Maximize the home Office deduction | Mark J Kohler LIVE |

Everybody to this week's live Facebook, YouTube, Instagram broadcast. My name is Mark Kohler, CPA attorney, and I try to keep tax strategies understandable, practical and real. Where I save you money, sometimes it's easier to make money by saving it than going out and working so hard to earn it. So my goal today is to save you some taxes and we're going to talk about the home office deduction. So after that it's Q and A. Talk about anything you would like, maybe the NFL playoffs. I can give you my predictions. No, that's not worth your time. But we can go into the Q and A that you might find helpful for you in your small business building your American dream. So the home office deduction. Now this is a tricky one. So we're going to go to the whiteboard. Corey, how are we looking on that? That little flickering is just my monitor. We're okay on the broadcast? Okay. All right, so we've got our whiteboard here. So let's talk about the home office deduction. How's the volume? Are we okay? Should I get closer? Look where it's at on the tv. Oh, okay. I got to come in a little lower. Okay, I see that. Home office deduction. Alright, now here's the plan. With this, the first thing we have to determine is what area in your home can qualify. Now, the movie I love for this, and this is so cool, is the movie the Accountant. And oh my gosh, I forgot his name at the moment. Cory Ben Affleck. My hero. I can't believe it. I've got a lot in my mind trying to organize this presentation for all of you. And do you want to put Instagram a little closer? I feel bad that they're catching my side view here, but here's the deal. In the movie the Accountant with Ben Affleck, in the first 15 minutes, he sits down with this little couple and talks about the home office deduction. I tried to talk my director and producer into showing that clip today, but we'd probably get blackballed by or blacklisted one of the2 on YouTube or Facebook or Instagram. So I can't just show that without a copyright infringement. But if you haven't seen the movie the Accountant, I think you should go see it. And that first 15 minutes, Ben Affleck, the writers did a great job of nailing the simplified option. Now, exclusive use of the home, we're going to get to. That was maybe a little push in the movie, but we'll see. All right. So does the space Qualify. That is question number one. Does the space qualify? Now let's go through what is a two part test. First rule is this is right out of the code, and this has been litigated all the way to the Supreme Court countless times. And IRS code sections, revenue procs, tax memorandum, tax court memorandums. This is good stuff. And I'm bringing you the most current law on this. So the first test is it has to be a regular space and regularly used and exclusively used for your business. Now, this may seem difficult because some of you are like, hold it. I go into my home office and I return Facebook messages in the middle of the night eating cereal in my underwear. I didn't hear about that. I don't want to visualize that. Neither does the irs. So I want you to feel ethically confident in saying this space. And we're going to come to the dollar amounts and how you figure it out. But how much of this space do I use exclusively for my home office? And there's a rule we're going to come to here in just a moment on the one foot office space and why we would want that. But let's just say you can find that regular space in your home that's exclusively used for your business. That's the first test. Garages can be used for storing things inside the walls of your home. Or you could have a storage shed that you use for equipment supplies for your business. When I was going through college, I had a janitorial business and I had this separate space that we put all of our tools and supplies to go out and clean buildings and restaurants. Now let's think about this. Let's step back for a minute too, with the COVID pandemic. Do you know, before COVID about 3% of America's workforce worked from home for either their own business or for companies. Now that estimate is over 40%. Now, once all the pandemic concerns settle down, the vaccine is out, how much is that workforce is going to go back to the corporate office? I don't know. I think we're going to see a pretty good number of people staying at home and giving up on the main street office space that they may not need. So this is an important topic. And all of you that have a side hustle or a side gig or even drive for Uber, I want you to have a home office, okay? Very, very important. So let me get the second rule out there and then we'll beat this up. The second rule that you have to meet, you got to do both. Is it's your principal place of business. Now, for some of you that might be driving Uber, you'd be like, I don't have an office space downtown. So that's easy. Check. That's my principal place of business. I get on my computer, I do my bookkeeping, I plan my day out for my business in this exclusive area for your small business. But what about those of you that do have an office? Maybe you're a realtor and you share office space at the brokerage. Maybe you're a dentist or a doctor or an engineer, a plumber, electrician, a consultant. And there's an office space that you can go to during the day, but you also have the home office. Now, this is where court cases in the past would. The IRS would win in these court cases because the principal place of business was the Main street office. And so they said, you can't have a home office. Well, the Ways and Means Committee, and we could read it and all this. And Congress changed the law for this very issue and said, hold it. If you are going home to do administrative duties, administrative office duties. And I've got an article on this, and it's more in depth, but bookkeeping, phone calls, scheduling, emails, something like that, you're able to go home and do those and call your home office, the administrative office. Now, one of the key rules is that these are tasks you don't do at the other office. So let's say you meet your clients, customers, patients, whoever, at your principal place, maybe down on Main street, but you come home to return emails and da, da, da, da, da. That is your administrative office. You now check off number number two or B in this example of the two tests to show that your office qualifies. Now, on this exclusive thing, I don't want you to stress out too much about this and make an important point. Two of them, some of you are like, Mark, it's not worth taking the home office deduction. It's a red flag. Bullcrap. I want all my clients taking the home office deduction. So don't stress out going. It's not worth it. Because there's an additional side benefit many of you may not realize. Once you have a home office, wherever you go for your business is now not commuting. That's a business errand you're running from your home office. For example, let's say you're a realtor and you go to the office every day and you've never taken a home office. So when you go to the brokerage office, that's A commute. You can't write that off because you're going from your personal home to the office down on Main Street. Well, now that you have a home office. Oh, now that's not commuting. I'm just going to my other office. Let's say I did some math with this for fun. Let's say in that little example, your home office to the Main street office is 15 miles. So 15 miles to get there, and that's probably average around the country. If not, many of you have bigger commutes or shorter, but then you got to go to the other office and come back. So that's times two. You've got 30 miles a day. Well, what's the mileage deduction this year in 2021 is 57 and a half cents per mile. You multiply that out, that's $7 and 20, $17.25 and right off, every day. So by converting your home space, some home space, and I'm going to come to the one foot home office just to pass the IRS test. Once you can get this home office deduction. Now, all of these miles that would have been commuting to the other office are now business miles. $17.25 a day times five days a week is $86. 25 cents times 52 weeks a year. That is $4,485 write off. Boom. So with COVID working from home and taking the home office deduction, when I do go to the other office on occasion, maybe daily, now I've got a pretty substantial tax write off just for auto, even if the home office deduction is smaller than you'd hope. Okay, now here, let's go back to this exclusive issue. Albert Mills, in a case back in 1983, had an apartment that was 485 square feet. That's not too big. You pace off the map. That's like a New York City apartment flat. Right? How could he have a exclusive area for his home office? He was a rental property manager. So in this case, he said, I had one cupboard that I dedicated that I had all my tools and supplies in or my books, and. And I'd open up the cupboard and I'd sit down and work there. With a small home de minimis rule, if you have a smaller home, and this applies to all homes, frankly, they said walking through this space does not ruin the exclusive tivity. But if you say, this is my office space and you go in there and do personal things like return Facebook or whatever and Facebook and social media to Me is business, but for some reason, you're in that space and it's obviously personal, like the kitchen table. That's not going to work for the exclusivity test, but walking through the area is okay. So what Albert Mills did, and this is a recommendation that many accountants will use, is they'll say, create a cupboard that you can close and it holds all of your business material. It's exclusively used for your business. It may be three feet, but you now have a home office. Walking past it is okay. Now, if you open up the cupboard and sit down and work, well, where you're sitting down doesn't count because that's, that's a walking area and it's not exclusively used for your business. So that rule actually opens the door to having the home office. So I can backdoor in the auto deduction. Now, guys, I know this may sound a little anal and all this craziness, but I think this is really important and fun because taxes are the number one cost in a small business owner's life. You may have rent, you may have employees and all that, but the bottom line, you're paying taxes every year, year in and year out. If I can cough up an extra 4, 5, $10,000 in a home office and auto deduction, and you're in a 25% tax bracket, I just saved you $2,500. That's a cruise in the Caribbean. So this is worth taking care of. Now, so we've got our regular used principal place of business, and I'm going to use the administrative office. So let's say all of you are like, mark, I got it. So I got a home office. Now, maybe it's 2ft, maybe it's 500ft. But now what's the write off for the home office? Okay, so let's do part two here. Part two is. Or question two is how much can I write off? Now, I've already gotten auto in the back door. Think of the home office back door. Get it? I came in the back door of the home to get the auto write off. Okay, how much can I write off? Now this is fun. Let's just go through this. And I apologize. Now, this is a chapter in my book. Do I have the book right here. Okay, now those of you here today, I'm going to give away probably two or three books today. Can we do that? So what happens if you guys share this message? I'm sorry, share this broadcast out on social media. I will randomly choose two to three winners. And is there any way to announce it during this broadcast. Can we figure that out? Okay. But we'll try. But I want to announce some winners today. Maybe we can randomly choose those based on shares. And I'm going to give away the tax and legal playbook. I have two or three pages in here just dedicated to home office. Whole section on paying your kids. Why do I need an llc? Why do I need an S Corp? Should I have a trust? How do I write off my auto? All these freaking awesome strategies and I make it so you actually want to read it. And it's an audiobook and Kindle. All right, now how much can I write off? Now this is important. There's three ways. For those of you that are an S Corp, An S Corp doesn't have a home. You're an employee of your S corp. You have the home. So we're going to go through that in just a moment. The next way is the regular method, which has been around for 50 years. So the regular method. We're going to talk about that then the simplified method. Now for those of you where I'm slowly losing you and you don't want to listen anymore, I'm going to start with the simplified method, just so that's out there. And then you can go. I'm going to go to the bathroom and make a sandwich and come back and listen to Mark do open Q and A. But the simplified method is this. You can write off up to $5 per foot of home office space. Up to $5 a foot, up to 300ft. So that's approximately a 15 by 20 foot space. My studio right here is probably just right here. My table to the wall in here is probably 15 by 20ft. That's a home office of 300 square feet. So you get to take $1,500 as a maximum write off. Done. That's it. There's no other calculations. I don't care what your rent is. I don't care what your utilities are. I don't care what the other square footage of the house is. As long as you can say again that 300 square feet is exclusively used for my business and I'm using it as administrative office or it's my principal place of business. Remember those two rules, A and B, they're in my book. And you can study up more in my article. Boom, you're done. Now here's where this is. Nice, everybody. Now you know I do the trifecta. If any of you have watched my videos before, please get over to YouTube. You'll love them over here. Okay, I want to make sure everybody can see this. We have our trust. And here's many of you have the side hustle. And this is your little sole proprietorship. So you might have a sole prop and some of you may have converted to an LLC or graduated to an S corp. So you can have the side hustle here. And then the full time small business is when you start making 30 or 40 grand a year. We're going to get you over to the S corp. Other videos on that. Now over here we're going to have your IRAs, your Roth, your 401k, all these goodies. And then in this bucket is going to be your rental property. And I like all my clients to consider trying to buy a little rental property every year. Once you're out of debt, you own your own home. If possible. You then you're in a good area for that. We're going to buy a rental property. Well, look at this everybody. You can take the home office deduction in your rental property business. That's a side hustle. Owning rental property is a side hustle. Everybody see that? Cory, are we doing okay? Okay, so there's our side hustle llc, home office deduction. Now for those of you that are like, well, I have a side hustle over here. I'm driving Uber, I'm selling crap on ebay. I. I'm doing grubhub or doordash. Okay, that's cool. You're selling consulting services on upwork. Okay, you can do the home office here. You could actually take that $1500. Remember the Simplified. It's up to 1500. You could do 750 here and 750 here, but you can't double dip. I can't take the same space and write off 1500 here and 1500 here. But why not take 750 in each one? Now it's lower risk. Boom, boot, a bang. And I'm getting auto deductions every time I take off from the home to go look at my rental, to go meet with customers. Clients or go to my other office. Boom, pen drop. Alright, now that's the simplified method. All my clients at least take the simplified method. I want all my clients to at least have a cupboard that's dedicated to their business supplies and materials and they can open it up and work as a home office. But that cupboard is exclusive to their home office. That's it. You're in. All my clients at least do this. If your accountant isn't freaking doing this. You got A bad accountant, talk to him. Say, watch Mark Kohler's video on this. All right, now the regular method, this is where things go back to probably what you thought generally existed. And that is you take the square footage of your home, okay, let's say Your home is 2,000 square feet, okay? Then you take the square footage of your home office. Now that could be a portion of the garage, it could be one room, it could be part of one room, part of another room and a part of the garage. But let's say the home office square feet adds up to home office adds up to 500. So you've got 500 square feet of home office. So you do the math. 500 divided by 2000 gives you 25% of the home is now home office. So you need that percentage. That's the first thing you do now that 25%, you multiply it by your mortgage interest if you're buying the home. Okay, let's let me clean this up a little bit so you people can actually see this. I'm using bad handwriting here. I want to kind of get rid of this here so I have more space. Alright, so let's say I go back and I take this home office and I multiply 25% times the mortgage interest, the rent, the utilities, the property taxes, those are the biggies. You might have lawn maintenance, HOA fees, all those things. You add up all those and multiply it by 25% plus you get depreciation on a part of the home. Now I know some of you are freaking out. Mark, when I sell a home, I got depreciation recapture and I've got a gain. I can get you out of those. Going to come to that. But we're going to get depreciation and we're going to get the home office deduction. And this freaking rocks. Now I've had clients in Orange County, California, they're writing off $1,000 or more a month in home office. Or I've had clients and maybe a Midwest little farmhouse and they're writing off $200 a month in home office. It depends. You're going to take a percentage of this times these expenses. And if you rent, that's okay, you don't have to own the home, you're going to take a percentage of that plus utilities, hoa, property tax, depreciation, blah, blah, blah. Okay, now once we've got this number, that's our home office write off. And if we're here, we're going to take this home office write off in the LLC or the sole proprietor or over in our side hustle for real estate. We're not going to do that in the S Corp. I'm still coming back to that. Now let's do some math here. This is where everybody and I get a little hate mail. People go, mark, the home office is terrible because when you go to sell the home, you're going to have recapture of the depreciation and you got to pay gain on that. Nope. This is where Revenue RevProc 25 to 14 comes in and where I try to be a good cpa, do the research and give you some ways out. So let's say you bought this home for 200 grand and five years from now you go to sell it. Okay? And it's now worth 300 grand. Alright, so purchase price 200, sales price 300, you had a gain of 200 grand. Now when you have sell your own personal home and you've lived in it two out of five years, you get code section 121. Code section 121 says that if you're single, I can exclude 250,000 in gain. Boom. Pay no tax. If you're married, 500,000. Boom. And you can do this every two years the rest of your freaking life as long as you live in it two years. Any gain up to 250 if you're single, 500 if you're married. Done. No tax. Oh, but Mark, this little part here, that 25%, that was home office and I depreciated it and by calling it my home office, that's a commercial building inside my own home. So when I go to sell the home. Oh, oh, did I say gain of 200? Boy, I'm doing. Some of you are freaking out going, Mark, your math is terrible. I'm trying to explain my point here. Hopefully some of you laugh there and go, Mark, we know you're a human. Okay, so 300 minus 200 is $100,000 gain. Some of you were freaking out knowing Mark is an idiot. Okay, $100,000 gain. Well, 25% of the house was commercial, so what does that mean? Oh, of this $100,000 gain, 25,000 of it was business, it's commercial. So now I've got to pay capital gain on that. Well that's not good. Uh oh, cap gain. Well this is where and I'll write it up there for you accountants out there. RevProc 2005-14 says you can apply any of this gain under 121. That's excluded can apply it to any home office gain. So I get to use up to 250 or 500. And I can include this in the exclusion. I pay no capital gain. You want your Accountant to reference Reproc 2005-14 if there's any audit issues or when you report that. So there's no gain. Well, Mark, I did depreciation though. So let's go make that red. You know this is red, very important. We did depreciation for five years on this little home office and you got an extra thousand dollars a year write off. Let's say it's probably more than that, but let's just say it's $1,000 a year times five. That means you had $5,000 of depreciation and you got to recapture that. Mark, 121 doesn't do us any good on that. Well, this is where code section is. 1031 comes in. So IRC 1031 says if you go out and buy a new home of equal or greater value. So you're going to go out and buy a different home and you're going to go in here and get this new home. Now you've got depreciation recapture that rolls into the new home. Frankly, the way that you would get by on this is as long as you buy a new home where the new section of the home is of equal or greater value allocated to this home office. So think about it. When I sold the home, the home was 300,000. What's 25% of that? Let's just pull out our nifty dipty calculator here so I don't jack that up. Some of you are already typing it in the chat. I know, but 0.25 times 300,000 equals 75,000. So the home office was worth 75,000. So if the new home office in the new house I go get is 75,000 or more, then I don't pay any tax on the depreciation recapture. That's code section 1031. So if we do it right, we've rarely had a client pay any tax. Had a client pay any tax on this deal. Now let me point out something. Some of you may go, Mark, this ain't worth it. $5,000 in write offs. It's not. It's no good. Hold it. What if I told you the IRS would give you $1,000 write off every year and you could use the tax savings any way you wanted, but in five years you've got to give me the tax savings back. Well, hold it. So you're going to give me an interest free loan from the IRS where I can use that tax savings any way I want for five years and then I just have to give it back in five years, that's all. No penalties, no interest on the money. Sounds like a pretty good deal to me. That's depreciation, recapture. It's not the end of the world, people. Take the freaking write off. If the IRS is going to give you a write off, take it, give it back if you have to, or make you use your accountant that knows what the freak they're doing to get you out of it. So that's the get out of jail free card. Oh, I don't want to say get out of jail. Right, but there you go. Okay, now let's go over and now talk about, finally the last piece of this is let's talk about the S Corp. Well, the S Corp, like I said before, can't have a home. Only an employee can have a home. A person. So what we do here, and there's all sorts of methods that are out there, you could rent the home to your S corp, you don't like it, now you have rental income. A C corp has a different method which I hate. C Corps. For small business owners. The best method, tried and true amongst the CPAs I really look up to around the country is the home office reimbursement. And so what you do is you calculate what the home office expense would have been under Form 8829. Because when you go to do the regular method, you're going to fill out a form called 8829 and you're going to attach it to your tax return. But when you do the S Corp, there's no form like this, but it's good to fill out, fill out the form and figure out what would my home office deduction be if I would have done the regular method. And then that's what the S Corp reimburses you. Now what's cool is, and let's go over here to our picture here in your S Corp strategy. Let's make this blue. What happens here is the S Corp comes down here and gives you a reimbursement. Let's say it's 400amonth. So you get $400 a month on the books. You can have the S Corp really give you $400. I don't care. It could be a journal entry or it could be an actual $400 check, but you get $400 every month out of your S Corp tax free because it's just a reimbursement for you letting the corporation use your home office. The S Corp gets a Write off of $400 and you get $400 tax free. Pretty cool. Multiply this out. That's $4800 a year of tax free income and generated by your small business. Okay, here's the catch. What do I have to do to qualify for the S Corp home office reimbursement? Well, you still have to prove that it's exclusively used as a home office, that area and that it's your principal place of business or you're using the administrative office exception. So you still always got to do. Remember at the very top we talked about these? You always got to meet those two exclusive regular principal place. And the administrative office is your way out of option two or issue two. Okay, so we go back here. What do I have to do to make the S Corp thing work? It's very easy and I wrote it down here for you. You got to meet those two tests. So I'm going to put the two, two normal tests you got to do anyway. You got to meet both of them. Okay. You have to do an expense report and turn it in to the corporation. And that's if you're the owner, of course. You're going to do a report and put it in your corporate book and give it to your accountant. You have to do an expense report at the end of the year and substantiate what those expenses would have really been. And this is where I like that form 8829 because it's going to tell you kind of what that write off should be. And here's the big one. You have to have an accountable plan. Now guys, you're going to love this. What an accountable plan means is that in your minutes for your S Corp, whenever you have an S Corp, you've got bylaws, you've got a corporate book, you've got stock certificates, you've got minutes. And this is the same thing for you. Of you that have an LLC taxed as an S Corp. You've got all this crap. And if some of you have one sheet of paper from a legal zoom, and legal zoom is great, but if you just get one sheet of paper, you don't have a full corporation. You got to be doing your minutes every freaking year or your corporation is not going to give you protection in an audit or a lawsuit. So in our company maintenance program that we do in our law Firm. We've done it for 10 plus years. Is every year we give you the questions to go have your board meeting in Cancun or Hawaii or Detroit, Michigan, or on the mountain skiing in Denver. I don't care. You have your board meeting, and in the board meeting minutes, you include accountable plan language. And it says, I'm going to reimburse auto for my employee. I'm going to do home office. I'm going to do health care. And all these little things should be in your minutes. Our company maintenance plan includes all that. You don't even have to go buy it or set it up or worry about it. It's already in there. Our company maintenance plan is 150 bucks a year. Now, you can do it anywhere you want. This is not an infomercial. But I'm just saying you got to do your minutes every year anyway. Will we include the accountable plan in your S Corp minutes? You turn in the report. Done. You just substantiated the write off. IRS is happy you're getting better asset protection for your S Corp. Finished. Completed. So, by the way, in the month right now of January, mid January to mid February, in our law firm, the company maintenance service, 100 bucks. It's our annual special. We do it every January to help people out. Now, if you're already on our plan, it's $100 for any new company you put on the plan. So it's a hundred bucks. And if you want to sign up for it, it's kkoslawyers.com just get over there. The special. You'll see a banner right there. And sign up. And guess what? That'll take care of this. Home office. Accountable plan right there. Okay. Well, my friends, thanks for letting me explain all that. That's the home office deduction. It's a big deal with COVID and more and more people working from home. I hope that was helpful. I've got articles and little YouTube vids on that as well. Study up on it. Use it. Make sure your account is taking advantage of it. You're going to love it. Now it's time for Q and A. I'm all yours. Huh? Now, I'm going to start with Facebook for just a moment. Oh, look at all these people. Shared, shared, shared. We got people that want to win some books. Should I give away more? I should. Maybe I'll give away all my books. One of each. Okay. Oh, and the new calendar. Yeah, the new calendar. I'll give away a new calendar, too. All right, everybody hang tight for a minute. Let's do some Q and A and then I'll give away some books. And I want to say thanks to all of you for being here on Instagram and YouTube and Facebook. I love the American Dream. I love small business. It's hard. I was up late last night working too. But I love controlling my own destiny. So I hope many of you find this helpful. Thanks so much. All right, let's look at the Cameron's like backdooring. It does sound a little anal. That was a good pun. That's rare too. Yep, we're being a little now, in the accounting world, anal means that you're being very technical and careful. Cameron liked to use that as a pun. I appreciate that this is a PG show, so I better leave that alone. Mike says, awesome. Never had heard about this. I love it. Claudia, can you deduct home office used for several businesses and percentages according to the percentage of income each business brings in? Claudia, here's the thing. Let's say again, you have multiple businesses. One, two, three. I have clients with two or three or four businesses. You get one home office deduction, whatever that dollar amount is. So, Claudia, let's say you come up with a $4,000 home office deduction. That's what you would be entitled to. Well, write off 500 here, 500 here, 1,000 here, 1,000 here, and 1,000 here. You just spread it out. Now Claudia says, well, should I spread it out based on the income of each company or the number of employees you freaking figure out the way you want to do it. Just spread it out and find a good reason for it. Now I'm going to come to Instagram questions in a minute and I'm going to do a 60 second rapid fire answer for each Instagram question. Sherry said, loving this. Thank you so much. Anthony says, I just bought the tax and legal playbook. Thank you so much. You're going to love it. Portia says, she shared it, Anthony, but I do not have your other ones. Hopefully, Anthony, you're going to win today. Brazilian food. Shared, shared, shared. Keep going. Okay, Jan says, can I write off buying your book? Abso freaking lutely. And that is a tax term. Abso freaking lutely. You can look it up in the code. Josh says Tracy shared, da da da da da. Great information. You guys are so kind. Let's look at a question here. Okay. Daniel says, will you be doing a revised edition for your book with the new administration? Yes. This was second edition. After Trump and the GOP passed the tax cuts and jobs Act. Joe Biden and the new Congress, which is Democrat controlled, is going to do a new tax bill this year. So stay tuned. In fact, many of you, please. If you haven't signed up for my newsletter, it's free. I've been doing it for 12 years. Tonight I've got to get it out. I've been working on an article all day for it. But the newsletter, you can sign up for it@markj kohler.com and as Joe Biden and his team passes new legislation, you'll get answers that you can understand there. First, Mike says the gain is 100. I know, I know. These are old comments. I already caught my hundred thousand. Sandra says I have three restaurants each under its own S Corp. Also, I have an LLC rental business. Can I use the simplified method to deduct home office? Sure. But the problem is, Sandra, you can only take the home office once. So you're going to spread it out over all your businesses. By the way, if you have three restaurants under its own S Corp, I would recommend you look at the Q sub strategy. What I like for that is you have one S corp. That's the parent and you can have three Q subs. You only have to file one tax return and it saved you a ton in administrative cost. But this is 1s. 1s. 1s. And these are called Q subs. Look into it. Get a consult with one of the attorneys in my office or talk to your own accountant or lawyer. But this could save you a ton of money and make things more efficient. Inc. 121 applies to residential housing, not apartment or commercial housing. Five or more units if you live in it. Orson says IRC121 applies only to residential housing, not apartment or commercial housing. Five or more units. Let me say this, Orson. Okay everybody, this is important. Ah, let's say you have a four plex, okay? And you've got four doors and you bought this four plex for 400 grand. That's your purchase price. And let's say it goes up in value to 600 grand. And now you're going to sell it. I don't care how many units it is. If you're the owner, and this is, you have to be the owner. You can't. I get it. You've got to think through this. You can't do a 121 on an apartment because you're just a tenant. But if you're the owner of this and this is your home, but all the rest are rentals. And when you go to sell it 25% of this will get the 121 exclusion. I don't care if this is 4 units or 40 units. Whatever your home is, if you're the owner, you can carve that out as 121. Everything else is going to be commercial or a rental sale, capital gain, normal garbage. So that's my opinion. Hope that you're okay with that. Okay, I'm going to do two more questions and we're coming to Instagram. Can I hire my husband who has a general contractor license to work on our home improvement? Yes, but Scott and cissary, by hiring your husband to work on your home, you don't get a write off when you pay someone to do home improvements on your own personal house because it's just personal, right? There's no write off there. But what you did do is create income for your husband. Now if the goal is to take that income and fund a 401k, I might go along with it. But if your husband already has income as a contractor and you're just paying him, all you're doing is creating more taxable income. Just tell your husband, honey, I'll take care of you. It's the honey do list. Come work on our house. Don't pay him in money. Do something else that he loves. Cook him a nice dinner. Alright, James, I'm a new startup and need a great CPA and tax lawyer. How much do you guys cost for the year? James, here's what I say. First of all and thank you. If you're a startup and money's tight, the first thing is get the books, get my videos on my website, listen to my podcast every week, come out to the open forum every Thursday at 4. Learn what? Sometimes you don't even know what you don't know. Start soaking it up. Now if you want us to prepare your tax return, it could range anywhere from 400 to $1200. We have bookkeeping services. We might set up an entity for you. Call my office and figure out what you need and then call the office and they can give you prices. I've got a lot of prices on our website. But James, just don't go say, oh, I'm going to hire a tax lawyer. Just learn a bunch of stuff first. I got a lot of free content out there and you may end up using a local cpa, but just making sure they do what I ask. Dave says, I've been watching you for years and love. Oh yeah. Oh my gosh, I didn't even see that. James says, he's already been watching me for years. Freaking James. Call. If any of you need your tax return prep for last year, you can call my office and talk to Maxwell Rogers. We turn people away soon, we close the door for 2020. We get too busy. And I'm already sick and tired of making promises to people and not turning it around quick enough. And they get frustrated. So if you want to get in the door for last year, 2020 prep, call 430-5865-5866. That's for accounting services. If you need a legal consult, get your structure done, talk to the law firm. And I probably say, oh, my gosh, talk to Drew. Love Drew. Or you could talk to Rosalie. Kika, you could call any of the staff there to help schedule. And you can call 435 586-9366. Now, most of us are all in the same building, but we have two different numbers for the accounting firm, law firm. All right, now it is time for 60 second answers to Instagram questions. Corey is going to put up a timer and tell me how long I've got. And I've got the questions here, and it's tricky, so be patient with me as I try to answer these questions in 60 seconds or less. All right, Are we ready, Ali? Okay, this question is from Dr. Jonathan. Okay. I think he's asked some questions before. Mom is retired, has a traditional ira. Can she convert to a Roth? Only have Social Security income. Absolutely. Anybody at any age can convert to a Roth. Do the math. Find out how much the tax bill will be. And a lot of times I do chunking. Maybe only convert 10,000 a year. If she goes into a higher bracket, don't convert as much. So you want to find the sweet spot for the conversion. Converting her to a Roth is great. And doctor, I'm going to tell you, you're going to inherit mom's Roth if she doesn't use it. And inherited Roth is awesome. So even if you have to help mom pay the tax, do it. I want my mom converting to a Roth and inherit it because I can play with that Roth immediately and don't have to wait till I'm 59 and a half. That was. Look, that was less than 60 seconds, right? Okay. All right, next question. Get ready with the timer. Does a rental property owner get the second round of ppp? That's the payroll protection program. Covid relief. Go buy and hold guru. The answer is no. A rental property owner does not get the ppp. Now, some people have said, well, pay yourself A management fee, create some self employment income and then you can calculate the PPP off that. Yeah, but you just created self employment tax and by the time you jump through all those hoops, the PPP ain't worth it. I mean, don't do it. I've ran the math every which way. Doesn't work. But here. What? Here's what you rental property owners can get. You can get the rental assistance that they're offering tenants that are behind on their rent. Now, I've had clients as landlords literally get the paperwork, go over to the rental property, have the tenant fill it out. 10 seconds left. Submit it, and help the tenant get the reimbursement so you can get paid back rent. So look at the landlord rental assistance program. Google it. Boom. 60 seconds. All right, Maria says, I opened an LLC in Delaware. The construction work happens in Pennsylvania and I live in California. Where do I file? Well, Maria, I feel bad because at our law firm we would have never recommended that some bozo recommended Delaware for a small business owner. Setting up in Delaware or Nevada before you go out and start a small business in Pennsylvania when you live in California is a scam. It's worthless and I don't care. Anybody wants to go head to head with me on that, I'll debate it all day long. What I would do, Maria, is I would convert your Delaware LLC to a Pennsylvania llc. It's called Articles of Domestication called Susan Compy in my office. Get rid of the Delaware garbage. You don't need it. Now, Delaware is great, but not in your situation. Then you're going to. Because you're in Pennsylvania doing the work, you're going to have to file taxes in Pennsylvania on the money you earn in Pennsylvania and you want your LLC registered in Pennsylvania and domesticate the Delaware one with California. You're going to have. If you're a manager of the llc, you're going to have to at least pay the minimum franchise tax of $800. I've got articles on that, by the way. Get a consult with one of the attorneys in my office and let's clean it up by the time you pay them for an hour, you're going to save that alone in the first year. All right, Bonano, Bonano, Bonano. Maybe this is appropriate because we're talking about Puerto Rico. He says, or she says. Thoughts on the tax incentives like the ones Puerto Rico has? Well, people, start. If you didn't know, Puerto Rico has some amazing tax incentives. You could pay your tax rates on everything you earn as low as 3 or 4% exemptions for property tax, sales tax, all sorts of goodies. These are called Proposition or Article 20 and 21. Sorry, it's Act 20 and 22. Act 20 and 22. Just Google Puerto Rico tax strategies. There are several companies that provide hand holding and walk you through the rules and get you qualified. At our office, we do not do that. We have not got a Puerto Rico strategy that we're implementing for clients, but it's legit. It works. Ready, everybody, for the bad news? If you call it bad news, you got to move to Puerto Rico. You are not getting Puerto Rico tax benefits without moving your butt to Puerto Rico. Now, I was just there for Christmas. I loved it. Puerto Rico food, people. The climate is wonderful, but plan on moving to Puerto Rico if you want to save taxes in Puerto Rico. All right, there's our Instagram questions. Was that good, Ali? Boom. Okay, how much longer for some other questions? Okay, I want to give away 10 minutes, but I want to give away three books now. And then I'll give away my calendar and another book after that. So, Corey, I need female and male names of those that shared and you tell me who they are first, what your CPAs are telling you. The book that will be made into a movie, literally. I already have a screenwriter that's working on that. Tyler Penrod. Tyler Penrod, you are the winner. Tyler, now you have to message. I'm going to tell you right now. I'm going to write it right here. Do you want them to go to your email or Cory's? Alisonarckjcohler.com now she's going to know your names. You people can't cheat and say, allison, I won and you really didn't. So the Tyler Penrod. Was that it? Or Travis Tyler. Okay, write those down for Allison. You're going to email allisonartjcoehlertyler your mailing information. We'll get them taken care of. Next book, I'm gonna give away a tax and legal playbook. I Love this. It's wonderful. 38, 34, 36. Game changing tax strategies. Who's the winner? Mary Ann Jones. Mary Ann Jones. I have a feeling Cory's looking for a pen. Here you go, Corey. Marianne Jones, tax and legal playbook. Email alisonarkjkohler.com to get your mailing information. Now I'm gonna save the $99 tax and legal workbook. That's amazing. To build your business, 60 videos you can start watching immediately. Downloadable business plan. You can get it on Amazon right now or my website. I'm gonna save that for last. Let. And I'm gonna save the calendar for last. You're going to love this. I'm going to give Away a Financial Freedom the Business Owner's Guide to Financial Freedom. When you're making money in your business, this is the book to read. So this was a huge project because so many clients came to us and said, mark, I'm saving taxes. I'm making money. What do I do next? The book co authored by Randy Luebke, a certified financial advisor and more designations behind his name than I have the winner, Corey Rhonda Willock. Rhonda Willock, you are the winner. Whoo. And I saw she shared the broadcast. Thank you, rhonda. So email allisonarkjkohler.com now for those of you that can stick around just 10 more minutes, I will give away the calendar and the workbook. All right. Q and A. Don't use the pad for a minute. Okay. I'm just gonna have to answer questions without a whiteboard. Ali, can you scroll me some questions here? I don't see any. Oh, I've got one here that you printed out before. Candice Said sold a property and made 600 grand in profit to try and get rid of some of the capital gains since another home is not being purchased. Can an RV be a deduction to try and get that capital gains tax down? Yes, absolutely. RVs can be bonus depreciated and 100% written off in the year you put them into service, a rental unit. So if you want to get an RV and park it in an RV campground and rent it out nightly, weekly, whatever, or put it in a pool and rent it out, that RV is 100% write off. What I'm worried about, Candice, is that your profit probably came last year in 2020. And if you didn't buy the RV last year or put it in service last year as a rental, you might be hosed for last year's taxes. So if you made the 600 grand in this year, in 2021, I got 12 months to freaking plan. So let's figure it out. Judy said, I have a sole proprietorship with his own bank account. It's doing business. I'm a realtor. I do home care. I also have an LLC taxed as an S Corp with its own bank account doing business as a consultant. I would like to have all businesses in my LLC for simplicity and multiple levels and OA and blah, blah, blah. However, I read as a realtor, as a professional corp in California, I should not be using an LLC as their way to put my realtor commissions in the L.L.C. s Corp. I am no longer doing the home care. The answer is Judy, yes, everybody out there. What I like to do is I want you to have one S corp in your life. That's all I have. And Judy, hear me out. I have my left side, right side. Here's my S Corp, here's my LLCs with rentals, and here's my IRA. Very common. Now I've got a couple more LLCs here and whatever, but the point is, it's the same concept. My trust owns my llc, my LLC owns my rentals. The S corp does business. I get a W2 and I get a draw. And K1, we love this. It's a very powerful strategy. Every dentist, doctor, engineer, accountant, lawyer, realtor, broker, plumber, electrician, we're an S corp. This is the way to do it. And I prove it in my books and everywhere I go. Now Judy has multiple businesses. I still want her to have one S corp. Now it could be an LLC taxed as an S corp, but don't tell me it's a frickin llc. Call it an S corp, it's an S corp. You're going to confuse your advisors if you call it an llc. Could you run your realtor business into that? Absolutely. Could you run your home care business, consulting, speaking, writing, selling jeans on ebay, hair and nails, drywall, all of it can go in your S corp. Now if your broker in California or your broker in Missouri or your broker in New Jersey does not want to issue a 1099 to your S corp because they've got a stick up, you know what, or the state board doesn't like it or whatever, the IRS doesn't care. I don't care. If you get a 1099 to you personally, I'm going to move it into the S corp. It's allowed. Talk to your accountant. This is a tax strategy. Now I know you've got to keep the division of real estate happy. Most real brokers are going to 1099, the S Corp or LLC. Just tell them, give them the ein. But Judy, do not stress about this. If there's a will, there's a way. And I've been helping realtors for 20 freaking years. So if your accountant is putting up a stink, you got the wrong accountant. There's a way to backdoor this 1099 in. And in my S corp, it owns a law firm, it owns an accounting firm, it owns a real estate deal, it owns this. So I've got multiple LLCs also owned by my S Corp. I, Mark Kohler, only have one S Corp in my life. Mark J. Kohler, Inc. You can look it up. It's registered in three or four states. It's out there. But you're not going to find my LLC that own my rentals. I've hidden those for asset protection and privacy. You don't even know what the name of my trust is. Let that sink in everybody. Judy and me, I want to market my S corp. I want to market my businesses. But these are shelves. There's no real hard assets there. They're over here in my LLCs that are hidden for asset protection and privacy. That's the next level. That's what my tax attorneys are going to do on the phone with you in a very affordable manner. All right, let's go back up here. Question. Mike says. I own a small hotel. I'm helping a customer at work. I was injured and broke my collarbone going through physical therapy for the next four months. My health insurance is high deductible. So can I write off my physical therapy from my taxes since it happened at work and I'm not covered under workers comp. Is there a creative way of doing it, Mike? Yes. Read my book Tax and Legal Playbook and the chapter on health care. I'm going to just cut to the chase. You're going to use an hra. The fact that it happened at work is irrelevant. Doesn't matter. The fact that you helped out a customer and hurt yourself, doesn't matter. You're going to use what's called an hra. Study up on that. You can use the HSA as well because you have a high deductible plan. So I'm going to use a combination of the HSA and the hra. And Mike, my goal would to make sure all of your medical expenses, including insurance, co pays and deductibles, prescription drugs are all a write off in 2021. You can do it, Mike. David says I am. Look at David. So handsome. Look at that beard. A beautiful woman with him. David. I'm impressed. Very good. I'm a realtor with a home office space. About 400 square feet. My wife has another home office, 400 square feet. No s Corp last year, but I'll be opening one this year. Which method is best for us? Okay, so David and wife again. We start with our trifecta. The trust is going to ultimately own his S Corp. Now, David, what I want is you and your wife to own the S Corp together so that way you both can run your businesses through the same S Corp if it's possible. That's my first priority. Now for 20. This is 2021. Get a hold of my attorney. Still, we charge 800 bucks. You get an hour with one of my tax lawyers. You'd love it. Even if you have to wait a week or so. Get in with my tax lawyers and we do s corpse in all the states in the country. 800 plus 5ft. You'll love it. They'll explain all this. But for 2020, you're going to do two sole proprietorships. Now, I use little dashes here because there's no asset protection with the sole proprietor. So you're going to have husband sole proprietor and wife sole proprietor, wife home office and husband home office. I'm okay with that. If you literally, your wife has a 400 square foot space, you have a 400 square foot face space. I'm going to do the Math on Form 8829. I'm going to find out what each of your write offs are and you're going to push it through your 1040. That's the way to do it. So. But in 2021, we're going to move all of this crap into The S Corp. 15 times less chance of an audit. You're going to save more taxes and you're going to have protection. You're headed in the right direction, David. Josh says if I'm look at that hat and the guy looks ripped too. Hat, glasses, you look good, Josh. If I'm looking to buy rental property, have an LLC already, should I start a different biz and S corp it or escort my current biz and buy the rental under it? Josh, let me. I'm going to not try to dissect your question, but I know where you're headed. Everybody. Here's the thing. This is what Josh is facing. Josh has an LLC and it's kind of sitting here in the middle. He wants to buy a rental and he has a business. So Josh's question is basically, do I keep the LLC over here and set up a new LLC or do I move the LLC over here and set up a new LLC here? Typically what I'm going to do, Josh, is I'm going to say which one have you been using the LLC for? Leave it there. Makes sense, right? So if you've been using this LLC for your business, leave it over here and make an S election. We only charge 150 bucks. Done. Get a consult with one of my attorneys to understand the overall play here. But I would do an LLC here, do an S election and set up a new LLC for the rental. And the reason, too, is, Josh, I don't know when you're going to close on the rental, and I don't know if you're going to buy the rental. If you live in Missouri, you might be buying the rental in Kansas City. I mean, Kansas City, for those that don't know, is split in half. Half's in Missouri, half's in Kansas. I don't know why I'm talking about Missouri today. But Josh may go, well, I live in Missouri, but I'm going to buy a rental in Kansas. Well, I'm going to set up a Kansas llc, and if his LLC is over here and it's already a Missouri llc, I'm going to make an S election and keep it over here. So, Josh, probably leave the LLC in your business, make the S election new LLC for your revenue. Tim Fogarty. Fogarty, Tim. Sorry if I mispronounced your name. Can you get a write off for your time when acting as a consultant for a nonprofit? You are a president and make no income. First of all, thank you for serving in a nonprofit for no income. I've done that. Served on the board of a number of nonprofits. By the way, beautiful couple, Tim and his wife there, it looks like. Or whoever your significant other is. Pardon? Quite the mustache. Very manly there. Okay, Tim, everybody, here's the deal. When you're serving on a nonprofit, you get to write off all your miles as if it was a charitable deduction. When I was a Scoutmaster, I'd write off all my miles helping the Scouts. If you serve for United Way or Red Cross or whatever, whenever you're driving your auto mileage is a deduction in my calendar. And this is why you're gonna want the calendar. I only printed 500 of these. We're gonna sell out in the next week and a half. I go through all the mileage deductions for medical and movie. Charitable. Charitable deduction this year is 14 cents a mile. 14 cents for last year, Tim. So you're going to add up all the miles driving back and forth helping with this charity. If you spent any money helping the charity, I would probably write it off as a charitable deduction if the money directly was used for the charity. But I'll tell you the most audit proof way to do it. This is how Doctors Without Borders do it. Sometimes a doctor says, I'm going to go to Haiti and help with the hurricane. Well, if the doctor pays for the airfare and goes to Haiti and does a bunch of service, any supplies he takes is a write off. But he can't write off his time. But the tragedy is the doctor paid for his plane ticket. He didn't give money to charity, he bought a plane ticket. That's typically not a write off. The best thing, and this is what Doctors Without Borders do is they say, hey, you're going to go to Haiti, coordinate with us, give us $2,000, we'll buy your plane ticket. Now you get a write off for $2,000. So you want to give your money to the charity and have them pay for any of your expenses. So Tim, you may have paid for a lot of stuff last year and didn't run it through the charity. Not good. Talk to your accountant, see how aggressive you want to be there. Mileage will be a write off, but your time is not a write off. Sorry, I'm going to go to Mike's. Already had a question. I'm going to go to someone else. I apologize. Go to South Africa. Bo King. I really hope this is all applicable in my country or in South Africa. Bocain, first of all, thanks for viewing this from another country. We've had a lot of clients and customers from around the world buy rentals in the US and do business in the US Even though they live in another country. Christy Parker is our attorney that helps all of our international clients. So if any of you want to meet with her, her rates are just the same as our other tax attorneys and she does all of our international stuff. So Bocaine, you may want to meet with Christie. Our main number again since you're out of the country is 88880. Oh my gosh. 8010010. The general concept of a lot of this bouquet is absolutely the same. Writing off expenses related to your business. 99% of the countries in the world operate under that same process. But the technical rules of IRS code sections for home office or auto mileage, those are going to be specific to your country. But again, owning a business, taking write offs and taking the profit, same concept. And I want you maximizing that. Alright, couple more questions and I'm going to give away two more books. Malcolm says can you get. What a cute little family, little baby there. Malcolm says can you give some advice on taking a board of directors meeting in March? I love it. Like to get away for a few days to truly focus on the business. Well, Malcolm, Allison, where are we going in March, Mexico. Are we gonna have a board meeting? Give me five. And you got to see my beautiful daughter. Come over here, Alison. This, this daughter of mine is on my board of directors. Okay, so here's Alison on the board of directors and. Okay, that's good. Bring our other. Our mascot. Bring up our mascot. Now Alison is on my board of directors and her husband Jack. They will be going to Mexico with us. We are going to hold a valid board of directors meeting for multiple companies of mine. I don't know if we're going to bring our office mascot that. This is Winnie. Hey, Winnie. Good girl. So Winnie comes around the office to help keep company morale at an all time high. You can write off your dog as a medical expense. You could write off your dog as a watchdog for your business assets and equipment at the office. Or possibly an office pet. Or controlling rodents or security. Lots of good ideas. I got articles on writing off your pet. Anyway, so, Malcolm, any of you out there with a small business, even if you don't have the LLC yet or the corporation, set up your board of advisors. In fact, in my videos here in the eight steps and in your calendar, I want you to write up your 10 year plan and you're going to build your strategic plan for 2021. I got little videos on how to do this and how to build your board. If you want to write 10 year plan and YouTube, you'll find my video on building your 10 year plan. Share it with your board of directors. So, Malcolm, I want to write off the airfare, hotel, dining for at least two days, three days to get down there, have your meeting and come back. A business day is four hours or more of work. So I want you to have a meeting, take notes, talk about your plan for the year. And I've got videos on how to write off board of directors. Love it. Do it. Malcolm, you're on it. I hope that helps, but I'm going to be in Mexico. Consider Pacifica Bonita. It's a great resort, all inclusive. All right. Oh my gosh, last book. I mean, last question. Then I'm giving away books. Miranda H. If I only had $100 side gig income in 2019 for quarter. Oh, no. The hardest question of the day. If I only had $100 side gig income in 2019, fourth quarter and started receiving only unemployment income in 2020, fourth quarter, do I meet the 30% reduction for an Eidl targeted grant? Miranda, I think it's not worth chasing. With only $100 of side gig income by the Time you do the math on any PPP or Eidl Grant or all this stuff, I think you're chasing your tail. It wouldn't be worth it now if you had 10,000 or 100,000. Add a couple zeros there. We'd be talking strategies. But also, unemployment doesn't help the cause. Unemployment means your business ended. See, you can't have a business and unemployment because if you have unemployment, that if you're making money in your business, you're generally not going to qualify for unemployment. Your business has to be dead and then you can get. So that's a trick tricky issue. Plus Eidl grant. I'm embarrassed here. I'm just going to say it. It's all about PPP and employment retention tax credit now. Thought the grant was gone. It's over. But I, I'm gonna research that tonight. Now that you brought it up, Miranda. So, gosh, she asked the hardest question of the day. But I'm working on some Covid relief articles tonight, so everywhere. Anyway, everybody, thank you for the kind words and the wows and the thank yous and I shared it and everything. Please tune in to our podcast every week. It's called Main Street Business. Main Street Business podcast. Matt Sorenson and I keep it funny and legit. We've had already a million downloads. You can get to it on Stitcher, itunes, and Spotify on YouTube. Just type in Main Street Business podcast. You'll find us. And I'll be here next Thursday doing this. All right, let's give away the calendar. So and I want to stay gender fair here. So I want a female and a male. I don't care which one, but I want a male and a female first. The winner of the calendar. We're going to mail out new calendars tomorrow. You can buy them on my website, markjkohler.com I've got tables in here, all the deadlines for the year, little video messages for each month, calendars and tables and oh, you're going to love it, Corey, who's the winner? That would be yourly slack. Your least slack wins the calendar. Your leaf slack. Look at that coloring in your hair. It looks beautiful. Your leaf slack wins the calendar. You've got to email alisonarkjkohler.com this is where you get send your information. If you don't email Allison, you don't get the book. And our winner, grand Prize of the $99 8 Steps to Start or grow your business. Ken Law the second. Ken Lo II or Ken Law. Ken Lo ii Love workbooks. He even said, I don't know if that got you some extra love. We do a random little thing over here on an app that Corey finds our winner. So make sure you email allisonkj Kohler everybody. I'll be here next week. Thursday I'll give away some books again. Please pick them up. They're a tax write off. You get my tax on legal library@markjcohler.com lifetime access to all my videos. I'm shooting new videos for the new year. Sign up for the newsletter, everybody. Thank you. Keep living the dream. See you next week.