396: How To Pay Less Taxes | Real Questions, Real Answers, Real Lawyers

Can they file documents to reclaim taxes they had to pay to the IRS from the capital gains?

Is Klaus Schwab a freaking genius or what?

Well, can I use the rebate cash from both my personal and business cards to fund a self directed custodial account?

There are a lot of these credit card companies. Capital One is issuing a 1099 now. At the end of the year, I plan on withdrawing rental real estate from a self directed ira. How can I take the depreciation on the vehicle if it's in my name and not the business?

Are there any special considerations for a side hustle when retired?

Welcome everybody to this week's episode of the Main Street Business podcast. I'm here in studio in Phoenix.

Yeah, baby. So excited.

Today is the open forum where we answer questions from around the country, around the world sometimes.

Yeah.

Clients stationed abroad and military bases and this, that and another. People that are investing in real estate in the United States. Well, we're going to do our best to rock your world. We got some great questions today. Yeah.

And hopefully you've got them down the tax and legal category. That's the stuff we love. We're all about building the American dream, learning how to save taxes, maximize your asset protection and get your crap together on the legal front. Now this is a question that came in actually on the directed IRA podcast since the first. And this was Garrett who put it on the wrong place, but all right. Garrett asked. Good day, gentlemen. This is from Florida. Hope all is well. I spoke to an individual here in Orlando who sold a residential home and got hit with capital gains taxes from the irs. Later they bought another house. Neither properties were investment, just owner occupied. Can they file documents to reclaim taxes they had to pay to the IRS from the capital gains? Okay, great question. Now, if this is an individual home, that was their personal residence. Okay, there's the sell of home exemption if they lived in it and owned it for two years at least, where they could exclude 250,000 again if they're single, half a million if they're married. So now what happens when you sell a home is you're gonna get a 1099s sell of proceeds generally in the closing process. There's a form that you can get that says, hey, this is my home. I've lived here and owned it for two years. Check a box. And that will stop the title company from sending you a 1099s of sales proceeds. Now, I don't know what happened in the closing process here or if this even was an owner occupied Home. Okay? Assuming it was and it met those criteria, they owned it and lived in it for two years. It was their primary residence. They could exclude that capital gain that we mention. And if the IRS hit him with penalties and tax, they could possibly go back and amend. They probably should have disputed this, though, when that happened. But that's the general rule for him. Because you said this is an individual home.

Yeah. Now, this is a good lesson for everybody. Pay attention. What's this?

Garrett.

Garrett. Okay, Garrett. Garrett fell prey to a common situation. He's at dinner at the bar, and someone goes, oh, I ended up paying taxes on the sale of my home. Garrett, you may be only getting part of the story. I'm telling you, if a CPA missed the sale of home exemption, it would be malpractice. This is like tax return prep 101. So you have to think, also, Garrett, this bozo may have prepared their own tax return because you would never miss this. There is not an accountant on the planet that would not say, is this your own home? Did you live in it two years? Because that's just so. Something's weird. Either this guy is full of crap, or he really didn't meet the test and he wants to blame the world and blame the government. Next thing you know, he's going to be living in a bomb shelter. So just. Garrett, everybody out there, when anybody says, oh, I paid no tax or I paid too much tax, you're like, why don't you bring your tax return? And let's really look at it. Whoa. You know, someone's just complaining.

Yeah, let me say this, too. Maybe it was a second home. All right? Maybe they did actually have an accountant. Maybe they'd actually kind of know what they're in. But it was a second home. Okay, well, second home, you're not going to get the sell of home exemption. This is in Florida. They got their second home. They're living there. You know, they're wintering there, whatever. They're not going to get sell of home exemption. And they can't do a 1031 exchange either, because it wasn't an investment property. So, you know, if this was an investment property, because you said they bought another property, they could have possibly done a 1031 exchange. The second home, though, no 1031 exchange option, no sell of home exemption would sound about right if they had to pay capital gains tax.

I will reserve the comment on not a 1031 for a second home. Let's think about that one. Stay tuned. If you're listening today, that's a regular guest question. The second home classification has really gone away with the schedule A.

You can't write anything, can't take any interest.

To me, a second home is an investment property. I think you, as long as you

rent it out and have some income on it.

No, you could do a raw land that has no rental income and do a 1031. I mean, rental income doesn't make it an investment property. I'm reserving. I'm not saying I disagree with you, but I'm feeling something's there. And if we've got some professionals listening, go. Whoa, whoa, whoa. Next week we're gonna have an answer on that one.

Okay, I like that one. All right. Maybe also we'll be hitting it at the Real Estate Tax Summit.

Yeah.

Real estate taxsummit.com, baby.

Oh, yes. Two day real estate tax Summit in Austin, Texas. We got a live band on Friday night. If you come in person, no matter what ticket you purchase you, you're at the party on Friday night. The after tax party. Wear a cowboy hat, get a drink ticket, wear cowboy boots, get a drink ticket. It's gonna be a party.

Can I double down on that cowboy boot? Cowboy boots and cowboy hat. And get two drink tickets?

Yes, you can.

I mean, this is not, you know, these are promotions you can use at the same time.

Yeah. And after doing two days of tax

training, we don't have any restriction on there. Cannot be used with any other offer. No, no.

And if you have two days of tax training, you're gonna want two drinks. So. All right. Okay. Now we got another question here. This is from cms. He titles it the Great Reset. Now this is a really interesting and good question. He says, Klaus Schwab's comment.

Klaus.

Klaus Schwab's comment. Sorry, I'm just thinking of Christmas. I'm already in the Christmas spirit. Okay. You will own nothing and be happy. End of quote. Always stuck in my craw. I much prefer Charles Schwab to Klaus Schwab. Anyway, after binge watching your podcast for the last couple days, things have all fell neatly into place about 5:30 this morning. And bless his heart, I mean, this is for people that can't sleep at night. You listen to our podcast. So I love this. And he says, you will own nothing and be happy. Omg, he is right. And then he says everything, my business, my house, my car, my brokerage accounts, my computer, my coffee cups, my pencils, will all be owned by Revocable Living Trust. I will indeed be very happy knowing I'm Protected. We're going to come back to that. And when I'm gone, my heirs can avoid probate. My own personal great reset. Is Klaus Schwab a freaking genius or what? Well, okay, cms, everybody out there. This listener has it half right. We don't want you to own anything personally, to avoid probate, to make sure your assets go to the right spot and to have privacy. Absolutely love the privacy aspect of this. And avoiding probate, all the estate planning. But I hate to break it to you, cms, there is no asset protection with a revocable living trust. That's not its purpose. It is to provide the things I just said, asset protection. I mean, to provide privacy and a plan for your heirs and those sorts of things. And so, sorry, I'm flipping from the converse to the positive. So the point is, dang it, everybody is. A revocable living trust is not doing what you think it is. If you're thinking you're getting asset protection, it's for all these other reasons. So Klaus Schwab, when he says you will own nothing and be happy. A lot of times people say that because they're trying to get rid of your assets for tax planning and. But you get the use of them. That's a fringe planning realm that we don't go to very often. And so I feel bad, cms, if you think we're telling you to not own anything. I want you to own it through your trust, but it's not for asset protection. Now we have asset protection strategies, but it's not the rlt. I don't know. Did I make any sense and all that?

Yeah, I mean, I love it. You always just take the hard question right out of the gate. You know, I love it. You know, not intimidated by anything. All right, I'm going to go down to. This was from Small Business Equalizer. I don't know. We got to get these names on this thing figured out. But this is about rebate cash from credit cards. Says, hey, Matt, big fan of you both. But he did give me the shout out, thank you. Or she, whoever this may be. Can I use the rebate cash from both my personal and business cards to fund a self directed custodial account, or in the case, the qualifying self directed entity that manages my company trust T and R retirement accounts at my bank.

You're saying I chose a hard one. Wow.

There's some other points here I want to make on this, but we got a lot. Okay.

Unpacking this baby is going to be nice.

Yeah. So now to Contribute to a retirement account, you can only contribute dollars and you have to meet the contribution rules. So the fact that you have rebates from credit cards, which I'll comment back.

Yeah, you talked about accounts. I'll hit what rebate has all and

all the tax on.

So.

All right, I want to answer that too.

Feel free.

Feel free.

Okay. Say what you want.

Okay. So don't think of it like, oh, I've got, you know, let's say I've got $5,000 in cash back on a credit card. Okay, well, I'm going to get that $5,000. Can I contribute that to a self directed retirement account? Yes, but you had to have 5,000 of earned income. Now this is the interesting point. Rebates, cash back on retirement on any credit card, whether this is personal or business, is not taxable income. Right.

That's where I was going to comment.

That's why I was giving you the past.

There it is. Taxed. A lot of these credit card companies, Capital One is issuing a 1099 now at the end of the year. So cash miles are not taxable and points are not taxable. But if they send you cash back, they are issuing a 1099. These, a lot of these credit card companies. Now, if you don't get a 1099, you might want to play around with that. But yeah, so the re. So really equalizer. And this is good for everybody. There's really two conversations going on here. What do you do with your rebate cash? Is it taxable? Generally, I would say yes. But saying, oh, that's extra income that I want to put in a retirement account, I like that. But you got to meet the rules. So I think we're just two different things here. And I love it.

Yeah. So let me, let's dive deeper because the next thing to talk about there is if you're a business owner and you're using your credit card for points. Right. And you want to go travel, you should be using those points to travel personally.

Yes.

All right. Because otherwise you have to take money out of your business, pay tax on it. You know, at the individual level. Just think through this and then you're going to pay for it. Well, I'd rather use those points that I've accumulated that are not taxable and use those for my personal travel, not use them for my business travel. Because if I pay for business travel from the business, I get a business write off. I get an expense for that.

Yes. And I'm going to go back to the retirement account thing. I think what you're trying to do here, small business equalizer, is say, hey, I've got this extra income. I didn't plan on this year. This is a good chunk of money. Three grand, five grand, who knows how much. I'm going to put that in a retirement account. I love that. We love that. And would you want to put it in a self directed account? Absolutely. Which could open up an entity and do real estate and all sorts of things. Absolutely. And if this is extra cash coming in the door that you otherwise didn't plan for, don't go spend it, don't go buy the big screen tv, go put it in your retirement account. It's just you got to look at the rule. Where am I at in my overall income? Do I qualify for a Roth IRA? 9 times out of 10 you're going to because you're going to have some earned income somewhere. But you just got to double check that rule. But I love taking this excess cash and putting in a retirement account.

Yeah. And remember, you need to put it in the retirement account first. If you have an entity that, let's say a solo K owns it looks like that's what you might have here. Right. You contribute to the account, whether it's a bank account or a custodial account at directed and then that money goes into the LLC or entity you may have that is that that's invested into. So just make sure it hits the account, the bank account or the custodial account first.

I've got a good question here. I kind of want to. I want to know your answer here. I don't think I can answer this one. I like this. This is from AI or no Tax Strategies. Oh, who knows? We got to get these usernames down. Okay. I plan on withdrawing rental real estate from a self directed ira. Okay. That is a whole topic in and of itself. We have a whole podcast on that. If I take 60%, will the IRS hold 20% for taxes? And how would they do that if there is no cash available in the self directed Iraq? Can you unpack that a little bit? I have questions about the withholding. I don't know the answer to that. Yeah.

So great question.

So start with cash.

Okay. Yes. Okay. Let's say if you want to take a distribution of cash from your retirement account and it works the same if it's an in kind asset like rental real estate too. Okay. Okay. You're going to submit a distribution request. Right. It's taxable to you if it's traditional. And if you're before 59 and a half, you're paying a 10% early withdrawal penalty. Right. These are just retirement account distribution rules. So if it's $100,000 of cash or a piece of real estate worth 100,000 and you're taking out of your IRA and you want to use personally, you're going to get a 1099 for 100,000. If you're not 59 and a half yet, you're going to 10% penalty, which would be a $10,000 tax. Now, the withholding question. IRAs, you can opt out of withholding and say, no, I'm already good for the I'm going to otherwise take care of it, or I'm good and you can opt out of withholding. So when you do a distribution request at directed ira, we have a box that you check to say, opt me out, don't withhold. Or you can designate a certain amount to withhold, or you can say withhold 20%, which is a common withholding. Now, 401ks and employer plans, you can't do that. Is mandated that you have withholding to the federal government. So the rules are a little different on that. And that would include those of you with Solo KS, by the way. So IRAs, you could opt out. So AI in your question here, I don't know if this is Allen Iverson probably, but Allen, just so you know, don't worry about the cash, okay? You could opt out of the withholding. You want to settle payment of those taxes that may be due with funds outside of the retirement account. But you can skip the withholding by opting out, which is, frankly, what most people do.

And I'll throw this out too. I'm going to add another twist. If that was complicated, it can be here. Let's say you have a traditional Iraq that's or a 401k, that's when this would apply. It's not going to apply in a Roth because if you're pulling money out of a ROTH after age 59 and a half, you just take it. A lot of clients that have real estate in a traditional IRA are kind of converting it to Roth along the way. So when they turn 59 and a half, they can just deed themselves the property at any time, tax free. That's the real trick to this is doing some conversions while the appraisals are low to Roth and then pay the tax along the way and then, boom, deed the property yourself after 59 and you're good to go.

Yeah. And just so people know too I don't love this strategy. It's not something I would do. People do it, though. Like, I own real estate. I want to get out of my IRA or for whatever reason. Okay, take a distribution. Do it in kind. You can, but I'm just not saying I don't want people listening to this question being like, ooh, is this something they recommend and do? Not really. It's just. We're just building the questions here.

You know, I think to keep in mind that a lot of people ask the question, well, if I take a distribution, whether it's real estate or cash, who pays for the tax? You do not your IRA. So if you say, I need 80 grand from my IRA to go pay a bill, a medical bill, or whatever you're gonna do, if you take out 80 grand, you're gonna have tax owed on that 80 grand. Well, I don't have money to pay the tax. Well, then you better take out 100 and pay the tax on the 100

to get the 80.

So you kind of have to work backwards on that.

Yeah. Which, by the way, that extra 20 you took out, you got to pay tax on that, too. So it's kind of like this circular thing of, okay, I'm not going to take another 2,000 more to pay tax on that and then another 200 to pay tax on the 2,000 more. Yes, yes, sorry.

It's an equation. Your Congressman, we can help you with the equation. What you want to do is say, how much cash do you need in your pocket after taxes? Then we can work backwards and say, okay, here's the distribution, what tax bracket you're probably going to be in. Then you can do the withholding thing. I would recommend, if you don't have that money sitting around for next April, do the withholding. You don't want to worry about this unless you know you've got cash sitting somewhere else, because this catches a lot of people off guard. So, like, oh, I need the money now. I'll just take it. I'll check the box. No withholding. And then next April, your sol. And I'm not talking statute of limitations. Okay, thank you for that answer, Matt. Yeah, I didn't know that.

Okay, well, the IRA questions, guys. I mean, you guys, these are directed IRA podcast, but, you know.

Okay, let's go to auto. Auto's a good one for everybody.

Okay, good.

Is that all right?

Yes, love it. Okay.

This is from me, can. Oh, 05. I purchased a new auto, but it is in the name of me personally, very common. Everybody. Even if You're a business owner. You're typically going to buy your cars in your own name. However, I use it 80% of the time for my LLC or S Corp. Great. How can I take the depreciation on the vehicle if it's in my name and not the business? Well, everybody out there and Mino05, the IRS gives a rat's ass who owns it. They just want to know if you're using it for business. So don't worry about who owns your truck, don't worry about who owns your car. Don't worry about what's on whose name's on the mortgage or the loan. The car loan. If you use it 50% or more in the business, we're going to do a journal entry and put it on the books of the business. And that's when you can actually depreciate it. Take bonus depreciation, fuel, repairs, maintenance. If you only use the vehicle less than 50%, then we're going to do mileage. That's your only option. So in order to do the depreciation thing, it has to be 50% or more. But at no point does the IRS care who the freak is on title. Don't worry about that. Just make sure you could prove mileage record or whatever that you used it 80% or more in this example in your business. And you're good.

All right. Okay. I've got my favorite question of the podcast here. It's a great, great question. Good context in it, too. The subject was called side hustle and retirement. Are there any special considerations for a side hustle when retired over 65 on Social Security and Medicare? Here's their specific situation.

Repeat that for everybody. Okay? Are there any special considerations for a

side hustle when retired over 65 on Social Security and Medicare? Let me read the question. Okay? Just bear with me. Hang in there.

I just wanted to get the question

and everybody listen because there's some good context in this. Our specific situation. Married, both of us over 65 New York City residents considering moving to New Hampshire. My side Hustle single member LLC doing online retail grew to be enough to live on years ago. The LLC was not set up with asset protection in mind. Not interested in rental real estate. Been there, done that, bad tenants, never again. Okay? We live a modest lifestyle, so Social Security plus our IRA requirement distributions should be enough to live on going forward. The side hustle, if I continue it mostly would be to reduce the federal tax and give me something to do during the long New Hampshire winter. I can shrink the business To a point where it wouldn't trigger New Hampshire business tax. On a side note, I need to contact you to set up a trifecta. My parents had a revocable living trust and it made things so incredibly easy for us kids.

Okay, I got a lot to say. Go ahead. You first.

Right, right. Case, this is great. Let me hit, let me kind of hit a couple questions here.

Oh, you're going to get two of them.

Okay, let me do one.

Okay, we'll go. Jeez.

We'll volley.

Greedy, greedy, greedy. Okay.

All right, I'll hit it over to you. Okay, let me get the first thing in here that's kind of built in this because they're asking about the special considerations here. They said the LLC was set up without asset protection in mind. Now what do they do? Single member LLC doing online retail. If you're listening to our asset protection series, episode one or we get into this, do you have risk? What are your risks? Is in your business now, they talked about. We're not doing rental real estate. We've been there, done that. We had a bad experience. Cool. I get it. That's not for everyone. We're just. I just got this online retail business.

Not a lot of exposure.

I'm not worried about asset protection.

Are you selling dynamite? Are you selling fireworks? Bungee cords? Yeah.

What's the online retail business? You know, if this is your Beanie baby store on ebay, I'm not too concerned. Very safe. Soft, you know, you know, dynamite. On the dark web, that's a different online business.

Okay, and where Matt's going with this, everybody, I'm going to ask this question. I'm going to ask the room. I've got our whole studio here. Do LLC save taxes? This is where you all comment. No, they don't. They're all. You can't hear them on the microphone. They're freaking out over here. They're yelling, no. LLCs do not save taxes. Well, and if you didn't do an LLC for asset protection, why do we have an llc? Now we're going to discuss that, but that's a big point. I like where you went with that. Okay, can I hit my point?

Yeah.

Oh, cms, I do not like your comment here. Listen to this, everybody. The side hustle. If I continue, it mostly would be to reduce federal tax. What? I'm making money to make money, which is going to increase my tax. Now, I mean, we're going to go harvest as many tax write offs as we can. But I don't want you to Have a business to save taxes per se. I want you to have a business to make money and you're going to get kick ass write offs along the way. See the difference in perspective. And then he adds insult to injury and says and I'll shrink the business to the point where it wouldn't trigger New Hampshire business tax. What? Don't shrink your damn business. Go out and freakin take over the world. Make as much money as you can. New Hampshire business tax rate, what 3 to 4%? Who gives a rant size? Maybe it's 20%. I don't care what the tax is. Make $100 and pay $20 in tax. Don't say oh I don't want to make more money, I'll pay tax, go make money. I'd rather have $80 than no dollars. So I just CMS please go out and make money. And yes, we're gonna write off everything under the sun. Home, office, auto dining, computers, electronics, cell phones, Apple store, Best Buy. We're gonna write it all off. But don't stop making money. If you've got a good thing going, go.

Yeah, and those long New Hampshire winters, I mean what else are you gonna be doing?

Count money? Sit there by a bar.

Exactly. Sit there like so. I love it. And you're, you know, moving out of New York to New Hampshire. You're gonna have great, great tax savings there on the state and city side, you know, so. But the last thing I was just gonna say on this, and this is I think a good point, one of the reasons I like this question is they talked about they're like we need to get our vocal living trust done.

Yes.

Sometimes I think we get a little distracted by other things going on here. And that's probably what I'd be doing for you guys first. This is your first consideration. All these other tax questions you have in here and asset protection. Stop. Get your revocable living trust in place. You're in retirement, you're over 65, you

could die any minute.

Get this done. And you know, and you know, okay, the value of this. They even said in there, my parents had a revolt. Living trust. And it made things so incredibly easy for us kids. Doing an estate plan and getting your trust done is not for you. It's for your family, your kids, your spouse, if you have one that you leave behind. You need to make it easy for them. So do it for the kids, do it for the next generation. That's where I would start right now in your planning.

Yep.

Now I don't worry about the llc. Don't worry about some of this tax stuff. Like Mark said, go make money. But get that estate plan done. That's your number one to do list.

I love it. Love it. Now, this question is just power packed with content here, because I'm not. When I kind of went off on the LLC issue. Let me make an important point. I'm not saying get rid of the llc. You actually might convert that LLC to an S Corp, which would be perfect with an online business. And so when you're in those New Hampshire winners, stay online and just double down, triple down, make more money. Let's convert that LLC to an S Corp. And even though you're over age 65, why don't we start taking the profit from your side hustle and pounded it into a solo 401k. We're going to have a 401k special coming up in here in November. Get your S corp 401k combo done. We have a special for that just coming up in a couple months. Now think of the side hustle. Putting more money away for a rainy day. Who knows what the future is going to hold for you. Let's take that side hustle. If you don't want to pay tax on it, bam. Let's throw it into a 401k. So you've got the S Corp option down the road, the Solo 401K. Go out and make money. Enjoy the ride. I always just get so upset when people go, I don't want to make money because I'll pay tax unless the tax rates 100% go make money. So, okay, sorry. Hit the table. Joe and I got in trouble for that last episode. All right, all right.

Got a question here from Keith. Now, he threw this in on the directed IRA podcast, but it's really Main street business topic. And this is Keith from California. And listen in on this one because I know you're gonna have something to say. I certainly do. Okay.

Matt knows me all too well.

Yeah, I know. It'll get him a little. And it ain't like two rock stars. This does it worse.

Okay.

I set up a California irrevocable trust.

Oh, my gosh.

And became the sole trustee. And I set up a Wyoming LLC and sub S Corporation in order to trade stocks. Are the assets in the trust susceptible to California taxes? Or Wyoming on any monies earned through the Wyoming corporation and LLC trading stocks.

You know what? I'm not upset.

And this is Keith in California. I'm not upset at Keith. No, I said it.

Whatever.

Dumbass set this stuff up for you, Keith. Yeah, that's what I'm pissed about.

You know, I. Yeah, I've got a little different feeling today. Usually I just start throwing shit around the. When I hear that, but I just hurt for Keith. This is going to be a good. What do you call it? Consumer protection broadcast statement.

Yeah, this is a public service announcement.

Public service announcement. So, Keith, you got sold a bunch of crap you don't need. I can almost say that, like equivocally,

like unequivocally, like 99.9% sure. You don't need that crap. Okay. Keith, you're in California, you're trading stocks. You don't need a trust. In an irrevocable trust, you're filing a trust tax return. Guess what? Trusts pay the highest tax rate period in the tax code. You just signed up, raised your hand to the IRS and said, hey guys, I want to do this structure. How can I pay you more money? That's what you did.

Yeah. Now let me throw out. You're going to be. Keith's over there going, uh, I set up an asset protection trust and it's a non grantor trust and it's this, and it's a spendthrift trust and, and it's a Delaware statutory trust and it's this, and it's a Commonwealth Nevada, blah, blah, blah, BS trust. I mean, you've been sold all these terms that you're getting asset protection and there's no tax or there's no this. Frankly, there's so many. You know, this is on the dirty dozen, top 12 of the IRS for audits. They are all over this like white on rice. So these folks that are selling these asset protection trusts can make all sorts of promises. A lot of times you end up with taxes. A lot of times you're trying to get the money out and you can't without exorbitant taxes. They're very, very complicated. The same people that are selling this trust, you are not doing the tax return next year. They throw you out to the world to good luck. So topic number one of this is, everybody, here's your public service announcement. Be so careful if someone sells you an irrevocable trust, get two or three opinions, call our office for an hour, pay for it. If you're going to spend thousands of dollars, which I'm sure Keith did.

Yeah.

Get a second opinion.

Yeah. And these irrevocable trusts, one thing I think is there can be some asset protection components to it. But for stocks, I don't know, maybe you've got a really large, you know, net worth and you've got some risks where like this type of really, really expensive and tax inefficient planning may make sense, maybe, but 99.9% of clients we run into, this is way more havoc, way more problems, way more costly, not worth the money. Guys, we could sell those for tens of thousands of dollars. You think we would be loving this stuff? We know it doesn't work. We wouldn't do it for ourselves. Why we'd be recommending it for our clients. So avoid these irrevocable trusts. Maybe, maybe there's a small sliver that works for. But not only get an opinion from another lawyer, I would say know who the CPA is that's doing the taxes before you sign up for that. Ooh, I like that.

Talk to your.

You'll even talk to lawyers that sell these things and they'll be like, well talk to your cpa. They know you don't have one because they know that CPA being near being like, dude, you're gonna die on these taxes. I don't want to do this. The audit risk, all these other issues. So, so be careful now. There's more to this.

Yeah, yeah. And let me say on last thing, on the irrevocable trust in my book right here on the counter, the tax and legal playbook, I have a section on irrevocable trusts. I put my money where my mouth is. I explained the risks here of going down the irrevocable route. And it's not multi million dollar people that are worth millions and millions have irrevocable trust for certain things in very specific situations. And then what happens is they go out and sell them to the masses, to the people that really don't need them, can afford them, or will really get the benefit out of them. And so we're not saying they're illegal, we're just saying that they get sold to the masses and they're not useful. Okay, now we have an S Corp in Wyoming. And I didn't know if. Was that for the stock or was that for a different business?

Yeah, I mean, let me read it again. It says S Corp is set up an Wyoming LLC and sub S Corp in order to trade stocks.

Okay, so it sounds like a stocks might be in the S Corp because you can't have an irrevocable trust owning an S Corp. So I don't know what the irrevocable trust owns. And you're kind of implying here. So let's Just assume. Let's forget the irrevocable trust first trading stock. You don't need an S Corp, it's passive income. And if you're saying, well I have trader status, you can avoid self employment tax with trader status without needing an S Corp, there's some specific rules for that. And so someone's trying to sell this Wyoming thing too.

Yeah. And Keith's question, I mean he says, are assets in the trust susceptible to California taxes or Wyoming on any monies earned through these. This S Corp or LLC trading stocks? Yes. Yeah.

You live in California.

Yes. You live in California. You think the state of California cares that you set something up in Wyoming? They don't care. Okay, you are going to get taxed until you move out of California. And this is a big misconception and this is one of the things that people get sold on and they think, oh, I can just set up an entity in another state and avoiding paying tax in the state I live in. Californians, you guys are the most susceptible to this because everyone knows you hate how much state income tax you have to pay. So you get targeted for this crap. Avoid that. Do not go set up the out of state entity thinking, oh, I've gotten out of California income taxes because I got an entity now in another state. No you don't.

Okay, I've got a great follow up question here that's related to this from Washington state. But let me say one last thing on this, Keith. Okay, I'm sorry, I know we might be beating you up a little bit. We don't have all the facts and how much you paid and what your whole situation is. These things that you just mentioned are kind of classic issues that we face with people that were sold things they don't need. Now maybe again, you give us all your facts, you're like, oh, oh, oh, okay, I see what you're trying to do that could occur. But what I would recommend for you, Keith, and anyone out there similarly situated, get a second and or a third opinion, call our law firm, meet with one of the tax lawyers for one hour. One hour, pay them for one hour, you'll be out less than 500 bucks. Say, can you just tell me, unpack what the hell I bought and then go talk to your cpa and if you're like, well, I don't have a cpa. Well you better have one if you got this structure. But go meet with your CPA and go, can you tell me how this plays out on my federal and state tax returns and then get a Second opinion on top of that. So you get really the truth of what's going on. But do not go back to the people that sold you this to get them to explain it. Get someone totally without a vested interest explaining it.

Yeah, the only thing you should be going back to those people that sold you this is for a refund.

Nasty letter. We'll write it for you. I've written them. Okay, now, Jenna J. Thank you. Someone in the portal used their first name, which we would love, so we can kind of refer to you. So, Jenna J. She says, I own a Washington state S corp which owns and operates a real estate brokerage.

Okay.

So she's a realtor operating as a broker. The brokerage collects referral fees from real estate agents and we sell online courses.

Love it.

All ordinary income. S corp's a great fit. I pay B and O tax to the state of Washington on this revenue. But I recently relocated to another state. Hold the phone. Major change here. I recently relocated to another state.

Keith, pay attention here. Yes, California.

Keith, I want to avoid paying double tax tax B and O to Washington state and we find out where she lives and state tax to Arizona. By the way, Arizona has very low state tax. Gotta love Arizona. Should I move my Washington state S corp or leave it alone in Washington as a non income tax state? B and O is 1.5%. Let me answer the question. Move your S corp. Okay. Sorry, did I work that out?

So excited to give the answer.

All right. Okay, people, there's some general concepts here that are very important. Jenna, you really don't have a choice. Yeah, you got. You need people to run your S corp where you live and operate. You're going to take an. You're going to take a payroll from that S corp. The S corp is owned and operated by you in Arizona. This is similar to Keith trying to live in California and run an S corp in Wyoming. He doesn't live in Wyoming. Now in this situation, Jenna, oh, she doesn't want to pay state tax. She thinks I'm going to hold on to this entity, maybe in Washington and not pay state tax. But I don't want to pay B and O. I don't want to pay state tax in Arizona. I don't want to pay B and O. So she's stuck. Well, the answer is you got to go where your butt is and your butt is in Arizona. So move the S corp to Arizona. Own it. That's cool. You're going to get out of the B and O we have. What's a service called the Articles of Domestication. And you can move that entity over to Arizona very affordably and efficiently, keep the same tax ID number, keep the same name and get out of that. Washington B and O. We have a special right now. When you listen to this podcast, it may be weeks down the road, some of you, and the special is already over with, but I'll mention it now. We have a cleanup special and we have kind of a new entity special and a comprehensive thing. It's like three options under this special. If it's during that time period in September that you're catching this podcast, please call the office. You can always call the office for one of these services, but we kind of offer 50 or 100 bucks off right now. But this is be a perfect cleanup. You're moving your entity to a new state. You want to meet with an attorney, get some questions answered. There you go, Jen. Sorry I ran with it a little longer. I will shut up. You can have all the time you want on the next question.

I wasn't complaining. You know, we bill by the hour here, so it's okay. All right, all right. Case question was from Lance. He did ask Mark, but I'll give you an answer.

Lance. Yeah, you're gonna like Matt's answer.

Yes, startup investment with my Roth. I'm wondering what is the best way to invest in a startup with my Roth. Should I set up an LLC or invest directly? If you're just investing in startups, let's say you're, you know, the next some company's out raising money. They're, you know, they're gonna be the next amazing great tech company or whatever business it is. And you want to get early shares in this awesome. You know, everybody knows about Peter Thiel who's got the $6 billion Roth IRA. That's what he did. Mitt Romney, you know, he's got the 100 million plus Iraq he was investing in. Basically startups and turnarounds too. And they have obviously have had success.

Yes, they have.

Now there's winners and losers in the startup world, just like there is on the stock exchange and in real estate. So you've got to pick the winners. But Lance, if you're picking the right winners, love it. Roth IRA could be an awesome way to do it because it's going to come out totally tax free. Now. You don't need an LLC for that. I'd probably just go directly out of the Roth ira and that's what a lot of our clients at directed IRA that, that are investing in. Startups, they don't do the llc. Real estate clients do maybe some hard money lending that want the money fast. Those are great fits for the IRA llc. But if you're just investing in startups, you can do it directly out of the Roth ira. We wire the money over. The Roth IRA owns the shares here, and any money from profits or when you sell them goes right back into the Roth ira. The LLC is not a huge benefit in that situation. What, the cost, save the cost deals. Yeah.

And I'd recommend any of you that are kind of intrigued with some of Matt's comments there about what you can do with the Roth, please get over to the Directed IRA podcast just in your favorite portal there. Just type Directed ira. You'll see our cute little mugs pop up and link to the Directed Ira podcast. And we have a series. The first 10 to 15 podcasts on that channel are awesome. They just break it down step by step by step, and pretty soon you're an IRA expert on what you can do. So, Lance, I'd recommend you get over there and listen to those. You'll love it. Well, I have one last question. And CMS has been double dipping, triple dipping here on our portal. But you know what, people? This is your show. If you want your question answered, you gotta come and submit it. And CMS is cms. You need a consult, you gotta call the office. Any of you that need a consult, write this down. Here's the number. 435-5869-3664, 355-869366. Call the office, set up an hour with the tax lawyer, and tailor the structure to you.

Yeah, let me say this too. You can actually book some of our key services, our core services, online@kkoslawyers.com student, you know, middle of the night. If you want kklslage.com I love it.

So CMS and I like this question. Everybody needs to hear this. Or I'd say, cms, you're getting too much here for free. But you know what? This is the last question. Set up a Roth 401k and convert it to a Roth IRA. Says, I turned 72 next year. I have a single member LLC and have contributed to a SEP IRA for years. I didn't realize now that my LLC could actually fund a solo 401k or a solo Roth 401k. I've already filed my taxes for 2021, so my question is for 2022 taxes. If I do not contribute to my SEP IRA for fiscal year 2022. Can I establish a Roth IRA this year? Yes. We still have time in 2022 to set up a 401k. All of you that want a solo 401k, do not do the SEP right now. If you've already filed 21, focus on 22. And like I said earlier, we have a special coming up in November. You can get started on it now, but you can set up your solo Roth 401k in November and fund it this year in 2022. And then he says, so can I set this up and contribute $27,000 and then immediately roll it into my existing Roth IRA? Not immediately, because it's sitting in a 401. You can invest it immediately out of your Roth 401. If you shut down the 401, you can immediately roll it out to your Roth IRA. But I know Matt and I would be like, why? You don't need to roll it out to your Roth IRA. Leave it in your Roth 401K. You have a checkbook for your Roth 401K. You can invest it just as easily and quickly out as a Roth 401k as you can your Roth IRA. In fact, having a little diversity or asset protection of two different boxes is not a bad idea.

Now, let me give it. There's some quirky rules on this for contributions and RMDs for 401ks. So I think what CMS is thinking about is, well, Roth 401ks have RMD. So when someone hits 72 in a Roth 401k, you actually have to start taking some required minimum distributions. You gotta start pulling it out money. In a Roth IRA, when you reach 72, you don't have to take it out. You can. There's no rmd in Roth IRAs.

CMS has done their homework.

Yeah, CMS knows what's up. Okay, now here's the tricky part. In a Roth 401, once you. There's an exception to this at 72 that says, actually, if you're still working, you can still contribute and you don't have to take required minimum distributions from your 401 on your traditional or Roth funds. But the exception to the exception where the exception doesn't apply. Okay? This is a tax code, guys. Hang with me here, okay? The exception to the exception here is, like, actually, you can't rely on this. I'm still working and I'm over 72. If you own more than 5% of the business, all of you with solo 401ks, that strategy ain't gonna work when you hit 72, this isn't gonna work to contribute and avoid RMD. So I love where you're going there. You're thinking it through. But I don't see it working with the Roth 401k or think you're gonna run into issues just because that exception where you're still working over 72, it's not going to apply in your situation.

Boy, I love this. This is like a little Rubik's Cube. I'm trying to think of what the recommendation would be.

And your spouse is the owner of the business. Wouldn't get around it either. Yeah, don't even go there.

I here's probably my advice that I would give. If I was doing a consult with CMS here, I would say, what's your main goal here? Let's just step back. Sometimes we get in the weeds on these rules and exceptions of exceptions of exceptions. What's the main goal here? The main goal is, I think, and I propose is I want to get as much money into Roth accounts as I can. I want to invest in my Roth, I want to grow it tax free and pull it out tax free. And so I want to get as much money in there as I can. Now we know that he can still fund his Roth IRA. That's fine. There's six grand, throw that in seven grand because he's over 15 and a half. Or you could do the SEP IRA and there now is a SEP Roth option, but that's not going to be effective. So I like where you're going. Put the money into a Roth 401K. And who cares if there's a few RMDs, they're actually not as bad as you think. You run the calculator because the calculator is based on your overall accounts. And I'd run the numbers before you just because it's kind of like what's his name that was earlier saying, I'm not going to make money because I pay tax here. It's like I'm not going to put money in a Roth because I have an rmd. No, put money in your Roth. Build it, grow it. If you have a few RMDs, that's just, that's just playing the game. And you're not going to get taxed on the RMD. It's a freaking Roth 401K. So it's okay. It's like you're putting in 27 and taking out a thousand. It's tax neutral. Who cares? You like my.

Yeah, yeah, yeah.

So don't stop because of the rmd. Double down. I hate. This is. I'm going to finish with my quote. Too many people let the tax tail wag the dog. They make all these important decisions regarding making money in a side hustle. Contributing to a Roth because of fear of paying a tax. Let's make money first, then call us and go, how do I pay the least amount of tax on this? Let's keep our eye on the ball, folks.

Yeah, if you make more money, you will pay more tax. Okay. Like that's a sign of success. That's okay. Now we're gonna pay as minimum as we have to. That's the. That's the goal here. Make as much as we can and pay as little tax as we can get away with. All right, well, thanks, everyone, for all these awesome questions. Get over to mainstreetbusiness.com if you want to get your questions answered on the podcast. We love it if you throw in your name so we know your name. These cutesy handles. I know it's the function of the website we have and how you ask questions, but give us your actual name or pseudonym or something. I don't care if you have a, you know, your pen name. Whatever you want to. Whatever you want.

We all should have an alias. Yeah.

What's your alias?

Well, it wouldn't be an alias if I told you.

Good answer. Good answer. Peter Lemon Cello.

Peter lemoncello. Yeah. When you're at the Hilton next weekend checking in and the guy before you was Peter lemoncello, just think twice. Maybe it's. Maybe it's Poon. Comanche Indian, by the way.

All right, well, thanks, everyone. If you've liked this show, please go share it with a friend you think that might be interested in this stuff. If you have.

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