Mark J. Kohler - Tax Season Live Q&A

It's it.

Hey, everyone, this is dan bova@entrepreneur.com and thank you for joining us live for today's chat on all things taxes that small business owners need to know about. Okay, not all things. We only have a half hour, but we're going to get to a lot because we have ace tax expert and entrepreneur VIP contributor Mark Kohler. Mark is a CPA and attorney, co host of the podcast Refresh youh Wealth, and author of the Tax and Legal Playbook, and he is here to answer your questions. So I already see the questions going in the chat. This is awesome. We got a bunch already submitted, but please put them in the chat. We'll get to as many as possible. So, Mark, I have just one question for you. Are you ready to rock these people's world?

I'm ready to rock and roll, Dan. I'm so excited. All right.

That's what we like to hear.

Oh, wow. I've already seen all these great questions, too. We got some crypto stuff going on, and I'm going to follow your lead. So, Dan, you're the one in trouble if we don't handle someone's question. Not me.

I'm apologizing in advance because we're getting a lot of great ones already, so I'm gonna. Let's just get to it. Mark, come on. What are we waiting for?

Okay, let's do it.

You know, I just ate lunch. Which reminds me, there's a certain dining expense that is about to expire that a lot of entrepreneurs might not even know about. So why don't you tell them about it and how they should take advantage of it now?

Yeah. Thank you, Dan. Great question. Now, all of you, we're going to go to the whiteboard as we need once in a while. Not right now, Corey. We're good. But let me just say this. All of you watching this are more than likely an entrepreneur. You've got a side hustle. You got a side gig. Now, maybe you're doing investing. And if you're investing in crypto with no active mine or nodes or staking that you're involved in, it's more of an investment nature. Let me just say, everybody, if you're investing, that's not a small business. A rental property. We get some benefits of having that rental property. Small business. But any of you out there, and I hope all of you have that little side hustle, the side gig, you're creating a 1099 from Venmo or PayPal or for someone doing something in your small business, Again, assuming it's not investing in your small business, dining should be one of your best write offs. And this year, in 2021 and 2022, it's over. December 31, game over. Right now, you get 100% write off for any valid business dining expense. It's usually 50, 50. You can only write off 50%, but right now it's 100% dining. Now, that means the bar tab, the tip, the food, and maybe it's just for you. So here's the rule you've got. In fact, Corey, let's go whiteboard, and I'll just kind of throw it in three columns here. Now, what this, this dining expense is all about, dining in 2022, is that if you are out with someone, you're going to have kind of a meal, you're going to talk about business. It could be with a partner, it could be with an employee, it could be with a potential customer, a client, a vendor. Any of those meals where you eat with someone and you're talking business, you're talking biz. All right, that is 100% write off if you're dining out or take out. What the. What Congress. This was a Trump law signed right before he left office because of COVID And it was hitting all of the restaurant industry so hard with people staying home, they said, we got to help the restaurant industry. So if you go dine out or do take out, and it's helping in a prepared food format, you get 100% write off. Now, we'll come back to the. When it's not dining out, if you're trapped, if you're eating by yourself, it's just you. You can write off 100% of the food just by yourself. If you're traveling for business. Now, the Supreme Court has said what's traveling. It's not 50 miles or 20 miles or whatever the rule is outside of a normal commute. So if I live in New York City and I'm going over to Brooklyn to go meet a client or something, that would be outside of my normal workday, outside of my normal commute. If I'm in LA and I'm going to Orange county, if I'm in Missouri, and I'm going from the Kansas City side of Missouri to the Kansas side of Missouri, you know, I don't know, sorry, Kansas City side, Missouri or Kansas City, you may be outside of your normal commute. So if you're outside of your normal commute and you're just grabbing a burger, getting some food, as long as it's prepared by a restaurant, you get 100%. Now, we're going to go back to the 5050 rule. If you're just buying groceries. So let's say you pick up some steaks and you go back to the home and you have some clients over, you have some partners over or vendors. So whenever or you're buying food for the office, maybe the coffee maker, the water cooler, granola bars. But if you're buying anything that's not prepared by a restaurant, that's kind of the way I go with it. Then it's going to be 50, 50 write off. So 100% when you're traveling for business, even by yourself, 100% when you're meeting with someone and if it's not prepared. Now, the best example here, Corey, you can take me off the light screen is some people say, well, what about donuts on Wednesday at the office? Or bagels? Well, those were prepared for you by a deli. So I'm going to go with prepared food on those. But Dan is pretty cool. 100% write off for the rest of 2022 when you're out talking business. And people, this should be on all of your tax returns. Schedule C A 1065, LLC S Corporation. We want to go that route.

So I think a question that comes up a lot is I'm out with a friend of mine, we're having a drink, we're eating, and we start to talk business. And during that conversation, you know, maybe an idea comes up that we go, oh, we should try that, or something like that. We didn't intend to do it. So I guess my question is, how much can we get away with? How much can we write off without setting off alarm bells?

Well, since it's just you. Me, you know, you and me, Dan, and this isn't being recorded, I would say, okay, hey, if you're having a valid business discussion, even if it's at the tail end of the meeting, the beginning, and it's part of your business, I'm going for it. Now, I think more so what the issue is is not did we talk business in the meal? Are you trying to write off too much of meals? Let's say you're just got a little side gig and you're bringing 10 or 20 grand a year. I'm not going to try to write off 5,000 in dining. But if you've got a consulting business, you're a realtor, you're an engineer, you know, lawyer, accountant, engineer, doctor, dentist, you're doing online marketing or whatever. Let's say you're bringing in 100 grand. Am I going to have 5,000 in dining? More than that. So you got to think of how much of the dining expense is in proportion to your overall income. That's what I'm more worried about. But you know, you're, you know, you got to go through the pearly gates someday. And you know, you know St. Peter, he's going to ask, did you cheat on your taxes? That's on you.

So, so, so if you send me cookies, that's clearly a business expense because here we are doing business together. Perfect. I'm waiting for the mark. So, as you touched upon, obviously so much, so many of us are working out of our house. What can we write off in terms of utilities, in terms of floor space, in terms of all this stuff? And again, not set off any alarm bells that, hey, is this really his office or is this his dining room table?

I love it. I love it. And I'm just going to answer one of the questions here. Can I get the dining expense as a sole proprietor? Absolutely. Again, I don't care if you're running your rental property business and you're going out to lunch with your property manager or your partner, or if you're just in a, in an S corp as an online marketer or you're in a llc. Da, da, da, whatever. So no matter what business you're doing, as long as it's business, I'm going to be writing off dining on the appropriate form. Now, Dan's bringing up. We've got a lot of questions here. We're getting into some crypto here in a bit too. I love it. So many good things. But home office, this is another bread and butter. Everybody should have a dining expense. And I want a home office expense. Not I'm a big. Now, not many of us accountants have superstars we believe in, but the movie Accountant with Ben Affleck just want to give him a shout out for going out there and being a cool accountant. I tried out for the role. I really, I really did. I went and I said, you know, I can be the accountant. You know, I can hold a gun. You know, I want to be. So this was my mock up when I tried to get the role. Ben Affleck beat me out. So. But us accountants, we aspire know to be that cool. Okay? So in the movie Accountant, in the first five minutes, Ben Affleck explains to home office and he does a pretty good job. Probably a little aggressive on one of the rules here, but it's a Wonderful little scene at the beginning of a movie. You guys can all get a little tax dose in watching the accountant this weekend. That's your homework. Okay, so Corey, let's go to the whiteboard on the home office. The first thing I want to say is you, you have to choose, you have to meet a couple rules. Let's just do the rules. Rules are it has to be an exclusive space. Exclusive space that you dedicate to your home office. In the movie he says it's the kitchen table. Not really. That was a little aggressive in the movie. What we need is a space that is dedicated to the business. Now this could be 5ft by 5ft, just little corner, that's a desk. That's for this home based business. Some of you might have a garage, a storage unit, a basement, a whole room dedicated to your som home office. So that's where Dan's talking about. We're going to look at the square footage and this percentage of your apartment of your home. You don't have to own the home. It could be rental or own, I don't care. But we have to come up with like this exclusive space. Now again, all of you, even if you're mining crypto, you, we're going to have a space dedicated to this small business. Now why I love this, Dan, this is a little side note. Let's say you've got a home office. Just this little home office. Now when you leave the home, it's not commuting anymore. Those are business miles. So the home office is kind of the gateway drug to writing off more auto expense, which I love because I want to be getting away from commuting. I want to be able to leave the home office and go to Staples, the Apple Store, Best Buy, meet a customer, meet a client, go pick up supplies, go to Home Depot, go to the rent. So the home office really opens the door to a better auto deduction. That's a side note. Now you've got your exclusive space. No matter how small or how large we've got that, that doors open. The other one is it has to be your primary place of doing business. Now this was the old rule, primary place. Well, there's a case that came down years ago, just in the last 10 years. It's awesome. I've been talking about it for, it's in my books and all that. There's going to be a little discount code for my book, tax and legal playbook. Got a little shame. Shameless, shameful plug.

Okay.

But anyway, the primary place of doing business that Means your main place you're doing business. Well, there was a court case of a doctor that said, hey, I go home and I freaking do business in my home office. I'm returning emails, I'm looking at charts. That's a frickin home office. I should be able to write that off. So he did us a solid and went to court against the IRS and won. And so now we have the home office exception, the admin home office exception that says, yeah, I may be a realtor and I've got a home office. I'm sorry, I've got an office across town, but I also have an admin office in my home that's exclusively dedicated. I got to check off both of these boxes here. And so this admin office is a great write off. Now, now as long as you can check these two boxes, which all of my clients fricking better be. Now you've got two options. You can do a percentage of the actual expenses of the home, where we're going to look at your rent, the interest payment on a mortgage, we're going to look at utilities and all that. But there's a low hanging fruit item that I love that you can write off the basic, where it's just kind of. The basic write off is $5 a foot up to 300ft for the whole year. That's a 1500 dollars write off. You may say, well Mark, 1500 bucks for the whole year. Yeah, but that's just a little write off. The IRS is not looking to audit. Simple, easy fifteen hundred dollar write off. Guys, if you're in a 25 fed 5% state, that's 30% tax savings. You just saved 30% on 1500 bucks. This little tip that I gave you right here, all of you should be doing the basic home office deduction because you've got an admin office. 1500 bucks. I just saved you $500 in taxes right there. 500 bucks, done. That's just paid for your tax prep. And who knows? So I mean this is a really good write off. All of you should be taking dining, all of you should be taking home office and all of you should be taking auto. Those are like the three mainstays right out of the gate.

So Mark, a couple of people have asked the same question. They run multiple businesses, can they write off multiple home offices?

No, but yes and no. Let me give you the trick here. Now folks, this is where we've got to go to the trifecta. This is the Mark Kohler trifecta. It's Taking the country by storm. It's the most popular topic in America right now. Well, maybe not. Anyway, so here's your trifecta. Here is your trust. This should be the foundation of your. Everyone, all of you here, I want you to pull out a yellow pad piece of paper, write this down. When we meet with a client, we meet with clients all around the country in our law firm and accounting firm. We're going to build a trifecta with your game plan for the year. That's what we normally do. Your accountant or lawyer should be doing this for you. I'm going to split your life into two sides. Now, Dan, this is going to answer your question. You're going to love. It is I want your trust, your revocable living trust at the foundation. Married or single, rich or poor, kids or no kids, doesn't matter. Everybody should have a revocable living trust topic for another day. Your 1040 is down here. All the money, like water, runs downhill. Over here. You're going to be running your ops. Over here, you're going to be running your assets. This is your LLC with a rental property. This is your sole proprietor with your side gig. And you're going to graduate to an LLC and then an S corporation. Some of you need an S corp yesterday, but we're going to take our clients through this process of graduating to an S corporation because that's really where the tax savings hits. And if any of you are making 50,000 or more, you're making four grand a month in your multiple small businesses. I want to run them all through an S corp, one entity for all your businesses. Okay, now that's a side note, but let's say I've got a sole proprietorship here, and this is business number one. I got a little LLC going business number two. Or maybe I got a third business over here. I'm running out of here. Oh, and I've got a rental property. So I got four different businesses and I have one home. So what I'm going to do is figure out what my home office is, and I may go through the actual expense because you got a lot of square footage you might be doing, storing product or inventory or equipment in your garage. And so if I can really get a hefty home office deduction, let's say it's $1,000 a month because you got a good home office deduction. What I'm going to do is bifurcate it. I love that word, bifurcate. I'm going to take 25% of this and Write it off under the rental property, 250 bucks. I'm going to take another 250 bucks and write it off over here. Another 250 bucks and write it off here. So you only get one home office deduction. But I'm going to split it up under the four businesses. And now what that does is it makes you a far, far, far less target target for an audit. You get a freaking awesome write off. And we're going to spread it out over three or four businesses. Now if you're running it all through one S corp, I'm going to write off the thousand a month times 12 right here. And I'm going to call it a rent expense. That's a whole other topic. But anyway, so, Dan, one home office split up amongst multiple businesses. That's the way to do it.

Awesome.

Okay, Corey.

A lot of, a lot of people are very appreciative, Mark, you're breaking things down for them. Some people say when I talk to other people about this, my head explodes. But no exploding heads here today. So that's.

Oh, good, good, good.

So Mark just wanted to jump in when you. I'm gonna give you a plug. And there's nothing shameful about it. For Mark's book, the tax and legal playbook, because it's exclusive to anyone watching this. 10% off using the coupon code SAVE10. So pick up Mark's book with the coupon code, SAVE10. He's saving you money just by watching this. It's great.

Hey, Dan, can I interject that too?

Yeah.

This is me getting emotional too. I want to make you laugh, I want to make you cry, and I want to blow your brain up with cool info that you can use on an emotional side here. Everybody, I want to say thank you for watching. You are the smart ones for watching this. Everybody gets so hopped up on these workshops every weekend across the country where rah, rah, rah. And we're going to make a ton of money and everybody's fired up. But I'm begging my clients to say, you know what? How are you saving your money? How are you protecting it? Or how much are you keeping of that money you're making? Everybody wants to go to the fired up seminar. Making money and walking on fire, whatever the hell. How about we talk about a little bit of saving taxes. It's the ying and the yang. Every dollar you save is like a dollar you make, and I want to protect it. And your number one cost is freaking taxes. But no one wants to talk about it because it's too boring. Not here. Not on my podcast. Main street business podcast. Not on my books and my YouTube channel. Check it out, people. Keep learning this stuff. It'll change your life. And it'll make you more confident. You'll feel more secure and more fearless and running your business when you understand the nuts and bolts of it. It's not just making money, it's saving it and protecting it. Pen drop.

Awesome. That's great. So there's a lot of questions floating around in the chat about crypto.

Okay.

I'm trying to find one that encompasses them all, and there isn't. So they're just heard me loose. Yeah. Right. So, well, say I made a million dollars selling an nft, which. Which I did not, but, God, I wish I did.

What do I.

What do we need to know about investing in NFTs? Selling them, moving our money around in these different crypto wallets. How do people. How should people be keeping track of all this?

Okay, everybody, this is great. And I, I, I own crypto. I've got my own mine that I'm going through nice hash on. I actually own my crypto mine in my ira. Pretty freaking cool. And I also have a helium miner going, So I own NFTs. I try to do what my clients are doing, so I freaking understand it. And I love making money. So, okay, so everybody, I'm coming from a space that I'm kind of geeked out on this. So we will. Let's just dive into some tax issues. So when you come to. When it comes to crypto, and I'm going to say crypto in General includes cryptocurrency, NFTs, metaventures, metaverse. I mean, let's just call it the crypto industry. You have to kind of figure out where am I falling with the transaction I'm doing, because they're all going to get taxed a little differently. So I'll just quickly run through this, Dan, and then we'll hit another question here. But everybody. And I've got a crypto tax summit coming up in Miami in two months. I'll give you info on that here in a moment.

Okay?

Operations, investing. If I'm going to buy and sell an nft, it may be capital gain. All right, there's another type. We're going to talk about two types of NFTs. Then if I'm going to buy and sell crypto, it could be capital gain as well. So I want to grab. I'm going to put crypto right here. That's investing. I'M going to buy, hold and sell crypto. I'm going to buy, sell NFTs. Now, on the operations side, you might be running a metaventure, some sort of business in the metaverse. And you gamers know it's play to earn. Now you're getting money earned in cryptocurrency by playing games. You're going to get taxed on that, folks. So metaverse metaventures. Earning any money in the metaverse is just like earning it in the real verse, okay? I don't care if it's virtual reality or reality, you're getting taxed on it. And the IRS has a task force on this. So if you're earning money in the metaverse, that's subject to self employment tax, just as if you were running a restaurant. People don't think you're any more unique or special. Also, if you're doing crypto mining, that is a business operation, you're going to have self employment tax. And if I'm doing various types of staking, I'm going to have self employment tax. So when you're staking, mining or doing a metaverse venture and earning your running a business, people. Now the good part is I'm going to take write offs over there. But you're also dealing with a higher level of tax. Self employment tax, ordinary income tax. You're going to pay state tax and you're going to pay federal tax. It's going to be a rude awakening. Now, are you making money? Sure. Just know that you're going to pay some tax on it and it's okay. Now I've got strategies over here on the operations side that we could talk about here for hours, but you want to learn this and you're gonna say, I know some of you like, well, I earn my money in another country or I earn it in Nevada. I don't pay tax in California or New Jersey or New York. No, you do. Wherever you're a resident, you're paying state tax up. And the IRS in the state, they're coming after you. So don't think you can hide. It's a blockchain, people. It's public. I don't care if it's D5 or your cold storage, you're gonna pay tax. All right? Now dan, there's really two types of NFTs. I won't put you on the spot, Dan. I know that you know the answer, but we're going to move quick here. There's collectible NFTs and there are utility NFTs. Now if you buy and sell a collectible NFT, whether it's short term or long term, meaning you held it less than 12 months or more than 12 months and it does not matter, it's a flat federal 28% tax. So if you buy an NFT that's collectible and sell it and let's say you bought it for 200 grand and it's worth a million, that's and let's do the math, right, you, you bought it for 200k, that's your basis and then you're going to sell it for $1 million. That's your sales price. What's your gain? My, well my gain is 800k. So with an $800,000 gain, I'm going to pay 28% in tax. That's going to be close to 200 grand in tax that's just fed. Then you're going to pay state. You but you sitting down Dan, right now that's a collectible nft. Now if you purchase a utility NFT which could be an avatar, a spaceship and star atlas, it could be a utility that has some sort of function. That utility NFT depends on whether you held it less than 12 months or you held it more than 12 months. If you held it more than 12 months, you get long term capital gain which is a maximum federal rate of 20% plus Obamacare which is another 2.8. Now I've got in my calendar here, some of you, it's almost sold out. If some of you want to grab a calendar, this is the March. I'm not trying to again, I just gotta say it. I got a March Kohler calendar. Every year I produce one. It's got tax tables in it, it's got different rules for different states in the country, all sorts of tables on asset protection, da da da da da. But in here I can look right now and go oh, if I'm single or married, max rate of 20% then Obamacare or ACA is actually 3.8%. I'm sorry, I just blew that. And then you've got your state. So Dan, if I held an NFT utility longer than 12 months it's 20% plus 3.8 plus state. Where if it's a collectible it's a flat 28 plus state. Then if I've got utilities less than 12 months, I'm going to pay ordinary income rates which is whatever your basic rate is based on your day job and everything that could be as high as 37% plus state. So it can get ugly Quick. Now, crypto, it's the same rule as the utility nft. So if I buy crypto, I have to ask you, have you held it less than 12 months or more than 12 months? And then we're going to go through an ordinary tax if it's less than 12 months. And if it's more than 12 months, you're going to get this long term capital gain. Now one of the questions that people ask there is, well, Mark, did I set up an LLC? No, LLCs do not save taxes. LLCs protect your crypto. See, LLCs is about protection. You're texting and driving. Get in a car accident, someone might take your crypto. Well, it's offshore. And defy. You don't think I'm going to find that in a lawsuit? We'll find it. Good luck. So we want to do protection for your assets. This Friday, three days from now, we're doing our crypto legal summit. And there'll be a little icon here if you want to look at that. It's three days from now, a crypto legal summit where we're talking about raising capital to do crypto projects, the DAO metaverse and asset protection and estate planning. So anyway, that's another topic. So Dan, in summary, when I buy and sell collectibles, buy and sell utility NFTs or buy and sell crypto, I'm going to have to deal with this crypto tax. I'm sorry, collectible tax or short term capital gain, which is the same as ordinary income, or I'm going to have long term capital gain. Then this over here, people. This is doing business in the metaverse. Whole other topic in fact, right here. Want to check this out. Everybody right here. I just grabbed this magazine. This was just want to throw this out. There's an article today. It's right here in my bag. I would pass on it whole this. Billions of dollars are going into the Metaverse and why Facebook changed their name to Meta. This is the future of, of just transactional money in doing business. I have clients that own rental property in the Metaverse. Making money on rental income, virtual real estate rental income blows your mind. Okay, Dan, what do you got?

That's great. Well, what can you remind people about this, this summit? I think there's probably a little bit more that you can explain about this topic. We don't need to do it here, but this summit sounds like it's pretty good.

Oh, thank you. We've got the crypto legal Summit this week, March 7th. What is it, Corey? March, March 18th. March 18th. It'll be recorded. You'll be able to purchase it afterwards if you'd like. And if you can't make the whole day. But there'll be Q and A throughout the day, four to five attorneys talking about all sorts of strategies. And then we got the Crypto Tax Summit. Guys. It sold out in Phoenix in February. The crypto Tax Summit is going to be in Miami May 19th and 20th. Sorry, 19th and 20th. And we're going to have cocktail parties, VIP groups. We're going to sell out again. It's 350 people live. It'll be virtually broadcast. The IRS the first question on the tax return this year. First question, when you go to do your taxes after your name, first question, did you buy, sell, trade, blah, blah, blah. I'm not quoting it exactly. Did you have any transactions in cryptocurrency? That's the question. The IRS is all over this. So people, if you want to learn strategies all the way. If you want to go to move to Puerto Rico, we're going to cover Puerto Rico. We're going to cover capital gains, short term capital gains, mining, staking, defi, cold storage. We'll cover it all. Crypto tax summit, May 19th and 20th. Just crypto tax summit dot com. Okay, Dan, next question. Let's rock it. I don't want to be like an infomercial today.

Let's rock it. So returning to the, to the actual world from the virtual world, a lot of questions about s corpse. When do you make the. When do you make the jump?

Oh, I love it. So let's go back to our trifecta. And I just work off this every day. I'm going to use my boy, okay? Rental properties, llc all day long. Iras, you want to buy, do mining or buy real estate in your IRA or 401k LLC. We do that all day long. That's called self directing. This is the passive side. And we're only going to use LLC over here. Loss. These are for protection, coordination, pooling money. Retirement accounts. LLC is, are on the right side over here. If you're a sole proprietor or an llc, you're still not saving taxes. Now, I'm going to use my example of my daughter Sydney. She's a realtor down in Orange County, California. If you're looking for a home, call me. All right, now, so Sydney's down there as a realtor. Now some of you might be doing online sales, affiliate marketing. You're a dentist, you're a landscaper, you're a contractor, you're Selling crap on ebay. Whatever. If you're driving Uber, okay, you're a sole proprietor. Let's say you bring in 100 grand, you spend 25,000 on expenses. We write off cell phone, home office, auto, dining, computers, equipment, Internet, da da da da da. So we write off all these goodies, you net 75 grand. Your first tax people. And this is going to answer the S corp self employment tax, 15.3%. It's going to be $10,000. Haircut right off the top. Then federal, then state people. You could lose 40 to 45% of your income in the first cut right here. Just se federal, state. You're like holy hell, right? Not good. LLC, same story. LLCs do not save taxes. Now when do we make the transition and why? If I was an S corporation and I made the same hundred grand, apples to apples, same 25 grand in expenses, and you do you get the same damn expenses? I'm going to write off cell phone, dining, blah blah, blah, blah, blah blah blah, home, office, everything. If I net 75 grand. Check this out. No self employment tax, no corporate tax. It's not a C corp. No corporate tax, no Obamacare or aca. What, so you're saying I just run it through an S corp and I don't pay any FICA? That's the F word. FICA. What? The FICA. I know some of you might have little FICA's running around your house. They're called ficus. That's our F word. Accountants. We hate fica. FICA is Social Security and Medicare. Well, you have to pay your fair share. So what we do in an S corp is we do a split. We're going to take part W2 and part K1. It's kind of like a draw or a dividend. Now you accountants out there, buckle up because you're going to go. Mark, you're too aggressive. You're freaking me out. I've got a matrix, you can Google it. I have had ex IRS agents on my show. I have a former IRS agent as a partner. In 20 years, we've never had a client audited for taking too little of payroll. If we sign your freaking tax return and we claim too little of payroll, we'll pay the penalty and interest people. We are confident there's a matrix that'll save you money. Joe Biden had an S corp when he got his book deal. Before he was a president ran a payroll allocation of less than 5%. Now in this example, I'm going to do a 30% allocation just for Fun. This may work for some clients, maybe not others, but we're going to be in this range. I'm going to take 25 grand and a W2. The rest is draw or pay. Draw or K1. I pay my FICA over here, but I paid no self employment tax on this 50 grand, that's 7,500 bucks. I just saved $7,000 by converting to an S corp. And some of you are like, well, yeah, but it's $800 for an S corp in California and I got to do a tax return and I got to do payroll. Okay, you're right. The S corp's going to run you 1,000 to $2,000 to maintain it. But let me do the math here, Dan. This is hard math. Help me out. Spend two grand, save 7,500. All right, I'll hold. This is really hard. Okay, just a second. Spend two grand, save 7,000. I think that's good math, people. And the more money you make, the more you freaking save. Now where's the break even point for us when you start to net around 40 grand? I'm going to convert you to an S corp. Now my daughter that's a realtor back in Southern California, I set her up as an LLC. You say, Mark, you just said realtors that make 100 grand, they should better be a frickin S corp. You're damn right. But I set her up as an LLC to see how her year went. And if it went well, I can backdate her into an S corp retroactively up to a year. Now she's an S corp moving forward so the LLC can be converted to an S corp. Now it's really expensive to convert. We charge 200 bucks, people. If you're making more than four grand a month in any sort of small business, you better be frickin looking at the S corp. I got a whole chapter in my book, tax and legal playbook. I put my money where my mouth is. We stand behind it. We know it works. We've got a payroll allocation method that works. It could range from 50% allocation to 20% allocate. We're going to find what works for you in the part of the country you live in, what type of business you have. Dan, every small business owner making more than 40 grand net better be a frickin S corp in my book.

I think you better create an NFT of the pen drop. I think that's going to be worth millions in the coming year. So a lot of great questions, decent advice from Mark. You know it was okay. Seems like he knows what he's talking about. So no. Incredible advice as always. And I do want to mention again, his book, the Tax and Legal Playbook, exclusive to you watching right now. You could get 10% off using the coupon code. Save 10. I want to sneak in one last question that kind of dovetails into real estate and what you did last year. So Rod Villa asks, I bought a property in 2020. I made improvements in 2020, but I started renting it in 2021. Can I claim the improvements I made in 2020 in my 2021 Airbnb?

Hmm. Okay, just a second, Corey, and we'll go to the whiteboard. By the way, so many great comments. Thank you so much, everybody. Jocelyn, Josh, Matthew, you guys are so kind. I wish I could just be here with you and answer all these questions. Let me say I. My podcast, Main Street Business Podcast. Check out the book. I got great YouTube videos. I do a business owner's workshop around the country starting in the summer, throughout the fall. I've got plenty of content that can be extremely affordable. I'm launching a new membership site in the next couple months. You can get all that. It'll save you thousands. Thanks, everybody, for your kind words. And, Dan, thank you to entrepreneur. And thank you, Dan, for having me. This is just so huge, and I just. I just. I'm so grateful for all of you geeks out there watching this, because this is where the money's made people. Geeks run the world. You know it. All right, okay.

Well, on behalf of everyone, before you jump in, thank you, Mark, because this has been incredible. But, but. Go, go, go, go.

All right, Corey, let's go. Whiteboard. All right, so we got an Airbnb. Now, remember, in our trifecta over here, we got our operations over here. This is where my might have my dentist or my. My Realtor or my contractor or whatever. That's this side, but the rentals are over here. All right, so I set up an LLC. I buy a property in 2020. I'm going to put improvements in it. And let's say I bought it for. Say, bought it for 250. And some of you in California are like, would you buy a shack? All right, but hang tight. So I purchase price was 250. I put improvements of 50 grand. I'm into this thing, 300 grand now. You're working on it in 2020. And then it goes into service. That's the key word accountants want to talk about is it goes into service. Into service in 2021. That's when it started to rent as an Airbnb. Now can I just say as a side vrbo, Airbnb, freaking awesome strategy. I just got chills, Dan, when I started to say that. I love it when clients do not buy a vacation home to live in. They buy a vacation, a vacation home to Airbnb or VRBO and then they can stay at it up to two weeks a year, tax free. Still call it 100% rental. And the days they stay there and fix it up are considered work days. You're getting a travel expense, a dining expense, tools at Home Depot supplies. And when you stay there, it's not renting because you're working on your Airbnb. So I always want fix up days for your Airbnb that you're going to go stay out, don't have a drain on your life with a second home. Turn it into an Airbnb or VRBO. I had a meeting on this at 11:30 this morning before I walked over to the studio. So powerful. So I'm loving the Airbnb vrbo. Now, it doesn't work in every county, city, state. Well, county or city states, you know, they're all. But you got to find out if it's zoned properly for that before you just go out and spend your money, do your homework. There's great education on that. Okay, now I'm going to be blunt here. I would have frankly put it into service in 2020. I would have written this off in 2020 because it was a business preparing to be sold and rented, or sorry to be prepared to be rented. What you could write off is your operational expenses as you were getting ready to turn it into a rental. The improvements. See, we've got to take this number of improvements and divide it into two pieces. Operational expenses versus improvements. For example, your cell phone in 2020 would be operational. You put in a water heater. That's an improvement. A lot of expenses are repairs. So if you're going to paint, I might write that off. Probably would. Paint would be a write off. Putting in a new wall would be an improvement. So anything. So let's what I. The first thing I would do is dissect this 50 grand and I may say, well, 20 grand of that was improvements. I'm sorry, 20 grand of that were repairs. And so I'm going to write off repairs in the year you incur them. Improvements have to be added to basis. So now your basis might be 275 with an allocation for land anyway. So that's number one. Everybody. You got to realize you've got repairs and improvements. We got to dissect that next. I'm going to put it into service the minute you buy it because it's going to be a rental. 2020 is water under the bridge. So whoever asked this question, you're going to write this stuff off all in 2021 and the repairs and improve. Now, if you didn't write off the repairs in 2020, and I think this was the question, Dan, is they're saying I spent money in 2020, but I turned it into an Airbnb in 2021. Hell yeah. I'm writing off all this crap in 2020. I'm going to add it to basis though, because you're late. You didn't write it off as repairs in 2020. So I'm going to probably add it all to basis. Now, people, what this looks like is you've got this property and the land is going to go on the books at about 20%. So let's say you're into this thing. 300 grand. I'm going to probably allocate 60 grand to the land and 240 to the building. And then I'm going to do depreciation. So your expenses in 2020 we're going to write off, but it's going to be under a depreciation strategy from now on, people. I want operations and repairs to be an immediate write off anyway. Dan, I have a check, a whole chapter in my book tax and legal playbook 28 game changing strategies. One of them is rental real estate. Talk about this all day long. Love it, everybody. So, Dan, thanks for having me. I just. So fun.

Let's. One last pen drop, please.

Boom.

There it is, people. Well, thanks. Thank you, Mark, for all this incredible information and for everyone, as you said, who tuned in, we love the questions. We're going to do this again. So if we didn't get to your question, you know, keep it in a file, we'll do it again. Check out all of the great stuff going on on Mark's website and of course the book. One last time. We've got that, that coupon code. It is. Where did I put it? The tax playbook. Save 10, get 10% off. Mark, awesome, awesome stuff. Great to talk to you. Thanks for the questions and we will see you all again soon.

See you soon, everybody. You can be a rock star geek. Just go pick one up at your local store. There you go. That's my.