📈 How much do you make #4

• This week we spoke with Jaimin, the founder / CEO of Reconcile Money, a B2B fintech + tax startup

• Makes ~$90K/yr

• Portfolio: ~95% stocks and 5% Crypto

• He’s trying to help investors save $155B/yr in capital gains taxes

What do you do professionally and how much do you make?

I’m the CEO and co-founder of Reconcile. I currently pay myself $90K per year.

How has your income changed over time?

I started my career as an underpaid entry-level consultant at BAH after college. Then I became a founder and didn't pay myself anything for the first two and a half years. After raising funding, I paid myself in tranches and was at a salary of $60K for about a year and a half before increasing it to $90K more recently.

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Can you walk us through your monthly expenses?

My expenses come out to about $3k per month, including rent, groceries, date nights, utilities, and transportation in and out of the city.

I live in Jersey City, which is right outside the city and a bit cheaper than New York. My girlfriend and I do a lot of cheap but enjoyable things together, such as sharing one cocktail and going dancing or visiting free museums. It's nice to have someone who understands, supports, and shares in my founder lifestyle.

Hacking living expenses in NYC

I'm an optimizer with expenses. I scout out the cheapest grocery stores. For example, we found a nice Asian grocery store where they sell groceries for a dollar. It's hacks like that that bring me joy, but it's also part of the struggle you have to commit to when living in a place like New York.

Some grocery stores here are really expensive, like Morton Williams, where they charge $8 for a dozen eggs. It's crazy! I try to go to BJs and Costco as much as I can to stock up and avoid ordering food delivery.

Credit cards, points hacking, & credit scores

When I was a consultant, I used to have like five or six credit cards at a time because we traveled so much. Consultants are always optimizing. Now I've got six cards and I use 2-3 in rotation. I've also got a business credit card from Hyatt that just gave me 60,000 points. I'm planning to use those for a friend's wedding, which is pretty sweet.

I recommend getting into the credit card game. There are some insane deals out there. This Hyatt business card only costs me $200 a year, but with those 60,000 points, I could probably get like $3,000 worth of hotel stays. It's crazy.

I also recommend getting the Chase Sapphire Reserve for a while, then downgrading it if you can't afford the $600 annual fee anymore. All you have to do is call them up and say, "Hey, I can't afford this. Can you downgrade me?" It won't hurt your credit score, and you can still maximize the rewards.

You should never close your credit cards. It could damage your credit, depending on your current credit score. If you're in the 700+ category, it probably won't hurt your score much. But if you're in the lower range, it could hurt your score more because it increases your utilization rate and lowers your current credit limit.

What’s your personal philosophy for how you spend, save, and invest your money?

Never spend more than you have and avoid getting into debt, especially credit card debt. It can become a real burden later in life.

For my own investments, I'm not super aggressive, but I do take some chances here and there because I’m young and can afford to. With retirement accounts, I keep things a bit safer.

That being said, I think it's important to enjoy life and not worry too much about every dollar. Of course, it's important to be responsible and avoid making big financial mistakes that will hurt you in the long run. But if you can comfortably pay for something you really want to do, go ahead and splurge a little! Just don't go into debt over it.

My philosophy for investing is that it’s actually more important to focus on optimizing your earnings potential rather than your investments. For example, I've shifted my focus away from worrying too much about my investments because I'm prioritizing my equity in my startup and before that my consulting work. If you can focus on building a strong career now, that will pay off more in the long run than obsessing over investments when your earnings are lower.

To summarize, my advice for young people is:

• Be responsible with your money

• but don't be afraid to enjoy life a little

• and focus on building a strong career to optimize your earnings potential in the long run.

Can you walk us through your current asset allocation?

95% of my investments are in stocks and 5% in crypto.

During the bull market, it was about 75/25, but now the market is down and I'm generally much less bullish on crypto.

My savings aren’t much right now because I'm a founder. What I do save, I don't put into traditional savings accounts. It's not an effective use of your money. Instead, as long as you can invest in a liquid asset like Apple stock or a high-yield treasury fund, you might as well keep your money there because it can be easily liquidated if needed. Getting a 1% return on your money is not worth it, and even 5% is not that great.

What stocks do you invest in?

I mainly invest in Fintech stocks and other tech stocks that I'm familiar with. Some stocks I’ve loved recently are Marqeta and Square. I believe in backing companies with great talent and founders who will figure things out in the long run.

Lately, I've also been moving towards a more conservative approach, investing in lasting cash flow and profitable businesses like Home Depot and Costco. At the same time, I also invest in undervalued fintech companies where I see potential for growth.

Stock Picking vs ETFs

I prefer to pick my own stocks rather than passively investing through ETFs, particularly when it comes to things I know like fintech and tech companies. I have invested in ETFs before, particularly in fields I am less knowledgeable about, such as cybersecurity.

Why are you bearish on crypto?

The arguments for investing in crypto are often made by people with existing financial interests in crypto, which can make them biased. The idea of moving away from fiat money and towards crypto is also not very practical, as central bankers have played a significant role in creating wealth in the past decade.

Additionally, the market for some cryptocurrencies, like Doge Coin, can be propped up by unknown entities, such as the CCP or North Korea, making it unclear who is really driving the market.

With the government's ability to regulate and control the market, it's hard to see the upside in investing in crypto beyond some sort of sudden hype. For me, it makes more sense to invest in the S&P during a bull market since the returns are likely to be similar, and the risks are better understood.

Taxes

How do you optimize your taxes?

For my own portfolio, I use the B2C Reconcile app that we built out in a previous GTM iteration to help me manage my investments and minimize taxes. Additionally, I take advantage of tax-advantaged accounts like 401ks, IRAs, and HSAs to decrease taxable income and potentially qualify for credits.

What are your tax recs for normal people?

Everyone should be taking advantage of retirement accounts like IRAs & 401ks. Make sure you understand the differences between a regular IRA and a Roth IRA, to determine which one is best for you. Take advantage of tax-advantaged accounts, such as HSA or FSA, to decrease your taxable income. Additionally, it's important to see if you qualify for any tax credits.

All of this stuff is basically free money. So it's important to make sure you’re taking advantage of it.

Tax Optimization for Investments

There are two main things that I would suggest to everyone in the world.

1. The first is to avoid selling a stock when it’s still a short-term holding if you live in a high-tax state. If you hold a stock for longer than a year, it becomes a long-term holding, which means you will pay less tax on it. The difference in tax rates between short-term and long-term holdings can be significant, and if you're a high earner, it could save you a lot of money.

2. The second thing is to use specific identification when you sell stocks. Brokerages like Robinhood and Public don't allow you to choose which tax lot you want to sell, which means you don't know which lot they're selling or what your gain and losses will be after the trade. This could result in a large tax hit that you don't need. By using specific identification, you can choose which lots to sell and minimize the gains you're realizing, which could save you a lot of money. Traditional apps like TD and Fidelity allow you to choose which tax lot to sell, making it a powerful tool for tax-loss harvesting. When you hit the "specify shares" field, you can choose the lots you want to sell, including the quantities. Using specific identification could make a significant difference in your tax bill.

Another thing I’ll mention is that for any form of tax loss harvesting, you have to do it during the year that you’ll file taxes. You can’t wait till tax season. By then, it’s too late. So if I wanted to tax loss harvest for 2022, I would have needed to take care of that by Dec 31st. I can’t wait until February 2023 when I’m thinking about filing my taxes.

When should someone get an accountant instead of doing their taxes themselves?

Anytime you move out of the standard W-2 and 1099 space, you should start considering getting an accountant. This is especially true if you're running a business, where there are a lot more complexities involved.

For someone who is not yet rich or a high earner, TurboTax may be sufficient for filing taxes.

However, if you have other financial activities like donating to charity, setting up a Donor Advised Fund, or receiving stock options, it's worth seeking the help of an advisor or accountant to ensure that you're optimizing your tax situation and taking advantage of all available deductions and credits.

Estate planning

I think estate planning is crucial, especially for those with significant assets.

Setting up a will is simple, easy, and cost-effective with tools like Trust & Will. It’ll ensure your assets are distributed according to your wishes, rather than being subject to probate court and potentially losing up to 30% of your assets in fees and taxes.

A trust may also be a useful tool for some individuals, depending on their specific circumstances. You shouldn’t procrastinate because you never know what might happen. The cost of setting up a will or trust is low compared to the potential losses without one, so there's really no excuse not to do it.

What is QSBS? Can you explain why it’s valuable for startup founders and investors?

I love QSBS. QSBS is a tax incentive for founders and investors in certain types of companies that meet specific criteria. If you hold QSBS for at least five years, you can potentially exclude up to $10 million or 10 times your investment (whichever is greater) in capital gains from your taxes.

Crypto Taxes

The two things I recommend for crypto taxes are:

1. File, because the IRS will catch up to you at some point if you don’t.

2. If you have a lot of transactions, meaning more than 100 and you’ve made gains or losses in the thousands, it's worth using an accountant. They can re-evaluate which filing method you should use. For example, you might want to use Specific ID but different software that they use might help you understand whether you should use FIFO or LIFO to get the best tax-advantaged number. If you don't track those yourself, you may or may not get a good number. A lot of the popular crypto tax tools will give you a number that looks good, but it's not really legitimate because they haven't managed the cost basis properly. You might file something with the IRS incorrectly and then down the road have to pay a penalty or a re-filing fee. So, I would recommend using an accountant to make sure everything is done correctly.

How common is it for the IRS to come after people for previous year’s tax returns?

The IRS has systems in place. Oftentimes, because they receive the 1099 forms, they can quickly detect when something seems off and flag it for an auditor.

As for who gets audited, it's hard to say. Typically, higher-income individuals and high-volume businesses are more likely to be audited, simply because there are more resources available to audit them. However, the IRS is planning to hire more auditing agents, so we'll have to see how that affects things.

That being said, I wouldn't recommend taking any chances with your taxes. Even if you haven't been audited in three years, the statute of limitations doesn't apply if the IRS can prove you've fraudulently filed your taxes. So, if you think you might become wealthy in the future, it's best to be upfront and honest with your taxes now, rather than risk waking up one morning in the future with an IRS notice for unpaid taxes.

What’s the most obscure tax hack you’ve ever encountered?

I find esoteric business tax strategies to be fascinating. An example I love is what Amazon, Walmart, and others did during the tariff war.

They would receive products from China like refrigerators or dishwashers, purposely ship them to Mexico, take the full piece and deconstruct it, and ship the pieces across the border. They would then reassemble the product just outside the US border and sell it there to avoid a tariff from China. This way, they could claim that the product was made in the US and avoid the tariff on fully finished products imported from China.

Financial Stack

• Bank of America for banking

• Mostly use Chase United Quest, Marriott Bonvoy Rewards. I also have Discover, United Explorer, and the Chase Freedom card that I don’t use but did before for rewards.

• Brex for main spending, Hyatt for rewards, and Amex Business, which I don’t really use much anymore. I have a bunch of airline credit cards too

• For brokerages, I use Robinhood a little bit, but I'm trying to get off of it and move more money into TD Ameritrade for tax optimization. They make it easier to track your basis when trading stocks.

• Coinbase and Metamask for crypto, but not anymore.

• And I use Fidelity for my brother's account that I manage.

• I use Novo for my company’s banking

• I use Vanguard for my Roth IRA.

Content Recs

• For tax tips, I curate a lot tax content on my personal Twitter.

• For finance news alerts, follow Walter Bloomberg on Twitter.

• Highly recommend the book How to Make Money in Stocks by William O'Neil, founder of Investor's Business Daily. It provides great insights on technical and fundamental analysis.

• Other books like Zero to One or The Hard Thing About Hard Things are also great reads.

• I also spend about 30 minutes a day on Yahoo Finance and other market news sources to keep up with market trends.

• If you're interested in stock picking, searching for the dollar sign and symbol on Twitter can show you what smart people are saying about a particular company.

Can you share more about your company Reconcile Money?

We are a B2B tax API provider that specializes in tax planning technology for brokerages, wealth platforms, and other financial institutions. Our API helps these businesses seamlessly integrate tax planning features into their apps, allowing retail investors to see their tax liability in real-time and receive tips on how to optimize their taxes. In the near future, we will also enable users to pay their taxes directly through the app.

If you want to stay up to date with what we’re building, follow me on Twitter. I post frequent updates about what we’re doing as well as a bunch of tax tips.

What’s the vision you’re trying to achieve with Reconcile?

We want to help people capture the tax savings that they’re currently missing. There’s actually a huge amount of tax savings to be had.

In 2020, investors realized about $1 trillion in long-term capital gains and $20 billion in short-term capital gains. There were about $155 billion in short-term capital losses that were not captured.

If we can bring down those numbers by even 10%, that’s $120B in value that we can return to investors.

If you're in a 40% tax bracket between state and federal taxes, I firmly believe we can help you save 40 cents on the dollar for every investment you make. That would be an amazing achievement. That money, compounded annually, can really add up over time.

What’s your personal financial goal? Do you have a number you’re trying to achieve?

While I want to create personal wealth, for me, it's not about a specific number but rather an effort-based approach to building a successful business and life that I love.

What does life look like for you if you’re financially successful with Reconcile?

Great question! If I successfully set up all the trusts and have tax-free money 10+ years from now, I would like to pursue my passion for fashion and art.

I have this pipe dream of building out a sort of Walt Disney World that would blend history, culture, fashion, and art. Visitors would be able to walk into different rooms that are curated to showcase different time periods and cultural elements, with an immersive experience that incorporates music and other elements.

My goal is to create a place where people can learn about history and culture while also appreciating the beauty of art and fashion. I believe that it's important to preserve and celebrate our cultural heritage, and I hope that this project would help to do just that.

Lessons Learned

To keep it short, I have three pieces of advice for you.

1. Optimize your 20s for growth and career by building a compensation base of at least 200k. That way, you can take risks and experiment, knowing that you have a solid financial foundation.

2. Don't let the days go by without enjoying them. Go out and learn what you like and don't like, and put yourself in a massive learning environment. This is a unique time in your life, and you won't get it back.

3. Never say no to a concert. Always go, no matter how much it costs. Concerts are a great time, and you never know when that performance will come around again. I've always regretted not going to concerts, so take the chance while you can.

Disclosure: the content contained herein is not financial, tax, or investment advice.

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