Do the 1% really pay 1% in taxes? | Mark J Kohler | Live Q&A | Mat Sorensen

Two and one. Welcome everybody, to this week's live broadcast on building wealth, saving, taxes, asset protection, privacy, all the above, trying to help you build your small business, your American dream, your investment property, giving you straight answers. Please don't go anywhere until I kind of introduce our characters for the show today. And our topic, and really the majority of today's as it is every week topic is all about you, your questions and answers. It's Q and A here in just a moment. So our topic that we broadcast out there was how did the 1 percenters pay 1% in tax? Is it true? How do they do it? And what tax questions might you have? I'm a licensed cpa, senior partner in accounting firm, a tax lawyer in a law firm, and also CFO of a trust company helping people self direct their IRAs, their Roth IRAs. Maybe we'll even get to Peter Thiel a little bit today and his $5 billion Roth so we can talk about that. But let me bring in my co host today, the amazing, the one and only Matt Sorenson, author of the book the Self Directed IRA Handbook. Do I have a copy of it? No. I think I gave them all away.

People walk away with those. You don't give them away. People steal them.

They just take them. People steal my book, they pay for mine. Steal yours. I don't know what that means. I have to.

I mean, that's deep. People steal stuff that has value. Right?

People pay for things. I don't know. But anyway, Matt Sorenson is the CEO of Directed Ira Trust Company. He's also a senior partner in the law firm KQS Lawyers and my co host on two podcasts every week. So we're pretty much sick of each other, but we're here today. We love you.

You know, it's just an honor to be on with Mark in just one. We've already done two podcasts today, so if the jokes are a little dry, that's because we're on our third round here. But I did save some of our best material for today.

You have new material?

Well, yeah, I got some math jokes. We got some math jokes for everybody today.

That's right.

Because we're talking about tax rates and, and all this news we've been hearing about the rich and their taxes. We're going to do some actual math, which is very insightful, I think, in understanding the news on this.

Yes, very whiteboard. So we're going to go to the whiteboard and. But again, having all sorts of fun here. We've got to keep this Topic light. No one wants to talk about tax and legal and saving money, but I'll tell you, it's yig and yang. You got to learn how to make money and you got to learn how to save it. So we're going to have some fun. If you have any questions, if you're watching on YouTube or Facebook, please write your question down below. On some tax crazy idea you've heard or just want confirmation. How to structure your entity, how to structure your LLC or whatever it is. I think we're going to give away some books today. I. You know, since someone stole all of Matt's book, I got financial freedom. What your CPA isn't telling you tax and legal playbook. We have. Yeah, No, I don't have one of Matt's books here, so we'll just have to see. Well, it really exists. We'll still give one away. You just don't have to see the COVID of it. Okay. Now, we have a couple other players here on the scene, but you can't see them. But we're really excited to have them here. Darren Charrington and Allison Neff, two of our. She's throwing stuff at me now. Even you have a copy of Matt's book. Did you steal it or was it given to you? Okay, it was given to you. All right. Oh, look it. There we go. We got some. They really exist, folks. Look at here. Here they are. There's Darren, there's Alison. Now, these two folks are real lawyers at our law firm, and we pretty much talk them into coming here on Thursday afternoons and helping answer questions. So down below, as you're typing your questions, Darren and Allison may pop in and answer it. If you see some yahoo named Darren Charrington answering your question, just know it's legit. He's on our team. We'll give away some books here. Maybe near the end, A Sasquatch Field Guide to Tracking Sasquatch this summer. And when you're out, you know, in nature, you never know, you might find them. We want to hear about it if you do. Okay, Matt. Okay. 1 percenters.

Yeah. Can I make an opening statement?

Yes. Would you like to make an opening statement?

Can I be recognized for an opening statement?

Yes. The floor is yours, Senator from Arizona. All right.

Thank you. Thank you, Mr. Chairperson. Okay. I've been a little annoyed with the news about this tax issue. First of all, are we surprised that the wealthy pay little in tax? No, I don't think anybody was shocked by that. We all knew they employ the best strategies and they're Doing everything they can to keep every penny they earn. Right. But all the headlines are totally deceptive and we're going to get into why they are and why you shouldn't feel so bad. Like, I think a lot of our clients come to us like, well, what the hell? How did the 1% pay 1%? How can they be the wealthiest and they only pay 1%? They don't. Yeah, hold it.

We gotta do the math. Are you doing a spoiler alert here? Okay, let's.

I just, I was just doing a little tease, you know.

Okay. A little teaser.

So season.

All right, 1%, whatever.

Okay, do the math. We'll show you. We got the numbers. Yeah, so. And the cool thing is with all this data that ProPublica somehow got, I know there's an investigation and how they got this information, but it's quite insightful and interesting, of course, to see they have like 4,000 people, the wealthiest in America. They have all their tax returns and we got the numbers. So it's all in there. We can show you the math and we'll kind of get to the bottom of this on what tax they're actually paying and also talk about, talk about some of the strategies that they're actually employing. What do some of these wealthy people do? And a lot of it's same things any other business owner or investor out there could do just on a smaller scale.

Yeah. Okay, now I want to just give a little bit of a background here on what? I've gotten some hate mail on my social media with this topic because people are like, come on, Mark, you know, aren't you familiar with the progressive tax rate? Seriously, Everybody knows that they're really not paying, you know, X tax when you convert to a Roth and this and that. And everybody's kind of a little agitated by this whole topic, good and bad. It is a little crazy. So I'm going to do show one thing here. We want to look at our tax rates. So Corey, are you getting this on screen? Okay, so I know my handwriting is much to be desired. You know, some of you might say, can't you just. We just don't like slides. We want to keep it real and raw. We're going straight to the board. So, all right, here are what we're looking at. This is what we're looking at. I thought instead of doing married or single, I thought I'd do head of household. Head of household.

Keep right, right down the middle.

Yeah, this is kind of a nice little compromise. So my single people aren't mad. My Married people aren't mad. We're just going head of household. Now, in 2021, this is how progressive tax rates work. Now, if you want to know how to pay 1%, you got to know this point first. What we're trying to figure out are people's effective tax rate. So if you add up all your income, that's one part of this math equation. We're going to do some math, hang tight, it'll be good. Then we're going to just do Q and A the rest of the time, whatever you want to talk about. But we want to find out effective tax rate, and we're going to explain the equation about that. But you got to find out how much income did a person have and how much tax did they pay. And then you do the math. Well, here's what's interesting. This year you only pay 10% head of household on your first 14,000. Then from 14 to 54,000, you pay 12%. And then 22% on 54 to 86 and so on and so forth. Now, here's the interesting part. There's a big issue here on where you this, this break on 164 to 209. Once you get over 164 grand, you jump from 24 to 32%. I mean, that's an 8% increase. So that's a big deal. And so what I tell people is if you're going to convert money to a Roth and pay tax and you already make 164, you're paying 32% on every next dollar. So this is really interesting. So if I add up, If I made $175,000, I didn't pay 32%. It's progressive. I paid 10% on this piece, 12% on this piece, 22% on this piece. And so when you say you made 175 grand, what was your tax effective rate? Your effective tax rate, I take your 175 grand and divide it by all this, you might be on average 21%. Let's just say that's your effective tax rate. But the next dollar you make would be at 32%. Okay, that's progressive taxes. All of you avoided that in high school and college. I just force fed you. You hated every minute of it. I get it. But hey, this is.

We're going to go back. We are going to go back to fifth grade, though, with the numerator and denominator.

Okay. All right.

Because so, I mean, we got to know how to numerate and denominate. So, okay, this is division.

Okay, should we do how you find out? So, Matt, you take us through this. We want to find out my effective tax rate. What would be the math on this? What's the numerator and denominator?

Okay, well, so the numerator is on top, right? Okay, the denominator is on bottom. This is like a fraction. 1 10, 1 4, right?

Yeah.

Okay, so let's just take someone that made had $100,000 of income. That's the denominator. That's going to go on the bottom. Income is going to be the denominator. Now, I know you're like, where are you guys going with this? Hang tight. Hear us out. All right, we're going to get to. This is the whole point of their article here on what they're paying.

Okay, my denominator is 100 grand. And I'm going to take up here income critical.

Understand that that's your income. And we're talking about what tax rate you pay based on your income.

Okay, there's your income. All right, I'm going to get trusty Apple Phone out here. Okay, now what's my taxes on this?

Okay, now let. Okay, yeah, there you go. Let's say 100,000 in income. Someone's going to make about. Now again, you got the progressive chart, so you got to do the math.

Well, no, I'm just saying what's their tax? Let's say what tax they have.

Let's say they just. Let's say, just so we can do the math. We know, let's just say they paid 20,000 in tax.

Okay, so they paid 20 grand in tax. We'll stick with federal. Let's do with federal tax. We're not talking state. So Federal. I paid 20 grand in taxes. I had 100 grand in income. Now should I use my calculator? What's the effective tax rate? Do you know the Math? This is fifth grade math.

Yeah, yeah. See, 20%. See, I was smart. I wasn't going to let you catch me on this. I wasn't let you catch me on the math. I just made 100,000 as the denominator. It's like I made the story problem.

That's easy. Yeah. Okay, so we are 20% effective tax rate. Yeah.

So you make 100 grand. You paid 20,000 in tax. You had a 20% tax rate. That's simple, right? Yeah, that makes a lot of sense.

Yeah. Now what's interesting is if we go back to my chart here, Corey, thank you. If we Went back to my chart. On a head of household, you might look at your tax bracket and go, oh, between 86 and 164,000. My tax rate is 24%. That's on your next dollar.

Yeah.

So the effective tax rate is this. 20%.

Okay.

All right, now, Matt, who are we talking about first? Bezos. Let's do.

Why not? Let's hit Bezos first.

How did he do this? He got down to 1%. I'm so excited.

Okay, okay. He got down to 1%. Now, this is data from 2014 to 2018. So we've got data from 24 to 2018 here. We're dealing with. So this is nice. We get a good four year sample on Jeff Bezos. All right, let's. What do you want first? You want his denominator?

Ooh, denominator, sure. How much income did Pro Republica say he made?

Okay, $4 billion.

4 billion.

4.2 of income.

This is income point. 2.2 billion. 2, 4.

4 billion. So we can do math.

Okay. All right, so in perfect timing, Corey's got our whiteboard working again. Chef Corey, come on screen here. He's such a handsome, dapper young man. Ladies, he's available. You know, just saying, next time we'll bring him out on the show. Okay? All right, so this is Jeff Bezos. For those of you that don't know him, he is the pretty much majority owner of Amazon.

He's like the wealthiest person in the world right now, or he's a top three.

Okay, so we're just going to round. We're going to round down to $4 billion. All right? Okay. Okay. That's his income.

Now, what else do we need to know to know his taxes? We got to know, how much tax did he actually pay?

Okay, numerator, denominator.

He paid 973 million. Let's just say 1 billion. Okay.

Yeah. What's. What's 23 million? You know? Okay, so 1 billion.

Yep.

Okay, 1 billion divided by 4 billion. Okay, Corey, you got your calculator out. This is really hard.

Okay, Mark, calculator. Are you really using your calculator for this?

Well, you know, I want to fact check. I don't want any fact check problems. All right? One divided by four. Look at the screen. 25%. Last time you guys had me do

dividing and calculator work.

I. That's true. We don't trust Corey with a calculator. It wasn't pretty last time. Okay, Jeff Bezos paid 25% in his effective tax rate. Huh. I thought they said he paid 1%. Yeah, well, what the hell? I got my numerator and denominator. How did ProPublica figure this out? What am I missing?

They did some fuzzy math here. All right, so what they did is they said, well, no, he had 4 billion of income, but his wealth grew. Well, how did his wealth grow? His wealth grew 100 billion over that time period. So they said he only paid 1 billion in tax, but his wealth grew 100 billion.

Well, hold up, Matt. I own a rental property, and it went up, let's say ten grand last year. I didn't pay tax on that.

Yeah, because that's not how our tax code works. You pay income when you sell an asset.

Does ProPublica know how our tax system works?

Apparently not. They've called this the true tax rate. Oh. Oh.

This is his true tax rate.

I don't know what's true about it, but.

Okay, all right, I want to tell

that to the IRS when I pay my taxes next time. This is the true tax rate.

Yeah, yeah. Okay, now hold it. So if I replace everybody we take. We're going to replace the income with $100 billion. One billion divided by 100 billion. I'm not going to do it on the calculator. I think that's 1%.

That is. That's how they got to it. So that's how you get all the headlines. Now, let's. Let's take a second back, if you don't mind, if I take us back to. Let's go back to 2014. All right, all right. We all remember 2014, right? Yeah. What was big in 2014?

What was going on in 2014? I mean, eight years ago.

Okay, okay. Well, Amazon was still a pretty cool company, but it wasn't as big as it is now. Okay, okay. Since 2014 till now, Amazon has gone from 300 bucks a share to $3,500 a share. They've had an 11x return. Now, let's. Now, obviously that's why Jeff Bezos's wealth grew. And I mean, he has other things, I'm sure, but his primary source of wealth is all the Amazon stock he has. So if Amazon has an 11x return and he's not selling his stock, he's just letting it accumulate. Well, this is one of the best performing companies in the history of America. One of the biggest success stories. He upstone the most stock of that he's not selling. Of course, if you calculate his true tax rate based on the growth, it's going to look ridiculous like this.

And this is not a true tax rate, people. Okay, now let me cut to the chase here because I don't want to lose any of you on this live broadcast and we've so grateful all of you here. We're going to jump into some great questions here. I've already seen some here on real life, yours and mine life, you know, a small business, got an auto, got kids, whatever you got. We're going to talk about it here. But what's frustrating, I think for Matt and I is we get clients calling us up going what the freak? Why am I not paying 2 or 3% effective tax rate? And we said, well let's start looking at all of your appreciation in your assets. And they go, well that doesn't matter. Well apparently it does to ProPublica. So I don't know if you're Republican or Democrat, but I'm just saying please read the fine print, be careful, don't assume that 1 percenters are paying 1%. They're not. Their effective tax rates are 25 to 30% with state tax just like the rest of us. It's the way it works. Now is there a gap between the super wealthy and and the working class in America? Yes. But it's freaking articles like this that fuel a fire that really doesn't need gas thrown on it. That's my take, Ben.

Yeah. And how is he at 25%? Well, how does Bezos recognize his income? I'm sure he gets some salary and makes some money that way, but he sells his stock, he's held it a year, he gets long term capital gain rate of 20% just like everyone else. That is above like 400 grand. So that's why he's only at 25%. You might be like, well I'm a high income wage earner, I make 500 grand a year. I'm paying 37% tax rate. Yeah, that's wage income. He's getting capital gain primarily. So that's why he's at around a little above 20% is cause most of it's capital gain income.

Yeah. Now I want to throw this out in our chat. I want to just ask everybody, be a little respectful in the chat. I see some political math going on. I like how Kyle Starr called that. And there's some people a little pissed off at both ends of the spectrum against the rich and against those that may be pro save taxes. Let's say this, I want to call a truce everybody and we're going to get into your questions. We could Beat this up further. We could go into Elon Musk and so on and so forth. But I think our time is best well spent, you and I today. Helping you save money on your taxes, helping you build your wealth. That's what matters. This super rich crap. I'm never going to have a billion dollars. And you know what? It's interesting to watch Billions the show, but that's about as close as I'm going to get to a billion dollars. So everybody, let's Rob Vega. I want to tell you, we're talking about the individual tax rate of these people, not the corporate tax rate. And there's a lot of entities between Amazon and Elon Musk's personal return. And how would you guys like your personal return aired like dirty laundry in the news? I wouldn't. And I feel bad for these folks and how ProPublica got a hold of whatever they got ahold of. That is literally criminal. You can't just start throwing people's tax returns around. So put yourself in their shoes a little bit. Okay. All right, now there's some pissed off people on there talking about stepped up bases and taxes. Let's get on to questions about you and your small business. We've got Allison and Darren over here answering questions like crazy. You guys having fun? Yes. Feel like that. The Maverick movie with Mel Gibson and Show me there's a crowd out there. There they are. Thank you. There's. That's our studio audience here. Okay, what question am I? I'm going to let Corey choose my questions here for a moment. Corey, what are we doing? Who we got?

I got some social ones when you're ready.

Okay, well, let's do this one. We got Olukod Popola and I apologize for brutalizing your name. I did my Oluka Ode. Aluka Ode. He is on YouTube and said how to raise capital for rental property from your personal home. Now, this is a great question because some people think this is dangerous. Dave Ramsey would say, hell no. But I think with cautious approach, there's a strategy here. Matt, could you live with that?

I think there's a cautious approach here. Yeah.

Okay.

I think we're going to get into the D word, which can be a good thing.

Yep. So we've got OP here. I'm just going to call him OP. OP has a personal home. And his personal home, let's say markets are up. Let's say his home is worth 400 grand. And let's say he purchased it for 200 grand and he has a mortgage of 150 grand, just fair. Everybody, can we live with that? So what's his equity? You take the 400 grand, fair market value, minus the current mortgage, which gives you a $250,000 equity. Now again, don't be mad. Everybody hang tight. Dave Ramsey would say pay that house off as fast as you can, save money in your retirement account and wait for Social Security. He saved the lives of millions of Americans. I get that, Matt. I'm waiting for your retort on this too. I want to hear what you think. But 250 grand of equity is just sitting there. It's a target in a lawsuit. And we're assuming that OP's mortgage payment, he's covering it. He's got a day job, maybe a small business on the side, and so he can afford the mortgage payment. Nothing's too crazy. There's. I'm not saying strip out 250 grand of equity, but could OP get a second mortgage, a HELOC home equity line of credit for maybe just 50 grand? Now, I know again, all of you that are Dave Ramsey fans are saying, I'm going to just pay off my house and sit on it. You're not making money on that money. And that scares me. So I would say if you're young, if you got control of this, I would say you take that 50 grand, take that mortgage and co put that down reasonably on, let's say 20% down on something. So if I take 50 grand divided by 20%.

$250,000 house.

$250,000 house. Thank you, Matt. Matt beat me to it. I could buy a rental property for 250 grand with, with the $50,000 down payment and if the math is appropriate, I could be getting a 10% cash on cash return after all the payments. And Now I'm making five grand a year on my $50,000 investment. That's a 10% ROI. Return on investment, cash on cash. Now, are you also getting appreciation? You bet. Are you also getting the mortgage pay down by your tenant? You bet. Your overall ROI could be pushing 10 to 60% by the time you add up all the other benefits. So what op is saying, do I leave that 250 grand just sitting in my house doing nothing? Or do I rip out 50 and get a 10 to 50% rate of return on it? Leveraging the money cautiously, carefully, people. This is how the rich get richer. They use leverage to buy real estate cautiously and carefully. And they can use a little bit of the equity in their home to do it. Matt, I tried to make that as sexy as possible. I don't know.

Yeah, I mean that last point is really the key when we're coming out of this conversation of like Bezos or Musk or Buffett, they, they take a lot of debt. Like Bezos, for example in the reporting has a will take loans out against his Amazon stock. He's leveraging that asset. He's not going to sell it. If he sells it, he loses the ability for it to go up in value. He also has to pay tax on it when he sells it. So what does he do? He goes to the bank. Rates are really low right now. Right. You can get loans at 5% or less now on stock or on real estate. So he basically is stripping out the equity of his stock. But what does he have still? The stock still goes up in value as he takes out money on it. He doesn't pay taxes. He takes that income to use for other things and he's buying other assets like Mark's just talking about. It's the same thing of stripping equity out of your house to go buy a rental. You know, now there's might be more zeros on the end of it for Bezos, but that's the same concept, and that was the concept with Trump when everybody got his tax returns is oh my gosh, Trump has tons of debt and not a lot of income. He has a lot of real estate assets that he was taking loans against and using that to go buy other assets that can increase in value. And if you think about this, just think about if you can get debt right now at 3%. I just refinanced a property at 3%. 2.875 actually.

Pretty sweet.

But let's just say you can get debt at 5% to get a rental that's going to have a total return of over 10%. Isn't that hard when once you take into account appreciation, mortgage pay down and cash flow on the rental, it's not that hard to get a rental property that's going to return that. If you want to just be easy and just have you do the S&P 500 over 10 years, over the last 50 years, the S&P 500 has returned 10% return. If I can take debt at 5% while still holding that asset of real estate that's going to go up rather than selling it and then use that money that I'm paying 5% to go get 10%, you've just arbitrage that money to make more money. That is what many of the rich people do.

Yeah. And I love, I love arbitrage.

Yeah, that's just a cool word in there.

Yeah, I just. You worked in Arbitrage. I.

You.

You had me at.

Yeah, that's a movie. Who's there? Isn't there a movie called that with what's. What's Pretty Woman?

Richard Gere, I think it. Yeah, I think Richard Gere is in Pretty Woman. He's not the Pretty Woman, but yeah. Okay. Okay, now there's a question here. Corey. I want to go to Luis's Quiet. Actually go down. I liked someone asked about day trading in a Roth. And then I want to go up to Luis. So go. There we go. Kimberly. Kimberly on YouTube asked this. Everybody. Now let's go to our trifecta. Everybody watching right now. I want you to do this this weekend. Do a consult with your own attorney or CPA or accountant or financial advisor. If you work with one of our team members, if you have a phone call with Darren or Alison over here, they're going to do a trifecta. Now, here's what it is. Your baseline is your 1040 tax return. And right above it is your revocable living trust. We're using that for privacy. And where, whether you're married or single, whether you have a ton of assets or not, we need a foundation. We're going to split your life in half right after that. And then we're going to put your ops over here and your assets over here. Now, many of you that have watched me are sick and tired of this, but I want you to memorize it. My kids, I make them do it. College students, neighbors, you just. I stop at lemonade stands and buy lemonade and make kids do this. The cops come. It's not fun, but they learn. They learn what the American dream is. Now, on operations, what we typically do is I see people with a day job that's kind of off to the side. And then some people have a side hustle. Both. And then some people have a full time, full time. Ooh, boy, I'm struggling here with my drawing. I'm going to do this quickly, I promise. Everybody, let's fix this up, okay? I'm going to do a full time small business. Now, if I'm doing a full time small business, I'm typically going to be an S corp. If I have just a side hustle, I'm an LLC until I convert to an S corp. And I've got my day job. W2. I have many clients that have all three. That's cool. Now, on this side, we want to divide our tax free and pre tax bucket. So think of this like a bucket of wealth with my after tax bucket. Now your after tax bucket is going to have rental properties in it. Maybe, maybe some crypto stock, maybe some ETFs or mutual funds. And you might even have an LLC here to hold some of these assets. That's cool. And your LLC is owned by your trust. Your S corp is owned by your trust. Your home is owned by your trust. See the trifecta here, your trust owns your LLC is in your home. The trust owns your S corporate llc and everything flows down into it. That's the plan. Now Kimberly's question is saying, if I have a Roth over here, which is in my tax free bucket, can I day trade in my Roth and pay no tax? Matt Sorensen, author of the book the Self Directed IRA Handbook.

Heck yes, you can.

Heck yes. That sounds like a Napoleon Dynamite.

Napoleon Dynamite. That's what I was going for. A little Napoleonic.

Yes. Dude, you can do a good Chip.

Oh yeah, I did have Chip. I was chipped for Halloween one year.

Yeah. Oh, you were good.

You know, I could say one of my favorite lines from that movie. I'll get the chip here. I gotta remember some lines. But is Uncle Rico and Napoleon Dynamite where he's talking to Chip about trying to convince him to go sell Tupperware door to door. He tells him, you might as well be doing something while you're doing nothing. That is in my head all the time. Like I'm standing in line at like the store or something. I'm like, might as well be doing something while you're doing nothing. I could surely crank out three emails right now on my phone or something like that. Anyways, dude, great movie. It's changed my life.

Uncle Rico something while you're doing nothing. I'm going to write that down. That's profound. Okay, okay. Now Kimberly says, if I buy crypto in my Roth, do I pay tax? No. If I buy stock and sell it, do I pay tax? No. Can I buy rental property in my Roth and pay tax? No, Your Roth is completely tax free. Now if you borrow debt. And we got a question from Louis or Luis. We're going to go to him on that, but we're going to come back to how powerful this Roth is. Because last week was also reported, Peter Kiel has $5 billion in his Roth. Do you know what he started with? Was it $1700 math? Yeah.

Two grand.

Two grand. He started with a $2000 Roth and now it's worth 5 billion now, I'm not at the table when they formed Facebook or PayPal, but that's how he did it. He said, throw my Roth in there. Boom.

Now, yeah, let me ask with that.

Okay. Now I've got a great question for you, Matt, from Luis, but hang on. Alex, Alex, Alex. I'm gonna go. Alexey, Alexey. Anyway, he. He said, it's a man's picture here. So he said, how do I write off my cell phone in my rental business? People, you can write off your cell phone in your llc. With your rents. You can write off your cell phone and your S corp. You could write off your cell phone in your llc. In fact, some of the hot deductions I want you writing off, your cell phone, your auto, your home office, your. Your. Your cell phone case, your computers, your iPads, your charging cords. People, this is what you're writing off is anything that's related to your business. Electronics. I'm going to put the kids on payroll. I'm going to write off supplies, a couple equipment, everything at Home Depot for my rental property. So, Alexi. That's right, Alexey.

I think it's Alexi. Alexi.

And it looks Russian.

You got to watch more hockey. You'll be better on the. The Eastern European names.

That's true. Yeah. And so, Alexey, I'm so sorry, don't be mad at me. But anyway, Alexey is asking, and I'm going to put it in red here. He's saying, well, where do I write off all these goodies? You can write them off in your rental property business. You can write them off in your S corp, or you can write them off in your llc, but you cannot write them off in your Roth. Your Roth is the Roth's business. You can't take advantage of that. So, which brings us to a question from Louis. Now, Matt, I'm so glad we have the expert. Matt Sorenson here. Okay, let me read that question. Go down to Alex. I mean, Luis, Luis, Luis, Luis. There it is. Okay. Hey, now, this is good, everybody. This is off Facebook. You have mentioned many times before that if there's a great deal or project, have your Roth 401K or Roth RA do the project. Yeah, that's what Peter Thiel did.

That's what Peter Thiel did. They're like, hey, do you want to be the first outside investor in Facebook? Yes, I do. No, actually, I don't. I want my Roth IRA to do it because if he did it personally, he'd be paying tax on it. I wouldn't have a 5 billion Roth IRA now?

Yeah. And why does your stockbroker not tell you this? Because they don't get a commission when you put your Roth IRA in a project or private placement with a small business. They don't, they don't care. In fact, they get fired if they tell you you can do it. I.

All right, so the cost. Selling away, they say, I can't sell away. I can't talk to someone about doing something that would make them move their account. How messed up is that?

It's so messed up. Okay, so Louis says you do this all the time. So he says, I have a project that requires me to be one of the guarantors of the real estate loan. Okay, Matt Sorenson. I don't have any managerial control. I'm only attached to the loan as a guarantor. How can I structure my personal involvement and my Roth 401k so I can avoid a prohibitive transaction? So Matt, for everybody out there, he's talking about a rental property over here in this bucket. Why don't you tell people the way they can and cannot do it.

So your Roth IRA can absolutely own a rental property. It could flip a property. It could flip an option. Just get an option on a property and sell it. That was one of the first big clients that I had that really opened my eyes to it. A client used $10,000 from a Roth IRA, got an option on some property that was against the highway. It was just like agricultural property that was worth like 300 grand at the time. He paid 10,000 bucks for the rights to buy it for about 400 grand. And he had five years to exercise this. Well, what happened? My client knew this was going to happen because he's a developer and savvy. They put in a freeway exit, the property turned into freeway commercial property. It wasn't the. I mean the state and county put this freeway exit. It wasn't just agricultural property anymore. Now this Property wasn't worth 300 grand, not even 400. It was like worth over a million. So we sold this 10,000 option for over a million dollar gain. So you could do that. All right? These are the self directed things we talk about and we do it. Our company clients do directed Iraq. And so that's actually now.

But Louis.

But Louis, you have a problem in your example.

Yes. There's one thing you can do.

Don't be the G man. You cannot be the guarantor. Okay? This is not a G thing. Okay? You're not guarantor. You're just investor. There's a rule for the retirement accounts called prohibited transactions that basically restrict you from buying or selling assets between your retirement account and yourself or your spouse or kids, certain disqualified people. It also restricts you from guaranteeing loans personally that your retirement accounts investing into. So that would kind of blow it up. In this one, you'd have to get someone else in the deal to be the guarantor on the loan in order for your retirement account to invest into it.

Okay, now, Matt, we're doing a special. This is awesome. I'm so glad we've got more people on our YouTube Facebook Live today then. Is it a record today? No, it's not that. You're saying it was looking pretty good. It's looking good, though. It's looking amazing. Just not a record. Okay, well, never before on Facebook, YouTube Live, have you seen this? Here is my crypto mine, owned by my Roth ira. This is so freaking heavy. Look at this bad boy. Now, it's turned off at the moment because it's so freaking loud, but I've got three graphics cards here. My fan, my 12 port motherboard, my CPU over in the corner. And when this broadcast is over, either I'm weak or this is really heavy. I'm gonna go plug this sucker back in to its own arrangement for paying utilities and rent. Not to me, but my Roth owns this crypto mine. Boom. Is that freaking cool? All right, so this crypto mine is putting money tax free every four hours through NiceHash into my Roth IRA. Now, I've got other YouTube videos on how to mine crypto inside a Roth IRA and how to do a charitable remainder trust and never pay tax on the crypto you own outside of your ira. So, anyway, pretty fun, huh, Matt?

Yeah, I mean, I've seen it in person.

So do you have any show and tell? Do you have anything good?

I got nothing. I mean, I don't got a crypto rig. I mean, I don't want to, you know. You want to see the size of my rig?

I was gonna say my rig's bigger than yours, so you just deal with it. Okay, now let's go to another question. I'm gonna throw this out. Jake8413 YouTube. I have a W2 job, Matt. Why don't you look at social? Your. Your. The post that Ashlyn gave us to. Corey's going to heft this out. Corey, they don't even get to see you on camera. Look at the.

I got some questions here when you're ready. I got some I can throw out too.

All right, Those are some biceps. All right, Jake says I have a W2 job. My wife has an LLC. She wants to start paying my son who is 13 to do work for her business. How does that affect self employment tax for my wife? Or does it just count as a loss for her? Ah, Jake, none of those. Okay, now let me explain why you're going to love this. So we go back to our trifecta, right? Wife has a W2. I mean wife has an LLC. So here's wife and husband has a W2. Okay, so this is very common. One in three, sorry, one in three Americans now have a side hustle. They have both. So we have our side hustle llc and we have the day job right here. Husband. Boy, it looks like this. I think it looks like I screwed

him up with some cool hair.

Yeah, yeah, he's got dreads.

Have some cool hair. All right.

Yeah, he's got dreads. Okay, so here's husband, here's wife. Okay, now wife has got a schedule C, we're going to say that's called a schedule C schedule. Schedule C is in Charlie, and she's got a small business. She's got income and she's got expenses. All right, everybody, right, so she's got income and they're going to write off cell phone, maybe of husband as well. We're going to write off home, office, we're going to write off computers, electronics, auto dining, all sorts of goodies. And she's going to pay tax on her net. So let's say she has net income of 20 grand. Let's just say net of 20. So she brought in 30 grand, she had expenses of 10 and she has 20 grand in net income. Fair math, Matt. Yeah, numerator, denominator. So 30 in 10 out 20 net. That's a great little side hustle. But now she's going to pay the 13 year old $5,000, approximately $400 a month to help clean the office, stuff envelopes, do social media, quickbooks, scan receipts, shred paper, help with the mowing the lawn at the rental property. Who knows what they've got going on over here. So wife says, I'm going to pay son who is 13 years old. Can she do that? Yes. Think of the deli in New York City with the kid working after school. Think of the potato farm in Idaho with the kids helping harvest potatoes in October. I mean think of all the small owner, small business owners that across America that employ their kids in the summer. Can you do that? Yes. And here's the Beauty. If they're under age 18, there's no W2, no, no 1099, no SUTA, no FICA, no FUTA, and no workers comp. I mean, you just call it outside labor. It's slave labor for your own kids. And it's a write off. This is beautiful. It's the American way. So we've put the sun 13 years old on here for five grand. Now I'm going to move to black here on the color. Now look what happens. Wife's income goes down from 20 grand to 15 grand. So there's not a loss, it's just a deduction. So now her business goes from 20 grand of income to 15 grand of income. I'm going to put five grand right off net 15. Okay, so she has net 15. Did wife save taxes? Yes. If they're filing married, filing joint, did they save taxes together? Yes. Now does the son pay taxes on the five grand? No. No tax. There's no federal tax on the first $12,550 this year of earned income. And son can still be a dependent on their 1040 tax return. They can still get the child tax credit and son doesn't pay any tax on the five grand. Matt, you want to take it to the next level, baby, I know where you want to go. Son has five grand of income. What do you think they ought to do?

Well, what you're going to do as a good parent is help them set up a Roth ira. All right, we're going to have a Roth IRA that you're going to put that five grand into because now your kid has income. And now that five grand on a Roth IRA can be invested in whatever they want. And the cool thing about Roth IRAs, we know they come out tax free, as we mentioned, you know, in some just a moment ago. But one of the cool things that's unique about a Roth IRA is you can pull the money out whenever you want. So if sun like is like, oh, I want to use this to go to college later on or I want to start a business later on in my 20s or something cool, you can pull out all that. Those 5,000 you put in every year, you can put up to six in a Roth IRA every year. Let's say you did five and you kept doing five every year for from when they were 13 to, you know, 18, five years of that, you know, that's 25 grand of contributions you can pull out whenever you want. The growth and earnings you pay penalty and tax to get out. So it's a really Tax efficient, awesome savings account. And I think all of us like one of the things everyone talks about with a retirement account is it's more important to invest early on in life than to invest more later. A lot of people just say, when I'm older and I'm rich, I'll put more money into my retirement account. Well, that doesn't work so hot when you're 50. Now I'm finally making income and I have, you know, better control of my spending and stuff. Well, if you were 20 and you just had a little bit in there, you're way far ahead. So it's just a great concept and awesome tax strategy and some cool thing to teach your kids and get them involved in finance and saving and investing and learning this stuff.

Okay. I love it. I love, I love it. Now there's two questions. The reason why I say okay is I want to give away books. Must be present to win. We're going to do that in a moment. Corey, don't move that screen. One second, Coon. Jeff asked a question and we can use the same example. His question was, how does it belong to your Roth? And I think what he's talking about is over here when the Roth was buying homes and all that, he's like, how does your Roth own that? Well, with this kid's Roth IRA that we're going to open, look what we do. The Roth IRA is not opened up at Robinhood. It's not opened up at TD Ameritrade. It's not opened up at Merrill lynch. The Roth IRA is opened up@directed ira.com. one of the top 10 retirement custodians in the country is our little trust company in Phoenix, Arizona called directed ira.com when you open up the Roth there, the son, 13 year old son could buy crypto, could buy real estate, could buy stock, whatever he wants. It's a self directed Roth. And if you want to buy real estate, Kuhn, what we do is we open up an LLC that's owned by the Roth, maybe 40% and mom and dad put some money in or mom and dad's IRA puts in some money or dad's old 401k puts in money so you can form an LLC funded by the family's retirement accounts and go buy the rental. The Roth in this example would own 40% of the LLC that owns the real estate pen drop. Okay, the other question was Jonathan said, QBI or S Corp. LLC if gross profit of 40 grand. Yes to both answers. Now in this side hustle, if wife makes 20 grand. And we write off five for paying the son. She netted 15. She's going to get the 20% QBI deduction. Now, if wife was making 45 grand, self employment tax would be off the chart and we do not want that. So we would make an S election and convert wife's S corp LLC over to an S corp, but still pay the kid. There's ways around it, yada yada. Matt, anything you want to say on this self directing Roth stuff for the kid?

No. Yeah, I mean, I think, you know, 5,000, sometimes you just get it in there and you. It's kind of like a savings account, like make the contribution. You can only do so much per year and you can buy crypto, or you could just buy the s and P500, you know, index fund or, you know, or just an easy mutual fund while you're saving. Sometimes when people are at zero, it's a hard to have a hard time understanding, well, how do I buy real estate or how do I invest in a private fund or a private company that the minimum investment amount is 50 grand? Well, you got to save. Everybody's got to start at zero. Like Peter Till started at zero. All right, so we all start at zero in our retirement accounts. So you just get saving in there. And then when you find the right deals that you want to do, you know, now you're ready. Now you can do a real estate deal. Maybe you partner with some other family's accounts or other people. You know, get the kids accounts and your accounts altogether. Now you've got enough to go buy a real estate deal if that's the type of investments you're into.

Two quick. Okay, I'm gonna give away books and then I want to answer Gypsy's question and Kumar's question. Okay, we are gonna give away. We have entrepreneur magazines, YouTube and Facebook following. Live with us today. Let me first say if any of you would like to get a ping. Every time Matt or I shoot our podcast, which we do on YouTube as well as videos every week on tax saving strategies, I promise you will save thousands of dollars. You will love it. Get over to YouTube and please subscribe to my channel. You'll love it. Whenever I go live, you get a ping. Whenever a new video comes out, you get a ping. Hit the bell icon and I'm there. It. You're gonna love it. Ways to save taxes, protect your assets and privacy. There you go. Just wanted to say, subscribe, please. Okay, now here's our books. First, we're gonna give away one in entrepreneur. YouTube. One in my YouTube, one in my Facebook, and one in entrepreneurs. Facebook. So, Corey, give us some winners. Just you guess. Give us some names.

Tiffany Kincaid.

Tiffany Kincaid. She is. She won before that Glamour shot. Looks familiar. Maybe not. Okay, Tiffany Kincaid, you just won what your CPA isn't telling you. Pretty popular book. It's the gateway drug to saving taxes. Oh, yeah. So, yeah, it's got a lot of

might turn into a movie.

That's right.

Movie.

I'm not kidding. It is in production for the screenplay. So I've been at the table read. I know what a table read is. Okay, now we'll give away Matt's book. Now, I will sign it. It'll be worth more. You'll appreciate that. Corey, who's the winner of Matt's book? Oscar Hernandez. Oscar Hernandez. Oscar, you have won. Are you writing these down, Corey? Matt's book, Oscar Hernandez. Now, if any of you. I call off your name, Tiffany or Oscar, the way you get this book is you've got to email coreyarkjkohler.com and we'll ship out Matt's book from here. Matt's in the Phoenix office. I'm up in the Idaho office. The new bedroom community of Hollywood, you know. Oh, that's. That's what? Idaho? I don't know if you knew that.

It's because you got the drug dealer Jesse from Breaking Bad.

That's. His name's Aaron Paul. I think he would appreciate you calling him by his real name. I mean, I know shout out. We need to have you on the show. Okay. Okay. But email Corey@markjkohler.com he's got your name. He will send you your book. Okay, now, the Tax and Legal Playbook. Who's the winner? Corey? It's female. Rob Vega. Rob Vega, my Wall street nephew has financial freedom. I don't know if he's talking about my book Financial Freedom, but you now, Rob, have the Tax and Legal Playbook, second edition. If they ever get around to passing Joe Biden's tax bill. There might be a third edition, FYI, but we'll see. Okay, and then a female winner. So we have two males, two females. We're being, you know, politically correct. The Business Owner's Guide to Financial Freedom. What Wall street isn't telling you goes to Sherry Goings. A revocable living trust does provide liability protection. No, it does not, Sherri. It does not. We want estate planning. We want privacy. It acts like camouflage. While the LLCs act like a bulletproof vest that some bullets can get through there's no perfect protection or perfect privacy. If you're a bad person, someone will find you in the Ozark someday. But just be careful. Okay? Matt Sorensen, you ready for a question?

Yeah.

No. You got some social media? Throw one out. Yeah. Your call.

You want me? Okay. I thought this was just a fun one, so let's do a fun one. This was from, let's see, Joey K. He says, what are some things to consider when investing in assets in other countries? Okay, I got all you consider.

Nice choice. Matt Sorensen. What the hell? I'm not letting you choose the questions next time, please.

I thought it was fun.

Fun and hard. Okay, you answer it. I'm not. I'm not saying anything.

Okay. Yeah, so I just want to give a couple thoughts on that. First, this is Matt the lawyer talking.

Okay.

Is this better be a place you're familiar with? Because as the phrase goes, you're literally in another country. All right. And the first thing to know from a tax standpoint, I'm going to make a couple tax points that are really important because this is where people are doing this. People, middle Americans are starting. They're buying stuff foreign. Like, it's not just this uber wealthy buying foreign assets. I have clients that buy rental properties in foreign countries and, and make other investments and businesses. And so we're, you know, the world's getting smaller. The first thing to know is the US Has a tax treaty with most countries. Let's say you go to Belize. Okay. US Has a tax treaty with Belize. Let's say you own a business there, or maybe it's an Airbnb property and you make money in Belize. Well, you're going to pay tax in Belize. Are you going to pay tax in the US as well? Yes. And you've got to claim that income you made in belize in the U.S. but the U.S. will give you a credit for the tax you paid to Belize, so you're not paying double tax. So that's the first thing when you're investing abroad and you're a US Citizen, is as long as it's a country with a tax treaty and the US has tax treaties with most countries, you're not going to pay double tax. But remember, you need to know the tax rules in the country where you're buying a business or a property, whatever it may be.

Can I add one? Oh, you got a second one? Geez.

Yeah, there's.

This whole show is not about international investing. I will say. Okay, I like Matt's point. Tax. You got to know the tax code where you're going, and if there's a treaty that exists. And then, number two, the flip side of that is, know the legal rules. Does that country respect the llc? Do you need an LLC there or an equivalent? Mexico has some unique structures that are very different than the US and you're going to have to retain counsel in that country to make sure you're not exposing yourself to something crazy.

Now, to hit two things, you need to have two on taxes, just fast.

Okay.

If you have a bank account abroad, which you probably will if you invest in a business or even do an Airbnb or what in a foreign country, 10,000 bucks more, you got to file an FBAR report to the irs, telling the IRS you have a foreign bank account. If you have an asset over 50 grand, you also have to file a specified foreign asset form, too. So there's a little more tax reporting you're going to do than your regular 1040. If you start doing stuff abroad, that's

because they don't want to think you're laundering money. But you have to file an F. What? An F. What?

An F bar? Yeah. It's not a fubar. It's an F bar.

Okay.

Foreign bank account report.

Okay. All right, Corey. Now, it's funny, because I was trying to be, you know, fair. Two ladies, two male winners. Someone said, I'll be a male or female I transgender. Just give me a book. I thought that was creative. Some points and kudos there. Okay, I'm going to give away an eight steps Cory. This is a $99 book on Amazon with 60 videos, QR codes, a business plan, a strap plan. Dave Ramsey's got Financial Peace University. This is eight steps to start or grow your business. Who's the winner? Corey.

Let's go with Liz Alexander.

Liz Alexander, you chose one with the cat pitcher. Liz, I would have never chose you, but Corey called out your name. Liz Alexander wins eight Steps. This is a big deal. This is a great book to help you build wealth with your small business. And what do you got against Cap? Well, here's. I was just gonna say this, people. If you're like Mark Kohler's YouTube channel, that probably is know he's just an accountant. The guy's a nerd. Look at what I got lately. The silver play YouTube button. You got one of these, Matt?

No, I got a cat, though, so I was getting a little defensive on the cat.

Oh, that's right. You have a cat. So I. I was trying to say, because I built this.

I know a guy. I know A guy who has one, though.

There you go. Yes. And Matt's held this. But. And I'm grateful to all of you that are subscribers to help us get this because more and more people, so many people want to know how to build a business and avoid the tax and legal problems out there. So I want to say thank you to you, but I did this without any cat videos. That's my point. Okay. All right, now, W2 cap gains. Now I'm going to. I want to get Darren and Allison involved here. So you guys got to throw out a question each here in a minute that you want to throw out. You get to choose. Okay? Now someone asked. I saw the name fly by, but I missed it, said mark, I'm a W2 wage earner and I need to save on capital gains. What can I do? The answer is not much. The two strategies that come to mind for me is the Opportunity Zone, because you can take capital gains from anything, stock, ETF or crypto, and take that capital gain and invest it in what's called a real estate opportunity zone, where you can get into a fund that's developing property in one of these zones and it can reduce the tax rate and kick the tax rate taxable bill down the road. We did a podcast about two months ago on Opportunity Zones get to Main Street Business Podcast. If any of you are enjoying our crazy humor and the topic, please get over to Main Street Business Podcast. And there's a great podcast on capital, on saving on capital gains through the opportunity zones. The second one that comes to mind for me is the charitable trust. You can take appreciated crypto, appreciated stock, appreciated real estate, anything and put it into a CRT charitable remainder trust. Just go to YouTube and type Kohler. Can't even write my own name. Kohler crt. Go to Kohler. Just search Kohler CRT and you'll see several videos of mine that really break it down. Well, I think you'd love it, Matt. Anything else on saving on capital gains?

The only thing is knowing the difference between short term and long term, you know, so maybe you have some short term capital gains. So you want to hold assets for at least a year. You'll get a lower rate of 20% if you sell it earlier and you're a high W2 wage earner, you're going to pay at your higher tax rate. So just look at it. Maybe you're close to a year. I don't know this person's unique situation. But remember, there's a difference and you get a better rate if You've held it over a year.

Yeah, I was teeing up for you, Matt. You missed it. I was like an alley oop. It was like the Clippers. They lost. I threw up the alley oop because I said, is there any other way to save on capital gains, Matt? Invest in your.

Not have capital gains.

In the third place, Matt Sorens is the way he usually says, I don't have capital gains because I only invest in my Roth ira.

That's true. Okay, well, I'm still. That was still a good point, though.

Yes.

Short term versus long term cabinets. I may not have dunked it, but I. I caught the alley oop and laid it up.

That's true. It was late.

We're two points. Yes. Wasn't as cool and flashy, but okay. But that is important because. And someone asked the question earlier, defending himself, if I'm going to have an awesome investment, I've heard I should use my Roth ira. Well, yeah, because now you pay no tax. That's again, think back to the Peter Thiel. Why he has a 5 billion Roth IRA partispublica thing, too. When Facebook wanted their very first investor, why did he pick his Roth IRA to invest rather than him personally?

Because he's a genius.

Because he's freaking smart. He made an amazing investment in his Roth ira.

And all of you are now just as smart as freaking Peter Thiel. Because, you know, the next deal that comes along, you'll go, ooh, maybe I should do that in my Roth. All right, we're going to throw it over to. Ladies first. Sorry, Darren. Allison Neff. This question is from Brian Lee.

He says, I have an old 401k. I took out a loan against it, and I no longer work at that company. Should I roll over into a Roth?

If so, what happens to the loan against the 401k?

Ooh.

Okay, so we've got a 401k.

Yeah, you're on the mic.

She was on a mic. Did everybody hear it? Ah, she did. She did it on her mic. I thought she was, but that. Oh, there we go. Okay, I'm gonna repeat it. It was from Ryan. He said, I have a 401K. I borrowed from it. Let's say he borrowed 50 grand. Now, before COVID and after Covid, it's now 50 grand or 50%, whichever is greater. So let's assume Ryan. This is Ryan down here with his 1040 in his little revocable living trust, okay? And he's got a 401k with a loan for 50 grand. And then he dropped the bomb. I no longer have this job. So my 401k is just sitting there with this loan, which is a little weird too. But he said, should I convert it to a Roth? This was first question. Right. Or what should he do? What's going to happen to this loan, Matt, what would you say? This is right up your alley.

I definitely would not convert it to a Roth. I don't understand. If you're going to take a loan out, I don't get. Usually if you take a loan out of your 401, you're doing that because you need the money personally. Maybe you're starting a business personally or you're paying down some high interest credit card debt, which is an awesome strategy.

Yeah, yeah.

Because when you're paying back your loan, by the way, you're paying it at prime plus 2%, which is like total of 5% now, and you're paying it back to yourself. It's not going to a bank, as opposed to like, let's say a high credit card. So we love that strategy.

Okay. But he doesn't work there anymore. Don't they call. How long can you keep this loan going after he left the job?

It depends on the plan. A lot of plans force you to pay it off within like 90 days once you leave the employer. Now a new thing you can do. This is from the Secure act about two years ago. I have an article on this on my blog, directed ira. You can roll over the loan to an ira, and we've done that. So this loan that you owe, you owe back your 401k. You can roll it over as an asset to an ira and you've got to pay your own IRA back. It's a totally legit, not prohibited, if it was from an old employer, 401k. So rather than being forced to pay it off.

Freaking Matt Sorenson. You're freaking amazing.

He's always got to tell you all these years.

Yeah, yeah, I know. I've got all these great books that Matt never reads, so. But I. But here's the deal now, everybody, what does that mean?

Let's say, by the way, I help proofread them. I love him.

He does. He does. Okay, let's say Ryan, Everybody. Ryan had $100,000, 401k and he borrowed 50 grand. So what does that mean? How much is left in his 401k? 50 grand. But there's also a note sitting in there. So if you think of a 401k as a little briefcase, there's 50,000 in cash in this little piece of paper that says, hey, ryan owes us 50 grand. What the hell? When's he going to pay it back? And under the Secure act, you can take the 50 grand and move it over to an IRA and you could convert that to a Roth. You could go buy other investments, whatever. But the loan also goes over to an ira. And what it's invested in is a note to yourself. So you're going to start paying back this ira. And as you do it, the IRA will go up and up and up until you pay off the note. At the end of the process, you'll have 50 grand plus interest sitting in this IRA. And you've got 50 grand sitting in this IRA. So that's the strategy with the 401k loan. That's a great example. Ryan and Matt, thank you.

Yeah. Okay. Cool little strategy. It's a new one.

Yeah, I wish I would have chosen that question. Thanks, Allison. Good job. Okay, now, we cannot hear Darren unless he bellows with his voice. But quickly say it. And I'll repeat it, too.

So what do you want to ask? He is $7,000 from contributions made to a Roth IRA started five plus years ago. 2020-1099R has a T classification on it. I did not tell the IRS what to do now.

Holy crap. I lost that. So she has a Roth from how long ago? Five plus years ago. She started a Roth ira and she put how much in it? Okay, so over the years, let's say she put in $20,000 of contributions. And then this thing, this Roth IRA went up in value, and now it's worth 30 grand. Okay, fair. Okay. And then she said, how long ago she took out seven grand? Okay. In 2020, she said, I'm going to take out seven grand of my 20, because I can do that. Matt explained this earlier in the show. If you have contributions, you can pull those out anytime you want, tax or penalty free. But this 10,000 in gains. Can't touch this. Can't touch this because that's gain. You got to wait till you're 59 and a half to touch that.

What?

Corey, I thought that was okay. You didn't like my M.C.

cory doesn't know M.C. hammer. Just how does Corey? Cory's too young for M.C. hammer.

Are you too young for M.C. cory?

No. Okay.

Cory's offended by that. Matt. He apparently is a fan, as HS of you.

Yeah,

He listens to it on the oldies channel.

24. Sorry.

26. So.

26. Oh, yeah.

You know how The History Channel does. This is what the 80s were like. He watched that.

Okay, okay.

All right. Okay. So there's 10,000 in gains that. What's her name? Wanda. Wanda could not touch the gains. Wanda can touch her contributions. She takes out seven grand. And Matt, she got a 1099R or a 1099. What? T with the T classification. Right. And she says, what do I do now? I think you whistle all the way to the.

Yeah. So when. Whenever you take a distribution from your IRA, whether it's Roth IRA or traditional, and you know, we're here at Directed IRA, we doing this every day, you know, so a 1099 is going to go whether it's taxable or not or a penalty or not is based on what you're going to do on your tax return. So when you get to your 1040 and are doing your tax return, there's going to be an opportunity for you to claim whether that distribution is taxable or not. One of the exceptions when you're doing the 1040 is that this was the return of a contribution. You did not take any investment gains. So you'll still be fine. You got to pick up the 1099 on your 1040, but you won't have any tax on it if you only took out amounts that total contributions. Now, the code of T is really just a code for Roth IRA distributions. So even if you're 59 and a half, like, let's say you're 70, and you pull money out of your Roth IRA, you've had it for five years, you're still going to get a 1099. It's just. It's not taxable. Okay.

Now I love it, Matt.

Great.

Good answer. There you go. So just take that 1099 R to your accountant when they do your 2020 tax return and you shouldn't be paying tax on it, tell them it's a withdrawal of your contribution. Now, Kuhn asked, if I'm mining crypto, can I write it off? Now, I think what Kuhn means is, can I write off my rig in signed by Roth? That's mining. And the answer is yes. Now, I just typed in YouTube crypto, Roth mine. Crypto, Roth mine. And look who videos comes up first. That's a little Mr. Mark Kohler there. Oh, and a second one right here, step by step guide, Mark Kohler. So, oh, Mark Kohler's number three, avoid paying taxes on crypto. So anyway, I'm trying to tell you that I love this topic. I've taken a lot of time to create some great video content on that. So, Kuhn, any of you interested in crypto, Roth, Ira topics? Get over there and get to Directed Ira. Matt's got a ton of content there on directed ira.com as well. Okay, so we took Darren's question, Allison's question. Thank you guys for answering so much. While they're there, we got to wrap it up. Can we both take one more question

fast?

Okay. I want to say thank you to so many of you that are asking tough questions, too. Ryan asks about bonafide residents living in the US that's too much for the rest of the show. Ryan, don't be upset. We're here for you. We'll do the best we can. William wants to talk about a loan on bitcoin. I'll give it a shot. And Matt, you choose one off your phone or wherever. Okay. William says, is it true that you can take out a loan on your bitcoin instead of selling it to avoid taxes? And yes, William, you can. Now, I would call it taking out a loan against your bitcoin. Your bitcoin is the collateral for the loan. So you're going to go to your exchange, and Gemini has this and almost all of them, Coinbase. You're going to go there and say, I want my bitcoin sitting there, maybe worth 10,000 or 10 million, whatever it is, and I'm going to loan it out and I'm going to get 5% interest. Now, on the face of it, that looks pretty smart because it's just sitting there doing nothing. And if you're doing it inside your Roth ira, you're not going to pay tax either. The concern is, everybody forget taxes for a minute. When you read the fine print, those are unsecured loans. You're just lending that money to another company, doing who knows what. When are you going to get paid back? What happens when you want to call the note due and they don't have your bitcoin? It's a little scary. So be careful where you loan your bitcoin and make sure you do your due diligence. You're not getting any collateral on most of these loans. Then William says, and if, yes, I can really loan this money, do you just let the loan default or what is the best strategy after that? No, you don't let the loan default, William. You want your freaking money. Let's say you have a million dollars in bitcoin and you loan it to someone and you give them a million and they pay you 5% interest. Someday they're Supposed to pay you back the million. And if they don't, what's your recourse? Be careful. Freaking William. I'd rather see you do a charitable remainder trust. That video that I just showed you. Let me just go back to that real quick. Right here. Avoid paying taxes on cryptocurrency. Legal. 143,000 views in just four months. I talk about the charitable remainder trust. Maybe loaning out your crypto is not the right idea. Freaking sell it. Cash in, get a tax deduction and an annuity for the rest of your life. That's called a crypto crt. Check it out. Well, that's it, isn't it? That's not it. There's another one. Okay, I type crypto crt. Let's do that crypto. You think I have to put Kohler? Let's try just crypto CRT and see how good my video person is. Oh, number two, look at that. Number two, how to pay zero taxes. And that's an ad, so I'm really number one. So you can take that, Corey, and shove it. Yes. You did a good job.

Yeah.

Oh, you're taking credit for that? Yeah, don't worry about me who actually worked on, you know, trying to create a video. It's all Corey.

Okay, all right, let me get the question. I got a question. This is the last one.

All right.

You good?

Yeah, I'm good.

This is from Neat 94 said joint venture versus Disregarded LLC for rentals. Okay, let me explain what those are. And so you're like, what the heck's a joint venture? It's not something you do for rental properties. Joint venture is like an agreement. It's just a contract that two people could enter into for a specific thing. Let's say Mark and I wanted to flip a property or we wanted to go in on business for a weekend and go to a trade show or go set up a hot dog stand for, you know, some festival. I don't know, we're just like, hey, here's what we're doing just for a little bit. We're not sure if we really want to enter into a long term form relationship. This is a joint venture for just like this deal or this little operational thing we're doing. That's what a joint venture is. It's just a contract. Now you may use an LLC in that. Mark may use his LLC for the joint venture. I may use my llc.

Yeah, but before you throw LLC in it, let me. Let's just stop here for a minute, everybody. I love What? Matt just said this is a contract. Who's going to be on title to the rental? Me, Matt, both of us. Who's liable for each other's actions? Each of us. There's no asset protection. And I freaking know whoever freaking asked this question is in California trying to avoid an LLC because they don't want to pay the frickin franchise tax. People, sometimes asset protection costs money and we want to get around lawyers. I know you hate lawyers, but you will love us. We are lovers, not fighters. We're here to help you. There are jerk off lawyers out there. Yes, but there's also crappy contractors and crappy auto mechanics. And there's great contractors and great auto mechanics. You just got to find the right one. But doing a JV is the worst possible frickin thing to do with real estate.

Okay Matt, what's our other option? Yeah, now people use a JV just as the contract. It's not the asset protection though. So you would use the LLC for your rental properties. That's what gives you liability protection. Something gets happens, the plaintiff slips, tenant slips and falls, contractor gets hurt, they can't sue you, they can't sue your partner, they can't go out, get after your paycheck, they can't lien your house, they're stuck at the llc. They can only get it what assets they the LLC has just the property itself that is at risk, but they're not getting after anything else. That's the limited liability protection you get in the llc.

And an LLC operating agreement is the same thing as a JV but on steroids. It's going to talk about who does what, who gets what, who puts in what, what happens if you die? What happens if I die? What happens if we have to do taxes? And here's another thing. The question was JV or disregarded llc? There's no such. I mean I think what they're trying to say is a disregarded LLC for tax purposes. Well, the only way you can have a disregarded LLC where you don't file a tax return is if it's owned 100% by you.

One person.

One person. Disregarded.

As for a single member, single owner.

Yeah, you can't do a disregarded LLC with. When you have two people, you're going to have to pony up and do a freaking tax return. Man, I'm getting mad here. I'm sorry, whoever. I feel bad whoever asked that question. I'm just saying, I just. So many times people are trying to get around doing a little legal work that will save them so much money later.

Yeah.

Drives me nuts. So. Well, everybody, I want to say thanks for Corey being the butt of all of our jokes. Thank you, Corey. You did a great job. And for Darren and Allison answering a bunch of questions online with no gratitude from us, really, until now. Thank you. And a thanks goes out to my amazing co host, Matt Sorenson, my business partner. Love him. I was going to say partner and love him, but I better say business partner because there's a little line.

There's nothing wrong with that. But. Yeah, well, it's always, it's always fun coming on to talk about this stuff. And I got a little passionate about the math stuff on the one percenters. I just, I remembered back to fourth actually, third grade, my math, my teacher was Mrs. Train and I think that's when we were doing some good fractions. Story problems was kind of good at it and it paid off today.

You know, I remember my third grade teacher was, was Mrs. Coates. Oh, I do my third grade teacher.

She trained with my third grade. I had her in kindergarten and in third grade.

So that's maybe it was all kindergarten. You just thought you were in third grade.

I think I got held back, actually. I don't know.

But most importantly, I want to say thank you to all of you. Thanks for finding a little time to watch this. I know many of you catch this on the backside on the recording. Please subscribe to the YouTube channel and give me a like on Facebook. It helps other people find this content. And every Thursday at 4 o', clock, unless something big is going on, we'll be here live answering questions nationwide, trying to help you build your American dream. Whether it's rental property, a little bitcoin mine, your little Roth, a small business, a side hustle. Whatever it is, please continue to put it on your calendar and be here next Thursday at four o' clock Mountain. And you'll get a little ping if you hit the bell icon when we go live. And we hope to see you next week. Thanks.