409 Open Forum Q & A Your Tax and Legal Questions!

My question is about how and when you need a 1099. When you need to 1099 contractor or company. If the contractor doesn't ask me for the forms, I won't 1099 them. Is that wrong? Yes. His S Corp should be an owner of this llc. Okay, everybody, this is an important point. He says my S corp I get. My S Corp gets paid $100,000 in which I also hold a 20% stake. The services provided by the family management company. So let's think of a janitorial business, little family janitorial business providing services to the S Corp by cleaning the office. Okay. Should strictly be non taxable to this by the state to avoid state sales tax. Correct. Welcome everybody to this week's episode of the Main Street Business Podcast. Mark Kohler here. I'm flying solo. This is like the good old days when it was the quote unquote Mark Kohler show. Matt Sorenson is out of town. He's actually at one of our other offices doing training. So I get to handle the show today in this open forum where I'm going to do my best to answer your questions that you posted on the website at Main Street Business podcast. A lot of good questions here, more than I can answer some of them, they're tough and I'll point in the right direction if I can't. If I don't have the answer, I'm grateful you're sticking to tax and legal, small business scaling, grow your business questions. You've kept out all the questions related to sports, politics, world hunger, all those. Yeah, I have no answers for those. So you know, this is where it's at for tax, legal. So thanks for being here. Let's jump right into it. I don't want to waste your time. And as those that are posting questions, those that have, I will put a quick comment in there that we replied today and if I can put in a link or put in a little something to help point you in the right direction as you read my response. So I'm going to jump over to the website and start hitting some questions here, see where this goes. This is from Hank. This is in the general question category. He said, hey, I had some bitcoin at Celsius and Blockfi before their bankruptcy. They say all is lost. Is it deductible now as a non business loss? This is a really good question, Hank, and it is a tough answer. So what we did, you may not know this, we recorded a podcast on this about a month ago. It was right after the FTX debacle and we talk about when you can write off your losses and how to write them off. It's not a clear cut answer. Now I put the link to that show in Hank's question and if you just go to YouTube, any of you and type in Mark Kohler FTX, you'll see that show come right up. But I also put the link here in Hank's response and so that'll be a quick, an easy way for many of you get to that podcast slash video. So get over there. And I'm going to just do my best to answer these questions as they come right up here. And some of these I might have to pass on. They can be challenging questions and I appreciate your patience and understanding. This is from Nacrat. N A C crat C R A T. I call it CRAT because of the Charitable Remainder Annuity Trust. As a beginner and, and just starting to wrap my head around the world of self directed IRAs, I came across an EQRP as I've been trying to listen to all your episodes because I enjoy them so much. I haven't heard you speak about an eqrp. Are these a real thing? And how are they different from Self Directed IRAs or Solo 401s? Well, just for fun, I'm going to type in EQRP. Oh, the reason why I don't talk about it and I already knew the answer to this, but I wanted to Google it for you. The EQRP copyrighted is the brainchild of a company called EQRP co. It's an enhanced qualified retirement plan. Okay, this is, I'm sorry, I'm getting a little incredulous and pissed, but that's just me. A qualified retirement plan is a freaking 401k. It could also be, I should say this, a qualified retirement plan could include a lot of things. It could be a defined benefit plan, a contribution. Sorry, I want to say there's so many different options here under the qualified retirement plan umbrella, but it could be a defined benefit plan, a defined contribution. A QRP would include a SEP, a simple 401k, and even an IRA or things like that. I mean, a qualified retirement plan is a, is a big, it can be defined in a variety of ways, but the biggest, broadest definition is it includes any type of qualified retirement plan. Now, more specifically, most professionals are going to call a qualified retirement plan QRP, typically a 401k. And where they've been really sold is the Solo 401k. So a company trying to corner the Market has come up with a term that they've copyrighted themselves to call it an enhanced qualified retirement plan. People, they're all the same. I mean you can enhance a qualified plan. Like let's say you're going to do a group plan like a safe harbor. You might have different provisions for Cliffs Investing and you're going to enhance it by choosing different options in your 401k plan. This is just a company that's come up with a unique way of branding the same damn thing which is a Solo 401K. Now let's go back to the question here. The question is Mark, have you come across. No, they came across an eqrp. I haven't heard you talk about these. Yes, I talk about them all the time. I freaking written books and articles and videos for years about qualified retirement plans. Just go, don't get hung up on the E because some company decided to brand enhance qualified retirement plans. Are these a real thing and are they different from a self directed IRA or a solo 401k? Now the way they've they're going to enhance same old thing with some of the options they might include. Yes, they're all the same genre and you're going to be able to get the same benefits of a 401k no matter where you go regarding the design of it. Now a self directed now see nutcrat kind of throws a twist in here. Are they different than a self directed Iraq? Now a self directed IRA is typically going to be again most professionals are going to call that an individual retirement account. A qualified retirement plan is more of a group or a company plan if we're trying to put again a little finer point on it. Can you self direct an ira? Yes. Can you self direct a Roth? Yes. Can you self direct a qualified retirement plan? Yes. Can you self direct an eqrp? Yes. Yes. I don't know if you set it up with them. Can you self direct it? But if it's a depends on your third party administrator and who's the trustee of the plan. We set up solo 401ks for clients every year, every month, every almost day of the week for clients around the country where they can self direct the 401k, it's considered a qualified retirement plan and you can tailor it and enhance it based on your situation. So I'm sorry, that's a big answer here. But people as you hear about oh we've got a special twist on qualified retirement plans. No you really don't. They're all about the same they're going to be the same type of retirement plans whether they're an EQRP or whatever. So anyway, check that out. I'm going to put a quick note that we replied here and I hope that helps many of you that might be coming up against these issues. Drives me crazy. Okay, let's go to another question here. We've got the when to 1099. Okay, this is from Logan. I'm just going to work through a few general questions and then go through all the different categories. And it looks like we've got a few questions here from logan22. He posted two questions. I don't know if I can let him, you know, go through both of these. We'll see. I It says sorry for the multiple posts. Hopefully you guys are still doing your rapid fire. They will be quick answers. Well, okay, I'll try to do a rapid fire on this one. I've heard you talk about spousal partnership as real estate holding entity for 1040 simplification. I don't know before but was always confused as to how a revocable living trust would play into this. Typically the revocable living trust should be in between you and your spouse. Yes. And your business in the trifecta, correct? Yes Everybody, the trust is the owner of all of your things and it's a trust. A joint revocable living trust. Typically if you're married and it's going to own all your assets, would you make an exception if using this strategy perhaps ownership of the holding company being 99% RLT and 1% spouse. No, I would never do that. I don't see what further Logan says if that's the case, would you even need to be married to do this? 99% RLT 1% self now he says self not spouse should be also generate a 1065 for all the rental income loss. Right? If that doesn't make much sense, it's because I don't know what I'm talking about. Haha. Sorry. Thank you for clarifying this strategy. Okay. I think what Logan's getting at everybody is that sometimes you want to file a 1065 tax return. It's a partnership tax return between a husband and wife when you own a rental property or a group of rental properties. Now some of you may go well just make it a single member LLC under one of the spouses. You still have your trust as the owner and then you have the the the trust. Allow for a single member LLC and you just file as a Schedule E. That's what Most people do. But in this strategy, Logan's going, hey, Mark, you talked about a husband and wife filing a 1065. Now why would I do that? Because you're 15 times less chance of an audit with a 1065. So when I have clients that are really aggressive in their tax planning, I'll say, let's not do a Schedule E, let's do a 1065. It gives you more audit protection. So Logan's like, what was it, 99:1 or 50:50. And I think that's where you're getting confused, Logan. And we're just going to go 50 50. Your husband, wife. Unless there's a prenup involved or a postnup, you're going to be 50, 50 marital assets anyway, the trust is still the owner. Then you file a 1065. 50, 50. Don't get hung up on 99. One and all that crap. The trust is the owner. You file for tax purposes individually with your socials on the 1065. The IRS doesn't care about the trust. They look through the trust to see who the real grantors or beneficiaries of the trust are. Okay, real quick. He says, guys love the show and the tax and legal playbook. I'm hoping to get my hands on the self directed IRA handbook soon. My question is about how and when you need a 1099. When you need to 1099 contractor or company. My rule of thumb has been that if they use their personal name, I should have them fill out the forms if I pay over $600. If they use a business name, however, I leave the onus on them. It's none of my business whether they're a sole prop, a partnership or S or C Corp. So I don't ask. Not good. We're going to talk to everybody about this. If the contractor doesn't ask me for the forms, I won't 1099 them. Is that wrong? Yes. Do I need to be asking everyone? I have the feeling I should. If. If I ask their tax status, most people will lie and tell me they don't need a 1099. That's because they're trying to live under the table. Screw them. They can move to another country. Should I get at least get their denial in writing in case shift? I can deduct the so I can deduct the expense. Okay, here's his example. Lawn care service. What are the odds a small local mowing business is actually a C corp exempt from getting a 1099 from me? the same time, who's really filing forms for a very legit seeming company, whether business or personal lawn service. Okay, let's back up Everybody on this 1099. I'm glad Logan brought this up. I've got an article on this that on my blog that is probably the most viewed blog article of mine in the entire year of 2022. So you can go to Google, type Kohler 1099. Mark Kohler 1099. Sometimes the Kohler engine company comes up, so be careful of that. Looks like I've got a little guest here on the show. This is a German shepherd here. I'm out in the forest, as you can tell with my background here, if you're watching on YouTube. All right, so here's the here's the issue, everybody. If you hire someone in a business situation where you want to take a tax deduction and you're going to pay this person over $600, you are required to get a W9 from them. The W9 tells you in writing whether you are required to give them a 1099 or not. Before you pay anyone, you should ask for that W9. If they won't give you a W9, you freaking don't pay them. Because you need to know whether or not you're supposed to issue them a 1099. It is illegal under IRS tax code for you to pay someone and not get a W9 and 1099 them if you're supposed to. Now, when I say illegal, I mean you're not going to jail. Generally, I mean, I guess the IRS could come after you for tax evasion and make an example of someone. They typically wouldn't. But are you going to get penalties and interest? You're damn right you are. So if I'm a business owner and I have a building or a rental property and I hire a lawn care service to come do my lawns and I know I'm going to pay him more than $600. I say I need a W9. Well, I'm not going to fill out a W9. You got to pay me cash. Okay, bye. I'm not paying you because I don't even know if you have workers comp. I don't know if you have insurance. I don't want you on my property. And if you're not going to pay taxes on this money, then you freaking could go live somewhere else. I pay taxes. I take advantage of all the tax strategies I can and then I with the least amount of income I pay tax on that. I use all the bonafide strategies I can, but I don't do tax evasion in my personal life by. Not by getting paid in cash and not claiming it. That is. It's against the law. That's the IRS law, however you want to slice it. So anyway, here's the point. Now, if it's my home and I hire a lawn care service and I'm just going to pay them to mow the lawn, am I taking a tax deduction for that? No, because it's a personal expense. I don't get a tax write off for paying someone to mow my lawn. So I don't have to issue them a 1099. A 1099. It's only when you have a business and you want to take a tax deduction for paying someone, you need a W9 to know how to pay them. Now, if they check the box, they're a corporation. C Corp or S Corp in Logan. A lot of small business landscapers are going to be S Corps, but if they check the box, I'm an S Corp. You don't have to issue the 1099. And if they sign the form and lie, it's on them, you're golden. Getting the W9 from the client is your get out of jail free card. So you get the W9 from the client or from the person you're paying. And look at. He says, I love this point. Here he goes. My rule of thumb has been if they use their personal name, I should have them fill out the forms. If I pay them 600. If they use a business, however, I leave the onus on them. It's none of my business. Bull crap. It's your business. If you want a tax write off, people, you've got to be able to substantiate that you gave them a 1099 and have a W9 to get you out of it if you didn't have to. These are all due to be sent out by the end of January in just less than six weeks. All of you have got to deal with this. And you're like, oh, I paid someone last year and I Never got a W9. Well, good luck getting one now. So now you got to call them up and go. Can you give them your Social Security number, your tax ID number? I need to give you a W9. I need a W9 or I'm going to 1099 you. They may hang up on you. If you get audited and you didn't 1099 them, you don't get a tax write off. I know some of you are so exasperated right now. But you know why the IRS is doing this? Because they're sick of people trying to live under the table and get paid in cash and never pay their taxes. Is that fair to you and me? Hell no. So, yeah, I'm a little pissed off about it. So now he says if the contractors ask me the forms, I won't 1099 them. Is this wrong? Yeah, it's wrong. You want the write off, you got a 1099 and the W9 tells you if they're a sole prop partnership or an S corp or a C corp and da, da, da, da, da. So get their crap in writing. Logan, you've got to deal with this. This is a really good question. I'm glad that you post this and I'm going to hit that. We hit a reply here and I really think all of you need to take Logan's question to heart because this is good stuff. All right? So just put our replies in there. Okay, let's go back to another category now. Good stuff. Next category is Tax Strategies. We're going to go to Tax strategies. That was general Q and A. Now we're going to tax ownership stake, llc. Tax implications. Let's see where this goes. Isn't this great? I don't, I don't filter through my questions or scan them before the show and choose the ones I want to answer. I'm going to freaking read them and hopefully I can answer them. If not, I'll point you in the right direction. Okay, so Darren Key or Darren C says I have an LLC S corp set up in Tennessee held by my trust, all because of you guys. Thank you. That sounds great so far, Darren. So Darren's running a small business in Tennessee. I receive management fees over 100,000 to my S Corp from a multi partner LLC. And we'll try also hold a 20% stake. So he's getting paid from a multi member LLC, 100 grand of which he is also a 20% owner of that LLC. The multi member company will show a profit of say 2 million this year. Number four, 2023 will be the first year at this income level. So it looks like next year they're going to have big profits. Question one, can you simply, and he puts in parentheses here, explain what general tax implications I should expect? Okay, well everybody out there, when you're S corp, his S corp should be an owner of this llc. Okay, everybody, this is an important point. He says, my S corp I get, my S Corp gets paid $100,000 in which I also hold a 20% stake. Now I wish Darren would have said my S Corp gets paid 100 grand from an LLC of which my S corp is also a partner. See, what I want is the S corp to be an owner of that llc. As this S corp is going to generate all as this partnership is going to generate all this money, I want to flow it through his S corp so the S corp can get profit as a 20% owner and get the 100 grand payment. Now if you enrolled agents and accountants, CPAs out there, that $100,000 payment is going to be what's called a guaranteed payment. So the 100,000 would come over as a business expense. Then the profit would be split amongst the partners. Now here's a caveat. Darren didn't tell me if this LLC that's making all this money is a passive llc. Let's say that LLC owns apartment buildings and his S Corp is getting $100,000 management fee and then his trust or his personal name owns that rental property company. Okay, that's okay. I don't want the S corp to own it if it owns rental property, but if it's just an operational company, I want his S corp to own it. What are the general tax implications? You want all that income going through your S corp and you got some major tax planning to do. Darren, I really, really recommend you have a phone call with one of my tax lawyers at the office. Have a game plan for next year and don't be offended, many of you, if you call up and go, or sorry if on a podcast like this you go, hey, I'm going to make a 20% of 2 million next year. So that would be $400,000 plus I'm going to get paid $100,000. What are the general tax implications? Your general tax implication is you're going to get bent over if you don't do some tax planning. So get on that, get some strategy going. I can't answer. You know all the ramifications here on a podcast, of course. Question part two. He says, please can you simply. I'm trying to do this. Simply explain how the flow of this money in the tax burden from the multi member LLC profits should be handled. I already answered that. If it's a passive llc, it should come to you personally. The management fee will go to the S corp. If it's an operational company, think restaurant, landscaping business, dental group, surgery center brokerage. Then the S corp should own the LLC and get 20% of the profit as well as $100,000 management fee. And I want all the income to go through the S Corp in that situation. So Darren, you got a lot to do here. Doing some tax planning with the team. We look forward to working with you and thank you so much. Okay, let's hit another tax question here. I'm going to go deep to someone that asked a question down in here from. Let's see, paying children through family management. So this is interesting. We've got a junior member, another four posts. We've got some people responding to Penthon's question. So he says, Penthon 2 says hey Mark and Matt, love you guys for the show. You all changed my life financially and saved me so much in taxes. Thanks for saying that. That means a lot. Says my question is about paying children through a family management sole prop Woo. We have an S Corp and I know paying children through the S Corp is a no, no good. I recall Mark mentioning that you need to create a family management company, FMC for short that provides services to the S Corp. Which uses that income to pay children who are employed by the family management company. That is correct. The services provided by the family managed company should strictly be non taxable to state to avoid state sales tax. Correct. Whoa now Penthon, you threw me off here. Everybody, let's listen to this question. The services provided by the family management company. So let's think of a janitorial business, little family janitorial business providing services to the S Corp by cleaning the office. Okay. Should strictly be non taxable to this by the state to avoid state sales tax. Correct. Okay, now Pen A thon jumped all the way over to sales tax. Sales tax applies on the sale of product on the stale. You know, you go into Walmart, you buy crap, you pay sales tax. Right. When the family management company cleans the building or cleans the office and the S Corp pays the family management company. That's a service. Only in limited situations is a service going to be subject to sales tax. Washington state has a little bit of this. I mean you got to really dive down deep. 99% of the time a service is not going to pay sales tax. I've never seen, I don't think I can remember. I shouldn't say never, but I can't ever remember a family management company paying sales tax on the money it received for service. Now see, and sales tax is applied by the person paying it. So it would have been the S Corp would have paid the sales tax and the family management company would have collected it and then remitted it. Don't even go there. There shouldn't be sales tax anywhere in this. Okay, now, Cleon, another listener replies for us. Let's see what he says or she says. Sales tax in most states is paid addressed only on the sale of products, not services. Very good, Cleon. I agree. State income Tax is the April 15. Tax is calculated based on business profit. So I think he's talking, you know, Cleon's trying to say Pennethon 2. I think you're talking about income tax. The family management company will pay out 100% of the money it receives to the family members as a contractor expense. I'd go with outside labor. Leon. I wouldn't call it contractor because a contractor means you might need to issue a 1099. And I don't want you issuing 1099s. You don't have to issue 1099s to your own kids under age 18, therefore. But Cleon's right. At the end of the day, the sole proprietorship, the family management company, will have zero profit, no federal or state income tax. Paying them through the S Corp payroll isn't strictly a no no. However, you pay FICA on their wages. It's simpler to execute and understand. But there's the FICA cost on $5,000. The total FICA is $750, and half is deductible as a business expense. So you want to save that extra money. Cleon, I like your comments. I think those are good, and I'm glad that we got that question covered. Pentathon okay, I'm gonna go back here to Tax Strategies and I'll go back deep. I'm just gonna randomly choose one from the last three weeks. This is two weeks ago. Uh. Oh, that's another 1099 question. Should we go there? Okay. Snow White. 80. All right. Oh, Cleon pipes in again. Cleon's in there answering a lot of questions for us. This is fine. I'm cool with that. I just want to make sure Kleon or anybody replying and giving answers to the group. Cleon. I'm going to say this too, everybody. I am launching, I'm in the pre launch phase right now, this month in December of my new Certified Tax Advisor program. It launches January 1st. 12 modules, 80 sections, exams, white paper, weekly trainings with me on the call as a group, training all these certified advisors. I'm going to want my certified advisors making comments on the podcast questions. Until then, I know it's a little more of a wild, wild west out here. And so I hope Cleon and others that are commenting are accurate and not that I hold all the answers, but just want to make sure we're getting good information out there. Okay Snow y AV says I am retroactively pursuing an S corp for 2022. My income so far has been through my personal name and I've requested that the 1099 for 2022 income be in my business name instead of my personal name. I can't seem to find if this is okay or not and wondering if you ever run in this situation. The company CPAs are stumped as to whether this could be a problem for the company or not. I don't know why they'd be stumped. I have already received the compensation checks in my personal name and cashed them even though I have a business, but I just never submitted an updated 1099 to them to pay me in the company name. Have you dealt with this before? Yes, I've dealt with this before. Now snow I 80 I'm going to assume some things here. Snow White, I'm assuming is a female, but forgive me if I'm wrong, but she says I've been getting paid throughout the year to my individual name. Cash the checks. I didn't give them my business name. Now I wish Snow White would have said my LLC name because I'm assuming she has a business. I'm hoping it's an LLC and then she's going to convert it to an S Corp January 1st. If you're not going to make a retroactive s election for 2022, then who cares? Get the 1099 into your own name, get it into the LLC, it doesn't matter. It's all going to go to a Schedule C. So Snow White, don't force the company to freak out and give you a 1099 for 2022. Unless you're trying to retroactively make it an s Corp for 2022, then it really matters. Now, if you have a correct LLC. If you have an LLC for 2022 and you fill out a W9 and you bring it to the company and say here's my W9. My company was in effect all year. I had to cut the checks to the wrong person. Please issue the 1099 to my company. Here's my W9. If they refuse to do that, it's okay. No harm or foul. We're going to run the money through the Schedule C as a nominee income. Some of you CPAs and enrolled agents know what I talk about here. I'm teaching this in my certified program but you bring the nominee income into a Schedule C and Then essentially you 1099 your own s Corp. It's called nominee income. Now, you're not going to issue a 1099, but it's like that. So you're going to bring the money into your personal name. The IRS sees you claim it because the company won't issue the company, your company, a 1099. Then you push it right back out to your S Corp. Now that's, I'm assuming you have an LLC for all of 2022 and you want to make an S election for 2022. If you don't, don't worry about this. Just give them a brand new Fresh W9 come January 1st and do it right for 2023. Now, just for fun here, because I want to make sure we're clear out there, Cleon pipes in. Cleon says first, the business entity that is electing S status had to be in existence on the S Corp effective date. You can't create an LLC or Corp in December 22nd and claim it to be earned since January of 2022. That's right. Clion is saying, did you set up a business in December and just hope you could backdate it into a entity for all of 2022? You can't do that. And Cleon's right, you can't backdate it. But if you heard what I said a moment ago, maybe Snow White saying, oh, I had an LLC all of 2022 and I want to make a retroactive selection to 1122 and get the 1099 issued to me for 2022. I think that's very workable. But Cleon saying, if you didn't have an LLC all year long, you can't do this. And again, it's not going to benefit you. And I agree with that. If that timeline works, then simply include the income on the 1120s income. And so he's saying, Cleon's saying, claim it on your 1120s for the year. Then on your personal return, complete a schedule C and show the amount paid to you personally as income with a corresponding other deduction with a description that includes the ein of the S Corp. We call that nominee income because you nominee it out to the S Corp. This will effectively zero out the income on your personal return and also provide an updated W9 to the payor showing the S Corp ein. And the classification is an S Corp. Kleon, I think, is looking good. Here's the thing. If you're an S Corp, the company actually is not required to issue you a 1099. So if you're an LLC taxed as an S corp, you can give them a W9 and say you don't even need to give me a 1099, but give them a W9. But anyway, if they want to kick out a 1099, it's not the end of the world. And I think Kleon is on here. Cleon, you got to sign up for my Certified Tax Advisor program because there's going to be a network when anybody asks for a CPA or an enrolled agent or a tax advisor. If you're part of my network, you guys get the referrals. You're going to love it. So okay, I'm going to do one more question here on Tax Strategies. This is using per diems when visiting rentals. This is from Sherry lkb. Sherry says. Greetings Mark and Matt. I've learned so much from your podcast and the Real Estate Tax Summit. Thanks Sherry. I have a rental property LLC with partners, my children and spouse and a couple rentals in the LLC manager manage owned by my trust. I am also a real estate professional as managing these is my full time work. Okay, you have mentioned the GSA per diem on previous shows. Can you please clarify the following? If I choose GSA per diem, I do not need to provide any receipts for lodging, food and incidentals. Therefore, if I am missing receipts but I tracked my travel dates, this is a good alternative. The per diem does not include travel. That's our next question. If my spouse and children are partners in LLC for rentals, do we each get the per diem amount if we all travel to the properties? And lastly, is there a difference in the end result on my taxes? For example, in 2023 hotels will be 100% deductible and dining will be 50% deductible. If I use per diem it's 100% deductible or some different amount. Okay everybody, we're going to go here. I'm going to put in Google. All of you could do this at home. Type in GSA per diem rates. So this is a really simple thing. I've got this typically up on my website. This is on a regular basis. I mean on my laptop. U.S. general Services Administration. These are the per diem rates. Now everybody take a breath. What this means is if I'm going to go to Chicago for business, the GSA says here's what an average breakfast, lunch and dinner is in Chicago and you can either Take the per diem amount as a write off and not even worry about receipts or eat out and spend more and take the greater of your actual dining or the GSA amount. But if you take greater, you better keep those receipts or take a picture of them and say, yeah, when I went to Chicago, man, I went to breakfast, I had freaking a buffet at Ritz Carlton. It was freaking amazing. And I went to lunch at the steakhouse. Oh my gosh. And then for dinner we went out for Sushi. I blew 250 bucks on food for the day. It was amazing. And I took clients out or I didn't. Because you're traveling for business, so you don't even have to talk business with anyone. And right now in 2022, you get 100% write off for dining. You get to take the per diem or the actual, whichever is greater. Now we're just talking dining. Now if all of you as a family are going, each individual can take the per diem or actual as long as all of you are participating in the business and you're all working on the business while you're traveling. So if it's a valid business trip for all of the family members involved for the llc, for the rental properties, you get to take the per diem or the actual, whichever's greater for dining. Now come 2023, you could only take 50% of your dining expenses. And that's whether it's per diem or actual. See, for years dining's always been limited to 50%. But to stimulate the economy, after Covid, Donald Trump before he left office said, okay, you get 100% write off for dining in 21 and 22, come to 2023, it's back to 50%. So per diem's doesn't get you 100% write off. It just tells you, don't worry about receipts. You can either take per diem or actual, whichever is greater. Now lodging is a different animal. If you're a business owner of the company, of your own company, you are not allowed to take per diem for lodging because you might stay at grandma's and sleep on the couch, you might sleep in your car, you might sleep in the rv and you're going to say, oh, I'll just take the lodging per diem, 100% write off. Woo hoo. No. So when you have in your own business, you are not allowed to take lodging per diem. You may say, well, why do they have lodging per diem? It's for the employees that may work for you or the other. If you're also an employee working for someone else, you can turn in your per diem for lodging. But if it's your company and you're trying to take the lodging, it's actual lodging only. Per diems do not apply. So I hope I answered that. That's a good one for you to bring up with your tax advisor. As I've said, we're going to have some great tax advisors here in my network to help you find a good one this coming spring. Okay, now let's go over to another category and let's check out asset protection. Should we take one in asset protection for fun here? Ooh, there's only one question here that's recent. Really recent. Let's grab that one. This is series LLC bank accounts. This is from Ethan and ooh, New Mexico chimes in and gives an answer. So we'll see what New Mexico says too. Ethan says, I have multiple properties in a Delaware series llc. Don't worry, the properties are in Delaware. Ethan knew I was going to jive on that one. Each property has its own series and each property has its own bank account and record keeping. Ethan, man, you're rocking my world. I love it. To avoid keeping too much cash in any one series, I want to open up a parent bank account that can dole out dollars to each individual account series as needed. Okay. Can I create one in the name of the overall entity that will be shielded from the liability of each series, or should I make a new series account with no properties that I can keep cash in? Okay, you're all right. I'm going to repeat this and some background noise. Can I create one bank account in the name of the overall parent LLC that will be shielded from the liability of each series? Yes. Or should I make a new series account with no properties that I keep more cash? No, no, no. Don't set up a new series just for cash, Ethan. You're right on. When I set up a series llc, I want the main LLC to have a bank account that's the parent. And all the sub series have a bank account. And as they make money, they send profit back up to the parent and then the parent does the tax return. Whether it's a multi member LLC or a Schedule E, they're all consolidated into one. So, Ethan, I think you're doing it fantastic. I like your question. Now New Mexico chimes in. Ooh, let's go how this goes. Not an expert here. Hopefully you'll be a part of my certified Tax advisor program. Not an expert here, but is but is something to research further and munch on. I've owned single member LLCs for over 20 years. A single member LLC may be able to make a capital contribution at any time and you can keep track of your capital contributions and put in or take out as needed. Which is different than taking a draw. A draw is taxable income, whereas your capital contribution withdrawal is not. Okay, first thing is New Mexico. You're talking about your capital accounts and a draw is not taxable. I agree. If I put money in my LLC and I take money out, that's a capital contribution. A draw is just taking money out. Everybody. What you're taxed on is income minus expenses. You might leave the money in there. You're still taxed on it. We call it phantom income. You might drain it and take it all out and then some. That's fine. That's not taxable. What's taxable is your income minus expenses in New Mexico. I don't know if that is relevant here as much, but let's keep going here. So then New Mexico says I don't believe you need to add another LLC into the mix. Just put some money back into your property LLC in case it needs an infusion of cash. I asked Mark and Matt a few months ago and they recommended leaving about three months of expense expenditure cash in the bank account for each LLC to help maintain the corporate veil. I'd like to keep two to three months of cash in an operational LLC as a cushion and I don't know if it really helps the corporate veil. New Mexico, you don't want to keep it at zero, but I'm going to say this clearly. Just keeping money in the bank account doesn't mean that's your making the corporate veil stronger. But using the LLC and using the bank account properly definitely makes the veil stronger. I don't know if that helps. New Mexico so far. Your comments are right on. If you constantly strip out every penny, a judge might rule against you for taking out too much and not really running a separate business with resources sufficient to be operated independently. Good luck. I hope these ideas help your research. New Mexico. Yeah, I've taken every penny out of my corporation at times and I leave a little. Sometimes I leave two or three months, sometimes I leave more cash in it. Just because you drain it doesn't mean that you're not really running it as a business. It just means you want to suck out the profit and then you put money back in if you need it. I think if you're Being good with your llc, everybody. And you're keeping separate records, separate banking. It's separate name on contracts, separate title. You're doing a good job with your bookkeeping and everything. And you just happen to drain it and keep $100 in the bank account at any given time and put money in it when you need it. I don't, I don't think you're going to. They're going to pierce the veil. New Mexico. It doesn't hurt to keep good operational balance in there two or three months, but I don't think it hurts you to really drain it from at least an asset protection standpoint. I think economically clients need to keep more of a balance in there, but that's just more of an economic thing. Okay, let's see here. Let's go to another category. Let's go over to small business. Ooh, let's see what we have in here. Okay, so this is from. Let's do a solo 401k this. I'm just kind of going, this is a question from a month ago. We do these podcasts every three, three weeks or so on the Open Forum. So this is Ben Jammin from November 14th. Hey guys, I know employees and a solo 401k are a no, no, and I remember what you taught about full time and part time and length of employment. But what if your S corp is a minority owner in the business with employees? Let's pretend they are. Full time over a year. Is it still okay for your S corp to have a solo 401k? What is the sweet spot for minority ownership for it to be okay, 49, 30 or less? I'm going to say the answer is it's okay, yes, to have a Solo 401. But let me put some meat on the bones, everybody. So Ben Jammin has an S Corp. He's the 100% owner of his S Corp. Okay? His S Corp is a minority owner in an llc. Let's think of it like a restaurant. His s Corp owns 40%. Let's say his S Corp owns 39% of a dental group, owns 49% of a landscaping business. And he's a realtor with an S Corp and owns 42% of a brokerage. His S Corp is a minority. And if that LLC has employees, he's not required. He's not required to include those employees in his solo 401k in his s corp because he doesn't control the parent llc. He's just a minority. He has nothing to do with the majority control. Of that parent company. So his S Corp is allowed to have a Solo 401, and frankly, 49% or less means you don't have control. Now, it probably looked better if you were at 40, 30, 25% or whatever. Now, here's where you got to be careful who owns the other majority. It cannot be a spouse. It cannot be another business of yours that you own 50% or more, and it cannot be a child. It cannot be a prohibited party like a lineal parent spouse child. I think if you can show a controlled group where you have more than 50% in a related party situation, I think the Solo 401K is going to be harder to pull off. Also, I'm nervous about you reducing your ownership below 50 just to do a solo. There's ramifications for that, so be cautious. But you can be at 49 or less and do your solo 401k. You're good to go. Okay, so let's jump over here to the next small business question. I'll grab one. This was, gosh, just seven hours ago. Wow. Let's see what we got here, and then I'll grab another one. Ooh, New Mexico pulls in and Okifil pops in. We got everybody commenting on DBL plays. DBL plays says, thanks for all your content. I've been talking to my account for many years about changing to an escort or making an election. We are currently LLC taxed as a partnership, husband and wife. We have approximately 30 employees at any one time. Currently pay ourselves W2 income and distributions. Whoa, whoa, whoa, whoa. Did everybody hear that? Currently pay ourselves a W2 income and distributions. That's not allowed in an LLC. 1065, you can't do that. Accountants try to put a freaking square peg in a round hole by putting LLC owners on payroll that there's not a spot for that on a 1065. Your accountant is doing it wrong. If you get audited, all of it is subject to fica. If they're trying to carve out distributions for you that aren't subject to FICA and doing a W2, your account is trying to plug play the S Corp game without electing to be an S Corp. If you got audited and you had problems, I would be suing your CPA for the FICA that you would have to pay and back fica. If he's trying not to get your. If he's trying to get your distributions not subject to fica, you're not allowed to do that. It's not working. Okay? He has told me many times that Congress has been contemplating removing the extra benefit of S Corps for years and the benefits could go away soon. Bullshiz. He is wrong. I have interviewed the S Corporate Associate S Corp association of America Director for years. We've been doing the s Corporation for 20 plus years. Congress loves the S Corporation. Joe Biden has an S Corporation. Your accountant is old school. Your accountant needs to be fired. I do not like this. Get your accountant certified in my program in DBL plays. I do not like this. If Congress changes the rules for S Corps then we'll change. But until then use the damn rule. Oh my gosh. He has also said that benefits of S Corps are not as beneficial at certain higher income levels and potentially not a savings of the entire amount percentage. Bull crap again. Joe Biden made $15 million in his S Corp and took a salary of 700 grand. He saved over $100,000 in FICA. He took a land based deed in the Wall Street Journal but he did it and it's okay. You can either bring your accountant along and educate them or get a new accountant. Please reach out and use my Certified Tax Advisor network in January, February or March and upgrade to a better accountant. Oh my gosh. And we have one more comment. Lastly, he has said that the self employment tax paid in will help increase my Social Security benefit upon retirement. I've never heard that before as long as a benefit, but I guess it makes sense. Oh my gosh. It does not make sense. You can go to SSA.gov and start getting a projection on your Social Security benefits. There's a law of diminishing returns which means you could pay in hundreds of thousands of dollars in Social Security and your Social Security benefits by might go up $300, $400, $500. Me and Warren Buffett are going to get the same Social Security benefit. Essentially once you get to a certain level Social Security is going to tap out. It's at a certain level. Plus your spouse gets a spousal benefit for Social Security. Your accountant has got to go. This is not good. Not sure Mark amount if you can comment on these statements. Damn right I'm going to comment. And New Mexico says they just spoke about this on the latest podcast which was at S Corp. Good luck. And then Okie Phil says you may have written the wrong thing but I just want to make sure you said you were a partnership and also pay yourself a W2. As a partner in a partnership you shouldn't be getting a W2 Okie feel I love you. Good job, New Mexico. Good job. Oh, I love my crowd. I love my tribe. Oh, my gosh. All right, so, D.B. you got some issues with your accountant, Please reach out to us. We'd love to get you a better advisor this coming spring. Okay, the title here has got me excited, so I'm going to look at this one. This is from three days ago. This is from Psyng. The title is 2s Corps Walk into a Bar. Okay, let's see what this is about. I have a professional affiliation. S Corp in Florida and my colleague has an S Corp in Georgia. We started working on a project together that has taken off and we want to form an LLC this year and pay our S Corps to perform the work as contractors. Is that kosher? I'm going to set up the entity here in Florida since I have a physical business address. Psyng. Just. Make the S Corps the owners of the LLC and let the S Corps get a K1 from the LLC. You're not going to pay the S Corps as contractors. Just make the S Corps owners of the llc and then you each take your own salary levels as needed. My S Corp owns part of my law firm, which is an llc. My S Corp owns part of a real estate project that's an llc. It could own part of an accounting firm. That's an llc it could own. So part of a restaurant. That's. So just let the S Corps own the llc. Problem solved. Now New Mexico pops in. Not an expert, so still learn more. That said, this is what Mark and Matt personally do and talk about all the time. Let's see if New Mexico quotes us properly. Thank you, New Mexico. They just released an S Corp episode which you should listen to. The owner of this new LLC would be your S Corp and your colleague's S Corp. Thanks, New Mexico. The new LLC has liability protection from its own operations, protecting its owners from liability, in this case, the 2s Corps. Starting the LLC in state where the business will be performed is a good idea as that state will want to tax the operations in that state. If your operations are in Georgia but have a physical address in Florida, it gets more complicated and you would need to be determined what you would need to determine whether it is worth doing that as you would have to register in Georgia as a foreign corp. Well, foreign llc. Ooh, New Mexico, you almost had it all if doing business in Georgia. So you would take the llc. Now listen, everybody. They were going to form it in the LLC in Florida because that's where one of the S Corps is. But New Mexico says, whoa, whoa. If you're doing business in Georgia, Georgia's going to want to tax at least the share of that income. And you're going to have to register that llc, not corp. In Georgia, as a foreign llc. I like your point. New Mexico, that's a good one to think about. If it's all virtual, that might be different. And Florida would work. I'm cool with that. NBA and other professional athletes need to file taxes in each state they earn money. So do you. New Mexico. Thank you. Great comment. Okay, well, let's jump over to a couple more. We got one more category here and we'll do a couple more questions and let's see what we get here. We're going to jump over to retirement planning. Okay. We got one new question here. Is that right? Let's see. Okay. Come on, come on, come on. Right. I feel like the mom in Home alone. Just watch that. It's Christmas. Of course. Okay. Two self directed 401ks with checkbook control. All right, this is from Reed Kirtenbach. It says I love the show. Thank you so much for the helpful information. Says my wife owns a business and I own a business. As of right now, we currently have one self directed 401 with checkbook control tied to my business. My business primarily owns rental property and its main source is rental income. My wife's business buys and sells properties. Okay. Ultimately, we're wondering if she can open her own self directed 401k with checkbook control that is tied to her business and contribute the max amount of employees and employer contributions. If not, can we add her business under my self directed 401k to take advantage of the income she receives from her business so we can max out employer contributions? If we can't add her business under my company self directed 401k, can she still open a self directed 401k and contribute to it while keeping in mind that her total contribution as an owner of it cannot be more than ours combined. Plus, the combined employer contributions contribution must not exceed her business and mine's contribution. Oh my gosh, Reid, you got twisted around there at the end too. And bless your heart. Thanks for being a lover of the show. I appreciate it. I didn't mean to sound rude there. Okay. All right, so let's start from the top. Reid says his wife owns a business and he owns a business. And as right now, we currently have one self directed 401 with checkbook control tied to his business. All right, so far so good. Now everybody, I'm Going to quiz you. Where do you have a solo 401k with an operational business, typically an S corp? Now you might have an LLC with a solo 401k for an operational business, but that's rare. If you've got enough money to throw money In a Solo 401k, you're typically going to have an S election. So you'd have an LLC running a landscaping business, a doctor, electrician, a plumber, a realtor, a broker, a lawyer, an accountant. You have an LLC to taxes an S corp or an inc, and you set up a Solo 401K. That's where it works. You have earned income. You're creating a W2. Oh, then Reid says something that concerns me. My business primarily owns rental property. Whoa, whoa, whoa. That's a passive business and its main source of income is rental. Can a rental property business have a solo 401k? No, it's not earned income. It's passive. So that means he has to Pay himself a W2. Did you hear what we said? Just a couple questions ago. Can an LLC create a W2 for an owner? No. Unless I tax as an S corp. Do you want an LLC that owns rental taxed as an S corp? No, you don't want that. Now what Reid might be doing is what we call the side door 401K. His business, that's a rental property business, might be sending a management fee over to a separate entity of his that sponsors a 401k and that management company creates ordinary income for managing his rentals. Now that's called the side door 401k. I think I've got a good video out there on YouTube on this and we talk. Get to one of our YouTube videos on 401ks. Read and watch two or three of those because you got to. You're talking side door for a 1k for a rental property business. I hope now he throws this out more. My wife's business buys and sells properties. Okay, so she fix and flips. Now if she's doing three or more, she has ordinary income. She should be an S corp. Ultimately wondering if she can open her own self directed 401 with checkbook that is tied to her business and contribute the max amount of employee and employer contributions. Now I'm hoping she doesn't have other employees, so that would be great for her to have a solo 401 under her S corp that buys and sells and flips properties. Reid, I love that. Frankly, I'd probably close down your solo 401k and have you join hers. That's where it should be going. If your business is just rental property, you're already pushing a square peg into a round hole to get a 401k as it is and your wife's got an operational business. That's where the Solo 401k should be. Now, after December 15th, it is so hard to set up a 401 for this year. So you might have to finish off this year with yours. Make her a W2 on your solo 401k. I don't know. Get a consultation with one of my tax lawyers right away in the next two weeks and vet this. Here's the bottom line goal, everybody. This is a goal for Reid and I would recommend this assuming there's no other employees in the mix and they didn't say there were, so I think we're okay. Assuming there's no other employees, husband and wife should have one solo 401k and it should be tied to the operational business between the two of them. Sounds like husband has a rental property business which is passive. That's going to be on the right side of the trifecta. The wife's business is the operational side which should be sponsoring the 401k. So I think with a little bit of cleanup, Reid, you got a really good system set up here, but I think it's just flipped around and so talk to one of the attorneys at our office and let's get you set up and cranking. Now let's see. I might. We try to run the show here in hours worth and let's see where we're at time wise. I want to make sure I'm not. Where are we at on time? Look at. We're right at one hour. So this worked out. I wanted to say thanks to everybody for being a part of the podcast today and catching this on either YouTube or on your favorite podcast portal. Please give us a five star rating if you enjoy it. And for any of you out there that are tax professionals just wanting to be a better tax advisor in your business or you want to be a certified tax advisor as a CPA or as an enrolled agent, please try to look at my program. It is the certified Tax Advisor program. It's over@marjcohler.com you're going to be able to get on that and there's a discount for the next two weeks in December. Significant because I'm in my pre launch phase and I'll be releasing these different modules throughout January. It's going to be awesome. So check it out on my website@marjorie.com thanks everybody and have a wonderful holiday season. I'll be here next week. Maybe we'll do another open forum before you're in, so post those questions in the Main street business podcast portal. Main street business podcast.com thanks everybody. Have a good day.