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Most people wait until the end of the year to ask how they can pay less in taxes, but by then, it’s already too late. The wealthy understand that taxes are a strategy game built around knowing the rules, using incentives, and planning ahead.
In this episode, Sharran breaks down the first level of his Tax Advantage Matrix, a framework designed to help business owners legally reduce their tax burden. The goal is not finding loopholes, but understanding the incentives already built into the tax code.
Through examples like the Augusta Rule, R&D credits, 1031 exchanges, Roth conversions, and installment sales, Sharran shows how strategic tax planning can help entrepreneurs keep more of what they earn.
“Taxes are just entirely based on an incentive mechanism. It doesn’t penalize you for the income that you make; it is all about the incentives and the behaviors that you can use with your money that you are in partnership with the government overall.”
– Sharran Srivatsaa
Timestamps:
02:29 – The Tax Advantage Matrix: The framework for legally reducing taxes
04:45 – Level One: Lowering your tax bill
05:11 – Strategy #1: Using deductions to reduce taxable income
07:10 – The Augusta Rule: Turning legitimate business use into tax savings
09:50 – Strategy #2: Using government incentives to lower taxes
10:43 – R&D credits and rewarding innovation through tax incentives
12:28 – Strategy #3: Using timing to defer taxes and keep more cash
13:16 – 1031 Exchanges, tax-loss harvesting, and Roth conversions
14:29 – Installment sales: Spreading gains across multiple tax years
16:44 – Recap: Lower Your Taxes Legally – Part 1
Resources:
– The Next Billion by Sharran Srivatsaa
– Board Member: ARC Multifamily Real Estate Investing
– Board Member: The Real Brokerage
Connect with Sharran:
– X
– YouTube
– Threads
Transcript:
[00:00:00] Hey, this is Sharran Srivatsaa. Welcome back to The Business School podcast. In this episode, I’m gonna tell you about how to lower your taxes legally, because most people, they just want a loophole. They want a shortcut. They want a magic trick, and they’re like, “Hey, it’s December 31st. I feel like I paid too much in taxes this year.
[00:00:14] What is one thing that I can do to just magically, you know, do some pixie dust sprinkling on my thing that will get me to reduce taxes?” That’s not how it works. I spent the last 15 years figuring out that taxes are the number one drag on wealth creation, and I came up with a matrix called the Tax Advantage Matrix.
[00:00:28] There, there’s three very specific levels on what you can do to dramatically reduce your tax bill well within the law legally, and that’s why I love putting this information out, because I know that if something ever happens, someone’s gonna point to this and say, “Listen, you know, Sharran talked about that.”
[00:00:45] And I’m like, “Yeah, talk… You should talk to your CPA, but you should listen to this idea because it gives you enough information to have a good conversation.” In this episode, I’m gonna break down part one of how to lower your taxes, and it all starts right now.
[00:01:02] One thing is for certain: just because it’s tried and true doesn’t mean it’s working right now. So the big question is this: where can you learn what is working right now? The strategies, the tactics, the psychology, and the exact how-to. How to grow your business. How to blow up your personal brand and supercharge your personal growth.
[00:01:24] That is the question, and this podcast will give you the answer. My name is Sharran Srivatsaa, and welcome to Business School.
[00:01:38] Taxes are the biggest drag on wealth creation. There is nothing, nothing that reduces your overall income and your overall wealth more than the amount of taxes that you pay. But the crazy part is that most of us don’t realize that, uh, taxes are somewhat avoidable. I’ll give you a stat that I know of.
[00:01:57] Roughly, there’s 60-ish thousand pages in the US tax code, and I think less than 3,000 of them are on the type of tax and what you’re supposed to pay. The rest of it, call it 90-plus percent, is based on how you can actually avoid those taxes. Meaning, taxes are just entirely based on an incentive mechanism.
[00:02:20] It doesn’t penalize you for the income that you make. It is all about the incentives and the behaviors that you can use with your money that you are in partnership with the government overall. So in this episode, I wanna kinda break down for you this thing that I call the tax advantage matrix.
[00:02:34] It shows you how to systematically reduce your taxes by doing things legally, which is you need to know the law, you need to follow the rules, and you need to document the truth. And if you did that, it is the smallest amount that you can pay to get the largest amount of return, the largest ROI ever.
[00:02:49] And most people are like, “Man, this is math, so I want to stick my head in the sand.” But I will tell you, if you– there is nothing that you are working on right now that is more valuable than actually paying attention to something like this, because if you can get a bunch of these things right, all the money drops straight to the bottom line for you.
[00:03:05] So, so let me explain overall. Most people think that paying less tax is about having some kind of tricks or a fancy advisor or skirting the law, or having a loophole. And I will tell you, the wealthiest of wealthy people are not using magic. They are just following the law. And when you follow the law, you understand that it’s just a bunch of incentives.
[00:03:29] And they know, like, where they sit, and they know the dials that they can move to get them to keep more money, because it’s not what you make, it’s what you keep. And this is why I built this, actually built this for myself, ’cause I was, like, shocked when I started making more money. I was like, “Man, how am I writing this big a check to my invisible partner, the United States government?”
[00:03:48] And by the way, I am the happiest person to pay more taxes. I want to pay more taxes. I want to pay the, all the taxes that I can that I’m only legally obligated to pay, right? I only pay that it– I stay within the rules. I only do everything by the rules. So I always say know the law, follow the rules, document the truth.
[00:04:06] I always– I, I don’t try to, like– I’m not trying to be aggressive. I’m only doing what the rules say that I can do, because that’s what the government has said that I can do because from an incentive perspective. So let me explain to you, as you’re listening to this episode, the tax advantage matrix. The tax advantage matrix is nine pieces.
[00:04:22] It is three levels overall, and today I’m just gonna break down level one for you, because once you understand this, you will instantly drop more dollars to the bottom line. So level number one is to lower the tax bill. Level number two is to design the structure that keeps you operating more to keep more money.
[00:04:36] Level number three is to then transfer the wealth that you make to yourself, next generations, other things like that. Theres, levels to this game. So let’s talk about level one today, because it’ll have the instant and most immediate impact on you. So level one is to lower the bill, and the goal mainly for me is to say, “Hey, how can I lower the tax on this year’s income?”
[00:04:58] Well, what does that mean? Well, there’s three ways to do that. Way number one is deductions, way number two is incentives, and way number three is timing. All right? Deductions, incentives, and timing. Please let me explain what each of these means. So let’s first take deductions. A deduction lowers the income that you’re taxed, right?
[00:05:19] So the main idea here is that it lowers the income. So if your taxable income is a hundred thousand dollars, a deduction– a ten thousand dollar deduction provides you the ability to lower the taxable income, therefore you pay less on the overall base, right? So if you got a ten thousand dollar deduction and you had a hundred thousand dollars in taxable income, now your taxable income, a hundred thousand minus ten thousand, is now ninety thousand.
[00:05:42] So your taxable income has now been reduced by ninety thousand. You didn’t get a ten-thousand-dollar check. You were just able to reduce your taxable income by ten thousand dollars. By the way, it’s really good. For example, there’s many ways to reduce taxable income. For, uh, let me give you some examples.
[00:05:54] Number one, uh, retirement contributions. So if you don’t… If you, uh, put, call it seven thousand five hundred dollars in your, in your IRA, well, that seven thousand five hundred dollars reduces your taxable income dollar for dollar and still grows tax-free. There is something called the HSA, which is the health savings account.
[00:06:13] If you put ten thousand dollars– I don’t think you can. It’s like eight thousand dollars for a family, I think, into the health savings account, it reduces your taxable income dollar for dollar. If you do the Augusta rule, it reduces your taxable income dollar for dollar. If you’re hiring your kids in your business, it reduces their income dollar for dollar.
[00:06:28] If there’s depreciation or cost segregation, what it does is it– that you have, it reduces your taxable income dollar for dollar. So that’s why bo-box num– box number one on this is deductions. What are the deductions you can take so that you can reduce your taxable income dollar for dollar? ‘Cause at the end of the day, if you have a hundred thousand dollars worth of taxable income, you’re paying taxes on the hundred thousand dollar base.
[00:06:49] If you have zero dollars worth of taxable income, you have zero dollars in taxes, right? Because you don’t have any taxable income. Everything that you pay in taxes from an income perspective is based on taxable income, and we want to do whatever we can to reduce and deduct from that taxable income.
[00:07:05] I’ll give you an example. So here you may say, “Well, Sharan, that’s cool, but give me like an actual operating example of this.” So there is the Augusta rule. So if you don’t know the Augusta rule, the Augusta rule comes from homeowners at, in Augusta, Georgia, renting their homes during the Masters golf tournament.
[00:07:20] And they would just… ‘Cause the Masters in Augusta happened, and they didn’t have enough housing there, so people would just leave for the week or ten days and rent their home. Well, the ten to fourteen-day period, if you rent your personal residence based on this rule for up to fourteen days a year, that rental income may be tax-free, federally speaking.
[00:07:39] So you could get– You, you don’t have to pay that. So, for example, let’s say you lived in Augusta, Georgia, and you rented your home for $1,000 a day for fourteen days. That $14,000 is not included in income, but you still get the $14,000 in cash. So a business owner like you may be able to rent your home to your business for real business use, like meetings or planning or off-sites or what have you.
[00:08:03] You’re doing it anyway. You’re taking them to dinner anyway. You’re taking them to drinks anyway. You’re doing a cocktail party anyway. You’re having an, uh, a meeting an, an off-site anyway. If it’s a legitimate business expense and you can rent your house to the business just like you would have had to rent– go rent a conference room somewhere or go rent an off-site location somewhere, the same comparable rate that you can pay, you can– the business can pay you.
[00:08:24] And of course, the rent must be fair market value. The business must actually propose– The purpose of the business should actually be real. You can’t fake anything. You have to know the law, follow the rules, and document the truth. And the documentation has to be clean. You need a lease agreement between yourself, which is your business, and your whoever owns the house, like your trust or your spouse, or you.
[00:08:43] And then there has to be a market value of rent paid for that day. And it has to be for the entire use of the facilities because if you did not use that, you would go use some other facility, right? The, the, the cool part here is that think about the power in this. The business pays you as the homeowner. Call– I’m making up a number.
[00:09:02] Call it a thousand dollars for the day. The business gets it deducted as an expense. You get to take it as income, but you don’t have to report it in your tax return. So you get the hundred percent of that in income. It’s pretty amazing if you can do that because just like you were signed into law by the Augusta for the Masters, you now get to do this, and the dollar-for-dollar deduction is completely there because you get to keep a hundred percent of that revenue, right?
[00:09:24] Which is super cool. My question is, if you have not done any of this and you actually, like, entertain guests and you actually use your home for an off-site, or you think you can use your home for an off-site in a legitimate business way, then I would ask your CPA, “Hey, can we use this Augusta rule correctly this year, and what records do we need?
[00:09:40] What planning do we need?” If you do it one time, it completely changes the game for you. So that is an example of, like, deductions as to how you can actually use deductions to reduce your taxable income overall. Here’s number two, which is incentives. An incentive is the government rewarding behavior that it wants more of.
[00:09:58] So if a– the government wants you to invest in R&D, so they give you R&D credits. The government wants you to invest in solar and, uh, l- electric, uh, vehicles, so they give you the solar credit. The government wants you to rehab historic locations, so they give you the historic credit. The government wants you to build low-income houses, and they want to promote that idea.
[00:10:18] So if you invest in that, they give you a low-income housing credit. The government wants you to grow the film industry, and maybe the state of California wants you to do that, too. So they offer you film credits. And the government wants you to put money away and give money to charity. So they give you credits for dollar for dollar of what you’ve actually given and deducted overall.
[00:10:36] They give you credits, like the donor-advised fund deduction. But that’s a deduction, not a credit exactly, but it’s an incentive, right? So I’ll give you an example, the R&D credit. The R&D credit does not only mean if you have like lab coats and scientists working in your business. It just means that are you creating something from scratch, from scratch overall, which is it can apply to when a company spends money to improve a product or a process or a software or something technical, because when you do that, you’re innovating on something, right?
[00:11:02] And when you innovate on something, there has to be some… There have to be stakes. If you– If there are no stakes, like a drug that a pharmaceutical company does or a innovation that a technology company does, there has to be real stakes in the uncertainty that the business is trying to solve. That’s what the R&D is for.
[00:11:16] Now, if the work qualifies, the credit may re- dramatically reduce your tax bill more than the normal deduction. So you could actually say, “Hey, I spent a million dollars in R&D,” and you may actually be able to take more than a million dollars in credits because you’re– they, they’re incentivizing you for the behavior of developing something that is important for the economy.
[00:11:35] It’s actually pretty cool. So you would hire a firm that would actually investigate how you actually put these R&D credits together, and they would apply for you, and then they would deliver the tax credit to you, which is amazing. So if you were to ask your CPA, I would say something like, “Hey, did we do anything this year that may qualify us for the R&D credit?
[00:11:51] And if we did, what records do we need?” And then they probably will point you to a specialist. Now, if you built software this year, if you’re a software company this year, if you have developed patents this, this year, if you have developed, developed some like cool engineering process this year, if you have built like a chemical this year This is super worthwhile because a lot of times it just sits on our balance sheet as IP, but you don’t realize that the, the government wants to give you the incentive to actually do these things, therefore, you can actually take credits associated with these things, and if you don’t know about it, then you don’t get to reduce your taxable income, right?
[00:12:20] So number one was deductions. Number two was incentives, where the gov- the incentive that the government is rewarding behavior for that it wants more of. And the last part of, like, how to lower your tax bill is timing. Well, what does timing mean? Timing actually decides when your tax is due. And I will tell you, in the tax world, deferring taxes is almost as good as avoiding the taxes.
[00:12:43] So if you could just keep defer– So if I told you, “Hey, you have this hundred thousand dollar taxable. I’m gonna give you a chance to defer it to next year.” You’re like, “Cool, I never paid this year.” And the next year comes around, you’re like, “You know what, Sharan? This hundred thousand dollar, uh, hundred thousand dollar taxable, I’m gonna let you to defer it one more year.”
[00:12:57] And if I kept giving you a chance, it kept deferring your taxes, it’s okay, right? Deferring is almost as good as avoiding, and changing the timing of when the tax is due is a really great strategy in how you think about all of this ’cause it gives you the cash today to make the investments today, to grow your business today, to reap the rewards today so that you can then plan for the taxes tomorrow, right?
[00:13:16] A lot of this is related to, say, a Ten thirty-one exchange. You have a, you have a building that you… has appreciated in value or a piece of real estate. Instead of selling it and paying the tax on it, you actually do a Ten thirty-one like-kind exchange, which means that you roll all the gains from this into the new purchase of the new building.
[00:13:32] And so that purchase continues to grow, and you owe no taxes as long as you continue to keep doing this overall. Now, sure, you don’t get immediate liquidity, but you can do a refi. You can do other things without having to pay the taxes. There’s something called tax loss harvesting, where you can actually reduce your taxes, where you do harvesting today, meaning you take a loss, and you bank a loss that you have, and then you’re able to use a deduction that’s still a deduction, but then maybe you can use it for, you know, later in the future.
[00:13:57] You can do a Roth conversion in low years, right? What you’re doing there is you’re saying, “Hey, I have low income this year. I’m just gonna convert my, you know, taxable income this year and pull the, pull the income forward this year, pay the taxes this year because I’m gonna make more money next year,” right?
[00:14:10] A lot of times, people will just say, “Hey, you know what? I’m going to move my residence to Miami this year so that I don’t… I’m in Florida- I don’t have to pay Florida state taxes, uh, because next year when I sell my business, then I can defer it even more or not pay the state taxes then.” You’re just thinking about timing, right?
[00:14:25] How, how can you manage timing in this overall? So I’ll give you an example for a strategy that a lot of people don’t know of. I call this, it is called the installment sale. So what is an installment sale? An installment sale means, say, you sell an asset, but you receive your payments over time. So let’s say you have a piece of machinery, right?
[00:14:41] And you ha- uh, that cost you a hundred thousand dollars, and someone wanted to buy it from you for two hundred thousand dollars. Uh, I’ll say a hundred and fifty thousand, but you do easy math. So you sold it for a fifty-thousand-dollar profit. Well, but the person that is buying it from you s-says, “Hey, I’ll pay you twenty-five thousand dollars a year for the next X years until this gets paid off.
[00:14:59] Well, the twen- you bought it for a hundred thousand. So the first twenty-five thousand is just a return of capital. The second twenty-five thousand is a return of capital. Third twenty-five thousand is a return of capital. Fourth, twenty-five thousand, return of capital. So for this first four twenty-five thousand dollar payment, you pay no taxes, right?
[00:15:12] So, the fifth twenty-five thousand dollar payment, what happens? You don’t pay the exact gain for the full fifty thousand. You only got a twenty-five thousand dollars worth of profit because the payment’s coming over time, and therefore the tax is also spread when you receive the actual payments. This can…
[00:15:26] This is pretty amazing because you can avoid taking the whole gain in one year. This can be using when you’re selling a business or real estate, machinery, or an appreciated asset, or what have you. You are only taxed in the year that you receive that gain, that you realize that transaction. And so a lot of times what I will end up doing is you can sell– I’ll give you the easiest thing that I’ve seen done.
[00:15:48] Let’s say you’re selling your business in Q4 of a year, in the fourth quarter, like in October, right? You tell them… And say you’re getting ten million dollars for it. You can say, “Hey, I’ll take five million dollars in October, and I’ll take five million dollars in January.” Now, the buyer’s like, “Cool, no problem.”
[00:16:03] Right? That’s, you know, maybe they say, “That’s cool. I only have to come up with five million dollars now.” So they give you five million dollars in October, so you pay taxes on the five million dollars for that calendar year. And the next five million dollars is paid in January, which is now kicked to the next calendar year, which gives you another twelve plus months to work that.
[00:16:18] Now, the tax may be the same, but you’ve deferred the payment of the tax by another twelve months because in the tax world, deference is e- almost exactly the same as temporary avoidance, right? Which is pretty amazing. So the question I would ask your CPA in this case is like, “Hey, if I sell this thing, can we structure it as an installment sale or can we break up the payments into two tax periods?
[00:16:38] And how would that work on my taxes each year?” The reason I’m sharing this with you is if you don’t know, we all spend all this time with like, “Hey, how do I make more money?” But it’s not what you make, it’s what you keep. And m- most people are like, well, and then, and then on December 31st, you’re like, “Well, how do I pay less tax?”
[00:16:52] Well, it doesn’t work like that. You need to understand this framework, and this framework is the tax advantage matrix. Like, it has three levels. The level number one is to reduce the bill. Number two is to design a structure to keep more money in it, and level number three is to transfer the wealth.
[00:17:07] The three things in reducing your bill are deductions, incentives, and timing. So when you do, when you have these pieces, it’s very easy, like when I look at an opportunity, I’m like, all right, do I, am I getting a deduction to reduce my taxable income? Is the government giving me an incentive to do something that actually benefits them, therefore I get a break for it?
[00:17:23] Or timing, can I just move the tax period around so that I don’t do- don’t owe the taxes today? So it feels small, but it can have a dramatic impact on your life and your business, and the amount of money that you take home. Uh, in the next episode, I will start to, I’ll break down the other two levels for you as well, so you can see that.
[00:17:39] But please know you all, we all, all of us, all y’all need the tax advantage matrix because it’s some of the things that are, we’re never taught in school because it’s not what you make, it’s what you keep. Hey, by the way, if you like this, uh, can you do me a favor? Can you screenshot this and tag me? That way I can make more like this for you.
[00:17:55] Please screenshot this and tag me, and I make more like this for you.
[00:18:06] Hey, this is Sharran. I have an awesome free gift for you just for listening to the podcast. As you may know, I’ve got a chance to build two billion-dollar companies the hard way. So if you like this episode, you will love getting the exact playbooks from those wins. It’s on my Substack, called My Next Billion. It has the exact frameworks I wish someone had given me when I was figuring it all out. Now you get the real lessons from the trenches as I go for a three-peat and build the next billion. So everything’s free at mynextbillion.com. Please check it out at mynextbillion.com.