2020 Business Tax Strategy Update | Mark J Kohler

Hey Mark Kohler here and a quick intro for this video. I will state in the video that I wanted this to be 30 minutes and I got carried away. There's so much killer content. So I just want to warn you now this is almost an hour long, but there's a table of contents down below in the description so you can zoom ahead to the parts you may want. And this is hopefully going to wow you with a lot of great content here. So grab a bowl of popcorn, a Diet Coke and hit it. And if you want seven hours of more content for my whole workshop video that I shot In December for 2020, it's only 99 bucks. You'll see the link below and it's awesome. So enjoy. And I think you're going to find a lot of strategies here that are going to help you save some big bucks in 2020. Welcome. Am so excited you're taking a moment to see what this video is about. I promise you right off the bat I want to say this. This is going to be the most comprehensive, life changing, mind blowing. I know that sounds bold. Tax Strategy update for 2020 for business owners, investors, real estate, Main street business I got some answers for you. Now some of you may be thinking, man, is there really more strategies out there? I thought my accountant or tax preparer was doing everything. Or maybe you're flying solo on TurboTax. Whatever the case may be, I want to give you legit strategies that you can use based on 2020 tax law. Alright, now a quick intro because I just want you to feel confident that you're getting legitimate advice from a licensed professional. Now I'm a cpa, Certified Public Accountant, Senior Partner in Accounting firm with amazing staff and partners and we've been doing tax returns for 17 years now around the country. Number two, I'm a tax lawyer. I'm a partner in a law firm. I've got an amazing partner, Matt Sorenson. We've been doing 10 entities and tax strategies and planning asset protection for the last 20 years as well helping clients around the country. And third, I'm a part of Directed IRA, a self directed IRA custodian that helps clients self direct their investments into what they know best and they can use their IRAs, 401ks and all different strategies. On top of that, there's no other tax attorney in America that's written more books, published more, has more blog articles, more videos on YouTube than me. And I say that humbly. Out there trying to spread the truth. My podcast for the last 10 years has broken down Strategy after strategy, trying to help people build wealth, save taxes and protect it. Okay, now with that said, there's going to be more links below on how to get to the podcast, my website and all that. This is not a sales promo to call my firm tomorrow. Some of you may choose to do so. But, but I just want to give you some practical tips. Get a pen and paper handy and we're going to break this down and then you can go over it with your tax professional, your business partner, your significant other and see if there's some ways here that you can save in your small business. Now I've said for years that if you want to save taxes, you've got to have at least a small business on the side, something that I can work with, ways to write off taxes. And I've got to be able to convert personal expenses that wouldn't normally be a write off to business expenses because they relate to your business. Now this could be as easy as a rental property. Many of you watching this are full time entrepreneurs with maybe hundreds of employees and thousands and millions of dollars of income. That's cool. Everywhere in between, it's the same concept and many, many of the same deductions and strategies, whether large scale or small scale. Business tax strategies for Main Street America Unique are going to be the same across the board and you're going to love them. Now they may not apply to everybody based on your facts and circumstances. So we're going to do this in a pragmatic way. Now I want to tell you this video I'm going to break down in three ways and as you may already see down below, I'm hoping to keep this under 30 minutes because this is a survey. I know you can't handle more than 30 minutes. You're going to want to, you know, jump off a bridge or something, but get your Diet Coke and some popcorn and your notepad and I'm going to break this down in three sections and I've got my whiteboard here to help make it even more self explanatory. I've got all sorts of blogs and podcasts and video library on my website where you can study more and even get a personal consult with whoever your professional is. But I'm going to hit the highlights so that you can say, ooh, I need to look into that or now won't apply to me. So here's the three areas. Number one, we're going to talk about structuring. I call it impact structuring because I want your structure to make an Impact immediately right when you leave the starting gate. Because a lot of people have the wrong structure that undercuts their strategies right to begin with. And I don't want that to happen. So I'm going to go through what structure in 2020 based on the type of business and income is going to help you save the most in taxes before you even get started. Number two, I want to talk about the hottest tax tips that I know of that I'm aware of now. We've got a checklist that might go from 10 to 15 to 20 in our office. I'm going to try to hit maybe in the top 10 or whatever the case may be. I'm going to see how this goes as I just feel it here and try to tell you the strategies that really help my clients the most. And number three, we're going to talk about investing the profits from your business because we want to invest the profits in a tax preferred way when we can get tax deductions that will help us on our overall return or in our business or build money tax free, tax deferred as the case may be. Okay. Impact structuring right out of the gate. I'm going to lay out how I'd like to structure our clients. And whether you are calling in from around the country, we're going to share our screen as you meet with one of my tax attorneys. And this is what you're going to see. And I don't know, make sure I move this rock star out of the way. I'm sponsored by Rockstar. At least I'm trying to be sponsored. I love Rockstar. This is the only one. The restore. Zero carb, zero sugar, no carbonation. Love it. Okay, now here we go. This is how I try to divide my clients lives into three sections. And this is just the foundation we're gonna build upon this today. First, I want your operations on this side. Many of you that have followed me before, I'm gonna just move quickly through this. Assets on this side over here, you're for those of you that have an operational business and may have risk or liability exposure, or you're making 30, 40, $50,000 or more. We're going to evolve from a sole proprietorship to possibly an llc. But ultimately we want to be in an S corporation. My successful clients that are making $40,000 net or more are going to ultimately be in an S corporation. And that's going to be one of the key strategies I'm going to break down here first on the structuring side. So this is how my clients will evolve. Some of you need to be an S corp already, some you're an llc. And I just had a client called one of my associate attorneys yesterday and they're making a million dollars. So proud of them. Llc. Their self employment tax, I'm not kidding you was over $60,000 between Obamacare, Social Security and Medicare. Unbelievable. No one they had no idea they could be an S corp. We're going to shave almost $40,000 off their tax return in one fell swoop. So I mean this is the type of impact a structure can have. So we're going to move through the sole proprietorship to LLC to S corp. I'll explain why in a moment. And then over on the asset side is really about asset protection. Let me repeat, LLCs do not save taxes. LLCs do not save taxes. LCSs give us the flexibility to maybe make an S election get protection report as a sole proprietor. But, but an llc, limited liability company don't think you're doing anything special except getting protection and maybe some options down the road. So over here is where we use the LLC to hold real estate, hold investments. So we're going to have this all funneled down into our trust. We're going to later build into this as we get into the third strategies portion of this video. We're going to talk about IRAs, 401ks and HSAs and more Roths, the whole nine yards. So all of this little smorgasbord of deferred tax strategies are going to be here, rental real estate up here, our family trust down here. And this is where we're going to have our home, our life insurance and these different structures flow down in to our family trust. So this is kind of the three legged stool, operational business, holding company trust. And then we have the bells and whistles of deferred tax strategies, life insurance, home and how it all comes together. So now I give one and two day classes. In fact if you're already getting wowed, and I hope you will by the end of this video, I've got a full day, seven, eight hours team I think in Orange County. I shot it in December for 2020. It's my business owner workshop. You can buy a recording of it, video, the whole nine yards with a workbook for 99 bucks. So you can get down below, get over to the business owners workshop virtual and watch it over and over again and you'll love it. But that's where I go into this for six, seven or eight hours. But I want again just Give you the overview in this video. Now on the structuring, we're going to work on this piece right now. Now, in the structuring phase, there's two main tax strategies I want to focus on and we're not worried about asset protection. Whole other topic, I've got a whole book just on asset protection here and my tax and legal playbook, I have 28 game changing strategies this and so much more. So if you're a reader, it's also on Kindle. You can get over to Amazon Tax and legal playbook. My publisher is Entrepreneur Love Entrepreneur magazine. I'm their tax and legal expert for their social media every week and they're the publisher of all my books. Okay, now here in the structuring side, the two taxes we're worried about or the tax strategy, sorry, are FICA Savings and the 199A deduction, which is a new animal since the Tax Cuts and Jobs act with Trump and the gop, we want to take advantage of this. So these two issues impact the structure in a big way. So when I have clients that, that are just, I'm just going to say option one, if I have a client that's just getting started, just selling on ebay, small business, maybe driving Uber, and they're not really making a ton of money yet, and I'm going to say under 30,000 net, now maybe they're doing a little catering business, a little food truck. Maybe they do have some liability need, liability protection needs. They're either going to be a sole proprietorship or an llc. And at this point I'm not going to care because the LLC doesn't give us tax strategies, it just gives us protection. But they're both going to go on what's called a Schedule E. They're going to go on your 1040 and you're going to maximize your write offs, which I'll come to in phase two and in phase three. We can still take advantage of a lot of tax write offs here, but we're not going to maximize our FICA savings or 199A deduction really until we start making more money. That's when it really starts to pay off. So right here, sole prop or an LLC, you're not making more than 40 grand net. And that's, that's kind of, I'm going to put under 40 grand net. That's cool. You're in this world now for all my other clients and that's many of you watching this that are making more than 40 grand a year. You Might be a dentist, a realtor, a broker, doctor, a plumber, electrician, a contractor, an attorney, a CPA, a financial advisor. You're selling on eBay, you're doing MLM, you're doing affiliate marketing, you're doing Amazon marketing. All that is ordinary income. And the first tax that's going to nail you is FICA. And when you're making more than 40 grand a year, and I know this strikes fear in the hearts of so many of the CPAs that may be watching this, we need to minimize your salary to a safe level so that you're not creating audit risk, but you're saving on fica. Now, it's a subjective analysis, meaning one accountant to the other are going to have two other freaking different opinions on this. And you've got to align your risk tolerance with the accountant that you want to hitch your wagon to, because they're going to drive this. And I want to give you what my opinion is and then you can figure out how you want to move forward on this. So we've got this S corporation that you're going to work towards because over here you're going to pay self employment tax of 15.3% on everything you net. But once you start making more than 40 grand, the S Corp really pays for itself. And even you Californians that are all upset about the $800 minimum tax, I get it, the S Corp will save far more than the $800 if you do it right. So when your money comes in, we're going to push it through our S Corp or an LLC taxed as an S Corp. We can have that version and we're going to split the income. We're going to split part into a W2 and part into a K1. And we want to find the right level of the payroll amount. Now I've got other videos on YouTube right there in my channel, I've got the Kohler payroll matrix. When to use an S Corp, how to maximize the S Corp. I've got a whole chapter on it here in my tax and legal playbook. So I'm just going to mention to you right now, one of the first strategies is making sure you do not take too large of a W2, which may range from 50 down to 30 to 20% of your overall net income. And some of you CPAs are like, oh my gosh, that's too aggressive. For 20 years we have been doing thousands of S Corp tax returns. I'm ex kpmg, my partner's Deloitte Arthur. We don't want to get audited. We don't want our clients to be audited. I've interviewed ex IRS agents on my radio show time and time again. We have never had a client audited for taking too low of a payroll and sometimes that payrolls low and well placed that freaks out other accountants. So learn about this. I study every case on what's called reasonable salary levels and I'm always learning which where we want to be. And I've created a spreadsheet, a matrix articles on entrepreneur.com that you can read on this very topic so that my friends and I'm going to even make a note of it is strategy number one in the structuring phase of things and that is saving on fica. So do your research and make sure this year if you're going to make more than 50 grand, 40 grand really is the break even in my opinion where we can start doing a split. Now number two, I said not only FICA, we want to maximize our 199A deduction. So for some of you that don't know this, when you make profit in your business you get a 20% deduction. So let's do some math. Let's say you're going to bring in $75,000 in income and we're going to spend 25 grand in expenses. And in phase two I'm going to go through some hot tips and we're going to write off as much as we can. Now when we have our net profit 75 minus 25. So I netted 50 grand. What is your 199A deduction? It is 20% of your profit. Now I'm going to let's move on to another fresh paper and let's zoom in. I know that was loud. My texts are all. You're making too much noise. That's okay, we're back to normal. Let's zoom in on that S Corp. So let's do it again. I've got 75 grand of income selling online services, whatever it is, I'm going to spend 25 grand on expenses and you're going to take home 50. Alright, that's cool. You take the money every week. You don't have to wait around for a paycheck. Easy schmeezy. Again, I teach this over and over again on my books and podcasts and personal consultations with my legal team for clients all over the country. So don't stress about this. It actually is very simple to implement. So you can take your LLC and tax it as an S Corp or just set up an inc right out of the gate, run your money through it. Now you made 50, you took it home. It's cool, take it anytime you want. But quarterly we're going to split it into payroll. And in this example I would do a 5050 split. You can read the matrix. The more money make, the more you save. But we're going to do maybe a $25,000 W2 and a $25,000 K1. That's the net. Now we don't pay FICA on the net. We only pay 15.3% on the W2. That's your Social Security and Medicare. The F word. FICA, we hate that. So if I did this as just a plain old sole proprietorship or LLC, I would make 50 grand and I pay 15% in taxes. $7,500. Routed it right out of the gate. But if I funnel it through the S corp, I only pay this 15% on half of the money. So I just saved $3,250 by converting to an S corp. Now to do the tax return and payroll and a little bit of bookkeeping to save three grand. And the more you make, the more you save. This is why every dentist, doctor, lawyer, engineer, accountant, plumber, electrician, realtor, broker, we're all S corps. This is why the S corps are awesome. I'll have a drink to that little rock star here. Mmm. Good year. Alright. Now this net is where the 199A comes in. So I get a 20% deduction on this. That's going to be a $5,000 deduction. That's called the 199A. And this was part of the Trump GOP bill to help Main Street America. They didn't change the tax rate because there's no tax on an S corp. It just flows through to your return instead of fiddling around with your an entrepreneurs tax rate versus someone else's. It was too complicated. They said, you know what, if you own a small business, we're going to give you a 20% deduction. That's the 199A. So if I get a $5,000 which is 20% times 25 grand, get a $5,000 deduction. I only pay taxes on 20. So the bigger your pass through, the bigger the write off, the less tax you pay. We're not even to tax write offs yet. This is structure. So now here's the dynamic and you can imagine why. A little bit of strategy with your consultant. And if you're a tax professional yourself, you want to find the dynamic between how much payroll and how much net. Now what do you want more of? Obviously more net, bigger deduction, less W2, less FICA. But is the IRS going to be okay with that? So you've got to find the minimum required salary that you and your accounting professional are comfortable with, then push everything else to net after your write offs. This dynamic is absolutely critical. And when you put your spouse on payroll, maybe you've got kids on payroll, you've got a 401k, a SEP, this thing starts to blow up and get really cool. So as a business strategy, this is why so many of my clients that have done their TurboTax 1040 for years, good, go at it. I don't even want your tax return. We're not going to save you any money with the 1040. There's nothing we can do. But once you start making money with a small business now this whole world opens up this whole new world. I won't sing for you where you can start saving taxes. So I'm going to leave that structuring alone now and we can talk later maybe. And as you read my book or other watch other videos on the LLC to S Corp dynamic payroll versus 199A and all the videos in my library on my website and the business owner workshop, you would love it where I really break this down even further. Alright, hot tax tips. I have chosen to focus on seven particular that I think are the most impactful for this year and what we're dealing with and the dollar amounts and the strategies. Now the first one I want to go over is and there's no particular order here so I'm just going to burn through what I think is low hanging fruit. So number one, I want to talk about travel. Now some of you may think why are you starting with travel? Well because I want my business owners wherever they go. Even if they're going to go on a vacation or they're going to go visit grandma, I want them to find a reason to make it a business deduction. And I'm just going to give four or five ideas real quick. Now again I've got articles on this chapters in my book and other videos on my YouTube channel where you can dive deep into this. The first one is why don't you go meet with a vendor, go meet with someone that you may be buying product or services from. You may even go meet with a client or a customer, someone that you might be selling a service to or building a relationship with. Number three, why don't you attend a conference are you going to? I hold conferences all year around the country. And you can get over to my website down here and look at the workshops this year I'll just quickly say Chicago, Seattle and Orange County, Honolulu, Philadelphia. And I think we're going to throw in a Dallas and a Minneapolis shortly. So. And we're doing Phoenix here in a couple months. So all over the country you can see us live. And going to a convention or a workshop is a great time to get some training and to make it a business deduction. And I talk about in a lot of my material how many days you can write off and what's too aggressive. So make sure you're thinking about all these sorts of things. Next, I want you to have your annual meeting, your company maintenance meeting. Even if you have an llc, you should be, have a, have a board of advisors and you should be having regular meetings at least once a year or more. And some of you go, well, I set up an LLC because it's easy. Yeah, it may not protect you in court if you don't maintain it and do all the little things. So that's, that's another major topic. So I'm going to put annual meetings or more so that you can be really getting your family involved and friends or whoever you travel with. And then number five, the last one I think is really powerful, which will come into the third phase of things is visit your rental property. Where are you buying rental properties? Do you own VRBOs, Airbnb storage units, single family homes, apartment buildings? I don't know. I want you buying real estate, which we're going to talk about later. So travel is a wonderful write off. Dig deep, make sure every trip I want to be writing off airfare, as many as the hotel, as much as we can, Uber, taxis, valet, all the things that come with a travel trip. Now this is not going to be dining or auto. We're coming to that. Okay, now let's talk about auto, not travel. This is driving your car, truck, suv, RV or motorcycle. I want to maximize the write offs. And these are the best auto deduction rules we've had in almost 40 years. Tax cuts and Jobs act took away the entertainment expense. Oh, I love that one too. But they boosted dramatically the auto deduction. So in the ARB structure that we talked about earlier, left side, right side, you may have an operational entity, sole, proper, LLC or a full on S Corp and you're rocking or you may have and you should, eventually you're going to have an LLC for your rentals we can be taking mileage over here, riding off one car on this side of the equation and we can also be riding off a car over here. In your S corp you may have a spouse with a vehicle, you may have children with vehicles. Wherever you have a vehicle, even a motorcycle or an rv, I want to talk about it. I've got some great blog articles on this in my business owner workshop. I even filled a lot of questions in the group about this. Now there's two options. When you go to auto, you can do mileage or actual. Now this year for mileage we at 57 and a half cents for business mileage deductions. So 10,000 miles is a $5,700 write off. That's going to be a lot more than you pay for in fuel. And I do math and a lot of examples in the workshop to go over this. But mileage is a lot of times going to be the choice of the small time entrepreneur, kind of the side hustle. But when we can, we want to bump up to actual. This is where you're going to take depreciation plus fuel repairs and maintenance. And this is where the bonus depreciation is even gotten better. And so if you go buy a new or used vehicle in 2020, new or used, and it's not an SUV or truck, first year deductions can be over $18,000. Then if you go by the SUV or truck and it's 100% business used or whatever percentage it is, the bonus depreciation can be unlimited. You could theoretically go out and buy a used Ford F350 for 60 grand even on credit, zero down. And if it's 100% business, I can write it off all in one fail swoop. Now the amount of income in your business and the type of vehicle and what how many miles you're putting on are all considerations. So I've got a great YouTube video where I have a little grid or matrix on when actual should be compared to mileage. And again, you want to dig deep and dive on that. I on actual I'm just going to put bonus or depreciation plus fuel repairs, you know, that kind of thing and maintenance. So this is the big debate, which one do you go to? And I'll say in general, the more miles you put on and cheaper the car we're going to go miles. The more expensive the car, the fewer the miles we're going to go actual. You want to choose the method and look at your entity structure to pop the vehicles of the whole Family in the right spot. Third, dining. Now, there's been changes in the law on this, and you want to be aware of what's going on. I think dining is highly underutilized because you can write off a lot of meals when you're out talking business with others and even again while you're traveling. And I'm going to give a travel example here in a moment. But with dining, I like to talk about three types, and this is really important. The first one is going out and talking business with someone. Very common, right? You're going to go out and have a little meal and you might pay for all of it. You may pay for. Just go Dutch and pay for your share. But if you're talking business with someone, another person, you get to write that off. And you can write off 50% of it, and that includes the bar tab, the tips, the whole nine yards. And so you want to write down the entire amount, then your accountant will whittle off half. The second one that we love, and this is very common, is when you're traveling for business, you don't have to have a conversation with anyone. You can write off the meal by yourself. So, gosh, what was it? Two weeks ago, I was speaking at a workshop in Salt Lake City, went out to one of the gas stations, picked up a hot dog and a drink. Maybe it was a rock star. Not sure. Grab some food. I think I went to IHOP for breakfast at one point. I wrote that off because I was traveling for business. So that is also limited to 50%. Now, the biggest change in the law has been the 100% food write off, which used to be, hey, if I buy food in the office, the bagels, the donuts, the water cooler, the coffee, or I have a staff meeting and bring in food, it used to be 100% write off. Now that's 50%. So this is food in the office is 100. I'm sorry, is now 50%. No longer 100%. Now, where you can still get on, I'll call it the fourth category you can still get 100% is if it's an event and you're providing food at the event, or it's a marketing presentation and you're providing food at that presentation, but there's more than one person in and they're not employees, and you're doing this kind of presentation. Think of it like an open house for realtors, and they've got wine and cheese for the walkthrough of the house or whatever. So when you're doing A presentation or an event, you're going to get 100%. The only time you can do it with your employees is when you've got this company party and this company party. There's an exception where you can do 100% for the food in those instances. But if all the employees are family members, not going to happen. So want to make sure they're third party employees. But dining is a big write off. Make sure you maximize it. And here's an example of what it would look like in your books. You're getting ready to go on a trip. You stop and have lunch on the way to the airport with a client. You have lunch, that's a 50% write off. You get to the airport and you have to pay for parking. 100% write off for travel. You get on the plane, 100% write off. You travel, you stay in a hotel, you uber around 100% write off. You stay one or two days and you do business for a particular reason in one of those days because the days of travel count as business. You do your business convention, conference, meet a client, meet a vendor, visit a rental property. All that travel is 100%. But while you're eating on that travel, it's 50%. So you're going to write down all the food, but the food and the travel are separate. And what about the car ride to the airport? You drove your car to the airport, that's an auto deduction. So you have auto to the airport, food on the way with a client, food at the airport for yourself while you're traveling, food while you're traveling, 50% and then all the travel is 100%. So you want to make sure you're categorizing this right and maximizing the write offs. And guys, the more money you make, the more we can write off because it's more legitimate. Now the next two are very straightforward and I may not even have to write on the whiteboard. The number four strategy I want to cover is home office. Do not be worried about the home office write off. It is an old wives tale that you're going to get audited if you do the home office. Also there's been the advent of the administrative office on and you know what, I am going to go to the whiteboard because there's two that you need to know about when you do the home office. The rule was before that had to be your primary place of doing business and where you met all of your clients and customers and that it was your only place of doing business. Now they allow for the admin office due to some lawsuits where people go home at night and still do work even though they had an office across town. Does that mean they're penalized? No, you can still take it and do administrative duties. So the first point I want to make is it could be your full time home office or it could be an admin office. Now, once you decide which category you're in, which is fine, then you're going to choose either the standard deduction or the simplified. Now the simplified, which I make sure all my clients take, even if they have the rental property deal, is that you can write off $5 per square foot up to 300 square feet. That's a 1500. So 3 times 5, that's $3 and 5. But it's limited to this. Sorry, I don't even want to cut the video. I'm gonna make sure I'm correct. It is $5 per square feet per square foot up to 300 square feet. So we got $300 times $5. See, I don't want to edit everything out of here. I'm real, keeping it real. That's a $1,500 write off. I want to make sure all my clients at least take the low hanging fruit and grab that 1500. Now if you have a bigger office and you do the square footage of your house and you're like, this is my home office area and it's exclusive and it's full time office, la la la. And you're in an area where the write off should be a lot more than 1,500. We're going to go and start taking a percentage of the home based on the square footage. And then we're going to take depreciation, we're going to take a portion of the utility bills, a portion of the mortgage interest, and really look for all these extra little write offs and try to get this north of $1,500 and everybody's going to be a little different. And we're going to try to figure out which one is in their best interest. But don't be afraid of the home office. You're entitled to it. You should take it. Okay, number five and I for sure will not use the whiteboard for this is tech cell phone equipment supplies. This is again where I have clients that don't really think outside of the box. Most business owners now today have a social media program, they have a website. They're going to need cameras, they're going to need computers and laptops and iPads and smart Watches, they're going to need cell phones for them, their spouse, the kids. And I want all that tech to be written off almost 100%. In fact, under IRS rules now you can write off 100% of a cell phone for the business owner, their spouse and the kids as long as you can show a home phone line use. So whether you've got AT&T U verse or DIRECTV or something where you can have a home phone line, great. Then cell phones for all the people involved in the business, 100% write off because we need those cell phones in the business. I want to write off drones, video cameras, studio equipment, whatever you need to maximize the value of your business. I, I want you thinking write offs for anything at Best Buy, Staples, Apple Store, Microsoft Store. All those things should be a write off. And you need to be thinking outside of the box. Anything that can be used in the business, I'm either going to write it off proportionally or the whole thing if I can. Now the last two get to be quite technical and I'm going to try to brush over them with as much detail as I can. But this really requires a lot of strategy and study and implementation with your tax professional. Number six is writing off your children as part of your business. Now, if some of you don't have kids, you can fast forward this over for a minute or just learn it. I'm not going to take too much time on it and you can be the next hero at the dinner party and share the strategy. But really we're talking about kids under age 18 and kids over age 18. And if you're a business owner supporting any family member. And I want to talk about nieces, nephews, grandchildren, parents, we want to integrate them into the business. And here's the main principle. Quit paying taxes. I'll even just play like this is your little 1040 and here's your adjusted gross income. Quit paying taxes and then giving your family money. Put them on the payroll and take a tax write off. They're going to be in a lower tax bracket and there's nothing wrong with it. It's been a mainstay of American small business since the foundation of the United States. Think about it. I mean, do you think the little stable boy that worked for his mom and dad, was he part of the business when they were, you know, leasing out horses or whatever? They selling horses back in New England in the 1700s or whatever? And think about the New York City deli right now and the kids working after school in the deli. Can they Pay their kids and take a ride off. Sure. Oklahoma Farm. Working on the farm and the children in the summer, young or old. Is that a write off? Sure. And we're, and we're out back on the west coast and in a home office and we're cleaning rental properties or we're putting up signs for homes for sale or whatever. Get the family involved in the business, even if it's just on the board of directors or advisors. That's such an important principle. I have a whole chapter in my book on this. Again in the business owner workshop down below. We talked about this for almost an hour. And the main concept here is again thinking about kids over age 18 and under age 18. Now this is where the structure, structure starts to expand a little bit. And here's what it would start to look like. So here's your revocable living trust. We do estate planning for clients all over the country. Whole other topic. And you may over here have your LLC with rental properties. And then over here is your operational business. Now this could be your S corp or let's say you have a sole proprietor or llc. Now if you're going to be paying kids under age 18, you can pay them as outside labor without issuing a W2. And I don't know how many times I have to get in an argument with some CPA across the country that says you got an issue A W2. Let me ask you this, what's the penalty for not issuing a W2? Because remember, on your own kids under age 18, there is no withholding. There's no FICA withholding, There's no workers comp. Now let me repeat that again. You can pay your kids helping in the business. You don't have to issue a W2 or a 1099. And there's no FICA, no, no Social Security, no Sudafuda, none of that. Because you're paying your own children in your business. Now if I hire someone else's kid, I got to withhold all that. Now I back all that up with all the support and material and write ups. And what's the penalty? The penalty is a derivative of the FICA withholding amount. There is no FICA withholding amount. I have talked to so many IRS agents over the years that are like, this is not an issue. I've had clients come to me that are getting audited on, on various issues. And, and the IRS agent looks and goes, what's this outside labor? Oh, it's for the kids. All right, done. I've had people that have used My strategies and get audited come through with flying colors. It's okay to pay your kids. Now, if you want to issue a W2 to fund a Roth IRA, we'll come to that in phase three. But you don't have to, so chill out. And there's no penalty because the penalty is based on fica and there's no fica, so we'll leave it alone. So if you want to pay your kids for helping with the rental property, you're going to call it outside labor. And this is your kid under age 18. Then over here you might have a sole proprietorship or llc. You're going to pay the kid outside labor. This is one of the most powerful tax strategies to shave off income on your tax return. And so let's say I, and I'll use an example of my own family. Now if you have an S corporation, you have got to do what's called a management fee. And on this management fee, you, you're going to pay a sole proprietorship. I call this a little sole prop. And this sole prop is a schedule c on your 1040. And this sole prop will pay the kids down here. And these are your kids under age 18. Now let me repeat this, so it's important. An S corp doesn't have children. People have children. A sole prop has children. An LLC has children. Now here's an example. When I had four kids under age 18, which I did, I have four children and they were all under age 18 at one point, trust me. So here they are, four children under age 18. Let's say I was paying my 16 year old, oh, six grand. That was Dylan, great kid. And I had my twin girls and I was paying each one of them five grand. They were maybe 14 years old. And then Molly, my little paper shredder administrator, I was paying her maybe two grand. Now if you add this up, that's $18,000. That's $18,000 of stuff I was going to pay for anyway. Soccer, school lunch, school clothes. But what I do in the strategy is I quit paying taxes and giving my kids money and paying for their stuff. I would pay a management fee to the sole prop, transfer money into their accounts and let them pay for their own school lunch and soccer and music lessons. This is totally legitimate. If all the kids have jobs now, this year, in 2020, and this is the big deal, no one pays taxes on over $12,400. That's the standard deduction. And I love this because I can go to my Little Mark Kohler 2020 calendar and you can look at the standard deduction for earned income. You still get to claim your kids as dependent on your tax return. You can still take the tax credit for children, but they're going to go out and rather than work for McDonald's, work for you. And now you get a write off. Now I could go on and on. You want to. If this is at all interesting to you and you have a small business and you have kids under age 18, you, you got to learn this. And if your accountant says it's a scam or something, I can't even imagine that you got the wrong accountant. And I teach this strategy to accountants around the country. So get the kids involved. And this was an $18,000 management fee in my S Corp. $18,000 of income, $18,000 write off, zero income. On my Schedule C, I just generated $18,000 write off. And if I was in a 30% bracket, I just saved 6 grand in taxes. That's not chump change. That's a big deal. Now once my kids, I've got three of them now over age 18, I just give them a 1099. I give a 1099 to my kids whenever they, I help them out with money because they're all on my board of directors, board of advisors. They're helping out with different business principles. They're helping out with marketing and management and all sorts of good things. And they may not, they're not acting like regular employees in my office every day. I do not have to issue a W2, so I can give them a 1099 when they're over. And I'm going to set 18 or over, I'm just going to issue them a 1099. So really, really good stuff. And this is very, very common. And you need to study up on paying your kids. Now, the last hot tip of your strategy. And we've still got a third phase of deductions that are going to help save you thousands and thousands of dollars in taxes over the many years to come. But in this section, two of hot tax tips, we've got to talk about health care. This is where the strategy of the health savings account, the health reimbursement arrangement or the flexible spending account come into play. Now the easiest way to describe this, again, lots of information in my business owner workshop on it and other little videos and books you can read up. I just like to say that because I feel bad that I'm hitting highlights here, but I mean this is why I give a one day workshop. So okay, there's four ways to write off health care in 2020, you've got. Let's see if I do this right. Boom. First one is itemize. And this is what the standard accountant thinks is the way to go. Terrible. 97% of Americans try to itemize and they can't write off their medical expenses because it's a derivative of your AGI. So if I make 100 grand, you have to take 7.5% times this, which is $7,500. Then you add up all your medical expenses. You can only write off anything over $7,500. So if I had $8,000 in medical expenses, then I can only write off $500. Stupid. Terrible. I don't want any of my clients itemizing. It's a waste of time. Now, if you're in a corporate position where you have what's called a flexible spending account, they're going to give you a certain amount of money that you can use and it is not included in your paycheck. But what do we know about the flexible spending account? You don't get to take it with you. It's a use it or lose it. And the use it or lose it is a wonderful way to save health care, but only up to a certain amount and then it's gone. And if you don't use it, you lose it. So if you have it for in your corporate scenario, you or your spouse take advantage of it. But we don't use this in small business. So I'm just going to put a line through it because this is small business tax strategies. Now, what I love to use is the health savings account or health reimbursement arrangement. This is for the healthy and this is for the unhealthy, AKA the Kohler family. Now in this strategy, what I want to do is set up a savings account for health care that you can take with you everywhere you go. You get a tax write off to put in money into it and then it can grow tax free and come out tax free. Now, this year, I'll go to my handy dandy calendar. The health Savings account is $3,550 if you're single and $7,100 if you're married. That's the write off right off the top of the bat. So let's write this down. 3550 or 7100 if head of household or married or family. Then if you're over age 55, you get an extra $1,000. Now by the way, I should put over here on this flexible Spending account. This is $2,750 per person on an FSA. So this is a big write off. And the money grows to tax free so you can pull it out for any medical expense at any age. You don't have to wait till you're older. So for you millennials out there in your 20s, you're like, man, I'll fund the HSA. Maybe I'll get married in five years, have children. I can dump this out tax free to pay for that deductible. Prescription drugs, eyes, dental, chiropractic, massage therapy, all these wonderful things can come out of a health savings account. So while you're healthy, you want to get a higher deductible, lower premium, and pump money into this HSA that you can pull out at any time. You know the number one reason for why people pull money out of retirement accounts prematurely? Health care. Health care. And so we want to build this health savings account so that you're not into that problem of pulling money out of your IRA or 401k with a penalty that's. And maybe even paying taxes on it. Let's just be careful. Now, the health reimbursement arrangement is a business strategy where you have this arrangement plan and there's two different structures, whether you're married or single, and it's unlimited for small business owners. And there's no account, there's no use it or lose it. So it's very different than the FSA or hsa. It's a reimbursement plan and you can reimburse your medical expenses. Big topic, whole chapter in the book. Talked about it in the business owner workshop. For 99 bucks, you can dive deep on that as well on all these topics and more. You're gonna love it. Another drink of a rock star here. Now that's number seven. Strategy is maximizing your medical deductions. And I'm not talking about medical insurance. Your insurance is always 100% write off in your business. Talking about the copays, the deductibles, the prescription drugs, the eyes, the dental, physical therapy, all that stuff. Again, we want to maximize a write off. And a lot of younger people thought, well, I thought medical was a write off. No, not unless you do it properly. So that is another 2020 update of how to take advantage of the medical deduction. Now, in summary, when it comes to hot tips, these are the top seven, in my opinion. And if you add into it the 199A and the S corporation, we're almost at 10, which I love now. I've got more write offs in phase three here. So we will get it. We will certainly by the time this is all over be into 10 or 15 tax strategies with current updates for 2020. But these are kind of the standard write offs that you're going to have in your small business. And I want to just again here, put this in a perspective, killing trees right and left here, put this into perspective of your business. And so as we start looking at this overall structure and we start to build it in your small business that may just be on the side or a full on S Corp or an LLC with your rentals and maybe this is for paying kids, maybe you don't have children, fine. But in this situation, what we're looking to do is maximize our write offs for our rental property and maximize our write offs in our operational business. And these write offs, these write offs are so important to make sure we take advantage of. We're going to have income maybe from multiple entities, multiple URLs, multiple DBAs. And this is what you'll learn about my strategies is you can have one S Corp in your life, multiple types of businesses. That's all I have. I only have 1s corp in Mark Kohler's life. It's an easy way to keep it efficient and save a lot on taxes. I want to maximize write off to kids for health care, auto travel, dining, home office, PDAs, equipment. All these good things are going to help you save a lot in taxes. And you want to know the numbers this year and make sure you're implementing. Now let's move on to phase three. All right, Phase three, and this is really the cornerstone of why we're having small businesses is we want to build enough wealth where we're not struggling in our older years. We want to have financial freedom as soon as possible in our life. We want to have financial flexibility. Now in my book the Business Owner's Guide to Financial Freedom, a very different book from the tax and legal playbook and let me explain why. The tax and legal playbook are these strategies that are all over the board for asset protection and tax savings and a little bit of wealth building. But I was just from the outcry from my clients. So like, well, Mark, I'm having consults with my financial advisor and they don't understand this. And when I go to my financial advisor, all they want to do is talk about Wall street products. And that's frustrating and I'm not trying to demean those out there watching that are in the financial Industry. But you know the word captive and what captive means is that when you work for a bank or a brokerage and which is 97%, it's ironic I use that number again, but it's in that range. And even Tony Robbins talks about this in his new book and Warren Buffett as well. The fees charged by Wall street and the banks in these 401ks and IRAs, it's almost criminal. And you, the financial advisor, you, you're captive. You're stuck under these big brokerages and banks and you can only sell their products. And if you talk about anything else, you're risking termination. So I am not captive to Wall Street. I love Main Street. And so I wrote a book titled these words were chosen very carefully. The Business Owner's Guide to Financial Freedom. What Wall street isn't telling you. So as you build this business and you start making money, where are you going to put it? How are you going to save even more in taxes? And how are you going to build it as fast as possible? And I've got some YouTube videos on the million dollar Roth IRA. If you haven't seen that, get over to my channel and I get some hate mail. I'd have literally people livid that I talked about a million dollar Roth IRA and how to get there. Because I talk about rates of return that you don't get in Wall street because you can self direct it. And I'm going to explain that term here in two minutes now. So in phase three, as we talked about, investing the profits from your business, I mean this is a 2020 business strategy update. I want to give you two major principles that I see my successful clients use. Number one, and I can almost say universally 100%. And I probably just because I've consulted with thousands of clients over 20 years, I better say 99%, 99% of my clients. And one of the biggest strategies in 2020 is investing in some sort of real estate that could be single family homes, it could be storage units, it could be apartment buildings, it could be commercial property. I know some of you do not want rental property because you see it as a nightmare. And you may live in an area where rental property doesn't makes sense numerically. You could be in Southern California, Northern California, for that matter, San Francisco, you could be in Hawaii. But why don't we buy rental properties somewhere else in the United States where the numbers are amazing? I have clients on the west coast buying in Tennessee, Oklahoma, Texas, Ohio, Illinois, in suburbs in the breadbasket of the United States, getting 10 to 15% ROI buying rental property that they can learn how to manage the property manager and have safe investments. And I'm going to just summarize with this. My wealthy clients buy real estate. Now here's the tax strategy as you buy real estate. And I've got four quadrants to rental real estate and my YouTube channel. In my business owners workshop I talked about the four quadrants. Please watch it. And I know Bigger Pockets has a way that they look at it. If you haven't heard of them. Great podcast. I love those guys. I, I have a little different twist on it. They love me, I love them. It's all friendly. But I love the rental real estate benefits because we're going to get and I'm going to just mention these four things I want to get tax free or tax deferred appreciation, meaning the property is going to grow in value over time. I'm going to get depreciation and amazing tax deductions to the point where I should have tax free cash flow, which is number three, tax free cash flow. And I'm going to get mortgage deduction, mortgage reduction because my tenants going to be paying down the mortgage. So what's happening is the property is going up in value, the mortgage is going down and I'm kicking out cash flow tax free. That's why wealthy people buy rental property. And it can be commercial triple net where you don't even have to look at it. You know, I've had some rental property I haven't even looked at in years and I've talked to my property manager. I'm not completely hands off, but I don't have to go over there and plunge a toilet. You can learn how to do this. If you don't know where to go for good real estate education, give me a call. I'll make some references for you. And it doesn't have to be terribly expensive either where you can learn how to buy rental property. And I teach my kids about this. My son owns a rental property. I am so proud of him. He's 24 years old and he owns his first rental property. I think that's awesome. My dad helped me buy a duplex when I got married. My wife will complain about it today. We bought a washer and dryer and had a duplex. We did not get to go on a honeymoon. Now maybe those financial decisions had numerical dollar payoffs, but I still recommend honeymoon. Anyway, whole other story. That's what my marriage counselor says. I'm just joking. I love my wife and Jennifer knows I love to joke about that. She's like, why did we have a small business and a rental property? Why didn't we go on a big cruise? Well, you know, money well spent. Okay now, but that's the benefit of learning how to invest in real estate early on in life. And I want you to pass on that legacy. I talk about three different strategies in my book in 2020. The benefits of being a passive investor versus an active investor versus a real estate professional. And you need to know those three different categories so that you can maximize your rental deductions. I call that a tax strategy, but it's in the third section of this video series or this video because it's about wealth building and tax savings. Now, the second benefit or the second strategy that I see so many of my clients use not only real estate because I said there's two of them are using tax deferred structures. Now, we're almost done, I promise you. But you're watching this video because you want to make money and save money. And I'm proud of you that you made it this far. And this is the money section when we're talking about taking profits from our business, pulling them out of our operations, not going out and buying more expensive car or living high on the hog month to month. I've got some clients that are making 500 grand a year and they're one month away from a disability and bankruptcy because they live month to month. You've got to learn to. We all have to learn on the importance of getting out of debt. Praise Dave Ramsey. Love him. But also using debt and strategic ways to build wealth. And that's okay. Where Dave Ramsey and I disagree. If you're smart and you're wise and you're careful, you can use debt to buy rental property. And it makes sense. Now back, sorry, get distracted again because I could be here for hours with you. Please get more of my content. Now the second strategy that my wealthy clients use to build wealth and save taxes are those tax deferred structures. So over here, off on the side is going to be our LLC with the rentals and I talk about how many LLCs and what state and all that in other videos of mine. But over here, what we're going to talk about and I'm going to just start listing there's so many and in fact, I'm going to do it in a strategic way here we're going to talk about IRAs, and when I say talk about it, I talk about it with my clients. We're going to talk about Roth iras, we're going to talk about health Savings accounts, which we already did is one of our other seven strategies. Because I want to build money in an HSA tax free and pull it out for medical expenses. I want to talk about the 401k and maybe even the DB plan. Somewhere in here I might use in the short run a SEP or a simple. But I'm not a plan. I'm not a fan of using these as a planning strategy for the long haul because in fact I've got videos screwed up and had to use a SEP. But I want to get into the 401ks and the Roths. That's where I want to be. And I can have a Roth 401k and I can have all these. Now the reason why I build it like a little pyramid, it's not because it's a pyramid scheme. And I love when Michael's taught what a pyramid scream pyramid scheme is on the office. Just go Google that. It's hilarious. Or YouTube. It's hilarious. But why I did this as a pyramid is because the more money you make, the more you're going to move up this strategy tower of probably a better word this tower. And I'm going to get into using Roths and 401ks and maybe even a DB plan. But I want all my clients using the basic IRA right out of the gate and learning how to save. I love Acorns. I've got some little links to on many of my social media on using Acorns. All my kids have Acorns account. I've got an Acorns account right here on my phone. The. You haven't heard of Acorns? It's a great little app. They should. I should be sponsored by them. But Acorns is a great way to have money taken right out of your account. Out of sight, out of mind and funded into our IRA or roth. Now why I bring up all this? And you said mark, you hate Wall Street. Oh yeah. Because I want you to self direct these accounts. Do you know my Health Savings account owns an Illinois LLC and it has a rental property on it. My Health Savings account owns this cute little meth lab. I mean it's adorable. The guys are great. I call them entrepreneurs. Lots of bling, but they're great. They pay their rent in the cash in a paper bag every week. But no, I'm joking. Well, it is low income housing but I joke around. But this Health Savings account along with my Roths and 401ks can own real estate, they can own precious metals. They can own a small business down the street. Your retirement accounts can be self directed. They can buy super bowl tickets and be sold on StubHub. That's right. You can get returns that far exceed mutual funds and be getting 10, 12 or 15% rates of return. Investing in what you know best. And that's a very common situation where I have clients call up and we'll set up an LLC. We've been doing these for 15 years where a Roth as an owner IRA is an owner. A Health Savings Accounts, an owner, 401K is an owner. And this is where we bring this whole picture together. So this is the climax of the whole video and I'm glad you made it. If I have my S Corp and I've got my little family management company hiring my kids, I may put my spouse Jennifer on payroll and give her a W2 as well as myself. So I can fund a 401k and my kids are on payroll even with the 1099 and they're over age 18 so they can fund a Roth IRA. My Molly, who is 16 years old has a Roth IRA. Her Roth IRA is partnered with my 401k in an LLC to do business. What mind blowing. And you're building wealth, getting incredible rates of return. Now I'm not saying all Wall street products are bad. I just want to say that, I mean I've got some mutual funds, I've got a money market account, but am I putting everything in Wall street bucket? No, you want to be creative and strategic. So in summary, again what I was saying is my successful clients are self directing their retirement accounts in buckets with their family members, with their significant other, and doing real estate. See these two different things going on. Got real estate in a bucket growing. And I've got retirement accounts in a bucket growing. These two buckets are what my successful clients use to build wealth. We're getting tax deductions to fund retirement accounts. We're getting tax deductions to buy rental property and we're building wealth and tax free cash flow. Boom. Is that crazy? That's crazy. So I want to use the profits from my businesses to fund these assets. And you can do it. So when I summarize this and bring together 2020 business tax strategies. And again, I'm so, so grateful you're watching this because I'm so passionate about this. I'm a geek, but I hopefully can break down complex tax strategies in an easy to understand format where even if you're An Uber driver. You compete. Seriously. And I do videos for Uber drivers and I love them. Every time I get in a car I'm like, hey, have you watched my Uber video? And they're like what, a hundred thousand views? You know, but. But I want these Uber drivers to know that they can incorporate, possibly fund a 401k and buy real estate with their Uber profits at night. They've got their day job, but they're not paying taxes on their Uber income and building wealth. That, my friends, is saving taxes and creating tax free wealth for the future with a side business. No one else can do that. Average income Americans, I don't want to say average Americans that could be making a lot of income. The corporate world need to catch the vision of small business, real estate, small business, online businesses, income so that we can build more wealth and have more flexibility and more freedom in our lives. People, don't give up. Keep studying. Keep learning. Talk to your financial advisor. Talk to your tax professional. Get my business owner workshop, 99 bucks down below. Watch it over and over again. Get your family around the table. Watch it after the super bowl, during the super bowl, at halftime, whatever. Keep learning how powerful a small business ownership can be and all the tax strategies that come with it. If you subscribe. I do a weekly video. I do weekly Facebook and YouTube Live. Answering questions around the country, around the world. And I'm not going anywhere. I'm going to keep publishing. I've got my 2020 business calendar. Eight steps to start and grow your business with little videos and QR codes. You can start watching immediately. Get over to Amazon and check it out. I'm not going anywhere. I'm not going to be selling you crap. It's highly overpriced. I want to help Main Street America. I want to help you. Thanks for watching. Keep living the dream. Don't give up. Thanks so much for watching that video. And I want to be your source for tax and legal strategies. It's hard enough to live the American dream without being out on the web on Google, trying to find answers to complex questions and just clicking a mouse, hoping you got it right. My team and I want to be a huge resource to you at the law firm, accounting firm, my education resources on my site. Please continue to follow these strategies. 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