Open Forum — Kids’ Trump Accounts, Real Estate Taxes, and Growing Your Business

So many clients approach this in the wrong way. They hate paying tax more than they like making money.

Should I form an LLC and transfer the farm into the LLC prior to the sale? An LLC does not change the strategy. In fact, it could hurt.

Let's say you bought it for $100,000 and now the real estate's worth a million bucks. There's a $900,000 capital gain.

You are not going to rent this building to your freaking business. You're sitting on a gold mine here that might turn into a silver mine. So be careful. Welcome, everybody, to the Main Street Business Podcast. My name is Mark Kohler. I'm here with the amazing Matt Sorenson, my co-host on the open forum show for Main Street business owners around America to talk about tax, legal, finance, and scaling, exit, whatever. As tax lawyers, Matt and I have met with thousands of clients over our careers. Written several books, and we just love being here with you talking about these topics. And we've got a bunch of good questions today. Matt, you ready to roll? This is going to be good.

Yeah, I'm ready to rock and roll. These questions come from the Main Street Business Podcast website, which is MainStreetBusinessPodcast.com. You can ask your questions there. It's also cool to see what other people are asking, other people trying to grow and build wealth, use great tax and legal strategies, thinking about their estate, their legacy, their business, their investments. Is all coming together in an incredible episode of the Main Street Business Podcast. So I'm ready to rock and roll. I got a question from Gator Dave 2000.

What's that handle again?

Gator Dave 2000. How do we not start with Gator?

Okay. Okay. I'm there. I like it. All right.

I think that's— maybe he's a Florida guy. Maybe Florida fan.

Hey, by the way, I did— Gators. I just sent my Gator. I Guys, a couple years ago, I actually— sorry, I'm going to say killed an alligator. It was quite the experience. It was hand-to-hand combat. I'm not kidding. And I'm getting some boots made. So now I live on a ranch. I got to have alligator boots to match. And so we're getting close to having the final product.

So are those like the going out boots? Are these— these aren't the ones you're going to, you know, go out in the pasture with. These are like, you're going to the saloon.

Yeah, these are going out boots. All right, so this one is for you, Gator 5000. I love it. All right.

Yeah, Gator Dave 2000, he says, is it worth it to set up a Trump account if your kiddos are 15 and 17? They won't be able to take advantage of the $1,000 that's free from the government, but what else makes it worth it? I guess some philanthropic, some philanthropists might choose to donate down the road, or an employer might put some money in. Thanks guys for all you do. Dave. All right, Dave, great question. Okay, let me make sure everyone understands these Trump accounts. If you had a kid born between 2025 and 2028, you get a free $1,000 from the government. They're going to put in a Trump account for nothing just because you had a kid. So what Gator Dave's saying here is that's a no-brainer, Right. $1,000. The government's giving it to you for free.

You also bring— and let me interject, everybody, if you want to do this for one of those children born in that time period or one of these older kids, we're going to come to that question. Go to trumpaccounts.gov and there you will fill out the proper— take the proper steps to get it started. And you cannot do this until the 4th of July of this year. So July 4th, July 5th.

July 5th.

July 5th, yeah. And then the government will say, here's the, that account can be opened and we'll drop that $1,000 in there if the child was born in this time period. If not, you can still open an account. You just won't get the free $1,000. But why in the world would I do that, Matt?

Well, there's a couple of reasons you might do it. One, as Dave mentioned is, well, what if my employer is doing, putting money in for kids? There are some employers that are saying, we're going to put up to $2,500. So there's an employer contribution, which is not taxable. Taxable to you that will go in the Trump account for any of your kids. Um, so check if your employer's providing that. You want to go grab that benefit. Third, you might live in an area where some philanthropist like Gator Dave is talking about here— Michael Dell, for example. Okay, there's a number of well-known billionaires that have said they're going to put billions of dollars into this program, which is free contributions for kids in certain areas that are mostly economically depressed areas. But if your kid happens to be in there, they can get some free money too. But I want to take all that off the table. This is what Gator Dave's asking. Let's take all the free money out of this, Matt. I'm not getting free money. Should I still open up a Trump account for my kid? Yes, you should. You can put in up to $5,000 into a Trump account per year per child that is under age 18. There's no income requirement. There's no high-income phase-out. This could be $2,500 from you, $2,500 from the grandparents. This could be $1,000 from you, $1,000 from the neighbor. It doesn't matter. That kid can get $5,000 in the Trump account. Now, when I first looked at Trump accounts, I was like, these aren't that great. I get no deduction to put the money in the Trump account, and the earnings are taxable on the way out. Doesn't sound so great, right? It's like no tax deduction in. Sounds like a Roth to me. But the Roth comes out tax-free, but here the earnings I have to pay tax on. You don't pay tax on the contribution amounts as they're coming out later. You do pay tax on the earnings. Now, the reason I like it, Gator Dave, and this is the strategy, is when your kid reaches age 18, and this is in the IRS regulations that came out about a month ago on Trump accounts, when your kid hits age 18, you can convert that Trump account, which effectively turns into a traditional IRA at age 18, to a Roth IRA. All right. Now, because your kid's probably in a low-income bracket, you know, maybe you're doing this in their, in their 20s, you know, whatever, they are going to be paying really low tax, if any tax at all, on the amount you convert. Now, there is a kiddie tax that could apply here if they're still your dependent. So you want to be careful on that. Make sure they're not a dependent that you might be converting. You know, maybe at 18 they still are dependent. Maybe you wait till they're 20 or whatever, out of college. I don't know. Every kid's a little different here. On how long you're claiming them as a dependent. But we know in their early years, in their early 20s, mid-20s, they're going to be in the lowest tax bracket they'll likely ever be in their life. That is the time we convert this Trump account to a Roth IRA. Now you've positioned them for a Roth IRA to grow and come out entirely tax-free, and you only pay tax— this amount, again, they're going to be at a low rate, but it's only on the earnings and growth. In that Trump account. So if over the years you put in $50,000 in the Trump account over 10 years, $5,000 every year, and now it's worth $90,000, let's say you only pay tax on $40,000.

Okay.

The amount of the growth.

I love this, Matt, the way you summarize. I want to provide a couple of extra points here. When you said you had a 15 and a 17-year-old, well, they turn 18 this year. I can't do it. No, no, no. You could do it up until the day they turn 18. So if they turn 18 on July 10th, you better be first in line on July 5th to get this done before they turn 18. That's the rule to put that $5,000 in. Number 2, what I love about this is that $5,000, typically if you were going to try to put it in a Roth IRA, you have to have earned income. See, these kids don't have to have earned income. So they could be off at college, no job, you're helping them get through college, that's all good. And then the day they graduate and they're not a dependent, You can convert all this money to a Roth, the earnings only, and boom, they've got a huge Roth account without having to have a W-2 paycheck and being stuck with the $7,000 or $7,500 a year contribution limit. So it's a way to really accelerate a Roth account for those kids.

Yeah, and we know, like, for those of you that are business owners, you can do the kids' Roth IRA. Because you're paying your kid in the business. They're legitimately working in it. Now they have earned income and they can be going straight to a kid's Roth IRA, which we love. Yeah, but so many Americans, they don't have kids that actually work in their business or they don't have a business. How do I get Roth dollars for my kid when they're 14 or 15 like this? Maybe they got a summer job that gives them some earned income. We got a little opportunity there. But otherwise, this is a great way to get a tax-free bucket of wealth for them at a young age. But as it compounds and grows over time, they're going to have a significant benefit in their future because you've totally set them up for success.

And I want to throw out one last thing because I just love this topic. Is the question, should I do a Roth account for my child that's 15 or 17 or the Trump account? I only have $5,000 to burn. Which one would I put it in? If you had a small business and could employ them to help with the rental property or small business, You would want to pay them in the business, take a write-off, and then contribute to the Roth. Win, win, win. But if you don't have a small business, like Matt said, you would, you wouldn't be able to do that. But for those that have a small business and you only have a certain amount, stick with that. Put them on the payroll, or I should say, make sure they're paid. We don't want to do W-2s for kids under age 18, and then do the Roth. In a perfect world, I'd say Do both. So if you do have a small business and can afford to do it, put them on the payroll for $5,000, put that in there, take a Roth. Oh man, I got, what am I saying? I'm totally dumb here. I forgot about this. I put them on, I pay them $10,000, put in $5,000 in the Roth, and they could put the $5,000 in themselves into the Trump account, right?

Yeah, I mean, as long as they did $10,000 worth of work.

That's right. Now I've got my—

You got the deduction.

Both get a deduction.

Yeah, but do the $7,500, you know, and here's the thing right now, just thinking of where we're sitting right now, March 2026, you can still do their 2025 contribution up until April 15th. Plus you can put in 2026 money. So you could be doubling up on that annual contribution, $7,500 for 2026, $7,000 for last year. So now we're talking $14,500 plus you could get in some money in the Trump account. Now, remember, the Trump account, as Mark said earlier, not till July 5th. You won't be able to drop that in. But this is a brand new thing. These accounts are going to be around for a long time in this whole tax advantage scheme where we hear about Roths and Traditionals and 401(k)s and HSAs. The new player on the block this year is going to be Trump accounts. You'll be hearing more about it. Love the question from Gator Dave.

Yeah, gosh. And I just, I just love my idea. I'm just so smart sometimes.

I just feel like I mean, you know, you just comboed it up there.

Combo, there we go.

Just walked right into it.

I bundled, I bundled.

You bundled, yeah. You bundled and sent.

All right, this is a question started by LD. That's just it, that's their handle, LD. And it's charge for rent or use questions, okay? He says, my son owns many cars. And has a large detached shop at his home for his auto interest. Now I presume what he means is his interest in automobiles, because I don't think he's trying to write off auto interest on the auto loan. So I'm just going to say he owns this big shop for all these cars that he loves. It's a, okay. It has a service bay with an auto lift and all the tools. He has started a mobile auto truck diagnostics and repair business. How should he write off the shop? That's essentially what he's asking here. Now, this is a great question. And for many of you out there that are starting a small business in your home or garage or detached garage or ADU, whatever, barn, if you have a small business that you're starting on your property, you are entitled to take a tax deduction for the use of that building in your business. Think of it as a small business. I'm going to write off the home office, the hall down the hallway, the third bedroom on the left. I've dedicated it to my small business and doing the books and making phone calls and taking emails. I could write that off as a home office. The same concept is here with the detached garage or even a regular garage. That's attached to your home. Now, how do you do this when it is not a typical home office, but it's this garage, detached garage concept? You— it comes down to square footage. You have to look at the overall size of the buildings, because if you bought the home with the detached garage all under one purchase agreement, let's say you went and bought a house and had this detached garage, You have to then take square footage or get an appraiser or an engineer to come over and say, how much is detached garage worth? So that's step one. What is this garage worth? What is this detached garage worth? What is this barn worth? What is the shop worth? Not the land, but what is the building worth? Because you didn't buy it for business. You live there. Now you're converting it to business. So we have to have this basis. What is it worth? Now, by the way, when you go to write it off, it's what you paid for it, its basis or fair market value, whichever's less. 'Cause you may say, oh my gosh, that detached garage is worth half a million dollars. Yeah, you only paid 300 grand for it. And then it's 300 grand. So it's the basis or fair market value. Once you have that figure, then we have to, I love this word, bifurcate. I have to look at it and go, How much of that garage is for his motorcycle and his convertible and his cool car collection? And how much is it for the business? Okay, let's say it's 50/50. So now you can say, all right, I can write off 50% of this building for my business, 50% of it is for my lawnmower and my car I drive to work every day. Once you come up with that figure based on square footage and the basis of the building, Now we're talking. Now we're going to be into a depreciation schedule. We're going to be talking about utilities, property taxes, and you're going to proportionally write it off. Now, what you notice, I did not say you are not going to rent this building to your freaking business. Not a good idea, because now you just created rental income for yourself and a write-off over here in this rent category. And it gets weird. Now, if you is 100% business, an entire building on a separate plot of land, okay, now let's pop that into an LLC and do a self-rental and rent it to the business. But when you're in this partial use, all on the same plot, kind of connected your house via land, but it's on a separate title, you're not going to be able to go that route. So stay away from renting the building to yourself in this example. That could happen in some others, but not in this fact pattern. So lots of luck to your son. He's right on track. There's a write-off here. You just have to uncover it. And I love it.

All right. I'm just going to put an amen on that rather than, you know, can I say it any better? I love it. Thank you.

It's a great question. That's a fun one.

Yeah. Okay. I got the next question here. This is from Mugs338. Ask small business question, said, Dear Mark and Matt, once again, love the show. And another small business question has come up. My wife's business is scalable. We are a small medical business for therapy, 8 offices, and sometimes on certain hours we're all booked. We want to hire more therapists. My thought is for them to be more, if not all, virtual. We will control all the back office support and payroll. My question is, would you consider this scaling a business, growing in another way within your current footprint, and not expanding by renting or purchasing further real estate? Okay, great question here. This is a business question about how to grow and scale. And I think this is a really interesting question. Basically, they have 8 offices already. They have some good size and scale. They've figured out the business. They've got the payroll. They've got the back office support for this medical therapy business. But they have enough demand. But they have no more space. So what do we do? Do we buy more space? Do we go rent more space? Do we stay within our physical geographic location, or do we go virtual? Do we go virtual and let these therapists meet with their patients on a— in a virtual format? Now I want to just run through a few things that I would be thinking about here. I would think about two, two key points here. When you're— well, maybe even 3, actually. Okay. I think if when you're talking about scaling a business and growing it fast, when you think about your geographic location, you put a cap on how, how big you can ultimately grow. And when you start thinking about rent and acquiring locations and all that, you start capping out how reasonable it is for you to grow. So as a general sense, I like the idea of this virtual concept because now you can go more nationwide and you're not necessarily capping your growth. Now your growth is going to be nationwide from a customer standpoint. Okay. So I want to think about that from a, just a customer and what's the total customer footprint I can get. The second thing I want to think about though is how do you acquire your customers? Are your customers coming through local referrals and local sources? If so, this national thing might not be as significant to you. If your customer acquisition is online and channels like that, that could be just as powerful nationwide, I'm going to lean more to going more virtual. Now, I'm talking about big picture stuff, not the dollars and cents in terms of rent versus not. I'm just thinking big picture. Next, what is the customer experience? Do you think that the typical customer receiving these medical therapy that you guys do would be just as happy, if not more, receiving it virtually versus coming into the office? I'm telling you, my doctor that's in Phoenix where I live, I do not go to their office even though it's 20 minutes from me. I still would prefer to do it on FaceTime.

Right.

Done. Okay. And so, but be honest about that. I don't know in your specific business, what is the customer going to want? Because ultimately they're going to be the one paying and driving this, and you're going to be somewhat reactive to what they want. So if they want this and you feel like there's high demand, go for it. This is going to be easy to test out. Try some virtual appointments here, see how that demand is and what your customers like it. And then the last thing I will say here, cause this is the next challenge in growing and scaling a business is Talent acquisition. How are you going to acquire the therapists necessary to meet this demand and to provide the services? My guess is your therapists are your number one cost of revenue in your business, right? They're the ones you're having to pay. They're not cheap, but they're also the ones delivering the services, providing the revenue. So how do I acquire those? Well, a lot of businesses have gone virtual as a strategy to acquire talent. If you post a job posting right now for a professional in some space and you say it's at this location, I don't care what city this is in America, versus virtual and they could work from home, you are going to get 10 times as much interest in that posting, if not more, if you put virtual. There are so many people who work virtual, want to stay working virtual. Their prior employer or their current employers force them to go back. So there is a strategy out there to just get talent because you've gone virtual.

There's so—

I'll leave it at that.

Matt, oh my gosh, you just opened a whole can of worms and I love it. I have two comments and I'm just going to first piggyback on your last point. If you crack the code here and you find that your customers love the virtual experience and then you can hire virtual therapists, oh my hell, talk about scaling ability here. I would say this too, whenever we have employees that work from home, It can be challenging because, and anybody out there that owns a business knows this, because how do I know what they're doing? Are they really productive? Am I not getting everything I'd pay for if they were in the office and blah, blah, blah? And it gets to be a challenge. However, when you tie compensation to production and these therapists get paid when they produce, then you don't care. It's not about time's worth, it's about what they accomplish. And you can crack the code on both ends of this equation. I, I have one thing I can tell you, Matt. You want to say something? I want to say one more.

Yeah, I totally agree with that. That is like, that is— this virtual strategy can backfire. But I do think for this role here, and like how you positioned it, is if these therapists, if they're comped based on their production, and it's going to be pretty easy to compare a therapist to another one, to be like, you're doing a great job and you're not. Like, there's no reason that the virtual one can't produce what the in-office one is that you're doing. They should be able to handle the same patient load, you know, customer load, whatever you want to call it here. And, and you can compare. Sometimes there's roles, though, that are not like you can't compare like that, you know, where it's not a production role where you could— you're monitoring their production and stuff like that. So danger in virtual. But I think in this, like you pointed out, this is one where you can check their performance to comp to, to make sure the incentives.

Yeah. And I know some of you probably— I have one more comment on this too. I love this question. Is that some of you may be thinking, hold up, we're listening to tax lawyers about how to scale a business? Yeah, you know why, people? Because Matt and I have done over 10,000 consultations with clients that come to us saying, I got a tax problem because I'm scaling, or I wanna scale, but I don't know how, problem or whatever. It's all connected. And so we're doing on the streets, in the trenches consultations with clients, they're going right through what you're going through. And so we're not just here to talk about tax and legal, which we love, but we love to talk about business. We're building our own damn businesses too. And going— there's so much to share here. I just love these questions.

Yeah. Yeah. I mean, we're in the trenches with you too. We have multiple businesses. We've sold a business. We've got 100+ employees. You know, I mean, we've grown and scaled and dealt with a lot of these issues and definitely have learned a lot ourselves from what we've done and the 10,000 hours of successful clients we've been able to have the privilege of working with too.

Now, my last point I wanted to make, it was at the very front end when, Matt, you were talking about what's easy. Now, this is so poignant because we just had a meeting with one of our managers in our company. I think he's listening right now. So, this is all good. And we were having a meeting and we were project management, and it relates to this same topic of what do your customers want? And Matt and I have fought this battle over the years in our companies where employees, and bless their heart, and this was not exactly the instance this morning, but employees will come to us and go, hey, I think we can do this more efficiently. We need to produce LLCs a different way or an estate plan or a tax return. We can do it faster this way. And we'll save money. And Matt and I are always like, okay, that's good. What is the result for the customer? And the employees will be like, well, I don't know. There might be an extra step for them, but look how much easier it is for us. I'm like, whoa, whoa, whoa, whoa, whoa. I don't care. Generally, first and foremost, I don't care what's easy for you. I care what's easy for the customer. What does the customer want? Then we work backwards and build a system that meets that need instead of, oh, this is going to be easy for us. Well, hopefully the customer will like it. No, you got it backwards.

Yeah.

Yeah.

I call that— we have a directed IRA. It's part of like our ethos.

It's—

and I challenge any manager that came with an idea of something we would change to say, to ask the question, is this better for the customer? And it's better for the customer decision-making. Every decision. You have to be able to answer, this is better for the customer.

Gosh, I love it. All right, shifting gears here. Dr. Dave, I love it. Hey, Mark and Matt, this is Dr. Dave again, regular listener.

This is a different one. Oh, Gator Dave was earlier. Dr. Dave.

Dr. Dave's different. Retired dentist says turned mobile RV technician. This is a cool position that we've talked about. We have a lot of followers in this space. We love our RV community. These are gentlemen and women, men and women. I've had a woman RV tech come work on one of our RVs. Love to hit the open road, work in multiple states, get in their truck or RV and go repair other people's RVs like Mark Kohler, who's a dumbass when it comes to managing an RV. So, these guys are great, mobile RV tech. So, Dave has been in a dental office his whole career and he's like, I'm outta here. I'm gonna live like a gypsy. I'm going to get in my RV or truck and travel the country and help people. So he says, I'm still in startup phase, however, and to the point, have I poured in approximately $25,000 into the business, mostly for training, tools, and equipment. I'm going to need to purchase a service vehicle. Now, what we know that means is a big-ass F-250, something pretty cool. He's excited and build some parts inventory and also buy insurance to launch. I want to blah, blah, blah. I want to put in another $100,000 into the company. Very common. Anybody out there starting to build a business, you got startup costs. You're like, I got to put money in the business. I need to get things going. I got to buy equipment, supplies, inventory, whatever it is. And he says, I got to put in another $100K. And he asks, what makes the most sense in terms of accounting best practices as well as tax strategy. Should I book it as owner equity or an actual self-funded loan to the business?

Hmm.

Now, this kind of relates to the shop idea a little earlier. So he's saying, I got to put this money in the business. Should I loan it to the business or should I put it in as capital? Any advice would be appreciated. First, Dr. Dave, love what you're doing, and so many of our listeners have the same quandary. I'm going to tell you right now, 9 times out of 10, it is so much better to call it owner's equity. You debit the bank account, credit owner's equity. Now here's a couple of reasons why. When you loan to the business, now you are paying interest for that loan. So yeah, you get to write off the interest,, but you've also picked up income on the other side. So it's a wash. So don't think you're saving taxes by paying yourself interest. You just created interest income. The other issue is this B word I brought up earlier, basis. When you put money into your business, it automatically creates basis. And I'm talking about an operational company. And Dr. Dave, you know it, you're going to be an S corp before you, get to probably till the end of the year, you're going to already be an S corporation. When you're an S corporation, loans do not create basis. Capital contribution does. And when you're an S corporation, and any of you listening here, watching, if you have a small business, you're making more than 40, 50 grand a year, you need basis. And why do you need basis? To take write-offs. You may have a loss one year, you might have a depreciation of a big vehicle you want to take, you might have, and you go get an auto loan to buy a piece of equipment or a loan to buy equipment or a car in your S corporation. That does not create basis. So now your depreciation write-off is held back because you don't have basis to take the depreciation. Now I know that may be complicated for the layperson here, but just trust me. If you are going to be making 40 or 50 grand a year with your LLC, you're going to be an S corp before you know it. And you want capital contribution. You want equity in your business, not loaning yourself the business. That's the way to do it. Trust me, you'll love it and you're not going to hurt yourself in any way, shape, or form by doing that. You can always convert it to a loan if you want, but I tell you, you won't. So Stick with that and good luck on the open road.

All right. Awesome. Next question here is from Collins ML3. Says, hi guys, my business made $572,000 in net profit last year in 2025. Couple of questions. One, what do you recommend for reasonable salary based on this number from your payroll matrix? Two, what high-level strategies, deductions should I focus on maximizing for 2026? Already have a solo K, vehicle depreciation, Augusta, home office phased out for QBI. We're going to come back to all these. 3, do you recommend accelerated charitable contribution strategy or creating my own charitable fund? And then 4, do you recommend multiple, multiple entity formation utilization to pay myself in that fashion within my S corp? Example, creating operational LLC with—

anything else you want to talk about? The Iranian conflict or anything else?

Okay. He left that out. He did ask a bonus question. Oh my hell. Um, yeah, bonus question about Ukraine, not Iran. And if we could get that figured out, he would be grateful. So, um, no. So love this question though. Great question. Lots to talk about here. Um, well, I'll just say this. There is a payroll matrix we call it the Kohler Payroll Matrix that will answer that question for you. But your payroll might be around $100K. I don't know. I don't know how many employees you have in your business. Are you the only person working in this business? But maybe it's around $100K. This is probably the least important question in your list of questions here.

Well, so he's got $572,000 in net profit.

Wow.

Yep. And I would just add, if I could, to number 1, I don't know if it's important, but I would say you would answer it after you answer these other questions. Because these other questions could drive that payroll conversation. But I like Matt's point too. At this level, if you're making more than $500,000 a year, your payroll allocation according to the matrix is going to be typically no more than 25%. But that's just a starting point. So, Matt, thank you for letting me interject. I like your point.

Yeah. Yeah. Okay. Number 2, high-level strategies. Okay, let's just throw out a number of ideas and And Collins, this is something— and for anyone else listening here— is do a comprehensive tax and business consult about your specific situation with one of our attorneys at KQS Lawyers. We do this every day. There is not an easy button that you just get to push to say, do this tax strategy, reduce my $572,000 of net profit down, please. It is a combination of 7 or 8 strategies that might work for you out of 30, 40, 50 we will consider. So it's kind of narrowing them down to what makes sense in your situation and taking advantage of them. I'm going to hit a number just to get some ideas for you and other people listening here. One, you said you already have a solo K. Does your spouse work in the business? Or maybe should your spouse be working in the business? Because we can open up an account within the same solo K plan for your spouse and start making contributions for your spouse. Do you have kids? Are your kids working in the business? We got another strategy to pay your kids in the business, creating expenses for you and creating income for them. That, as we talked about in a prior question on today's show, could actually go in to fund a kid's Roth IRA and be Roth IRA contributions for them. Also, what are you doing to grow your business? You have good income. What are you doing to grow your business? We're going to come to investing here in a second. What are you doing to grow your business? Does your business need a building? Are you leasing right now and paying rent to some other— to some other landlord? Maybe you can buy the building for your—

I was going to bring that one up. You just stole one of mine. Okay.

All right.

Okay. I still got some. I'm going to do some brainstorming.

All right. Maybe you buy a built— the building and all those depreciation expenses, which you could accelerate, can be netted with your business without having to be a real estate professional, where these real estate losses can be offsetting and reducing your taxable income. Okay. What else are you doing to scale your business? Is there other equipment or things you need to be adding to your business to help grow it past what it's already doing now, which is doing great? There could be equipment or other areas again where you might be using this money to reinvest in the business, which is an investment in itself that's going to create more income in the future, but also creates write-offs for you now.

Okay, Matt, can I jump in? I love everything you said. I wanna say right now, number 3 and 4, no-go, terrible. I mean, I can't even. So do not worry about an accelerated charitable contribution thing, fund, whatever. You do not need multiple entity formation for paying yourself in other ways. In fact, that won't work, let alone be it. So just stay away from 3 and 4. Let's stay on this question here. I wanna repeat it for everybody. I'm making $500,000, $600,000 a year. First, God bless you. How cool is that? You're in the 1%er category, and people in this show listening are saying, man, I can't wait to get there. And that's the beauty of the American dream. Don't be dismayed if you're not there yet, our other listeners. You can and will be if you stay determined. We see it every year in our business, helping thousands of clients.

Yeah. And there's listeners that are listening now that have another zero or two after that too.

That too. Okay. Collins 3 says, hey, what do I do? I want to point this out high level. You can look for direct right inside your business, which we've got our list of 10 or 15. I might throw a couple more out, but then it kind of gets to the point, be like where you're throwing good money at bad. Like, I don't need to spend money for that kind of stuff. So once you scrape the barrel, the bottom barrel, and you get your salary where it's supposed to be, you pay the kids, you write off travel and dining and equipment. You kind of run out of stuff, right? So then you go, what's my other option? It's an offset strategy. You're not looking for a direct write-off in the business. You're saying, I'm going to take that $600 grand of profit and I'll blow it on a new Range Rover or a second home in Aspen. I'm going to take that $600 grand and I'm going to go invest it in a way that can create an offsetting write-off. Now, one of those that Matt just mentioned was, I can buy my own building and rent it back to my business, or even an office condominium, I don't know, but you can rent back to your business. Now I can create a depreciation write-off and not even have to be a real estate professional. Maybe I go into an oil and gas position. Maybe I create a DB plan, a defined benefit plan, is like a 401(k) on steroids. Maybe I'm gonna look at a short-term rental strategy. I don't know if your spouse could qualify as a real estate professional, Maybe we've deployed more money in real estate. But what you're doing is you're finding an offsetting strategy to offset the income of the business, but it's smart money.

Yeah, love that. And I think that was the next thing is you're starting to accumulate wealth here, right? And I think that's good, right? Obviously, this is the whole point of trying to grow your business is to have this profit coming out of your business.. And I think so many clients sometimes approach this in the wrong way. They think, how do I pay less tax? And they, and they, they, they hate paying tax more than they like making money. And so, so they get too focused on that. So when we, once we get over here to this investing side and this offsetting strategy here, I want you to be balancing that tax motivation that you have with wealth building. 'Cause there's going to be other investments that might make you more money, but don't have a good tax write-off. And so what do I do? So I just want to make sure you're balancing those things. Don't let the tax tail wag the dog. At the end of the day, a lot of successful people building or growing wealth that have income, particularly from a business, we're writing off everything we can. You're going to be paying some tax here and we're redeploying that to grow and build wealth. And this is in other assets that are taxless. This could be real estate, other assets that as you're building ongoing wealth there, as opposed to an operational business, you're actually tax burden is less, but you're also doing it because you believe in those assets and the value of those as you're trying to build and grow your wealth.

Great comment. Okay. Last question for me. And these have been just great today. We've probably been here longer than necessary, but I couldn't resist this one because it involves a farm.

Okay, all right, we'll let this be the last one.

And I want your thoughts on this too, Matt, of course. Okay, so this is JWK007, says, my wife and I are selling our 36-acre farm with our personal residence as part of the farm. We are going to split out the personal residence in the sale and take the $500,000 exemption for that part of the sale. Love it. The amount of the farmland has to be exchanged via 1031, or we're going to have to pay some capital gains because I've farmed it for several years. Whether you farmed it or not doesn't matter. It's going to be capital gain because it's raw land separate from your home. Okay, so just saying. Now, my question is, should I form an LLC and transfer the farm into the LLC prior to the sale so that I can take a business expense deduction when I do the 1031 exchange? No, bless your heart. Now I am looking at buying more rental property with the proceeds from the sale of the farm ground. I had someone mention this to me, that I should look at short-term rentals and long-term, look into the LLC, but I'm not sure what the best way is to go. Love the podcast. Thanks in advance for any help you can provide. Jay, thank you. Great question. I'm going to work— okay, now I'll start at the top. When you go to sell a parcel like this, and I love it, I've helped a lot of clients with this type of structure sale, even use 3 different strategies in one. The first issue is that farm has got to be on separate title. That's going to be a big deal because you want to sell the home separate from the farm when it comes to the documentation. So It sounds like they're on separate parcels, separate parcels, 'cause you're saying, I want to put the farm in an LLC. Well, you can't put the farm in an LLC without putting the home in there unless they're on separate title. So we're going to hopefully that's the case. If it's not, it's going to make the transaction a little trickier, but still doable. So let's just say that right out of the gate. The second point is an LLC does not change the strategy. Whoever's telling you, you need to set up an LLC first, I doubt they're a tax lawyer or advisor because the LLC is tax neutral. It is not going to help. In fact, it could hurt because when you go to do a 1031 exchange, you've got to take title in the new properties in the same name of which the seller was. So if you do an LLC first, then I've got to take title in the name of the LLC. Well, Fannie Mae and Freddie Mac might not like that if you're going to go get mortgages or loans. To acquire more real estate. They might want you to unwind that and go into your individual name to sign on the mortgage, and then all hell breaks loose. So you want to be, I like what you're saying here, you're thinking from the endgame backwards, which is super powerful. So if you're saying, I'm going to go buy some short-term and long-term rentals, I want to create cash flow, and I want to 1031 the farm into that, equation, there's a lot. Can you do it?

Yes.

Do you need an LLC? No. And what I would say is there's a term out there, and I'm just trying to figure out how much to talk about here, a term called a lazy 1031 where you don't even do a 1031. You go buy the depreciable property you want to buy, and the depreciation offsets the gain that you're going to have. And you skip the 1031. Now, why would you do that? Well, because I want stepped-up basis. If I do a 1031, I got carryover basis and my depreciation on the future investment's going to be lesser. And I got to get— I'm just kicking the can down the road. Now, if you already know you're going to buy something and you can take the write-off, we're going to have conversations about your participation. We're going to talk about real estate professional status. We got a lot to talk about there. And so don't be married to the 1031. You don't need an LLC. I love where you're headed. And I'm just going to say this right now. If anybody today needs it, you do. And that is a comprehensive tax and business consultation. It'll be under a couple grand. You can meet with one of our tax lawyers. They'll walk you— they'll build a trifecta for you. They'll give you all your options. And we can dive deep on your fact pattern. You're sitting on a gold mine here that might turn into a silver mine.

So be careful. I mean, silver's— the value's been doing pretty good. It's not gold. It's not gold, but, you know, it's still on a good run. Let me just hit a couple other things for those of you that are at the 101 level right now, because Mark just went to advanced stuff. There is sell of home exemption. You get to exclude up to $500,000 on the sale of your home if you've owned and lived in it for at least 2 years consecutively. This is for a married couple, $250K if you're single. It's a great everyday tax strategy. Anybody that owns a home should be able to utilize. When you're buying a bigger home, you don't have to, you know, do this 1031 thing. That's, that's a secondary strategy.

By the way, it doesn't need to be consecutive. It could be 2 out of the last 5.

Keep going. Yes, yes. 2 out of the last 5. So you can even move out and rent that house for a couple of years and then sell it within that third year after you've moved out because it's been 2 of the last 5. All right, so that's the sale of home exemption where they're going to get that $500K and pay zero tax. Now on the land, okay, this is held for investment purposes. This is not personal use, your home, your residence. You can do a 1031 exchange. This is when you sell real estate, you can roll that gain without having to pay tax. Let's say you bought it for $100,000 and now the real estate's worth $1 million. 30 years later, this family, this land, okay, they can sell that. It's worth $1 million. There's a $900,000 capital gain. They don't have to pay that if they reinvest that amount, the million dollars or greater, into the next property. Okay, so now then there's timing rules on that of when they have to repurchase and rebuy what's called the replacement property. You pay no tax when you purchase the replacement property. So now that 1031 rule, generally the the way you sell the property and the name you sell the property, the land here that had the $900,000 gain, that's worth $1 million. Just throwing some numbers on it. The title and how you sold that in your name, in the name of an LLC, is the same title you're going to take when you repurchase what they call the replacement property, where effectively your gain rolls into that. You're paying no tax. It sits there until you later sell that one or do even another 1031 exchange. So that's that strategy. Mark got into the high points and technical issues that were applicable to the question. But I want to make sure that people are a little— the 101 level, not the tax professionals and everyone else, but the 101 people knew that strategy. So, um, thank you everybody though for your questions.

And Matt, I wanted to say I'm grateful. This is the power of this show. You and I kind of back clean up for each other, and I, and I love that, that you, uh, brought us down to, uh, to ground level there and just covered some basics that everybody needs a refresher on, on a regular basis. And such a good comment. And I want to say thanks to everybody listening today. This show is for you. These questions are for you. These other people around the country are asking questions you may not even thought of. And we really want to engage with you more and hold more open forums. We got more questions that we could answer today, so I got to be careful asking for more, but Please get over to mainstreetbusinesspodcast.com, pose your questions, share the show with your friends and neighbors, best friend, family, and get your kids even watching this show that are trying to build their American dream. We're so grateful to have you here. We'll be here before next week. We're trying to even do more posts of shows on all sorts of topics. Please give us a 5-star, 2 thumbs ups, 10 out of 10, whatever it takes. We really appreciate it. And, uh, we'll see you next week for another episode of the Main Street Business Podcast.