(air whooshing) Our next in-person mastermind is coming up this fall and we're heading to Vegas. We're kicking off this mastermind with an in-person tour at Zappos downtown Las Vegas campus, where you'll learn their strategies behind company culture, core values, employee engagement, and customer service. Looking outside the legal industry for business concepts and strategies allows you to gain fresh perspectives and innovative solutions that can be applied to improve and differentiate your firm's operations. Following the tour are the mastermind hot seats. Every attendee has the opportunity to dive deep into their business obstacles with their mastermind group and coach. We believe that nothing beats working on your firm in-person. So join us in Las Vegas on November 7th and 8th. This is your chance to break through barriers, spark new ideas, and accelerate your law firm's success. Limited spots are available. Visit maxlawevents.com for full event details and to grab your ticket today. Run your law firm the right way. The right way. This is the Maximum Lawyer Podcast. Maximum Lawyer Podcast. Your hosts, Jim Hacking, and Tyson NutriX. Let's partner up and maximize your firm. Welcome to the show. Welcome back to the Maximum Lawyer Podcast, I'm Jim Hacking. And I'm Tyson NutriX, what's up, Jimmy? Tyson, how are you, my friend? I'm doing well. I spent the morning getting some stuff done after you and I recorded earlier and I'm pretty calm and laid back, we'll buy you. Yeah, I'm feeling pretty present and I'm excited about our guest. I'm excited just to be here and learn and listen and talk to you. Yes, as am I, so let's go ahead and get to our guest. It's Daniel Rowe, he's a tax attorney with law licenses in three states and is also a CPA license in five states. He's a member of both the American Bar Association and American Institute of Certified Public Accountants, as well as a number of other professional organizations and we'll get to all the other great stuff about you and a little bit Daniel, but welcome to the show. Thank you, I appreciate you having me. Daniel, it looks like your office is in North Carolina. I just want to ask real quickly, how are things with the hurricane and everything? Yeah, thank you for asking. I'm located in Charlotte, North Carolina, so we got very little of the storm compared to what the western state got. That is really, really rough, what's going on out there and we're just thinking about everyone sending them useful items to try to help them get through it all, but yeah, we're in good shape compared to what's going on out there. Daniel, talk to us a little bit about your journey from where you were when you graduated law school. Were you an accountant first? Were you a lawyer first and which do you focus more of your attention on? I was actually a CPA first. I decided throughout my career as a CPA, I really knew that I wanted to practice law and I wanted to be involved with estate planning and the legal aspects of the tax planning that I was doing. And so I went to law school as an adult, well, I assume everyone does, but as an older adult at the time with young children and as a partner in my CPA firm while I did law school. And so added that degree and then began practicing law a couple of years after I finished law school. And now currently doing both, I would say a majority of my time though is spent doing CPA work. It just seems to be what finds me more naturally. A lot of people are coming to me for both legal and tax advice, but oftentimes the tax aspects of the CPA work is what they really need from me. - Yeah, and some of the things that you're, I mean, you definitely know a lot about is tax considerations for businesses. But I wanna ask you a little bit about specifically for law firms. What are some things that I'd say the average attorney probably does not know that they probably should know when it comes to taxes and some things that they should consider? - Yeah, it's a big broad answer, but I'll try to narrow it down in maybe two different avenues. And one is what they should be aware of for themselves, for their own practice. And in that, a big thing comes down to how you structure yourself. Whether you're an LLC that's disregarded, whether you're an LLC, taxes and S corporation, or a partnership or a corporation, we get all different types of tax considerations and tax results based on how you're structured. Then there are a lot of things that go into running the day-to-day practice or doing annual, even annual accounting that are important for lawyers like retirement, plan contributions, maximizing section 199, aid deduction, which we may talk about, how you pay yourself. So there's a lot that goes into your own practice from a tax and accounting standpoint. But then it's also important to know how it impacts your clients, depending on the type of lawyer you're practicing. One area that we often talk about or get involved in helping attorneys is the taxation or the tax treatment of settlements that they're reaching for their clients. There are certain provisions that may exclude that from income. There are ways that you may end up actually getting a good result legally for your client, but economically it doesn't work out as everyone thought once they pay attorney's fees and pay tax on the proceeds that they receive. So it's, I think, two different ways to look at it, both yourself and your client. - Daniel, if you would tell us a little bit about the setup of your firm, what are your roles there? What, who else do you have with you? What's your team like? - So I actually have two separate firms, and part of this, this is one thing that I talk to people quite a bit about, is what your state permits or requires you to do. And in North Carolina, I'm, and probably like majority of other states, but I know for sure how it all works here because I set mine up beginning of last year, but I have to have two different firms, one for the accounting work and tax planning, and then one for the legal work and the law practice. And so I've set both of those up in a way that for my personal situation, maximizes the tax outcome. It's a typical setup that I think a lot of small firms would use as well, but I use an S-corporation mechanism as my means of structuring. And then I have a few different people that work for me in the CPA practice that are CPAs themselves, and they're involved in the tax compliance, tax planning work. I have an assistant that is incredible that handles a lot of things in both firms, but the law firm, the law practice itself, besides my assistant is just me. The CPA practice is a few different people that are, that work for me that collaborate on many, many of our projects from the tax standpoint. - So you mentioned something before about how settlements might affect clients and all that, and I wanna dig in that a little bit more, 'cause the big three that I'm aware of is if we have a settlement and a part of it's for wages, that's taxable. If a part of it is a confidential settlement, that's taxable, and then punitive damages are taxable. Are there other things, other blind spots that I should be looking at to make sure that we're setting up our settlements for clients? 'Cause I mean, that's gonna affect personal injury, could affect employment law. There's a few different practice areas where contingency fees come into play for clients, or even, I guess not even contingency fee clients, there's lots of times where we're trying to, we're resolving settlements of some sort for clients. So what are some other considerations? - Yeah, so really the tax results of a settlement all tend to relate back to the origin of the claim itself. And then stemming from that claim, depending on, really I guess depending on the nature of the claim itself, is how we determine the tax treatment of the ultimate settlement. And the code specifically excludes any settlement or amounts that are received that are related to physical injury or sickness. And so if you can draw a direct line from the claim to the settlement, and those are connected by a physical injury or sickness, then most likely you can exclude most, if not all of that settlement. There are also ways where, not ways, but if money's being received and it's considered more a return of capital or a recovery of property, then maybe you're not gonna be taxed on it as if it was ordinary income. And then kind of what you just touched on is that if it is employment related or if it is akin to loss wages or receiving compensation for services that you should have received, then that oftentimes is taxed as an employment tax. So there's the fight of Medicare piece that needs to be considered in that. Or if you're a self-employed individual then the self-employment tax part of it. One of the questions we get a lot from sort of new law firm owners, people starting their firm is, what are the common mistakes that people make in setting up their firm, both from the tax standpoint and from the accounting standpoint? - The biggest mistake I think is that there is just not a lot of diligence put into setting it up, or it's a lot of kind of off the cuff, put piecing it together as you go along for tax and accounting. So I do meet a lot of people that are running their own small firm, but they're not using a formal accounting system. So there's not really a way that they are properly tracking and documenting expenses and receipts. There is some potentially, sometimes people just overlook the requirements themselves for what type of entity they're allowed to be. So in certain states you can't just be a standard LLC, you have to be a PLLC or a PC, and that sometimes gets overlooked. Also just making certain tax elections that need to happen within specific time frames of when you form your business, those get overlooked. And then I would say the overall encompassing aspect of it, of why things get missed is just from lack of awareness, and not from any fault of anybody, but just there's still things that need to be considered in so many different areas to be checked and cross-checked that sometimes they are overlooked. And one of those other areas is when you're operating like myself, I'm hiring people that are not in North Carolina. So when they're operating or the people that I'm hiring or located in other states, that may expose the firm to other state taxation. And so, but people may not just by nature think that or be aware of that. And so I think the big, big piece of it is to not avoid or just kind of cover your eyes and say, I don't want to deal with the taxes that are the accounting, someone else will. But it is to get some education and in the way that is most comfortable to you. Some people pick up books and read them. Some people, a lot of my clients come and they ask me questions or I'm happy to sit down and I love to explain things and go over why we're doing what we do, what they should be considering. But I think it is important to be educated in whatever way is feasible or comfortable to you. So that you have at least some awareness. You may not understand all the technical reasons or the nuances of the tax code, but at least you know a big picture what you need to be considering and why your professionals are looking at certain things. - Well, one of the things we talk quite a bit about is virtual assistants and remote employees obviously, but specifically I want to talk about use of independent contractors. I am certain that there are several people that are not setting things up properly when it comes to independent contractors. I think sometimes they will, it'll essentially be a full-time employee, but they're paying up as an independent contractor. So what are some things that people should avoid when it comes to, or things they should look out for, things that they should be careful about when it comes to using virtual assistants and specifically paying them as an independent contractor? - So I think that there are many, many situations where in fact the person is an independent contractor and is being appropriately accounted for that way. And there's probably an equal number of situations where they're actually an employee and are not being classified that way and should be. And the biggest thing to look at when you're trying to determine whether you have an employee or an independent contractor is control. And control from a couple of different stand points. One is control as to how the work gets done. So if you're directing the day-to-day, how and where the work is to be performed, that's a big indication that you-- - Are you tired of the marketing guessing game? Does your website feel more like a digital billboard than a client magnet? If you're nodding along, you're not alone. And it's time to stop the uncertainty and start getting real results. Let's talk about your marketing spend. Are you just shelling out money every month and crossing your fingers? Do you ever wonder what impact your marketing is really having on your revenue? Well, it's time to take the guesswork out of the equation with rise-up media. We've been working with them for over a year and the feedback from our fellow members has been fantastic. Rise-up media is here to take your marketing to the next level. They'll even perform a full audit of your online presence, giving you the good, the bad, and even let you in on what your competition is up to that you're missing out on. And the best part, there's no obligation, no catch, no pressure. If you decide to work with them, their contracts are month to month. That's right, no long-term commitments tying you down. So, what are you waiting for? To learn more about how rise-up media can transform your firms, visit riseupmedia.com/maxlaw and rise is spelled with a Z. Riseupmedia.com/maxlaw. - Have an employee rather than an independent contractor. Then if you also are essentially in control financially, so you are their only source of income, you are their only client or customer, that would really indicate that, again, that they are an employee as opposed to independent contractor. So, I think this awareness of control, how much of their day-to-day work and how they get it done. You're dictating versus letting them decide and letting them have other opportunities to do similar types of work with other people. That is your key to whether you have an employee or an independent contractor. And the risk that you run there, there's a few different ones. The most obvious one is the employment tax matter, where you have truly an employee, but you're treating them as an independent contractor so you're not withholding payroll tax, you're not paying the employer's share. And when this eventually comes up and is determined by a taxing authority or a state authority that you have an employee, then you're gonna owe a significant amount of back tax and penalties on that. - So, I'd like to go back to the issue of having the two different firms, the accounting firm and the lawyer firm. How do you spend your time? Do you, does that bring headaches? Does it make it, are things streamlined? How does that sort of play out? - There are certain times of the year, just by the nature of what I do as a tax EPA, where that is pretty much what I'm doing, where we're just full of tax compliance work, tax calculations for people typically, you know, March and April are having months for that. But also, maybe a lot of people don't realize, but September and October are very, very busy. If not busier, then the spring tax season. And it's because that's when we're dealing with a lot of extended returns, a lot of extended businesses, but then also the individuals that own those businesses. And they're all due in September and October. So, those are really, really busy times of the year for the CPA practice. What I'm probably 90% focused on the CPA firm during those months, because just the nature of it. And then the rest of the year outside of that, I think I have a fairly even split time between the law firm and the CPA firm. And the law firm, it's interesting because it's focused as estate planning. And estate planning and income tax, estate planning and estate tax, they really complement each other or fit well together. So, there are a lot of people I work with that comes to me because they need some estate planning, but they also own a small business or they have an unusual or an interesting tax matter that they need help with. And so, we'll help them with that as well. And then vice versa, maybe doing tax work for someone and their business, and then we are discussing things and their big picture and their succession plan, and they realize they need a estate planning as well. So, we can recommend a number of different firms or they can use our associated law firm to do the estate planning. - Do you have the same people that work in both businesses or are they separate completely? - They, my assistant works in both businesses, but other than that, they're separate completely. And the law firm, the CPA firm is where I have people that work with me and the law firm still currently is just myself and it's something that I'm able to. I don't really have a goal of growing it into a larger practice with a number of employees, but I kinda like where it's at. - That's interesting, do you ever run into any complications when it comes to that, when it comes to your employees or anything else? 'Cause I mean, I definitely see the benefits, but are there any, like if they're different entities completely, that is what's interesting to me is, do your employees ever complain about it? Or are there any issues you ever run into? - Nothing major, but there are some day to day, maybe I wouldn't say, I wouldn't go as far as even calling them headaches, but just considerations that need to be thought about. So if, especially if I'm responding to a matter for someone where I do both their estate planning and their tax work, it's something as simple as which email address am I using to respond to? Which letterhead are we using? Making sure that everything associated with one firm comes from that one firm and everything with the others from the other. So just the, maybe more of the administrative matters, making sure that that is, they're being kept as separate into state entities. And then I obviously, I mean, as an accountant, I do my own record keeping, and I keep all my records very separate for one firm versus the other. So having separate set of books, separate bank accounts, separate, basically separate everything for them. Other than I do capture everything under one umbrella from a website standpoint, and so I have, I do have a firm website for the law firm and a website for the CPA practice, but then I put them both together under one umbrella as well. So it makes it a little easier for sending people to the website. I also have another area that I've been developing, which is gonna fall under that same umbrella, and that's the education component, where I'm putting together a number of short e-books, webinars and courses that will help people understand the tax and accounting matters that are important to them. Because that is really a big passion of mine, is educating my clients, educating the public to make sure that people are aware of what they don't know. - We talked about some mistakes people make when they start their firm. We talked about tax complications of not treating independent contractors properly as employees. What other mistakes do business owners, law firm owners make when it comes to taxes? I know that a lot of people get caught up with their quarterly tax payments. What other issues do you see, Daniel? - So there are certain areas where I tend to see more issues than others. One is the S-corporation area, and a lot of things that flow from that. So as simple as making the S-election in a timely manner, I see that missed a lot of times, and then we're trying to help clients get late relief for filing their S-election. So that's one, paying proper compensation to the S-corp owner/employee is another area that we often are helping people with, or they're just not aware of how that needs to work. Setting up retirement plans in their firm, and which ones they're eligible for, which ones will help maximize their contributions, whether they should be doing Roth versus traditional. So also the 199A deduction, which is the qualified business income deduction, that is a 20% deduction off of pass-through revenue. And in order to take advantage of that, you have to have a pass-through. So you have to be a partnership or an S-corporation for tax purposes. Even within that, there's a catch, in that that deduction is great for a lot of people, but it specifically excludes lawyers from being able to take advantage of that deduction, and that's the way the law was written. However, if you're under certain income thresholds, you still get to take that deduction even though you're practicing law. And so part of the education process is explaining that this deduction exists, making people aware of where their app from an income standpoint, and then helping them to strategize and see if there are ways that maybe if they put some more of their wages into retirement, it brings down their taxable income, it gets them a little of the threshold, they're able to get the deduction, and things kind of dominoes start to fall that way. So yeah, I think some of the other areas where people just may not be aware of the advantages that they could be getting are passed through entity tax deductions. So that is a, right now, the law currently puts a limit on how much you can deduct for state and local tax from your personal income tax return. But most states have come up with work around for that, where they'll now let, instead of the individual paying the state tax, the firm pays the state tax on their behalf, and takes a deduction for that payment. And then the individual gets a credit on their state return for the tax that was paid it by the firm. And so it's kind of a way to work around this limitation that Congress put in, and most states have that, but a lot of people just aren't aware that either it exists or what they need to do to elect themselves into that type of system. - What are some tips, some tax tips that you've seen that drive you crazy? Like you see them on social media and you're like, there's no way in hell I'd ever do that. Like, all right, you ever see anything where you're like, you just scratch your head and you think, I hope people don't do that? - One thing that I tend to encounter is that people have been told or heard from a friend or heard from someone that X, Y, or Z is deductible. So I often am having to explain to people how entertainment is not deductible, what qualifies as entertainment. Certain meals are, certain meals are 50% deductible, everyone, not everyone, but a lot of what's kind of put out there of tax tips or tax advice that isn't very well vetted is based on being able to deduct so many different things. Put your car in the company and you can deduct it. Take this trip and you can deduct it. So that's a big area. And then I also hear a lot of talks about utilizing trust in ways to benefit yourself from an income tax standpoint. And some may be accurate, but a lot of it is just not the way it works. So those are the two biggest areas. Did deductions and then utilization of trust? - So what's on your horizon? What are you looking forward to? What are you working on these days? - As it stands right now, I am working on tax compliance for October 15th and we're wrapping all that up right now. And once that's over, then I'm gonna shift into, it's, if there is ever a quote unquote slow month, it typically is November, there's just, we're not geared up for year-end planning yet. There's not compliance, things that are due at that time. And so what I focus on then is the education piece. And that's where I'm putting together more drafts of the short books and putting together the courses and doing the infrastructure for that. So that is what I plan to do in November. December will be more estate planning and year-end work for tax clients. - Love it. - All right, we are running near the time. So Daniel, I'm starting to wrap things up. Before I do, if people wanna reach out to you, how can they get ahold of you? - The best way is to go to my primary website, which is DRowCo. So it's d-r-o-w-e-c-o.com. And then there's a contact page on there. Best way is to just go through that. - Very good. All right, so I wanna remind everyone, join us in the Big Facebook group. If you've not joined, you're missing out on a lot of great information there. So I'd love to have you. If you'd like to join us in the guild, we'd love to have you. MaxLawGuild.com, lots of great people in the guild, lots of people share their expertise. It's been pretty actively at least. So we'd love to see you there. And we would love it if you'd give us a five-star review where we get your podcast. It helps us get the podcast out to as many law firm owners as possible. So we'd love if you would do that for us. If you've not, if you've been listening for years and if you've not done it, what's going on? Let's get that five-star review. Let's get going. Jimmy, what's your hack of the week? - I'm reading a great book. It's by a man named Greg Hardin. I had never heard of Greg Hardin until he died like three weeks ago. He was a sports psychologist at the University of Michigan for about 25 years. So he worked with Tom Brady. He worked with Charles Woodson. He worked with Desmond Howard. He has chapters about each of them. He has. It's a lot like Jason Selk's stuff. I really, really liked it. He actually narrates the audio book. And he also worked with Michael Phelps. And there's a great chapter. Michael Phelps didn't go to the University of Michigan but he trained there. And some of the lessons and the mindset shifts that he worked on with Michael Phelps. It's a great, it's a great book. - Very good, cool. I'll have to check that out. I don't need another book to read, but maybe I'll get the cliff notes version from you, but very cool. All right, Daniel, we always ask our guests to give a tip or a hack of the week. What you got for us? - So I have two tips that I would want to give people for just running their practice and maximizing tax, the tax outcomes of their practice. And that is to keep good records. I know it sounds simple, but people don't, please keep good records. And then the other is to seek out collaborative educational minded advisors. People that will inform you why they're doing or why they're recommending what they're recommending and they just give you some background knowledge into the best way to handle your accounting and taxes. So those are the two. - Great, that's great advice. Hey, Jimmy, how is your mental health whenever you're not working out? - Oh, not so great. - And how is it whenever you are working out? - A lot better. - All right, so we're heading into the cold weather months and typically people start to kind of come inside and they're not as active. So the tip is before that starts to happen, come up with your routine that you're going to find a way to get your workouts, whatever it takes to maintain your fitness and eat right and all that 'cause it's really important. I think that's something that law firm owners, we don't focus on enough. I know we talk about it a little bit here, Jim, but I think starting with making sure your body and mind are good is really, really important. So work on getting that agenda together and sticking to that routine is really, really going to be important that way. When you come out on the other side, next spring, you're going to be very, very happy. So that's my tip of the week. Daniel, thank you so much for coming on. Really appreciate it. I know you gave a lot of great tips and advice for people that are running firms. And so it was very, very helpful to a lot of people, I'm sure. So thank you so much for coming on. I appreciate you having me. It was great to meet you both. Thanks for listening to the Maximum Lawyer Badger. To stay in contact with your host and to access more content, go to maximumlawyer.com. Have a great week and catch you next time. (upbeat music) Hey, before you go, stick with me for just a minute 'cause I have a discount that is exclusive to maximum lawyer podcast listeners only. And I want to make sure you know about it. As you all know, it is absolutely crucial to stay on top of calls with clients, with court staff, with judges. I even had a client the other day say that the provider was calling him, saying that they've been trying to get a hold of us and they had left us a couple voicemails. Well, that's impossible to our firm because we don't have voicemails. It's extremely important to us that a live person answer the phone. And so we got rid of our voicemails a long time ago. That's where Lex Reception comes in. They are a 24/7 virtual receptionist service that specializes in legal clients. 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