5 Critical Tips for Running a Small Business from Home: Q&A with Tax Lawyer Mark Kohler

Welcome, everybody, to this week's Facebook YouTube Live. My name is anywhere. Let me just tell you what this live broadcast is about. It's live today, July 23, 2020. I'm here answering questions for you about your small business. One in three Americans have a small business on the side. Now that could be driving Uber, selling something on ebay. That's a small business. Well, I'm a cpa, an attorney, senior partner in a law firm and accounting firm, CFO of a trust company where people invest their IRAs and 401ks the way they want to, which is also a small business for your ira. All the above of the American dream. That's all I do every day. And I've got an amazing team around me of, let's see, seven lawyers and about 15 CPAs and a great staff of administrators and paralegals. And that's what we do, is we help small business owners. So today is about you with this Covid thing. There's so many people, millions, that are now home, hyper focused on their small business or starting a small business from home. I want to answer your questions. I've written a book called the eight steps to start and grow your business. It's been around a couple years. This is not an infomercial for my workbook. It's there. I'll tell you about it. You can go get it if you want. It's on Amazon. Also on my website. I've got, I think, up to seven books now on Amazon. There's no other CPA in America that's written more books, has more YouTube followers, more blog posts, and more podcasts than me. I know that sounds a little bold to say and I say that humbly, but I'm here for you. So I'm going to try to break this down. Now, if you've been in business 20 years, I'm going to share something that's going to wow you. I promise you that. If you're just starting out, I'm going to keep it basic. You're going to love it. Now that's an art. It's tricky. Be patient. I'll do my best. So if you're starting a small business and I'm going to use these eight steps as a framework to get into this, but I've got my three helpers here on my marketing team on YouTube and entrepreneur Facebook and my personal Facebook fielding questions. So if you give me your first name and the city you're from or the state you're from, that's a requirement. I'm not going to assume you're from Duluth, Minnesota. I want to know your first name and where you're from and then distinctly write your question as simply stated as you can. And we're going to answer those questions. So before I go any further, probably the biggest step, step one, and this could be even any of you that are. And by the way, in this little workbook, I do an hour and a half live workshop for each step. Then embedded in it are over 60 other videos and webinars and podcasts and you just hover your phone or you can do it online and you can jump right to that video, that article or that podcast. So step one, and that's what I want to focus on here. And for all of you that are already in business, it's the same concept if you're going to launch a new product or idea. My partner, I literally last week in our law firm, we've been around 20 years, said, you know what, we need to start doing this. And we said, let's do a cost benefit analysis, let's do a break even analysis, let's do a little mini business plan for that idea. How much fixed cost is it going to take away from our other operations? What are the variable costs producing? What's our competition? How much are they charging? How long is it going to take to get off the ground? And we pencil that out, it may take an hour, it may tend take 10 hours, it may take 10 days, I don't know. But that's the first step. And if any of you at home thinking, okay, I'm going to sell crap on Etsy, I'm going to make this get out there and market it on social media and sell it on Etsy. Cool. Break it down for me. What do you think your best case scenario is and your worst case scenario? That's the business plan. Now over here and Janee, take me over to the whiteboard here just for a minute. We're going to try to show how this might look when I have a business owner. Sound seems to be okay. Doing all right. All right. So a business owner develops a business plan. Now you can go to SBA.gov and get a business plan. They're helpful. In my workbook, I give you a word document so you can build your business plan and I teach you how to do it. But the business plan is a one time event. Can they see me today? We're okay. Okay. The business plan is a one time event. It's going to tell you if your idea is going to work. Now Some of you like Mark, I want to get into some more technical questions. Do I need an LLC right away? Do I need to text? I need number, I'm coming to it. But I just. Do you know how many people I meet with? They're like, Mark, their business sucks. There's a problem. And I go, well, what did your business plan say three years ago when you were putting this idea together? What did you see your competition doing? And they're like, well, I never did that. And they go, I so wish 3 years ago I would have done what you're saying right now, Mark. It could have saved me thousands of dollars in hours. Those are successful business people that are launching even a new idea. Just because it sounds good doesn't mean you should freaking do it. So you do this business plan and it's a one time event, it tells you yes or no. And be impartial, be objective, decide if it's going to really freaking make sense or not. And if it does, it's going to spin off two little babies here. It's going to kick out what's called a strategic plan. I call it a strap plan. Because teaching this concept for years and years and a marketing plan and that's going to what's going to make the phones ring. So you got your marketing plan and your strap plan and this gives you your daily, weekly, monthly action items for the next year which all play into your master plan of a 10 year plan. What are you really doing and why? This little. This. This is Mark Kohler's brain on. What did they say on that commercial? They fry the egg on a pan? This is your brain on drugs. This is, this is Mark Kohler's brain on drug. This is, this is what I dream about at night. This, this. If my business owning clients to just implement this alone, it would save them and make them thousands of dollars. So I challenge all of you. Step one, if you get on a phone call with me, say you're gonna pay me or one of my attorneys for an hour. The first question we may, we're going to ask, I'm going to make sure attorneys I remind them this, what's your 10 year plan? Did you do a business plan? What's your break Even analysis? How much money have you made this year? This play like you're on Shark Tank. This is exactly what the team does there Mark Cuban's like, how many sales have you got? How much did it cost you? How far are you into this? How much profit do you have per product, per item, per to do in your. I know when you watch start take. It's like, whoa, those people are. Bam. They know their stuff. It's the same thing you're supposed to know. If you're going to get on Shark Tank, play like. And I'm going to get on the phone with you. I'm going to ask you, how many items have you sold this year? Where are you marketing? What are your sales look like? What are your projections? If you don't know those answers, you should have no business running your business yet. Get that crap figured out. That's your business plan, your strap plan and marketing plan. And then play in your mind. I'm going to go to Shark Tank and ask for money. For what? For what? If they. If Cacock gave you a million dollars, 500 grand, 100 grand, what would you spend it on? What would you spend it on? You should know your business better than yourself. That's step one. And if you're going to launch a new business in our law firm, we were thinking of launching a new product. We need to know this. That's step one. Now after that, I'm going to go step two, it's financials. I want you to open a bank account. Now, you may just open a basic bank account in your own name and just start tracking expenses. You might allocate a credit card, CC credit card that you. I don't want to say allocate. You designate just for your business. You're going to track your startup costs. If you're going to open a lemonade stand, I want to know every cost that you're spending because you're in startup mode. And for some of you at home, they're going, I'm already in business. I'm already making money. That's cool. Okay, do you have a DBA that's doing business as. Do you have an official business account at a bank? Did you set up an ein, which is an electronic identification number or taxpayer ID number? Did you do those? That's it. That's sometimes kind of. And in fact, I'm going to write a little smaller. You can kind of go ghetto. Ghetto is just getting. Just. Just designating a bank account and a credit card and you're like, I'm freaking going to put everything on my amex and get this business going. All right, that's cool. You're going ghetto. You're just getting off the ground instead of going to step. So this is step one. Instead of going over to step two, you might stop at this little truck stop along the way. I'll call it 1.5. And you're going to do a DBA, a little business account. And you might use your Social Security number and that's okay. And you're just trying to see how it going. This is what most people driving Uber are doing. They just make some money. They get a 1099 from Uber at the end of the year, they write off their mileage and their cell phone and a few things. Boom. That's a small business now. I could do a lot more with that. What are you? Uber, sorry. Search on YouTube. Uber tax strategies. My videos number one, baby, I love my Uber drivers. I want them to be tracking their expenses and using it as a small business. But this is, this is a pit stop along the way where I really want you if your business is going to grow. Now we set up a real entity and it could be an llc, it could be a corp, I don't know. Don't just think LegalZoom's got it down $75 for an LLC. No, no. That may not be the right move. Want you to think and have a plan and go in and click in a button. You know, I have two full time employees that all they do is fix my legalzoom entity.com. and it's not. The legalzoom's bad. They're great. They do a fantastic job is people calling up saying, do this for me. And they have no reason to know why. So you want to know the why before you go set up an entity. But you're going to have an entity now. You get a tax ID number or an ein that's specific to your entity and you have to get a new one. When you set up an LLC or corporation now you have your company bank account, you still might just dedicate a credit card. That's your capital one. Say, that's my business card. You don't have to have a card in the company name. And you're going to start tracking expenses. And just like Zuckerberg did in the movie Social Network, when they opened Facebook up in his dorm room, remember he went to his partner and he said, hey, was it Eduardo? I think it was. He goes, we need some money. Call your dad. And they drop some money in their business bank account. That's okay, that's okay. That's how it works. So you're going to put some money in your freaking business account and you're going to start sales. I want you to get a Venmo, I want you to get a square account. I want you to Take money from people, make it easy for people to buy your stuff. It shocks me how many times people set up a business. I'm like, okay, I'd like to pay you. Write me a check. No. Who writes checks anymore? What planet are you on? Pluto? No, make it easy for people to venmo your money square. You should be able to swipe cards, take money, sell people. You're going to get your website going at this point. You're going to get your shopping cart going, and you're going to. Whether you're even just selling services. Maybe you're a consultant. Can they make an appointment on your website in your schedule and pay for it in advance before you even pick up the phone? They can when they call my law firm. That's what you want. Want efficiency. So step one is just deciding, does this idea make sense? And is it going to make money? And if it is, let's go to phase two and start opening the doors for business. Getting our logo, getting our website, getting our bank account, maybe setting up an entity, getting our QuickBooks going, tracking our expenses, going out there and selling our stuff. I love in the movie Joy, when. What's her name? That's the actress in that Jennifer Lawrence. And Joy, she's out there and she's in the parking lot of freaking Walmart selling her mop. I get even emotional watching that scene. It is so awesome. And the Walmart security comes out, comes out. Get away. Get out of here. Like, shooing away like a dog. And she was just trying to make some money, but she was testing out her product. She was selling it. She was trying to make her business get off the ground. That's stage two. And some of you with this Covid thing. You're home, you're out of work, you're collecting unemployment, and you're seeing August coming down like a train down a tunnel. And you're like, holy crap, what am I going to do when 38 million Americans are going to start popping off unemployment next month? What are you going to do? You starting a business right now at home? You're starting to make some money on the side. You better. You're gonna regret it if you don't. So I'm gonna answer your questions. That's step one and two. That's my workbook. That's what I teach. I've got hours upon hours of crap in here. A business plan, a strap plan, a marketing plan. I've got a weekly podcast, a weekly newsletter, weekly blogs, a weekly broadcast. On Thursday afternoons. I'm here for you. We're doing our best as our team. And if you call and need a consult, yeah, you're gonna pay. But we're affordable. We're not a big, huge firm. And I love entrepreneur. Ryan Shea and his team at Entrepreneur, they take care of me, I take care of them. I wouldn't be here on Entrepreneurs Facebook without their implicit trust that I'm going to get on here and say something stupid and crazy, and I don't. I'm looking out for you guys. We're not going to rip you off. So, Kevin. I got Kevin on the line. So what are we doing, Jack? What's Kevin's question? On our taxes, we put real estate professional. How do we show proof of the 750 hours? Okay, cool. Kevin says on our tax return, by the way, can you grab me a bottle of water? Water somewhere. And if you run behind the camera here. It's all right. It's all good. Okay. Kevin says. Where's Kevin from? Did he tell us? Kevin from Duluth, Minnesota. Appreciate that, Kevin. Thanks for the love. All right. Okay, so Kevin says that he, on the tax return, checked the box, that they're a real estate professional. Now, that's a 467 AF6 election. I think I'm trying to quote tax code, but that election to be a real estate professional allows Kevin this. And everybody just check this out. This is pretty cool. And for those of you that are making millions and you're just watching this going, who's this color crazy guy? And I got clients that are freaking so successful, and they learn something. Every time I try to open my mouth and say something smart, it works out. Here's your trifecta. Here's your trifecta. This is your family trust down here. This is your llc. This is your operations, your corp. We got Kevin on the line. Kevin is probably. I'm going to make some assumptions. If he's a real estate professional, he better not have a day job. He's doing real estate full time. That means he's going to be a realtor or a fix and flipper or a contractor or a developer. And he's in the business of real estate, and he's got rentals over here. And what Kevin wants to do is take the losses from all the rentals, because we're talking the big D, and I don't mean Dallas. We're talking depreciation, lots of losses on rentals. Even though you're growing in value and you're making money and you've got cash flow. I know it Kevin, it's awesome, right? This is why rich people buy real estate, because it makes sense. My wealthy clients buy real estate. I try to buy real estate because I've watched enough of my rich clients get richer. So Kevin's out there buying rental property and he's getting losses that come through on his tax return. So down here on his 1040, Kevin starts to say, and it says we. So I think he's married. I'm just going to go with that. Kevin says, yeah, we got, my wife has a W2 or I have a W2 or we've got this small business with a K1 and blah blah, blah. And he's got all these operations that are making money. And what's Kevin want? He wants write offs so he checks the box on TurboTax. I'm a real estate professional. Okay, that's cool. What happens? All these losses come over here and they reduce his taxable income and he saves taxes big time. We're talking even possible refunds. And it looks sexy. And Kevin click the box on Turbo. Ding, ding, ding, ding. Uncheck the box. That's what I see clients do. They're going to cry or they check the box. I get a refund. Okay, I'm going to do it. Now to do this, your primary occupation has to be in real estate. If Kevin is a pharmacist, even 20 hours a week and he has three rentals, it ain't happening. What are your primary occupation? Now if Kevin's spouse qualifies, Cool. They both qualify. But the number one test is it's got to be your primary occupation. Then you've got to do 70, 150 hours of doing real estate. So, okay, are you a realtor? You're gonna knock that out in the first three months. That's 13 hours a week as a realtor. You're gonna do that by Tuesday. You're a contractor, a developer. Fix and flip. You're chipping Joanna down in Waco on fixer upper. I don't know. What are you doing? Oh, you've got 35 rental properties and that's all you do. Okay, cool. You got two rental properties and you're a full time dentist. No, not happening. Well, I did 750 hours. Doesn't matter. Full time occupation. 750 hours, 13 hours a week. We're talking fixing the rental, cleaning the rental, painting the rental, talking to your tenants, showing the rental, doing the bookkeeping for it. Showing properties, making offers on properties, managing the properties. You don't have to spend 750 hours doing the rentals. You have to just do 750 hours doing real estate. Then there's seven subtests that show that you're materially participating here. If anything, that's a third test that you materially participate. I've been across the table with IRS agents and fought this out. I've won this. In fact, every time I fought with an IRS agent on this topic, I've won, and I love it. And the IRS agents are like, okay, I get it. And most IRS agents are very smart and wonderful people. People. Some are just pissed off at the world, and that's why they work at the irs. But you can do this. This is very common, Kevin. So I don't know if I get a review from a licensed CPA that knows this crap or if you're just checking the box on TurboTax. Watch out. Be careful. All right, what do we got? Maria? Who's our next caller?

Alejandra. Question is, what is the best way to claim 20k and start up the expense and. And what IRS form do I use for that?

Okay. Alejandro.

Alejandra.

Oh, sorry. Alejandra. Sorry. I thought I was doing pretty well there for a minute, then I missed the aro at the end. Maria, my assistant, speaks Spanish, so I have no luck at all pronouncing it properly. Alejandra from Colorado Springs, Colorado. Okay, Alejandra says she has startup costs of $20,000, and she wants to write them off. Okay, let's go through the several options here. Let's go back to our trifecta. So we've got our trust. Let's say we've got an IRA over here or 401k. And my IRA and 401k, they have an LLC. Then I've got an LLC over here with a little project rentals owned by my trust. My trust owns my home. This is my primary. Then my trust owns my S corp over here. Or maybe I'm an LLC waiting to become an S corp. All right, See, if I was doing a consult with Alejandro, I'd be like, where's your business? Is it rental business? Is it an operational business? What are you doing? And she says, I have startup costs of 20 grand. Is that a piece of equipment? Is it education? Is it training? Is it product or inventory? I don't know. What could Alejandra spend it on? That's gonna play a big role in the decision here of where to write it off. But here's the biggest point I want to make for everybody. When you're in Startup mode. I'll use the lemonade stand example. I'm gonna go out and open a lemonade headstand right here on Main Street America. I live in one of the smallest towns in America out here, and I love it. Do you know I rode my four wheeler here today for my little broadcast? How white trash is that? I know, but I love it. I do not care. I make a lot more money than a lot of people in this little town and other places, but I just love to ride my lawnmower like little Forrest Gump and live in the middle of nowhere. And then my brain works better and I come up with great ideas to share with you. Anyway, so, Alejandra, I'm going to go out here to Main Street America. I'm going to open up a little lemonade stand and I go buy my ice and my sugar and my blah, blah, blah and my cups and da, da, da, da. I'm in starlight Mode. I spend 20 grand. I even go to Country Time Lemonade School, and I spend 15 grand over there and I learn how to be the best lemonade stand owner in the country. You're in startup mode till you sell your first cup of lemonade, people. So all those costs, and Alejandra had 20 grand of them. Until she sells her first cup of lemonade, she is in start up mode. So that 20 grand, the general rule is she can write. Once she sells one cup of lemonade, she can write off five grand. The other 15 goes into a bucket and that 15 grand is written off over 15 years. It's called amortization. Amortized. But if she ends the business soon, she can write it off all at once at that point and she'll get a great write off someday. The point is, Alejandra, you'll get to write it off. You may just not get to write it off as fast as you want. So the first rule is five grand. 15,000 of the remaining 20 would be amortized over 15 years. The 15. Don't be deceived here, people. This 15 has nothing to do with this 15. This could be 45 grand. It's still 15 years. So it's 15 year amortization on startup cost. Now, a lot of people, I'm going to share a little example. They could be watching this Facebook Live today, I don't know. And I'm not mocking them or whatever. I had some clients a little upset about three weeks ago. And they're, they're great clients. And we did their tax return and we said, you can't Write off this whole 20 grand at once. You only made like a thousand dollars and you're gonna get audited. You can't write the whole thing off. We gave them their tax return. They went to TurboTax, did it themselves, wrote the whole thing off, got a big old refund and said we're bad and said, mark, you cheated us. You said we could save taxes and we didn't. And it's sad because it's a startup cost problem and I'm just a messenger. This is how it works. Now, if these clients had went out and made a hundred grand in the first year, and I could write this off in some other way than startup, and it was incurred during the time they were making money, and there were several variables that could play into this, I might have been able to write it off faster all at once, but in their example, I couldn't. And they were really upset and they're like, why are we paying for a tax return? We could just check the box. So just because you can check the box that you're a real estate professional on TurboTax, or check the box that it's not startup cost, it's all at once. And that little corner, but little number up in the corner goes ding, ding, ding, ding, and you get a huge refund. Don't be tempted. If you get audited, all hell breaks loose. So this is how it works. Now, can you write off professional training, not as a startup cost, for 20 grand all in one shot? Yes. If you're already in business and you're paying for training in your business, this could be a great expense. It could be continuing education. I don't know if I'd use the word education. And Alejandra, there's no form for this. There's no form. It's putting it down as another expense and making sure you use the right verbiage. And if you're playing around with 20 grand on TurboTax, you're playing with fire girl. Get a. Get a consult with a tax person that knows what they're doing. The other way that you might be able to do this. And I put continuing education because you already have a business and it's education that helps your business. Another option, it's a piece of equipment and you can use what's called 179 deduction or bonus depreciation. I might be able to write this whole thing off in one shot. If it's inventory, did you do just in time inventory and you sold everything, or did you have inventory left at the end of the year. We might be able to write off a good chunk of it too. So it's going to depend on Alejandra's business, what the money was spent on and how much money she made this year and what her plans are moving forward and blah, blah, blah. So lots of options. Okay, Allie, do we have someone online? Oh, sorry. What do we got? Jack, anybody? Mike in Houston, Texas. You're running your small business. What can I do for you tax and legal people? Tax and legal questions. I'm free right now. I'm all yours.

What is the benefit of creating an LLC versus currently?

Okay, so Mike says, what is the benefit of an llc? I'm currently a sole proprietor. Okay, back to our trifecta. So Mike, if he's a sole proprietor, think about this. He could be a sole proprietor landscaper, or a consultant or an engineer. He could be professional services. He could be doing all sorts of businesses as a sole proprietor. This is operational income. Or he could be doing a rental property. That's a business too. That's a sole proprietor. We report this on a schedule e on your 1040. Report this on a Schedule C on your 1040. So we have these two options. So when Mike gets on the phone with me again, people, Facebook. You run a YouTube or Facebook? Facebook. Any questions, people? Write them down here, I'm for you. These are a sole proprietorship, even though it's rental. This is operational business and both are considered sole proprietors for the in concept here. And if I get an llc, the only real benefit. Well, I'm not. Whoa. I'm not gonna say only. The number one benefit of doing an llc, Mike, is you get protection. So if your business, there's any possibility of a lawsuit against you personally, the LLC could be a good choice. Now if you're just selling jeans on ebay at night, I'm not going to care about it. If you're just consulting, giving people advice on how to do infusionsoft online at night, I'm not going to care about it. But if you're out selling tacos in a food truck or running a bungee jumping school or skydiving training, you're going to have a problem, you could get sued. So this LLC here could give you great asset protection. If you have tenants and you have rental property, I want protection from your tenants. That's a no brainer. So an LLC would give you protection. Couple other things you can do, Mike. Some people say, well, why would I do an llc? So, number one is protection. They don't save Taxes. An LLC is not going to save you taxes, Mike, but it gives us the chance to convert to an S Corp retroactively. So I can turn this into an S corp and backdate it where I can't do it unless I have an llc. Now if some of you have a question on like Mark, what did you just say? Get over to YouTube and type Kohler LLC or Kohler S Corp. And I have a video that's titled when do I convert an LLC to an S Corp? It's a great video. Please, please check it out. The next thing that you can do is start building corporate credit. And you can build corporate credit with an llc. So you're going to get a tax ID number and you can start getting a paydex score. Get a Dun and Bradstreet number. That could be very helpful. I have a lot of clients that want to build corporate credit. The next thing could do is can make you look more legit. You've got an official entity and you have the LLC name acronym behind your business name. So these are the probably the top four reasons, Mike, why you might set up an llc. But I don't know what type of business you have, how much money you're making. Now if you're making more than 30 or 40 grand a year, I don't even want you to be an llc. I got to get you over to an S corp as soon as possible because you're paying self employment tax out the wazoo. And so get over and watch a couple of my videos. They're five minutes long, 10 minutes most on YouTube and just type Kohler Escort per Kohler LLC. You'll love it. All right, next question.

Natalia from Florida, I got an S corp with four people. I also set up a management company to pay my kids. Which IRA is better to start for my 3 kids under 18. Traditional or Roth Management company is going as a solo prop llc.

Okay. I love it. Natalia down in Florida and she's doing some good stuff. She may have been at my Miami workshop last year. That could be it. So Natalia, I love where you're going with this. So Natalia has a, what we call this is the trifecta. We're going to take it to another level. We've got our little trust down here. Now for those of you that make tons of money and you're like, mark, wow me, Natalia's opening the door to that. I'm going to do my best here. Natalia has what we call a little family management company and it's a sole proprietorship how many kids did you say she had?

She has four of them.

Or was it four partners, four people

and three kids under 18.

Three kids. Three kids under age 18. And then she had a LLC with three other partners. Okay, so she has an LLC with three partners. And then Natalia is the owner down here of her business. Now, we don't know what this business is, and that's okay, doesn't matter. But why we use this little family management company is she struck a deal with her partners that they're going to 1099, her little family management company for certain services. Now this is very common when I've got an LLC with multiple partners. Each partner might be their own S corp or individual. And the goal with this llc, and that's a great structure, Natalia, is I can be very flexible. So this partner Natalia, says, I got kids, I want a write off. And they go, well, we're not going to write them off of the llc. But you know what we'll do? We'll give you five grand. We'll give all the partners five grand for some different things. We'll take a write off up here and then you can do whatever the freak you want with your five grand. Natalia's like, that's great. In fact, let's make it six grand. Six grand. We give each partner six grand. There's four partners and they each get six grand. Now we're going to write that off as a management fee at the LLC level. And now we've got this ordinary income down here and we worry about that. I don't want self employment tax. But for Natalia, she doesn't have a problem. She's got a little family management company that helps support the business. She's got three employees of that business. And so we can bring in six grand of income, write off six grand in expenses. She has zero taxable income. She just got six grand funneled to her kids legitimately, honestly and effectively. And now six grand's down to the children who are helping in the business. I always want to make sure that's legit and they can get paid this much and we could support that. Now the kids each have earned income of two grand. Well, the beauty of that is these kids don't do tax returns when they're under age 18. Until this year, they make $12,400. They don't have to do a tax return. This is a schedule C with zero taxable income. The LLC got a write off for six grand. Oh, my gosh. And it gets better because here's Natalia's question, she goes, now that my kids all have two grand, I want to open up. What, what type of ira? Oh, where's that paperwork? Can you hand me that paperwork, Maria, I gave you to go over with? What's funny is this is. I'm just going to be totally transparent here. Right before I walked in and we jumped in the studio here, look at this. These are IRA contribution forms and I got a whole stack of them. That's kind of weird. Mark, why would you have a big stack of IRA contribution forms? And I'll tell you the answer to your question, Natalia. Natalia said, what's the best IRA to use for my kids? It is a Roth ira. And I will argue that all freaking day long. And here's why. That two grand now goes into three roths for the three kids. We've got three Roth IRAs. Two grand. Two grand. Two grand. Natalia got a tax write off for paying her kids. Paid zero tax. Her kids paid zero tax and she funded three Roth IRAs. This is a contribution form, directed IRA. And I want to tell everybody that such a simple system, you can do it at home, online, at night. It's so streamlined. Directed ira.com. go to the new contribution forms, pull down menu and set up a Roth IRA for your kids. You can be making a contribution within days. This form is where's the money coming from? So you have to do the application first, you can do it online and then two, three days later, you're ready to put money in via wire, via check. What and where are we putting it? So you can get that money into the accounts really quick. So now you've got these Roth IRAs. Now why I like them for the kids is this two grand can come out tax free for college. No penalty, no tax. When the kids are ready for college, you just pull it out, done, anytime. But the earnings grow tax free. Not tax deferred, tax free. You want to get your mind blown, Go over to Dave Ramsey's video, which I love, and go over, go to YouTube, just search. I'm going to give you two videos to watch. I want you to watch Dave Ramsey's compound, the power of compound interest. You go watch that video. It's four minutes long. Make your kids watch it. I make all my college students watch it. My Family's watched it 10 times, all sorts of times. I've watched it a hundred times. Then you're going to go watch my video and you're going to search for Mark Kohler. $1 million IRA, Roth IRA. My video is like 10 minutes long. You watch these two videos, one and two, it's going to show you that this Roth IRA, how quickly it can become a tax free ATM of a million dollars for your kids to help teach them the principle of saving and life. You'll change America. This is huge. These Roth IRAs, in my situation, kids, family, these Roth IRAs are creating an LLC. And this LLC is going out and doing business. We're talking about buying into a little restaurant, flipping some cars or trucks, doing real estate, selling jeans on ebay, doing a hair salon. That's what I want to do as a barbershop. We can do all these businesses right here. My Roth IRA, if it's not making 20% a year, I'm doing something wrong. I know that sounds great. I get the hate. I get some serious hate mail on this little video. You got to go down in the comments. Oh my gosh, people are going ballistic. A million dollar Roth IRA. And I say you can get a 12 or 15% return. They think I'm a heretic. They want to burn me at the stake. If my clients that are self directing the Roths are, aren't making at least 15%, they're idiots. I'm serious. Learn how to self direct your IRA. So, Natalia, you're going to set up Roth IRAs, go over to directed IRA.com, get them funded, get them done, boom, ba da bang. Let's form a new entity for your LLC with your kids. These forms are that easy, money's off to the races and you're cranking. All right, what do we got, John? From where? Duluth, Minnesota. Gosh, dawn, you're killing me. Right. What is the recommended minimum IRA balance contribution recommended to make the directed IRA fees worth it. Okay, John says, mark, that's a great idea. But how much are the fees to do this? Is it worth it? Okay, let's start out with how much can you put in? And I'm going to do a lot of this from memory. I don't have my little. Do I have a calendar here? Do you have yours? Anybody have their calendar with them? Okay. This year you can do a Roth IRA of six grand. Or if you're 50 or over, you can do seven grand. If you want to do a 401K, you're looking at 19,500. With the makeup of. I think it's six. It's five or six. If you're over age 50. I think we can get this up to 24. Five. I'm embarrassed. Some of you are. Like, Mark, you should know this. There's a lot going into my brain in a project like this, so very, very tricky. We've got SEP IRAs and Health Savings Accounts, and we've got regular IRAs. So when John and Dallas. Thank you. John says, so who I'm talking to. Right. Thanks, John. He says that the fee's worth it. Now, the reason why I'm pausing is because I'm a cheap guy. My kids know that I try to be very frugal, and I'll treat myself to stuff, too, but I generally am trying to be pretty frugal. And so the common fees annually for any of these accounts are going to be around 300 bucks. So you got to have an annual fee of around 300 bucks. Now, here's the beauty of this, people. There's no stockbrokers in the mix. There's no one taking a percentage. There's no percentage at all coming out. It's just a flat fee of 300 bucks a year, approximately. So you may say, well, Mark, in Natalia's example, they're going to put in two grand and I got to keep a minimum balance of a couple hundred bucks. And then that's crazy. The fees are too much. Well, a couple thoughts. First of all, you can pay for these fees separately from the account, so this $300 a year does not have to come out of the Roth. You can pay that fee, so that allows you to keep a bigger balance in your account. Next, it's not about just contributing Natalia's two or three grand for her kids this year. It's also rollovers because you might have an old 401K, an old Roth or something. And so when you're ready to build this bucket, you may say, well, $300 fee for this small amount isn't worth it. Well, you can roll over money and start building up your bucket that way. And the reality is this, let me say it this way. I like your question, John. Let's say Natalia does this. She's got two grand. She pays for the minimum balance or the fees, or she gets works around all that. She's got two grand. Well, it's really two grand times three, John. So now she's got six grand to work with. She might do a bridge loan for someone. She might do a by. I was talking to a friend today, literally at lunch that is buying a dump truck and then going to lease it out to some of the construction companies in town. And his rate of return is going to be around 20%. Now, maybe there's a loan. Maybe it's seller financing, and he buys a used truck. His ira, this little LLC might be able to buy a truck, and I won't even try and draw a truck. Okay, but you can do. So there's so much you could do with this. So let's say you go, well, Mark, the fees are too much. I'm going to put 2k in my Ameritrade account. All right, what do you think you're going to get in the next two years? 6% average. If you're lucky, maybe 7, probably 5. Let's say 5 to 7% rate of return. Or you can pay the $300 fee out of your own pocket, take the 2 grand, pool it with some other IRAs. Now, I've got 6 grand or more, because remember, you could roll in Mom's IRA, Dad's IRA, Grandma's IRA. We could build an LLC with 15 to 20 grand really quick and go out and get 20%. 20% on two grand is 400 bucks. Ooh, 5% on two grand is 100 bucks. Oh, boy, my math. This is sweet. Okay, check out this math. Okay, two grand. John, you're going to love this. Say I've got $2,000, and I've got one at Ameritrade, and I'm just buying and selling stocks, and I got another two grand at Directed Iraq, and I'm going to go out and self direct. I get a 20% return. Pooling the money with other IRAs in an LLC, doing something that I know I can make a freaking 20% return. Buying a mobile home. Go out and buy a mobile home. Go out and buy an RV and put it in a. You can do that with your Roth IRA. Or I get 5% here, I make 100 bucks. Or I come out here and make 400 bucks. Oh, but I got a $300 fee. Okay, I'm back where I started. It's break even. Interesting, right? So if I can get this money, getting me a bigger rate of return and getting it growing faster, the flat fee becomes irrelevant. There's a tipping point. Maybe it's two grand, maybe it's three grand, maybe it's four grand. I don't know. What's your rate of return? What's your plan? All right, anyway, I hope that helps, Sean. Okay, Maria, we got Lydia. Last question. Where's she from? Lydia from Duluth, Minnesota. All right, Lydia, what's your question?

If I generate income via stock market trading, both short term and long term, are there any tax savings strategies I can use to offset profits? And what Tax form do I use?

And what tax? Okay, so Lydia says on her 1040 she has stock trading account and she's got short term capital gains. Can you grab me my phone? Can you get me my phone? Where'd it go? Anybody have my phone? I gotta make a call here while we're talking about this. So I'm going to get a good answer here for you. So she's in here and she's got short term capital gains and long term capital gains. This means she held the stock less than 12 months. Hey, did you find out I'm on the live on YouTube right now. Did you find out if we can do an opportunity zone on short term capital gain? Okay, I say my answer is no, but I just want to confirm firm. So when you're buying and selling stock, short term capital gain is at your ordinary rate, whatever tax bracket you're in. Long term capital gain. Thank you so much, Devin. I'm talking to Devin Muns, one of our amazing attorneys at the law offices of Kkos lawyers that if you're lucky enough to have an appointment with. He's amazing and he is looking up the rule on this because I want to give Lydia the best answer possible. Does she tell us where she's from yet? Capital gains. This means you held it more than 12 months. This means you held it less than 12 months. Now let's say I call Devin because he just got a client that he was on a call today that's making some millions of dollars on some capital gain. And they asked the same question, Lydia. They said, what are my tax saving strategies? What can I do to save money on capital gain? One of your only. Well, I'm going to go through a number of options, but the first one that's hot is what's called as opportunity zone. Okay, Devin, any answer yet? Okay, we're gonna do it. The rate that they would have paid on. Okay. Okay, thank you, Devin. We'll go with that for the show and tell people to verify. Thanks, but okay. He said that both ordinary rates and short, long term rates. Sorry, Short term capital gain at ordinary rates and long term capital gain at capital gain rates can both do what's called an opportunity zone. Now I've got an article on this, Lydia, so you want to go over markjkohler.com took a lot of research. It's a crazy article. Go to my blog and then down there you're going to put in the search window opportunity zone. You probably just could even put the word zone or opportunity. It'll come up. There's an article on this and what it does is say any dollars you take. I'm just going to summarize quickly. Let's say you have a hundred grand in capital gain if you go out and buy a rental property, real estate, a fixer upper, and try to improve an opportunity zone. Now what Congress, Trump and his administration did about five years ago with the Tax Cuts and Jobs act is said, you know what, we're going to go out to the governors of 50 states. They can choose areas and come up with 50 properties or 50 zones. Sorry, not properties, 50 zones. That's 2,500 zones around the country. And they get to choose these zones where we want to give investors a benefit on their tax return if they go out and take their capital gain and go out and rehabilitate an area. And some of these areas aren't that bad. I'm going to just say one of these is like the west side of Salt Lake City. So the governor said, you know what, we're trying to rehabilitate this side of the city. And so investors, if you go buy a building that fix it up a little bit and rehabilitate it, we will defer that capital gain until 2028. So you don't have to pay any taxes for eight years. Now if you hold it, at least it's either five years and then seven or seven, then 10. Forgive me. But if you hold it for a certain number of years, you can get, you can wipe out 10% of the capital gain. If you hold it for another certain number of years, you can get rid of it for up to 15% of the gain. And if you hold and then you still have to pay the tax, but you reduce the amount of tax and you defer it, then the cool part is if you hold this building at least 10 years when you sell it, you never pay tax on the, on the gain. So you get a deferral of your current tax bill, a reduction in the tax bill the longer you hold it. And then if you buy this property and continue to hold it as a rental, you'll never pay tax when you sell it. That is the opportunity zone if you want to get rid of capital gain. This is the first thing we talked about in an attorney group text this morning. This is what was on my text this morning was this strategy for a client with a million dollar capital gain. That's not a bad idea. The other idea, if you haven't sold the capital gains yet, I really like, is a charitable remainder trust. Get over to YouTube and type charitable Remainder Trust Kohler and just put my name in there and you're going to see a great little video on this. Basically, you put the stock in a trust before you sell it and then when you sell it. And yes, we have the loudest dump truck in the neighborhood in this town right outside my door during my live broadcast. I just love it. But anyway, so we've got this trust that sells the stock and pays no tax and then the money stays in this CRT trust and kicks out cash flow to you. So this is. That's a pretty cool deal. What forms you use, Natalia? The form when people ask that, it scares the hell out of me because I actually think you're going to try and do this on your own tax return. Not a good idea. This is what professionals are for. This is like going to Home Depot saying, how do I put in my own kitchen? Okay, I can get going to Home Depot and maybe switching out your sink or changing out a P trap or maybe putting tile on the floor, but redoing your whole kitchen, you're going to need a contractor. You're going to jack this up. The Opportunity Zone, the Chair Remainder Trust. I can't even start to tell you the procedures, but they're not terribly expensive. Capital gain income is not a business, so you can't take business deductions against it. Those are probably my 2. You cannot do a 1031 with a capital gain with stock. It's not a business, so you don't get business deductions. You can't fund a 401k with capital gain. Sometimes we call it a backdoor 401k. I'll give you one last idea. So let's say you've got your stock gain over here. Let's do our trifecta. So you got your trifecta and you've got the stock gain over here. If you have a business again, you gotta have a business somewhere. Or if you take this stock gain and go buy real estate and then you hire yourself to run the property as a manager, which normally you don't do unless you're trying to fund a 401k, this is the back door to a 401k. So you take your stock gain, you do an Opportunity Zone, you don't pay any tax, you buy real estate, you hire yourself before the end of the year, give yourself a 1099, which you would never normally do. Never, never, ever. Unless you're doing this strategy. And let's say you 1099 yourself for 25 grand. Then you pay your FICA, issue yourself a W2, and drop the whole thing in a 401K. We wipe it out. So I wipe out this 25 grand. You get 20 grand in a 401K. And times two if you're married. Get the kids in the mix, like Alejandra down in Florida. So, I mean, you could do all sorts of things. That's the backdoor Roth, backdoor 401k. Anyway, I hope that's helpful, guys, the purpose of this, I usually have so many more questions. It's summertime. Some of you are Covid out or you're sweating in your house and trying to figure out what to do with your life. People start that small business on the side, develop it, have something to fall back on. This pandemic is far from over. You need as many sources of income as you can find. I know I may sound a little boring and crazy talking about tax and legal and LLCs and corporations, but that's what small business business is all about. Please get over. We're going to give away a book. Do we have the winner from last week or two weeks ago? I don't know where it's at. I give away a book every year. Is that it? Yep. All right, here's our winner from last week. This is Chadwick Martin from Virginia. Won the tax and legal playbook. So what we do when we get back to the office is Allison here, our marketing whiz. She has so many titles right now, she wants to shoot me. So I don't know. Client resource management system manager. And anyway, Allison's going to look at our viewers today, and she is going to choose a winner and give away. Pardon? Okay, gotcha. Getting direction here for my team. I'm going to give away the 8 steps$99 value. Giving it away. Allison will be in touch with you. She will choose a random winner, someone that shared this video. So you've got to go out there and share this, and she's going to look at all the shares and then she's going to draw your number or name out of a hat. And if there's chocolates or flowers on her desk tomorrow, you do have a better chance of winning. I'm just saying that. Just throwing that out there. Okay, so Eight Steps will go to a winner tomorrow, but get over there. Check it out on my website. Get to Amazon. I just want to say the American dream is still alive. We live in a amazing country that can give you the chance to go out and make a buck honestly and doing something you love. Find it. Deal with it, get excited about it. I'll be back here next Thursday at 4 o' clock live on YouTube and Facebook. Put it on your calendar. Also, every week our podcast is Refresh youh Wealth and you can sign up for my newsletter at my website, markjkohler.com when you sign up for my newsletter, I have a free ebook. 30 pages. Top 10 Mistakes Small Business Owners make that's free. It comes directly to you and down below. If you want to check the box, you can say, you know what Mark, I want to talk to one of your tax lawyers. I need an hour. I got to get my crap figured out. Check that box. We'll call you that same day or the next day and make an appointment for you to get a once a year review of your business strategic plan and make sure you got the right entity and you're saving taxes. Be careful out there. TurboTax is great. LegalZoom is great if you know what you're doing and if you don't, get a little help along the way until you feel more confident and educated on these topics. Thanks everybody. Have a great weekend.