you're a married couple into an HSA.

[00:12:13] Ralph Estep, Jr.: So if you're in, let's say the 30 percent tax bracket, you just save $2,400. That's not chump change. That's good money. You can go to Starbucks with that. I'm just being funny. But so, anyway, yeah, it's tax deductible, the front end. So it reduces your income. Here's the best part of it. It grows tax free.

[00:12:29] Ralph Estep, Jr.: So whatever you have invested in that, you're not paying taxes on that in an annual basis. And the top of the whole thing is so long as you use it for medical expenses, all of your withdrawals are completely tax free as well. So it's kind of a tax free parking spot, I'll call it.

[00:12:46] David Chudyk: And that could be for band aids and Tylenol.

[00:12:49] David Chudyk: I mean, it doesn't have to necessarily be doctor's bills, right? I mean, there's a whole list of items.

[00:12:54] Ralph Estep, Jr.: Yeah, absolutely. So you just need to make sure you understand what qualifies for that and what doesn't. And the coolest thing is you can just continue to roll that balance forward and let it grow.

[00:13:04] Ralph Estep, Jr.: And then maybe when you're 70, cause you might start this when you're in your 30s or 40s and you're like, Ralph, like my medical expenses are nowhere near this much. That's okay because you throw it in there and you just leave it in there and it just grows in perpetuity with no taxes on it, which is a huge thing right now.

[00:13:20] David Chudyk: Great. All right, moving on to

[00:13:21] Ralph Estep, Jr.: number 8 and that's considered municipal bonds, which kind of matches with the invest in tax efficient funds. And I'm not a mutual bond expert, but it's one of those ways to diversify your portfolio and cut back on some of your tax costs. The next thing I talk about is number 9, and that's Roth IRA conversions.

[00:13:37] Ralph Estep, Jr.: Now, these can get complicated. I did a show on this a few weeks ago. Basically, what I'm saying here is, let's say you have a traditional IRA, and you say, you know what? When I go to take that money out once I hit 59 and a half, if I want to wait for no penalty or when I get into RMDs, I'm going to have to pay tax on that.

[00:13:55] Ralph Estep, Jr.: Well, one of the strategies I see more and more people doing is what's called a Roth conversion. Now, I have to be honest with you, I'm not a huge fan of these, except, except if you have a year where your income is lower, or you have some kind of reason that brings your income down, because here's the way it's going to play out.

[00:14:11] Ralph Estep, Jr.: You're going to take that traditional IRA. Let's use a simple example. Let's say you've got $50,000 that you want to take out of a traditional IRA. You take that distribution, you pay tax on it, and you roll that money into a Roth IRA. Well, what have you accomplished? Well, you just had a tax haircut. That's true.

[00:14:27] Ralph Estep, Jr.: So you're hoping you're doing that in a year when your taxes aren't so high, but the second thing you've accomplished is kind of like we talked about with the HSA. Now this is growing tax free. And with the Roth, there's no requirement on distributions. And so you're able to put that way money for the future down the road and not have that tax burden.

[00:14:45] Ralph Estep, Jr.: So a lot of people find these useful. I had a client this past year who had sold a home and then she sold a business. Well, when she sold the business, she actually took a pretty big tax loss. So what that allowed her to do is she was able to distribute about $250,000 out of her traditional IRA, convert it to a Roth, and because she had that tax loss from the sale of that business, there was zero tax consequence to that Roth conversion.

[00:15:10] Ralph Estep, Jr.: So that's why I push those, but it's, you got to look at the specifics on that one, because you don't want to just make a blanket statement here, go do this.

[00:15:17] David Chudyk: Yeah, you know, another good time to think about a Roth conversion is when, if the market takes a dive. So if you had $100,000 portfolio, and then let's say we have a 30 percent correction and it's now down to 70, you know, if you convert when it's 70, then it gets back to equal. You kind of won to an extent.

[00:15:35] David Chudyk: So but again, Roth conversions. You know, I think it's something where you want to tend to look at professional advice as well, because you don't want to have that big tax bill at the end of the year and not know that it's coming.

[00:15:48] Ralph Estep, Jr.: It's like the old Gomer Pyle thing. He used to say, surprise, surprise. You know, a lot of people, but it's the truth.

[00:15:54] Ralph Estep, Jr.: And then the client will come in like, Ralph, I had no idea this was going to happen. My broker told me to do this. And now you're telling me I owe $20,000 in tax. I'm like, yep. This is why we need to have good professionals around us. So number 10 is employing children in your business. I'm not going to spend a lot of time talking about that.

[00:16:08] Ralph Estep, Jr.: I get questions about that from clients, but it is a way to reduce your taxable income if you're a high wealth individual. Number 11 is leveraging 529 plans for education. Again, this is one of those things where it's not going to save you thousands and thousands and thousands, but it is a way to mitigate some tax costs and put some money away for children, grandchildren, that they can use for educational expenses.

[00:16:32] Ralph Estep, Jr.: And a lot of people don't utilize these. And, you know, sometimes they're even deductible at the state level. It just depends on your state. Now I'm in Delaware. We don't have that, but just next door to us in the state of Maryland, there's actually a tax deduction for a 529 contribution in the state as well.

[00:16:47] Ralph Estep, Jr.: And there's a whole ton of rules about that. I did a podcast a few weeks ago about those. Again, you need to equate yourself understand those rules before you jump into that. And then the final thing, and this is the big one. So a lot of people don't get this one and it's hire a professional. If you are sick, you go to a doctor. When you're plumbing fails at your house, you call a plumber.

[00:17:12] Ralph Estep, Jr.: You need to hire professionals. You need to surround yourself with what I call the dream team. Have a good attorney, have a good accountant, have a good financial broker and advisor. Those things are vital. But so many people want to scrimp and say, I don't know how many clients I've had that make over a million dollars a year who come in to see me and they say, well, I usually do this myself on TurboTax.

[00:17:31] Ralph Estep, Jr.: And I'm not criticizing TurboTax, but I'm like, wait a second. Now, maybe their income is W-2 income. They've got a couple little investments, no big deal. But generally, people who are making over $300,000 to $400,000 have some wrinkles. And it makes sense to pay somebody to do it. Now, I'm gonna add another piece to this statement.

[00:17:49] Ralph Estep, Jr.: It's not so much finding somebody to prepare your taxes. There's value in that. But the true value is in tax planning. I say this to my clients all the time. I can put the numbers on the paper come February, March, and April. Absolutely, I can do that. But the value that I'm giving you at that point is considerably less than the value that if I'm meeting with you throughout the year.

[00:18:10] Ralph Estep, Jr.: So people just need to have a mindset of like, there is value in this. I say this to my clients all the time. You get what you pay for. Yep. If you want good outcomes, then you need to pay people to show you how to get to those good outcomes. Well, that's the 12 that I came up with, Dave.

[00:18:25] David Chudyk: I like it. I like it.

[00:18:27] David Chudyk: So one of the things that I talk about a lot on the Weekly Wealth Podcast is nobody drifts to the top. So with your health, with your relationships, with your money, you don't drift. You just described 12 ways that we can potentially be purposeful in any of those that apply to us, so I love that. I think that's really good.

[00:18:45] David Chudyk: And, you know, saving a couple hundred to a couple thousand dollars in 10 or 8 or 12 different areas would be very, very noticeable if it could work out. So I like that a lot.

[00:18:56] Ralph Estep, Jr.: And I like the word that you use David, you use the word intentional and I talk about this all the time on my podcast. You need to be intentional with your financial decisions.

[00:19:06] Ralph Estep, Jr.: You need to be intentional in what you're doing because if you just go, well, let's see what happens today. Let's see what the market does. For example, I've been talking to my broker. I really think we're going to have a significant downturn in the economy after the election. I don't really care who wins.

[00:19:20] Ralph Estep, Jr.: I think it's going to be a bad time for us. So that's the time when you enlist the people we talked about on the dream team and talk to them. Well, what are some what if scenarios? What does my asset allocation look like? All this stuff. I won't to go down that rabbit hole. But I like the word you use intentional because I think you have to be intentional on these things If you want to get good results

[00:19:39] David Chudyk: No question.

[00:19:40] David Chudyk: No question. So, let's talk about another topic that we should be intentional about. And that's audits. So, first of all, audits, a lot of people probably don't even know what they are, so what is an audit? And then what are some things that we can be intentional about that can reduce the chances of being audited and maybe reduce severity of audits?

[00:20:03] Ralph Estep, Jr.: So let's talk about what an audit is. Now, most people will never be audited. That's just a fact. Like you're not going to have, the IRS isn't going to come knock at your door and say, David, guess what buddy, we want to talk about your tax return. That does happen. I've seen a few of those. I've been doing this for over 30 years, and I think I've handled about a dozen of those.

[00:20:21] Ralph Estep, Jr.: But an audit also is, Hey, David, you filed your tax return last year. Now it's the next summer. Oh, and you forgot to report that income you had from bank of America. That interest income of $12. Technically that's an audit. It's called a letter audit. So you might go out to the mailbox one day and you get this letter.

[00:20:38] Ralph Estep, Jr.: Maybe it's certified letter. It says David, guess what? The IRS wants to talk to you because we've made adjustments to your tax return. So an audit could be something as simple as that. Like you forgot to include something. So the first thing I'll say about audit prevention is don't forget to include things.

[00:20:52] Ralph Estep, Jr.: It seems kind of simple. One of the big things I've been telling clients to do is get an account with irs. gov. You go right onto their website and set up an account. And then why do you want to do that? You want to do that because you can go in and check to make sure that anything that's being reported under your social security number, or if your wife's social security and if you're found a joint return, make sure you're putting it on your tax return.

[00:21:15] Ralph Estep, Jr.: So it's simple to do. They use ID.me. Again, I have a podcast episode talks all about this. Highly recommend doing that. So then you said, okay, what happens if you get audited? The first thing is don't panic. Now, unless you've intentionally said, well, I'm going to become a tax evader. Then you better be panic and hire an attorney because you're probably going to go to jail.

[00:21:35] Ralph Estep, Jr.: But if it was an innocent mistake, I forgot to include something. Oh, I forgot to do this. So I didn't realize I could do that. Again, I say hire a tax professional because generally that's going to keep you out of hot water. But let's say you did your own tax return. I'll give you a great example. I had some clients about probably about 10 years ago. They had done their own turbo tax return and i'm not throwing turbo tax under the bus I'm just using them because that's what everybody knows. And when they filed their tax return, they actually got a three thousand dollar refund and when they came in to meet with me, they had gotten an IRS notice that said they owed ten thousand dollars and they said, "Ralph, the funny thing is, Ralph,

[00:22:08] Ralph Estep, Jr.: we never get a refund. We always owe money." And I said, well, then you should have thought about that when you filed this return. Well, turns out the software that they used allowed them to both take the standard deduction and the itemized deduction. So big problem.

[00:22:23] David Chudyk: That's a good deal.

[00:22:24] Ralph Estep, Jr.: Yeah. Oh, it was a great deal for them.

[00:22:26] Ralph Estep, Jr.: But here's the problem. They sat down with me and they cried because I now said, not only do you owe $8,000, you owe the $2,000 they sent you as well. Now you owe $10,000. Now, how could that have been prevented? Hire a tax professional, do some reasonables, and that's where I'm going to go. That's where I was going with this, David, be reasonable.

[00:22:45] Ralph Estep, Jr.: If you say to me, for example, Ralph, charitable contributions. I gave a lot of money to the Goodwill, for example. Well, here's the thing. Number one is if you gave more than $5,000, they were going to require you now to have an appraisal written. So this is less of an issue these days, but again, be reasonable.

[00:23:02] Ralph Estep, Jr.: I always say this to clients. If you can convince your grandmother, then you can probably convince the IRS because most people don't lie to their grandmoms. And if they do, I don't want to deal with those people. So, that really is kind of the simple answer to a bigger question. But again, don't panic, get your documents in order.

[00:23:19] Ralph Estep, Jr.: Here's the thing a lot of people don't know. When you file a tax return, the IRS code actually says that at the moment you file that you should have all of your receipt evidence ready. Because what I hear a lot of people say is, Oh, Ralph, I got this notice. Now I got to go back and figure out where did I get these numbers from.

[00:23:35] Ralph Estep, Jr.: Well, you're going to lose on that one because the IRS can say to you, you have a reasonable amount of time to provide this. And a lot of people don't get that when you file that tax return, your documents better be in order. So that's another thing I'm going to say. Keep your documents in order.

[00:23:49] Ralph Estep, Jr.: If you have a small business, use some accounting software, hire somebody like myself, keep track of those things. Because if you don't, if you just throw in a box and at the end of the year, let's go through the box and figure out where we're at, first of all, I think you're probably going to miss deductions, but number two, man, if you get audited, your records are a mess.

[00:24:07] David Chudyk: Yeah. Which

[00:24:08] Ralph Estep, Jr.: reads me to another thing and that's called commingling. So many small business people don't realize you need to have personal finances and business finances. I've handled situations before where the IRS comes in and they say, Ralph, we like your client. He seems like a nice person. But his business account, he's using it for everything.

[00:24:28] Ralph Estep, Jr.: And I say to them, yeah, unfortunately you're right. And I say to the client, you're going to lose on this one because the IRS is going to say, okay, you went to Staples this day and bought business stuff, but then you went to Staples the next day and you bought coffee. The IRS is going to disallow all of it because they're going to say there's no break between the two.

[00:24:44] Ralph Estep, Jr.: Sorry, I know I went on a tangent there, but those are kind of the things that I tell people to watch out for.

[00:24:49] David Chudyk: I like it. One of the things that I think any small business owner should avoid, unless maybe the small business owner would be someone like you is doing your own books. I think is one of the biggest mistakes you can make.

[00:25:04] David Chudyk: Number one is it's not a revenue generating activity. So while you're trying to balance your checkbook and QuickBooks, you're not selling something. And let's face it, we got to sell something or else we go out of business. But number two, and you got to have those books accurate and quite frankly, unless you're in the accounting profession, you're probably not going to get them done accurately yourself.

[00:25:26] David Chudyk: So bookkeeping, I just think is something that all business owners need to get off their plate for sure.

[00:25:32] Ralph Estep, Jr.: I have a great story about that. It's probably been about 15 years ago. I went and met with an attorney. He called me in because he said, Ralph, he says, I need somebody to help me with my books. And I said, that's fine.

[00:25:41] Ralph Estep, Jr.: And he had a small practice, a general practice. And I said to him, that's fine. I'll do your books. I'll do everything. I'm going to charge you a thousand dollars a month. And he said, "a thousand dollars a month. Are you crazy? That's highway robbery." And I said, okay, let's talk about this for a second. Last month,

[00:25:57] Ralph Estep, Jr.: how many hours did you spend doing your accounting work? "Oh, I'm spending at least five or six hours a week." I said, okay, so let's just say 20 hours last week. I said, what's your billable rate as an attorney? $400. I said, okay, you just spent $8,000 and you don't want to pay me a thousand. Are you sure about that now?

[00:26:14] Ralph Estep, Jr.: See, and that's the thing, David, people are so short sighted about that. They think accountants and attorneys charge these exorbitant rates. I say this to clients all the time, new clients. If you're a new client, you come in and you sign up with me for like monthly accounting services. We'll put you on QuickBooks online.

[00:26:28] Ralph Estep, Jr.: We'll connect bank feeds. We'll do all that kind of stuff. Really will help you. And I say to clients, if you don't get double the value of what I'm charging you, then fire me. People say, well, that's an arrogant way to say. It's not though, because when your books are in order, because think about it, it's not only for taxes, David, because you get to the end of the month, you're like, I got this opportunity and I want to go to the bank and get a loan. And the bank,

[00:26:50] Ralph Estep, Jr.: first thing the bank officer says to you is, it's great. Let's get a current profit and loss statement. And you go, huh? What's that?

[00:26:55] David Chudyk: Yeah. What's that?

[00:26:56] Ralph Estep, Jr.: If you've got a relationship with an accountant, and the accountant's doing their job, and we can talk about that another time, but that's a whole another story.

[00:27:03] Ralph Estep, Jr.: But if the accountant's doing their job, a byproduct of that monthly work is a profit and loss statement. And it's all about that tax planning part too, so I completely agree with you. You have to think about this as what is my dream team that I'm assembling to keep me out of trouble, but also to give you the tools you need, because I don't know how many times I've gotten a phone call, a cold call from a potential client that says, Ralph, I got your name from so and so and I'm over at the bank.

[00:27:31] Ralph Estep, Jr.: And they said, I need a profit loss statement and this thing called a personal financial statement. And they also asked me for a balance sheet and a schedule of debts. Ralph, I have no idea what they're talking about. And I say to them, yeah, but you and I met last year and I told you, here's an opportunity for you to really get your stuff in order.

[00:27:46] Ralph Estep, Jr.: And they say, well, how quickly can you get this for me? And I said, well, that's going to be a little bit of a time. I've got a hundred or 200 of the clients that are ahead of you. But anyway, you're right. I mean, that's the truth.

[00:27:57] David Chudyk: I agree. I had a dentist client. I remember one day he said, yeah, you know, I got to go.

[00:28:01] David Chudyk: I got to get back and run payroll. And I'm like, dude, like how much, you know, you're basing how much you charge for filling. Probably on two, three, four, five hundred dollars an hour. But yet you're going to run payroll and you know I don't know what would cost per month to have somebody else run payroll for you but not a whole lot of money.

[00:28:19] David Chudyk: So sometimes we are penny wise and dollar dollar foolish for sure. So

[00:28:25] Ralph Estep, Jr.: Yeah, and it's also not your area expertise. And that's the other part of it is how many hours because I say this to clients routinely. I'll say, you do what you do well. Let me do what I do well. There's synergy in that.

[00:28:37] Ralph Estep, Jr.: There's team effort in that.

[00:28:38] David Chudyk: Yep. No, no question at all. So, well, awesome. Well, this has been exciting. I think it's a lot of information that a lot of people can use and tell us again if anybody were thinking, you know, Ralph is cool. I like his value system. I like, he seems like he's pretty knowledgeable.

[00:28:55] David Chudyk: How would they get in touch with you?

[00:28:56] Ralph Estep, Jr.: So the easiest thing to do is you can go right to my website and that's askralphpodcast.com. When you get there, you can put the /store and now you can actually schedule a consultation with me. That's the way I usually like to start things. The cool thing is David, I've got clients all over the world.

[00:29:11] Ralph Estep, Jr.: Zoom has opened up a whole new world for us and we'll have a consultation. We'll talk about what you've got going on. And then I'll give you a path of moving forward. So my actual business name is Saggio Accounting, which is Italian for wise, but the easiest way to get to it is just askralphpodcast.com because then you're going to see all of the podcast episodes. We write a blog article every day. And I actually wrote two books last year. The first book is called Mastering Your Finances, is a 47 page, like 30,000 foot view. If you've never thought about finances, read this book. And the second book is called The Gospel of Entrepreneurship.

[00:29:49] Ralph Estep, Jr.: And it's where I get a little bit more spiritual. And that is bringing Jesus along in your business. And I talk about one of them. My catchphrase is you don't have to check your Christianity at the door. People are people. And if it's their character, take that with you. People respect that. I've had people say to me, you know what, Ralph, I came to you because you have free Bibles in your lobby, or I went to your website and there's a Christian verse on there.

[00:30:12] Ralph Estep, Jr.: What I have found is it generally doesn't turn people off. Now I have said some people that say, you know what, I don't need that. That's fine. I don't need those people either. Not to be smart. But I think if it is a character thing, so I say to people, take that with you. And that's an important part of both my practice, my life and my podcast.

[00:30:29] Ralph Estep, Jr.: It's all about living out your faith, being a good steward and doing the right thing because you have a core character.

[00:30:36] David Chudyk: Awesome. Awesome. So we are the Weekly Wealth Podcast, and we talk about the mindsets, the tactics, and the strategies that can help you to build and maintain wealth. So Ralph Estep, what does wealth mean to you?

[00:30:51] David Chudyk: How would you define wealth as far as what it does for you, your family, and the people in your life that you love and care about?

[00:30:58] Ralph Estep, Jr.: So I'm going to tell you that when I turned 50 a year and a half ago, I would have answered this differently before that. I used to think it was all about how much is in my bank account, how many cars are in my driveway, how many homes I own and all that kind of thing.

[00:31:12] Ralph Estep, Jr.: But when I, when I've gotten older, I've realized that those things don't fill the tank. Now I've been very successful and I don't mean to be arrogant about it. God has blessed me richly. But the things that make wealth to me is relationships. It's being that person that somebody can call and say, "hey, Ralph.

[00:31:28] Ralph Estep, Jr.: What do you think about this?" It's not worrying about when I go to the grocery store if there's been a 30 percent inflationary cost. I'm not deciding not to buy something because of that's wealth to me. But again, as we started the beginning, it's physical wealth. Am I healthy?

[00:31:45] Ralph Estep, Jr.: In my own personal life, I've dropped almost 150 pounds over the last 10 years. Because I looked at it like, you know what, and this is going to sound funny when I say this, look at the adult population. You don't see a lot of fat people over 70.

[00:31:57] David Chudyk: Yeah, I mean, that's just a fact, right? So that's well, it's

[00:32:00] Ralph Estep, Jr.: yeah. That's wealth. Wealth is learning new things, wealth is investing in yourself. And David you said it best, money is good but it's not the, it's not everything. And you're going to get to a point in your life and I got there, I'll be 52 in September. I just bought a brand new Corvette. The Z06. Beautiful car, right?

[00:32:23] Ralph Estep, Jr.: First of all, if you're older and big, they're not good things to get into because you got to basically sit on the floor and swing your legs in. But I thought I've arrived, but I hadn't. Because I realized that those things, that's great. I don't criticize. Look, I believe in capitalism.

[00:32:39] Ralph Estep, Jr.: Make as much money as you can. But make sure you're not bending your character to get there. And then value the things. I value my relationship with my wife, I value my relationship with my kids, and my future grandkids if they choose to have them. Those are things that truly make you wealthy and like you said when we're doing the legal documents. What makes me wealthy is planning for the future and having something set up for the people that I care about and love the most.

[00:33:07] David Chudyk: Yeah, so you said you bought a Corvette and you've done well. The best thing I've ever heard is there's nothing wrong with having nice stuff as long as the nice stuff doesn't have you. You know, if you're doing everything else that you need to, you're giving to the extent that you feel you should give, you have everything else taken care of, hey, the Corvette, not nothing wrong with that Corvette.

[00:33:31] David Chudyk: Now, if you're buying a Corvette, just so you feel like you're cooler than I am, and there's some pride involved, well, then, yeah, that's a heart issue that you personally might need to examine. So awesome. I love talking about the philosophy of money.

[00:33:41] Ralph Estep, Jr.: No, it's absolutely true and you're right is I think it talks about in the Bible where your heart is and that's what you got to answer.

[00:33:47] Ralph Estep, Jr.: You got to ask yourself the question, where is your heart? I say this to people all the time. If you don't manage your money wisely, you're never going to bless somebody else. And that's just true. That is the truth. The more you can steward your resources, the more you can make good decisions, you can surround yourself with that dream team I talked about, the better off you're going to be.

[00:34:07] Ralph Estep, Jr.: And more importantly, the better off people around you are going to be, because then you can afford to do that tithe at church or send to charitable organizations or serve on boards. Those are the things that really fill my tank at my age.

[00:34:21] David Chudyk: Well, and you know the lady that gave away one coin, that's valuable and absolutely.

[00:34:26] David Chudyk: But also, you know, the wealthy person that gives a million dollars to the hospital to build up a new wing of the hospital, that's valuable as well. So, it's all important. So, well, this is really fascinating. I appreciate, I've listened to your podcast. We've, had some, correspondences but, I like your perspective and I like what you're talking about.

[00:34:45] David Chudyk: And I also like that you're not just talking about like tax laws because tax laws really aren't all that fun and who cares to be honest, but you're talking about like living your life through your money and stewardship. And I just think that that's so important because at some point we're all going to be on that proverbial death bed.

[00:35:02] David Chudyk: And I don't think there's ever been anybody on the death bed that was like, you know what? If I would have just not given Ralph that 50 bucks that he asked me for 30 years ago, my life would be so much better. You know, most people would say, I wish I was more generous. I wish I would have been a better steward.

[00:35:19] David Chudyk: So thinking about your money as a very holistic and as a way to live out your values, I just think it's something that nobody will ever regret.

[00:35:29] Ralph Estep, Jr.: Absolutely. They say in the Bible, when you did it for the least of them, you did it for me. And I say this in my podcast, people ask me, what's your goal with your podcast?

[00:35:37] Ralph Estep, Jr.: I said, my goal is if I can help one person today, one person. I've done my job for today.

[00:35:44] David Chudyk: Awesome. Well, this is just a really good conversation. I'm glad that we got to connect. Go to www.askralphpodcast.com. Check out the show. He's crazy. He puts out a show every day. I put out one a week and I don't know how I get it done.

[00:36:01] David Chudyk: So I don't know how the heck you get it done putting out a show every day. And in addition to the podcast, if you have some tax questions, if you have some bookkeeping questions, hit them up, he'll give you some good information and he may just be the guy to handle that service for you as well.

[00:36:16] David Chudyk: So until next episode, I wish everybody a blessed week. Thanks Ralph. Oh, you're welcome. Thank you, David.

[00:36:23] Ralph Estep, Jr.: If you found this episode helpful, I want to encourage you to visit our website. That's at askralph.com. Join our community and share this episode with others who might benefit from it. And here's a special offer for our listeners. When you join our email list, you'll get a free copy of my book. Mastering your finances. Now this book normally sells for 10 bucks on Amazon but it's yours absolutely free when you join our community. And remember this, the whole point of The Ask Ralph Show is to answer your questions. So keep sending them in. Your questions shape our show, and help us provide the most relevant and helpful content for our community.

[00:36:56] Ralph Estep, Jr.: Now tomorrow we'll be tackling a deeply personal and spiritual topic. This one was a tough one. Am I too far gone for forgiveness? It's a question that many of us struggle with both in our financial lives and our spiritual walks. So be sure to tune in for that powerful episode tomorrow. As we wrap up today, I want to thank all of you for listening. Remember, financial wisdom and faith can go hand in hand. By being good stewards of our resources, we honor God and position ourselves to be a blessing to others.

[00:37:26] Ralph Estep, Jr.: So as I always say, stay financially savvy, and God bless you abundantly.