(stately music)
- [Toby] Hey guys, this
is Today Mathis and--
- Jeff Webb.
- And this is Tax Tuesdays,
bringing tax knowledge to the masses.
So, happy Tuesday to everybody,
I hope you guys are having
a great one out there
and having some fun in the sun.
It's only about 110
degrees here in Lost Wages.
Today, well, we got a
whole bunch of fun stuff.
We put on a ton of questions,
so we're gonna have our
work cut out for us today.
So we got our work boots on,
so we're gonna dive right in.
Number one, just as a reminder,
you can always follow us on social media,
in fact, please do like us
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are constantly putting out content
and we love it to be used, so
share it with your friends.
Tax Tuesday rules, ask
live and we'll answer
before the end of the webinar.
Send to questions to
TaxTuesday@AndersonAdvisors.com,
that is where we are
grabbing the questions
that we make part of the event,
we're always looking for good questions
and we're grabbing 'em.
If you need a detailed response
that's very specific to you,
you will need to become a
Platinum or a tax client,
so we need you to be actually a client
if we're giving you specific advice.
If you just ask general questions,
just do it during Tax Tuesday
or via the TaxTuesday@AndersonAdvisors.com
and we'll just get your response.
This is fast, fun and educational,
we wanna give back and help
educate taxes as well as areas
where it's our biggest
expense as an American,
even more than housing and
food and clothes combined.
So if we can do something
to help bring down
some of the unneeded
expense, taxes overpaid
with the tune of about a
billion dollars a year.
We're not hurting the country by doing it,
we're keeping it in your pocket.
And frankly, it's better
off for the country
if you keep it 'cause you're
able to use it to make money,
especially if you're a good investor.
All right, let's jump
in, opening questions,
these are the questions
we'll be answering today.
"I am 21, in college and work
for my parents' corporation."
So, way to go!
"How can I maximize tax-wise strategies
"to help with retirement and college?"
Wow, I like that, someone's smart,
so we're gonna go over that.
"How many stock/option trades
must one make in a year
"to be considered a
professional trader by the IRS?"
"Is Tax Turbo comparable to using a CPA?"
Well, it's TurboTax and we'll answer that.
"How can I pay my daughter,
who works for the corporation,
"a salary to help her buying
her own rental property?"
We'll answer that.
"I am currently in an
employer contributing 401k."
So your employer plan.
"Can I still start a self-directed 401K
"to use for investing in real estate?"
Yeah, we'll talk about that.
And, "Does a leasing real
estate subsidiary LLC,
"pass-through, have to
pay self-employment tax
"or will its holding
company pay the taxes?"
So, that's gonna beg a larger question
which we will get to as well.
"How can I set up bank accounts for LLCs
"and have funds flow to the holding corp?
"How do I report the
income for tax purposes?"
Well, we will go over that with ya.
"I am a subcontractor,
"do I need a corporation
to protect myself?"
So, we'll go over that.
"I own rental property as an individual.
"How could I deduct interest
expense on this property?"
I know Jeff is going to want to
dive all over that one for you.
"Can you explain the
depreciation recapture
"for a property that
was never depreciated?"
(exhales)
Yes, we will.
"What is the best structure
to protect against the IRS
"piercing the veil and
establishing a lien on funds?"
We will dive into that.
"Have a large amount of capital losses.
"Are there any creative
ways to reclaim these losses
"faster than the $3,000 a year standard?"
So, if you have some capital
losses, we'll go over that.
"I'm currently buying properties
in Arkansas with an LLC.
"Should I register as a foreign entity?
"Are there better incentives by doing so?"
So we'll go over that.
And then, "I have a C-corporation,
"can I deduct longterm care
premiums as an expense?"
We will--
- That's a lot of questions.
- [Toby] Well, we're not done yet.
I told Sue in our
marketing, I said, "Hey,"
I said, "You called this the
Super Massive Tax Tuesday,
"it's 'cause we got so many questions."
But don't worry, I'm gonna
talk fast, we'll make it go.
All right, "What's the rule for claiming
"meal and entertainment?
"Is it always 50%?
"So, for example,
"can I take my real
estate broker to lunch?"
No, what you should do, let
me just take this right out
and you're gonna say attorney to lunch.
(Jeff laughs)
"Do I need to pay taxes for my new corp
"if I have not generated income yet?"
So, we'll go over all those.
So let's just dive right on in
'cause we have a lot to go through guys.
And we are going to have
to keep on task today
'cause we have so many questions.
It's always fun that way.
All right, "I am 21, in college
"and work for my parents' corporation.
"How can I maximize tax-wise strategies
"to help with retirement and college?"
Wow, you're already doing it.
You are a rockstar in my world.
So, here's what you do, first off,
if you're at a corporation,
your parents' corporation,
they need to make sure they
have an accountable plan.
Which means they reimburse anything
that benefits the corporation,
they reimburse those expenses.
So that's number one,
make sure you're getting tax free money.
And the way it works is
with an accountable plan,
you pay nothing, nothing
on the money you receive
for things like your
cellphone, your computer,
anything you're using for that business.
So, internet, mileage,
anything that you're doing
that benefits the company
can now reimburse you.
So, that's first off.
Number two, you're 21, in
college and you're working,
you would just file your own tax return
and the first $12,000 you
receive is not subject to,
it's called the standard deduction,
it is not subject to any taxation.
It is a standard deduction,
it's tax-free for federal
income tax purposes.
Most states follow that and the only thing
you'd have to worry
about is social security.
- [Jeff] Right.
- [Toby] So if you're
getting payday salary,
they're already taking that out
and that's the only you'd pay
which is holidays, death
and survivors and Medicare.
That is a fantastic way to
get money to pay for college.
If somebody else paid for
college for you, for example,
if your parents paid for it,
it's coming out of their tax bracket.
So let's just say,
I just had my daughter go through college,
she graduated last year, a
lot of you guys know that.
And I always said, "Hey, instead of me
"paying for your tuition,
how about we set something up
"and you make money, even
if it's from my company?
"Like even if I'm paying it
and you pay for your tuition."
It saves thousands of dollars
in taxes, it's massive.
So, just by saying that you work
for your parents'
corporation, that's the key.
Then it's getting all
the benefit out of it,
letting the corporation
pay you back for anything
that you're using for that corporation.
An administrative office,
even if it's in your dorm,
would still work, as long as it's an area
that you're using for
the business exclusively.
There are ways to get you money.
If you're not living in a dorm
but you're living in a house,
it's even easier.
If you have like a two bedroom apartment
and one of 'em's a bedroom
that's being dedicated to the
business, that's even better.
Then you can write off
literally half of everything.
But it's a lot of fun, let's see.
I'm looking at a lot of questions,
let's see if any one pertain to this.
Guys, I wanna answer your questions today
but sometimes, whoops, it's not dragging.
But, all right, I'm just gonna
get mad at the go to meeting.
But sometimes they're
not relevant to this,
so I'm looking at some statute
limitations and some things.
All right, so let's see,
"How can I write off
"current college tuition expenses
"of my children through my existing LLC?"
So, first off, an LLC
is not a tax category,
so a lot of you guys hear me say that.
And what it means is, an LLC,
we gotta figure out how that's taxed.
So if it's taxed as an S-corp or C-corp,
then they way you do it is
you reimburse them expenses
and you pay them a salary if you have to.
So, it works out great, it's
taxes and S-corp perfect.
So, Craig, you wanna make sure
you have an accountable plan
and then you wanna make
sure you're reimbursing them
from everything from their
cellphone, to their computers,
as long as it's being
used in the business.
And if you're gonna pay them,
pay them out of that company,
pay them a salary.
If you don't wanna do withholding,
there's a little work around
which is to have one spouse,
if there's two spouses, so I'm
assuming that you're married
but if you're not, then
you just have to go
right to the salary or the wages.
But, and that's married,
so if you're married,
then what you do is you
have your wife, for example,
work as a contractor for the company,
pay her as a sole proprietor.
Sounds weird, but you're
gonna zero this thing out
and then have her pay the kids.
The trick is that they
actually have to do work
for the S-corp, so don't think
this is just all freebie,
they actually have to do something.
So what do is you have them do,
sometimes it's marketing,
sometimes with kids,
it's really great to
use 'em for social media
'cause they actually understand it
and a lot of times, we don't.
And you literally just pay them.
So, for example, if you have two,
I think it said you have two children,
then they would each be able
to do their own tax return
and they would each be able
to get $12,000 tax-free.
And on top of that,
you'd be able to get their reimbursements
for things like your cellphone
and everything from the
medical, dental, vision.
Well, actually, with the S-corp,
we're gonna have a little issue with that,
we're not gonna do that.
But you'd be able to get them the things
like your computers and your internet
and things like that that
are used for the business.
- [Jeff] Yeah, actually
deducting the tuition
is very difficult through an entity,
especially if it's a related person.
There are a couple ways to do it
but even the most lenient
way is going to require
to be a working condition
fringe benefit that is
closely connected to the business
and what that person does.
But they don't make it easy
to reimburse for education.
- [Toby] Well, but what you
do is you get tax-free money
out of it then you use it for education.
- [Jeff] Yeah.
- [Toby] So I don't care
about writing off education
as much as I care about
getting tax-free money for it.
Some other ones, Patty, if
you could grab that, Bob,
looks like he's looking for a QRP.
Do-do-do-do-do-do.
Nice to see you and it was
great seeing you this weekend
and they're very good.
All right, so let's jump onto another one.
Ah, there's gonna be so
many to go through, whoops.
There we go, all right, so,
we're gonna jump into stock/options
if I can get my act together here.
All right, "How many stock/option trades
"must one make in a year to be considered
"a professional trader by the IRS?"
Very interesting question.
So, the answer is,
you wanna say it?
- [Jeff] Well, the activity
has to be regular and frequent.
So we're talking everyday
you need to be trading
or almost everyday.
- [Toby] Yeah, so the IRS,
first off, there's no such thing
as a trader in the Internal Revenue Code,
they'd have to find it.
So somebody started calling
people a trader and they said,
"Basically, my activities
in stocks and options
"rise to the level of its my
primary source of business
"and I qualify as a business.
"But unlike other businesses
"where you actually have a test."
These guys just say,
"Hey, it has to be frequent,
regular and continuous
"and you need to be doing the daily swings
"and how do we get there?
"We go to the courts and we
try to figure this thing out."
- [Jeff] So they're gonna be looking
at the individual on trades.
Like Toby said, you're looking
for the short turn swings
if you're a trader, these
are not longterm holdings.
As a matter of fact, a
person can be a trader
for some securities and
investor for other securities.
- [Toby] Mm-hm.
There is an answer though, this is weird.
If it's your primary source of income,
the IRS has come out and
said 720 trades is enough.
But there's been people
that it did not qualify
with over 1,500 trades, we're
talking round trips here.
So, it's a lot more activity
than what you might be
thinking, it's a lot of trades.
- [Jeff] Right, one of the
big things they look at is
what your purpose is in trading,
what you're actually seeking
to do with each trade.
- [Toby] What we know is that
from a number of the cases
is if you have a W2 job,
it's probably not gonna happen for you.
But then you work around
it, so the work around,
it goes like this and I'm just
gonna do this really quick
because, again, we have so many questions.
The work around is, here we go.
You put your trading account,
so I'm just gonna use a dollar sign,
so pretend that's a brokerage account.
This needs to be a partnership.
So, if you've heard me talk about this
for many, many sessions, you heard me say,
"It can be an LLC taxed as a partnership."
That's more than likely what we're doing.
The easiest thing to do then
is to hang a corporation
and this would be a C-corp as its manager.
Now, we're doing this for two reasons.
Number one, we're gonna
capture all of our expenses
right here at the corporate level
and we don't have a problem with that.
A corporation that's set
up as a management company
is immediately in business
as soon as it has a management agreement.
Partnership agreements and
LLCs require a manager.
So any LLC, you have decide
whether to be managed
by members or managed by a manager.
You're just gonna say, hey,
it's managed by a manager.
So we actually want that
corporation to be a partner.
It's gonna receive a K1,
but it's also gonna receive
something called guaranteed
payments department.
You want it to actually be receiving that.
And the reason being is
because Schedule A expenses are gone.
I'm not gonna get into
the technicality of it,
but if you pay a third party
to manage your trading account,
you cannot deduct it.
Some people are gonna say that's not true,
it used to not be true,
the Tax Cut and Jobs Act
eliminated it completely,
so it's no longer a
miscellaneous itemized deduction
because there are no longer miscellaneous
itemized deductions, that's gone.
So this is the only,
this is the game in town.
You could potentially put the corporation
or put the trading account
inside the corporation
'cause corporations are businesses
just when you set 'em up
but you're gonna be doing
one of those two things.
And frankly, if it's
an account of any size,
you're using the C-corp,
the reason being is that
when you're a trader.
See, if I can actually put it in there.
You're filing your expenses on Schedule C,
and your gain is on Schedule D,
so you'll have zero income
showing up on Schedule C.
That kicks you out and
makes the IRS hate you
and the IRS likes to audit.
So some people said, "Hey,
would futures fall under that?"
Yeah, futures, any sort of
trading, any sort of securities.
And if you're under a
C-corp, you're golden.
Just know that when the money's made,
it's not longterm gains
or short term gains,
it's just income to the corporation.
That's not a problem,
you're usually using it to grab expenses.
- [Jeff] Now we also have
the Mark-to-Market Election.
- [Toby] That's a big one on trader.
I think you're required
to do the Mark-to-Market.
- [Jeff] And I think at that
point your gains and losses
also switch over to the Schedule C.
- [Toby] M-O, oh, Mark-to-Market, M-O-M.
- [Jeff] Which basically says every year
you're recognizing gains and losses.
- [Toby] Yep, and here's the thing,
so Mark-to-Market, it in a nutshell.
You treat everything you
have as they are liquidated
on the last day of the year.
But here's the problem, it's
gonna date us a little bit.
Do you remember Qualcomm?
- [Jeff] Yep.
- [Toby] There was a year
where Qualcomm went up
like 600 bucks, very end of the year.
I mean, it was a, it was
going up 30 bucks a day,
it was crazy, I had leaps on
it, I thought I was a genius.
There was days where you'd
make a couple 100,000,
and you think, like, ah, this is easy,
why didn't everybody do this?
And then you learn the lesson of
why doesn't everybody do this?
'Cause the market beats the hell outta you
every time you think you're smart.
So, what Mark-to-Market does is treats it
as though you sold it,
even though you didn't.
And so, then, Qualcomm takes
its dive and this is the reason
that I never tell people to do trader.
You have to really,
you'd have to force me
to make you a trader.
It's because I got to watch people
who could not sell the stock
and get enough money to cover
the tax bill that came due.
In other words, they treated it as though
it was sold on December 31st
and then it took a nosedive.
And that's all lost that
you can't write off.
The gain was in the previous year,
the loss is now in the year
that you're selling it.
And even though you
never sold those stocks,
you have to pay the
gain as though you did.
Let's say you had $600 in a
share and owe 200 bucks of it
and then come March or whatever it is,
that stock is worth 200
bucks when you're selling it,
hopefully just to pay the tax bill.
There nothing you can do
about it, you have to.
And then if it creates a loss,
you can't write off that loss,
you only get to take $3,000 a year,
so we saw people just get torn up.
Yeah, Cher, you're right, says,
"Mark-to-Market is the
worst thing you can do
"and it's really only for
people that are losing money,
"not making money."
Amen, that's exactly right.
So I just don't do it.
So, if you forced us to, then we'll do it
but we'll probably be giving you
a big ole disclaimer saying
there's a better way.
- [Jeff] Yeah.
- [Toby] Yeah, isn't that fun?
"If I used my C-corp as
the manager for my flips,"
Okay, so, "Can I also trade
within that same company
"or does that complicate up things?"
Cam, I would not, either C-corp,
you wouldn't necessarily trade in,
you could have it manage
another partnership.
So, in my little picture here,
you would just create one of these.
And even though this is C-corp
is managing another LLC,
it's okay, we don't care,
we're just using that C-corp.
Because we wanna create
a management entity
and we wanna be able to write things off
or we wanna get all of our
expenses created into one thing.
Let's see, "Is there a way
to structure my business
"so that I'm able to write
off business expenses
"against the interest payments received?"
Debra, it's interesting you say that
because that could be that same entity.
Whenever you have income coming in,
you could have a rental LLC,
so I'm just gonna say rents.
You could have an interest LLC,
that's where you're loaning money
and all of those can be
managed by a corporation.
- [Jeff] And going back
to what you were saying
about the corporation, being
a partner and receiving a K1.
This corporation is also
a very small partner in the partnership,
so it's not seen a lot of
portfolio and income coming across
but mainly those guaranteed payments
for managing of ownership.
- [Toby] Yep, spoken like
a true accountant, love it.
All right, so then, somebody says,
"Well, hey, could the C-corporation
"have a different year end?"
Yeah, Jimmy, and so, quite often,
we make this guy a
different year end than you,
so that if we get to the end of the year,
we need to push the
money in the next year,
we don't wanna pay taxes
on it now, we can do it.
- [Jeff] Yep.
- [Toby] And for those of
you guys we lost, it's okay,
you'll get it, we teach classes on this.
Yeah, so, some of you guys already get it,
you're already there, if not,
I may give you guys some offers.
Come and get some education,
make it really painless
and so much fun 'cause
taxes should be fun.
Like once you start realizing
you're putting money in your pocket,
you'll get jazzed about it.
All right, somebody says that,
"If the LLC is an LLC
and not a partnership,
"how does that work?"
All LLCs are not a taxed designation,
so we have to know how that LLC is taxed.
So, an LLC can be taxed
as a disregarded entity
which means it's ignored,
it can be taxed as a
partnership, S-corp, C-corp.
Literally, it doesn't exist to the IRS.
They just say, hey, how do
you want us to treat it?
So, it's perfect, so disregard it then,
then we might wanna change that.
So it you have an LLC,
that's disregarded flowing down to you
and you wanna write off
expenses to that corporation,
so I go back to this.
Then we would just need
to give that corporation
a little bit of the interest,
maybe 1%, 2% or whatever
and change this so we can do that easy.
Can you do that?
You can still do that.
- Oh, absolutely, yeah.
We just don't want to be
paying management fees
at a corporation if
they're not a partner--
- [Toby] Yeah, it has to be a
guaranteed payment department.
All right, so, this is a fun one
'cause I wouldn't even known
that if it was backwards
but this is literally from a client.
So, somebody sent me this saying,
"Is Tax Turbo comparable to using a CPA?"
So, just to make Jeff
happy, is AKA TurboTax.
"Comparable to using a CPA?"
So, the answer is no.
But just, I know, Tax Turbo.
Hey, gotta make fun of
people a little bit.
All right, so the reason why
and I'll just show you a couple things.
So, first off, this is a life lesson
that you could tell anybody
that you want to harass
but if you teach this to
your kids and they get it,
then you just did it
yourself a huge favor.
Poor people tend to focus on price,
rich people tend to focus on value.
So, I could pay a hundred
dollars to get my return done
but it cost me 10,000.
Nah, price was low, value not so good.
Or I could $10,000 to somebody
but it saves $100,000.
It's quite literally,
what, 1,000% higher price
but the value is even more.
So, that's the way I work.
But we wanna see if that's
actually the case with TurboTax,
so I just pull up their
little complaint board,
just 'cause it's fun.
Go on the internet, type
in TurboTax complaints
and there's a big thing and
you can kinda see the problem
with using computer programs.
When you complain to it,
it doesn't do anything.
So you can see there was 183 complaints,
had a zero rating, got a
one star on 183 reviews.
The reason being is 'cause,
well, it's not really
gonna respond to you,
so, that's it, so, and people get mad.
Because frankly, it's not your accountant
but better than that,
I actually found a newspaper article
somebody wrote on this and I
thought it was pretty funny.
Somebody says, "You can't
put a price on on Scott."
Yes, yes, we can.
No, I'm just kidding.
So here's TurboTax, they
actually did a whole bunch
and I'm just grabbing the highlights.
So they give the same set of facts
to a bunch of different
people, the cost for TurboTax
and for online and business was $111.90.
Tax refund they got back was
34.91, so the total savings,
we subtract those, you got $3,379.10.
Not gonna read all this stuff
but it said, hey, that's cool.
Then they went to their
neighborhood account
and the neighborhood accountant
said, "Hey, it's 400 bucks."
And they said, "Hey,
that seems really high
"'cause I can get it done
"for a hundred bucks from my software."
But then let's take a
look at the total savings.
The total savings after paying
400 bucks to the accountant was $3,431
and there it is, TurboTax was $3,379.
So, I know what you were
saying, Robert says,
"Hey, your tax refund is not a saving."
No, it's what you get back.
So I gave money to get something done,
so all we're doing is
comparing the total amount
that I actually received, get to keep.
So if I paid $111 and I
get a refund for 34.91,
the total amount of all that
money I get to keep is $3,379.
You have a tax obligation.
And yes, you can add questions here,
so, Robert, you can ask questions.
So the cost for the
accountant was 400 bucks
but you got a larger refund.
Chances are because
they're looking for things,
it's not as easy as just
using a computer program,
so it's basically the same thing.
And so, somebody says, "I
would get the same money back,
"if Anderson did the return."
Yeah, what we're talking
about is the accountant.
So, and the answer is no,
actually, on the newspaper article.
You can just Google this stuff yourself.
They were looking at the
actual tax refunds back
and it's undeniable.
When you're doing the
free systems and frankly,
the things that I have
problems with are H&R Block
and TurboTax have an
agreement with Intuit,
have an agreement with the government,
60% of the returns are
supposed to be free.
60% of the returns done
in the United States
are supposed to fall under the free.
but they're not letting
you do it for free,
they're charging you.
And this was something
that was just in congress
and they renewed this
agreement to these guys
even though they found that
they were hiding the free system.
In other words, they're trying
to charge you even though
it's supposed to be free.
So, for somebody who's
doing a free return,
it's probably not gonna do too much
for you to use an accountant.
For somebody doing a return
that has any bit of complexity
and that would be investors,
anybody with a Schedule E, D
or C, do not use tax software.
It does not know what to ask you
and what it's asking you is conclusions
but there are three or four
ways to get to a conclusion,
it's not asking about that,
that's why you use a CPA.
The other reason you use a CPA is
'cause you can blame them for stuff.
And I say that, not in just,
it's that if you have penalties,
you ever find you have penalties
and you did it yourself,
you're not getting out of that penalty.
You have penalties and you
relied on a tax professional,
that is a reason to
get out of the penalty.
So, I'm just gonna tell you guys, again,
there's people that look at dollars
and there's people that look
at, at the end of the day,
we're all looking at dollars.
But there's some people that look at price
and not on the total
value, that's all it is.
And to the answer to somebody,
"Are all the Anderson people CPAs?"
No, we have EAs, CPAs and accountants.
CPAs are a state designation,
EAs is a federal designation,
accountant is a degree.
There's about 80% of
the preparers out there
are non-licensed preparers,
non-credentialed preparers.
And what we keep finding
in the Government Accountability Office,
I actually did a study on this.
It's gon' freak you out,
they did a study on the chain preparers
and they gave 'em a set of facts.
Do you know what the accuracy
rate for chain preparers was?
I should actually make this a question,
I should have done this, this is fun,
'cause everybody guesses wrong.
But the chain preparers, the accuracy rate
on business returns was a
whopping, let me write it up
so you won't you have to think about this.
0%, chain preparers.
So, that was the Government
Accountability Office.
It's crazy, so, I just look at it and say,
"Hey, if I want it done wrong,
I can go to a chain preparer,
"if I wanna do it myself,
"hey, I could probably do a better job
"than just having somebody doesn't know
"what they're doing, do it.
"But if I want it done right,
"then I'm gonna have a
much greater likelihood
"that I'm gonna get it done
if I'm using a professional."
Now, that said, use a professional
who actually knows your industry
because it's way different.
If I am a dentist,
I wanna use professionals
that work with businesses.
If I am a real estate investor,
I wanna work with professionals
that actually do investment.
Because same office did studies
on small accountants too,
then when it came to Schedule Es and Cs,
it was still about, it was
like a 4% accuracy rate.
It's really complicated
stuff, I wish it was easy
but there's a hundred
ways to do something.
And so, getting to the right answer
just means you have to deal with somebody
who actually done it a few thousand times.
- [Jeff] Yeah, several years ago,
the IRS actually wanted to test preparers
who were not CPAs, EAs or attorneys.
And it was, like you said,
the chains and the
independent accountants,
tax preparers who pushed
so hard against it
and that finally got thrown out.
But the plan was to
make sure that preparers
knew what they were doing,
so, be careful out there.
- [Toby] Yeah, and this
is what's interesting.
This is what's interesting,
if you, like with us,
we just in most of cases,
you're just checking off on
some, or defending the audit,
you wanna have someone
that can actually defend.
If you are dealing with
a lot of preparers,
they're not licensed to do
anything in front of the IRS,
they can't defend you
even if they wanted to,
even if they were really cool.
The other thing is the PTIN test,
the ones that are actually PTIN,
they actually tried to do a two day exam
and they got beat in federal court.
The court said that the IRS
didn't have the authority
to police examiners or the preparers.
So, chains means H&R Block, yeah,
any chain preparer is the
Liberty's and the Jackson Hewitt's
and all that stuff, I'm not defaming them,
it's a Government
Accountability Office report,
you can go and look at it.
I'm telling you the truth,
there's always a defense.
Although, they don't like
it when we talk about it.
- [Jeff] And I'm shaking
my hand at this guy,
sure you can't see that.
- [Toby] Yeah, so it's not that
we don't like the chain preparers,
it's just that a lot of people
work for the chain preparers
that shouldn't be doing your return.
'Cause, be honest, part-time help.
All right, somebody said,
"PTIN test, paid tax,
"identification number, paid tax."
What is it?
- Preparer tax identification.
- [Toby] All right,
preparer tax identification.
Yeah, so everybody that does prepares
returns has to have one.
- Yes.
- [Toby] If they're getting paid for it,
the problem that you have
is only four states actually
have any licensing requirement
for paid tax preparers.
I know Oregon is one,
Maryland, think California,
trying to think of what the
other one is, can't remember.
But like almost no states
require any sort of
actual credentials, so it's freaky.
Do you need a CPA?
Da-da-da-da-da. You don't
need a CPA to do your returns.
Now, Jeff here is a
CPA for how many years?
- [Jeff] 28, 29.
- [Toby] 29 years, so he's
been doing it a long time.
So he's gonna always say
you need a CPA, right?
- [Jeff] No, actually, I'm not,
because I work with some very smart people
who are not CPAs and I work with CPAs
that couldn't find their
way out the door, so.
- [Toby] Couldn't find their
butts with both hands, right?
No, that's the thing, CPAs are,
they get us a state designation,
it's not necessarily a
preparer designation.
And do you even go over tax prep during?
- [Jeff] Yes, I'm part of
the CPA exam, it is tax law.
- [Toby] So, there is, if you're an EA,
then you actually are,
it's a federal license
to actually prepare,
to practice in front of the IRS?
Actually, I like EAs quite a bit
and a lot of them,
they're very knowledgeable
but yeah, it always depends.
All I care about is the
experience of the person
who's making the ultimate decision,
I don't even care who prepares my return,
I care who looks at it and tells
me whether it's done right.
All right, "How can I pay my daughter,
"who works for the corporation,
a salary to help her
"with her buying her own rental property?"
This gets really interesting.
So when you start paying your
kids, here's the fun part.
I would pay them a salary
through the company,
I'd have them work for it.
But since they don't own it,
I'm assuming that they don't own it.
They just have W2 income,
they have some qualify
for literally everything
if you're gonna use credit.
So if you're gonna buy a rental property
and you need a loan,
then you go to the lender
and you ask them what she needs to make
to qualify for certain loans.
So if you wanna buy rental
properties and I would say
always make sure that you have
cash flow rental properties,
factor in the cost of the debt
to make sure that you are,
I use 50% as an expense ratio.
So if I have 500 bucks coming in a month,
I wanna make sure my debt is below that,
I'm not using the gross
amount that I'm receiving.
So, say I'm renting a house
for a thousand dollars a month,
I'm only gonna assume that
I'm gonna be able to keep
$500 of it just 'cause I need to make sure
that I'm doing repairs,
maintenance and we have vacancy,
I need to pay property
managers and things like that
but I would just make sure
that you factor that in.
If your debt is more than
500 bucks, don't do it,
you're going negative.
But you would just ask
them what they need to see
and then you make your
daughter look the way
that they need to see.
And frankly, she could get,
her tax brackets probably
gonna be less than yours
unless she's a thriving
adult, maybe married
or something where the
income's really high.
Otherwise, you just look at it and say,
let's assume it's my
daughter is 21 and I say,
hey, I wanna make sure
she qualifies for a loan.
I'm gonna ask what kind of
salary do they need to see
and for how long, how
long do you look back?
So, it's answers here, somebody asked,
"I have two businesses
in different industries,
"should I get two different CPAs,
"each with experience in the
different industry or one CPA?"
It depends, it really depends on
how big those businesses are.
If they are less than a million bucks,
I'm probably doing one CPA.
If they're both over a
million bucks, then I may say,
hey, I need to have one for each business.
And you could pick one to
do your personal return.
What say you?
- Well, I kinda feel like
you should have all of
your accounting business in one place,
it goes into the tax planning
and certain other planning.
It makes it much harder if
you have multiple CPAs--
- [Toby] What if the businesses
are in different places?
And I don't wanna disagree with you
but if I have a business in Hawaii,
then I might wanna have a local.
If I'm doing over a certain amount,
if I'm over a million bucks,
I'm probably having somebody local there.
- [Jeff] Yeah, I'm thinking
where you're talking about big strategies
and whether it's gonna be
planned for stuff like that.
- [Toby] Agreed 100%, then
you need to have a planner.
But just remember, CPA,
so there's tax prep,
that's actually a really good point.
So you have tax prep and you tax planning,
don't confuse them for each other.
- Right.
- Your preparer should
know your industry, so they're
preparing the right return
and they know how to capture it.
For example, if you're a
real estate professional
and you don't make an aggregation election
which is just a simple
line item on a Schedule E,
it could cost you hundreds
of thousands of dollars.
Knowing to put that one line
on there requires someone
who actually does it.
- Yeah.
- [Toby] That's a preparer issue.
A planner is somebody
who looks at the 10,000
from you and says, if you're
making money over here
and you're making money over here,
here's where you're gonna be personally.
We need to be worried
about qualifying for 199A,
we need to be looking at
whether we're exceeding
our standard deduction
on things for charitable
giving and stuff like that.
We need to be looking
at would it make sense
to qualify as a real estate professional
or should you be looking
at cost segregation,
what other things are,
should we be looking
a defined benefit plan
as opposed to just
standard contribution plan?
You need somebody who understands that,
looking at it from that angle.
Now, that said, you could
still have different preparers
but you really need a good planner.
- [Jeff] And let me add
one more thing is that
if you have a large company or multiple,
especially, multiple, large
companies, at that point,
you need to think about having
good people inside your company.
At that point, you may wanna get a CPA
or somebody at least has
strong full bookkeeper
or knowledge for the different company.
- [Toby] But I will say this
and this isn't really related
to this question at all.
Your bean counter,
no offense, Jeff.
- Whatever.
- [Toby] Your bean counter
should not be writing your checks
and this is gonna trick
out some of you guys.
Every time I see theft,
it's usually 'cause you've
given somebody authority
that has the ability to
manipulate your books
at the end of the day.
So when I say bean counter, it
doesn't mean the accountant,
it means your bookkeeper.
So you always wanna have somebody there
that's able to look over the shoulder
but they shouldn't be able
to change the information,
if you know what I mean.
- Yeah.
- [Toby] So, if I say, oh, you
only made $10,000 this year.
And that's because I've been
feeding the money to myself
on the side because I have
access to the accounts
and they have access to the end numbers.
And you look and you say,
man, I only made 10,000,
I can't believe that and
this doesn't seem right,
boy, that's horrible.
Chances are it's 'cause you gave control
to somebody to give you the final number
that also has the ability
to manipulate that number.
When you have an
accountant, 99% of the time,
they are not having any access
and they're not really
looking at that business
other than from the 10,000 from you.
- [Jeff] Let's talk about
internal control sometime
and what internal control is about is
you can't necessarily
stop all theft and fraud.
- [Toby] Yeah.
- [Jeff] But you don't
have to make it easy.
- [Toby] No, and you
wanna be able to catch it
before it gets out of hand.
- Exactly.
- [Toby] So, I had a very
good friend and he had, again,
that one person that he really trusted
with doing all the books and
had access to the checks.
And $110,000 over two years,
just drained the company
and was completely unaware
because when she would give him the books,
he was like, "Oh, yeah,
okay, that looks good."
But he wasn't going and
looking at the accounts
and making that they tied in.
And that's really what good accountants do
instead of saying,
"All right, let's look
at the balance sheet."
People are gonna say,
why do you need to see the balance sheet?
Why not just the P&L?
Well, I need to see what
whether these things tie in.
When you have profit,
then it should be existing on
that asset sheet somewhere,
let's see where it ties in.
You're gonna watch people get very nervous
if they have bad books or if
you have a bad bookkeeper,
they will not be able to pass that,
you will catch them in about five seconds.
- Right.
- 'Cause it won't tie.
Let's see, segregating
that to Sarbanes-Oxley
or something like that.
It's spelt wrong.
That's pretty smart.
Sarbanes-Oxley is for the Sarbanes-Oxley,
it's corporate governments
and all that stuff.
So, it's a little bit different.
- [Jeff] And I like it so
I'm not gonna talk about it.
(Toby laughs)
- [Toby] Oh my gosh, all right,
"How many rental properties should I own
"before I create my own C-corp?"
This goes back to a previous question.
It's not how many properties,
it's how much are you making?
"My mom wants to move to
Florida but I keep hearing."
Da-da-da-da-da, okay, we'll keep that.
Oh, "My mom wants to move to Florida,
"is keeping a real estate
investment in Texas.
"Should she retain a CPA
based in Texas or Florida
"prepare her annual return?"
For your personal returns, it
might be where she's located.
Although, nowadays, you
could just pick wherever,
it's frankly whatever works for your mom.
And when I was talking about
aggregation on Schedule C,
were you referring to cost segregation?
No, aggregation is the term that you use
for all your rental activities,
your real estate activities.
So an aggregation election
means treat all of my rentals
as one business.
- Right.
- [Toby] That's different
than a cost segregation.
All right, some people are saying,
"Hey, update your slides."
I am, I was just answering some questions
that were coming in off the
internet, so sorry about that.
All right, "I am currently
"in an employer contributing 401K,"
means it's probably an employer match,
they're making contributions
on your behalf.
"Can I still start a
self-directed 401K to use
"for investing and real estate?"
So the answer is--
- Absolutely yes.
- [Toby] Absolutely
shmutely, so you can have
as many 40K's as you want.
I could have three employers, frankly,
all contributing to a 40K on my behalf,
as long as I qualify for it.
Which can be kind of tough to do
for more than two, but you could,
there's no rule preventing it.
Here's the big thing,
you just can't go above
the maximum amount per year
for the employee deferral section.
Everybody else, you're capped
at the contribution limit
per 401K, so what is it
this year, it's 57,000?
- [Jeff] I think that sounds a little high
but say around 55, 56.
- [Toby] Oh, shoot, now I
have to go look that up.
Now where's my little fast cheat sheet?
I know I have one floating around here.
I'm gonna look at it.
- So yeah, there's a couple
of contribution limits, one
is how much you can defer
from your salary and the other one
is how much everybody can defer to you.
- [Toby] Yeah, 56K, Paulo,
you are my, thank you.
- [Jeff] Hey, I said that.
- [Toby] Somebody says,
"It's cocktail hour,
"how do we order?"
Shoot we need to keep talking faster.
All right, so--
- [Jeff] But those limits
apply to you as an individual.
It's not per plan, it's per everybody.
- [Toby] The 56 is per plan.
- [Jeff] No, that's total.
- [Toby] No, I promise you.
- [Jeff] The 415 limit?
- [Toby] Yep, so here's how it works.
So my 19,000 is my employee
contribution amount.
- [Jeff] Right.
- [Toby] So, I am aggregate
amongst all my plans.
I can only defer my personal
salary up to 19,000,
but my employer can contribute
based off of my salary
up to 25% deferred but I
can have two or three plan.
I could actually, the
example the IRS gives
if you have two plans
each contributing $50,000,
can you do it?
The answer's yes, actually I can.
I promise you, I bet you a dollar on that.
- I'm gonna look this up.
- Look it up!
Ask Corey too, he's pretty knowledgeable.
But anyway, let's go on.
- Yes, he is, yes, he is.
- [Toby] So yeah, you
could have multiple plans.
I promise you can have multiple plans.
We'll have a bone of contention,
since we have a disagreement.
- [Jeff] Yeah, definitely yes,
you can have multiple plans.
(Toby chuckles)
I'll agree with that.
- [Toby] All right, "Does a
leasing real estate subsidiary
"pass-through," this is gonna be all you.
I'm gonna give you this
one, 'cause you love this,
"pass-through have to
pay self-employment tax
"or will its holding
company pass the taxes?"
- [Jeff] So if you are
ringing real estate,
nobody pays self-employment tax
because that is not
considered earned income.
- [Toby] See, isn't that wonderful?
Don't you love having accountants here?
Nobody pays any self-employment tax.
- [Jeff] So self-employment tax is
that tax on earned income,
like your Schedule C income
or sometimes your partnership income,
depending on what it is.
But the subsidiary, the pass-through LLC
is not gonna pay any tax.
You will pay tax on any
earnings from that LLC,
but it won't be self-employment tax.
- [Toby] See, and now
here's the one thing,
the lawyer in me can't help this.
"Does a leasing real estate subsidiary,"
so if you are the manager that is active
and they don't flow through to you,
it's whatever is passing
the income to you.
But if you own real estate
and you're just leasing it,
and, for example, I have,
here's the common scenario,
I have a bunch of real estate companies,
so I have a bunch of properties.
We'll just call it real
estate one, two, three,
and they're all held by a holding LLC,
there is no self-employment tax
on rental income, period.
Rents, royalties, dividends,
interest and capital gains
do not pay self-employment tax.
So rents, royalties, dividends,
interest and capital gains.
Is trading option stocks
considered earned income?
No, because it's capital gains.
- [Jeff] Right.
- [Toby] All right, let's keep jumping on.
Oh, forgot to do this.
This is where you can
continue to educate yourself.
We're calling it the Bulletproof Investor
and what that is is something really cool.
It's a online course that's
a three part video series.
It's tax and asset protection
for real estate investors.
That's Clint Coons, my partners'
book is very, very good.
It's two tickets to tax and
asset protection workshop,
that's a three day event.
It is a strategy session
with one of our professionals
going and creating a wealth
planning blueprint for you.
So it's all of that and it's 197,
but because it's two for Tuesday,
then you also get the Tax-Wise workshop
and you get access to all
three Tax-Wise workshops.
You can get all the recordings
for the previous two
and the last one was really
awesome, I can just say.
The January one, I think
we did one in January,
it was great, but the one
is June was really amazing.
31 strategies we hit during
that, it was just cool.
It's two days of nothing but tax,
but you get access to all the recordings
and you can livestream.
We have one coming up, I
believe it's in November,
for two days, so we're talking
about five days of workshops.
Come out to Vegas if you
want and hang out with us
on all of this.
On the Tax-Wise, you get the
livestreams and the recordings.
On the Bulletproof, you get
an online course and a book,
and you get to have a
meeting, it's all 197.
I think that pretty
amazing and there's a link
that Patty will send out to
everybody if you wanna do that,
or we'll just follow up.
Not gonna spend more time on that.
All right, "How can I set
up bank accounts for LLCs
"and have the funds flow
to the holding corp?
"How do I report the
income for tax purposes?"
So, number one, you don't
have to have bank accounts
on all of your LLCs.
So especially if you
have a property manager,
it is a factor having a bank account
that a corp could look at to see
whether they are going to acknowledge
the existence of that LLC.
But it is not a what's
called a dispositive factor.
In other words, it doesn't
employ it if it doesn't have it.
And frankly, let's say the same scenario
that I just mapped out before,
I have a bunch of real estate
and I have three rentals
and they're held by a holding entity
and I have a property
manager out here, so PM.
And the tenants are all out there
paying the property manager.
Wee, we're paying you money!
And the property manager's netting it out
and sending it to the holding,
the only bank account really
needs to be that holding.
There's no other reason
really, to have those three.
They're just regarded
for tax purposes anyway,
makes life easier.
I used to look it up, that 401K--
- [Jeff] I'm looking on my comp.
- I promise.
- I'm listening.
- [Toby] I promise you.
Now I'm gonna bet a $1.10.
- [Jeff] Well, and you
know, it's not unusual,
these property managers
usually have accounts
to hold your cash in until
it distributed to you anyway.
So--
- Yep.
- [Jeff] If they're
collecting all the rents
and paying all the expenses,
they could just hold
this money into a perpetuity.
- [Toby] Yeah, this is cool.
Somebody just said, "So if you're manager
"of the holding LLC for your rentals.
"So, if you're the
manager of the holding LLC
"for your rentals and you're doing
"all the management for the property,
"you don't have to pay
self-employment tax."
If you're the manager, you
would have self-employment tax.
So if you are the PM, the only place
where there's self-employment
at all is right here
but you're zeroing it out.
All of the income that's
flowing through down here to,
or excuse me, up through here to you.
So I'm pointing at the tenants,
we don't want them to get the money,
we want you to get the money.
Dollars, we want you to get that money,
is not for self-employment tax.
Somebody says, "Should the
holding LLC be an S-corp?"
No, if you are in this
type of rental real estate,
it should be either a disregarded entity
or taxed as a partnership,
depending on whether you're
borrowing money at all.
If you are using commercial property,
like you're do in apartments,
then you'll more than likely
need to be able to sell it
and then I'll need to see a
separate tax return for it,
so that's gonna be a partnership.
If it's all you and it's all cash
and we don't care about
loans and things like that,
we'll probably make it disregard.
"What if you have a corporation
"that is acting as a property manager,
"can we pay a percentage
to the corporation?"
Yes, exactly, Terry,
that's exactly what you do.
And usually the corporations
accepting the funds
and that's netting it
out and sending it up,
handling all the expenses
and netting it out
and sending it up to the holding company.
So, you get it.
And so, "The holding company LLC
"is not attached to the C-corp?"
Correct, "The holding company
LLC is managed by the C-corp?"
Nine times out of 10.
Somebody says, oh, well, let's
see if there's another one.
"What if the real estate is short term?
"For example, vacation property?"
(Toby laughs)
You guys are killing me.
All right, so Airbnb, here's the rule,
seven days or less equals active.
Now you have, that's not
longer passive real estate,
you are now a trader business.
And so, if you're doing
Airbnb, the way you get around
getting hit with any sort of monster tax
is you do the Airbnb through
a corp, S or C works.
But you have the rental,
let's say that this is a rental property,
it leases long to your little corporation.
This is why you do a blueprint, guys.
Your facts and circumstances
are gonna dictate you,
if you stepped on that
landmine, you'd be really upset.
And the problem that you have is
most people don't
understand the difference
between Airbnb type income
and longterm lease income,
and so, they just put it all together.
And the next thing you know,
you're paying self-employment tax,
you lose a lot of benefits,
you can't do depreciation,
you don't get,
if you sell it, you're
not gonna be able to
do your 1031 Exchange, you
lose a whole bunch of benefits.
So, somebody says, "Can
I repeat that again?"
We did a video series on it,
so you can always look at it.
But what you do is in a nutshelL,
I'm just gonna draw this
up real quick for you guys,
it'll take two seconds, trust me.
So, here's my rental, I
have a rental property
and I'm gonna put that in an
LLC and I'm gonna lease it
long meaning one year to two years,
I'm gonna lease it to a corporation.
This is the corporation that is the host
and it's gonna do all
the short term leases,
if you're familiar with Airbnb,
you know what these guys are
called, they're called guests.
And so, then the money
comes into the corp,
so let's say that I'm leasing
this at $3,000 a month,
I'm leasing a house,
then this is rental
income, this is passive.
And my guests pay me $4,500 a month total
and you look at the average stay,
what they do is they look at
the total days that was rented
and divided it by the guest, the bookings.
So if I'm seven days or
less, then I'm active.
So the way around it, again,
is if you're even close,
don't mess around with the days.
You could say, hey, you know what?
Let's say I'm bringing in
4,500, I immediately pay my rent
of 3,000 which gives me a net of 1,500
and I have all the expenses
associated with the property,
I have to do the let ins,
I have to do all the other
stuff with that extra money,
I can get it out to myself,
so I hope that makes--
- [Jeff] So we actually ran
into this very recently,
only the rental property was
a portion of their house.
- [Toby] Oh, wow, that's kinda crazy.
So they were doing--
- It was separate,
yeah, it was separate
entrance and all of that.
But what they hadn't taken
into consideration was
they had to rent that portion
of their house to the
corporation to make this work.
- [Toby] Yep, and it works,
it works, absolutely.
Somebody says, "30 days or more is okay."
Yeah, if you have a, if
you're more than seven days
on your average rental, then
you're fine, you're past it,
you don't have to worry
about the corporation,
just do it right out of that LLC.
Anyway, I hope that answers that question.
"I'm a subcontractor,
"do I need a corporation
to protect myself?"
So, the answer to me
is always gonna be yes,
because here's what we have,
we have two types of liability.
Always, and this is more of
an asset protection question,
but there is some tax reason, too.
First off, if you are a sub,
then you are an active business
and the new IRS data came out
and if you don't wanna
get audited and lose,
then you make sure that you
are an S-corp as the sub.
It's gonna save you about,
on every hundred thousand,
it's gonna save you about
or I say the first 10,000
or first 100,000, it's gonna
save you about 10,000 bucks.
That's the typical savings just because
the self-employment tax is greatly reduced
when you use an S-corp.
You're taking a small salary
and the profits flow out to you
without being taxed on self-employment.
Which is old age, death
and survivors Medicare.
It's 15.3% but the actual
tax ramification is 14%,
so on a 100 grand, I'm
probably paying myself 30,000
and I'm gonna just 14 times
six, whatever that is,
so it's gonna save me some money.
All right, match number one.
But the risk is on the inside
and this is called inside risk.
So I'm gonna give you
the two minute version.
So imagine that this was your luggage
and you were going on vacation.
And you had a whole bunch of nice clothes
that you were taking with you
and you threw your shaving
cream or toothpaste,
better yet, your toothpaste.
You threw your toothpaste
into your luggage
but you didn't put the
toothpaste into anything.
- Just threw the tube in.
- You just threw the tube in,
you get on a plane,
what's gonna happen when
that pressure hits it?
It's a good chance you're
gonna get some toothpaste
on your nice stuff,
that's called inside risk.
If that tube of toothpaste explodes,
you're gonna get it all
inside the suitcase.
If, as a subcontractor,
one of your jobs explodes
and it's not even something
you necessarily did
but they say you could be 1% at fault
and under joint and several liability,
you get to be 100% responsible
for your 1% at fault.
Like there was a ladder left out
and it fell and hit somebody in the head
and caused them serious pain.
Nobody knows who put that ladder there
but you were there,
you get to endure that.
And if you don't believe that happens,
we just had one happen in Vegas
where somebody was rehabbing a house
and the carport just
fell in and killed a guy,
just squished him.
You know everybody and their mother
is getting sued on that
one, so, that's inside risk.
We wanna keep that risk from coming out
and following you the rest of your life,
you get to be garnished
all over the place.
Say you had a really rich spouse,
well, let's say he just had
some money tucked aside,
we don't want them to be
able to come get that,
that's inside risk.
And then there's outside risk.
That's you, and your family.
So let's say you have
a wonderful teenage son
who loves to drive fast,
you don't want them to be able
to take your business away,
that's called outside liability
because of something that happens.
So when you're a subcontractor,
there's really two sides.
I'm worried about the business from you,
I'm worried about you from your business
and I'm just trying to
keep likelihood of threat
and it's not like everybody gets sued.
Here, I gotta give you some hair.
Sorry, Jeff, there you go, got some hair.
- [Jeff] I don't let my kid drive my car.
- [Toby] I let my daughter.
Saw her phone once and
she had all these pictures
and she's like driving and
she like puts her leg out.
I'm like you are hereby grounded.
Like what the?
Acrobatic driving, I said, "What is this?
What are you doing?"
Yeah, kids.
- And the other aspect
of it being an S-corporation,
20% deductions.
- [Toby] Oh, yeah, you
get the 199A deduction,
I forgot all about that,
it's a good thing you're here to remind.
- [Jeff] That's the accountant
in me, I can't help--
- [Toby] Yeah, under the
Tax Cut and Jobs Act,
that's the big benefit
for being a business,
so you get to take that too.
Anyway, there's a whole bunch of reasons.
What we always like to do is look at
your facts and circumstances
we can compare.
Let's say you made
$150,000, I know the numbers
'cause I was looking at the IRS data book,
the recently released data,
'cause everybody does that, not.
It's 1,200% more likelihood to be audited
if you're a sole proprietor
than an S-corp under that circumstance.
And the sole proprietors are losing
at a whopping 94% of the time,
so it's like, yeah, you
might wanna be a corporation.
Plus, corporations can
do an accountable plan,
there's huge tax benefits
to using an accountable plan
and you can fund your 401K,
and you can do all sorts
of certain stuff. Anyway--
- [Jeff] Just don't let your kid drive.
- [Toby] Yeah, so, anyway,
"I own a rental property as an individual.
"How can I deduct interest
expense on this property?"
Jeff?
- Well, the first thing
you're gonna deduct is
any mortgage interest
that this property is secured by.
- [Toby] And it's on your schedule...
- [Jeff] Schedule E?
- [Toby] So it's your 1040 Schedule E.
- [Jeff] It's your 1040 Schedule E, right.
And you'll get a 1098 if it's
a, you have mortgage interest.
But you might have other
interest that you can deduct,
you may have a--
- This is a big one,
actually, I know where you're going.
Let's say you have a house, right?
- Right.
- Are you talking about
your primary residence?
- Mm-hm.
- [Toby] All right, so
this is your primary,
it used to be that you could
write off the mortgage interest
that was off of that primary,
no matter what you used it for.
- [Jeff] Right.
- [Toby] Now it has to be
used on that piece of property
and it's subject to these
standard deductions,
so it's Schedule A.
But if you use part of that equity--
- [Jeff] So I refinanced my house
and got an extra $100,000 out of it.
- [Toby] So let's say Jeff's example is
you took $100,000 out
of the house, equity.
Equity, let's just say
it's an equity line.
The mortgage interest, you
could report it on Schedule E
so you don't have to worry
about the standard deduction,
you don't have to worry
about the new rules.
And you don't have to worry about
missing out on a bunch of money.
TurboTax couldn't tell you that.
All right, now let's keep going on.
All right, "Even if you
do a cash out refinance?"
Yes, Russ, even if you do
it, you gotta make sure
that you're putting it towards something.
So if I take money out of my house
in order to write it
off with my Schedule A,
it has to be purchased or being
put back into the property.
So, it's acquisition indebtedness,
is what they call it.
- [Jeff] So to be able to deduct
that interest on Schedule E,
you have to put that money
into that rental property.
- [Toby] And the somebody says,
"But isn't cash out refi
already included on the 1098?"
Yes, but you get to decide
where you're gonna take the deduction.
- [Jeff] Correct.
- [Toby] Somebody says,
"If you put it into
"the financial markets,
"you cannot write it
off on your Schedule A."
If you take it out and put
it in the financial markets,
then that interest would be--
- [Jeff] Be investment interest.
- [Toby] It would be investment interest
against the gains that you
make, the problem that you have
is if you're putting in
their financial market trust,
is if you lose.
- Yeah.
- [Toby] And then somebody says,
"But that is like it depends."
Sherry--
- [Jeff] Hello, Sherry.
- [Toby] It is, she says,
"Misbehaving out there."
No, it's good.
"What if I'm using a home equity loan
"to buy properties in my LLC as rentals?"
Sara, perfect question and
that goes on your Schedule E
and it's either going on your Schedule E,
directly on your 1040 or
it's going on Schedule E
via if you have a partnership,
it's going via the K1,
it's going on page two,
but either way, it's on your Schedule E.
And so, yes, you get to write that off.
Very good question.
All right, this is a big one.
"Can you explain the
depreciation recapture
"for a property that
was never depreciated?"
This is where it really sucks.
So, the IRS has the funky new rule,
and I should say it's the tax code is,
do you know it's, whoops, IRA.
Do you know what publication it is?
It's 946 or something like that.
- [Jeff] I am not sure.
- [Toby] All right, but the
rule is that if you can deduct,
deduct or depreciate, I'll
even say even more succinct.
If you can depreciate,
you must recapture.
- [Jeff] 946 was right, by the way.
- [Toby] Oh, cool, publication 946,
I think it's page 12.
Actually, it has this--
- Oh, geez.
- [Toby] I bet you I'm right,
I bet you another dollar.
- [Jeff] I am not looking.
- [Toby] I bet you it's page
12, check me, 'spesh shticks.
All right, so you must recapture, and--
- [Jeff] You know, so, form 4797 which is
where you report a sale
of this type of property.
Ashley says, "How much
depreciation were you able to take?
"Not how much did you actually take."
So, it's allowed or taken.
- [Toby] Yep, it's if
you could have done it,
you have to recapture it.
Now recapture, it's
called a 1250 Recapture
and...
da-da-da-da-da-da-da-da-da-da-da,
yeah, I'm probably wrong.
If it's 1250 Recapture and then it's--
- [Jeff] No, it is 1250, yeah.
- [Toby] And it's maxed at 25%.
It's your ordinary tax
bracket, maxed at 25%.
- [Jeff] But will not
exceed your total gain.
- [Toby] But will not exceed
your total gain, that's correct.
- [Jeff] So if you have
$80,000 of depreciation
but only a $30,000 gain,
your recapture's only gonna be 30,000.
Now, we see this quite a bit,
it's surprising how many
accountants don't do depreciation.
- [Toby] You have your second house
and it was your second property
and you're renting it out.
And maybe you rented to a kid, right?
And you don't think about, eh, all right,
they're gonna pay a thousand bucks,
they're giving you something.
It's an investment property.
Would it be an investment property?
- [Jeff] Yeah, I think so.
- [Toby] They're just kids.
All of a sudden, you're
entitled to depreciate it.
- [Jeff] So you haven't
depreciated this property
for five, six, 10 years,
there is a way to fix this.
- [Toby] And that is
to take a depreciation
one year take it all, right?
- [Jeff] Yeah, we do what's called
a Change of Accounting Method,
I know we talked about this before.
But you're actually changing
your accounting method for depreciation
from zero to this is the way
it's supposed to be done.
And you report all of
that back depreciation
that you should have
taken in the current year.
And it does need to be approved by IRS
but it's usually an automatic approval.
- [Toby] Yep, what Jeff said.
Change of a tax, take
it all in one lump sum.
I just know you just take
it all in one big lump sum.
I know somebody just did a--
- [Jeff] An essay?
- [Toby] "The wording that
authorizes your escape
"from depreciation recapture
is found in the last sentence
"of section 1250 B3 which
states, pertinent part,
"If the taxpayer can
establish by adequate records
"and other sufficient evidence
that the amount allowed
"as a deduction for any period
"was less than the amount allowable,
"the amount taken into
account for such period
"shall be the amount allowed."
I have no idea what that means.
Let's take a look at examples.
"Say that you claim zero
for home office depreciation
"for the last five years,
"how would you prove the
zero using your tax returns
"for the zeros you claim the
home office deduction on IR?"
You wouldn't do the home office IRA,
the home office on 8829, we do
it as a administrative office
where you don't actually have that.
- [Jeff] Yeah, with the reimbursements,
you don't have to take depreciation.
- [Toby] Yeah, so, but on
the rest of it, it's a lot,
I don't know how you're able to do it.
Let's take a look, "It's zero depreciation
"to avoid your evidence how you claim,
"zero depreciating, avoid the double tax."
Oh, I know what he's doing, so
you're doing Murray Bradford.
Love Murray, amazing guy,
Bradford Tax Institute,
it's a really good place.
But if you're talking about
the depreciation recapture on
a home office which we don't wanna do,
we wanna do it as an administrative office
and you wanna do it as a
accountable plan reimbursement
where it's not actually depreciation.
So, anyway, I know what
you're talking about.
And, yeah, you would
take all the depreciation
in the same year that you
recapture the depreciation
if you did the way that
Jeff just described it.
"How do you find out if your family's CPA
"understands tax prep for real estate?"
Hayden, what I would say is
do they own any real estate?
And have they been doing
this for themselves?
So, or is it something
that they do in their,
do they have a bunch
of real estate clients?
You don't wanna be the
one of the 10 people
that they do that has real estate,
you wanna be one of the hundreds of people
that they do that does it.
And I would check that
out, Russ, I like it,
okay, Russ, email me 'cause
I'm curious, I wanna see it.
I believe that's only on the home office,
I don't think it's if I
have a investment property.
If I am able to depreciate
my investment property,
I must recapture that.
If I didn't take depreciation
on a home office,
then there's a way if I didn't take it
and I had a home office,
then you're right, it would
be the zeros, so anyway.
"This is not on the topic, so I can wait.
"Healthcare gives a credit."
Oh, so I'll take a look on this one,
it looks like we'll hit.
All right, so, "If the IRS
has to approve the recapture,
"how long does that take?"
How long does it take for
the change of accounting?
- [Jeff] We usually
follow up with a return
and then usually it accepts
the return right away,
it doesn't really take a long time.
Often, we're doing this in
the same year of the sale,
primarily to prevent
longterm type of gains
as being treated as ordinary income.
- [Toby] Yeah, I know what you're saying.
- [Jeff] It's kind of a switch off.
- [Toby] But hey, we'll take it.
All right, somebody
said, here's a weird one,
I wanna make sure I don't
miss it, what did I just do?
Where'd it go?
She asked about a rat and
where do you report it?
Let me see, there's a lot
of big, long questions.
Some of you guys who wrote a book,
I'm gonna be kicking those
over to somebody to answer.
Just 'cause it's really
long, what did I do here?
Okay, let's see.
"I did a cash out refi on a
home with a wrapped mortgage."
So, they're owner financing.
"What form would I be able to
deduct the mortgage interest
"if I'm paying on the mortgage loan?"
So, in that particular
case, it sounds like,
refinance cash out on a rental,
and be selling the home
with a wrapped mortgage.
So they did a cash out
and they're selling it to somebody else,
that sounds like an investor's expense
'cause it's an investment property.
- [Jeff] But, yeah, I mean,
you would have to recognize
or one the possibilities
is that you recognize
the interest you're receiving
on the front of your 1040
and you're recognizing
the interest expense
that you're paying--
- You don't wanna do that,
you take--
- No, if you could
take a beating but I don't know
that you can net those amounts out.
- [Toby] I could cash out refi
if I am still on the hook,
then I'm not paying tax on it
because I have risk, right?
So ordinarily, if you take
cash out of something.
So you passive investors
out there that put money
into like a syndication
and then refi the property
and hand you a bunch of cash,
if it's more than what you put in,
you pay a longterm capital gains on that.
So here is somebody 'cause
they're not at risk on the loan,
in this particular case,
if you're adding risk for
the loan, you're fine.
You should take the cash
out and you'd be putting it
on your Schedule E as
an investment expense.
I'm pretty sure I'm
understanding you correctly,
that's probably the answer.
All right, here's another one.
Let's keep going 'cause we are
way, we're gonna be way late.
This silver boasts.
By the way, was it page 12?
Somebody said--
- No, that wasn't page 12.
- [Toby] Dang it, all right!
Hey, I still think it is,
maybe it's on the electronic version then,
I'm gonna be gripey. I'm
gonna bet you a dollar on it.
All right, "What is the best,"
see now you owe me $2, Jeff.
- [Jeff] I don't know about that.
- [Toby] All right, "What
is the best structure
"to protect against the
IRS piercing the veil
"and establishing a lien on funds?"
- [Jeff] I'm not sure that
they can go past the entity.
- [Toby] This is the
thing is the taxpayer's
a taxpayer to the IRS.
When you talk about
veil piercing, that's a,
it's a civil claim, it's a
court equity, an equity term,
where somebody is basically saying,
"Don't recognize this entity,
"we want you to ignore it
so we can go after assets."
So veil piercing is really
an asset protection term
and what it boils down to
is if you're doing things
in such a manner to where
you don't respect the entity
and your state law allows
them to, they will say,
hey, you didn't do what
you need to have the veil
and we want you to ignore it,
pierce it and let me go get money.
But the IRS doesn't necessarily get that.
The IRS is looking to
net you as a taxpayer.
Now here's the sad truth
is that there's always
a responsible taxpayer on every company.
When you do your SS-4
and get your tax identification number,
there's always a responsible
party that has to go on there.
And if that's you and the
company doesn't pay its taxes,
guess who they can go after?
- [Jeff] And that's particularly
true on payroll taxes.
- [Toby] Payroll tax,
they could actually go
after any officer.
- [Jeff] Anybody, if you sign that return,
they can nail ya.
- [Toby] You're responsible for it
and it's not just the IRS, I
actually just dealt with this.
Because I was a nominee officer
on a company that didn't pay
a bunch of civil fines
in the City of Cleveland
and so, who do they try to get to pay it?
They go, "Oh, your name's on there."
So they come knocking on my
door and I have to show that
I wasn't involved in the transaction.
They had a bonary in, of course,
but it's still one of those
things where you wanna make sure
that you're showing, hey,
this is separate from me.
- [Jeff] Now the one time
they will certainly go
after the individual is if they feel
that the individual is
hiding entities' assets,
such as you've received a
notice that you owe IRS $100,000
and you clean out the bank account.
They're gonna follow that money.
- [Toby] Yeah, they're
gonna say that you took it
and that you, at that point,
you're making the company insolvent
and you're the one who's
receiving the funds
and they'll go right after it.
Somebody says, "Hey,
I don't understand why
"if you cash out refi on your property,
"it's not income yet.
"If you're an investor in a syndication
"and you cash it out, then it is."
So, this is fun.
A lot of people don't realize
that there are rules about this.
You are a partner in a partnership
and you have a capital
account and you have bases.
You have inside bases and
you have outside bases,
so let's just say that I put money in
and let's say that I'm
just gonna use raw numbers.
Let's say that you are
part of an investment group
that put in a million bucks,
you bought an apartment
complex for seven million.
So you borrowed six
million, you fix it up,
it's worth 10 million.
You refi that now at 10 million
and you pull all the money out
and hands all the investors
back the original million
dollars they put in.
That's not taxable, but
anything over a million dollars
is considered return
in excess of your bases
and that is taxed as
longterm capital gains.
'Cause you are not at risk
to pay back that loan.
If that company, let's just
say you default on that loan
and nobody ever pays it back
and they foreclose on
that apartment building,
you're not at risk, you
already got your cash.
So the second you pay that
out and you weren't at risk
was the second you had a transfer
of wealth that's taxable.
And luckily they tax that
as longterm capital gains.
- [Jeff] Yeah, this is where we run into
what's called debt financed distributions.
Which can become taxable
just from the aspect
of it's not money that the company has,
that they borrowed the money.
- [Toby] Yep, but if
you're on the hook for it,
you borrow it and you're
the grantor on it,
then they say, hey, you
have to pay it back anyway.
So you didn't really get the money,
you got the money and the debt.
So when I look at your balance sheet,
I'm looking for two things,
I'm looking at the
asset and the liability.
The liability's not there
but you got the asset,
chances are you have a taxable event.
Somebody says, "Can you do a
webinar on short term rentals?"
We already did.
Patty, if you could kick
Denise that information
'cause it's so much fun.
"What if you do cashout
refi on a gifted property?"
Well, somebody's on the hook.
So if you got the property,
you get the bases of
whoever gifted it to you.
And if you are on the hook on that loan,
then you wouldn't have a
taxable event, so yeah.
It all matters whether you're at risk.
There's a lot of questions
that just came in here.
I'm gonna have to ignore some of them
so we can get through some of these.
Don't worry, we'll get
back to your questions.
You can always ask 'em on the
Tax Tuesday @AndersonAdvisor2.
Somebody says, "Yeah, Chris
is now kicking in there."
Chris, I love it.
"I have a large amount of capital losses."
So Chris you're up there
in Minnesota, right?
So you're having to deal
with all that insanity.
You got some weird legislators up there.
We're just gonna have
to have a little chat
about that someday.
All right, "I have a large
amount of capital losses,
"are there any creative
ways to reclaim these loses
"faster than the 3,000 a year standard?"
- [Jeff] My number one way of doing this
is if you have other investments,
liquid investments that have gains on 'em,
sell those investments,
sell those securities.
If you have Boeing and you wanna dump it,
but you can buy it back the next day,
you recognize the gain, you
apply it against the loss--
- [Toby] See wash sale is only for losses.
- [Jeff] Wash sales are only for losses.
- [Toby] So if you're
harvesting your gain,
then absolutely that's what you do.
You take the gain 'cause I have loses
that are carrying forward that I harvest
and I know I'm not gonna
pay tax on it, great.
Then you buy it back
and you have new bases.
You have higher bases.
- Which is higher bate
than the ones before.
- Yep.
You're really smart, that's really good.
Yeah, there's really
no other ways to do it.
There's no other really cool ways,
you'd have to have
capital gains to offset.
Otherwise, you're just carrying.
And this is why that example I
gave you about Mark-to-Market
earlier in the Tax Tuesday,
this is why this hurts.
Because I am forced to
recognize a bunch of gain
on something that I didn't actually sell
and then it drops like a
rock and then I have losses.
I have gain, but I can't offset that gain
with my losses 'cause it's forward.
And yeah, hopefully some of
you guys are getting that,
but I saw that and I watched
that happen to so many people
that I'm traumatized by it.
I don't ever wanna see
Mark-to-Market, I just think it's,
it's like putting a rule on
yourself in a football game.
It's like all right, you're not allowed
to tackle the quarter back, okay.
But the other side can
still do whatever they want.
You just put an artificial
rule on yourself
that's gonna increase
your likelihood of losing
and I just don't know why people do it.
I guess there's some good reasons.
Somebody says, "Yes,
Mark-to-Market is stupid."
(laughs)
That's a legal term.
- [Jeff] And there's a $3,000 limit
and I think it's been
around since the 60s.
- [Toby] They never
indexed it for employers.
- No.
- So it's been 3,000.
I remember that year by
the way, the Qualcomm,
I remember that, that was
1999 if I'm not mistaken.
'99 or 2000.
- [Jeff] The 2018 winners
I think was Theranos,
the drugs therapeutic company that--
- [Toby] Just was shot, and then--
- [Jeff] Their technology
didn't work at all.
- [Toby] Oops, yeah, yeah, somebody said,
"If your accountant tells you
to Mark-to-Market higher."
Again, it's because they
wanna take the losses.
- [Jeff] Depends on how good you are.
- [Toby] And I noticed on the 1099-B
to do the Mark-to-Market on
futures, you could do that too.
Futures are taxed really well though,
why would, that's 6040.
60 your longterm capital gains 40.
- Right.
- Yeah.
"I'm currently buying properties
in Arkansas with an LLC,
"should I register as a foreign entity?
"Are there better tax
incentives by doing so?"
Tax wise, not necessarily.
You may be required if
you're buying properties
and renting them and you're renting them
in the name of the LLC, then
you should be registering it.
But a lawyer that I respect once said,
"It's better to ask for
forgiveness than permission."
If it's gonna be a really expensive,
then you just kinda hang it out there.
And if you ever do get sued or something,
then you just register it
after the fact and say sorry.
There's usually a cure period.
I remember the last time I dealt with this
in any real setting was in
California was a two year cure.
What you're trying to
do is if it's gonna be
prohibitively expensive to be
there, then you keep it out.
The other way you do is not
to own it in the LLC directly,
you use a land trust and then
have the LLC be out of state.
So if you're in Arkansas and
it's not an Arkansas LLC,
let's say that it's a Wyoming LLC
or something along those lines,
then you may not want to have to register.
It might be easier just
to do a land trust,
unless it's really cheap.
In Arkansas, it probably
isn't super expensive.
Do you know off the top of your head?
- [Jeff] I don't know off the
top of my head what it is.
- [Toby] So anyway, somebody says,
"Hey, the webinar for short term rentals."
Patty, if you have that,
it sounds like a whole bunch of people.
What we'll do is we'll put
it in the follow up email,
just remember to do that.
It is kind of a hot topic
'cause a lot of people
are doing the Airbnb, VRBO and HomeAway.
And you just wanna make sure
that you're doing it right.
There's some asset
protection reasons to also,
there have been fatalities
on those properties
and you wanna make sure you
have the right type of insurance
since your normal insurance
will not cover it.
Finish up on that, this
one with the Arkansas,
there's really no tax
benefits to doing so,
other than if you have
a management company,
and I say your management company,
you could pull cash
that would've ordinarily
hit your return and put into a corp.
"I have a C-corporation,
"can I deduct longterm care
premiums as an expense?"
So this is actually pretty
easy, the answer's yes.
Can I deduct longterm care premiums, yes.
The issue is how many
employees do you have?
If it's just you, then you can reimburse
100% of your medical, dental,
vision and longterm care.
As an individual, if you called up the IRS
and said can I deduct a longterm care?
They're gonna say sure,
but you have to exceed 10%
of your adjusted gross income
and then there's a monetary limit.
I think it's, depending on hold you are.
- [Jeff] And the younger you are,
the more or the lower that limit is.
- [Toby] Somebody says, "Can you write off
"a healthcare cost?
"Wife is a realtor and I am
a social security benefitor."
Yeah, you still can write off healthcare
if your wife's a realtor,
then the issue is gonna be
what portion is deductible
versus what portions you're
gonna have to pay tax on.
So if she's a realtor,
more likely than not,
she's gonna be an S-corp,
she's gonna be required
to be a pass-through.
And then if you cover
your healthcare costs,
it's considered wages
but you can write off
the insurance premium on
page one of your 1040.
So all that means in English is that
you can write off the premiums,
you wouldn't be able to write off
the copays and deductibles.
If you want to be able to do that,
you need a C-corp in the mix
and you can still have a C-corp
that manages the S-corp.
Actually what I like to see
it is, it hires all the people
and does all the marketing.
And then you have a little bit left over
at the end of the year,
coming through that S-corp
and you pay yourself a
salary out of the S-corp
and the C-corp usually zeroes out,
or if it has a lot of extra
income it's gonna pay 21% on it.
- [Jeff] And we want this
S-corp not only to be
a reimbursing for health
insurance and medical expenses,
we also want them reimbursing you
for your Medicare and Medicaid.
- [Toby] Anything that
comes out of your pocket.
- [Jeff] So even though it's coming out
of your social security check,
the corporation can still reimburse you.
And that gets included on that
self-employed health insurance.
- [Toby] So I'm not
really good on the med,
so you're talking Medicaid?
- [Jeff] Like the Medicare that's on--
- Social security that--
- Social security.
- [Toby] And you're
paying it, it's after tax.
- [Jeff] But the S-corporation
has to reimburse you for it.
- [Toby] Yeah, but, and
if the S-corp did it
and you're bringing in 2%
shareholder or your wife is,
then that's income to you.
But if it's a C-corp it can reimburse.
- [Jeff] Correct.
- [Toby] All right, I wanna make sure
brokers won't pay her as a C-corp.
See, Mr. Round, this
is why you come to us.
The broker, and this probably
is Texas or something,
what state are you in?
If you can shoot me.
There's a workaround, oh, New Jersey.
All right, so, New Jersey says,
"Broker can't pay a entity."
Usually that's what they're doing
and they want the individual licensed,
but since we're dealing with the IRS,
they don't really care about New Jersey.
So what you do is you have
to have two pieces of paper,
you have to have an employment agreement
between your wife and her S-corp
and you have to send a
letter to your broker saying,
hey, I know you're gonna pay my wife,
or he wouldn't say my wife.
He could say I know I'm
gonna pay, you're gonna pay,
I'm just gonna use the name Mary.
So I know you're gonna pay Mary,
I know you're gonna pay Mary individually
but she works exclusively
for this S-corporation
and that's where we're gonna apply it.
Now the IRS will allow
you to treat that money
as though it was received by the S-corp.
That's the way to do it. There's
actually a decision on it,
so I could give you those
documents, no problem,
just make sure you're a Platinum client,
it's a whopping $35 a month.
- [Jeff] And there's
actually several industries
that this applies to.
Real estate brokers,
security brokers.
- Brokers.
Anybody that's doing it and
again, we can get it in there,
I can show you how to do it,
but there's a right and a wrong way.
And so, what you look at
are the tax court cases
and you look at the way the IRS treats it.
The tax court, I think it
was a Fleishman decision
if I'm not mistaken, or I could be.
I think I've been wrong tonight before.
(Jeff laughs)
Says Jeff, no, I'm just kidding.
But I believe that's
the case and I, again,
what you do is they said,
hey, what you have to do?
And actually that was a case
where it was a securities broker
and he never sent the letter
to his, the broker trust.
He never said hey, by the way,
I'm working exclusively from my S-corp.
He just said, "Hey, I'm
just gonna put it in there
"and you can't assign income."
So there's a way to do it.
"Can the C-corp reimbursement,
can reimburse my Medicare
"for my wife when I am
paid through W2 wages?"
- [Jeff] Yep, absolutely.
- [Toby] Is that Medicare?
- [Jeff] That's Medicare
on social security,
Medicaid is the state issued.
- [Toby] Right, so Medicare
that you're taking out of a W2,
you can't reimburse, I don't think.
- [Jeff] Oh, that Medicare.
Okay, so when I'm saying
Medicare I'm talking about
the deduction that's
reported by social security.
- [Toby] Right, right, right.
So we're talking about Medicare,
so when you're talking
about Medicare withholding,
no, you can't reimburse yourself.
"Can my C-corp reimburse my
out of pocket health insurance
"premium costs for insurance
through my employer?"
Yes, in fact, if it's out
of pocket, meaning that you.
So here's the example,
and at Anderson, we pay for the employee.
We'll pay for it, we have a
really good benefits plan.
Let's say it's five, 600 bucks a month,
but if you wanna add your
family, you pay that portion.
You're still on plan, it's
taken out of your paycheck.
So we pay for the
employee, and the employer,
and the employee says, hey
I have two kids and a spouse
and it's now a thousand bucks.
So you take the, so that get
taken out of their paycheck,
so they still have the
really great insurance,
but they paid after tax, $500 a month.
You can reimburse that, yeah.
And that's exactly what you do.
Plus, you can reimburse,
if it's through a C-corp,
you can reimburse, this is important,
can't do it through an S,
you have to do it through a C
where you're gonna actually
get the tax benefit.
You can reimburse copays and deductibles,
non-covered procedures,
things that aren't covered.
And what's the weirdest
you've seen recently?
You had a piano guy, spa pools.
We've seen all sort of funky stuff.
- [Jeff] Yeah, the key
being that your doctor
has to prescribe it.
- [Toby] Doctor prescribes it.
One of my favorite was,
it was a child that had
eye-hand coordination issue,
developmental disabilities that they said,
"Hey, we can fix the treatment
"but the doctor recommended
was piano lessons."
- [Jeff] Oh, a treatment we
saw in Kentucky was horses.
- [Toby] Horses, yeah.
- [Jeff] Horses for people
with muscular problems.
- [Toby] Yep, and that's coming
on more and more actually,
especially for veterans.
We're seeing a lot of
the dogs and by the way,
we have a bunch of
nonprofits that we work with
and one of them that's just amazing
is when you're providing
service animals for veterans,
it will virtually reduces
the suicide rate to zero.
In fact, the dogs are actually atoon
to when somebody is depressed,
they'll come by them.
Because there's so many little
things that are going on,
after you come out of that situation
and I just think that's amazing.
So all that stuff may not
be covered by insurance,
they may say no.
But anything out of pocket, you can cover.
So yep, I see some of you guys are there.
Horses are awesome for the kids too.
Absolutely, what is the
service dog charity?
I have to look up the name, you know that?
If you will email me,
I'll put you in touch.
They were out of Arizona,
and service animals cost
about $50,000 to train
and they were getting
them done for about $5,000
with all their volunteers
and everything else.
So I'll get you that information.
I just had an old rapping with the guy
when I was in Phoenix about two weeks ago.
All right, let's keep going.
What's the rule for claiming
meal and entertainment?
Is it always 50%?
For example, if I take my
real estate broker to lunch.
Again, we have to change this.
- [Jeff] I was waiting for you to do that.
- [Toby] I'm just gonna put CPA.
So, you gotta take your
CPA to lunch, right?
See, for Jeff, 'cause
somebody's gotta feed 'em.
All right, "What's the rule
"for claiming meal and entertainment?"
Here's the first one,
there's none of this,
there's no more entertainment.
The Tax Cut and Jobs Act
did away with entertainment,
it no longer exists, you
can't write it off, ever.
It's out of the code.
For claiming meal, it's not always 50%.
It's 50% if you're taking your CPA
or your broker out to lunch,
but if you have a group of CPA's,
let's say you're doing
a continuing education
or you're selling a product,
you're doing a presentation,
then it's 100%.
Or if you do a holiday
party for your office
or your corporation, then it's 100%.
You can do one of those a year.
So it's like thank you,
IRS, actually it's congress.
Thank you, congress.
- [Jeff] Yeah, they were
actually gonna restrict it
even more than that
but they gave back some of
the different deductions.
- [Toby] Hey, this is
interesting, somebody says,
"I'm just starting to have
"rental properties and LLC
cashflow, managed by a C-corp
"but I'm afraid to become insolvent
"If I reimburse my medical expenses."
Don't worry about becoming
insolvent to your corporation,
the corporation just takes those losses
and carries them forward,
so it doesn't hurt you.
In fact, if you do take the expense
and you create a loss on your C-corp
and it just never is making
money and dissolve it,
you can actually take
those losses individually,
up to $50,000, $100,000
married, filing jointly.
280A is 100%, yep.
Oh, yeah, yeah, yeah, absolutely, Richard.
If you're talking about
if you did a holiday party
with the 280A, then it's 100%.
Or if you're doing 280A
and you're using your
house to do presentations,
a lot of people do that,
especially in home businesses.
For example, I have awesome clients.
Some do makeup, some do health products.
And you have it in your
home and you order up food,
it's 100% deductible.
- [Jeff] You could mean you
might have an open house
for a rental property or for a
flip, that's 100% deductible.
- [Toby] Open house, yep, perfect.
If you're doing open house
for your real estate,
that's great too.
What's this, "Can I write off travel?"
Somebody says, "I trade
stock and have family members
"who trade stock, you meet
and discuss trading strategies
"when I go to visit 'em,
"can I write off my travel
and meal expense when I go?"
Absolutely, if that's
your primary reason, 450%.
You just have to be careful,
there's lots of fun stuff
that you do to make
sure that it's covered.
And the IRS, by the way,
cannot tell you to go someplace
that's more convenient.
If it's in the North American region,
it doesn't matter whether,
if you live in New York,
it's the same as if you go to right,
like next door versus
if you go to Seattle.
IRS can't tell you to go what's closer.
"Do I need to pay taxes
for my new corporation
"if I have not generated any income yet?"
So this is a trick one.
You do not have to pay taxes
if you don't make any income
but you have to file a tax return,
so, you do not need to pay taxes.
So this is the trick, the answer's no.
File your 1120, if it's corp or 1120S.
One of the first things we wanna do is
we wanna capture all our startup expenses
on that first year return even
if you are whatever it is.
Even if you lost money,
you just wanna capture
it in your first year.
Right, fun stuff, we've gone way over.
I'm just gonna throw this back
up at you, it's 2Fer Tuesday,
which means we're giving those two offers.
Love that, so I hope you guys--
- [Jeff] Can't believe
we're doing to two of these.
- [Toby] Two of those, Tax-Wise business,
Tax-Wise workshop and Bulletproof.
Hey, if you love this stuff,
also go to iTunes and sign up.
We do these, make these into podcast
and I do a lot of other podcast,
I had some really great ones this year.
You can always go to
Google Play and sign up
and you can listen to all the episodes.
If you like these and you wanna
listen to 'em and watch 'em,
you can go to your Platinum portal,
we put the replays in there.
And if you really love this stuff,
you go to YouTube and
Facebook and register.
Again, it's our purpose
in life to make sure
everybody's super educated.
One of the reasons that
we do this and educate is
because you become awesome clients
and I don't like clients that leave,
I like clients that stay
and the smarter you are
and the more educated are,
the better you are as
clients which is awesome.
And if you have questions,
please do TaxTuesday @AndersonAdvisors
or visit us at AndersonAdvisors.com.
Few other little questions,
oh, there's a lot of
thank yous, thank you.
"How about a meal where a lender
"makes proposal to potential borrower?"
But, note, you could write that off 50%.
Just remember, when you write things off,
if you write it off from
your individual return,
it's at your tax bracket, that 50%.
That is not deductible if you
do it at the corporate level,
it's the max, it's a flat 21%,
so be smart about who's reimbursing.
"Can the expense of an
LLC, C-corp and S-corp
"that do not make much money
offset the taxes for W2?"
Yes, of course they can and
it depends on the business
but that's a lot of what we're looking at.
In fact, if you're a real estate investor,
it gets really cool.
Literally, today, I was
sitting there having lunch
with another cost segregation company,
it said accounting from
it does cost segregation
where we rapidly depreciate real estate.
And the average amount that
they were getting on
residential real estate,
it's about 30% of the
improvement value in year one.
What that means is they're creating
big, fat, huge deductions.
If you have a house
that's worth 300 grand,
they're getting somewhere around $100,000
of first year deduction.
And if your brain just popped,
well, that's because there's all sorts
of little nuances to these things.
If somebody's a real estate professional,
or either spouse, then
we take that personal.
So there's some great things
you can do, some absolutely.
Anyway, that is so much fun,
you can always contact us.
If you wanna have a free
consult, by all means,
do the 2Fer Tuesday Special
and we'll do a full blueprint for ya,
we're gonna save you some money.
And if you don't like it,
I'll give you your money back
but I've never had a single
person in 20 something years
who came through and didn't
say, dang, I didn't know that.
We're gonna get on something,
that's just how it is.
Jeff and I sit here and play this game,
we've been doing this, he's 29 years,
and I sit here and I've been
doing this three months.
- [Jeff] Oh, God.
- [Toby] I'm a lot younger than Jeff.
I just graduated again.
But we still find stuff all the time
to look at and research, there's
nobody that knows it all,
and so, it's good to have a team.
"Is the full blueprint included
in the Platinum membership?"
Absolutely, absolutely, in fact,
we do it through a five,
Platinum is five steps.
It's risk reduction formula,
we do the blueprint,
we will do a tax analysis
called the Keep More.
We're looking for Keep More solutions,
how you keep more of your money
and we look at your compliance
to make sure what's due when.
And then we do advanced
strategy analyzers every year
where we're looking at it saying,
"Are there any things that we can do
"that are gonna save you even
more big chunks of money?"
And so, it's awesome.
"If you already purchased the Tax-Wise,
"is Bulletproof available?"
For you, Kimberly,
absolutely, you tell Patty.
Yeah, we'll make it work for
you 'cause it's 2Fer Tuesday.
Jeff, anything else you wanna add?
- [Jeff] No, answer to
a previous question,
if your accountant says
they know it all, run.
They don't.
- I always say--
- [Jeff] And they're too
stupid to know that they don't.
- [Toby] You treat 'em like a bear,
you throw scat in their face.
- [Jeff] Oh, God.
- [Toby] That's what an Alaskan told me,
he says that you throw fresh
scat right in their face.
If you don't know what scat
is, I'm not gonna tell ya.
But then you say, "Where
do you get the fresh scat?"
And I said, "Don't worry,
if you run into a bear
"in the woods, there will be fresh scat."
I said, "Will it save ya?"
"No, they're gonna still eat ya."
At least you have a good story.
Hey, there's a bear, he ate a hiker.
Looks like the hiker pissed off the bear
by throwing scat in his face,
that's what's gonna happen.
Anyway, we've gone too long,
you guys have a good one.
We will see you next, and Mr.
Ron, "How much does it cost?"
Do the Bulletproof, that'll
get you in the door,
$197, we'll get you started.
All right, guys, twas fun,
we will see you next time.
(light music)
