OPEN FORUM SHOW - Answering difficult tax, legal & business questions

Welcome everyone, to the Main Street Business podcast. Excited to be with you today for our live open forum. I mean, it's recorded. I know you listen to it. Recorded. But Mark and I are answering questions live between the two of us. I don't know.

There's no script. This is. This is legit.

Yeah. Unscripted, obviously. Edit out a few dumb things we each said in every podcast. But thanks for being here. We are going to get into your questions. We've got a lot and this is post election day, so I don't know. Are you a little groggy, Mark? Did you stay up late watching it?

I did. I don't know.

Why?

Well, actually, I had lots of work to do, so I wasn't exclusively watching NBC. I'm a huge Savannah Guthrie fan. That's for you, Savannah. Have me on the show someday.

But Arizona, University of Arizona graduate.

Oh, I didn't know that.

Arizona girl.

Yep.

She's awesome.

But I know I was up till 2:30, which was 4:30 Eastern, so I was, you know, I was on the cutting edge, but got three and a half hours of fitful sleep. Waking up to a new day.

Yeah.

New norm. Which. Do we even know who our president is yet? We don't know, do we?

I know by the time you're listening to this podcast, we may know, but there may also be a lawsuit. You know, this could be a Bush v. Gore all over again. Who knows? Just a lot nastier and messier, probably. Yeah.

Well, I know all of you must be sick of politics as I am, so we're going to jump right into the issue at hand and that is helping you make more money, save more money, protect it, live the American dream, find time to do what you love. And if you're a workaholic, we want you to work more. If you're a playaholic, we want you to play more. So we're gonna just try to do it all.

So, yeah, we just want your life to be better, you know? Yeah. More of all the good stuff, less taxes. So. All right now, Mainstreetbusiness.com is where you can enter in questions for open forum. We're getting the recording function up and Mark and I have a lot from last week that we didn't get to and some that came in as well. So I wanted to give one update though, from kind of the news, if you will. This is a good news from the irs. Actually, they don't usually report great things, but good news from the IRS, you can now put in 58,000 your solo K or SEP IRA in 2021. So we're able to throw an extra thousand in per year. HSA contributions went up by the way for 2020. Also up another 50 bucks for individual and family. So I believe it's 50 individual, 100 family. So that's cool. We're able to throw more money in for these saving strategies. Many of you listening use those accounts, are familiar with them, you're not able to dump more into them next year. And I got my article up on it that's on Entrepreneur and on the Directed IRA site as well.

Yeah, and I don't know if many of you want to hyper focus on the limit of what you can put into a 401k. If you go to YouTube and type Mark Kohler Sweet Spot 401k, I talked about where you want to be based on your income and just maxing out your 401k might cost you more in FICA than it's worth. And so it's an art. So between now and the end of the year we are swamped. We really are. Any of you that have called the office. In fact, this is a good public service announcement to tell you, don't give up on us. We are hiring and training more attorneys. We've got great accountants and paralegals here as well. We know many, many of you need a consult before you're in. We're going to do our best to make sure all of you get the advice you need to make some strategic decisions.

So yeah, the only thing I was going to add with that too is on that the solo K special is now rolling and we're setting up those solo 401k plans at directed IRA or excuse me, at KQS lawyers. And the accounts are over at directed traffic trust company directed IRA. So get to kqslawyers.com where we have the special page going now and you'll be able to sign up and get going on your solo K. Because if you want to contribute to a solo K for 2020 contributions, you're looking at tax planning as we're doing these year end tax holds, tax consults. One of the number one areas where you get big tax deductions and keep your money is solo KS for self employed people. We set up hundreds of them at year end and we're doing the same. We offer a special to get it done in November, but you got to have it set up by year end in order to make 2020 contributions. Even though you can put the money in later, you know, in February or March, you know, later on in the year. And even if you file an extension, you get to the extension deadline, you must have the plan set up in the plan year, you know.

And by the way, this is the show. Today is our show where we just answer questions. And I think I want to pose a common question. We get on this very topic and kick off our rapid fire Q and A session on what the difference is between a 401k and a SEP and what are some issues to consider between now and the end of the year. Big topic. We could spend the whole show on this and we probably will have a show on this very topic we were talking about literally next week or in the month of November when we're doing the special. So, but just food for thought and Matt, I'll give my my quick take. You tell me yours is the Solo 401K and I want to be really clear about what Matt just said. You don't have to put the money in till next year, but you have to designate what you're going to write off and what the deduction is going to be this year. Get the plan in place. The IRS says, oh, you want to do a 401k and you have no other full time employees except you or family members. You can do it, get it set up, tell us what you're going to defer and then you can put the money in up until September of next year, literally. So you got lots of options there. But if you don't get it set up before year end, you're out. That's my first major point. Matt, what would be another significant point on this strategy?

You'd say, well, I mean of course you can self direct. That's one of the things I always want people to know is it's a tax strategy, but it's also an investment strategy. So yeah, I want to be able to throw the money in as a tax strategy and get some deductions if I'm going traditional. But it could also be a long term investment and growth strategy and be able to invest in what you know to grow it to be a greater larger account at the end of the day. And that's of course what many of our clients know us for, is self directing. And we have our own separate directed IRA podcast to learn more about that. We talk about it on this show too. There's questions in the Open Forum today about it. You just can't get around that topic. But that's one cool thing. And many, many self directed investors, most of our solo k clients, self direct, they buy real estate, they invest in alternatives. But not just buying stocks, bonds and mutual funds, Although you can.

And you know, that sounds good. I'll have one of those. But that's from dumb and dumb.

I'll have that. Yeah, I'll have that.

Now, let me give a quick example, everybody. And this was a phone call I had this morning. Personal planning note. Now, I want to be careful not

to disclose too much here.

I got. I can't make my life a complete open book. Many of you would be very well, I'll leave the jokes aside. Anyway, I was going to make some more this morning. I had a phone call. We're looking at buying a building for one of our business operations. And I'm not a majority owner in that business operation. And so since I'm not a majority owner, I could own a minority portion of that building and in my 401k. And so I was talking to my business associate and I said, hey, did you make an offer on that building? And Matt, as an aside, he did. And I said, great, I want a piece of that. And he said, well, what's your plan? And I said, I may just take a $15,000 stake in the building and I'll just do it through my 401. So I might contribute in the next six weeks into my 401. Now, I don't have to until next year, but I could. So I want to make sure that my 401k has an extra 15 grand in it in the next six weeks. And then on day two, I called Directed IRA and I go, hey, that 15 grand in my 401k account, send it over to this LLC bank account, and we're going to buy a building and I might be a 10% owner, I might be a 5% owner. I don't know what the 15 grand is going to get me. But the beauty is I know it's a building that has a great tenant me. And I know tenants can always pay the rent. And I can do this, and it's not prohibited. And by the time I look at appreciation and mortgage reduction and tax benefits and the cash flow, I'm going to be well over a 20% rate of return on that 15,000. So why am I going to go buy an ETF or a mutual fund? I'm not going to get 20% year in, year out. So that's just a little personal example of how powerful these little 401ks can be. And if you have the right type of group 401k, you can do that. Or for many of you that don't have full time employees, you can do this solo.

So yeah, cool.

You endorse that message, Matt?

I do endorse that. I love that message. That's my message.

Since half the commercials here in Arizona are. My name is Matt Sorenson and I endorse this message.

Oh my gosh. This is the one great thing about the election being over my phone. We've been battleground state that went for Biden apparently as far as we know so far, I guess they've called it and I mean, anyways, it's been, my phone has been blown up. I'm so over it. So. All right. Okay.

Now I want to say one thing about the set because I threw that out.

Okay.

Now I have a YouTube video on this as well. Matt and I have a 401k set video on this on our special page. So when you go to the special and go, hey, maybe I'll do this solo 401k, Matt and I have six videos free that you can watch and go, huh, this may be a good fit for me. So get a bowl of popcorn and Diet Coke and watch those videos. I think they're, you know, they could be Oscar winning videos. I'm just going to throw that out right there. But the SEP is really crappy from a tax write off standpoint because it's 25% of your net income or if you're in an S Corp situation, it's 25% of whatever your salary is. Well, with a 401k, you get 19,500 this year plus 25% of your salary. And if you're over age 50, you can even get more. So it's almost like being in a race. You want a 19,500 foot head start. That's what's cool about a Solo 401K. But if you've hired full time employees this year, you've got to include them in the plan. So you can't do a solo. So that talks about a group. 401k. It's too late to regroup this year. Touch base with us in January, February, we'll, you know, help you through a self directed group plan possibly if that's a good fit for you. But what's nice about the SEP if you haven't had a full time employee for the last two years, let me say it this way, if you have no full time employees that have been with you as of two years, for two years as of December 31st of this year. So say you hired a full time employee a year and a half ago. Have they been with you two years? Nope, only a year and a half. You can do a SEP and you don't have to include any employees, but once they hit the two year mark, you got to include them in the sep. So, so what do we do at that point?

Stop the set?

Because it's bad when you have to start including employees. So for any of you out there, they're like, I'm kind of on the bubble. I've had some full time employees, but they haven't been with me two years. I want to do a solo, but I can't. I gotta wait for a group next year. Ooh, I could do a set, you know, cash in on at least a decent write off. Better than an IRA for sure. And then in the spring move the SEP into my 401k. So I love that strategy. Matt, anything you'd add to on that?

Yeah. In other words, let me say it another way. If you have a full time employee, which is 19 hours or more, you can't do the solo K because it's not just you anymore. You have to include full time employees that have worked for you for a year now. The SEP though gives you a little three year window actually, which is nice. Now I got up to three years

where I was it three years?

Yeah, it's three. Which is a two year difference. It's a two year difference from the solo. So you actually have up to three years. So you might be able to get away with an extra two years of contribution in the SEP over the solo K. So.

And over the ira. The beauty of that is it's better than an IRA and you don't have to do a solo. So it's kind of the sweet spot again, right?

Yeah. And we have some clients that qualify for a solo, don't have employees and still do a SEP because it's like, it's easier, it's more simple. I'm not this. It's still the amount of money I want to put in every year is I qualify for, I'm not hitting the max outs. And that's cool. You know, they're getting their 10 or 20 grand a year based on what they're making and they're happy. That's the savings they want to be doing anyways. So just because you can max out doesn't mean you should. You know, everybody still has their budget of what they want to set aside and their plan. So.

All right. On an Example on that. I was at the gym Saturday, I had a sparring session. Two three minute rounds against another heavyweight. I'm a heavyweight. I'm over 200 pounds.

That's the heavyweight category, huh?

Yeah. So I'm a heavyweight. And this other guy, he's a heavyweight and he's, he's tough and. But we go 20, 30% on each other and we started to get a little. You get a little, you get a little adrenaline going.

Yeah.

And he started throwing some harder punches and I was like, I kind of almost got knocked, you know, not knocked out, but I was, I was reeling and I was like. And his name's Mark, by the way. And I'm like, mark, dude, you gotta bring it down a notch. You know, I'm

gonna step it up for him.

You know, I was gonna take, I was gonna bring it back, but I was, I was gonna bring it. But this space, this is all I got, you know, And I can't have a black eye. Yeah.

So Moneymaker.

Yeah. So he said, let's go lift weights after. And he threw up two plates. That's 220. That's what they do at the combine. You see those guys?

50 reps. Yeah, 225.

And I could do it, but just because I could do it doesn't mean I should because I'm going to pull some muscle, it's not going to be pretty. I would be in traction. So, yeah, sometimes us guys, we get in the gym and we think, yeah, we can do this, but it doesn't mean you should. And so that's the same thing with maxing out a 401k or SEP. Just because you can max it out doesn't mean you should. Yeah, I thought those. Was that not a good analogy, Matt?

That was a great analogy. And you also got a drop in there that you box and that you can bench 225. So for any of you ladies out there, he's married, you know. You know.

Okay, he's taken, but yeah, that's gonna throw down. Matt is not taken. So you can send all of your love mail, you know, all those care packages to care of Matt Sorenson. Send it to me and I'll sort through them and then I'll see, you know.

Okay.

Yeah, I'm kind of as representative. Okay, I got a first question here. You got a good one? You got a good. I got a good question.

I do. I have a good one. But you go first.

You go. Okay. Is yours an IRA 401K one.

That's PPP oh, it's PPP.

You do it. I got a charity deduct a charity question.

Okay, you do the PPP from Brandon that came in on Facebook. He asked about the ifr, asking, does the IFR allow me to still request forgiveness of my PPP loan even if I don't have the same number of employees?

Okay, tell everybody what IFR is.

Okay. IFR is the interim final rule, and this is what he's talking about. Mark and I have talked about the new app for forgiveness for Those that have PPP loans. Paycheck Protection Program, loans of 50,000 or less. It's a streamlined, easy app, no calculations. Basically put in the number of what you're asking to forgive how much you got on a loan, attach your paperwork showing you paid those things for payroll or other qualifying costs, you're done. Okay. It's a. You could do that app in 15 minutes if you really actually paid the money. Really easy. Now, if you remember, there's this rule under PPP that said, hey, if you don't keep the same number of employees you had pre pandemic to when you got your PPP money, we're going to reduce your forgiveness amount by the percentage of your employees decrease. So if you only kept 60% of your employees, you're only going to 60% of your PPP loan forgiven.

Very well stated, Matt.

Thank you. Thank you. That's good. Quick summary. It's a technical goal, but I understood. All right. Okay, thank you. And now here's the, the, the curveball that kind of came up, which was, I shouldn't say curveball. Here's the soft pitch that the IRS throughout, SBA, SBA throughout, they said, you know what, if it's under 50 grand, we don't even care. If you're someone that got PPP under 50 grand, even if you had an employee chain, we don't care. As long as you still spend it on qualifying cost, we don't care. We're not going to reduce your forgiveness request. Knock yourself out. Do the Easy Forgiveness app. I should say the simple app. There is a separate easy app to the Simple PPP app. Don't worry about employee change. So for those of you that were 50 or less, you know, that may have had an employee or two or so that dropped out of the mix, you know, you need to calculate it in as long as you spend enough during your 24 week period, now you're good. So that was a good thing Brandon brought up because that came up on our podcast and our entrepreneur webinar on it. And I don't know where the IFR was out on that, but that question came up of employee change. But for those 50,000 or less, smooth sailing.

It's good news, you know, and it's kind of. The interim final rule is kind of like the. We're projecting Arizona to go with Biden and oh, no, they did the new one. We're leaning towards it. We're not projecting. We're leaning. I was like, seriously?

Yeah.

Anyway. But interim final rule. You're like, what the freak is it?

Yeah. What's interim final. What's interim final?

Which one are the proposed or final.

This is the final halftime show. The halftime what?

Interim final rule is kind of like where you go to mom and mom says, yeah, you can stay out till midnight, but it's only interim until you get the final word from dad.

You know that's right. And so just don't ask that. Just go.

Just go. Forgiveness is much easier in that situation. Just ask for forgiveness later. I will say this on the ppp, if you've got a paycheck protection program loan of less than 50,000, it is not automatically forgiven. That is proposed legislation. We still don't know if it's going to happen. They're trying to propose that the proposed legislation is anything under 150 grand, but that's not done. So you still have to apply. But for those under 50,000, like Matt said, easy schmeasy. It's a very simple application. Matt's got an incredible article on this. You can find it on our blog. I'll be updating it in our newsletter in the next 48 hours. So make sure you've always signed up for our newsletter. And you can go to mainstreetbusiness.com to sign up for the newsletter. You get a couple of our ebooks for free. I think you'll find those really helpful, too. All right. This is a question from Kevin via email. I've read that you can take an item. Okay. He wants to donate inventory to a nonprofit. So maybe it's Thanksgiving time and you're like, I've got all this canned food on my shelf. I'm going to take that canned food down to the, you know, the soup kitchen and I want to donate it. And he says, what's my write off? And he said, I've read that you can take an item that you would Normally sell for $300 and multiply it by the amount you donate. Only if we could wish it. So, Kevin, bless your heart. The instructions in Publication 561 are confusing to me. That's because you're reading an IRS publication. If you can't sleep at night, everybody just pull out an IRS publication. You'll have nightmares all night, but at

least you'll go and it'll bum you out.

Yeah, yeah, you'll be bummed. Okay, so he says if I donate 60 items at $300 each, that should result in an 18,000 deduction. $18,000 deduction. How do I account for the $6,000 cost of inventory with that calculation? So apparently, this inventory only cost him $100.