Avoid IRS Surprises with Year-Round Tax Planning Sohail Sadeghi

Episode Overview

Sohail Sadeghi is the founder and principal of Atlantis Tax Group & Financial Services, a distinguished tax and financial consulting firm based in Newport Beach, California. With over a decade of experience in tax services, accounting, and financial analysis, Sohail has built a reputation for delivering strategic, proactive solutions that empower clients to minimize tax liabilities and achieve long-term financial success. His journey began as a tax preparer at Liberty Tax, followed by roles at Squair Milner, the largest public accounting firm in Orange County at the time, where he honed his skills in auditing and corporate accounting.

Under Sohail’s leadership, Atlantis Tax Group has redefined the tax consulting landscape by emphasizing proactive, year-round planning rather than reactive, seasonal approaches. The firm specializes in crafting comprehensive tax reduction plans, streamlining bookkeeping and payroll operations, and advising on optimal business structures such as LLCs and S Corps to maximize tax benefits.

Beyond his professional achievements, Sohail is dedicated to continuous learning and community engagement. He actively participates in industry forums and contributes to discussions on tax strategy and financial planning, sharing his insights to help others navigate complex financial landscapes. His holistic approach to financial consulting integrates tax planning with broader financial goals, ensuring clients receive comprehensive guidance that supports their long-term prosperity. Through Atlantis Tax Group, Sohail continues to empower individuals and businesses to take control of their financial futures with confidence and clarity

Episode Transcript

Sohail Sadeghi: If you do a short term rental on a property, you rent it out seven days or less throughout the year, and you materially participate actively in that property for over 100 hours. You can take that deduction for the whole property value and for the depreciation of that home and the cost, and for maintaining it all on your taxes. So they wanted to take over a $300,000 deduction from that home. The problem was they made a mistake. They saw a video. The problem with these taxpayer videos is they don’t tell you the full story. Right.

Kevin Rosenquist: Hey there and welcome to PayPod, where we bring you conversations with the trailblazers shaping the future of payments in fintech. My name is Kevin Rosenqvist. Thanks for being here. When most people think about taxes, they think about last minute stress, confusing forms and scrambling to avoid penalties. But what if taxes could actually be part of your financial strategy, a tool for growing your wealth instead of just a bill to pay. My guest today is Sohail Sadeghi, founder of Atlantic Atlantis Tax Group, a firm that helps individuals, business owners and investors transform the way they approach taxes. In this episode, Soheil breaks down the difference between tax compliance and tax strategy. He shares some of the most expensive mistakes that he’s seen people make, and he offers practical tips for proactively lowering your tax bill year round, which is something we would all love to do, am I right? So anyway, please welcome Sohail Sadeghi. So most people think about taxes as something that they have to just deal with. How do you help your clients shift their mindset so that they see taxes as something they can actually control and plan around?

Sohail Sadeghi: Yeah. So there’s always this notion about taxes when it comes. Most of the people, when they try to do their taxes, it’s like a few weeks before the tax deadline, right? They get there like, okay, I gotta do my taxes right now so I don’t get hit with any late penalties and fees. But the problem with that is there’s no tax planning around that, right? They just realized that, oh man, I owe five, seven, $8,000 to the IRS. How come that happened? Why didn’t I know about this before? And it’s too late at that moment to fix anything, right? Because the year has already passed. So the thing that I try to do with most of my clients is let’s do some tax planning throughout the year, right? We meet together twice, three times a year to understand your tax situation, especially right before the year. So, uh, we’re not caught with any surprises. So we can make sure that they have the lowest tax liability as possible. Most accountants, most CPAs, they only meet with you once a year during the tax season. All they do is ask you for, you know, your tax forms and they just file and then ask you, okay, pay me. This is how much you owe the IRS. And then you’re just like, okay, well, uh, that’s it. Uh, how come? What can I do to lower my tax bill next year? You know, they don’t give you any tax planning strategy at all.

Kevin Rosenquist: It’s true, it’s true. And you work with businesses and individual right? Individuals. Right? Yes. Okay. Why is it so important to start planning early rather than doing what you just mentioned and, you know, sending it in on the 14th of April?

Sohail Sadeghi: Yeah, especially for business owners, I always recommend that you need to at least meet with, uh, your CPA, your tax accountant, your enrolled agent at least 2 to 3 times a year. Because one of the biggest problems I see in that, and I see this with a lot of new clients that come to me like two weeks before the deadline, and they want to file their taxes. It’s because their, their tax person that they have tells them, okay, you owe $20,000 to the IRS because your business made this much, and then it’s already, you know, the year has already gone by. 2024 is over. You can’t really do anything to reduce your tax liability. You have to pay that big tax bill now. But what business owners can really do is make sure that their their CPA is going to tax plan with them throughout the year. That’s something that they got to ask for, right. And that’s something that I include in all my services. So it’s not like an extra fee that I charge them. It’s something that I provide because I want to make sure that the relationship we have is not based on transactional, but based on relationship building. I want them to see me as like a as a business partner. Right. And I want their business to grow. And I want them to pay the least taxes they can to the IRS. So, you know, with business owners, there’s certain deductions they can always take to make sure they have the lowest tax liability, but they just have to be informed about it. That’s why they got to meet with their tax professional throughout the year.

Kevin Rosenquist: A small business owner, a real estate investor and someone planning for retirement all have very different tax challenges. How does your approach change depending on who you’re working with?

Sohail Sadeghi: Yeah. So every industry is so different from each other.

Kevin Rosenquist: Yeah.

Sohail Sadeghi: You’re able to take certain, you know, credits and deductions based on the industry that you’re in. Right. People are able to like for example, I got a client who was in the car rental industry. Right. And they’re able to write off all their car expenses. Right. But a business that, let’s say, is not in that industry and has cars that are under their business, they’re not able to write off certain components of the vehicle because that’s not what their business is about. So it’s the same thing when you go into you’re talking about medical doctors, talking about people who are real estate professionals. You know, they have certain deductions for each other. And for us, you have to be really not knowledgeable on every industry that we’re working with to make sure that we’re maximizing the deductions and credits that each person is able to take towards the industry that they’re in. So and one of the best parts about it is that we get to educate them exactly on the certain deductions and credits they can take for their business, which I think that they can really appreciate, because the problem nowadays is that people see videos online of tax gurus telling them, oh, take this, uh, tax deduction for your business. But, you know, those videos are not like a one size fits all. Not every tax advisor can see the situation. It just depends what industry you’re in. What kind of business do you have, whether that tax advice is going to work for you or not. And I see so many people go out there, take that tax advice they see online and try to implement their taxes, and it doesn’t work out. And so that’s, you know, how I try to educate people around that.

Kevin Rosenquist: You may have just answered the question I was going to ask next when you talked about people trusting those gurus. But I was wondering, like when someone comes to you at Atlantis Tax Group, what are some of the most common and maybe even expensive tax tax mistakes that you’re seeing them make.

Sohail Sadeghi: Yeah. Oh, one of the biggest tax I mean, most expensive tax mistakes I saw them make was that they saw a video and its deduction that you can take. But the way they did it, they did it incorrectly. So they couldn’t take it for that year. What they did is that they went and bought a short term. They went and bought a property right, for short term rental purposes. They wanted to rent it out, like an Airbnb or Vrbo, so that they can kind of take the deduction on the home. Because if you do a short term rental on a property, you rent it out seven days or less throughout the year, and you materially participate actively in that property for over 100 hours, you can take that deduction for the whole property value and from the depreciation of that home and the cost and for maintaining it all on your taxes. So they wanted to take over $300,000 deduction from that home. The problem was they made a mistake. The. They saw a video. The video. The problem with these taxpayer videos is they don’t tell you the full story, right? They just tell you that, oh, you could do this and that, but they don’t give you the details on how you can do it.

Kevin Rosenquist: Right.

Sohail Sadeghi: And this person did this and they’re like, okay, yeah, I bought this home. Now I want to take it. They didn’t materially participate over 100 hours in that home in order to take that deduction. That’s something that the IRS requires. They didn’t drop those hours down at all. So now they’re left with like, oh man, I have to pay instead of like paying $0 in taxes. I got to pay $200,000 in taxes. The person was a medical doctor. And you know, he could afford to get the home. But the problem was that the advice he saw was wrong, which was an expensive mistake for him for that year, but I was able to fix it for him. Next year he’s able to take that deduction so he doesn’t have to pay another high tax bill. But it’s fair to say he was very, very disappointed.

 Kevin Rosenquist: Yeah, I would say yeah, I’d say so.

Kevin Rosenquist: That’s a lot of money. No doubt. No doubt. Well, there’s no shortage of software that promises making filing your taxes easy. Which we all know. We all see the commercials, especially this, this time of year. We’re recording this March 6th. What do people miss when they try to handle everything themselves? I mean, maybe there’s. Yeah.

Sohail Sadeghi: I think I think, like, you know, most, like a lot of people who have, like, business on the side, they have like a, like a regular day job, and they have their business on the side. They don’t realize that, like, you know, if you’re working from home, you know, you can take the home office deduction based on the square footage of your office at the home and the you know, the amount of where you’re exactly working. You know, you can take the home office deduction from it. Most people don’t realize how to do that. And it’s a very simple process. You calculate the square footage of your office like let’s say the room you’re in is 300 square foot. For example, at $5, $5 is what the IRS will give you. So the total amount that you pay for the whole year is $1,500. Right. That’s the max you can take for the home office deduction. Most people don’t even take the deduction because they just don’t know how to do it. Right. And so the so they go on their own TurboTax you know the free tax USA websites. And they just don’t even bother inputting any of this information because they’re just afraid that, you know, they’re going to make a mistake. And I would suggest that if you’re trying to figure out what deductions and credits can apply to you, do a little bit of research before you’re doing your taxes to see if that certain home office deduction applies to you or not. It’s not going to apply to you if you’re a remote worker or a W-2 job, right. That’s not going to work for you.

 Kevin Rosenquist: Yeah.

Kevin Rosenquist: Yeah, that makes sense. That makes sense. Yeah. Because there are so many remote workers out there nowadays. That’s a good thing for people to know.

Sohail Sadeghi: So I see that a lot were like, yeah, I’m working from home, I have a W2 job, I’m trying to take this deduction. I’m like, no, unfortunately you can’t take that because that’s just part of your W2. Yeah.

Kevin Rosenquist: But yeah yeah yeah. It’s not a home office per se. It’s I mean you’re using it as one but you’re not running a business from there. You’re working for somebody else from there.

Sohail Sadeghi: Yeah, exactly. Important distinction. And when people like, you know, understand how they can take those kind of deductions, I feel like, you know, they start doing that stuff themselves. You know, they don’t really need a tax professional. A lot of people, they can do most of the taxes themselves, especially if your W2 earner. I don’t think you really need to talk to someone to do your taxes. If you have a very simple tax situation, W2 job, you know you’re a gig worker. Even I feel like most people could do their taxes themselves and I think they should because they can be more knowledgeable about what’s going on with their financial situation instead of, you know, having paying someone else to tell them.

Kevin Rosenquist: Yeah. I want to go back to you. You mentioned one of your clients who bought a property real Obviously real estate is a huge, you know, popular investment. I mean that’s something that most people try to do when they want to, you know, gain wealth. But the taxes can be really complicated when you buy another  property. , when you’re renting stuff out, when you’re airbnbing, whatever it is, how do you kind of coach people when they want to buy an investment property? As far as taxes are concerned, obviously this is a larger question, but as a in sort of a smaller way, what do you what do you kind of prepare people for?

Sohail Sadeghi: Yeah. So when someone’s buying an investment property, I understand exactly. Is that investment going to their kids. Are they trying to get that as a tax write off or are they trying to short term rental? Is it going to be a long term rental? What are they trying to do with that property? That’s the first thing I want to understand, to make sure that we put them in a place where they’re mostly, uh, financially favorable to them. You know, some people go and be like, yeah, I just want to buy a second vacation home to myself and then sell it after one year or two years. Well, the problem with that is if you sell it for a gain, you’re going to be taxed on the whole, right? You know, gain of that property that you make. And people don’t realize that a lot of the times they feel like, yeah, if I sell a home and I’m, you know, married filing jointly, I can deduct $500,000. No, it doesn’t apply like that. There’s rules that are in place before you do that. So first is to understand why they’re trying to buy it for. Second is what the exit plan is like. What is the exit plan. And are you trying to get a ROI return on investment from that exit plan? You want to obviously I mean you hopefully you sell it for a gain. , or you’re going to keep it long term to get money out of it like a short term rental, where then you can reduce your tax bill. And that’s just meeting over 100 hours just managing the property. That’s what I try to do to educate them on how to get the real estate investments going for themselves, especially, uh, W2 earners who have make a lot of money. I’m not talking about like six, $700,000 a year. This is one of the tax loopholes that they take, especially with real estate investment, to reduce their tax liability almost down to zero.

Kevin Rosenquist: So one of the things for business owners, and when I started my business, I had a similar problem is you’re trying to choose between an LLC, an S Corp, a C Corp and you don’t really know what you’re doing and you’re getting mixed information. How do you help people decide what’s best for them as far as minimizing taxes and also protecting their assets?

Sohail Sadeghi: That’s a really good question. And I get that question asked a bunch of times. I’ll bet on an LLC. Should I be an S Corp? A C corp. I don’t really recommend it for anyone unless you’re trying to get investors for your business and you know you plan to go public one day. It’s very rare that I get like somebody saying, yeah, I’m planning to go public one day with my business. But a lot of people say, yeah, I’m trying to get investors for my business, so a C Corp will make sense for them. You know, you have a tax rate of 21%. That’s going to be a tax rate forever. When you think about an S Corp or just a regular single member LLC, an S Corp, I always like I always say if you’re going to make more than $50,000, then you should put yourself as an S Corp. So you save on self-employment tax, or else you would have to pay 15.3% on self-employment tax each year. If you’re just a single member LLC. That’s how I would always just, you know, phrase it so people understand whether it’s going to be beneficial for them or not. A lot of people want to start up a business. They’re going to have losses in the first few years, right? Sure. It’s going to be losing ten, $15,000 a year. So especially in the state of California, you have to pay like $850 to the Franchise Tax Board here for an S corporation. So I try to minimize those fees as much as possible and tell them you can always elect to be an S Corp later when you’re profitable. So you save on self-employment tax. So that option is always there. And that’s how I usually phrase it now.

Kevin Rosenquist: So you’re saying like if you you start out as an LLC, a single single member LLC, and then later on you can switch it to an S Corp as you start making more money.

Sohail Sadeghi: Yes. And that’s because you want to you want to save on the self-employment tax. Right now you’re required as an S corporation. You have to pay yourself a reasonable salary. You know, you can’t you can’t just keep the money in the business and be like, yeah, I’m not going to pay myself anything. No. That’s the biggest reason why the IRS audits corporations they don’t normally, as corporations have the lowest audit rate out of every other, you know, entity out there. And the only reason they will audit you is if you don’t pay yourself a reasonable salary. That means if you’re an S corporation and your business makes $100,000 in net income, and you take $0 from that $100,000. Well, the IRS knows that you’re just trying not to pay yourself. So what they’ll do is they’ll probably do an audit to classify some of those wages to you. So the the rule that they have right now is the 60 over 40 rule, meaning you should pay yourself 60% and wages of whatever’s left over of the net of that net income, and then keep 40% in the business.

Kevin Rosenquist: Okay. All right. That’s interesting to keep that in mind for the future. With tax laws evolve obviously constantly and especially with new administrations. And like all these things are just constantly changing. How do you keep your clients ahead of these changes? I mean, do you sit down with them regularly? I mean, it just seems like it’s something that changes very quickly.

Sohail Sadeghi: Changes almost every day. , there’s a new thing that happens every day, to be honest with you. You know, we as a, you know, tax professionals, especially those who are CPAs, enrolled agents, they have they’re required to take classes every month, , to be up to date on any changes. Right. And that’s the thing. I take two classes a month. , just to be informed of all the things out there. And it gets a little bit more difficult because,, , some of those changes don’t talk about, you know, all the different industries that are out there. Those are things that we have to go and learn ourselves. And I kind of do that on myself, because if I’m going to talk to a client who is in a industry that I’m not really well knowledgeable in, I need some time to really dig into what can I learn about this client’s industry so I can make sure I’m better helping them? So it just really depends on us, on on how well we sit down and try to educate ourselves.

Kevin Rosenquist: Are there any upcoming trends or big changes that you’re advising people now and that maybe people that might be listening would want to know.

Sohail Sadeghi: Yeah, I would tell them, , it’s probably best to file your taxes as soon as possible, especially if you’re due a refund. , a lot of my clients, , you know, the stuff that’s going around the IRS, with so many of them getting laid off, they’re planning on laying off half the workforce there. I saw that today. , yeah. Yeah. So already refunds are being delayed. You know, you would usually get your refund within five days. Now it’s like taking two weeks. So you would probably see that get delayed more. Another thing that a lot of business owners are kind of happy about is that the other audit rates are going way, way lower than before, and.

Kevin Rosenquist: They’re going to.

Sohail Sadeghi: Get they don’t have the people to audit.

Kevin Rosenquist: Yeah. Who’s going to who’s going to do it, especially if you’re a smaller business. I mean, you’re not going to be on anyone’s radar when you’re they don’t have the manpower.

Sohail Sadeghi: Right. Yeah.

Kevin Rosenquist: Interesting.

Sohail Sadeghi: I was reading a text. I was a tax professional for that I’m on. There’s a company in Seattle. They were getting ready to represent a client in an audit from the IRS. Two days before the audit, the IRS emails them and sends them, hey, yeah, we’re not doing the audit anymore. Closing the audit just because we don’t have the people to do the audit on the business. So the client is like, yeah, I’m so happy I don’t have to go through a whole audit. Yeah.

Kevin Rosenquist: Wow. Crazy. Crazy times to to say the least. You’ve spent many years helping clients navigate the tax world. What’s one lesson, maybe that you’ve learned about how taxes intersect with long term financial success?

Sohail Sadeghi: Yeah. Taxes are really important for your financial success. I mean, it’s the difference of you getting a potential refund or paying 20, $30,000 to the IRS, especially if you have a business. I mean, there’s so many things that and there’s just so many things that I could get into about that, what you can do to really lower your tax liability. For example, if you have a business, you can have a, you know, retirement account for yourself, create a retirement account yourself, maxed out retirement account, open up a Roth IRA account and all of that is tax deductible. So you just reducing your whole tax bill. So you pay the IRS the least possible, right. And then you’re setting up yourself for retirement. Why would you want to give the IRS 20, 30, $40,000 when you can save all of that and put that towards your retirement and use that money whenever you want to retire?

Kevin Rosenquist: Yeah, yeah. That’s good. That’s really good advice for sure. So what’s something that you think makes you different? How is Atlantis different than the average. The average tax company.

Sohail Sadeghi: Yeah. So I worked for a top ten public accounting firm in America. And one of the things was that it was all transactional, right? Like, get the client in, fill out their tax form, submit their form, get paid. Right. That was it, right. That’s like what they wanted to focus on. There was no building a relationship with the client that much, and there was no tax planning at all. You would have to pay extra for that. Like, oh, yeah, you want to meet with us throughout the year? Sure. That’s going to cost you $700 for each meeting. And you know, most clients, they don’t want to pay that. So they’re just like, yeah, come back next year at this time. Again, do it as a free service. If you’re my client, you know, that’s something that I provide for each client to come in and uh, we’ll do tax planning together, meet twice during the year to make sure they have the lowest tax liability. And I’m trying to build that relationship with them and not be so transactional. And I think that’s just the best for long term growth.

Kevin Rosenquist: I agree. I think that’s great. All right. Well the company is Atlantis Tax Group. So great to see you. Thanks for being here.

Sohail Sadeghi: Thank you so much Kevin. I appreciate you having me.