LLC vs S-Corp - Did You Choose Correctly? LIVE Q&A With Mark Kohler and Mat Sorensen

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Okay. Welcome, everybody. Well, this is our weekly show where I got a special guest today, the one and only Mr. Matt Sorensen. Yeah. Excited to be here with you. We are live on YouTube and Facebook talking about. Oh, LLC versus S Corp. LLC versus S Corp. Are we gonna put on boxing gloves and just duke it out? Who's escort and his llc?

Yeah.

All right.

I don't know which one I want to be. I think I want to be llc.

Okay.

You know, and my theme song as I'm walking into the ring is going to be Nicki Minaj.

Okay.

Llc.

Oh, yeah, that could work.

For those of you Nicki Minaj fans out there, it's a great song. Yeah.

If you ain't no one tell you got an llc?

No. All right.

Okay. Well, we're hoping to be able to see your questions here live on YouTube, which I am not able to yet, so we can see how this goes. Let's do some general introduction on these topics. There's a lot of crap out there, people. And so we're going to break this down and answer your questions. The difference between an LLC versus an S Corp. When do you need one versus the other? And guess what, $150 on some website to get your entity done. Or I'm going to go to the state and do it myself for 50 bucks. That's about 10% of an LLC or an S Corp, so be careful. You need all the pieces and pieces. You got to have the bylaws, the minutes, the operating agreement, the court book, all of that crap. Or when you get audited by the irs, bend over. And if you get sued, good luck in court. So was that direct enough? Bend over. Yeah. Okay. All right. Okay.

All right. Now, I can see the questions here on the live. Let me say one thing we'll talk about here. Many of you are familiar with the trifecta which separates out your business and tax planning, your estate planning. And we talk about left side and right side and when to use an S Corp and when to use an llc. But one of the things I want to just say at the beginning is S Corp versus llc. You might be doing both, depending on what's going on in your business life. You might have an S Corp, and you might have an LLC or multiple LLCs. And so it's not necessarily one or the other. For some of us, we gotta choose which entity to use in certain situations, but a lot of times it might be dewolf.

Okay, all right, well, let's set some of these basic rules. Let's do the easy ones first. If you're gonna own a rental property, an LLC is the way to go. You would never, ever, ever put rental property in an S corp. If you're screwed and you've got rental property in an S corp, you, it's stuck there until you sell it. You can't move it out without paying tax. Doesn't work like an llc. So your LLC is great for a rental property. An LLC could be great for holding assets you're trying to protect or hide. Maybe some, a cabin, a ranch, raw land, crypto. So that, that's kind of that, you know, right side thing. We want to have that LLC over on the side to just kind of protect an asset. Would that be number one simplest entity, period? Yeah.

And right side meaning passive income typically or investment income type activities. Llc also awesome for partnerships. So that's an entity that might have S corps owning it. See, sometimes you may use an LLC structure, but you don't own it. Your S corporation does. Like Mark and I both have an S corporation and that S corporation effectively owns an LLC. But then we also have LLCs that we own directly that own rental property. So a lot of times these entities are going to get mixed up between the two. Now an S corp, on the other hand, let's just throw this out here. S corp, on the other hand, is typically for operational income small businesses. We, we don't love to partner in S Corps. Okay, we'll come back to that point here. But S corporations are great for operational businesses because S Corps can save taxes in operational businesses selling goods or services. That's what I mean by operational.

Now you can have an LLC that's taxed as an S corp, then just say you've got a freaking S corp. You can't say, oh, I've got an llc and then tell us five minutes later or five hours later or sometimes five months later. Oh, I made an S election. Well, that. Oh my hell. So we could give you some wrong advice, some wrong direction and waste a lot of time thinking you just have an llc. Once you make an S election, you have an S corp. Now I've got some paper on the way so that we can write on the board here and really make sense of this. We've got to make sure that's available. So, so I think we're going to field a few questions and see if we can try to come back to the whiteboard. Now we're getting some comments here that the microphone speaker is kind of crappy. Give me some Feedback here. We're back. Efron. Are we doing all right, Jay? How are we feeling now? Maybe if I just kind of kiss and hug the microphone.

By the way, I just saw the text pop up here. This is behind us on the live, talking about S Corp. And it said, s Cort. This is S Corporation. All right. The Captain Auto text there. S Corporation.

All right. Okay. So here we go. So let's hit a few questions. This is dad and Ellie Gameplay. I have an llc. My wife has a dba. Is there a way to merge the two, or is that not recommended? I would love to see see those merged in a creative way. And so here's the thing. Dad and Ellie, if you have an LLC and my wife has a dba, is there a way to merge it? Well, if your LLC owns a rental property, hell no. I don't want her DBA being a part of your LLC that owns rentals. Now, if you have an LLC that owns a restaurant or an LLC that does consulting or an LLC that does some landscaping in your operations, and your wife's LLC is going to. DBA is going to be a little piece of that, and we're going to merge it into one entity. Okay, I'm liking that, because now you're combining operational businesses into one. So we would want more information, and that's why a consultation can help, so we can really design the two.

Yeah, What I would just do is if you already have an existing dba, just have the change the ownership of the DBA to the LLC and start running that income through the llc. Now, the question is going to be for, like, schedule C. Where are you running your income for the dba? Is it going on schedule C? Where are you running the income for the LLC? Is it on the same Schedule C of your 1040? Is that LLC taxed as an S corp like we talked about? Either. But I would obviously combine the two into one. LLCs can own DBAs, right?

Yeah.

And just combine the two into one.

Okay, now let's keep rolling here with some of your questions, and we're gonna kind of get close and intimate here around the microphone so you Everybody can hear us. Well, it's a little awkward. I mean, yeah, whatever.

I want to snuggle.

Yeah, we're gonna snuggle. Okay. JC says, what's the minimum income to be an S corp typically? Now, I'm going to restate JC's question. What net income level would make. Make an LLC have practical purpose? Like, why would I want to have an S corp at which level of net income? So going to say about 30 to 40 grand net. So if you're bringing home around 3,000amonth after expenses, the S corp is going to be a great fit. Now that's why we say to our clients, start out as an llc, start making money, see how it goes. The minute you hit that number, we backdate the LLC to an S corp. Because if you call us up and go I just made it, I'm making three grand a month now, I'll say what the hell, what about the last five, six months or whatever? Oh, I was just waiting to get that income. Then I'd set up an S corp. Well, now we're screwed. I can't do anything with those prior months. So we want to start as an llc, operate and then once I hit that income level, I can back date. Okay, Matt.

All right. Yeah. This on a related way. Another way is ask this what is good for independent consulting business that produces 100k? Expenses are not more than 10 grand. So you've got a net of 90,000 there. We're gonna do an S corporation immediately. Yeah, just oh my gosh, if you know you're making 100 grand, you're making enough. You're gonna save money on self employment tax. That's the S corp strategy here. So we want to make sure you're running out through an S corp on that income level. You're gonna save 10,000 bucks a year easily in self employment taxes every year. So don't stick scan schedule C, don't do an LLC as a sole proprietorship. Just go S Corp. Yeah.

And Sebastian, if you're already an LLC now we're talking about doing an S election charge like 150, 200 bucks. Super cheap, very affordable. Get with one of our attorneys and let's look at how much money you've made this year in 2022 if you're an LLC. Now, if you're nothing right now, you have got to call right away. And we'll make sure down in the chat here. Maybe Jack back in the, in the home office. If you could put the phone number to the law firm folks, call, get an appointment with an attorney. We charge around 800 bucks for a consult with an attorney to get an entity done in any state, there will be a filing fee in that state. Maybe you're going to use our mail forwarding or registered agent service. But for 800 bucks, that's our. You're just out of the gate doing it now. We have additional plans that might, you might want to trifecta some planning, look at your tax return, but at least you get it done right. And you're like, well, I can do over $400 online. Okay, knock yourself out. And then tomorrow you're going to have a bunch of questions, what are you going to do? So get it done right, get all your questions answered and get it designed to you. Okay? Now, Jay, should I buy my first home under an LLC or my personal name? I think he's talking rental home. What would you say?

I thought he was asking about gnomes. I was like, who would buy a gnome? Oh, a home.

There you go.

Well, generally your personal home, we're going to have in your trust. Now, you might buy it in your personal name, but we want to have your trust for estate planning purposes. And your trust, this is just a revocable living trust, is going to own your personal residence. You get the sale of home exemption when you sell it. If you pass away, it doesn't have to go to probate. It's all cord in your trust in your estate plan. So use the trust. Some people may use an LLC for privacy purposes on their home where their trust owns the llc. So that's coordinate with your estate plan. And you can still get the sale of home exemption on that, by the way, if it's single member disregarded entity. But for most people, even myself, trust is going to own the home.

Which leads. Yeah, which leads us to the next question. This is from Alex Sprinkles. He says, I know this is not a trust video, but. And we love any question here. We can talk about the NFL this coming fall season lineup here, but our

thoughts on that are awful. According to our sports betting.

Sports betting history. Yeah, yeah, we're in the hole. Okay. But he says my CPA recommended against setting up a trust due to when kids go to sell items, property, home, whatever, for profit after death, they would have to pay capital gains. And the thoughts, bull crap. Your CPA is wrong. That is terrible advice. Now, I will throw your CPA a bone here. Maybe they were thinking irrevocable trust. And it's true. You don't get a stepped up basis on your assets with an irrevocable trust. But we rarely. Rarely. I mean, for every 1,000 trusts we set up, one might be an irrevocable trust we just don't believe in. That is a real cold, hard, perfect strategy for the mainstream America. So you're going to, Alex, tell your CPA to stick it in their ear. You're doing a revocable living Trust, they get. You get complete stepped up basis on all your damn assets in a revocable living trust. I will sign a piece of paper and stand behind that all day long with my malpractice insurance. You're fine. And you're going to do a revocable living trust. And no one's going to pay tax. Capital gains tax, you're gonna have stepped up basis. Now, I'm assuming you're not worth $20 million, or we might have a state tax, but that's a different topic. You said capital gains, so. Alex, you're fine. Your CPA is wrong. Okay.

I just want to make sure. You just put. You said you're gonna put warranty on the box.

I mean on the box. On the box you can sleep, you can pet down if some burglar comes into your daughter's bedroom at night, you know, I can't help that, you know, But I will put a warranty on the box.

That's on the box. That's what we do on the box.

Yeah, we do that at Tom Callahan Motorsports Motor parts here at Callahan Auto. Callahan Auto. Okay.

All right. Well, I loved.

Oh, boy. We jumped ahead. Lots of questions here. Okay.

We gotta move a lot. Okay.

Okay. Lawrence Shelton, go ahead.

All right. It has an S Corp with a solo 401k. Love that combo.

Of course.

Course. How do I get the most in a Roth? 25% of W2 doesn't allow me the max.

Oh, you're gonna love this answer, Lawrence.

Some great response to this, Lawrence. Okay, first, you're gonna be able to put 20 grand, 20,500 in as Roth. If you make 20,500, that's for 20, 22. That's sweet. Now, the next thing you get to do is 25% of what your W2 is. And I just want to follow through your question here. I'm going to get to the loophole, so to speak. Let's say your W2 was 50 grand. You put 25% of that in, which is 12,500. You've already got 20,500. You put right in as an employee contribution, which can go Roth right out of the gate. The other 12,500 is an employer contribution that you're going to convert to Roth. Now you're at. What are we at? 30,32,500. But you get up to like 60 grand a year in Tour Roth, so you've got 30,000 left. Well, you can do an after tax employee contribution that can go into the solo 401k and you are going to convert that to Roth. So it's a. It's kind of like the backdoor Roth IRAs in some ways for solo 401ks, but it allows you to throw way more in on less salary. Now, you're gonna at least need to make 60 grand, though. So when I said 50 earlier, that was what your W2 was. You have to at least have the wages to justify that. So if I'm gonna put in 60k in Roth dollars, I'm gonna need to have over 60k in salary to be able to throw an employee contribution and after tax.

All right. Hey, Hennessy, I'm gonna have to ask you. It appears Jack is not getting these messages. We need the phone number for the law firm in the chat. I cannot do any chatting here. Next, the video that you need to watch, Lawrence and all of you that want to do what's called the mega backdoor Roth 401k, just YouTube Kohler Megabackdoor and you'll see the video. I would love it. Hannah, see if you could put that link to that video in the chat as well. Okay, Dave, table talks. For S Corp with one employee is a good practice to wait until the end of the year to take draws from the S Corp after all expenses and wages paid. Well, Dave, bless your heart when you say with one employee. Are you the one employee? Is that what you're saying? And you're going to wait to take draws from the S Corp after all expenses and wages paid? So let me get this right, Dave. You're going to work all year long in your S Corp, and then at the end of the year, take a draw? What, are you crazy? I take draws every other day. Take your draws all damn year. Now, I have a sneaky suspicion you're talking about yourself as the one employee. Now, you're gonna do quarterly payroll on paper. You're not gonna actually take a paycheck if your CPA is making you take a paycheck? That's ridiculous. Sorry, I'm just feisty today. I'm not in it. I'm just going hard. Going hard. I pissed. Okay, so, Dave, take draws all day long every week, and then do a payroll report quarterly.

Yeah, let me hit. I think a misconception some people have. Draws have nothing to do with what your net profit is at the end of the day. Some people think, well, I just leave the money in the bank account. It's not taxable, so I'll just wait till the end of the year and figure out how much was expenses and income. And I'll just take that income. That's not how it works. You take whatever money you want when you need it and want to take it. Figure out how to allocate how much to salary. The rest is going to be net income. But if you have losses or profit, I mean, that doesn't matter whether you left the money in the business bank account or you took it out, you're taxed on it the same.

Okay, one casual says, what are the tax benefits of having an LLC for a rental? Solo 401k is not an option. Now, I don't know. I don't know if I understand that question. Because a Solo 401K has nothing to do with an LLC for a rental. That would be for an operational business. And maybe you're talking about having your solo 401k own a rental. But if your solo 401k is going to own a rental, it's going to want an LLC as well. But here's the concern. One casual one says, but my LLC costs $800 a year to have, which means one casual one lives in California and they don't want to pay $800 a year for an LLC. So one casual one is hoping there's a tax benefit to an LLC for a rental. There isn't one. Why in the hell are we setting up an LLC for a rental? If so, when you get sued, you don't lose the equity in your rental. Well, I don't want to pay $800 a year. Throw caution in the wind. Oh, Mark. But I'm going to get umbrella insurance. You know why umbrella insurance is so damn cheap? Because it's never freaking pays. So sign me up. You know, I. I want to sell umbrella insurance because I never have to pay it. It only pays after your regular insurance taps out. And that's even if it doesn't or doesn't get the damn llc. If you're going to own a rental property in California, you're building equity, it's going to cost $800 a year for good asset protection. I'm sorry. Now put two or three rentals in it. I'm not saying set up an LLC for every rental, but one capital one, just deal with it.

And the LLC is protecting all your other assets. You've got a tenant on there. It's protecting everything else you have too. It's protecting your home, your paycheck, your small business, all these other things. It's keeping those assets and liabilities separate. If you think of 800 bucks a year? What is that, a month?

80 bucks? 70 bucks a month?

70. How much is umbrella insurance a month? LLC is unlimited protection. You have a 10 million dollar lawsuit. How much coverage do you have on your umbrella insurance? You've read the coverage on it, by the way. Right? Because it's no more insurance. Umbrella insurance doesn't give you any more coverage. It just adds more coverage on coverage you already have, which is a misconception about umbrella insurance.

Yeah.

Now can we get Marc a rock star, by the way?

Is that what. No, no, no. I don't need a rock star. I'm one rock star a day. Okay, now, Matt, you look at Lawrence's question because you're going to love it. But I'm going to hit Nelson. Nelson says, when should Form 2553 be filed after forming an LLC to be taxed as an S Corp? Well, Nelson, it's a trick question because your 2553 should be filed when you want the S Corp election effective. Okay? So I just said, okay, let me give a good example. Now, my daughter, she's a realtor. She's just getting started. Sydney's doing very, very well. Did I make her an S corp? Nope. We formed her an llc. When she starts making the amount of money that she needs to to be an S corp, I'm going to file the 2553 and backdate it to January 1st of the year that she wants to be an S Corp. So it's not when should the form be filed after forming an LLC? The question is, should, when should I file a 2553 for my LLC? Well, it's when you need it. I don't know, Nelson. You may not need it. And if you say, well, I need an S corp right away, then just freaking form an S corp. Why form an LLC and then elect it to be an S corp? We charge extra for that. Just come out of the gate and be a freaking S corp. Now if you're like, well, I already did the llc, and if you say, I already did the LLC and I already need to be an S corp, then file the 2553 now and backdate it to the first of the year. Okay, hit Lawrence. This is a good one.

The one thing on the back date is we can't go back multiple years. Though when we say back date, we're talking about like the year we're in. Yeah, Type deal back to January 1st. All right, Lawrence is kind of follow up. How do you deal with the regulation of not placing employer contributions into a Roth? How you deal with. Deal with it. Lawrence's.

There's no regulation. Unless you want to. It's a solo.

There's a regulation. There's a regulation says employer contributions have to be traditional. You do a Roth conversion.

Oh, that's all.

I see what you're saying. Yeah, you just convert the employer contribution to Roth. Now you have to do that in writing. So those of you with a solo K that may be trustee it yourself. That's got to be in writing. You should have a Roth election form and there's going to be a 1099R going to the IRS for that election. If you have a solo K directed IRA, we can do, we'll do all those steps for you. You have a written election and we'll do the 1099 with the IRS. Because what happens on that, remember, is your company got a deduction for putting that employer contribution in which reduce your taxable income. Then you convert it to Roth, which means you pick it back up as income, which in the end of day it washes out. But that's the process.

That's the. I'm going to rephrase Lawrence's. I didn't get Lawrence's question, so I'm going to rephrase it another way. Hey guys, how do I freaking put a company, my employer contribution into a Roth when you can't do that? Well, you're right. You can't put a company match into a Roth. You do the company to a traditional, then you do the conversion to the Roth two step process. If hopefully your 401ks with our office. If it's not, get it over here transferred to us. And our team at Driver directed IRA will cover your butt and get this done right. Also at KQS Lawyers, we can restate your 401k. We can help maintain it. You'll love it. All right. I'm loving this one.

What? Dave.

Dave, table talks. Dave, I'm going to get feisty again. Dave. Dave says, what are some business events that require minutes for the S Corp? Now here's my feisty point, Dave. I'm already going to assume that you're doing your annual meeting. Now everybody, if you have an LLC or you have an Inc, whether it's an S Corp or not, whether it's a rental property or not, you're going to do your annual minutes. Every year we have a company maintenance program. Call our office, talk to Becky Lloyd. We've got a great price, better than any law firm I've seen around the country to just do Your minutes every year and keep your company in good standing. Becky Lloyd, call the law firm Hennessy, make sure that phone number and websites down there in the chat. I appreciate it. Appreciate it. Okay. Now, one of the other times you might want to do minutes is what I think Dave's asking. Hell, Thanksgiving, when you have all the family around, put them on the board. Let's write off the turkey dinner. When you go to fourth of July barbecue, we're gonna have a board meeting. We're gonna talk about the business. Now, when usually you enter into a loan, the bank's gonna want minutes. You sell an asset, the bank may want minutes or the title company might. Wait, the title company might want minutes. But really you're only going to do minutes when you're doing a major transaction of selling or buying something or entering into debt. I want you doing minutes every time you have a board meeting so we can write off the damn trip and the food.

I like that. I was going to say, here's some other scenarios where you want to have your minutes on hand. The IRS audits you. That's in their list of documents and information requests. If you, your company gets audited or you get sued, that's the first thing they're going to ask for to make sure. Is this entity really legit? Is there real asset protection this entity, or are we going to be able to run right through it to get it? Someone's personal assets, the owner, that's you. And you don't want that. All right, JC, if I have a partnership LLC, 50 50. Should I create an S Corp holding company that owns my 50%? Depends. JC, what type of LLC partnership LLC is this?

What does it do?

Does it own a rental with a partner? Nope, don't bring your S Corp in. Does this llc, is it an operating business? You're selling goods or services and you are netting more than 40 grand at the end of the day. If so, we want to add an S Corp in instead of you. So your 50% would be owned by your S corporation. So depends on what you're doing there. And of course, the S corp we're only bringing into the mix because it's going to save you self employment tax on selling goods and services. Operational type businesses.

Okay, but this is fun. We're just doing rapid fire today. Folslaw says. Hey guys, thanks for all the great info. Thank you guys for listening. For my solo 401k. Should I open a Roth IRA? Okay, now let me rephrase that. It's not for my solo 401k. Should I open a Roth IRA? You, you. Let's say it this way. I think there's two questions. Okay, the questions should be I have a solo 401k. Should I maybe have a Roth piece to it? You can. Here's my. I think Roth kicks butt every day and Sunday. Those financial advisors out there that say, well, you want a traditional cause you want the write off now. Cause you're gonna be in a lower tax bracket later.

Really?

Can you guarantee that? I'd rather just have Roth tax free ATM money right now. So. So I think full sloth question could be to go two ways with my solo 401k. Should I have part of it be Roth or convert it all to Roth? I'd say if you can afford to do it, I think you're gonna win every time.

That's my personal opinion.

Number two, I have a Solo 401K. Should I open a Roth IRA as well? That's be the way I would phrase that. And again, if you can afford to do it, that's the mega backdoor Roth. You're doing the Roth 401K. You're doing the Roth Individual IRA. The IRA and the 401K are separate vehicles, but you can stack them.

Yeah. Remember in your solo 401k, you can just have a Roth account. Right. In the solo 401k. And most of our clients that do a solo 401k where they're doing traditional and Roth$, Roth 401k dollars also will do a Roth IRA. Your spouse can have a Roth 401k in the solo K if they work in the business, could have a Roth IRA. Your kids can have Roth IRAs. There's a lot of Roth that can be happening in your life.

Okay, I'm gonna just say this real quick. Referral slide. He said would it would be exclusively invested in rental properties. I already have the corp. And a paid for single family home. Paid and rented. Well, full slide. You're throwing out some topics that kind of get get me. I mean we could talk about this for an hour. First of all, I don't know about having any of your retirement accounts exclusively invested in anything. Whether it could be ETFs, it could be crypto, it could be real estate. You may want to look at being diversified. I don't know what your whole portfolio looks like. Number two, if you have a paid for family rental property, which I think you're saying here, having a paid for rental property usually doesn't give you the best roi. I'd like to see you strip some equity out there and maybe get two rentals. Depends on your age, your risk tolerance, what was in the market, what you can get your hands on. But people paid for rentals. All you are is a rent collector. You're not an investor. An investor uses leverage. Look into it. Okay. Now, Matt, what do you think about Laura?

All right. Laura says if I own an S corp for my meeting planning company company, can I pay my S corp as a rental management for my short term rental so I can 1099 my cleaners out of my S corp.

Okay.

I think what you're trying to do, Laura, is get an expense in your S corp because you'd rather have expenses in your S corporation. So I don't see how that makes sense. I don't see how that expense is valid in your S corporation. Cleaning the short term rental property you have, obviously you can take that expensive cleaning it in the short term rental business.

Well, she pays it as a property management company and then pays the cleaners. It X's each other out, so. So she says I'll pay my S corp as a rental management for my short term rental, then I'll 1099 my cleaners. Well, if you pay yourself 10 grand, then 10 grand your cleaners, you're back where you started. Just, just freaking 1099 your cleaners right out of your LLC that's doing the

short term rental or your schedule, whatever

the heck that is.

I don't. So, yeah, lost on how you'd want, why you'd want to do that.

Okay. You do. Brian Ward, you're. You love this one.

I have a business with employees. I want to pay my 8 year old periodically when he helps. Should I add him to payroll and just W to him or pay him outside of payroll. Goal is to fund a Roth for him. Okay.

Brian, love what you're doing.

We love paying kids. First of all, that better be a good eight year old, you know, worker.

Okay.

Eight year olds are kind of like, I like doing the teens myself where it's like they're really involved in the business and you can pay them enough. Where it makes sense. Doing a retirement account where you're putting more than like a couple hundred bucks in here and there. So. But let's assume that your 8 year old's really working the business.

Maybe a couple grand a year.

Yeah, a couple thousand bucks bucks a year. We're just going to open up a kid Roth account. It's not a kid Roth account. Those actually don't Exist. But we do have kid Roth accounts.

Yeah, there we go.

We have the kid Roth accounts at directed ira, of course. And now to contribute to a Roth. And what Brian's getting at here in the question, if you guys didn't know, is you have to have earned income. So Brian's 8 year old's got to have earned income to put that 2,000 bucks in in. Well, how do we get him earned income? Well, he works in the family business. He made 2000 bucks. Now do we need to get him a W2?

Hell no. Do not W2 him. Now I'm going to assume, but you

do need to pay him.

Yeah.

Okay, so he's going to need a bank account. This is going to be some of the quirks here. Sometimes the 8 year old's a little harder to get a bank account. He's going to need a bank account though.

Yeah. And I'm making the assumption, Brian, when you say you have a business with employees right there, that kind of implies you have an S corporation. So I'm going to assume you have an S corp. You do not want to W2 any of your children out of your S corp. In my book, the tax and legal playbook, please. You can get it on Amazon so quick, get over there. There's a whole chapter on paying kids tax and legal playbook. You're going to set up what's called little management company and 1099 your management company and then pay your kid outside labor. You'll zero it out. You're going to get a great write off. No withholdings, no W2, no 1099 to your kid. He can open a Roth. That's the way to go. Now we have got videos on pay your kids under age 18 on YouTube. Just write Brian, just go on YouTube and type Kohler. Pay your kids and make sure your accountant watches it if they're not already on board.

Oh, what about Patriot Ref's question? My accountant says I won't save any money in taxes as an S corp because of Trump's tax breaks.

Bull freaking crap. I'm gonna repeat that. He says, and this is in all caps and Patriot, I will go toe to toe with you on this because not everything in Trump's Tax Cuts and Jobs act is beautiful. Hell, Biden's Cares act was even worse, but he puts all in caps. My accountant says I won't save any money in taxes as an S corp because of Trump's tax breaks. Absolutely blatantly wrong. I'll put it in writing. I'll stand behind it with my professional law license and CPA license and malpractice insurance. Freaking Joe Biden was using an S Corp. With Trump's tax act. S corps are alive and well. S Corps rock. S corps say fica. I don't even know if anything Trump's tax breaks helped small business owners. I can't even see. So Patriot, I, I just, I can't see it. There's no argument that I know of on me and I'm written. Look at. Yeah. Best selling books on this.

What your CPA isn't telling you your CPA is in this book is in this category that your CPA is not telling you about the S Corp tax strategy. So, okay, it's so popular. There is a reason it is the number one small business owner. Why there are millions of small business owners that have an S corporation. It saves taxes. All right.

Oh my gosh.

Nothing changed on that with Trump's tax

breaks now, Dave, you're killing me. You gotta change the way you're asking this question. He says, what is a reasonable price to pay for payroll for S Corp with one employee? Again, I think you're talking about yourself. Say an S Corp owner employee. So it's your S Corp, you're the owner, you're the employee. When you say you have one employee, what is that, a personal assistant. You, you got a secretary, you got a subcontract. So I'm going to assume you're the employee of your own S Corp. What's a reasonable salary? It's based on your net income in the tax and legal playbook. I have a whole chapter on S Corps with a table on how much you may start with and look at a little table that goes through what your payroll should be based on your income. Now, Dave, the reason I'm grateful you're asking this question, but your CPA should be all over this like white on rice. If your CPA already doesn't know the answer to this, you got the wrong accountant. And if you're doing this to help educate your accountant, that's fine. But this, just get over this is page 41 in the tax and legal playbook. You can also YouTube Kohler payroll. And I will. I have a. I do it all on a chart. You'll love it. Go watch the video. Okay. All right, you choose.

I'm gonna go to a chowdhury. If someone is making net 1 million, what would you recommend for those people? S Corp or C Corp? S Corp. I mean, here's the thing with a C Corp, you pay a 21% corporate tax on any profits. Whether you make $100,000, that's 21,000. A million dollars, that's $210,000. What do you pay on an S corp at the corporate level at 100,000 0. What do you pay?

1 million. What are you paying?

A million 0. So I know as I'm just saying so the income level, it doesn't really change in this outlook. The S corp you're always going to pay less tax because there's no corporate tax. And the S corporation of course you're saving on fica. Now some people might say yeah but I'm phasing out because I'm making so much in a million bucks. I don't care. We have plenty of clients that make 500,000. That's a million, couple million a year. Mark's example of Joe Biden who uses the S corp to save on taxes before he became president had like 10 million of income from like showing up to speak at stuff and book deals and all that stuff. So it saves taxes for the person making 100,000. A million. 10 million.

Alright poverty with Nathan says you recommend an LLC or S corp for any poverty. Please restate that question with a little more clarity. I could recommend an LLC in three or four different ways to one person and an S corp or three or four ways to another person. This is why going online and doing this for 150 bucks on LegalZoom is not the way to do it. If you have these questions please book hour with one of our attorneys. They'll kick ass. You will love it. I can't remember the last time I gave a refund for a client that wasn't impressed and in love with our attorney that helped set up an entity form. You will love it. Valerie says hubby has an S corp on the outs. Just some assets and inventory to sell off. Starting new business but want to go woman Native American status. Should I start a new LLC or can we convert existing S corp somehow? Well if you have an S corp laying around, your husband's not going to use it anymore. You can change the ownership to you. It's called a stock transfer agreement. I might backdate it to the first of the year which you could do and make yourself the owner as a woman owned business. Now I will tell you Valerie, it is such what do you say misnomer misconception that a woman owned business or Native American if you're not making bids for federal contracts and you're never going to get the benefit of that SBA loans expedite but you don't get any better interest rates or anything. You better have a damn good reason to be woman owned. I mean I love it. Women owned business. That's great. Go out and kick butt. Go, you know, girl boss power. But you're not going to get any real benefits unless you're out bidding on federal jobs. So don't chase that rabbit.

Yeah, we've had for every hundred clients that have done that women owned businesses, minority owned businesses. I mean maybe one or two of them see any benefit out of it. It's more likely that they see no benefit out of it. But that's what you are. Go use it to wherever you can get benefit. Like Mark said, it's usually government contracts. This could be sometimes states. Some states do that. Or federal government. It's usually government contracts that give preferences. Some major corporations but we're going to look at what industry are you, who's your typical customer or client? The typical small businesses. It doesn't really affect. It's like the big corporate things that you might be working for a big corporation that has tries to get those contracts or a big government contractor. But that's why it's hard for small businesses to get those.

Okay, I'm going to go back to Choudhary's and Matt's Chowdhury. Chowdhury it said. Again, we're trying to interpret this question. If someone is making net 1 million, what would recommend for those people? S Corp or C Corp. Now Matt was clear. A C Corp is double taxation and ridiculous and S Corp is going to be your way to go and you're going to be working on your salary allocation for savings, probably setting up a solo 401k doing some additional tax strategies for that million of net. God bless you, that's wonderful.

Let's get to Kelly's question.

Okay, go for it.

Kelly says have an LLC for rental properties. What's the problem with having a small farm, selling 10 to 20 goats per year, minimal income, trying to pay for all expenses with the llc. So it's a business too. Love that Kelly. Yeah, sounds like Shruit Farms. Dwight Schrute maybe could relate here a little shrut farms operation. Well Kelly, I would have an LLC for the rentals and depending on how much equity you have and how many rentals you have, you might have multiple LLCs for the rentals, but it might just be one. You know, you don't have hundreds of thousands of equity but the farm with the goats. I would probably do In a separate business. That's more of an operating business. I don't want to put that in with your rental properties that have equity and everything. So I'd probably run that as a. A separate business. Maybe it's just a sole proprietorship. I don't know how many. If you're, you know, making five, ten grand a year type thing and you're washing it out because there's a lot of expenses, there's little taxable income, if any. So that's probably what I would go for. I'd keep them separate. I wouldn't necessarily do them in the same llc because this goes to the trifecta of operations and assets. Even if it's a small operation. Goats. I don't want to do that operation out of an LLC that has rental properties and assets. So if something happens on with the goats or someone on the property or some cheese I sell, I don't know what you're doing with the goats. Some goat cheese. I don't want that. Some kid getting sick and they go sue and I'll get all the equity in my rental properties that I put in these LLC's in the first place to protect them.

Well, and I'll throw out two last thoughts. Is all of you out there. Many, many Americans have a small farm on the side. It could be livestock, it could be ranching, farming, or even just herbs in a small garden. And you're going to the farmers market every Saturday. That's a great little small business. You're going to put it in a schedule F. Now, will the LLC save you taxes? Think about that. Everybody in your small farming business, will an LLC save you tax taxes? No. Remember, LLC is do not save taxes. You're doing it so someone doesn't get sick off your goat's milk or goat cheese. Or you're driving to the farmer's market, something flies off the back of your truck and you kill someone. That's where the LLC comes in, is for protection. Even if it's 800 damn bucks a year in California. Pony up and protect yourself. Yeah, pony up. Oh. Boom. Oh, man, that was natural. That was good. Giddy up. Oh, that was even good. Okay, we're killing it. We're killing it. Okay, AE torchbearer says I opened an LLC with a partner on 5050 partnership on January. In January 2022. Okay, so everybody, AE opened an LLC with a partner. 50, 50. We just started generating income, do not have major expenses. Is it a good idea to switch to an S corp? No, it Will never, ever, ever, ever be a good idea to switch to an S corp at the partnership level. What you're going to maybe want to do is each of you set up your own S corp to be a partner in that llc. That's where each of you can do more tax planning. But you would never turn the main LLC into an S corp. That's another chapter on partnerships. You would love it. Get into it. Trey. Lincoln says I have one truck. Set up an llc. Should I set up an S corp? Trey, rephrase your question. I don't know what the hell one truck means. Do you have a trucking business? How much money are you making? Is it operational or is this a truck for your rental property? Give us more info. Dave's table.

All right, we're calling you guys. Talking about board of directors for an S corp. Do you need to report who is on board to the state? Typically, no. You put California here in parentheses. Typically, no. You put officers on your articles of organization or articles of incorporation with the state. So who's the officers? The board members generally are not on what's filed to the state. They will be in your minutes. Now, if you need to change those or update them. You would do that? It's part of our company maintenance program. You could change who's on your board. Now, remember, the shareholders adopt and determine who is on the board of directors. So this would be your shareholder annual minutes. Or you could do a special set of minutes that just says, hey, here's the new board of directors I'm setting. Here's the new people appointed. Get your family members on there, then get them over for your Thanksgiving dinner in Hawaii for your board of directors meeting.

Now, let me say this to everybody that's participating here, thank you so much. This has been a great show already. We already have three times as many questions. Questions as we're going to be able to get to, but we're taking them in order. We're moving fast, we're moving hard. We'll keep blazing along. But let me just say this, everybody. If you're like, oh, my gosh, these guys are saying something that could save me money, please set up a freaking consult with your own cpa, your own tax lawyer, if you have one you trust. If not, call the freaking law firm and say, guys, give me an hour. If we don't save you 10 times, whatever you pay us, something's probably off. We can build you a trifecta. Talk about your entities, get you dialed in, review your tax return. We have multiple things we can do and we would love to help you save money and get better asset protection. Book an hour. I love that you're asking questions here, but hopefully you're not taking major action based on one little answer here on a podcast. Be careful.

All right.

Recently picked up your four book combo. Thank you so much, Alex. Eric says during divorce, hypothetically husband owns all the properties under LLCs. LLCs are owned by an S corp that are also he created. Wife never participated in the S corp llc. Will wife get half hypothetical. Now, Eric, you're bringing up a topic that there's a cpa. Oh my gosh, his name just escaped me. He's down in Texas. In his state, an S corp owned by one individual where the spouse did not participate in can be exempt even with assets in it, from the divorce as a, as a marital asset. But let me just say this, Eric and all of you out there that might be in a divorce or contemplating it, it is very state specific. You're going to want to meet with your divorce attorney and your accountant, look at all of your assets and have a private consultation at and find out what in the S Corp would be included as marital assets and subject to a 5050 split. Maybe there would be some assets not. I'll tell you if you're in California, buckle up. I don't care if it's an S Corp or llc. It's all marital property. You got community property states like Idaho, California things. You know, these states. That strategy is not going to work. So Eric, get a consultation and one of these things.

So we're talking about LLC zoning properties and that LLC is owned by an S corporation. Just if anybody saw that question, do not do that. Do not do that. Do not have S Corps own LLC that own properties. You own an LLC that owns a property or better yet, your trust for estate planning owns the LLC that owns property. Do not mix S corporations over with rental properties. Yeah, just period.

Yeah. And the, the funny thing is that there's a guy that's written a book on doing that with S Corps in contemplation of divorce. So it's a trick because S Corp being a personal service company, blah blah blah. Anyway, so just talk with your divorce attorney. One casual says, are you saying that if an LLC owns property and the rlt, our revocable living trust, owns the llc, that the heirs can sell the property with stepped up basis? I upon my passing. Yes. Thanks for doing these chats and forums. Love you guys. Thank you so much. One casual. Love it. Okay, main branch, go Ahead. All right.

KQS client says I sold a rental property owned in a single member llc, held for four years.

Love it.

My S Corp construction company, the builder did rebuild before sold. Can I take this as cap gain instead of ordinary income? Okay. I sold a rental property owned in a single member llc. But your S corporation did the rebuild, I presume. Remodel. Can I take this as cap gain instead of ordinary income? I don't know why you couldn't take it as capital gain if you held it for four years.

Here's the weird part. I like what Matt's saying. It depends on how you handle the transaction.

And it was a rental.

Yes. Yeah. Because if your LLC paid the S corp to do the work so you could increase the basis in your llc. Now you've got ordinary income in your S corp, not capital gain. But I like what Matt's saying is if you, if your journal entry was, no, I didn't pay the S corp. The S corp did all this work. The LLC paid for the material. And now I've got a bigger value of a property with a bigger capital gain. That's good. But if you paid the S corp at all, that's going to be ordinary, right?

That piece of the income.

Yeah.

But the rest of the gain that came from the property is still cap gain.

I agree.

Yeah.

Yeah. It's kind of like weird. If you did this big rehab, who paid for it? At least the materials. So you're going to get an increased basis in the llc. But the S corp did the work.

Yeah. And I get a lot of you that are builders and you know, know you're like, well, this is my property that I own in my personal portfolio. Why am I going to pay my S corp? Obviously you're going to pay for the materials. Like we said, that's got to be bought. Someone's got to pay for that. But yeah, good question.

Dave says, yes, it's my own S Corp and I'm the employee. Thank you, Dave. And he says, I love the feisty thank you. You rock. But okay, Randy, Noten says I have two rentals that are fully paid for. Need to transfer to llc. Good move. What would it take? New York is the state.

Oh, you're doing so good, Randy.

If there's what the two states that are the biggest pain in the ass are California and New York.

Now, maybe it depends on where you're at in New York.

It does. The five boroughs.

Yeah. If you're like in Buffalo, I mean, you have to deal with the bills, but it's not as bad.

That's right. You get a consolation prize to be

a Bills fan, but you can have an LLC for your rental property. It's not a pain in the butt.

I would do this. Randy, call our office and talk to Christy Rice. Write that down. Christy Rice. She's our director of the business department. She can tell you what the filing fees are going to be in New York. There's a publication process with the entity set up in New York. That can be a pain.

Which, by the way, is one of the most ridiculous things left.

Oh, my gosh. It's so stupid.

New York is the only state, in fact, Arizona being one, that's kind of finally been getting rid of it. The New York's the only state where you have to have to publish your business name in a newspaper. Like anyone reads a business name. Like no one can just go on the World Wide Web and go to the New York website and search the business names within like 10 seconds.

Oh, my gosh, no.

We're gonna collect years of newspapers to go look at every business name that was filed. It's ridiculous. But the newspaper lobby is strong in New York. The New York Times is making a ton of money on this still.

Okay, George says, I have S Corp. Income of 150, expenses of 70. So that means he has 80 grand of net income. And he said, what should my W2 versus my K1 be? Now, George? Okay, you're putting me on the spot here. I can deal with that. I'm going to go to the table in the book and notice what it says here. This is for illustration purposes only. We're gonna look at some of your facts a little more closely. But generally, with 80 grand of net income, we're gonna probably be at about, oh, a 40 to 50% allocation. So I'm gonna put 30 to 35. Yeah, yeah, maybe 36. 36. Three grand a month and in salary. I. I think I could live with that.

And the rest is profit. K1 net profit. And that. That is 10% on the other 35 grand. I mean, that's saving you. Sorry, 15% on their 35 grand. I mean, that'S saving you like 5,000 almost.

Yeah, it's going to be 44 grand on your K1 and 36 grand on your W2. 15% times 44 grand for. It'd be 6K. You're gonna save about 6 grand in taxes.

More than that. Yeah, a little more.

You're welcome. Okay, Newton Brown, go ahead.

Says we have two rentals, one in Arizona and one in Missouri. We live in California. Do you recommend we start with the LLC in California? No, we do not.

No, we do not.

You just live in California. Okay, so what I would do. Naruto, couple thoughts. You have two options of how I would look at this and my follow up question would be is that how much equity do you have in these rentals? Because I might do. If you've got a lot of equity in these, and by that I mean more than 250 grand, I might do one LLC in Missouri and I'd do one LLC in Arizona. Now that could be an option. Again, if you have a lot of equity, like, man, I just bought these, these have like 10,000 of equity, less than 100,000 total. I just do one LLC. I do it in Arizona because you got two there. So I do an Arizona LLC and I'd register at foreign. The same entity in the Missouri that's now the same entity. It's doing business in both states. You got one bank account, it owns the three properties. Now the question that seems to come around always is, is California going to make me charge 800 bucks? California can make me pay 800 bucks for the first franchise tax fee. This is where it gets dicey.

This is recorded.

The state of California wants 800 bucks. In fact, their franchise tax publication has an example of someone who lives in California and has a rental property in Missouri. Actually, seriously, this is the example in their guidance. This says if you are a California resident and you have a property LLC in Missouri with a property manager in Missouri who takes care of that property and you make a phone call from California to check on that property manager in Missouri. But you were in California, you made that phone call, you did business. That LLC did business in California and you've got to pay the $800 franchise tax fee. If you were sitting on the toilet thinking about this rental property in Missouri, you didn't even call anyone. You just did business in California with

that LLC and you did business on the toilet at the same time. Now, 800 bucks, $800 worth. But here's the caveat. That's assuming and it says it in the example if you're the manager of the llc. Now, if you have a friend, a kid, a brother, I've got clients that have their kids living in the rental properties while they're going to college or whatever may make them the manager of the LLC in Missouri or Arizona. Now, California can't touch you. They can only get you if you're the manager of the llc. You'll say, well, I'm not the property manager. Doesn't matter. Do you manage the LLC? And you're sitting on the toilet. You owe 800 bucks. So don't be the manager of the LLC. That's the technical rule. Now I'll tell you under the table, a lot of people still don't file. They don't pay the 800 in California. If they catch you, they're going to hit you with fees and you end up dissolving the LLC. But they do not come after individual owners of LLCs. They just nail the LLC and you have to cancel it and start with a new name.

And California is super unique in that position on when they're entitled to income for activity you're doing in another state. So. But because you're a resident of their state until you are no longer resident, they can get you on these little things. But it's funny, even the state of Arizona, where I live, the great state of Arizona, has sued the state of California on behalf of Californians who come and do business in Arizona. And they're like, why are they having to go pay back money over here? Not just 800 bucks, but the bigger companies that end up paying more. And so there's even been states having to sue on this, let alone individuals in California.

Okay, now I love Sunkist. Questions here. Questions. Sunkist says rumor has it, rumor has it that, rumor has it, rumor has it that an umbrella policy is recommended if your net worth exceeds 500 grand. Well, Sunkist, rumor has it that an insurance agent will recommend a frickin insurance policy if you have a pulse. All right, okay, remember this is insurance companies, of course they're gonna recommend a freaking umbrella policy.

Let me, let me help. Let me just Sunkiss, the insurance agent said, how much is your net worth? 500,000. We recommend insurance policies to people that have 500,000 now. So I'm just kidding.

We did a whole podcast on do umbrella insurance policies, Are they worth it? Now I don't think I've ever met a client that paid out that got a payment out of an umbrella policy in 20 years of doing.

I haven't because the umbrella, the better word for an umbrella policy is an excess insurance policy because the umbrella policy never pays on a claim unless you have other coverage. Let's say you have a rental property that had landlord, you know, tenant coverage. Somebody slips and falls on the rental. You had a million dollars in coverage and that whole million got exceeded and you had an umbrella on top of it. Of, let's say 3 million. Now, they could tap that, but the umbrella company is not commanded to do anything unless one of your other insurance policies validated a claim and they exceeded all the coverage you already had. So it's kind of excess insurance is the better word for it.

And how many insurance companies rush, oh, you've got a claim, let's rush to your side and pay it. I actually read the umbrella policy of a client the other day because they said, can you tell me if this is a good idea? Idea? And I started reading all of the exemptions and wherefores and whereases, and we don't pay this, we don't pay that, but we do pay this. I'm like, no wonder the policy is 250 bucks. Yeah, because it freaking is never gonna pay. But whatever.

Let me give you two examples on insurance. Because back in 0809, you know, we've always been doing business and tax work, and, man, the economy just went off the cliff. I started representing insurance companies. I don't like to admit it, but I. I had a couple insurance company clients that I represented. And let me just tell you there, I had one case on. It was about. It was actually defending a real estate broker who had professional coverage, and someone bought a house from that agent. That agent represented them, and the house had, like, a foundation issue and settling and all this. And so they sued the agent and said, you should have told me better. Advise me better. Well, the insurance company was, like, really fighting coverage on this stuff. They finally accepted it. I end up coming in to represent them, but, like, to pay the claim out on any of this, they are like, they would throw so much money at legal fees way past what someone would accept to settle. And so they're not really. They're in the business of, like, not paying claims, of course, shock with insurance companies. The other thing I want to say on this, this is actually probably more important is. Oh, my gosh, I forgot the important one.

Okay. I remember what Matt was going to say once he was representing. It was called Great Benefits. And there was a kid that had leukemia. And Matt said, we're not going to pay out, even though the manual was there. I mean, they had dug it out of a dumpster and it said, deny all claims. And then they'd send letters to people. You're denied. What are you stupid? Stupid, stupid. I. They did that at Great Benefits.

And then. And then they came and they said, these people never testify. Yeah, you know, these people never testify, but.

Donna La Mancha La Manchi.

I'm mixing two Movies there, by the way. We're talking about a civil action. And what's the Matt Damon one you're talking about? With great benefits?

Oh my gosh. When you said civil action, you threw me off.

Oh my gosh.

Rainmaker. Rainmaker. Yeah, rainmaker. Okay. But by.

Oh, I remember my insurance example. Okay. Because I had a client. This was an umbrella. But this is giving you a concept on insurance. We like insurance, don't get me wrong.

Yeah, I also have insurance. I bought umbrella insurance. But I also have an effing llc because I know the umbrella insurance is about this chance of paying out. But I still got the damn thing. Yeah, I did it for teenage drivers and uninsured motorists. That's why I wanted it.

To me it's kind of like, well, I have. I have a seat belt.

Should I.

Do I really need an airbag? You know, it's not like an either or. Okay. You might want to need them both. But here's just an example. That was a great example.

Matt Sorenson.

Thank you. You're welcome. I had a client owned rental property. Tenants in it, of course. One of their friends was coming up to the property. They had a little porch with. With stairs. They had a handrail on one side. Person slipped and fell, got injured significantly. Had a huge medical, sued. Our client tries to go get coverage and he had a landlord tenant policy in the LLC's name, LLC on the property. And the insurance company said, denied, we're not covering it. You had so many stairs up to the porch, you were supposed to have a handrail on both sides according to city code. And you didn't. Therefore we don't have to cover it because the property was out of code. And so client ended up having to basically negotiate outside of the insurance policy and had to figure out how to settle this. Now luckily he had the llc, so all of his personal assets weren't at risk. This is a good example of what the insurance covers everything. No, they found a quick way out of this.

Bastards. Okay, Nelson says thank you, gentlemen. Hello, YouTube. Okay. Does the wash sale rule that is crypto apply with trades in inside a Roth IRA? They would, but a Roth IRA doesn't pay tax anyway, so you don't need the losses. It doesn't matter. Sell the damn thing. Rebuy it. In a Roth ira, it doesn't matter. Bought an E. Com business S Corp from a friend that also owns Several single member LLCs. What's the best way to set up new eins for all? Bought an E. Com business, an S Corp from a friend that also owns Several single member LLCs.

S Corp owns a bunch of other LLCs.

What is the best way to set up new eins for all? Well, you're going to. If you bought the llc is you're going to keep the same damn llc.

The S Corp ein will probably change though. But Those Single Member LLCs are like these subsidiaries that the S Corp still owns. Which means those single members are all going to flow down into the S corp on your tax return. But I think when there's a change of ownership of the business, 50% or more, you up. You have to change the.

Well, yeah. Well, you have to dissolve the entity under IRS code. Zombie. The real issue is did you buy the S Corp or did you buy the assets? You need to get a consult with a tax lawyer to restructure this and save some damn money. I don't even know if you need all this freaking LLCs. If you don't need them, let's not get them. Let's get one entity and do it all. I would look at some opportunities to remember, restructure this and save some money. I don't have enough facts to help answer that one. One casual says, thanks for explaining. Didn't mean to upset you, Mark. I know LLC is for asset protection. I just wondered if there was any tax advantage to have an LLC for rental property, like being able to. Thank you. I'm just fired up today. I don't know why. Okay, I do know why. Okay. Anyway. But I'm not telling you. Okay. Write off trips with board members. Something other than what I try to write off against rental income. I appreciate you guys. Whoo. Theodore says how late? We got to wrap it up. I'm having too much fun. How late in the year can you make your LLC an S corp and bag it? Date it. Okay, so Theodore says if I have an llc. Let's think of my daughter Sydney. She's a realtor all year long. And he says, how late can I go in the year and still elect it to be an S Corp? Back to January 1st. Check. Technically, Theodore, it's from a practical standpoint of when you file payments. Payroll. I'm going to go about till January 10 of the following year and backdate it to January 1 of the preceding year. But I've got to do it by January 10th so I have time to run payroll for the last year. There's no deadline. It's just you got to run freaking payroll. So you better get your S election done before your fourth quarter. Payrolls due. That's the rule. Okay, you choose. A couple questions. Crypto. We got a crypto. Gold Champ. Do gold Champ.

Gold Champ says, I'm heavily invested in crypto staking, will be taking profits next year. What is the best strategy to avoid taxes?

Oh, he's taking profit next year. Very interesting.

Gold. I didn't know you had a choice.

Yeah, Gold jam. Oh, you're staking and you're. You're not paying taxes till next year. What planet is he on? This is great.

Now, Goldchamp, you might be mistaken because there are some cases out there and there's actually a lot of misinformation on staking in particular and how it's taxed. Yeah, there's a case in Tennessee and someone's trying to take the position that with the irs, this is unsettled still, that, hey, all these staking rewards and income I'm getting is not taxable to me until I use them, until I take them and have control of them. And so some people are saying that not income to me yet. I don't know if that's where your confusion's at, but when you're making income from staking, that's income when it's received to you. So if you're getting income to you paid in crypto or however it's being done, typically in crypto, you have control of that crypto. You can use it to pay for goods or services or to change it, exchange it for fiat or sell it. Once you have control of that crypto, it's taxable income to you. Now you're going to expect your, you know, expenses for the staking you might have against that income to come down with what your net income is. Now, we covered this topic at the Crypto Tax Summit, by the way, just a few months ago, and we had some experts that talked about staking income in general. We had at least a half hour of content on staking in particular. I'm just trying to give you the broad base here. I'm just. I know I'm not answering your question, but I'm really just saying, probably giving you some bad news. It's probably taxable already. Get to the crypto tax. The recordings available go to cryptotaxsummit.com worth the investment.

300 bucks for the recordings. Two days worth.

Yeah. You'll learn so much more about crypto taxes and strategies and how to minimize it.

Okay, main branch, I'm loving this one. I'm going to wrap it up with this question. I guess maybe another One. I'm having fun. Okay, Main Branch, remember. Okay, Main Branch goes back. Well, my question was really this. So let's go back to Main Branch's first question. This is like car talk when they go back to the original question and see if they were right. Okay, Main Branch says, I sold a rental property owned in a single member LLC held for four years. All right? My S Corp Construction company builder did rebuild. Now, I love how Main Branch is giving us the words they want us to hear so they get the answer they want. No offense, Main builder. Okay, I did a rebuild before I sold. Can I take this as capital gains instead of ordinary income? And we were confused because we're like, well, hell, if you held it for four years, a rebuild, what does that really mean? Maybe we should have thought more about it. Well, now Main Build says. Main Branch says. Well, my question above really is about how do I protect my investor status when I'm also a dealer? You don't get both. You're either a dealer or an investor. You're not both. You can't say, well, how do I protect my investor when I'm in. If you're a dealer, you're no longer an investor. Okay, now here's. This is good. Can a builder hold a rental house for one plus years and get capital gain? Yes. As a builder, if I have rentals and I hold them for at least a year, I get capital gain. Oh, but now we learn more. Then build on that property. I thought it was a rebuild. Okay, I'm going to build on it and take capital gains. Whoa, whoa, whoa, whoa. Okay, now you've got a rental and the S Corp comes in and improves it while the tenant's still in there. I'm okay. But if you take a property and rent, rebuild on it or build on it, the clock stops. You're now back to dealer. You've got to rent it for a year to get capital gain.

Yeah.

At least.

Probably at least.

Yeah. Now I'd say a year as long as you've got a renter in there for a year. But you can't say, well, I held it for four years and then I rebuild on it and flipped it. The clock starts on the year hold. Once you get a tenant back in there, you don't get to use the four years as your time period. Now, I don't know how much of the was it rebuild remodel, did you, you know, blah, blah. Then you say, I built on it. So now I don't know. If you build another structure, you got to meet with your accountant, Main branch, but you can see where we're going with this. I'd love to make sure it's capital gain, but we need to have all the facts.

All right, all right.

Okay, you're done.

I thought you said last question. I did. Another one.

Hennessy. Are we okay, Two more questions. Two more questions and then she's being a hard ass over here. So we're gonna like.

Okay, let me ask. Answer Subhash's questions, you know.

Oh, oh, yeah.

My eyes immediately go, yeah, he's a sucker.

Yeah, it's like cleavage Master's like, boom. It's right there.

Someone said Roth ira.

Okay, all right.

Says I bought investment property on llc. In llc. Now, is there a way I can transfer it to my Roth IRA so I don't pay taxes as long as it's owned by the IRA. Now, I like what you're thinking there. Roth IRAs, when they buy and sell real estate, don't pay any tax. Roths don't pay tax. All that money builds up and grows and comes out later on your retirement, tax free. But the IRS knew people would do this. They knew you would be thinking of this strategy and be like, you mean I can have a tax free account where I can run all my investment income through it and pay no tax on the way out? Yeah, but they're not going to let you move all your personal assets. Like, if you own a rental property right now, you can't put it into your own Roth IRA or sell it to your Roth IRA for $0 and then go sell it out of your Roth IRA and take all the profit there and pay no tax. That's called a prohibited transaction. There's a whole section in the tax code called section 4975 that actually restricts that. So whatever you're thinking, if you could do this, we would be talking about that strategy because it'd be freaking awesome. But you can't. It's prohibited. Now, your Roth IRA can go buy new property from third party unrelated people. It just can't be buying it from you because the IRS knows people be screwing around like this. Avoiding taxes.

Okay, now, Mr. A is making comments in here, and I want to know what Mr. A is talking about here. Mr. A says has to be payroll.

What?

I don't know what has to be payroll. And then Mr. A says retirement plan. Do a sole prop management company so you don't have to pay FICA. And then Mr. A says it still has to be on payroll. Just wouldn't take out FICA. I'm not sure what Mr. A is talking about here because I'm going to look one more time, see, go up a little higher. And Mr. A, I'm going to ask you to make a comment, Mr. A of what advice you're giving here on my chat. No offense, but this is my damn chat. And if you're going to be telling someone what to do, please clarify and we'll confirm if you're on track. While you're writing a quick note, Mr. A, and I appreciate you listening is M249 says Mark, you mentioned a few months ago that you should put crypto nodes in a corp. If I'm remembering correctly now I thought you just mentioned that you only opened an S corp if you make over 40k. Okay, now let's. Let me be clear here. This is tricky. If you're My daughter is a brand new realtor, you're a brand new restaurant owner, you're doing crypto mining, you're doing crypto nodes. I don't know how much money you're going to make, but I want the ability to back data to an S corp if you break 40 grand net. So what I'm saying M249 is put it in an LLC, see how the year goes. If you hit 40, you backdate it to an S corp. So you don't wait till you make 40 and then create an S corp. You start with the LLC now and then when you hit 40, you backdate to an S corp. And so M249, I think we're saying the same thing here. I want you to know I'm being consistent, but there's some timing involved. Now I'm going to scroll to the bottoms here and see if we get a little comment here from Mr. A. See we get some clarity here. Oh my gosh, so many great questions. Questions everybody. But I'm not seeing a final comment from Mr. A and something about payroll. I just wanted to make sure that we didn't steer someone incorrectly. So I'm going to say this in final words, everybody. It's a treat having Matt Sorenson here. He doesn't join the live every week as often as he should. We'll be here back Next Thursday at 4 o' clock Mountain, 3 Pacific, 5 Central and 6 Eastern. Next Thursday talking about your small business, answering your questions, really, really grateful. Okay? And Gregory Jones in cap says please, please, please answer this before you go. All right? But I want to tell everybody be here next Thursday at 4 o' clock and Gregory Jones and I apologize, Greg, you probably showed up later in the chat. He said, what should a holding company be taxed as Pass through? Nothing. No.

Disregarded.

Disregard it. Disregarded. An LLC holds a rental company. Disregarded. Schedule E is an echo. It's a rental property. Schedule E. You're never going to do an S election on that LLC for your rental. So looking good. Any final words of wisdom, Matt?

No, I was just going to say I know we got the number there for the law firm if you want to connect with us, because a lot of this stuff and sometimes they can see the questions. They. Sometimes they get taken out of context or they're a little off. So it really helps to get a consult. You can also go to kqslawyers.com where we have a lot of our services you can book right online. You can book an appointment with some of our attorneys directly online on the website. Learn more about our services and the different things we offer.

John Barry was throwing down Aaron Brockovich. I was not quoting Aaron Brockovich. But. Yeah, but that's a good one. That's a great one. Yeah, we were. Yeah. Rainmaker. Civil Action. Those are.

I know. I do love John Travolta and Civil Action.

Yeah. He is so good. So. Well, everybody have. Oh, oh, whoa. I saw something here. I got an insurance person. Okay, Valerie. I thought Valerie was going to come at me hard for my. All my insurance bashing today, but she goes, I owned an insurance agency for 10 years. My favorite customer quote was, I just was in an accident. How much is my destructible? That's awesome, Valerie. Thanks for letting us hit hard on insurance. It's hard. Love you guys. See you next week.