Tax strategy: accelerate or defer income, expenses

Heading into the end of the year, you want to make sure that you manage your income tax liability. One way to do that is by accelerating expenses.

Take a look to see what you can prepay, how you can prepay it, and what you can afford. For example, I’ll prepay my insurance. I’ll prepay my utilities. I’ll prepay some rent. I’ll make sure that my last payroll of the year is not on Jan. 1 but on Dec. 31.

Even if you would typically do payroll on Jan. 1, consider moving it to Dec. 31. The only difference between paying on Dec. 31 and Jan. 1 is that paying on Dec. 31 allows you to deduct that payroll as an expense for this year. I always choose to accelerate my payroll and move it up by a day.

With real estate taxes, you can pay half of them at the end of December and half in March. Pay on or before Dec. 31 so you can claim that expense on your 2017 tax return.

The word “pay” is a little slippery, which we can use to our benefit as a tax-planning maneuver. The IRS considers a check written on or before Dec. 31 to have been paid within the year—in this case 2017—if it clears by March 15 of the following year. That gives 75 days for the check to clear.

Let me give an example. Let’s say I write a utility check on Dec. 31, 2017, and the city deposits it on Jan. 10. I can still deduct it in 2017 because the check is dated in 2017, and it cleared before March 15.

My rule of thumb is to prepay within the next several months for things you know you’re going to pay anyway.

Contributions to organizations are one example. So are utilities, insurance, and supplies—paper, pens, and writing pads. Go buy 50 boxes of pens because that’s what you’re going to need over the course of a year. And don’t forget your internet service and your cellphone bill.

On the other hand, use common sense. If you own a restaurant, obviously you don’t want to buy a three-week supply of salad, because it’s not going to last. But you can certainly buy enough salt or pepper or cups or napkins for three weeks, because they’re not going to go bad in that time period.

This strategy applies to businesses that are cash-based for accounting purposes (in contrast to accrual-based), which is true of almost all small businesses in America. That means that when dead presidents hit the table, you have income. When dead presidents leave the table, you have expense.

I use the terms dead presidents because people remember it. It’s the truth. George Washington is dead. I hate to tell you. It’s sad, and I miss him, but he’s a dead president.

What kind of trail are you leaving?

I have two shire draft horses, Tina and Penny. They are 19 hands high—about one-third higher than the typical quarter horse—and they weigh about 3,000 pounds. Their hooves are the size of dinner plates. From their knees down to their hooves, they have long white hair. They’re beautiful animals, and when they run, it’s unbelievably gorgeous.

I let them into the pasture to graze, and then call them back into their pen. They come running from a quarter mile away, and it makes the ground shake.

They’re smart and responsive and eager to please me. But the other day, my grandson went into the horse pen. I’ve taught him the first rule of the farm: “You open a gate, you shut it.”

The boy’s a rock star about opening gates and shutting them, at least most of the time.

The other day was the one time that he left the gate open. My wife Holly called, and she sounded panicky. “The horse are out, and I don’t know where they are,” she said.

I was at the office, so I called my buddy and asked him to go over there and start looking for them, and I started racing home.

“I’ll tell you what’s going to happen,” I said to him. “They’re going to tell you where they’re at. I promise. You just have to pay attention to what they’re telling you. You might see a field filled with white clover blooms except for patches about two square feet where the blooms will be gone, I said. You’re looking for that kind of sign, something disheveled.”

He walks over to the farm, stands at the gate, and looks out. The first thing he sees is a bale of hay with a corner eaten off to reveal a different shade of green.

He walks over there, and he sees hoof prints. After getting his bearings for a minute, he says to himself, “They had to have gone west because that’s the only place for them to go.”

He walks up the street to the west. Then the trail goes cold. “If I’m a horse, what am I going to do?” he thought. “What am I heading to?”

Horses, especially my girls, want to graze. They can smell what they want. So he thinks, “There’s a pasture right over there. I almost guarantee that they’ve walked down this trail heading for that pasture.”

He walks along the trail, and, sure enough, he sees hoof prints. He walks into the pasture, and he sees that the grass is ankle high except for a couple of dips.

Eventually, the clues led him into the next pasture. Behold. There they are.

He walks over with a rope and tosses it over their necks and walks them back to the barn.

This all got me thinking: “I wonder what happens when I look over my shoulder. What kind of trail do I leave?”

Unintentionally, I leave marks. Some of them I’m proud of, and some of them I’m not.

I have to ask myself these questions:

• What kind of trail do I leave?
• Are people able to follow me, and does it lead them to good places?
• Does it give them enough strength so they can advance themselves and feel better?
• Or, am I leading people down a path that I’m not proud of? One that’s not what I’m called to be?

Build better rapport by listening

I’ve noticed what I call the “me too syndrome.”

Here’s an example. You’re talking to someone who says his or her back hurts. The next thing we say is, “Oh, me too. My back hurts, and my knee hurts. It’s amazing that I’m able to get out of bed.”

It can happen when people says something about their in-laws, their husband, their wife, their kids, or their boss. We’re always tempted to one-up them. We start out with “me too,” then add something else.

The problem is that “me too” blocks the one thing everybody wants—to be heard.

Your young child wants to be heard. “Mommy, mommy, mommy.” Your spouse wants to be heard. Your friends, customers, and co-workers want to be heard.

The moment you say “me too,” you’ve discounted what someone is saying to you. You’re sending the message that they don’t matter, what they said is irrelevant, and you just want to talk about yourself.

Yes, I’m attempting to engage you with “me too,” but my intentions don’t matter. In reality, when I say “me too,” I just stopped listening to you.

The “me too syndrome” detracts from fostering the relationships we desire—as entrepreneurs and as people trying to help other people.

Most of us don’t understand how counterproductive saying “me too” is. We’re coming from a good spot. We want to talk to you, to engage you. But instead of saying something to that effect, we say “me too.”

How can you replace “me too?” The simple alternative goes like this: “That’s fascinating. Tell me more.”

When someone says his or her back hurts, you can respond: “Your back hurts? What part of your back? So, does it go down in your leg? Does it go down to your knee? Tell me more.”

As a coach, I challenge people by saying, “For one day, don’t make it about you. Be very, very specific and conscientious when somebody says something about their back, their husband, their wife, or their boss.”

My coaching continues with advising them to say, “Wow, tell me more.”

I’m amazed that most people report back to me and say, “I’ve had these unbelievably in-depth conversations.”

The cool part about this approach is we still get what we wanted.

When I said “me too,” I wanted to engage in an involved conservation, but I did it in a disrespectful way. When I say, “tell me more,” I engage in a conversation that goes on and on. Eventually, the person you’re talking to will likely say, “You seem to know a lot about back pain, about it shooting down my leg and down my knee. Do you have back pain?”

It goes back to this simple premise: When I approach somebody, I know that they just want to be heard.

It doesn’t matter your religion, whether you’re male or female, or how old you are. Everybody wants to be heard.

If that’s true, let’s focus on thinking, “How am I helping you to be heard?”

If we wait for when, we never get to then

A lot of times, we have the tendency to live our lives by the When-Then Concept.

  • “When I lose weight, then I’m going to start jogging.”
  • “When I get married, then I’m going to save money.”
  • “When I pay off this car, then I’m going to start paying off my student loan.”
  • “When this debt’s gone, then I’m going to start saving for retirement.”

I can go through my life, and I can think of multiple when-thens.

I was talking with a buddy about the When-Then Concept, and he said, “Holy cow. This is exactly what I needed to hear.”

We can all find ourselves stalling instead of saying, “OK, now I’m going to do this.”

When I notice that I’m procrastinating because of the When-Then Concept, this recognition helps remove some of the barriers. It gets me down to what I’m able to give attention to, and it gives me direction.

The When-Then Concept applies in my personal life, my financial life, my relationship with my children, and more.

Being aware of its pitfalls helps me stop from saying, “When the kids get to summer vacation, then…” or “When the kids get back in school, then…”

I live my life waiting for the when, and the then never comes. It never arrives.

My wife and I had to overcome it when we decided to have children. We had been saying, “When we have enough money, we’re going to have kids.”

We realized we were never going to have as much money as we thought we needed.

It’s worked out just fine. Somehow our kids have survived. They eat, and they live indoors.

In what areas of your life are you stalled by the When-Then Concept? Once you realize where it’s holding you back, it’s much easier to move forward.

Birds of a feather flock together

Turkeys are my teachers. I recently changed the type of turkeys I raise, and the new breed of black, broad-breasted turkeys have taught me a lesson about relationships.

The breed I used to raise—standard bronze —would always run from me when I went into the pen. They would squawk like I was trying to get them or like I was a mean-spirited critter there to do them harm.

When I first got my new flock of 20 black, broad-breasted turkeys, I kept them indoors, and they squawked like all the other turkeys I’ve had.

They were growing like crazy, and I moved them to a pen outside. Suddenly, their personality totally changed.

I’ve never seen anything like it with a group of animals.

The black, broad-breasted turkeys come running as I’m leaning over to fill their water and their feeder or doing maintenance on equipment.

They walk up and look me in the eye. They stand on my foot looking at me.

They look down at what I’m doing, and they look back up like they’re saying, “What ya doing?” “You’re doing that wrong.” “Shouldn’t you be doing it another way?” “Does anybody know you’re doing it this way?”

That’s the way it seems to me. The entire flock does it.

I can’t get things fixed in the pen. When one of my automatic waterers broke, I had to take it out of the pen to fix it because they wouldn’t leave me alone. As I’m pouring water in, they’re sticking their heads in.

This behavior got me thinking.

I’m a very relational person, but I’m not very social. I will be social with you because I value our relationship. I force myself to be outgoing. “Hey, how are you?” “How’s your day been?” How are the kids?”

My instinct is to notice you but to act like I don’t see you in Sam’s. I’ll duck down an aisle because I just don’t want to talk. It’s nothing personal; I just don’t want to talk.

I’m only social because I know that it enhances my relationships.

The turkeys I had before, the ones that ran from me, I didn’t see as pets. I didn’t see them as friends.

With the new ones, I’ve developed a fondness.

When I talk to you, it enriches and enhances me. It enriches and enhances you. It enriches and enhances our relationship.

Don’t let all the squawking disrupt your peace of mind

In raising chickens, I house my flock in “chicken tractors” or mobile chicken coups.

Each chicken tractor of 75 birds has three 5-foot feeders, and the chickens can feed on both sides of each feeder. That’s 30 feet of feeders—more than enough for all of them to eat at their leisure.

But they sit at one feeder, and they fight with each other. Then one chicken will squawk because it got pushed out of the way. As soon as that chicken squawks, a chicken from the other side of the feeder that was eating by itself, unmolested, will perk up.

What does this chicken do? It immediately runs over to where it heard the noise and fights its way in, which provokes more fighting and squawking.

I’m amazed that these birds will fight at the same feeder when there’s plenty of food at the other feeders.

It makes me think of how many times I make life more difficult than it needs to be. I hear white noise, and I go running over there. Somebody has a new device, a new calendar, a new five steps to productivity, or three steps to the greatest relationship ever.

Rather than pay attention to what’s important, I’m easily distracted.

How many times do I miss the boat because I’m following somebody else who claims to have the latest and greatest thing that goes “bang”?

That’s all that many things are—attention-getters. It doesn’t benefit me. I would be better off to enjoy peace and quiet.

But, no… I have an idea, and I pick a fight on Facebook so that we can never talk again.

What did the chicken do when it crossed the farm?

I enjoy raising chickens, and they teach me life lessons.

My 300 chickens are Cornish Rocks. They’re not what you think of as Cornish chickens—the cute little Cornish Game Hens.

What I grow, Cornish Rock Chickens, are today’s typical commercial breed. They’ve been bred to grow amazingly fast.

They convert feed better than any other chicken on the market. Most chickens you eat in the store are about six or seven weeks old—that’s how fast these chickens grow.

Cornish Rocks love to eat. It’s amazing how much they love to eat.

My latest life lesson came about through using “chicken tractors.” A chicken tractor is a mobile chicken coup that holds 75 birds and allows me to move my flock from one spot to another spot on my land.

The chickens can eat all the grass and weeds they want, which amounts to about 15 percent of their diet. Chicken manure is 40 percent nitrogen. What does everybody want to put on their yard? Nitrogen.

The chickens are getting grass, which is what they want, and I’m getting fertilizer, which is what I want. What’s more, they’re doing weed control because the grass comes back faster than the weeds.

This approach creates a symbiosis based on the balance of nature. I’m leveraging what the chickens want to do for my benefit. I want beautiful dark green grass, and I’m not using commercial fertilizers to get it.

This is a healthier approach than traditional agricultural practices. The first thing that most farmers do is cut down all the trees and flatten out all the mountains because they don’t like that topography.

I show up and ask, “How can I have the chickens be happy and still give me what I want?”

Nature loves the balance of the chickens eating green stuff and me getting fertilizer.

In my life, how many times do I fight natural balance? I stretch against it, and I attempt the very thing that I abhor—cutting down all the trees and flattening out all the mountains.

What if I looked for balance at every turn? If I looked for balance in my relationship with my wife, my children, my employees, my friends, my church, and my food?

My love of strawberry cake is a case in point. A piece of strawberry cake every now and then is OK and even in balance. Eating a strawberry cake in its entirety is a bad idea. I’ve proven that to be true on several occasions.

Storms and opportunities

A few weekends ago, I went on a motorcycle trip with three buddies. We had originally planned to go to southern Arkansas, work our way up to the north, and then head back home. The weather report forecasted a ton of rain, and it ended up flooding in Arkansas. My buddies and I decided to go somewhere without rain.

We jumped on our bikes and headed south to Waco, Texas. On our way there, we did a big loop around the western side of the Metroplex down to Waco. We planned on doing a big loop to the east on our way back, plus a loop back toward Gainesville.

On Saturday, we woke up in Waco and checked the weather. We had been dodging storms and watching the weather most of our trip. We knew we had to be home by Sunday, so we tried our best to plan a route to get us there around the storms. We started north, but we couldn’t take I-35 all the way north because of storms. We were on highway 34 and 78 for parts of the trip.

Whenever we saw a storm, either by the clouds or by our phones, we’d turn right and head that way for a while. Then, we’d turn left and head back north. If you looked at our route on a map, you would see a huge line of zigzags and backtracking. We just wanted to be sure we were not hit by the storms. We finally stopped in Ardmore for the night on Saturday.

We watched the weather and found out Myrtle Springs, Texas, got hit by an F5 tornado and four people had died. We had passed through Myrtle Springs an hour before the tornado hit. If we had made different decisions, we could have potentially been in that tornado’s path in a place we weren’t familiar with. We didn’t know where to find shelter, what roads were dead ends, or anything else necessary to keep us safe.

During breakfast that morning, we talked about the opportunities you have in life. How many times in life are you able to sit still? To turn left? To turn right? To still go forward but decrease your speed? There’s a reason for everything, like our directions and our speed. Sometimes I am so busy and distracted by the noise that I don’t listen to what the things around me are telling me. Are you?

Do you listen to what’s going on around you?

If there is one date that I’ll never forget, it’s April 19, 2017. It was right after our busy season, and Holly and I were headed home after dinner. Our neighbor, Ed, called about 5:30 telling me not to panic about all the Luther police and Oklahoma County sheriff cars. Ed’s neighbor had his daughter and granddaughter visiting him, and the 4-year-old granddaughter had gone missing.

I was concerned because there are wild dogs, coyotes, bobcats, and cougars that roam around my property. Since we were still on the road home, Ed was checking my barns and around my property to make sure she wasn’t playing hide and seek. It had recently rained, so there weren’t any tracks in the mud. The police were using search dogs, and they requested that we not walk across the properties because if our scent crossed hers, the dogs might get off track.

Once we got home and were allowed back onto our property, three drones went up to provide an arial view. We decided to check a few more places and to stay in communication, just in case we found her. I went to do some chores and walked towards my paddock. One of my draft horses, Penny, was staring straight north and not moving. I leaned against the fence and watched Penny, then I changed positions so that I could see everything that she was seeing.

I kept telling myself, “Listen to what she’s telling you.” She turned to the northeast, and her body posture completely changed. I jumped the fence and started sprinting to the other side of the paddock to get a better look, because I knew what she was trying to tell me at that point. The cattle were running away from one of the north ponds, so I knew something wasn’t right. I saw a head pop out of the pond and realized it was the missing granddaughter. I called the neighbor to ask what the girl was wearing (a baby blue coat) and her name (Charlie).

I jumped the paddock fence and ran towards the child, calling her name. I ran a quarter mile from the house, and when I picked her up, she just started sobbing. The adrenaline rush dropped, and I felt like I was about to pass out, even through the excitement of finding her. We got her back to her mother and grandfather, and as you can imagine, it was a happy reunion.

Charlie wrote me a thank you card that said, “Thank you for finding me. You’re a good neighbor.” She drew pictures of the horses, me carrying her, and us walking home. Holly told me that they had come over with the card and banana nut bread. Ed said that Penny tried to tell him the same thing, but he just didn’t hear it.

Animals have this amazing ability to let us know what’s going on, even without speaking. Their posture, actions, and demeanor can show how they feel about their environment and if something isn’t right. You don’t have to have words to listen to the world around you. Keep listening, and listen harder.

The best way to hold rental real estate

If you’re investing in real estate (especially in rental real estate), you’re probably weighing your options and considering the safest way for you to hold that real estate.

In my opinion, an LLC is typically the best option in that situation, and not a corporation.

A limited liability company, or LLC, is a company structure where the members of the company cannot be held personally liable for the company’s debts or liabilities.

An LLC is more flexible than a corporation because the LLC can be managed by a single individual or a third party. The business will be able to file taxes as though it were a partnership or sole-proprietorship, while having legal protection. If an LLC is sued, the plaintiffs are suing the company, not the owners or investors.

The tax and civil laws are favorable for real estate LLCs, as well. I believe that rental real estate investments should never belong in a corporation.

Most of corporate real estate focuses on commercial properties instead of residential because they would need to “flip” the residential property within a year or face double taxation at the corporate level. If you’re investing in residential real estate, an LLC will give you more options than a corporation would.

Let’s pretend you have ten rental properties. You could have a series of eleven LLCs that covers you, as the owner, and the ten properties. The LLC does nothing but hold the properties for you. The eleventh LLC manages the ten others.

The ten properties’ LLC has a relationship with the one LLC, while the one LLC manages the other ten. That one LLC would be the main point of contact, responsible for the bank account, repairs, management, or anything else that is needed.

If you have any questions about LLCs, or any other business entities, please contact my office.

We would be happy to sit down with you to talk about the pros and cons of each of the entities that you can choose from.