9 Figure CEO Answers Your Questions On Taxes & Real Estate

What you want to be focused on is I want to pay her everything. I'm going to pay her this year before October 31st because I don't have to withhold FICA. You don't want to withhold the F word. You don't want to worry about Social Security and Medicare sudafood of all that crap.

They're forced to sue the llc. They can't sue you. They can't sue your other partners. Okay? They're forced to sue the llc, and that is the corporate Vail which protects the owners from the liabilities of the business.

People, we will lay this out on a silver platter for you. We will line you up with a directed IRA to open up your Roth and do your rollover and do the whole thing. Don't try to now take this little advice here on this podcast and knock it out on your own on Google. Welcome everybody, to another episode of the Main Street Business podcast. My name is Mark Kohler, here with the infamous Matt Sorenson. Excited to have our Open Forum show. The people show.

Yes, the people show. Doesn't matter what Mark and Matt want to talk about. Sometimes they talk about dumb stuff. I know what you're thinking, but you'd ask your questions in the Open Forum podcast and we're going answers. They're free and they might be worth that.

We're gonna do our best here, but thank you for listening. We love the American dream. We love small business, Main Street America. And it's so hard to get clarity. And frankly, you can get on Google and find the answer you want and that's kind of dangerous.

We're gonna give you the answer you need, the right answer.

And if we don't know the answer, we're gonna tell you. So we really do want to be your source for legitimate content. On this topic, we have a law firm, an accounting firm, a trust company self directing over a billion dollars now of IRA account. Well, letting people self direct their accounts and that account value, it's just been an incredible response. People want to take control of their future, their retirement, their money, their taxes. And people are starving for it. So we're grateful you found us as your source. And let's get into it. You got the first question for us.

I guess let's dig into it. All right, cool this. I'm going to go now. Remember, you go to mainstreetbusinesspodcast.com and go into asset protection. Piercing the Corporate Veil by Lynette. Okay, Lynette asks questions, says, can you explain piercing the corporate veil we recently bought a short term rental with three other couples and it's undergoing a giant rehab. Wow.

Sounds like you're going to have three less couple friends.

Business partners.

You mean prior friends?

Yeah, our former friends. Now business partners.

All right.

Hey, we're business partners and friends. It can work, all right. It can work.

All right.

Okay. She says, is it safe for each of us to personally promote it? Is it okay for people to know we are the owners? Is it a fact known that I'm an owner? Does it put me at risk if there was ever a lawsuit? Would the veil be pierced if it becomes common knowledge that we own it? All right, good questions, Lynette, you're asking a few different things, though. You're asking about the corporate veil. I want to get to that second. But you're asking about privacy at first here, so let's get to the privacy aspect of it. I was just talking to a client last week, member managed llc, and said, hey, should our trust be the member manager of our llc? I'm like, no, I don't want your trust out there everywhere on state websites for your llc, Lynette, your short term rental, your trust should own your llc. Your trust should own your short term rental, llc, your vocal living trust, your estate plan, that should own it, not you. But who could be the manager of the llc? It should be you personally. Or maybe you could have a management company, but typically it's going to be you personally. Now, you cannot do that in a Member Managed LLC. Never do Member Managed LLCs. If someone set one up for you is clear they're not a smart lawyer that knows what they're doing. You need to do manager managed llc. That's the first point. And it helps with privacy because you don't have to show who owns it. In most states, no one knows who the member is, which is the owner. In a manager managed llc, the only name is the manager.

Yeah, and I. Let me comment on this privacy, too. I think there's a fork in the road here. Some of your. So there's four couples in on this.

Yeah.

Some of the couples are like, I don't want anyone to know we own it. I want that privacy. I don't want to be the manager. I. I'll be behind the scenes. I'll provide credit, cash, work, I'll do whatever. But I just. I just don't want people to know I own it. Some of you may be like, I want people to know I own it now. I want to market it that way. And that's okay. And spoiler alert. It does not pierce the corporate veil to let people. You know it know you own it.

I'll answer, what? The corporate veil? Yeah, yeah.

And when you can pierce it, but just promoting it, for example, I'll be. I'm going to come out right now. I'm going to come out. Okay, I'm saying it. I've got.

Out of the closet.

Yep. Out of the closet. I am an Airbnb owner and I'm proud of it. So I've got three Airbnbs. It'll be online by December. We've got one going online in a week or two, October 1st. And I want people to know it. I want to promote them. I want people to go, man, I stayed in Mark Kohler's freaking Airbnb. And then they might go, oh, that was shit. And they're going to send me a nasty email. I don't know. But we're going to do a great job. And I want people to know I have some Airbnbs. I think it's going to help promote the use. I'm excited about it. And is it going to pierce the veil? Hell, no. It's going to help maybe market it. But again, people may want privacy and other people may want to promote. And you get to choose.

Yeah. And, you know, particularly with, like, Airbnb and a lot of sites, it's a person that's on there as the host. It's not, you know, what would be Vandelay Industries? You know, okay, it's Art Vandelay.

Okay.

The name is going to be on there. All right, There's a person, so. And that might be one of you and your partners. That's that person that could be. And one of you might want to promote it. And I like Mark's point there, because sometimes, and this is for any business owner, you know, should I have my name be in the name of the llc? Should I let people know about my entity? Well, what type of business is it? If this is your operating business, you want people to know your name and that you own it. You're going to be connected to the business. Everyone you do business with, your customers know you own the business. You're the business owner, and that makes sense for typically operating businesses. But asset holding businesses, like kind of long term rentals or your investment, you may not want people to know that's you. Right. I don't want people to know where all my assets are. If I got a liability or issue coming down the pipe, I don't want people to Know what? I have, and many of us are more private. And it's not necessary for my investment, LLC or my rental property, llc for someone to know the heck that I own it. So everybody's a little different on that. Just look at your situation. But the corporate veil, which is really this limited liability, that's what LLC stands for, that's the ll. And LLC is limited liability is if there's a lawsuit on this short term rental and you guys have your LLC together. The LLC owns a short term rental. Some of the one guest stays there, they slip and fall, something happens, whatever, they're forced to sue the llc. They can't sue you, they can't sue your other partners, okay? They're forced to sue the llc. And that is the corporate veil, which protects the owners from the liabilities of the business. Okay? Your personal assets are not at risk. Now that short term rental, that property, any equity in it is at risk or any money in that LLC's bank account. But the underlying owners and all your other assets, all your other companies, all your other business, your retirement accounts, that is all protected. That is the corporate bill.

Yeah. And we've got some prior shows where we talked about asset protection 101, 102. We got. We had a series of asset protection shows about six months to a year ago. They're in the archives. I'd recommend you get there and you'll learn what pierces avail. Commingling assets, having bad lease agreements. Bad. You know, the property's not titled properly. There's a kind of a list. But promoting is okay if you want to let people know you own it. That's cool. There's no piercing there. All right, let's jump over to T Money. This is in the tax strategy section of the Q and A portal. T Money says he wants to ride off a motorcycle. So we have an organ donor here. He says, I see different. Did I just say that? Was that my inside voice?

I'm catching up.

Yeah.

Organ donor.

What? Yeah, be careful. You know, you motorcycle riders out there, what do they call that when they weave through traffic through the splitting.

The lane. Splitting.

Lane splitting.

Ugh.

And I've seen an accident live. Be careful out there. Too many. Okay, I see different information on this topic online. When I search for an answer, Han is looking for the answer he wants based on if you can write off the purchase of a motorcycle or not. All right, so here's the fact pattern. I run a consulting business and I travel from my home office to my work office daily. I'm okay. With that you can have both listen to our show on home office while also occasionally traveling to meet clients. Oh, golden nugget there. Yes, I would use a car for travel, but a motorcycle is cheaper for the business to purchase. It saves business money on gas and also saves time when I can get going somewhere quicker, AKA lane splitting. He didn't say that, but I know what he's doing. Can I claim this as an expense without worry? Okay, big answer is yes, you can claim an expense here. But the real issue is how much. And let's hit a few basics. Whether it's a car or motorcycle riding off your commute, even if you have a home office to a daily standard bonafide office, the commute is not a write off. You're like, well I have a home office. Yeah, when you leave home office to go meet a client, when you leave the home office to go to Staples or the Apple store or go to a conference or whatever. Damn straight. I want you riding off the expense of your car or motorcycle when you're not commuting. So you have to be careful going from a home office to a standard office that you go to daily. Let's say you're a contractor and you've got multiple different work sites, you're going to have a lot easier time there. Let's say you're in a consultant without a standard brick and mortar office, but you travel from your home office to go meet all of your clients. Love that too. But any commuting on a regular daily basis, not a write off. Now second point, I'll be brief. Adding the motorcycle to the mix. You ride off a motorcycle the same way you would a car. You've got two choices. You can go actual or mileage. The mileage write off is fantastic because your miles per gallon in a motorcycle double or triple most cars. So you're, you're getting the same write off per mile that a guy driving an F150 is getting. You're driving a motorcycle, so you're making bank. You're going to go with mileage generally and write off all those miles that are non commuting. And that's how you write off the motorcycle. You don't write off gas, you don't depreciate the motorcycle. When you go mileage, that's the way you go. If you want to go actual, which is cool, you got to prove that 50% or more of the use of the motorcycle is for business, not commuting. And now you can actually write off the motorcycle, the gas Repairs and maintenance. But I'll tell you because you just said it, motorcycles are so much cheaper and efficient. You're going to get much, much more bang for your buck going with the mileage write off. That would be my recommendation. And we had a client that was a realtor and he tried to brand himself and very successfully as the motorcycle Realtor, the Harley Davidson Realtor. And he would show properties on his Harley and he'd get other Harley owners to say, hey, let's go look for property. Let's buy a house from a realtor that speaks our language, that's part of our community. And he did a really great job branding his motorcycle complete write off. I can't remember at the time was it mileage or actual? Harley's a little more expensive.

Yeah, it might go actual on a Harley, you know, the right Harley, you go actual there.

But anyway, T Money, it is a write off. You just got to be careful where and how much.

Okay. Love it. Thanks T Money. All right jp, JP had a question here in retirement planning. You know I was going to go down that column retirement planning for 100, Alex. All right, says longtime listener, first time caller, a little throwback. I'm a partner in my company's 401k and have been requesting the opportunity to utilize the Roth match under the Secure 2.0 provision. The record keeper empower in this case currently does not have the infrastructure to support Roth match on their systems. I have a self directed IRA and wondering if I can execute an in service withdrawal with Roth conversion of the employee the employer match here instead of waiting and losing out on the opportunity this year. But I don't know the vesting schedule would interfere with the idea of getting access to the opportunity. Moreover, my 401k severely limits my choices and I want to learn every angle available except hardship to pull out cash for Main street investing in a self directed IRA and keep it out of the hands of Wall street. Jp, you know I was going to answer this question because I just love where your head's at.

Yeah, dude, you're speaking Matt's language.

Talk to me. Jp.

Alright, throwing Matt softballs over here.

All right, so this is a great question though because this is going on right now. Quite a bit of people in this scenario, myself included. Insecure 2.0 this was Congress passed at the end of last year. They said Roth, you can do Roth matching employer contributions. So last year the rules were the only way you get roth in a 401k is employee contributions. Only employee contributions can be Roth Employer contributions, which is sometimes called the match. Employer contributions must be traditional. Now they change the law in 2023. Right now in the tax code it says you can have Roth employer contributions, which is pretty freaking sweet. This is whether you're in a solo 401k or you're on your big employer 401k here with empower managing it now, the problem is making it happen. Making it happen because the IRS is slow and they're not on the ball and they haven't figured it out yet and given guidance.

And employers are slow and wait until someone spoon feeds them and they freak out when you walk in the office and say, I want a Roth match.

Yeah, but it's not on them still at the freaking irs despite it being in the tax code and you legally being able to do it. So it's kind of a mechanics and process thing right now, unfortunately, because record keepers like Empower, even us at Directed Trust company on our solos, it's like we don't know how the IRS is going to treat it. We'll do it for you. We'll let you drop it in. I can't tell you how to report it on your taxes though, because we don't know. And so here's the problem, JP for you right now, you're not going to be able to do it. Now, you might be able to do it by year end. They might have guidance so you could make the contribution by year end. But here's another option. I just want to think you can

say the option, but we got to use our special word. Yeah. Here's the loophole. See, people listen to our show for loopholes and there's a loophole here. Yeah. So what's the loophole? I know that's where you were going.

Well, there's a couple of them here. Okay. There's a couple of them here. Oh, wow. And I want to get to the second one, which I think is the one you have. But let me say the first one.

I get to say the second one.

Can't pick one.

Oh, you're saying. Okay, go ahead. Fair enough. Equal opportunity.

Pick your own question.

All right. Damn it.

All right, the first one is just have it go in traditional and convert it to Roth. You can always convert traditional. That was the old school method. That's what we were doing last year anyways. Even for solo Ks or you and your converted trough. Now that doesn't solve your problem. JP of it's stuck in the main in the 401k on Wall street buying crappy mutual funds and ETFs you don't even care about. And you're like, I want to invest in Main Street. I want to self direct. Now here's the next option, which I think was yours. That also solves this problem.

I love it. Yep. I will be transparent. Honest. I was going with number one. That's where I was headed.

Oh, you were.

Okay. Yeah. So you could go ahead. Number two, I'm excited.

Freaking mega backdoor Roth, this thing.

Okay.

You're an employee at this company. You might be able to do what's called an after tax employee contribution. Don't worry about the employer match. I mean, I don't know, maybe your company's paying for it. So we want to grab what we can there. But you could convert that to Roth. But the rest of it, do the after tax employee contribution. This can go up to the 66,000. After what you've already put in and the company's put in, you got whatever's left. After that, go up to 66 after tax employee contribution, which can be rolled out immediately to Roth. I mean, that's the mega backdoor Roth to a Roth ira. You can self direct. Hold on.

I didn't. I love this show. I tell this people and they're like, uh, I learned something. Every time you talk, Matt, I love you. Okay. I didn't. I thought you still had vesting rules on that after tax contribution.

No, because it's employee. It's employee contribution. Now on. He was trying to get the match in this question. So that's a caveat because your company's throwing that money in for free. Grab that. You might have to just grab it as traditional and convert it to Roth.

See, because what he could do is he could say, well, I'll just go fund my own little personal Roth ira. Which you can still do, but you're saying double down. You could go do an after tax employee contribution that's immediately available to be rolled out to a Roth IRA that you still do another 6,500 in.

Exactly.

Wow. Pen drop. Where's the pen? You guys hear that?

Yeah.

That was Matt Hornson, dude. Good job. I love that.

Thank you.

That was a better one.

That was right? That was good.

Mine sucked, cuz.

Now you can self direct jp now there's some work there. You got to figure out the after tax employee contribution. At Empower, we've seen lots of. I'm surprised. I've seen lots of clients able to do it at their big, you know, corporate boring, 401k plan.

Now if everybody, this is your chance to go, okay, these guys, I like where your head's at. Please call the law firm and get a consult with one of our tax lawyers. We are not that expensive. You go out shopping for a tax lawyer, good luck even getting a call back in some big mega firm in Chicago. We help clients all over the country. Kkoslawyers.com get on a Zoom call. Real lawyers with years and years of experience, trained personally by Matt and I every week, three times a week, frankly, in meetings we have with them. Call them up and go, hey, I need, I need a comprehensive tax consultation. Build me a trifecta. And I have a few questions on my 401k people. We will lay this out on a silver platter for you. We will line you up with directed IRA to open up your Roth and do your rollover and do the whole thing. Don't try to now take this little advice here on this podcast and knock it out on your own on Google. Please just call the law firm. For 1500 bucks, approximately, you can have an hour or two with an attorney with them behind the scenes or on a call with you building you a trifecta and bringing this whole thing together and answering your questions. All right, I got a fun one here. All right, going back to just bread and butter, small business. Terrence Young. This is in the tax strategy section. I'm going to jump to some other sections here in a minute, but I thought I'd feel too here. Hey, Mark and Matt. In my family management company, My son is 14 years old turning 15, but my daughter is 17 turning 18 this year. Now let's stop here, everyone. A family management company is kind of a term of art that Matt and I have used over the years, which is a little sole proprietorship that supports the family main business that's going to typically be an S corporation, S Corp, not an S corp in Vegas, an S corp. Just want to make sure there wasn't a Freudian slip there. Okay, so he says, I've got this little family management company, sole prop. My kids are in it and My daughter turns 18 October 31st. So very timely. We're getting this podcast out to you. Can I still pay her? My daughter that's turning 18 out of the little sole prop and qualify for the full tax deduction. Or will I need to transfer her out of the sole prop into my S Corp when she hits 18? Or can it be done after she graduates from high school and starts college next year? All right, now we have done an entire hour podcast on this topic in question. So Terrence, please go into the archives and grab one of those shows on paying your kids. But let me just quickly answer this. You get the deduction for paying your daughter and your son. Whether you pay him out of the sole proper S corp, you get the full deduction. It's not about your deduction. It's really about how much tax you might have to withhold or how much tax they're going to pay. When you pay your daughter out of your sole prop, you're going to get the deduction. Whether you pay money or the S corp, you get the deduction. What you want to be focused on is I want to pay her everything. I'm going to pay her this year before October 31st because I don't have to withhold FICA. You don't want to withhold the F word. You don't want to worry about Social Security and Medicare, Sudafood, all that crap. You can pay her with outside labor out of the sole prop, as with your son. That's 15 and be done with it by October 31st. You get the full write off. There's no withholding. It's clean, no 1099, no W2. But if you want to pay her after October 31, whether it's out of the sole prop or the S corp, you got to give her a 1099. And now she's got to file a schedule C, which is okay. I still pay my kids that are over age 18 when they help with the business. I still take 100% write off for that. But now they've just created a small little business. They're going to get some cool write offs. So it's about the timing and withholding. They're going to have to file their own tax return depending on what state you're in, maybe depending on how much you pay them. Maybe. Other topics get to our main podcast on that.

Okay. All right. I'm over in the small business section. I didn't want to, you know, forget about small business.

Okay. Yeah, this is a cool opportunity.

Door and Tax. This is Tony. Tony says hi. Mark and Matt. My wife and I created an LLC earlier this year for a side hustle. We're both listed on the Articles of Organization as agents, organizers of the llc. We will need to file taxes for the business. Will we need to file tax for the business as a partnership or can we file as a sole proprietorship? It's really just my business right now, but I hope to add an employee in a couple years when the business is bigger and also turn it into an s Corp in 2024 when we make more money. Love your show. Thanks, Tony. Okay, Tony, great question. This is a common question for married couples. I'm going to cut right to the chase here. You should. I would go sole proprietorship right now. Just file it on schedule C. Why would you do a partnership and start doing a 1065 partnership return? You may want to go to an S Corp next year anyways, which is going to be an 1120s, which will be a separate company return. If this is really just going to be your business, you may add your wife as an employee later. I want to come back to that here in a second. I would just go schedule C right now. Do sole proprietorship. It's simpler and easier. It's a brand new business. It's going to be easier to convert it over to S Corp next year if the income's there to justify it. And then you'll start doing your corporate return, the 1120s. Now, I don't know what you've done so far. The question's going to be what's on your EIN acceptance letter? Like did you go get an EIN for this llc? You should have and that may say what you are. I don't know if you asked to be a partnership or not, but the fact that you only have articles of organization where your agents or organizers, that doesn't mean anything. I could have been the agent or organizer for your LLC and not even own it. So that's not determinative. You have options here on being a sole prop or a partnership on your taxes. But I don't know if you got an ein and that usually says what you are on the EIN acceptance letter. Now if you just got an EIN and it doesn't say generally, that means you're a sole proprietor. But if it says you're supposed to file Form 1065, you might have elected to be a partnership or said that there's two owners or more. So I just don't know what you have. You might want to get into the law firm and probably clean that up. That'd be a great point for you, Tony. Actually, we have a rehab special going on right now in the law firm at KQS. Lawyers guys can go to KQSLawyers.com it's right on the homepage. And it sounds like you probably need this LLC cleaned up. We can get it, go over the S Corp for next year, do your trifecta, get all the other documents you need, your operating Agreement. Make sure you have the right ein and the right tax designation. If you don't, we'll go get it and clean it up. That's part of the rehab. So. Yeah, throw a little helpful tip out there for you, Tony. We got you if you need it.

Yeah, you need a little cleanup there. That'll bring it all together. Okay. This is in our general Q and A from Tucson. Pre runner. Class B rv. Ran RV van write offs. I saw rv. You knew I was gonna go. I love the rv. I'm glad you did. You know, it's fun. He says, my wife bakes from home and does wedding planning. Rehearsal setup. So you have no weekends. I get it. Okay. Can she write off class B van when used to haul large items and cakes to and from venues. The Class B RV is a 2023 Winnebago Solas 59 PX. You want to see a picture of this?

Oh, nice.

That's pretty nice.

Yeah, those are kind of cool.

Yeah, it's kind of. I like that. Okay, well, as usual, the answer is yes. But we got to talk about the caveats here and how you get to write that off. You can damn straight right off that rv. In fact, I got some ideas for you. The first thing is much like we just talked about a little bit ago with the motorcycle, same concept. You're going to drive the RV to go to a business event, which is she's a wedding planner. Great. Every time she drives that van to any wedding, any grocery store, any wedding supply store, any expo, she's going to like, show her wares, whatever. Anytime that van is driven for business, it's a write off. Okay? So that's always. That's always a good thing. She's got a business. She's making money. The van is a business vehicle. Done. Now, option one, you go to mileage, just like the motorcycle. You go, you say, here's our mileage. You add it up, multiply it by the annual rate for the year. Boom. But a bang. Great little write off. Now let's. Let's talk loophole here. Let's go next level. What I would love to see you do. And you may not like this. Hear me out. One word, Waverly. Get this thing in a rental pool. When you want to use it, go use it. That's great, but half the time it just sits on the side of the house. I know it's driving you crazy. You put that in Waverly. Create some cash flow with this bad boy. And when your wife drives it for business, if you could show if you can show that it's available for use year long at any point. You can use it when you want. Up to 15 days at no. And it's still 100% business vehicle. You could depreciate this with bonus depreciation. 80% bonus depreciation deduction this year. You get cash flow from it. Now it's right off the depreciation, the gas. Because the gas is a gas guzzler compared to a motorcycle. So you don't want to really be over on mileage. You want to be on actual. That's the promised land. And if you can talk your wife into saying, hey, if we're not using it this weekend, let's rent it out for 300 bucks a day. I was just looking at class B's to rent for three days over here in Phoenix. Drive up to Sedona, stay in a class B, drive back. That Waverly has such a great program. It's like Airbnb. It's like Turo. There's insurance, there's protection, there's deposits, there's wear and tear, sure. But you got a freaking $100,000 RV sitting on the side of the house. Damn it. Make some money with it. Write the whole damn thing off. There you go, dude. Love that next level.

Yeah, love that. This is a tricky one, but I'm gonna go for it.

I know. I was gonna pick a hard one.

All right, this is from General. Q and A says I'm a contractor with sizable previous years federal.

I was gonna choose that one.

Oh, yeah. All right, well, we can. We can share it. Okay. This is, you know, because that type of topic and question it. We have a very, you know, the name is very incognito. P.D.

bolt.

I don't know. All right, I present. Yeah, P.D. bolt says I presently have an opportunity to partner with my sister and a family friend friend to build some spec houses. This venture would be all cash with no bank involvement. How do I participate as builder without exposing them to my tax issue? Sister's investment amount is funded by her disability lump sum payment, back payment. My family friend and sister's role is to bankroll the projects. While my part is sweat equity with my motivation to retire the old tax debts through my portion of the profits. How do we structure this not to expose sister and risk her losing her psych disability? And our friend from risk tying her capital into my tax debt. Okay, a lot of nitty gritty issues here because you got like federal government involved in your stuff and your business entity here and that's the worst creditor you could ever have. Also a state creditor on tax stuff. So, all right, first off, you're going to need an LLC between the three of you. And let's just talk about your sister. That's a little bit easier. She puts the money in. She gets ownership in the LLC for putting the money in. You don't lose disability for just investing in things. You can lose it for working, though, from my understanding, I'm not an expert on that. But she's still not prevented from investing in things. So she can use her money to invest in things to try and earn income off of that. Now, we don't want her to be working in it. Right. And that should be clear in the documents that she's just investing money as a member. Now, you can be in the documents as doing the work and getting sweat equity. You're not putting money in. You don't have it. The IRS and state, we don't want them. You don't have it because they're trying to get it. So you're getting sweat equity in that. And that should be in the LLC operating agreement saying you're getting X amount of ownership for doing the work and providing sweat equity. Now, other sister here, or sorry, the family friend is putting in the rest of the bulk of the cash, it sounds like, and the LLC is going to give you some structural benefits. One thing I would just do, and this is just a strategic thing, is I don't want to use your Social Security number in getting this llc, by the way. Okay. So one partner usually has to put their. They're. They're social up to get the ein, because you're going to partnership ein and you're going to have partnership tax return with all your IRS issues. I don't know that I want your social. So we're going to use your sister or sister spouse. But here's what's going to happen is that LLC is going to have money. You're going to own a house. If the state or feds are going to come after you, they're not going to typically go for the property. I don't think they may go to the LLC itself level and say, we're going to wait until you get paid out of this thing because there's other partners in this and it's really not your money. So I don't see them at risk. It is an issue. I want stuff definitely not in your name. Don't do this LLC in your name and take this money in from other people. Do it as a partnership, have a clear operating agreement. Because if the IRS or state comes that LLC opera game is what you're going to show to be like, this is not my money in here. This is not my property. I'm only getting sweat equity. If we sell this thing and make money, this money that's invested. These are my sister and this family friend over here. They put all the money in to actually buy this. I was just a builder doing the work and I only get paid when we sell this thing and actually make money. Which you're going to give them the money anyways. That was your plan anyways. So I think that's the best structure to do it. Make sure you're using an llc. Be clear in the operating agreement about that. You're not putting money in. You're only getting a share of the profits when this sells.

All right, I got a couple takes here too. This is a tricky one.

I love it.

First, your sister that's on disability ssi, passive income does not affect her disability payments. And a rental property would be passive. So when you're on disability, you can't go earn money over typically 4 to

5 flip these though spec houses.

Well, he's a builder. You know, you start doing more than three homes a year with a disabled sister and your tax problem, you got to. Yeah, let's not get too ambitious here. Let's get.

Keep.

So I'm going to use two or three vernaculars are probably not appropriate, but

I would, I would, I would. Maybe you could, you could have her money be a loan later after if you've done a few of these. Maybe she's not a partner in the deals. Maybe she's lending the money or something.

That's.

I don't know.

Yeah. And if it's only if you're flipping these. And remember, the fallback from any good rehab or flip or not a good rehab or flip is to make sure it always is going to be good rental. The rental is your fallback strategy. And you may want to start with that. You know, don't go for the brass ring on the first one. Just hit a base hit. Need I quote Moneyball for the 50th time on the show? Base hits, that's what wins the game. Base hits. So first of all, your sister's SSI is not going to be threatened with passive income. Number two, the irs. You do not want this. I would, I would sign a deal on the side with your sister and your friend and say, hey, I'm going to work my butt off on this. Meanwhile, I'm going to do a debt snowball, and I'm going to get out of debt and get my returns filed and get my shiz together and have a deal that's in the drawer that when your life is cleaned up, you get to join the partnership. And you could probably craft it in a way that you could share in the future profits through a 1099.

Or actually a joint venture agreement, little

joint JV that doesn't come into play until you're ready to play. And that way it's not in. Because who knows? I don't know how bad your problems are. You might need to do an oic. You might be doing an installment agreement, but you got to focus on you first. You. Even if you're doing this deal, you better be doing it to pay off the debt, which I suspect you are. Get a second job, a third job. Get help, get out of debt. I want you binging on Dave Ramsey right now. Then you can participate in this partnership when your life is cleaned up. I love what you're doing. Don't beat yourself up. We've all been there with bad debt. We've all been there trying to bootstrap, make things happen and work our butts off. Hang in there. Don't give up. But. And get a lawyer involved. You got three ladies here going to be doing an LLC together. You need to work together on a call with an attorney with these issues and make sure it's designed. And this is perfect for any of our lawyers at our office. Very affordable around the country. All right. I've got a. This is a little challenge. Okay. One more question each. Okay, I'll do this one and then you knock one out.

Love it.

Okay. Beach Bum, Florida. Like that. Nice little handle. This is in the small business section. New listener here. I've been running a sole prop it remote support side hustle for the past 10 years, averaging 35k a year. Da, da, da. I'm going to truncate this a little bit. Recently started a new W2 job, and the employer I left asked if I'd be interested in doing it from home. It'd be kind of a subcontractor rather than an employee. And as long as you qualify for this, I'm just going to assume you do. The employer said, no, no, FTE. Let's have you be a sub and I'll 1099 you. And he's like, sweet. So Beach Bum, Florida. Ran out in July. Formed an LLC with an S election. Good job. I like where Your head's at got an EIN bank account, blah blah blah. Effective 7-10-2023, my 1090 income earned in this new venture from from 120 from 11 to 623 was 25 grand and change. All the income that I'm going to make now that I've got this new relationship is going to be about 56k from July to the end of the year for a total of 82. Now I would suspect you're giving me gross numbers we want and so but the question is, since the new LLC and S Corp wasn't effective until July and 68% of my income is going to be from that point forward till the end of the year, will it all be taxed as a sole prop? The answer is no. This what you've done, beach bum, is a good thing. You've got some great planning opportunities and any of you out there that start a business in the middle of the year, you're going to be stuck as a sole prop until you get that S election in place. You're going to pay self employment tax on that piece. Now I want to push as many expenses as I can at the front end of the year and keep that tax down as low as possible within reason being ethical and honest. And so you're going to have a schedule C from January through June. Then you're going to turn around and you're going to get to claim all the income and the expenses that are attributed to that time period from August to the end of the year that's going to go in the S Corp. So you're going to get the benefit of the S Corp. You're going to save money. This was a good thing you did. I will recommend you need a tax advisor that can help you across the finish line with payrolls and bookkeeping and a tax return recommendation. Please get to my tax Pro network now. Coming up on a year I've been training tax pros around the country with a certification program and we've got tax pros around the country. You can use someone from Florida, you can use someone from Alaska and you live in Florida. Doesn't matter. You need a tax pro that speaks Main street business. Get to markjkohler.com it's in the information below. And look at the tax pro network. Find a tax advisor that can be your right hand through this process. Any of you out there that are a tax advisor, you're enrolled agent, cpa, tax lawyer, financial advisor and you need better tax education. Check out my tax Pro certification for those business owners out there. This is who you need on your team. They speak Mark Kohler, they speak Matt Sorenson. They know you and they're it. It's, it's so hard to find a good accountant that speaks your language. My network's got it. So get with an accountant that knows this and you're gonna be looking good for 2024, that's for sure. Okay.

Love it, beach bum. Okay, well, I got Fast Eddie over here.

Wow. That's his handle, fast Eddie. Wow.

1081.

I like that.

All right, this is from general Q and A about using a self directed ira. Now remember, we do have our sister podcast, the Directed IRA podcast. Go to directed ira.com podcast. Ask yourself directed questions there. Now I'm going to answer this one here, but there's a lot of other ones that ask self directed questions here on Main Street Business podcast. And you know, we need to hit once in a while a few of them here.

Yeah.

So I feel like that's okay. All right, now Fast Eddie asks. I'm using my self directed IRA to fund a home building business. The home building business is an LLC in Florida. I don't know, we got with home building in Florida today.

Yeah, it's true. A little theme.

Yeah. Says, but he's in Illinois. Okay, okay. Let's see. That's why he's not. So he's the money guy. He's Fast Eddie.

He's Fast Eddie with money helping some builder in Florida. All right.

The home building business is a three person LLC and I'm a 1/3 owner. From talking to attorneys, I'm told the funding of this business is fine. Sure, that's fine. As we build the homes and sell the homes, we will each take one third of the profit of each home. I'm strictly funding the business with my Directed IRA account and I'm not doing any work on these homes. Will my 1/3 of profit of each home sold be considered UBIT? Okay, great question.

Fascinating. He knows what he's talking about. Hopefully you're a customer at Directed ira.

He's with my Directed ira.

He's his Directed ira. Oh, yeah.

Okay.

I like it. Okay. All right. So he's part of the family vested.

He knows what's up. Okay. All right. So great question though. Real estate. So there's this tax called ubit. By the way, ubti. UBIT is a chapter in my book. By the way, there's a section in my self directed IRA summit coming up October 20th and 21st. Sdrasummit.com going over how to avoid UBIT and ways to minimize it. Because this is a tax that can sometimes apply to your ira, usually for real estate clients. You never have to worry about this. You have a rental, you're lending money. Even a short term rental, you don't care.

You build two homes a year down in Florida. We don't care.

Exactly. But now if you're, if you're building homes or flipping homes, we're like, I need to know how much you're doing. Now, Fast Eddie, we didn't indicate that here. So like Mark said, if it's you ever doing like 1, 2, 3 homes a year where you're building them and selling them, I'm not worried about it. But the IRS does become worried and is going to hit your IRA with this tax called ubit, if they deem your IRA to be in the business of real estate. See, your IRA is designed to receive investment income, rental income, capital gain income, interest income, dividend income from Apple. You know, that's all investment income and retirement accounts are designed to get it. But if a retirement account gets what the IRS considers business income, which flips of properties and new homes could be considered business income, then your IRS pay this UBIT tax, which is a 37% tax. It kind of sucks. Now flipping one or two or three properties a year is not going to. Your IRA is not in the business of real estate. It's still investing four or five gray area, five or more. You're definitely going to have it. I don't know how you're going to tell the IRS your IRA is not in the business of real estate if it's doing that many short term deals. Now that's per tax year. Okay, so like this year, I don't even know where you're at right now. You might sell one this year, next year you sell two or three.

Totally cool.

No ubit. Don't stress about it yet, but just know and be tracking that year to year. Don't be doing more than three of those a year. Otherwise you're going to run into this ubit. And the problem is when you hit ubit, that, that fourth or fifth one, if you fall into it, it's for all of them. It's not just on that last property, it's for all of them that year where you end up paying that 37%.

Okay, I love it. I think it's fantastic and great answer everybody. Thank you for being here. If you want to submit a question for our next open forum, we've decided we need to maybe do some more open forums. We're grateful for the community out there. We want to support you. We appreciate your support. If you've enjoyed the podcast, you can watch the videos on our YouTube channel. I think it's Mark J. Kohler, my mark J. Kohler YouTube channel. You can also on your favorite podcast platform, please give us a five star. We'll be back next week for another amazing show. And get to our sister podcast, the Directed Ira Podcast. If you have a retirement account and you probably do, so get over there. Thanks everybody. See you next week.

Thanks.