Jamila Souffrant 0:00
You're listening to the Journey to Launch Podcast Tax Free Living: Tax Tips for Entrepreneurs, Side Hustlers, and W2 Employees with Carter Cofield.
Welcome to the Journey to Launch podcast with your host Jamila Souffrant. As a money expert who walks her talk, she helps brave journeyers like you get out of debt, save, invest and build real wealth. Join her on the journey to launch to financial freedom.
Jamila Souffrant 0:37
Hey, hey journeyers Welcome to the journey to launch podcast. I'm excited for this conversation I'm about to share with you. I always typically do a tax episode around this time of year now is when taxes are coming due, you may be filing things now preparing to file taxes. And so I thought what better way to help guide us to help us all figure out how we can better work within the system, the American system for my American listeners in learning how to be efficient with our taxes. So I invited Carter Cofield, who is a CPA, a Certified Public Accountant dedicated to helping entrepreneurs save money on taxes to the podcast in the rocket chair to help us learn. Now he has a course it's called tax free living, I became an affiliate, I checked out the course and actually really learned a lot going through his course. So you'll hear him talk a little bit about it. But if you want to check it out, you can go to journeytolaunch.com/taxfreeliving. And you know, within the conversation, right, like when we first kind of connected before the interview, and I saw tax free living, I'm like, Yes, I want to share this with my audience. We all need to be more efficient. This is what the rich people do. They either pay very little in taxes or no taxes at all. But I wanted to challenge Carter a little bit on paying taxes is all that bad. A lot of the programs, the government programs, the things that are for the greater good of the people who may not have as much as I have someone else taxes help pay for those things, taxes, help pay for public education, and in health care and all these things. So is paying taxes that bad? So Carter and I have a really, really great conversation around that specific topic. And I'm so glad I brought it up. And so I hope we're learning through what he's going to teach us and then in general, it gives us a wider perspective on how taxes fit into our strategy. So whether you are entrepreneur, a side hustler, or even you know you work for someone else, you're a W2 employee, you will learn something from this conversation.
Okay, journeyers now, you heard me share my advice for financial freedom. So I'm excited to share another podcast to help you live a richer life. On the money girl podcast personal finance expert, Laura Adams makes money simple, from paying off debt to saving for retirement. She's covering finance topics we all deal with, and sharing her tips from curbing impulse purchases, buying your first home and investing like a pro. New episodes are released every Wednesday. Just search for money girl wherever you listen to podcasts.
If you want the episode Show Notes for this episode, go to journeytolaunch.com or click the description of wherever you're listening to this episode. in the show notes. You'll get the transcribed version of the conversation, the links that we mentioned and so much more. Also, whether you are in OG journeyer are brand new to the podcast. I've created a free jumpstart guide to help you on your financial freedom journey. It includes the top episodes so listen to stages to go through to reach financial freedom, resources and so much more. You can go to journeytolaunch.com/jumpstart to get your guide right now. Okay, let's hop into the episode.
Hey, journeyers I have a expert for you that's going to help us all with our taxes. Hello, taxes is tax season. Right, Carter?
Carter Cofield 4:03
Yes, it is. Yes. So
Jamila Souffrant 4:05
I have Carter Cofield on the podcast and Carter. Before we started recording, I was telling you that I appreciated the way you reached out to get on the podcast. We don't know each other personally. But we know a lot of people in common some amazing people have in common. And you're like listen, I can't help educate your audience on taxes. It's tax season and you followed up again. I was like yes, you know what, let's get on it. And so we can release this so we can help journeyers out and saving money in taxes. So first, just Welcome to the podcast.
Carter Cofield 4:31
Thank you for having me. I'm super excited for today. Thank you for responding. I have no problem following up.
Jamila Souffrant 4:37
Yeah, no, you did it in a really good way. Like I get a lot of requests sometimes. And it's a bit overwhelming. And I don't get to respond to everyone, but you followed up really well. So one of the things that really caught my eye about one of your emails is just like listen, I can teach your audience how to deduct everything like tax free living is the name of your program that you have. And I was like well, okay, all right. This is good. This will be beneficial. So first tell me like, Is it possible? Is it really possible to deduct everything and live tax free? Like?
Carter Cofield 5:07
Yeah, so it is, it is very possible. It just takes a lot of planning, right. And I hate to use this example. But like in our previous president, I feel like he didn't do everything right. But he's a multi multimillionaire, he was able to get things down to very low. And Amazon's a great example, right? Like they are multi billion dollar company, and they have a very, very low tax liability. So it is very possible to live tax free. But it takes a lot of planning, and it takes a good CPA. And also it takes you knowing that if you do live tax free, that your income is gonna be low. So you might not be wanting to purchase assets at the moment, but it is very possible.
Jamila Souffrant 5:44
Right? And so I want to get into how we can implement some of these strategies. And I also want to clarify like, is this only for business owners and people with a side hustle like, Can someone without a side hustle without a business working a nine to five? Do some of this are benefited from this conversation?
Carter Cofield 6:01
Absolutely. So now, if you work as an employee, it's really hard for you to live tax free, but it is very easy for you to lower your tax liability. And the reason I say that is because the tax code was not made to benefits employees, the tax code was made to benefit entrepreneurs and investors. So although employees can definitely benefit from from our compensation today, it's just the way that things are set up. If you're an investor or a business owner, you just got to be able to do so much more.
Jamila Souffrant 6:29
And I'm so glad you mentioned that, because you previously talked about the president just left, and just companies that are billion dollar companies that are just not even paying their taxes or through the legal way, right. But some people would argue like that is not correct. Like that's just like, morally, they should be paying more. And so I do want to hop in that conversation. But I want to talk about how the government does reward risk takers, in a way. And part of me also feels like Isn't that like the barrier between the people the haves and have nots, like the haves will always find ways the ones that are have the money to invest, to own to take risks to become entrepreneurs will continue then to get ahead? And then the people who are, you know, struggling? Will not because they don't have access to these tax write offs.
Carter Cofield 7:14
So I'll hit on your last question and go back to the first one. So I think the biggest difference between the haves and have nots is education. Right? Like if you learn about how to do it, you can do it yourself. Now these two halves can pay somebody to do it, but nothing stopping you from Google searching and learning. And I always want to start with that, because I believe everybody can do anything. But to your original point about implementing these tech strategies, and Is it right for people to do these or not? Here's my position, or at least why the IRS or the government made the tax code. So the biggest thing that we need to understand as people is that the tax code is not the scary thing is that the scary thing that makes us pay taxes in high, the tax code is nothing more than an incentive system. And it incentivizes you to do things. And if you follow what they say, they'll reward you for it. So it's nothing to be scared about. But if you need to learn the rules, so if you follow them, again, you'll be rewarded. So a quick example is that business owners and entrepreneurs, they bring jobs to the workforce, right? Because you open a business, you bring jobs, and now you're helping the economy grow, the government wants you to do that. So they're going to give you a whole bunch of tax breaks for it. Unfortunately, if you're not doing that, you're going to get hit with the bigger taxes. So that's all it's about. It's about learning what they want you to do, and just following the simple formula to do it. And I think that if more people knew that they wouldn't be as scared as they are about taxes.
Jamila Souffrant 8:37
Yeah, you know, what, you actually just reframe something for me, because I always thought, you know, I kind of was under the impression and you know, taxes are needed to run and provide for people who don't have like money, right? Like, there's a lot of programs that the government provides public, like I live in New York City, public school is big here. That's all like funded from taxes, right? So part of me is just like, well, if everyone didn't know and pay taxes, then what about the greater good of like the community and like the things we need done? But on the other end? If we're talking about incentivizing people, to create jobs and to create income for others and dislike economy, then that is the other way that it's being done? If not do the government, right.
Carter Cofield 9:19
I literally could not have said it better myself, if that is the perfect way to say it. Because I do get that question all the time. To me, they're like, well, if nobody pays their taxes, then what's going to happen? And you know, I have a favorite saying, like, we should all pay our fair share, and we'll be legally required to pay. Let's not leave a tip. Right? Like, you know, we don't need to leave a tip when you pay your taxes. And to your point, if people are avoiding taxes the legal way, by doing what they're supposed to do, then maybe we won't need so many government stimulus packages or, or programs, maybe we can just actually create jobs so people can work and then be able to fund their own kids education and things like that.
Jamila Souffrant 9:55
Yes, yes. Okay. I love that. I love that we started and we kind of framed the conversation this way, because now we're gonna get Get into how to do this. We're not going to give everything away. But I do want to leave people with some valuable tips that they can implement or look into. Can you just explain a tax write off like basic like explanation of what that is for people?
Carter Cofield 10:13
No. And I love that because I love starting there because everybody hears this buzzword right off for tax deduction, but they don't know what it means, right? So let's start there. So all a tax write off is is something or a an expense that you deduct against your income, and it lowers your income and therefore lowers your tax liability. And the definition for write off is very simple. The IRS says it's simple but ambiguous. The IRS says if it's ordinary or necessary to operate your business, or your side gig or your side, hustle, whatever, then you get to deduct it. So the two questions you have to ask to know if an expense is a write off is is it ordinary? Meaning, is it like not lavish in two, is it necessary to operate your business, your day to day your side hustle, and if it passes those two tests, then you can write it off. And that leaves us with hundreds or 1000s of potential things that we can be writing off on a day to day?
Jamila Souffrant 11:06
Right. Okay, so I'm glad you explained that. So now as a business owner, and should we separate this between like full time entrepreneurs and side hustles? Like, can we just kind of go Yes. So
Carter Cofield 11:15
entrepreneurs, that was the same thing to say, Okay, if somebody's running a side hustle, freelance podcast, or somebody that owns a billion dollar company get the same things, you know,
Jamila Souffrant 11:24
right, right. So when it comes to now, being an entrepreneur or having a side hustle, what are some of the things that you can write off for your business?
Carter Cofield 11:33
Yeah, so that's a great question. And actually, this kind of revolutionized things. For me when I learned about this, believe it or not, just because you're a CPA does not mean you know about all the things in the tax code. So there are a lot of personal expenses that you can write off. So expenses to me that you're already paying for today. And that if you open the side, hustle tomorrow, you started making money, you can write these expenses off. And some of those include your phone bill, right. So if clients are calling you on your phone, your personal phone, you could write off a portion of your phone bill to is like Apple Watch Apple Watch. This is you could check your emails and your Apple watch you to write that off. Three is like cars, if you use your car, or your car auto expenses, or Ubers, for anything business related, you can write those off. Another big one is home office. Like if you have a home office area, you can write that off. And the biggest thing is like just equipment like your computer, your desk, your extra monitor, your laptop, your iPhone, there's so many things that we're already paying for that we're not getting a tax deduction for it for me, like that's erroneous, like you think you're paying for it anyway, let the government help you pay for it as well.
Jamila Souffrant 12:36
Right? So all right, when it comes to now making money because part of it too, right, as a small business owner, or a side hustle, person, you know, like you're gearing up, you're investing in your business, hopefully, or maybe you you're funding your business from your main job, and you're finally making some money. Now you have to buy things, or you need to buy things to continue to run, I find that sometimes it's just like, fine line in, like I rather keep as much money is coming in. So I'd actually don't want to spend that much, you know, pay for contractors pay for, you know, this computer versus going the other way where it's like, No, I'm just going to reinvest. And so I guess I want to talk about kind of like examples of why reinvesting and spending money in your business. Ultimately, I don't want to say saves money, but helps overall your tax liabilities or lessen your tax liabilities?
Carter Cofield 13:25
Yeah, so that's a great question. I think this is a great point to talk about, what I call like a golden formula, just to give people understanding, right? So all the golden formula is is helping people understand the different ways that taxes work for employees versus entrepreneurs and business on the side hustle people. So when you're an employee, right, I used to be an employee for a while, and I would get paid. And then they would snatch taxes out of my paycheck before I even saw it. So like, check is X amount of dollars taxes was this, here's my bank account. So I had no control over what happened. But when I moved over to the quadrant of side hustle or entrepreneur, entrepreneur, business owner, I made money, and I got to spend money and reinvest money back into my business, and I pay taxes on what's left, if there was anything left after all the reinvestment, right, so two people that make the same amount of money, but what makes it as an employee and what makes as a business owner, they can have extremely different tax liabilities, like five figures worth. So that is the golden formula understanding that when you move into this quadrant, you actually have so much more control of what the taxes you pay by how much to your point. Do you want to reinvest? Do you want to reinvest all the money, you don't have to pay any taxes, if you only reinvest a portion, you're gonna have a smaller tax liability. But I think what's big is what we call not letting the tail wag the dog, which just means that we don't want to spend money just to spend money. For every dollar you spend, you only save about 30% in taxes, so I'm not going to lose $1 to save 30 cents, you know, for no reason, but if it makes sense, and it's a purchase that I need to make that can potentially grow my business or my side gig or my income further than the cost I want to say that 30 cents.
Jamila Souffrant 15:02
Yeah, that makes sense. And you know, first, so many people, it's like, I don't want to spend money unnecessarily just to save on taxes. So part of this, too, is only buying and investing what you need, not just for the sake of it.
Carter Cofield 15:15
Exactly, exactly. It's knowing what you need, and buying what you're needing, and you're getting a tax write off for it. Now, when you get to like a high high earner, there might be times in December where like your choice, either spend money, or give it to the IRS, and you can make you know, a purchase of something that you wanted or something for a family member, or you can donate money to charity. So tax planning season. And this is something I also want to tell your audience, there's there's two seasons, there's tax paying season, which is January through April, which we are now. And then there's tax planning season, which is like October to December. So my thing is, if you plan during tax planning, planning things that you will be paying during tax planning season, if that makes sense.
Jamila Souffrant 15:56
So let's Alright, so that means that as a business owner, I should be sitting down with like my accountant, my CPA to tell me, Hey, you have you're about to come in this much in terms of profit. So you need to if you want to lower your liability, you should do this, like that kind of planning
Carter Cofield 16:12
Absolutely, Lately, like you should already have a calendar meeting scheduled with your CPA like, like November 1, like scheduling now, right? Like, don't wait, because they'll be able to save you more money in that two month period than any other time in the year because they'll give you your options, hey, to me, like this is your profit, here's some things you can do to lower it, if you want to, if you don't want to keep your money, there's going to be your bill, and at least gives you the power as a as a person as a taxpayer to know what you want to do.
Jamila Souffrant 16:43
Yeah, and then as an entrepreneur, so now I'm solely depending on my business income. So it's like I actually do need this to you know, net me a profit so I could pay myself. So it's not about like, you know, deducting and everything and not having any thing to show for it. So I think that is also the rub, too, is like what do you take back to pay yourself? And then what do you take to invest the reinvest to grow the business? Mm hmm.
Carter Cofield 17:05
Exactly. Exactly. And again, that is the situation to be an entrepreneur, right? We have these questions that we need answers. And that's why I think finding a good CPA or hiring a CPA, they should never cost you more than they save you or make you. Right. So hiring a good CPA should be free because they give you options, they give you understanding, and they should be able to save you more money than they cost you.
Jamila Souffrant 17:30
Right. And so CPA, certified public accountant, can we sometimes I hear like, you know, more than one acronym and or title for people who deal with your taxes. So they could meet the same thing. But I think this may be helpful for people, their CPA, but what are the other designations are things like, there's the accountant, which I guess is just like a short for a CPA, but they don't have to be certified either, right? Like someone could just call themselves an accountant. So can we make that distinction? And then I want to talk about like, when is it time to hire someone like this? Gotcha, gotcha. So
Carter Cofield 18:01
yeah, a CPA is somebody who took all four CPA exams, which are crazy hard. So that means they have this credential certificate, and they are accredited to say they know the tax code, but that's one arm of it. But then there's an accountant. And anybody can go and call themselves an accountant if they want to do so. And then there's something called an enrolled agent, which is somebody who knows more about taxes than the average person, but have not got their CPA. So they kind of have three tiers. And again, just because you're a CPA does not mean you know, everything, it's a good start. But I think you should be searching for someone who really loves and is willing to study the tax code. Because to me, like you know, anything else, you only as good as in your craft is how much time you dedicate to it. So you want to find somebody that's eager, that loves what they do, because they're going to learn all the new strategies, and they're gonna be calling you. I hate to be like, I got like this new strategy, let's put it into your business versus somebody who just like, give me your numbers and we'll kind of do your taxes. So,
Jamila Souffrant 19:03
yeah, well, it's funny because like, years ago, I switched and I have I have like, CPAs now that helped me but that's was my experience, especially being an employee without a side hustle. Or it was more just like yeah, just come at the end of the year, you know, and give me your information after you know, I was put stuff in but they weren't really that knowledgeable and or the you could tell they were doing this for years. Like it was just like, give me your information. And that's it. They weren't like creatively coming up with ways to help me save money. So I think that's important for people when they're thinking about now like, should I hire someone or you know, what to look for? Because this can be a game changer for people.
Carter Cofield 19:39
Absolutely, absolutely. And like one of the number one questions I get is like, how do you find a good CPA and you know, unbeknownst to me, I didn't know that heart. Because I consider myself to be to be the CPA, but I guess it's really hard to find someone that's dedicated to help you so I kind of came up, get, you know, do some research on it and came up with the big three Seems to just be looking for to find a good CPA. And number one is, is he going to add value or just fill out forms, right? And like you say, like, some people are just like, Hey, give me your documents, and then I'll put it into a system, and then we'll split up the numbers, but you want somebody who's gonna add value. Now, whether that's adding value education, whether it's adding value, and just like really listening to your situation, but you want to make sure they're adding value and not just filling out forms. Number two, is, and this is huge. Are they proactive? Are they react? Right? are they calling you like, you know, hey, to me, like, you know, it's tax planning season, sit down and save you some money? Or are they just only reacting when you call them and tell them it's a prop, right. And that's huge. You should want somebody that's really thinking for you, and solving problems down the road before you even see that they're coming. Right? So that's number two. And number three, is it was also huge. Do they work for you? Do they work for the IRS? Right? A lot of CPAs are so scared, a lot of accountants are so scared and tell you what you can't do. Like don't write this off, don't rock the boat Don't do this. And those are people that kind of work for the IRS, a good CPAs gonna work for you and say, like, No, we can do this. And if they come back and say something, we're going to represent you in case of an audit or a representation because the more educated you are in understanding taxes, the less worrisome you become when it comes to employing different strategies, because you did the research to know that not only this works, but it's been proven in court. So I studied the technical a lot. And I learned that a couple years ago, somebody went to court and the Apple Watch passes a little write up. So now some CPAs might say no, because they didn't do the research to know what they can or can't write off. So those are the three things they know, are they going to add value? Are they proactive versus reactive? And also, do they work for you? Or do they work for the IRS?
Jamila Souffrant 21:51
I love those questions. Those are amazing things to consider. And then also do you have to find people like who are in a specific niche or like so for example, people who help entrepreneurs, people that deal with real estate investors, or own real estate, and then even financial independence. So I had started working with a company that was familiar with the fire movement, and this the particulars about that and was able to help me with just planning in that way, which was really, I thought unique. So are these just things that someone who has a CPA will just have to do themselves? Are these designations for this? Jesus?
Carter Cofield 22:31
That's a great question. So now I'm changing it to the Big Four now, because I just found the hole in my own in my own theory, so absolutely. They it is a must, in my opinion, it is a must, that they you find an accountant, a CPA, that is industry specific, because it is impossible to know everything, right? It's impossible to know everything about every situation. So it is imperative that you find a CPA or accountant that works in your industry, because they're gonna have experienced and they're gonna know your problems before you even sit down with them.
Jamila Souffrant 23:05
Yeah, but what if I meant okay, but even in that, right, I get what you're saying. But if I'm an entrepreneur that also owns real estate that trades and then pursuing financial independence. I'm sure there are people like that in my head, I'm thinking, Oh, this would be like some sort of, like Voltron of accountants in a firm together that have that specific. I can help people. Yeah,
Carter Cofield 23:28
yeah, you know, the more complicated the situation is, the more you're going to have to pay your CPA. But then again, the more they're gonna save you money, but to your point, because I was, you know, as we talked about, before we start the podcast, I was disappointed with Terry and, you know, we were talking about trading, like you need a CPA that understands trading and marks or market status and, you know, TTS status, you can go to a real estate person, or real estate tax advisor with these trading, you know, questions, they're not gonna know what's happening. So, in my opinion, if you can find someone that either is in your industry or find that firm that has the four people that you need to bring them all together, because again, like, you know, my firm, we actually only work with people in entertainment and creatives. And when I sit with the client, I know their problems before they even start talking. Because I've been here so many times and that is powerful because now you know, that they're going to be proactive because they've seen problems that you haven't even considered.
Jamila Souffrant 24:23
Yeah, yeah. And so you mentioned Terry so Ontario trade and travel That's my girl and she knows she helps people with trading and I have a lot of people who are either have purchased Terry's program through like kind of listening to her interviews on my podcast and or are interested in it. So I'm glad you just touched on trading because I've been seeing especially the time we're recording this, the GameStop frenzy and all this stuff happening in the market. And so people are just saying to in general people like you're gonna have to pay taxes on the gains like in of these like trades, and not just for GameStop specific but in general, like people like maybe want to get in for the quick money. are not doing their research. And then at the end of the year, if they're selling making profits and not properly planning, they get hit with a tax bill. So can you like, talk through quickly some points that people who are in trading, they need to understand about taxes?
Carter Cofield 25:13
That is so perfect. So like, when I did an interview with Terry, a couple weeks ago, there were so many questions that I had to add a specific taxes for traders section in my tax free living course, because there's so much to cover. So to your point, like these people are trading and Terry has an amazing program, and people are making money, which is good, but the bad thing is, they're not planning for taxes. And just as a quick oversight, when you trade, that money is ordinary income, right, you don't get capital gains, you know, tax incentive was capital gains, tax rates are extremely lower than ordinary income tax rates. So if you make 100 grand in trading, and you could be looking at a $30,000, you know, plus tax bill, because that's going to be seen as ordinary income. So you want to be planning all through the year towards the end of the year to see what you can do to save on taxes. Now, a part of that could be getting what's called mark to market status, which military talks about and that's basically, you can now, see your trading your trading, business is actually seen as a business. So you're able to deduct all these things, all these subscriptions, all these losses and things like that. So it's a lot of strategies to implement is imperative that if you're trading and making money, you need to be planning because you don't want to make 200 k have to pay 70 in taxes, you know, so you want to be planning throughout the year,
Jamila Souffrant 26:32
right? I mean, obviously, you got to do your own research, you can look at Carter's course, that we'll talk a little bit about later. But rule of thumb is if for every dollar we need to sell, like when you actually realize and make that you know, trade and get that cash, like put away 30% if you're not gonna Yeah,
Carter Cofield 26:49
yeah, so I on average, right, there's federal taxes, their state taxes, traders, avoid self employment taxes, which is great. So on average, I would say 30% is a great number. So if you're, you know, put away 30% into a separate account act like it's not there, you know, and then when it comes tax time you have the money you might have even overseas, do you have may have a like a bonus for yourself, and nothing is worse than getting a huge tax bill that you're not planning for?
Jamila Souffrant 27:12
Yeah, it reminds me of now, like, you know, I put every dollar that comes into the business, I put 30%, you know, to the side and I, in most cases, especially this year, I definitely over save for taxes, which is not a bad thing. You know, like, now I can use that in other areas. But definitely, you know, just if you're trading on the side, and you know, you are making money, just make sure you're putting away for taxes.
Carter Cofield 27:32
Absolutely, absolutely. And again, like, you know, we went in depth in this in our interview, I think it's on our YouTube channel, but it was so much that I didn't know that traders have to look out for I literally spent a week learning about it, and I have to implement it into into my course and just give it to Terry's audience because trading is a lot to do. And then like you have to think about the taxes on top of that. I just want to give people the understanding that they need it.
Jamila Souffrant 27:55
Right, right. Okay. You already talked about like the benefit of even if you're not doing this full time. So there are people who listen to my podcast journeyers, who are dreaming about starting a side hustle, maybe they should have started already. And this may be could be helpful, because they're realizing, oh, well, you know, having this side hustle, can also give me some of this benefit that I'm looking for in tax savings, right? I do kind of want to get into just like people who are just full time employees and lowering their tax liability. Because I'm a big proponent of investing pre tax, you know, in a 401k as much as possible, if you have the income to support that. Can we talk about just quickly that like how much that saves you? So there are some people who are just like, well, I want to get all my money. I'm not putting money into like the 401k versus like someone who's maxing out or putting money to that 401k and how much that saves them.
Carter Cofield 28:41
Totally, you submit a great question over so I have an example already set for you. So okay, so let's say somebody made 100 k at work, and they're not putting any way any money away, or anything like that I'm keeping all my money. But on average, right, that person is gonna pay about 30% in taxes, federal state self employment, maybe a little bit more, but for easy sake, they'll pay they'll have 30 grand in the tax liability right? Now, let's say that someone listened to your podcast, I didn't mean to say I just you know, put away money into my tax advantaged accounts, right? So they could put up to $19,500 in a 401k. Right. They could also put away 6000 and Ira, and they also could put away 30 $500 in an HSA. Right, and this is an employee, this is no cibus there's no tax savings, right? This is just putting money away in retirement accounts. So they're able to invest altogether $29,000, so they have $29,000 invested. And at a 30% tax rate that's literally $8,700 in tax savings. So by taking advantage of these tax advantaged retirement accounts, they're able to save almost $9,000 in a little in literal tax money versus somebody who paid 30 and they have $30,000 invested which is going to grow at tax deferred so they're not only putting themselves in a good place for financial independence in the future. They're saving literally $9,000 this year.
Jamila Souffrant 30:04
Yeah, that's powerful. And so now that we just discussed that scenario, it brings me to another question that I get asked a lot is, and I want to hear your opinion on this. So does it matter your income level on what someone should invest in first, so meaning the pre tax, something like a 401k, versus a poll tax, like post tax like a Roth IRA. So you know, there's some people who aren't enough. And they have that capacity, they can do both. And there are some people, they're limited, because you know, they're trying to pay off debt they have like, other priorities. It doesn't depend on your income, what you should do first, if you should do a pre tax 401k. And I always say, at least up to the company matches, you have that and can afford to do that. But after that, should someone at a certain income level go to post tax investing like a Roth or should they stick with 401k? pre tax investing?
Carter Cofield 30:51
Yeah, so two things with that one, it all depends on tax rates, which change it all the time. But like, as a general rule of thumb, if you're over the 25%, tax bracket, so you can google the tax brackets and income, marry a single, if you're over the 25% line, it may be more beneficial to do pre tax, if you're under the 25%. Live, I definitely recommend doing Roth because you never pay taxes on it. But a good rule of thumb for me is like, do half and half. Because, look, we don't know what the future tax rate is going to be. Right? The highest tax rate we've ever seen in this country, I think was 91%. So in 2015, we don't know what's gonna happen, right. And so for me, I would at least rather have half my money that I know, nobody's gonna touch, and then half my money where, depending on who's the president and what the tax rate is, I'm not touching that until the tax rate goes down. So it doesn't have to be all or nothing. I wanted to educate your audience, it could be half and half.
Jamila Souffrant 31:51
Yeah, I like that perspective. And then the other thing, because in the financial independence space, when I first like joined part of it, you know, when I first joined, it was out of the high income people that I saw doing it. And so in their opinion, when they were saving, and you know, being able to max everything out, they were thinking when they reach early retirement or financial independence, their income would be lower, so whatever they would assume, then their taxes would be lower. So they would prefer to max out and lower their tax bill now, because they were in that high income earning years. And they, they felt like, in early retirement, they'd only be used taking or having what they needed, they wouldn't have this excess money. And so I was always heard that that's kind of like a rule of thumb, like, if you think you're gonna be earning more, um, later down the line, for whatever reason, then that could also determine what you do. Now. Does that make sense?
Carter Cofield 32:36
Absolutely. This kind of goes back to like, you need to know it's industry specific. And it's goal specific, right? Like, I'm an entrepreneur, and I don't ever plan on making less money, like in the year. I'm not like looking at this, I'm not gonna be making any more money. Because Because I love what I do, right? I don't want to retire. So to that point, if you know, like, your plan is F 39. To never work and only live off your investments. And absolutely just do pre tax because your tax side, but at least your income is going to be lower in the future. But that's a great rule of thumb as well. But I just I just always want to let people know that. It depends on your situation as well.
Jamila Souffrant 33:12
Yeah, yeah, totally is going to be dependent. And this is where it does come in to, you know, do your research. So at what point should someone say they should hire a CPA? I know, you talked already about, you know, make if they can save you money. But is there a certain income level? Or can people do this on their own? You know, we have a lot of these online, places that you can just like, plug numbers in. So what do you think? Yeah,
Carter Cofield 33:34
yes.So it's not an income level, at least in my perspective, right? It's a complexity level, right? So my rule of thumb is the moment you start a business, even a side gig or like you buy your first real estate property, right? Which is also complicated. You're gonna cost yourself more money by making a mistake that a CPA will ever cost you. Right? So like, average tax return for somebody with a business, it's maybe like, $500 if you have a business and don't know, your deductions, you're gonna cost yourself more than that by making a mistake, right? If you have a real estate property, you don't understand your depreciation deduction, which is 20. You know, 20, you know, it can be 20,000 $50,000 depending your property, you're gonna cost yourself 10 times more time to do it yourself than hiring somebody. Yes.
Jamila Souffrant 34:22
How about this? I didn't I noticed as a sidebar, personally, I own my condo in Dumbo for years, I don't think like, what, 15 years maybe. It wasn't until maybe like, five years ago that I met someone who actually took depreciation like, like, told me what to do with that. It was like crazy. I didn't realize that.
Carter Cofield 34:41
Yeah, and I'm gonna I'm gonna tell you how much like just if your depreciation deduction was $10,000 a year right? And you missed that for a fifth
Jamila Souffrant 34:49
oh my gosh, don't even tell me
Carter Cofield 34:53
who said this is what I mean by like, Yo when you buy a property or start a side business or or like Have a you know business like, pay somebody because they will cost you less than your own mistakes. So, but if it is an employee, like do TurboTax, the moment you hop out of that strictly employee, employee quadrant, hire somebody.
Jamila Souffrant 35:14
Yeah. And time, right. And this is like, you know, this is where you also for me now, I'm just like, I don't have the time, like I hadn't do my 1099. Well, I didn't do it, I had someone else, I paid someone to do it. So this is for, if you own a business, you hire contractors, you have to send out their 1099 or 210 99 forms by the end of January. And for me, I was like, I didn't want to try to figure that out. I will just pay someone to do that for me. And so as we get into this relationship of money versus time, which is not only just in this profession, like with accounting, but just life, it's important to measure what that means to you like the value of your time.
Carter Cofield 35:47
Yeah, I literally have my bathroom mirror, like, I have my goals and stuff. And one of the things I always look at is value time over money, because you can't get that back. So I'm literally willing to pay somebody to save me time. Because as you know, Nothing's more important than that. And then if you're an expert, you can probably make more money in that time. You pay somebody to do that, you know?
Jamila Souffrant 36:08
Yes, yes. All right. So Carter, I want to get more kind of into your story, like how you became like this wizard of taxes? How did you get into this field? Tell us a little bit more about you?
Carter Cofield 36:18
Yeah, I was born in the Southside of Chicago, like 90 of us in one home like poverty, poverty, right. And I knew that money was out there, I just didn't know why we didn't have it. That's where my spark for learning about financial literacy came from just the Curiosity while we didn't have money, right. So when I went to college, it was around the time 2008 2009. And I literally googled, like, what profession had the lowest unemployment rate and finance. And accounting was number one CPA was number one. And I'm like, that I know, I'm going to college for and then I learned about it, I worked at a big four firm job of my dreams, but I really wasn't fulfilled there. But I love learning about taxes. So I decided to quit and start my own, like tax accounting practice. And then like, as much of a nerd as it sounds, the more I learned about taxes, and the more money I started to save myself, I felt guilty because I need to teach more people about this, like, right, and then my firm started to grow. And then I started having to like charge people a lot of money, because the more value I'm bringing, the more you know, I'm going to charge people. But that's kind of how I got to where I am. But then quarantine happened, right, and I got really had more time on my hands. So I felt that it was irresponsible to only offer my brain to people that can afford it. So I took some time to package all my knowledge into this course that I call my tax free living blueprint. And I wanted to make it available to anybody that wanted to learn how to save more taxes could get it, it wasn't directly with me, they could still borrow my brain in this course and learn about everything I learned. So that's kind of how I got to where you know, from where I am to where I am now. And I'm so grateful I did that. Because the impact I've been able to make, just as you know, from your podcast, the people that you're able to catch, when you're not around is much more than you ever, ever could do one on one.
Jamila Souffrant 38:08
Yeah. And I think that that evolution as an entrepreneur, or someone who is gifted or in a certain area, whether it is just a translation of concepts, you know, because taxes can seem overwhelming. And there's some you know, you know, for layman people it can be hard to understand and you find then eventually, even when you start to understand it and can just translate it to your friends and family that more people can hear about this right. And so I will say to because I actually went through your course because you gave me access to check it out, because I now am affiliate of your course. So I did go through it. And one of the things that I did like was that they're short videos, and they're easy to comprehend, like it's not overwhelming, and that even though I hire someone to help me with my taxes, it's so beneficial for me to know, everything that you're talking about that way I can ask them like, Hey, what about this? Or did you do this so it's I think for anyone, whether you're doing your taxes on your own or not,
Carter Cofield 39:00
it's helpful. God given a blessed with a gift of making really, really hard topics, easy to understand, you know, I don't know where it came from, I'm able to take these hard things and make them understandable to people who don't have the background because stuff is complicated. And what I tried to do with the course is piecemeal it to where like if you wanted to learn about like taxes for investors, here you go. If you want to learn about taxes for business owners, here you go. And you can like, learn about bite sized pieces and but not be overwhelmed. And then it's so powerful, even though you're not doing it yourself to be able to go to your CPA and say hey, how come we haven't implemented this escrow strategy to save me or self employment tax? They're like, wait, wait, wait, what? They don't know about it. You need to find somebody else, right? But but it's empowering as a person to even though you're not doing something to be at least mildly educated so you can actually write questions.
Jamila Souffrant 39:51
Yes, yes. Yes. I love that. So I want to ask you more about your personal financial freedom and independence journey. So Do you have now all these Cheat Codes? Like you know, people like us have to go like now sit and like learn it. But like you kind of know all this, you're still learning but you don't I mean, like you kind of inherently understand this stuff. So for you and you know, your journey to financial independence, and I already heard you say you didn't want to retire, which is fine, right? Like you're going to continue to work in some capacity. How far along are you to that place where you if you didn't want to work, like you can live off your investments.
Carter Cofield 40:23
So I will say this, I am financially independent right now, because the money I make passively is way more money than I will ever spend in a day. So whether that is from digital products, whether that's from investments, whether that's from my firm, kind of working in the background, today, I don't have to work in order to make money, but to the to get to that point of my assets paying for everything. I mean, five years probably.
Jamila Souffrant 40:50
Okay, five years, so we have to, we have to check back in in five years. Yeah,
Carter Cofield 40:55
like my real estate properties in my investments make everything for me as far as my income, that's when I'll call myself like, officially financially free and yeah, about four or five years. I'm gonna buy a property in Dumbo probably because real estate is going up.
Jamila Souffrant 41:09
Okay. Be neighbors, right? No, I I love that. And I love thank you for sharing that I always find that it's inspiring to kind of hear people who are on the path who love what they do. Like it's not about like my whole thing with going on this journey. It's not that you have to not work or quit it's just having that option to if you want it to right now so you know, I'm not doing any interviews. I'm not promoting my course. I'm not like doing anything. I'm just gonna chill like you could do that if you wanted to. That's what I'm working towards.
Carter Cofield 41:36
No, there's nothing powerful than having the choice right like waking up in the morning and knowing that you don't have to do anything you are because you love what you do. But you don't have to write that freedom is something that I think everyone should get to enjoy or at least be on the path to trying to find because it is you won't have that weight on your shoulders ever ever again.
Jamila Souffrant 41:59
Yes love it. Alright, so I hope journey is you got a lot from this but I want to tell you if you want to check out Carter's course which I am now affiliate for you can go to journey to launch calm slash tax free living and carta tell people more about like where they can find you and more of your work in follow your path to financial independence because you got five more years.
Carter Cofield 42:18
If you put it on step eight, you put it on a calendar. Yeah, so if you go to colfieldsconcepts.com, again is colfieldsconcepts.com, you'll be able to see my podcast, the courses, free master classes, my Instagram and stuff like that will all be there. So again, colfieldsconcepts.com, you'll be able to find everything.
Jamila Souffrant 42:36
Awesome. And it was great talking to you. And we'll see in five years where you are. I'm rooting for you.
Carter Cofield 42:43
Yeah, we will. Thank you so much.
Jamila Souffrant 42:49
Okay, I hope you enjoyed and learned a lot from that episode, that conversation with Carter. Now if you want to check out his tax free living course you can go to journeytolaunch.com/slash tax free living. And let me know what you thought if you're going to use a strategy that you heard in this episode, are you going to do some more research or even join his course I always love to hear feedback from people who are listening in and I want to hear that you're applying this information. Don't forget, you can get the episode Show Notes for this episode by going to journey to launch.com or click the description of wherever you're listening to this. And you can still grab your jumpstart guide for free to help you on your journey to financial freedom by going to journey to launch comm slash jumpstart.
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