CEO EXPLAINS: The Secret Tax Strategy You're Missing

Hey everybody. Happy September 15th. Well, if you're an accountant or a business owner, this was a big day to file your business tax returns. Well, I wanted to produce a live and give you an incredible tax tip for you business owners and advisors to talk with about your clients. Now, one of the big missing links in the small business arena is to have a board of advisors or a board of directors. We all see them on tv. All the big companies have a board of directors, corporate corporations and all that. Well, small business owners can do it too. In fact, when you organize a corporation at the state level, they're required to have a board of directors and minutes. And for every LLC we set up at our law firm, we do a board of advisors. It's an operating agreement, there's minutes. Now why we want to do this is to create better asset protection and most importantly, an awesome freaking write off because I want to have meals and travel with my board, which might be family members, and get them involved in the business and have them catch the vision and the entire legacy I'm trying to create. Now, my name is Mark Kohler, I'm a CPA attorney, best selling author and talk about tax and legal strategies on Main Street America. Everywhere I go. No one has more books or videos or downloads or podcasts than I do on this topic, people. This is a strategy you've got to implement or talk to your advisors about. Now next week I'm going to be doing a webinar for a whole hour unpacking this with the procedures on how to do the actual minutes and answer questions on maybe paying your family members through the board of directors or advisors in the basics of good asset protection with an LLC or an S corp. Where should it be organized and how does this board integrate? But today I'm going to try to give you an overview, answer a few questions and really point you in the right direction. Here to do some more study on this. This is in my book the Tax Legal Playbook. You can get it on Amazon. And to sign up for the webinar it is the first link down below. Sign up for the it's free. A free webinar to learn about my little ecosystem, my tribe of tax advisors and business owners. And we're talking business and and legal every week and making a difference in Main Street America. All right, so the board of directors board of advisors starts with the trifecta. Now many of you that watch my videos know what the trifecta is, but if you don't, let's review the trifecta. Is the structure that I like to use with all my business owners to organize their tax, legal, business and estate life. We want to like build wealth, create that estate safe. Taxes create an asset protection barrier. All of this has got to be coordinated. That's why it's so hard to talk to an accountant that doesn't know the legal and the lawyer that doesn't know the accounting and the tax, the wealth advisor that doesn't know the accounting or the legal. They all know it just enough to be dangerous. And it's hard, it's hard on those advisors too. In our group, we've set up our advisors to be experts in all three areas and bring it together. So the trifecta is just that at the very bottom you've got your revocable living trust. And this is where we're going to create that estate plan, that legacy. Then over on the right side we're going to talk about our assets and building wealth. This could include 401ks, it could include IRAs, it could include Roths, Coverdales, all sorts of investments here. And then it's even going to be where you put your rental properties. Over on this side is your operations. This is going to be your side hustle. For those of you that have a day job and a side hustle or your full time small business, this could be started out as an llc. And for you full time business owners, it's going to definitely be over into the S Corp range. That's where all of our seasoned, successful business owners end up. Is it the S Corp? We're not going to use a C Corp. I set up one C Corp, one out of a thousand. They're just not used by the small business owner. Anybody trying to pitch you a C Corp, let alone in freaking Nevada or Wyoming, get a second opinion, please. It is a scam, it is unnecessary and it's an oversold fear tactic. That's just an aside. All right? Now in this structure, what the trifecta is is your estate plan, your operational company and your holding company for your rentals. So we've got our rentals here with an llc, we've got our operations with an LLC or an S Corp. And then it all flows down. Down here also becomes the quote, unquote LLC. Oh, sorry. The 1040 is what I wanted to say here. Let's erase those items. This is the 1040 tax return. So everything flows down. Now if you're already seeing a question, you might have this. Please type it in the comments below. We're live on YouTube, Facebook, everywhere right now. And I want to give you some quick answers that might be helpful for this. Also, make sure you sign up for the webinar next week. We're going to be diving even deeper next week onto the topic. Now where does this board of directors, board of advisors come in? Well, where this comes in is we want to and I'm going to put it in red. We are going to build a board of directors, a BOD if it's a corporation, a board of advisors if it's an llc. And over here, even with your rental property, I want to have a board of advisors with every LLC or company you set up, we're going to set up a board. Now if you're married, your spouse should certainly be on the board. And if you have children, young or old. I normally don't put kids on the board until maybe they're teenagers because they got to be able to have a reasonable conversation in those meetings. Or you're going to take trips together, you're going to write off meals together. Not Pizza Hut at night watching Monday Night Football, but legitimate meetings you're going to have on a regular basis and you're going to talk about entrepreneurship and small business and you're going to be working together as a family. This creates a wonderful tax write off. So how this plays out is we're going to typically 1099 are children that are 18 or older and their payment is for or in lieu of service on the board of advisors and board of directors. If I have kids under age 18, they're going to be other labor or outside labor as another expense on page two of the Schedule C. And that's going to be paying kids under age 18. Here in an S Corp we're going to usually set up kind of a little management company to pay the kids under age 18 and we're going to 1099 the management company and then pay the kids from here. We've been doing this for years and years, 20 plus years. Never had a client audited for this. Very common. So many small business owners hire their kids but you never pay them out of an S Corp. Do not do that. Do not give them a 1099. Do not give them a W2. It's not required. And they don't pay taxes on the first federal, taxes on the first 13 grand and change this year. And you don't have to withhold pseudo food if ICA workers come. This is a wonderful rule and this is standard law. And if you're an accountant already cringing you got a problem? I teach CE on this around the country. I am AICPA servant, a CPA in five states. I teach CE on this topic. I have prior IRS agents as partners. I've worked at the tax court. I worked for kpmg people. I know this law. And if you're cringing or afraid of using the board and paying family members for legitimate services in your business, you need to up your game. Please come to the webinar. I've got a certified tax advisor program where we meet as professionals twice a week. And I'm certifying advisors all over the country now, even over here with your rental property. Like I said, we're going to set up a board of advisors. This could be brother, sister, mom, dad, and when I go to visit mom and I have a rental property where mom lives, Mom's going to be on the board and we're going to talk about business. Now, how you implement this is at the formation of the company. You're going to have minutes. You're going to designate the board in your LLC operating agreement or in the shareholder minutes of the corporation. You're going to designate who the board of directors are. And it's private, too. It's not filed with the state, it's not filed with the irs. Just have internal documents. Your LLC and S Corp should have a corporate book. And this corporate book documents those minutes. And you have a meeting. You get a meeting quarterly, but I want one at least annual. Now, how this helps with asset protection is because you're respecting the corporate veil. You're having a separate checking account for each entity. You're maintaining the books properly. You're not commingling. You're putting the real estate title in the name of the llc. And don't worry about the mortgage. Banks do not care. They are not going to call the due on sale clause when you're simply transferring to an LLC. We transfer thousands of properties into LLCs every year and I think I've had a problem three times in 20 years. And it's because the client goes in and ask the bank, can I do this? Well, of course the bank's going to need three people they got to get approval for to even go to the bathroom. You don't go and ask the bank for approval. They've already sold your mortgage. You transfer your properties into the LLC and the LLC is doing its minutes and having its board meetings. When you get into a lawsuit, potentially you're going to show up with lease agreements and title and members operating agreement. The minutes Your bank account. That separation is so important. The board of advisors. Board of directors is a huge part of that asset protection. So this is really a very straightforward strategy. And every small business owner should be able to implement this or can implement it even after the formation of the entity. So let's say you've had your LLC or corporation for a year or even several years, and you're like, I've never done this. Well, it's time for your annual meeting. We have a company maintenance program at our law firm, KQS Lawyers. Robby, I'm going to be ready for a question here if we've got any. Let's hit it. You can just read them off and I'll repeat them for everybody. But this is something that we can help you with at the law firm on the company maintenance, doing new minutes for the year or whatever the case may be. All right, our first question from some of you out there.

Ryan Lee, he wants to know how the IRS knows if you have a board of advisors.

The IRS doesn't know if you have a board of directors or advisors unless you got audited. And you want to have your minutes and the records of how you elected them and put them on the board. It's not required. You list them on your tax returns. And it's not required. You list it with the Secretary of State. Just have the internal documents. We charge $150 a year right now to do those minutes for you with a real law firm. We also have a mail forwarding program, registered agent program, a privacy program where your name and address doesn't show up anywhere. So you can escalate the privacy you might want with your business entity. Get a consult with an attorney. We don't sell it to everybody. There's a lot of companies out there that sell crap because they just think it sounds cool and they scare everybody into it. Let's tailor it to your situation. Next question.

Corey wants to know, do you recommend to have an S Corp holding company on the operations side that owns your operational business disregarded entities, or should your operational companies just remain settlement?

Okay, Gordon says, should I have an S Corp holding company that owns my operational businesses, I guess as subsidiaries is what he's asking, or have multiple S Corps or something like that? Gordon, let me rephrase or let me answer it this way. Would I have a realtor, a dentist, an attorney, an engineer, an online influencer, a fix and flipper, a landscaper, an electrician, a plumber? 1s corp is fine. That's fine. Now, if I've got a chiropractor with three locations. Or I've got a business owner with three different operations. One might be telemarketing, one could be import export, one could be consulting. They're just totally different. You might have exit strategies that are different. Then I might set up and I'll put a different color on this. Let's go to blue. I might set up subsidiaries and when I set up subsidiaries they're going to be wholly owned LLCs that flow into the S corp. An S corp can own an llc but an S corp can't own another S corp and that says 100% qualified subchapter S or Q sub and not necessary. It is so much easier to just do an llc. So again if I have a chiropractor they may have one. S Corp is kind of a holding company for their own payroll. But then they have LLCs for location number one, location number two, location number three. And so you can have this subsidiary structure, but it all flows into one consolidated tax return. The last thing I want is a client with three different S corps. I myself own actually being a little transparent, probably four or five companies. I have 1s corp in my life. I don't want more S corps in my life. I have one S Corp and it can own part of other LLCs, a law firm, an accounting firm, a real estate development company. So hopefully that helps. Gordon1s corp and then we can funnel subsidiaries in when we need it. No overkill. Don't go overkill again. One of my tax lawyers. We have 14 lawyers in our firm. We help clients all over the country as a boutique law firm. Very affordable. Many of our entities are set up between $1,000 to $1,500. And you talk to a real lawyer. Don't get sucked into these, you know, massive onboarding retainers for 5 or 10 or $15,000 for unlimited entities and crap like that. You can all cart us for entity by entity and build your own trifecta. You'd love it. Get to kqslawyers.com Concise Advice wants to

know what records are required to support the deal.

Concise Advice wants to know what type of records are necessary to support a board of directors or board of advisors. Well, let's talk board of advisors first in an LLC, people. One sheet of paper at LegalZoom is not a frickin LLC. Don't even think it's an LLC. It's about a tenth of an LLC. You need to have a corporate book, you need membership certificates, you need an operating agreement. You need the members minutes for formation. You need a tax ID number with an SS4. There's a lot to bank account the EIN. All that goes into an LLC. One sheet of paper is not an LLC. Now, concise advice. What you're going to do upon formation is you're also going to put in the minutes of the members we now appoint. Here's our board of advisors, these three people, five people, whatever it is. And then the board of advisors are going to have a meeting. So it's kind of like shareholders appointing directors. And then there's a shareholder meeting and a director meeting. That's how it works. Now if you've had an LLC for years and never done this, you call us up and go, hey, I need to clean up. And we actually have a cleanup special. I forgot to mention that we have a cleanup special right now. We call it the rehab special. Let's rehab your entity. It doesn't mean you have to get a new one. Call the office at KQS lawyers and we can help get the right entity for you and get it cleaned up. But anyway, if you haven't had a board, what you do is have a meeting your members are going to have and you may be the only member. That's fine. And then you're going to say, here's my member meeting, here's my five board of advisors. And then? Then you have your board of advisors meeting. You put it in the corporate book. That's it. That's it. You don't report to the secretary of state or the irs. You're good. You've checked the box. For a corporation, same thing. But it's the shareholders appointing their board of directors. You're going to have shareholder meeting, board of directors meeting. Put it in the corporate book, you're off to the races. Very, very common. Next question.

Philip wants to know if his accountant establishes an accountable plan or does he establish one in an S Corp and a follow up. How does someone reimburse in an accountable plan?

Okay, Accountable plan. First name again, Philip. Philip asks, does your accountant establish an accountable plan in the S Corp or what? Okay, the way you're asking it, Philip is a little clanky. Let me recommend this. The Accountable Plan. You're going to love this. The accountable plan goes in the same minutes for your board of directors and board of advisors. See, the board of advisors adopts the accountable plan. The board of directors adopts the accountable plan. Your accountant should not be setting up an effing accountable plan outside the minutes. They go together. And we include the accountable plan for home office, auto travel, all the reimbursements that are required for a shareholder or an llc. We put that in the, in the minutes for you. We have a 25 point question. We ask you these questions, you fill it out. We put your minutes together. We do this every year for 150 bucks. It's done. If your accountant is charging you more than that and they doing minutes is more of a legal service anyway, we'd put it all together. So anyway, for those of you that don't know what an accountable plan is, if you have a business and the business reimburses you for your home office or auto or travel, there has to be a documentation somewhere in the minutes or the bylaws or operating agreement. The minutes are the best place to say we have an accountable plan. That if the owner turns in a receipt, this is how we pay them. And the IRS requires this? Well, it goes in the minutes, it's done. And if some of you are like, I've never had this. I've never done this. Well, if you get audited, it could be a little dicey when you try to show a reimbursement for home office in an S Corp when you don't have an accountable plan. This could be for health care, a lot of other things. So again, some of you. Sometimes we're dangerous, right? We don't know what we don't know. Now you know. So very, very straightforward, Philip. The accountable plan is in the minutes and it's all done at the same damn time. All right, a couple more questions.

Kanaka, she has an escort with two convenience store DBA and she's now a realtor. Would you run Realtor income through the S Corp as a third dba?

Yes, I would. So. Oh, what's the first name?

Kanaka.

Kanaka says she has an S Corp. She has two convenience store locations that are just DBAs, not even LLCs. Now if you've got convenience stores, those are high risk liability. I might do single member LLCs for those. And then she goes, and I'm also a Realtor, and she says, could I do a DBA for the realtor? I'm good with that. I don't need a separate LLC for that. Now Kanaka, if you're the hundred percent owner of the S Corp, you go girl. I mean, that's exactly what you should be doing. Llc. Llc. Convenience store, convenience store subsidiary. Subsidiary DBA for the realtor. One freaking S Corp. That's how I do it. Keep the cost down. Keep it simple, stupid. And there's so many lawyers out there that'll sell you more crap than you need. Please get with one of my lawyers if you're getting a different story. Get a second opinion and build your trifecta. One last question.

One last question. Scott. He wants to know if transferring his business to a separate LLC can undo the stock sale he used to originally purchase it.

So Scott wants to know if he can undo this stock sale, undo the llc, set up a new one and undo the stock purchase when he bought the company originally. Well, Scott, I hate to tell you this is a little unique because when we represent buyers and sellers, we do not like stock sales or stock purchases. They're great for the seller and terrible for the buyer. So if you bought your business in a membership unit acquisition or stock acquisition, that's a very difficult thing and not good. So I'd be a little upset at who gave you that advice. But with that said, you've got to dissolve the company, distribute the assets. I hope you're not in a C corp and you're not going to have built in gain. In an S corp you could have built in gain. I don't know what your business is. Scott, you need a. And then you hit reset and you recontribute those assets to the new company. You can do that. There's a couple elections you could do. Maybe in a tax free reorg, A351. You're in a very difficult area in a very complex area. You should really talk to one of the tax advisors in my network or one of my tax lawyers and get a second opinion. If you don't have faith in your personal accountant, you got to get with someone that knows this crap because you're in a hard situation. Because I know what you're going through. You're trying to depreciate assets that have already been depreciated. You're screwed from a tax write off standpoint because you bought the damn stock. You should have bought the assets. You could turn around and redepreciate from square one and the seller or someone talked you into this. Now that's just based on your questions. Maybe I'm wrong. I don't have all the facts, but you got to get some help on there. Okay everybody, in summary, this little strategy of a trifecta, setting up a board of directors and a board of advisors is something we do every day. We've been doing it for 20 plus years. We've got advisors, attorneys and CPAs and enrolled agents around the country that we're constantly training and working with. Please check it out@markjkohler.com, get a demo of my certified advisor program. Anybody can do it, college graduate or not, CPA or not, attorney or not. And it is incredibly in depth. Next week I'll have a webinar. We'll dive into this a little deeper. It's fairly straightforward topic so I'll do some more Q and A, help you guys out. Sign up for the webinar. You get to have three different webinars with me and then you gotta take the next step. Maybe you come to my Tax Advisor bootcamp or you come to our three day workshop in November and December. We're in this for the long haul. So I'm glad you got a little experience here with a live presentation on YouTube or Facebook. Get to the webinar next week. You'll love it. I promise it's going to save you tax and money.