How To Structure Your Business In 2023 For Success | With Mark J Kohler

Welcome everybody to a broadcast just for you. For you side hustles, business owners. Is it side hustlers that doesn't sound.

Slurs? Yeah, that's a different profession.

Yeah, we're gonna. Thanks for watching. My name is Mark Kohler. I'm with this amazing good looking guy. You look good in powder blue. Matt Sorenson, thank you. Coming live from Phoenix, I'm up in Idaho. There's about a 100 degree temperature difference, maybe, maybe 80 degrees, I don't know. We're, we're both tax lawyers, both real estate investors, both business owners. And we love you, we love Main street business. And we're going to be answering your questions and teaching you what's called the trifecta today and helping you structure your business for 2023. Anything else matter? We predicting the Super Bowl 2 or not?

Yes, but that advice and those ideas are worthless. But structuring your business, pretty valuable. But when we get into this, we're going to be talking about saving taxes as you're structuring your business, your side hustle, you're investing in real estate, whatever it may be. There's a lot of tax opportunities and ways to save on taxes based on how you structure it. There's also a lot of dumb things people do. And I hate to say it, but there's a ton of bad advice out there. Get on the Internet, you get on YouTube, you watch a little too much, A lot of people have zero credentials, have no idea what they're talking about. And so we want to dispel some of the myths too and traps that we see clients falling into because Mark and I have been in the trenches. Like the two of us have probably talked to 10,000 plus small business owners over the years consulting, and we've seen what works and what doesn't.

Yeah, no, and the 10,000 rule, some of you have maybe heard of that, you know, 10,000 free throws, 10,000 whatever. Literally. Matt and I have both have consulted over 10,000 business owners each over the last 20 years, helping them structure their business. So. And we carry malpractice insurance, we're licensed. And whatever we tell you, we're on the hook. You won't see a lot of lawyers or CPAs, and I'm a CPA as well. You won't see them on YouTube answering live questions because they're scared to death they're going to be wrong and someone's going to sue them. Well, you know what? We're frickin throwing down. So we're here for you. Okay? Now A couple disclosures. Whether you're on YouTube or Facebook, if you see any comments from Matt or myself about any bitcoin crap or anything, it is a scam, it's a bot. It is not us. We are not commenting. I can already see some bitcoin crap. Please ignore it. Ignore it. Anybody else that you see a comment from on, oh, I saved so much money or I made money in bitcoin crap, ignore it. Let's keep our comments to today's topic about structuring your business. We will answer your questions. We're going to. We're going to play some Pictionary first. Matt. I'm going to draw. Well, you describe the perfect.

I will.

Basic structure for a business owner. Okay, Go to whiteboard, please.

All right, all right, let's. Let's get it started.

Okay.

All right. Now the trifecta starts with two different sides because we want to separate for tax purposes and for asset protection purposes. Your business operations from your assets and investments. Okay, operations is on the left there, as you see. You know, careful diagram.

We kill it at Pictionary, people. We're deadly. All right.

Yeah, we are national champs. And then on the right side, we're going to do assets. Now I want to give you. I mentioned taxes and asset protection, these two things. We're putting stuff on these different sides because of two different reasons. How they're taxed and how we want to protect these things if they're assets. All right, so those, this is the first.

Okay. And now can I. I also want to add, before Matt continues, we teach this to clients that are worth $50 million, $100 million. I had a text with a client this week, 50 million dollar plus client that said, mark, can someone build my trifecta? And then we turn around and I did a trifecta for my son this morning who's starting a small business, and he's like, okay, now where am I going to be on the trifecta? No matter how old, how young type of business, rich or poor, married or single, this is your. Your basic structure. And then it blows up from here. All right, keep going, Matt.

Yeah. Now the foundation of this is your estate plan to be your true revocable living. Revocable living trust. Typically, this is you. If you don't have a trust yet, this is just, you know, you or maybe you and a spouse. But we like clients to have an estate plan. You are going to die one day, so you will need an estate plan. This will come in handy. But this is the foundational piece now what we're going to draw on the left and the right here depends on everyone's situation, and everyone's different. Some people have a lot of stuff on the left, some people have a lot more stuff on the right. Some people got a good, nice little balance between the two. Some people have partners in the mix, you know, some people have a spouse. Some people have big retirement accounts. Everybody's different. But you need to know how to plug and play this for your situation.

Okay. I love it. So far, so good, Matt. Now I'm gonna start the next piece of this, and then, Matt, you can take it across the finish line. This is what they call in the NBA an alley oop. If you, if you're not familiar with that, I just want to.

Balls floating up there.

I'm gonna float it for you, babe. You got, you got.

Okay. All right. Ready? Okay. Okay, I'll be ready.

All right. LLC people can be on both sides, but you do not want to run both sides through the same llc. So if you've got a side hustle or a full time business with 100 employees, you're going to probably start out with an LLC and graduate to an S corp. I'll let Matt explain why. And then on the right side, you're going to have a different LLC that would own the rental property. And your first best rental is renting your business location back to yourself. So whether it's a warehouse, an industrial building, a storage unit, a commercial condo, if you're paying rent somewhere, let's start owning what you're renting to help you build your business. So that would be rent coming over here to your business. So you're, I'm going to say use would go that direction. Rent is going to go back this direction. Okay, so we want to separate the assets on the right. And rental property is a good example over here. We'll explain what goes over here in a bit. But LLCs could be on the right or the left. Matt, how would you explain maybe this transition from an LLC to S corp?

Okay, let me hit this left and right thing and I'll hit the llc. S corp, too, is.

Think of the.

Think of the dentist. All right? Dentists should have a practice in an S corporation. And this could be anything. But we're just hanging with the dentist.

I'll go with dentist.

Yeah. Today is not watching this webinar. I don't want to feel like pulling teeth, but I'm going to do a dentist exam.

And we are not anti denti. We are not anti dentists.

Not anti Dentites.

No, we are Seinfeld.

Seinfeld. Seinfeld. Okay. I love that scene, by the way. Okay, so, but the S Corp practice, the dental practice, you know, the fees and the insurance money they're collecting for providing dental services is going to the S Corp. It's paying the employees and that dentist that owns the businesses, then taking a salary and taking a draw and we'll get to that. But the building that the dentist is running the practice out of, if you can own it, we love that. You should be building assets. And like Mark said, why not rent your own building to yourself and your own business? But we don't want to put that building, which is an asset in the practice. It's clunky for tax purposes. You don't want to do that for tax purposes. It's terrible for asset protection. Something happens in the dental practice, they can now sue the practice and get at the real estate assets that I'm building. No, no, no. We want to hold it separate. Moving over here on the right side to the llc.

Okay, now since you went there, I'll make a quick note here, everybody on this S Corp concept. Everybody. If I may, Matt, is that okay? May I? Senator of Arizona, will you yield the floor?

I will yield the balance of my time to the gentleman from the state of Idaho.

Thank you. Speaker, Speaker, Speaker. Okay, so the LLC is your side hustle for some of you and that's good. We want the flexibility to convert the llc. Now let me say something to all of you have got to hear, LLCs do not save taxes. Let me repeat this.

Oh, that's hard to hear.

LLCs do not save taxes ever. An LLC taxed as an S corp opens up a whole new world for tax planning. But we don't go there until we hit a threshold of about 40 grand net. So with your side hustle, once you hit 40k, maybe three grand a month of take home after all expenses, you're going to transition to an S corp. So a dentist is a good example of if your dentist is not making 40 grand a year, I don't know if I'd go to that dentist. I mean, they should be doing okay, so. But if you're a landscaper, a realtor, a broker, a fix and flipper, an electrician, a plumber, a consultant, you're on upwork, doing order exporter, importer exporter. You own Vandalay Industries, you're going to go an architect.

I could be an architect.

You could be an architect. Yeah. So. So you're going to come over here to the S corp. So all of our clients we transition to an S corp or if they call us up we go straight to the S corp. Because the S corp if you don't, you pay self employment tax on everything. So if I drive uber and make 40 grand a year, I'm going to pay 15% off the top of my net. So if I net 40 grand I'm going to pay 6 grand in self employment tax. That's insane. But if I do an S corp I could do maybe 20 grand in W2 and 20 grand and what's called a K1 by doing a split I now just cut self employment tax in half and I only pay three grand. Now some accounts out there are freaking out going that's not reasonable comp. Bleh. Okay, we can talk about that in a moment if you want. And I go deep on that. I write articles on it, I teach CE around the country, I know freaking reasonable comp. But I've never had a client audited in 20 years for not taking enough reasonable comp. But you CPAs out there are scared of your own frickin shadow. That won't even go on a 5050 split. You got problems. And I'll throw down. I mean I'm. Yeah, so.

Well let me say that the premise of that is an S corporation. See in an S corporation the IRS say lets you say hey I work in this business, I need to take a salary which is the W2. I'm also the owner of the business that gets to benefit from the profits. Well guys, profits from a business are taxed differently than salary. And in an S corp profits from a business are exempt from self employment tax. So we love pulling out profit. As the business owner and we are the business owner, we should be able to benefit from profits in the business. Just because we work in it doesn't mean the whole thing is salary. And so that's what the S corp allows you to do. LLC doesn't let you split it up like that. Sole proprietorship. You're paying a self employment tax on everything. Anything I can push over to that K1 profit side, I'm out. I don't have to worry about self employment tax on it. I get an exemption for it. It's built in the tax code.

Love it. Okay now last piece then we're going to do open Q and A people. It's for you and I'm going to ask right now, please give us a like, give us a follow, go over to YouTube, hit the bell icon. We go live every week giving you as much information as we can. We're making deposits with you. We, we want to provide as much content as we can. And in turn we ask, give us a follow, give us a like, stay in touch. And if you do need legal, we're here for you. And there's another missing piece here. What happens when I make profit? Where am I going to put that money? How am I going to save for the future? You know what's better than saving? Taxes. Not paying tax at all. So we want you to build Roth IRAs and Roth 401ks and we can do this over here in this section before we get into rental properties and we can fund these with our S corp as we make more money. So when you're making the transition to an S corp, you're probably ready to start saving more. And that's when we open the door to what we call the solo 401k. The backdoor Roth the, the mega backdoor. This and that. And we teach this all day long. So what we're trying to do is build buckets, people, buckets of wealth here and buckets of wealth with rentals. Buckets of wealth with our business. We don't want to be one dimensional. A successful business owner and this is full circle to the title of today. Structure your overall business, your overall wealth. Don't just hyper focus on oh my gosh, I'm doing some upwork. I got an LLC and I got an LLC here and an S corp here. No, bring it all together for around 16, 1500 bucks, 1700 bucks. You can meet with an attorney at our office and build a trifecta and then adjust it every year as you grow. Very affordable. Don't get sucked into some Nevada Corp unlimited LLC BS for five or ten grand. For a couple thousand or less, you can meet with a real lawyer, get a real plan, review tax returns, set up a new entity. We got all sorts of packages now. You don't have to use us. But I'm trying to give you some perspective that it doesn't have to be expensive to get your crap together. All right, Matt, final comment before we do open questions.

Yeah. One other thing I was going to say as, as you're growing your business and you're thinking how to structure things. Remember, if you have a successful business and operations which we're all working towards, some of us already have it. Some of us may be getting started, some of us are just thinking about it maybe. But as we're building up income on on this left side of operations, we want to move that money over to the right side. And maybe it is buying more real estate. Maybe it is contributing into those retirement accounts where you don't pay taxes and you can now have tax free buckets of wealth growing. So we're building the assets over on the right and that is where we will use LLCs. You know we talked earlier, LLCs don't save taxes. Some people like, well, why use them? Because they protect assets. I got a rental property in an llc. A tenant slips and falls. They can't sue me. They have to sue the llc. They can't sue my other businesses. They can't get in my retirement accounts, my bank accounts, everything's protected. But if I own that property personally and tenant slips and falls, well, they can sue me. Everything I own is on the line there. So we like the LLC for asset protection. We also love it for partnerships and other things. So as you're thinking about how to structure, know what to use at the right time.

Yeah.

And going to be overwhelming.

Yeah.

And that's why Mark's saying get a plan and structure for yourself for the year. And that's what we're doing every day at kqs. Lawyers for clients.

And I'm saying this is not supposed to be an infomercial. We're going to answer your questions as fully as we can here. But I'm going to say stay off freaking legal, zoom or some setup site. If you don't know exactly what you need to do the first go around, get a professional helping you design it. If you don't want to use us, fine. But find someone that knows taxes and legal that's affordable, that can meet with you for at least an hour and not someone that is not licensed or credible. We help clients in all 50 states around the country and been doing so for 20 years. We're here for you if you need it. But be careful clicking online. We have full services that are to fix entities for clients. All right, let's take the whiteboard off. And James, we are ready to ask some questions. Answer questions. So, James, I can't see a thing. The screen's a little far away from me. So we're going to lean on you to.

We are actually having a few technical difficulties in here and it's not letting me scroll up and down on comments or even change a scene back to where Matt's next to you.

Okay.

So we can look on YouTube right now and give you some questions from YouTube. So if you wouldn't mind Giving us a second. All right, got you covered.

Okay. And what I want to throw out, too, is probably this partnership issue. I like that Matt just kind of threw that out there. Any of you that are partnering with someone, be. Be so careful. Matt and I, literally, before we started this podcast, had a phone call about a partnership issue with us. Not Matt and I, but someone that we might be working with. And we were like, are we exposed? Do we have anything in writing? What did we agree to? You have to be careful, people. You throw something in an email and say, hey, we're in business together and we're making money and we're doing this or we're doing that. You've got to evaluate, what is that structure going to look like? Typically, a partnership is going to be an LLC in each of the partners is going to have their own S Corp. So you have this. Can you go to the whiteboard at least before you ask your first question? We're ready for questions. I can't hear you.

Whiteboard is up.

Okay. And when you're ready to ask questions, please indicate. So in a partnership scenario, the LLC would be here. And this is where you have your terms. This is your agreement between you and your partner or partners.

It's called an operating agreement for an llc. Partnership agreement, when you got partners, operating agreement, same one and the same thing.

I'm ready when you guys are.

Okay. And then S Corps would be the individual partners, and then here would be those partners, and it flows down to their 1040. Now, I want to point this out just as an example in our law firm. So here's our law firm. It's an llc. Here's my S Corp, and then here's Matt's S Corp. And size matters. It really does in the legal structure.

Yeah, I don't know what you're overcompensating for there with that big S Corp,

but, you know, just is what it is. You know, just been blessed with the big S Corp. So grateful for that.

This is my joke, by the way, that Mark has stolen and used against me many times.

What? All right. Okay, let's. Can we go off? Can we go split screen? And first question. Go ahead.

Can't do split screen yet. I'm working on that. We got the spinning wheel of death here. Long story short. Go ahead. And with a question from Kanaka Maoli. I believe she's Hawaiian. Do you have clients that are realtors in Hawaii and run their income through in S Corp?

Yes, now we have clients. Everybody, this is important. We have realtors in all 50 states we've set up entities and I think close to 41 states now over the years. We can do it in all 50 if you come from some unique state we haven't touched our toes in yet. But I think we've almost done all 50 states over the years.

Yeah, we've done every state.

Have we done every state now?

Every state for sure. Yeah.

Okay. I didn't know if, you know, we

were so don't be modest.

We'll be modest. Okay. I'm trying to. I don't want to pick on a state of Columbia.

We've done entities in the District of Columbia. I'm like, who the heck wants an entity there?

But yeah, I think we did one Puerto Rico too. Now here's the thing though. Realtors, you can have an S corp in any state for federal purposes. This is so important because I know you over in Hawaii, you may like my broker won't pay my LLC or my broker won't pay my S corp. Or over in Nevada, the broker will only pay LLC is. Or over in West Virginia, the broker says you can't. You got to have a PC or what? People do not get hung up on your board of real estate or the division of real estate in your state. They have no concept of tax planning and they might have some arcane rule that's bullcrap about what entity you have to have. Here's the strategy. Do whatever the state wants. Give them a copy of your llc, give them a copy of your S corp, give them a copy of your PC, I don't care. Then we're going to turn around and for federal purposes we're going to make an S election and the state doesn't need to know about that. People, I've been doing this for 20 years. No problem. You go to your. Yeah, they don't care. Go to the feds and we're going to do an S election. It's a 2553. You can do it on an LLC, you can do it on a PC, you can do it on an INC, you can do it on an LP, you can do it on a PLLC, you can do it doesn't matter. We're going to do an S election. Then you file an S corp, save on self employment tax and file what makes sense for tax purposes. If your broker 1099 you personally, we push it into your S corp through what's called a nominee income strategy where you almost basically 1099 your S corp with the 1099 you received and the State does not care. Now, if your accountant over there in Hawaii or anywhere does not get this and they say what I just said. If they say what I just said was wrong, you got the wrong accountant. Go get a third opinion and I will put it in writing. What you can do, you can meet with any of our tax lawyers and they'll get you structured up properly. It makes me mad because I know Kehlani and I apologize. Not pronouncing your name.

Kanaka.

Kanaka. I can guarantee Kanaka is getting told one thing from the state and one thing from her accountant. She wants to save taxes and she's confused. Please hire our tax lawyers. We'll clean up the mess and use people that know what the hell they're doing. Pen drop.

For anyone that's a licensed person. Like Mark and I, as attorneys, we have professional corporations, PCs. Okay? And every state has a little different rule. Sometimes you gotta have your name in the name of the entity. Sometimes it can be a PLLC or a PC. Like California has, like, freaking medical corporations for doctors that are. There's all these things. But at the end of the day, if you're an operating person selling services, which most professionals are, you can be an S Corp. So for the tax planning, it's still the same. You just got to jump through the hoop in your state for what the requirement is. We figured it out in all the states with, you know, very different professions, our trains. We can help you work through that and get it set up right.

Okay. By the way, I want to give shout out to Elena. Thank you so much. She says she loves all my videos. Mark, she did not say I love all of Mark and Matt's videos. I just want to be clear on that, Elena. I appreciate. Will someone give her a book? Give her a book, Elena.

Apparently. Apparently they don't even show me in the videos. You know, I'm just here hanging out and we'll give.

Elena.

Oh, there's a technical difficulty. We can't show Matt on the screen.

That's right. Oh, the plan's working out. We have a technical difficulty. So. All right, what's the next question?

Next question is I was looking for Elena. My question. This is from Rose Colored Lifestyle.

Okay.

My question is how would you suggest structuring a book deal worth 500k plus as well as buying property for student housing as a side hustle?

Wow. And this is Living with Roses, or

that's Rose Colored Lifestyle.

Boy, how did I screw that one up? Rose Colored Lifestyle. Okay, let's go to the whiteboard can we go whiteboard?

Okay. I mean, this is the perfect trifecta.

Yeah, perfect trifecta. So people, I've written books, written three or four. We'll give some away today. Matt's written books. Book revenue is ordinary income. You may think it's royalties that's got some special tax benefit, but it does not because it's based on your labor and your services. So the IRS is going to say any revenue, profit earned from selling your book, whether it's in an advance or in royalties or recurring revenue down the road. I get checks from Amazon every month for selling my book on Amazon or Kindle or Audible. And so that's ordinary income. So in our trifecta we're going to put, we're going to create an S corp for Roses and S corp is going to have book revenue. And guess what? Once you write a book, you're going to get speaking gigs. So she's going to have speaking income and then she's like, oh, I'm going to sell some little bit of education. Education. So we're going to have one entity and all that ordinary income goes into it. That is the plan, people. I want you to have one S corp, not a bunch of LLC for all your different operations. And you may go, well, that's what my accountant or lawyer did. Or I just went on LegalZoom and set up four different LLCs. Call our office. We're going to actually save you money. We want to bring it all together now, Matt, then she said, I'm going to do student housing. Where do you go next?

We're going right side. So over the right side you need an llc. These are totally separate businesses. Now think of the student housing. What's the income you're getting there? Rental income. Well, rental income is already automatically exempt from self employment tax, so there's no reason to run it through an S corp in the first place. It's exempt from self employment tax on the rental income. It's exempt from self employment tax when I sell it and get a capital gain. So we're already in a tax favorable position there because we're out of self employment tax. The gain we get capital gain income. But also I want to separate this out for liability purposes. I want that LLC separate from any of my operational stuff over there. And maybe I say something crazy in the book or I, you know, maybe I defame someone in the book it's about some famous person, I don't know, you know, you get some lawsuit, whatever. I don't know what your Book is rose colored lifestyle. But, but this is where we. This is very classic, you know, and a lot of clients have a situation identical to this here. Real estate investment. Real estate on the right, operating business revenue on the left. It's just what kind. It's student housing. It's book revenue speaking. Love it.

And I throw this out. Just another little note for all of you. This topic of just buying rental properties and the strategies involved with that. Cost segregation, 1031s, opportunity zones, passive losses, real estate. Professional, active professional people. I teach full day classes. I've got sections in my book here on just this piece. If you think you're going to just learn this by osmosis, watching some videos and be an expert at it, you're not. And I'm sorry, get a professional to guide you through it. Number one, you. And if any of you want to go next level and you're like, I want to just know this, Mark. I have a certified tax advisor program. You can go to markjkohler.com and say, I want to be certified. I want to just be the best advisor to myself. Any of you enrolled agents out there, accountants, bookkeepers, financial advisors, lawyers, CPAs. And you're like, I need to go next level, Mark. Street smarts. Mat's freaking on the street knowledge on IRAs. No one's teaching that. And they're not. You can't get this@normal CE. So if you want to come on board@markjcolder.com and get certified, I do weekly trainings. I've got 12 modules, 75 videos, work white papers, a forum discussion board where we all collaborate. So if you want to go next level, we're here for you. Or hire one of our tax lawyers and say, I want to meet twice a year. Help me out, tell me why I should be doing this. So Roses, you want to be thinking I need a consult to structure this and then follow up once a year. All right, next question. We got.

Next question is from Willow Bath and Vanity. That's Willow Bath and Vanity.

Take me out, boy.

Yes, sir. Is it good to have two LLC and one LLC owned by other.

We're going to tell Willow Bath and Beyond that she's got or he's got to provide more information. I don't know what the LLCs are doing. I don't know what your business is. Give us more clarity on that. Next question.

Next question is if I. This is from Willow Bath and Vanity. Again, if I buy a warehouse, can I write it off?

Yes, Willow, These questions are so big. And so, general, I love you. I love you that you're watching this. But just the fact that you're asking that question and you might buy a warehouse, spend a few hundred bucks and hire a freaking expert to help you through it. I mean, you can just for a couple hours, one of my tax lawyers can rock your world. If we don't save you 10 times what you pay us, we failed. I had a phone call this morning from a client that was like, I might want a refund. I didn't get the best experience with this. I'm like, tell me about the experience. Did we? Da, da, da, da. We went through it. And he's like, oh, my gosh, no, I'm grateful. I'm happy. I didn't look at it that way. That makes sense. I get it, people. It's. Don't worry about what you're paying per hour. Worry about what am I saving, what am I getting? What is this, a wealth I'm building? So can you buy a warehouse? Yes. Can I buy a rental property? Yes. Can I buy a storage unit? Yes. Can I buy any rental property and take tax write offs, Depreciation, accelerated depreciation bonus depreciation? How do I write that off? Do I pay myself rent? Hell yeah. I teach full day classes on this. So, Willow, do not give up. Do not get frustrated with my drama. You just get involved and get a professional helping you. Because that question alone says to me, yeah, what are you doing? Let's get you some help. I mean, because that's a big deal.

Yeah. And the warehouse is the classic example. If you're buying a warehouse, you're presumably buying it for another a business of yours to stock inventory or to store things. So this is the perfect self rental thing of the warehouses. In the llc, this is the property, you know, it's paying. You know, you're paying rental income from your operating business that uses the warehouse, you know, so this is the classic trifecta example of where you would want to have the two entities, your operating business and your asset holding entity that are usually, you know, an S corp and AN LLC or two LLCs. But this is classic trifecta. Make sure you're splitting it up. But then when you get into the warehouse, there's all the real estate tax strategies on and what's your income? And are you trying to offset your ordinary income from the warehouse depreciation on the property? All those things. Lots of opportunity there.

Yeah. And Willow, we're listening carefully. It's just there's so every client's different. Every person is going to have different fact patterns. And we want to answer your questions as fully as we can. But this broadcast is not for one individual clients. We want to try to bring it around for everybody. And buying real estate and renting it to yourself is a great. This is how the rich get richer. This is how the rich get richer. So it's a great deal. Okay, next question.

Next question is from David Tiltz. Should a higher liability business home inspection. Sorry. Should a higher liability business home inspection, which has a greater risk of being sued, be grouped with a lesser liability company's in the same S Corp. Maybe.

Let's go. Whiteboard. Love it. Yeah. Okay.

There's a solution there.

Yeah, there's some solutions. I'm going to give one option here and then, Matt, you may have a separate take here. First of all, bless your heart, home inspection. You're carrying general liability and go deliver babies. Go set up entities. Go be a lawyer and accountant. The liability gets off the chart. And I'm not discrediting the fact you've got some exposure, but home inspection. I just talked to my home inspection client. Love, Jason. I can give him a shout out over in Idaho Falls. He's a great guy. He's doing 500 plus inspections a year. This guy's kicking butt. He's going to start with a standard S Corp. And the thing is, if you're doing inspections here, depending on what that other revenue is, remember, the S Corp is not going to own assets. There's no assets here. It's. It's a shell, it's a machine. You want to sue my S Corp, great. You can have my laptop. That's it. There's nothing in it. So do I want you to run your other revenue through it? Yeah. I mean, why not? If you're selling books, you're doing a speaking gig, you're doing this, you're doing rentals. Hell no. You know, gold, crypto stock. You're not going to put any of that over here. All the assets stay over here. So option one is, and I'm being a little dramatic, but don't go overboard, you can throw all this revenue into one entity for tax purposes and save yourself from heartache. Now, Matt, what would be next level? I'm sure that you're gonna go kind of option two.

Yeah. Next thing to think about is just do a single member LLC. Have that inspection entity be an LLC 100% owned by the S Corp. And so it can receive its own income. And if something happens on it, they have to sue that llc. They can't come down to the S corp, they can't come down to you. So on top of the S corp there, you're going to have an LLC that gets the inspection income. Now you don't have to do a separate tax return. You know, it's single member, so there's no tax under the irs. It's a separate entity cost and maybe a separate fee to the state every year to keep it active. But that income just dropping down to your S corp with your other regular income you have in the S corp, maybe you're a real estate agent or broker getting commissions there or property management or, I don't know, some other something else in the real estate or connected the inspections, that's lesser risk. And so you could do that. And that's actually an inexpensive setup that might cost you 1000 bucks, 1200 bucks to get the LLC going and get it done the right way, but not a lot of maintenance costs in the first year. What I would not do though is another S corporation. Do not do that. Just do this little subsidiary concept there to isolate that liability.

And I'm going to give a third strategy here. Let's not even worry about liability. What I see a lot of times is our brokers or our agents with their S corp and what is one of their number one side hustles? Property management. So they set up an LLC for property management. And it's not so much for liability, it's for exit. Because this property management business can be sold separately and they'll set up a property management company, get 100 units under contract, do a multiple forex on it and go out and sell that and then start over. And I have real realtors and brokers do that every three years. They're just. And so now why did we do that? It wasn't liability, it was exit strategy. Because I want to brand this, I want to market it, I want to build value here in this subsidiary and then exit it. That's a great idea.

I love it.

All right, next question.

All right, next question is from Facebook. Stefan Brechtel. If you hit the threshold, as you say, but you pay almost 4,000 to your accountant for running the S Corp, plus losing out on the 20% qualified business deduction for the reasonable salary portion plus other fees, and you lose out on future Social Security benefits. Which one ever mentions, is that still worth it?

Oh, I love this question because I freaking throw down in writing on every one of your points and you're gonna love it. What's his first name.

That's Stefan.

Stefan.

It's Steven or Stefan.

Steven or Stefan. Okay everybody, let me rephrase this. Steven says essentially what he's saying is the S Corp costs me in maintenance fees. I'm going to lose Social Security. And the 179. Not the 179, sorry, the 199. A QBI. So he's like S Corp. Doesn't make sense. Oh, I've thrown this down in spreadsheets over and over and over again. So let's do a good example here. So let's say Stephen has an llc.

Stefan.

Stefan. Stefan has an llc. And he's netting. Now that's, he's netting everybody I want to throw down. He's netting 40 grand. Okay. And so that means he's probably bringing in 60 grand. Let's just say hypothetically don't know what his business is. And that's 20 grand in expenses. And we're going to assume he's already writing off cell phone, dining, home, office computers, laptops, travel, auto. I mean he's writing off everything under the. And he's still netting 40 grand. Okay, his self employment tax is going to be 15.3% and that's going to be six grand. Now his QBI deduction. Now everybody, let's just go QBI first. Under an LLC he gets a 20% deduction, not a tax credit. So that means you take 20% of $40,000, which would be $8,000 as a deduction. Okay, cool. What does that save me in taxes? Well, if I'm in a tax bracket of let's say just 25% Fed and state combined, he could be in a high state tax. State, whatever. I'll just go 25%. What did I just quote unquote save in taxes? Two grand. That's maybe what I would have said in income tax. Not self employment, but income tax. Okay, so because 199A comes after self employment tax, so I'm still going to pay the six, but I just saved two. All right, so you're still out four grand. All right, okay, fair enough. The qbi. Now this, this ad starts to get better and better as you start saving more and more self employment tax, but just at 40 grand, this is a good one. So we're going to do a salary split. Now sometimes in this equation, depending on the type of business, a safe harbor in this level we'd go around 50%. So I'm going to do a salary of 20 and I'm going to do a net of 20. So what we just did is we cut the self employment tax in half. So now I save three grand. Okay, guess what? You still get the QBI. An S corp gets a QBI on the 20 grand. Okay, so now your QBI is cut in half. So you're only going to save one grand on the qbi. So your overall tax here would have been three. Now here I'm. You may say, well, you lost the two. No, I saved. I still get a QBI deduction of 1000. So I'm back up to 4. So I'm doing okay. I didn't lose the QBI. I just cut my self employment tax and I cut my QBI in half. So I'm still ahead of the curve and I'm still saving four grand. I got my QBI of a thousand and I've got my self employment tax of 3. All right. Okay, now how much does it cost? He says it's four grand. Okay, guess what? I charge. And most accounts are going to charge for this schedule C, they're going to charge for this LLC tax return at least $500. Probably 750. They could be charging 1,000. So they're going to be. Let's just go in the middle. You're going to spend $750 doing the tax return for your business. Now bookkeeping you're going to have to do anyway. That's a wash. Okay, so you convert to an S Corp, we charge 200 bucks first year, that's it. So you switch to an S corp. Let's talk tax return. You're still going to spend to do a tax return. Now most S corp tax returns, you're going to be at 1250. So let's say you're at 1250 to do an S corp tax return. Oh, but guess what? This goes away. So your net increase in tax Prep is only $500. So the S Corp is going to cost you $500 more in tax prep. Okay, that's number one. So 500. I was on the whiteboard the whole time, right? Okay. There was a little issue there. So if you see here, people, okay, we got $500 in saving and more cost to do a tax return. Stefan said it's going to cost me four grand. Okay, tax preps, 500. Okay, we're going to, we're going to ignore that. So then I'm not ignoring. We want to address that. So $500 more to do tax prep. But he's like, well Mark, you got to do payroll. Okay? Our Payroll service is $150 per quarter because you're going to do after the fact, payroll, ADP, 30 to 40 bucks a month, whatever. You're going to be out about 120 to 150 a quarter and a W2. So what I would say that's around $800 in payroll services for the year. So we're going to take that 200 times four will round up. It's going to cost you 800 in payroll. So if I can I get back to the whiteboard by any chance. Okay, so how do I get rid of this? I don't do screen mirroring. Okay, let's pull that whiteboard off. Let's go back up here. All right, so I'm going to have plus payroll services of, let's say $800. So my S corp is going to cost me $1300 more and I'm going to save three to four grand. Okay, now Stefan, I'm going to save four, spend 13. And you're going, well, the S Corp takes more bookkeeping. No, it doesn't. We're going to do the same bookkeeping for an S Corp or an llc. You're going to still do a tax return, but I'll give you $500 more. It's going to cost to do an S Corp return and you're going to have to do payroll. You're out 1300. Well, in the state of California, it's more. No, it's not. You're going to still have $800 to set it up. You're going to have the same franchise tax fees at the end of the day. And now third argument. Okay. He says, well, it's going to cost me in Social Security, Stefan. And everybody out there, I have a chapter on this point. Your Social Security benefit is so is based on your lifetime earnings paid in. First of all, you can go to SSA.gov and do a expected rate, you know, projection of what your Social Security benefits are going to be. Let me get this straight. You're going to pay four grand more a year or more in Social Security to get maybe $200 more in benefit at the end of the day because you've got lifetime earnings numbers. Warren Buffett and I are going to get the same in Social Security. There's a law of diminish returns. With Social Security, the max you might get or, you know, this level point is maybe 2500 to three grand if you're lucky. And we can run models and the longer you wait, the better it gets. But it's Based on lifetime earnings. So I have. We've done model after model after model that you paying double in payroll taxes is not going to give you double in Social Security. It's not. You're better off to take your money, your savings and go invest it. Stefan, we've done the numbers over and over again and the more you make, the more you save. So I'm going to summarize. Everybody can I go off whiteboard number And I love Stefan's argument. He's like an S corp. Costs more to do. Yes, but not four grand. And we're a legit law firm. We've been doing tax returns for years. I trained certified tax advisors around the country. I know they admit that you might be out 1200-1500 more a year, but not four grand. I don't know who your accountant is. Get a second or third opinion. Number two, the QBI deduction is still available for the S Corp, just not as much. But the self employment tax savings is always greater. And then number three, paying more into Social Security doesn't mean you're going to get the same ratio of more Social Security. It's a farce. I'm going to take whatever I can get from Social Security and I'm going to build my own freaking retirement saving FICA all the way along the rest of my fricking life. So Stefan, I love your comment. I may seem a little dramatic or attacky. I'm not. I'm just gonna. I'm not gonna sidestep a question like that because I know the frickin answer and we've done it over and over and over again. And if some accountant's telling you otherwise, get a third opinion. I'll compare spreadsheets with you. Our tax lawyers will do it all day long. Matt, I'm sorry. Thank you for letting me throw down.

I love that. I was just. I mean I was just taking notes there. That was great. Let me give you one other reason, Stefan. And I'm not like, you know, slight like tag team, you know, wwf. I'm coming in the ring now. You know, throw down.

But Macho Libre maybe.

Maybe, Yeah. A little Nacho Libre or you know, Hulk Hogan, whatever it may be. But you want to know what other perk there is at the S Corp? Your audit risk goes down by like 10x. You are 10 times more likely to be audited as a sole proprietor of on schedule C than you are with an S corporation.

Yes.

We don't know why it is, but it's in the numbers. The IRS reports this every year. S Corps are audited at a factor of over 10.

Over 10 times. Yep.

Then.

Then. Sole proprietorships. Which is what you're doing with a single member llc.

Yeah. And so what is that worth?

I mean, that's. That's pretty valuable.

It does. And the 170, the 199. QBI phases out the more money you make. Sometimes you don't Even get the 199 based on your income level of its personal service. And we just run the numbers and numbers again. Stefan. Thank you, by the way. I want to send Stefan a book, get his contact info. I want him to get the tax and legal playbook. And I want you to know this is legit and I stand behind what I say. And dude, whoever's telling you an s Corp costs $4,000 more. I have never seen that ever, in 20 years. 4,000 more because your bookkeeping is going to be the same. And all you're doing and you're getting rid of a return and adding a return.

That's it.

Payroll. Boom, Done. Okay.

We're secretly gonna give him a book. Thanks for clarifying that. Okay, so we got time for maybe one or two more questions. Does Florida require. I'm sorry, this is Emil Sierra. Emil Sierra. Does Florida require filing of charging. Transferring of LLC owner with state?

I want.

I want to transfer to LLC ownership to my Wyoming S corp need. Put all money in S corp. Oh,

James, bless your heart. If the question doesn't make sense to you. It's not going to make sense to me, but I. Matt, you want to

fill in the blanks?

Do you want to guess what they might be asking a little bit, Matt. I mean, and that's not to be offensive people.

Yeah, I don't know. I. I don't know what the heck you're doing generally. An S corp in Wyoming, we don't love that. Maybe you got an online business or something.

If you're not doing business in Wyoming, you don't need an S corp in Wyoming, period.

Yeah, we. We use LLCs in Wyoming sometimes for like a holding company strategy for asset protection purposes. But an S corp in Wyoming seems really odd, like. Like someone took a strategy and used it in the wrong way. So LLC is for asset protection in Wyoming? Sometimes. But I would just say, can that give some advice from someone that knows what the heck they're doing? S corp in Wyoming for someone in Florida makes zero sense.

Yeah. Number two, Ellis, Florida. This is maybe something you're alluding to, Emil. Florida has what's called a stamp tax. And when you own a rental property personally in Florida and you want to transfer it to an LLC because you didn't close in the name of the llc, there's a stamp tax. Now for asset protection purposes. It's a rip the band aid off issue. Be done with it. Once get it in the llc, you're protected for the rest of the life of the ownership of that rental property. It sucks. But guess what? There's no state tax in Florida. That's why they have a stamp tax. So there is a cost to living in Florida. You just have to know where it's coming from. So when you have rentals in Florida and you transfer it to an llc, you may face the stamp tax.

Yeah, but there are exemptions to that in Florida, by the way, if the same owner of the property owns the llc, that exemption doesn't apply if there's a mortgage on the property. So there's some nuance to that. Again, talk to somebody who knows what the heck they're talking about in that area.

Yeah. Okay, next question, guys.

All right, next question. This is directed towards Matt. Can you cons. This is from Stephanie Akada McCabe. Can you consolidate 401ks or combined with a spouse percentage wise in self directed or real estate purchase?

Okay.

I think what she's saying is can you put two two four one Ks and one llc I think is what they're asking.

Yes, absolutely.

So whiteboard.

So let me give a little context here. IRAs and 401ks can buy real estate, can invest in small businesses. Okay. If you didn't know that, let me just say that out the gate here. I think Steph, who's asking the question knows this, but just get very up to speed.

Now.

What about can I partner my retirement account with a spouse's retirement account which is an IRA or a solo 401k. I'm self directing this stuff. I'm at a custodian lets me do it like our company directed ira. We have a billion in assets invested in alternative assets like this. Yes. You can use your account and your spouse's account to invest in the same asset. We do what's called a multi member IRA llc. Which Mark, as you know, you know your, your little diagram is getting pretty fancy. I like the little wavy lines in there too. Real nice touch there.

Thank you. But it also keeps your food cold, so.

Also keeps your food cold. So. And that's a real nice feature.

Nice feature.

So yeah. So you, you can have your 401K. Let's say, and let's say it's spouse's 401K or IRA. And let's say yours puts in 60 grand, spouses puts in 40 grand. Well, we're going to break up the ownership of the LLC 60% to your account. 40% your account. We're always going to break up the ownership of the LLC when we're using retirement accounts here, strictly based on dollars invested. Then it goes in the llc. LLC can go out and buy the property or do the real estate deal, whatever the case may be. So that's called the multi member IRA LLC, but it could be 401ks HSAs, your 401k kids, Roth IRA, your Roth IRA, your traditional IRA. We can partner all those accounts into One LLC, forming it and putting all the money at the same time and breaking up the ownership based on dollars invested. Now we have other podcasts and stuff where we get into this. The directed IRA podcast has an episode on partnering and the multi member IRA llc. Lots of content on that. Mark's writing down some of the URLs there for to get a little deeper dive. But yes, Steph, possible.

Yeah, great question, Steph.

And I want to know what I want to. Hope you appreciated my architect joke too, Steph. I just want to know.

Yeah, that was a good. We're dripping with all sorts of goodies. We got Brian Regan in here, Seinfeld, we need to get arrested development in here with Bob Wawawa or what's the attorney Bob?

Boblaw Bob, blah blah, blah, blah, blah. Or Cherith. Cute story.

Yeah, yeah, good stuff, good stuff. Okay, next question.

Barry Zuckerkorn. Barry Zuckerkorn.

Okay, here's a simple question from Merrill Tirado. Do you have Your list of CPAs now in Arizona?

Close. So what Meryl is asking everybody is we started our Certified tax advisor network January 1st. We've got over 100 advisors around the country, well, I should say accountants, enrolled agents, CPAs that are becoming certified in all the strategies Matt and I teach. And they're bringing their own strategies to the table, too. They're great, but we're all getting on the same page. Those certified advisors should be coming off the assembly line, if you will, by middle of February. So we're just about four weeks away from having the first round of our certified advisors available. We don't make any money off that, off them getting clients. You can interview them. You can find one across the country down the street. Maybe you're going to be able to search from geography, search experience Search male or female, size of firm, everything. So you, you can find a certified advisor that speaks our language and works with the law firm and directed Ira to bring your whole structure together. So they will be on my website, markjkohler.com go to the network. You can put in your information right now. Merrill on markjkohler.com, go to the network and say I want to know. And be alerted as soon as there's advisors available. They may be in Arizona, they could be in New Jersey, they could be in Hawaii. They're gonna be around the country. And we are so excited about this year helping Advis get situated all over the country and help you. It's going to be great. Next question.

We got time for one more question. So from Runzel, D for Real Estate Partnership llc. What if we are not able to elect S Corp, don't currently have. Don't currently have a business and will not be at 40k. How should we structure the partnership for three individuals?

Okay. What I think they're asking is we're going to assume this is an operation

and they're not able to elect S

Corp. Well, I don't know why anybody's not able to elect S Corp. I think what she's saying is she doesn't have enough money to claim S Corp. I. Okay, I'm going to assume. What's her first name?

Runzel.

Okay, let's go to the whiteboard. I think this is what Runzel is saying. They're not. They didn't say rental, they didn't say property, they didn't say investment. So I'm not going to assume it has anything to do with rentals. They alluded to S Corp. So that means they're doing some sort of short term real estate, which means they're doing rehabs, they're doing wholesaling, they're doing fix and flips. Matt, would that. That's kind of the assumption I would guess, right? Yeah.

I don't know. Or some business partnership.

Who knows? Yeah. So yeah, if you're creating ordinary income with three partners, you can elect S Corp. The question is, should you? So I don't know about saying I can't. I wouldn't use that word. The question is, when should I elect S Corp? Or how do I do it? But what you would do is form an LLC with your three partners. That's option one. Go out and make some money. Damn it. See how it goes. See how 2023 goes. Great. The problem is if you do start making money and you need an S corp. You can't do it because a person can't elect S corp status. So this is option one. Option two would be, let's set up an LLC for our three partners and let each partner have their own llc. And maybe one of them is already an S corp. You're like, hey, Tom, you need an llc. I already got an S corp. Oh, okay. No one should own it individually. So set up the LLC in the state where you're doing business and our team can help you get that set up and then have each partner set up their own entity. And this is so powerful. This is a chapter on partnerships in my book is I want people to take tax write offs at the individual level. And then when the time's right, you do elect s election. When the time's right. I don't know, Matt, anything you'd add to that?

Yeah, the only other thing I could think of, and I've had this come up, is let's say one of the partners of the three is not a US citizen. And so they can't elect an S corp or they don't have a certain status because there are a few limitations on S corporations for that. So. But you could still do option two there, where those that can be an S corporation have the option to do an S corp. Maybe they have one already for their 1/3 ownership. And the other person in the business that can't do an S corp for whatever reason just stays in llc. There's no restrictions on, you know, any foreign person could own an llc really. Unless you're like on the terrorist watch lists and such. So no one listening here, I hope. But if so, I didn't mean to offend you, so.

Oh my gosh.

Anyways, Anyway, so. But I like this too. Just to think about this for just anybody doing a partnership is some of you, like Mark said, might already have an S corp. We'll plug that in for your one third of this operating business. One of the partners might not have one or need one. They might have other stuff and there might not be enough income from this yet to justify it on its own. And so. But you can grow into it. You can by having your own llc. You can elect an S corp at the point it makes sense for your business based on what income's coming down from this or whatever separate income you're having directly go into your entity.

And this is why you want a lawyer that does this every day. And we charge maybe 1000 bucks, 1200 bucks for this. Yeah, it's $1200 for this LLC? Yeah. In any state. And all of you partners can get on the phone call and a zoom with the attorney. And here's some other issues. Maybe this partner is just a money partner. They're passive. This partner is an exec level. They're managing, they're running help run the show. This partner's exec and this person is maybe in for credit. They're helping sign on short term hard money loans or whatever if you're up here doing flips. So they're not going to need an S Corp. They're not going to need an S Corp. This one is and this one is plus. And so you get that going. You got. Because you can have different ownership structures based on the type of partner. Then this partner says, ooh, I want a solo 401k. Okay, go set one up. They can do that isolated to their S corp. And then this partner goes, ooh, I've got teenagers. I want to put my kids on payroll and write off home, office, and a conference in Miami. Great, go do it. And they can do that isolated to their structure. And see, some of you are like, I didn't even know that. See, these are the questions. Don't be offended. You don't know to ask. When you go out on LegalZoom and just start clicking buttons so it pays off so big to just get it done. Right. Right out of the gate. All right, off to the whiteboard.

Want to give away some books real quick?

Yeah, tell me some names. Let's give away. Let's give away a bunch of Matt's books for free.

Awesome.

Let's do that. Yeah. All right, so we've got.

Those are the real winners today.

Elena was one of our winners. Okay, Elena, let's go ahead and give Willow Bath and Vanity a book. Let's do Jericho.

Okay.

And Stefan already got one, so that's total of four.

How many you want to give away? Let's give one more book.

Okay, let's do Manette Mark.

Okay, Manette Mark. Now we're going to give away a copy of my tax and legal playbook. A copy of my what your CPA isn't telling you copy of Financial Freedom. And then that next book is going to be Matt Sorensen's directed IRA handbook. So we'll get those out to everybody.

And I'm gonna do Diane's.

Can you go whiteboard. So if anybody want a book put in the subject line, one book. We're gonna verify that. We've got a list here. The names we chose. Don't try to impersonate someone and just email dianearkjkohler.com and we'll get those books out to you. Okay, off the whiteboard, everybody. Do not give up on your American dream. I know I got a little angsty today. I don't know what. I dropped my rock star. I haven't had lunch. It's ugly over here, but I'm throwing crap around. It's not pretty, but we're here to help you build your dream and get good answers.