405: OPEN FORUM SHOW - Answering Difficult Tax, Legal & Business Questions

Mark and Matt. I'm 33, live in California, have no major assets, have a W2 job. I don't have a side hustle yet. Really interested in investing myself to better my future.

Setting up an LLC now and wondering if I can include the 1099 for the whole year in my LLC and say paying double FICA on the 100 grand.

Is it possible for a corporation to be changed to a nonprofit?

Rating your 401k for anything, then retirement after age 60 to just pay the bills is you got to be triple checked. It better be an emergency and you better be careful. Welcome, everybody, to today's episode of the Main Street Business podcast. Excited to be here with you. This is Mark Kohler with the illustrious Matt Sorensen. Okay, well, we are going to do what we have termed today the rapid fire Open Forum. We're going to try to burn through as many questions as we can. Some of you may say, oh, keep talking about it, but you know what? Enjoy the ride of more questions covered and we'll give you additional resources and where to go as we quickly go through these. What do you think?

Yeah, yeah, we're going for volume today.

Volume.

We're gonna get through a lot of questions. Remember, get over to mainstreetbusiness.com where you can ask your questions for next Open Forum.

And I am liking this format. This is not bad. It puts them in categories. I can respond quickly with just a hey, we covered it. I'm actually kind of loving it. So it's pretty cool little format. We have probably more questions than we can cover today. We may need to do an open forum on a more regular basis. Okay, you question one. You want to go question one.

All right. Yes. This is from Ben. Now, this is a longer question and some of you are asking lots of questions. All right. That you have. Like, I need a consult.

He buried three in here in one. So you get to choose one. Maybe.

Yeah. But here's. Here's basically what Ben's asking Mark and Matt. I'm 33, live in California, have no major assets, have a W2 job. I don't have a side hustle yet. Really interested in investing myself to better my future. Okay. Love it. This guy's 33, listening to podcast, planning out, wants to know about setting up a trust, self directing his IRA, doing a 401k, buying more assets, all the tax strategies and savings that can happen. What I want to say to everybody who's at this stage right now where it's like, you got a W2 job your tax planning is not complicated. Okay. We want you to have a rental property or be a business owner where we get a lot more tax options and savings for you. All right, You've got maybe the 401 at your W2 job. Start trying to max that out. But what I think everybody needs to look and this is something I'm starting to develop. This may be my next book called Profiles of Wealth. This is not a long answer, sorry about that. Is when you're at this point right here, I want you to think of a couple things. First, this is your priority. How do you make more money? You need to progress in your career or you need to start a small business or side hustle.

That's it.

There's different tracks on how you can become wealthy and maybe you become a high income earner and you just have a W2 job and that could be great. That could be for you. Maybe you're the small business owner, the entrepreneur. You go start and build wealth. Once you pick your lane there on where you're going now, you need to know the things you need to plan what you should be doing. But it all is going to come into building assets at the end of the day, whether it's in tax preferred vehicles like retirement accounts, building a rental portfolio of real estate. Sure. Having some stocks and mutual funds. So I like where you're going. But what I would say now though has been of just like action items is start saving. What you can participate in your company 401k plan where you have a W2. Just get the match. At least that's free money that they're offering you typically in the company 401k and then start looking about the next assets to buy. What are the assets you can buy if you're like, hey, I'm a real estate guy, I want to get into real estate. Think of creative real estate strategies. There's so much to learn. But that's where I would start.

Ben, thank you for that rapid fire answer.

What the hell? That was a fail.

No, it was good. It was good. I just wrote down we need to talk more about just the beginnings of building wealth, the beginnings of growing your business. Okay. All right. This is from Medical Sherpa. I have collected around 100 grand thus far. Okay. The main title of the question was transitioning sole proprietor to an LLC with an S Corp tax election. Many of you might be in that situation. I've he's made around 100 grand thus far this year, which I will be receiving a 1099 setting up an LLC now and wondering if I can include the 1099 for the whole year in my LLC and save paying double FICA on the 100 grand with your S Corp strategy. I have more dollars coming in as well. Build under the sole prop, but not yet cashed. Love your book. Podcast, YouTube. Okay, rapid fire people. If you're setting up an LLC right now for 2022, it is too late to capture that income for the whole year. You're SOL and I'm not talking statute of limitations. So I hate to tell you, medical Sherpa, you're going to pay taxes out the butt this year. I'm glad you're listening. I'm glad you're now a follower. Continue to listen. The S Corp strategy will kick in come January 1st. Any of you that had an LLC throughout the year. So your LLC was already in effect. You can make a backdate at S election. We have podcasts on that. And I don't know who you're setting up your LLC with now, but please do not be trying to do this online for the first LLC in this strategy on your own. Get with one of our freaking lawyers. We will save you 10 times that in headache and mistakes. Yes, you can do the S Corp, but it's not going to help you in your situation until January 1st. I'm so sorry about that.

All right.

Okay, okay.

YMClean. YMC clean asked. Is it possible for a corporation to be changed to a nonprofit? And what would be the first step to start off that process? All right, great question. No, I mean, maybe it is, but don't, don't. Okay, this is like, can I turn roller skates into a diesel truck? I mean, maybe we could use some of those parts. But no, these are two totally different things. You might think, well, they're both corporations. A nonprofit. Let me just say this. This is an important tip for everybody. Nobody owns a nonprofit. There's no owner.

Oh my gosh.

If you set up a corporation, you're the shareholder. Okay, So I don't even know how you would do that. So you want to start with a nonprofit corporation from the beginning. Just that whatever corporate entity you have that maybe is not making money, that you're like, it's a non profit, that's just not a business making money. That's a little different. I don't know your situation, but what I just say is think of those two things as separate. If you got a company you're not using, just shut it down and be done with it. Start off a non profit from the beginning. And that nonprofit has to have a charitable purpose, needs to have a board. But again, no one owns a nonprofit. So very hard to just convert that

to all right, this question's from Eager to Learn. Hi, I have an S corp that is owned 50% by me and 50% by a partner. I have another business with that. I also have another business that I own jointly with my husband and my partner has another side gig that he's working on too. We want to align to the trifecta structure and each have our 1s corp that owns all of our interests in the very various businesses. How do we go about converting our shared S corp into a partnership that would be owned by each of our own S corporations? This is a great question. New Mexico comments on it about the marketing issue of a new entity. I appreciate that there is going to be some clunkiness of maybe a new merchant account, a new bank account and some branding. But New Mexico, that's not the big issue. It's the cost and headache and tax loss. Sorry. The tax strategies, they're missing out on. They've got to make this change so it'll be worth it. How do you go about converting an S corp into a partnership? I'm going to be blunt. You have to work with a lawyer to help do this design. You want to do it also at the end of the year. So in the month of December, we got six weeks till the end of the year. Really? You want to get with an attorney right away and say we need a new LLC started January 1st and we're going to take our 2s corps and do a restructure. This restructure will be tax free. It'll be a cleanup in a sense, where we restructure this partnership relationship with a new llc. It'll be well worth it. I talk about this in a chapter in my tax and legal playbook. I have diagrams in the tax and legal playbook on the partnership jointly owned LLC with 2s Corps. Continue to study it. I think we have a couple podcasts in the hopper on partnership structures as well. Get with one of the attorneys. Help them do this. It won't cost more than a couple grand to get this restructured and you'll save that in taxes times 10. So get on it.

All right, GM Vargas from Texas asks, should I pay off the balance of my mortgage of $300,000 with my 401k? What other options do I have? I currently have a small consulting business as a sole proprietor. All right, Jim Vargas.

Ooh, I'M mad. Matt is going to lose it. Matt is going to lose it.

Okay, I want to think about this. Let's be analytical about this. Okay? I'm going to be emotional here for a second. What other options do you have? Not paying it off? Just pay interest. My first question, I need to know the details because I want to give you a really specific answer and not just some fluff because, you know, there's the people you don't have. Shouldn't have debt. Shouldn't have. Shouldn't have debt. We're not going to raid retirement accounts to pay debt. Okay. I want to talk about. Maybe there's a strategy there. Hang with me. I might have a strategy here for you, though. Okay. What's the interest rate you're paying on your mortgage? If you got a mortgage the last three or four years, you've probably got like a 3%, maybe 4%, maybe 2.5% mortgage rate. Okay, that is not bad debt. This is for your home. Don't worry about it. Keep paying it. Now, if you're like, no, no, Matt, my mortgage is 8%. Okay, maybe that's a high rate of interest. We want to maybe look about paying that down and being more aggressive about it. But are you going to raid your retirement account? Let's go through the cost of that. If you're under 59 and a half, you have to take a 10% early withdrawal penalty. If you took out 300,000 from your 401, 30 grand is going to the IRS just as a penalty. If this is traditional $401, you got to pay tax on that $300,000 too. You're in Texas, no state income tax. You got federal income tax of at least a third. You're gonna be in the highest tax bracket pulling this much money out. So there's 100 grand off the top. So at the end of the day, you're gonna have like, less than 200 grand left, maybe $170,000 that you can apply to pay off your 401k when you could have had $300,000 sitting in your 401k earning and growing more income. I don't like that. Don't like it.

So

don't go that route. Now maybe you're over 59 and a half and you're like, well, I don't have the 10% early withdrawal penalty. This is traditional $401. You're gonna get taxed on the way out still. So you're still only gonna be have the $200,000. Now the one exception to this, the one strategy I could be sold on and talked into is taking a 401k loan of 50 grand and at least using that 50 grand to pay off the high interest debt. We like to do that with clients that have credit cards that are paying 18, 20% interest and maybe your mortgage is a high interest mortgage. But if we're talking like the 3, 4, 5% mortgage, don't even think about this. That's great debt. Don't worry about it. It's the cost of housing. It's cool. Don't stress, you'll pay it off eventually. Focus on growing your 401k. If you think of your total net worth at the end of the day, would you rather have less debt or. Or would you rather have a larger 401k at the end of the day? It doesn't. You have net worth.

Okay, rabbit fire, rapid fire.

This is such a great question.

So there's more.

I was gonna wrap it up. I was doing my wrap up. Okay, so what I would say is if it's high interest debt where it's maybe credit card or it's 8%, maybe higher mortgage rate, you could take a loan from your 401k, half the balance not to exceed 50, you can use that $50,000 to pay down the mortgage. That may be at a high interest rate debt or some credit card debt and then you pay back interest to your own 401k at prime plus 2%. That's the 401k loan rules. But that interest you're paying back is going to you increasing your 401k rather than to a bank.

Okay, for everybody out there that my quick, fast, I'm going to try. Great comments. Matt is some of the most moving appointments emotionally that I've had with clients in my career is when I get on a phone call, on a zoom call or in person with a couple or an individual that's in their 60s and their 401k is gone. You do not want to look into their eyes. It is complete fear and scare and frustration. And what has happened typically is they drain their 401k for some college student in their family or their kid maybe to pay off the mortgage, maybe they had medical bills, maybe they were in transition and lift off the 401k at one point and they even paid penalties or tax when they did it. People rating your 401k for anything than retirement after age 60 to just pay the bills is you got to be triple checked. It better be an emergency and you Better be careful. It is just so, so, so dangerous to do that. So be careful. All right? Jeremy Miller says the question is two businesses, one bank account. My wife and I are starting separate businesses. Can we use the same business bank account? My business will use the account more as I'm in the service industry and hers is in personal development. Should we set up two accounts or can we get by with using the same account? Now, this has nothing to do with asset protection. New Mexico comments on this in our forum as well, and talks about asset. I don't think this is a asset protection question. I'll add asset protection in a minute. But this is about easy accounting. It may seem that it's easy to have one bank account for both of your operations, but it is going to be a mess when it comes to tax reporting and doing profit and loss statements. I would prefer that each of you set up your own bank accounts for each of your own businesses. It'll be easier in the long run. You can do it all in one. There's not an asset. But you don't. You didn't even bring up the word entity. This is not. Oh, you have better asset protection in this situation. There's nothing to. There's no asset protection concerns here. You're both sole proprietors trying to do one bank account. Fine. Do it or don't do it. I'll tell you, it'll be easier with accounting if you have separate. Now if you want to add asset protection to it, you can have one LLC and two bank accounts. You're going to get the LLC providing protection to both of you, but both businesses are still in the same bucket. Asset protection is never going to be about having two bank accounts. It's going to be about having two separate llc, which you're far from that. So do what's easy for bookkeeping. I think it may seem that more bank accounts. And I'm going to. Oh, I got to give my example. A lot of people are like, Mark, you have so many entities, all these bank accounts. And I go, hey, how would it be to go into your bedroom and not have a chest of drawers? All your underwear, your T shirts, your jeans are on the floor. Well, Mark, I don't want to put them in drawers. You know, the drawers set you free that you walk into your bedroom, everything's organized. Well, I don't want to go pay for a, you know, go to IKEA and get a chest of drawers. You know what, in the long run, it's going to save you lot of time. So when you have more bank accounts. Think of them of chest of drawers for, for accounting for your different business operations. You'll get used to it. It'll save you and it's worth it.

Love it.

Okay.

All right. Jay Schwartz asked, are there lenders who would write a line of credit against equity in a portfolio of buildings that are in that are in a commercial loan? We have properties that all have a significant amount of equity. We like to tap without doing a refinance since we have a 4.25% locked rate. But we're not finding a lender who is willing to do this. I'm assuming we need to find a specialty lender or local bank or. Question. This is a great question. This is going to be happening a lot more. This is going to be opportunity for those on the other end that are wanting to lend. We have lots of clients that do private lending that are loving finding people in your situation. Chase Schwartz, for example, let's say someone's got a self directed ira. We have lots of clients that do those. Do private money lending. I do it in mine. This scenario, if you have enough equity in there, well, the loan is still secured even though it's in second and it's secured against multiple properties where you have a 4.25% in first. That could be a great opportunity where you can get some equity out to do other additional investing. Whatever things you want to do with the money, somebody could lend. But what you're going to be looking at here though is a much higher rate. You're going to be looking at least like an 8% rate from a private lender to lend on a deal like this. So now that might be worth it to you. And I know you don't want to refinance because you don't want to get that 4.25% fixed rate blown out either. Now there are small banks that may be interested in this and that would do portfolio loans, meaning they're going to keep the loan in house and not go resell it on the market because this would be a hard type of loan product to resell. But you really need a relationship with the bank and this type of thing. This is not like in the matrix of loans they want to make on a day to day basis that they go tell their loan officers to go get. So typically is going to be a bank you've worked with that may be interested in this and knows your regular business. But I love trying to find some private money lenders out there. Say I can get the debt fully secured I've got enough equity. I'm willing to pay a little bit higher rate than the bank rates and you know rates are 6 plus right now I think for mortgage rates. So maybe in the 8 or so range it could be an option. Get some equity out. Could be a win win.

Okay. Love it. Great comment. Question from J Mart. Avid listener here. I have a rental in an LLC and want to get my kids 6 and 8 involved as a way to fund their Roths. I am not looking to max out their contributions yet but would like to start setting some money aside for them. Love it. We want to get Roth money going in our kids Roth as soon as we can. If I want to pay them more than $600 do I need to issue them a 1099? The answer is adamantly, affirmatively, clearly no. Never ever, ever, ever ever do any of you in any situation issue a 1099 to your kids under age 18. Now bless the heart of River LLC who comments in this thread and says any amount you will pay them that will go to a Roth needs to receive a 1099. Wrong. Unless they have other documented income. Wrong. In order to have a Roth one must have documented income. Yes, but that's not through a 1099. For example we the LLC paid our girls 500 yearly until they were 20 years old. We had to file a 1099 so they would have documented income to contribute to the Roth river LLC for 20 years. You got bad advice from a stupid CPA. I am so sorry people. Under audit you have to just show that my kid babysitted and made $500. I don't have to file a tax return for a kid under age 18 at directed IRA. If you want to open up Roth for a kid under age 18 all you do is check the box. Yes I have income. The end. You don't have to document this to the IRS or a custodian. Only under audit would you have to be able to prove it which they're not auditing. I've never even heard of an audit for this. Do not issue A1090. You know I know what happens when you issue a 1099 to a kid under age 18. They got to pay self employment tax on it. They got to file a schedule C. You've got them on the grid at the irs. It is a mess. Do not do it. You don't have to do it. And do not issue them a W2 either. People, this has been on the books for over 80 years. When your kids work for you and your business Whether it's an LLC for a rental or an operational business, if they're under age 18, it is an other expense. No W2 required. No 1099 required. They don't even have to file a federal return this year if it's under $12,950. And you have to look at the state standard deduction to see if they have to file a state return. River llc, keep commenting. Love that you commented on the theme. But make sure you are completely accurate on this and get me involved before you comment on something like this. I have been teaching this in every book and every forum I have for 10 years. So there's no new message on. Do not issue your kids under 18 and 10 99. Just show that on your books they earned the money and you just need to be able to show that. If you get audited, if you go to Merrill lynch and they ask for a 1099, flip them the bird and go somewhere else to open that Roth ira. There you go.

It's got a little hot over here.

Okay.

I felt the temperature rise in the entire room. Okay. Okay. All right. Nick asked a question. My wife and I own a house in California. We're thinking of selling and moving out soon. But we could be liable for a lot of capital gains tax. We could clear about 1.5 million as it's our primary residence and we have lived here for 12 years. And to keep it simple, assuming no improvements, we can get $500,000 tax relief from the capital gain. And the remaining 1 million is taxable, correct? Right. You got a $1.5 million gain. 500,000 of that, you get the sell of home exemption. But what if two years ago, when our three adult sons were still living in the house, we took out title of our revoke living trust and did a simple five way split on title. Now we have five owners who have all been living in the house for the past two years. Check two of the five when we sell. Can we now claim five times 250,000 for 1.25 million capital gain tax relief on a cell. Oof. This is where you get a little too cute, Nick. This is good little tax advice for everybody. And this is where Nick the question title was capital gains on steroids. Well, steroids are illegal. They're called performance enhancing drugs. You have to have a prescription for them. I do not know a prescription from the IRS on this strategy. Let's go over a couple problems. Do not transfer title or ownership of things to just people to get around taxes. It doesn't work. It never works. There's so many problems that happens with this. I'll just transfer to my kids or maybe I'll just put my kid on title so that when I die they just get the property directly. Guys, putting your kids on property is a gift. That ownership of $250,000 that you just passed to each of your kids over a million dollars or so. Or let's see, 750 grand, that's a taxable gift to them. You can only gift about 18 grand a year. Well, if you're married, maybe a little over 30 where you don't pay tax

and let me comment because hole in one then comes back after New Mexico's comment again. New Mexico getting in the mix is. Well, we talked to a highly rated tax and estate lawyer in Palo Alto that said there's a large gift tax threshold of 6 million or so. Yes, that's a unified gift. But you still have to file the gift tax tax return and you're using some of that credit. You might want that credit later on, especially in life. And you can get around the gift tax by filing a tax return and cashing in on some of that exemption. But that's again. But do I want this in my kids names? And once you make a completed gift, it's theirs, not yours. And you're starting to play games with the irs. You've got to be careful. Yes, you can get around the gift tax by jumping through some hoops. I agree. But it's not that we're going to suggest you do that.

Yeah, and I would bet that the sell of home exemption fails. We'd have to look in the code on this where you have partial ownership in the property and your kids actually have majority ownership. I just don't see it working. It may sound smart, but it's kind of one of those things that it just. I presume you've got to have ownership of the property itself as a residence. Like how can it be your residence if your kids own the majority of it, which is what you'd be proposing at the day end. The of the day it's not your residence. You just happen to be a partial owner in a property that you co reside at with other people. Now I just, I don't see it working. So I would not go down that route. If you really want a consult, we could get one of our tax lawyers to research the sell of home exemption. Probably take 30 minutes of research.

Okay. This is a state tax domicile question, which I love and residency. This is from Mike Wilson he says, I recently took a job in a no income tax state, Alaska that has required me to move there. I rented an apartment and my W2 work location is in this new state. But my family, wife and kids had to stay in Arizona while my wife finishes medical school for a year and a half I work throughout the week in Alaska, but on some weekends I come back to Arizona to be with my family. With my physical office. Being in Alaska and working up there with an apartment, should I still expect to pay tax income tax in Arizona? No. You have moved your residency to Alaska and you're going to file a joint tax return. But in Arizona, you had no income in Arizona, so you are now a non resident of Arizona. And if your wife has no income in Arizona, it's like literally she has no W2, no side gig, she's just all about school. You're not even required to file a tax return in Arizona when one spouse is working in another state and is a resident of that state and paying tax in that state and your spouse lives in another state state and has no income, you're not even required to file. Now if you do, you would check the box, you're a non resident and your wife would be a resident and you would only pay tax in Arizona on her income. Now on this topic, I just recently posted an article in the last week and a half@markjkohler.com on how to move state tax residency and when does it make sense? Should I How do I do it? Lots of good stuff in this economy right now with the recession and higher interest rates, a lot of people are going, I need to move to a different state. I'm paying way too much in state tax. How do you do it? Is it worth it? Check out that article. Good stuff. We did a whole.

Yeah. Last week's podcast.

Yep, there you go.

All right. Reid asked the question, what are the pros and cons of having a revocable living trust as the sole member of your LLC versus just being the beneficiary of the multi member llc. In addition, I spoke with my title company that I normally do business with and they said they need to see my trust paperwork on buying and selling properties that I'd have to list my trust in the paper which would eliminate the veil of anonymity. That's why I was thinking to keep myself as a member of the LLC and assign the interest of my property to the LLC of the trust via membership assignment agreement. What are your thoughts on combining this strategy, making the trust the Beneficiary of the llc. All right, so you trade your trading problems here, Reid, in your question. So there's not a right or wrong way to do it necessarily. That's just like what problems do you want? The standard way to do it is have your trust own your interest in an LLC. If you own the LLC 100% or it's you own a partnership interest in the LLC that owns real estate, your trust should be the owner of your interest. We want that coordinated. That's solely for estate planning purposes. Now, you can have a generic trust name, the XYZ Revocable Living Trust. And you probably are going to be the trustee though, so your name is on it. But if your name is in the paperwork anyways, I don't get what you're hiding here. Maybe you're concerned about the terms of the trust that are in the actual trust document. Now, most places, a title company, banks, a lot of their places, will require only a certificate of trust or what's sometimes called an affidavit of trust. This is a one page document. We do it with our trust where it summarizes the terms of the trust, who's the trustee, and it's notarized. And you use that rather than giving them your whole trust document that says, this kid doesn't get this. These are the conditions I have. Here's who the charities I'm supporting. You know, rather than giving your whole estate plan to a title company or a bank, usually you're able to use simply your certificate of trust or trust affidavit. So try to use that. That's what we use. That's what I use when I have my trust involved. And I've been fine at title companies. So you probably can get around this issue by simply using a certificate of trust or affidavit of trust.

Love it. All right, message from a question from Sherry. Paying children from small business. Now, I know I already went ballistic on the kids under age 18 topic. This is one where kids are over age 18. So I need to turn the AC

on for a little bit. Is it getting hot in here again?

This is good. Nothing too crazy here, but it is tricky. Mark and Matt, frequent listener, have not heard an answer to the following question. I have a couple LLC operating rental properties. One, my adult children have partial ownership. The other one, it's all me. When my adult children travel to the rental property to work on it, can I reimburse their mileage? Yes. If so, are they taxed on business travel reimbursement? No. When you have an employee, a part owner, whatever, and the company reimburses them for their travel. That's a business expense for the business. It's not income to the person that was working for the business. It's like one of my employees going, hey, I'm going to go pick up lunch for the office. Okay, I'll reimburse you. Thanks. I get a write off for buying everybody lunch, but that's not income to the employee. So when your kids travel or you in the business, the business can pay for all that, whether it's rental cars, mileage, airfare, hotels, Airbnbs, Uber, whatever. Let the business pay for it. Love it. How should I reimburse them for expenses in both scenarios, one where they have ownership, one where they don't. Same method. You could what I do with the kids in a situation, because I have kids in my helping in my business, a lot of times I'll just give them the debit card for the business. I'll say, use this to pay for the hotel or use this for your gas on the trip, or use this for that. If you actually transfer them money from your bank account to theirs or write them a check, you're going to put it to the category of what the expense was for and they get a cash and it's not income to them. So it's going to be the same method in either llc. Don't get confused with the fact they're an owner or not an owner. It's a business expense. Write a check to the person and reimburse them, whether it's you or them, or just let the business pay for it. Good stuff. Keep doing it. Live the dream. No 1099s involved here. This is just business reimbursement for partners in an llc.

Cool, cool.

Go, go. All right.

Ethan asked, when I create an LLC for my operations side of the trifecta, he says that will eventually be taxed as an S corp. Can I have multiple DBAs for the One LLC? What are the requirements of putting an LLC in the DBA or in contracts that are using the DBA to maintain the corporate vail? Okay, great question, Ethan. Let's just say, for example, that your LLC is called Prestige Worldwide llc.

Wow. Okay.

And let's just say maybe you're like, you know, that's my music label, that's my primary business. But I want a little side piece of this to be the Catalina Wine Mixer. Maybe that's a little side venture I'm going to make off of Prestige Worldwide. And I want A DBA called the Catalina Wine Mixer. Okay, we could do that. Do a DBA, the Catalina Wine Mixer. That is a DBA of Prestige Worldwide LLC. Now, it's still Prestige Worldwide LLC. Everything's still going in Prestige Worldwide LLC's bank account. When you're doing a contract, it's Prestige Worldwide LLC doing business as dba, the Catalina Wine Mixer. And so in contracts for companies that use DBAs, you just list the company's name, the real LLC or corporation, and then you say, dba, the Catalina Wine Mixer. Now, in marketing purposes, and your flyers or your merch, you might be doing, you might just use the Catalina Wine Mixer. You don't got to drop in of the, you know, Prestige Worldwide llc. But when you do a legal contract we want to have, you're going to put the actual LLC name in it. Now, your bank accounts, you're usually able to use your DBA fictitious name, assumed name, whatever your state calls it, you're usually able to use that. So you can accept checks or payments written in that name into your Prestige Worldwide LLC or your primary LLC's bank account. So this is a common thing, especially if you got lots of different ventures that you want to operate under different names. Just make sure that that LLC owns those DBAs, which is pretty easy to do. We set these DBAs up in all the states. And don't worry about the corporate vel because it is just one entity. You just have different operational names. It's not like you need a separate bank account for each dba. No, no, no. They're flowing into one entity that is this main operation side LLC that you've got.

Okay.

Did you get the stepbrother references there or.

No, no. I was deep in thought on this next question. And you know what? I haven't even seen Step brothers all the way through.

Oh, you have. So what? They come up with their company name and they're like, they're thinking of their music business. They're like, we're gonna be called Prestige Worldwide. And remember, their dad makes them do a business plan. You gotta watch it. Their dad makes him do a business plan and a presentation for him to invest. I love it.

Oh, my gosh.

Will Ferrell and John C. Reilly. It's hilarious.

Okay, I will check it out. Okay. Home office for rentals. Strobe asked the question on February 23rd, you blog. In your blog, you mentioned rental properties as a business could take the home office deduction. Yes. Elsewhere on the Internet we keep seeing is said that schedule E filers cannot take this Deduction. What is the truth? I don't know what you're seeing on the Internet. I've never even heard that you couldn't take this deduction if you keep seeing this. I have to question, are these real accountants CPAs, or is this just people pontificating because they're trying to play CPA on tv? People, Let me just ask a question. Is owning rental property a business? Yes. Where do you report it on Schedule E. What do you get to deduct? Any expense incurred in the production of my business. So if I have travel, dining, home office, auto tools, supplies, mortgage interest depreciation, that is a deduction in my business. What you're probably seeing is there's no freaking line on the Schedule E that says home office. So what do you do and what do we do and what good accountants do? You put it as an other expense. Home office on page two is okay or it's going to be a separate statement. So you're just going to have a statement for home office. You can certainly take the home office deduction. Don't. These people commenting, I suspect, are saying there's no line on the Schedule E for home office. So that means you can't take it. Yes, you can still freaking take it. It's just not going to go on a line called home office. In the S Corporation, is there a line that says Home office?

No.

Does that mean you can't take it then?

No.

You still take the frickin home office deduction with your S corporation. Same point. You're good, Strobe. Talk to your accountant. Hopefully you're not hacking this out on Turbo.

This is from Alan in Florida. Says good morning. After acquiring a Florida single member LLC for a rental property, I learned that Florida Single Member LLCs don't have charging order protection. The LLC is manager managed with Single Member 100% LLC ownership. Question is the rental was inherited and I'd like to keep this separate from any other marital assets if possible. I was wondering if I should just put a small percentage ownership in an operating agreement for my wife, making it easy for tax purposes and not sure if it's an adequate percentage, 1 to 5% or more. Also, would I need to change the single member LLC to multi or just keep the operating agreement? All right, Alan, let me, let's get. Let me give a little context for everyone else. What Alan's talking about. Charging order protection is a specific type of asset protection that basically applies. Sorry, let me start that over.

I'm sorry. Understand where you were.

Okay, so let Me get to this part of this question, make sure everyone's on the same page. Charging order protection is a specific type of asset protection that is protecting the assets from your personal liabilities. Now, Alan, what I would do in your scenario, I would not do what you're proposing. If you really worry about your personal liabilities, I don't know, maybe you're a doctor, contractor, bad driver, you have a bungee jumping operation at the state fair, you have a lot of liabilities in your personal name and you're like, I'm worried about my assets. Okay, we get that. Or maybe you've just got a lot of assets, but this is the only little thing you're worried about here. I don't know. I go to this extreme. Now, this charging order protection is something that Wyoming LLCs, and I think Nevada, there's a couple states that offer this to single member LLCs. Florida is a state that doesn't have that. So if you own an LLC 100%, you don't get charged with a protection. If you get a judgment against you personally, the creditor can get into the LLC and force the sale of assets. So this charging order is a unique type of asset protection. Wyoming has it. We usually use Wyoming LLCs for clients that need charging order protection. The regular client doesn't. Allen, maybe you do because you have a lot of personal liability. But we would use a Wyoming LLC that would own the Florida llc. And that's simple. Now we have charging order protection. They've got to go from you up to your Wyoming LLC to get to your Florida llc, They're going to get stuck at the Wyoming LLC where you have charging order protection. Now, let me say, because a lot of people get confused by this, we are not talking about the regular asset protection that most people use an LLC for, which is the corporate veil. If something goes wrong on this rental property, they can't sue you and go after you. So for everyone else listening, don't get confused by this. The regular LLC asset protection for a Florida llc, an Arizona llc, California, whatever, it doesn't matter. They can't sue you as the owner. They're stuck at the property. Yes, they could get the equity in this property, which Allen is focusing on. So I would probably use the Wyoming llc. I would not recommend getting your spouse involved. That inheritance issue sounds messy. You add her in it. It's going to be hard saying it's not community property now or marital property. And the second issue is now you're going to have a partnership tax return. If you're really wanting to be multi member or not single member? Is it multi member for tax purposes too? Which even means even though your spouse said you're filing a partnership tax return, I just don't like it. I probably use the Wyoming LLC.

Okay with you 100%. Last question here from Penthon 2. I have three storefronts selling the same product. I get a huge bulk discount if I purchase for all three. What is the best structure to take advantage of the bulk discount? If all three storefronts are separate entities, each storefront brings in at least 350 grand. What if would it be best to use a series LLC or just make LLC for each storefront and sacrifice the bulk discount? And everybody here's what's going on is you got three different businesses. I want isolate liability from the three businesses. But on the flip side I want to get special discounts and services with having one entity running a larger operation in the sense of three different businesses. So you're trying to get savings versus liability protection. All my eggs are on one basket. I get savings but then I've got liability with all the eggs in one basket. It's a tough quandary. Then he says one LLC with three DBAs is an option, but that runs into liability risk since the biggest storefront brings in 750. Well, I don't know what you're doing now, Pennethan. It sounds like you're one LLC with three DBAs and you haven't done the three LLCs. I'm trying to figure out where you're at now, but I'll just say this and I think there's maybe two simple options. Set up a parent. I wouldn't use the series llc and I don't even know what state you're in. There may not be allowed for series llc. I would set up one. This is option one. One LLC is a parent operational entity. It's like Microsoft, Microsoft parent. Then you have subsidiary desktops, subsidiary mouse division, subsidiary CPU division. Okay, so you could have one parent company that does a lot of the buying and then you're going to have to make sure that has a separate bank account, separate operations. You can't share employees there. I mean when you're going for asset protection and three operations, you're talking about three different payrolls, three different merchant accounts, three different entities, three different bank accounts, three different this, three different that. And you got to say that better be worth it. Another option is you might be able to set up a management company to be the purchaser of all of your product and it acts as a wholesaler for your businesses. Assuming again, you still have three different entities, three different payrolls, three different merchant accounts, and da, da, da. And then I guess. And then the final option is say, you know what, it's not worth the saving or the headache of separating all three structures. I'm just going to do it all in one entity. I would really recommend you have a consult with one of our tax lawyers to vet this and look at the risks, the benefits, the cost savings, the cost of doing it and creating separate liability. It's a tough thing. All business owners come to a point where they're like, you know what, I just need more entities because I need the protection. And you're going to sacrifice some efficiencies of having everything in one bank account and one purchasing entity and one merchant account. I get it. But you have to say, you know what, I need my eggs in different baskets because if this store goes down, I don't want to lose all the stores. And you can't just say you're separate, you gotta act separate. There you go.

All right. Well, thanks everybody for all these amazing questions. I think I failed on the rapid fire nature. No, no, just maybe on the first one it got a little long winded. You had to get by the hours for decades. I got used to making stuff sound longer than it needed to be. Kidding, of course. But thanks everyone for the awesome questions. Remember, get over mainstreetbusiness.com where you can submit your questions for the next Open Forum episode. We try to do these every three or four podcast episodes at least once a month,

maybe even more often. People love them too. Yeah, we appreciate it. I'm going to give a charge here. Six weeks left before the end of the year. This is our busiest time. Because if you want to make a tax strategy, restructure your business, be ready for 2023. You got the next six to seven weeks to get it done. Call now to get the appointment. Even if you're not ready to know what you're going to talk about, get the appointment. Our attorneys are piling on. This is our craziest time. Accountants that are busy by April 15th, that's not us. We're getting all of your crap done. So you get the most tax write offs for December for 2023, and you got it for 2022 and you got to have it done by the end of December. So do not delay. Spending four or five hundred bucks on a phone call could save you ten times that in some planning and so many of these questions could use a console.

Oh, yeah, yeah.

It's worth it.

We tried to steer some of you in the right direction with these answers, but, you know, it was rapid fire, so that's all we have time for. Well, thanks, everyone. We will see you next week.