OPEN FORUM SHOW - Answering Difficult Tax, Legal & Business Questions

Foreign. Welcome, everybody, to this week's episode of Main Street Business podcast with yours truly, Mark Kohler and the amazing co host Matt Sorensen. Did you like. Did you notice that inflection?

Matt Sorenson, very down.

You know, that was not that. Corey, did that sound negative towards Matt? I thought it was. I came down on a bummer. Okay, let me try again. Welcome, everybody, to this week's episode of the Main Street Business podcast with yours truly, Mark Kohler and the amazing Matt Sorenson.

Yeah.

Okay. Okay, everybody. Now, I want you to know everybody that was included in the main recording. That was not a blooper. I did not ask Corey to cut. I wanted all of you to experience my versatility as a podcaster, that I

could do that much. Like maybe some progressive lenses and your fancy new eyeglasses. They're versatile.

Wow. Hitting hard today.

Okay, Mark just got back from Costco and got his new lenses.

I've got these new Coke bottles, and I would not. First of all, I do not buy my glasses at Costco. No offense to any of you that do. These are very trendy. I.

But wherever you went, did you get an ARP discount?

Oh, wow. Wow. Okay. That's where we're going today. Okay, Corey, would you just. Can you do something to Matt's image that makes him look pastier white than he already is? Can you do that? All right. Okay. Well, everybody welcome. This is a opportunity to learn tax and legal strategies in a fun, an interesting format. Business, marketing, management, we cover it all. We want Main street business to just flourish. That's what we're all about.

Yeah. And today's episode is our open forum. So this is the people show. You know, it's where we answer your questions. A lot of times you don't like what Mark and I want to talk about, and so we do this show. So we talk about what you want to talk about, and that's what we do. And if you don't like what we're talking about, well, make a difference. You could get to mainstreetbusiness.com and submit a question and we'll talk about that.

I love it. I love it. Okay, well, all right. So let's get into it. We got a lot of questions. And no more dilly dallying. Something my mom would say. Who is an AARP member?

Okay. Myself.

Not myself. I just want to point that out, okay?

You're just a. You're just a prospect for.

You're just. You're just jealous that I can go to Denny's at 4 o' clock and get their early bird and you can't.

I mean that's a discount on your movie tickets.

Ouch. Okay. All right. Okay. Man, this hurts. All right. Okay. This question is from Eric. Eric says you guys rock. Keep up the great work. I always like to read that part of people's questions because that's the best

part of this question.

Yeah, I don't skip over that stuff. I began investing in startups in 2021. Well, that's fairly recent, but okay, so some via. Some via my self directed Roth IRA 10 investments so far. Okay, cool. And Eric, I know you, Eric, you were. Oh my gosh. This is a great question because Eric was on my live webinar last night. Some of you may not know I do a live in person, I should say very personable live webinar every month. For those that want to get involved, it's markjkohler.com where I do Q and A on a specific topic. And Eric asked this question last night but I thought it was a good one. So we're gonna cover this for everybody. He says, some I've done with my personal trust 12 investments. Some I've done with my Roth IRA 10 investments. So man, he's no holds bar. He's in 22 startups now. He was watching Shark Tank, I guess.

I guess so.

Wow.

He wants to, you know, he's this little Mark Cuban right here, you know, Mr. Wonderful.

He's just spreading the wealth, baby. I Love it.

Eric.

OK. He says now that I am receiving numerous K1s, okay. This is the backside of startups as you're like, oh, I've got paperwork coming my way. Yes. So when you invest everybody. So you know what we're talking about here. When you invest or partner in an LLC with someone, you're going to get what's called a K1. It's like a W2 that employees receive. A K1 is what members of an LLC or partners in a partnership get. A K1 kind of says this is your gain, this is your loss, this is what you got. And then you got to go put that on your 1040 tax return. So if Eric invests in 22 companies, he's going to get 22 freaking K1s. He's not too excited. He says these would be passed along to our accountant. I'm wondering if it would be make sense to use a single member LLC owned by our trust for all of the non IRA investments to simplify tax reporting that I give the CPA the LLC info rather than a dozen K1s. Okay, I want to comment on that part, Matt, but I got a better question that I think Eric could have posed. What do you think? Is there an asset protection angle on this? Like having a COPE entity maybe own all of these little startups? What's your take on. On maybe an asset protection angle, and I'll maybe hit the account angle.

I mean, I presume Eric has some pretty significant assets in general. I would just. If you've made 22 startup investments in a year, you. I mean, I'm just making a presumption you have a lot of assets. So I think a COPE entity would be a good thing to consider for asset protection alone, because one of those 12 startups that you own personally, that's just owned in your trust right now. Trust is not asset protection. If this is just a revocable living trust, there's sometimes some privacy benefits to it, but it's not asset protection. You get judgment against you for something and you're texting and driving default on a line of credit. Have a real estate deal gone bad. You personally guaranteed a business go bad. You had a personal guarantee on whatever it may be. They're chasing you down and they can get at your other assets. So a charging order protection entity could make sense where you have one LLC that is basically your holding company that would own these 12 assets. You generally look at Wyoming, one of the consults with one of our attorneys, we could look at that. So that could see a little asset protection angle to this. Not automatic. You wouldn't have to, you know, and we don't need. You have asset protection. Of course, everyone from all those startups, they should have their own corporation or LLC that's giving you liability protection, is just a shareholder investor. But to protect those assets and those investments, One of those 12 might be the next Uber. Who knows? It might be worth millions. Hopefully it is, Eric, but you know, that could be at risk if you had some personal liability somewhere else.

Yeah. And what Matt just rattled off there at the last moment, I'll give an example. Let's say you were texting and driving and got in a terrible accident and someone sued you. And come to find out one of your startups is worth a million dollars, you, they're going to want to go after your ownership in that. And having an additional entity, which we call a COPE Charging Order protection entity in between, that could be a nice fit. Now, that's the topic we covered last night in the live webinar. Any of you that want to access that you can watch the last 12 months recordings of the webinar over at the my website, margincoaler.com and that's what we covered. But okay, now here's the accounting take. Eric is saying I'm getting these 12 K1s. I don't want to give them to my accountant that's prepping my 1040. They're going to charge me more or it's a headache. So why don't I set up an llc, maybe get this asset protection perk Matt mentioned. And I'll have all the K1s go there and then file that LLC tax return and kick out one K1 to my individual accountant. Well, Eric, someone's gonna have to deal with those 12k ones, right?

It's coming on one return somewhere.

Yeah, you're getting it on one ankle or another. There's probably some good metaphor here I could use. You're gonna get smacked around one way or the other, but so it is. So if you set up an LLC just to avoid 12 K1s, they're gonna get reported on that tax return. Some accounts gonna have to deal with it, and they give you one. I will say this. There is one other benefit besides asset protection of doing a COPE LLC to collect all these K1s, and that is audit protection. The more K1s and thick. Think of it this way. The thicker your 1040 tax return is, the more likely it's going to get audited. So if you have a holding company for all these 12 startups and kick out one K1 to your 1040, your 1040 is going to be clean. I learned this from a client, gosh, almost 15 years ago, multimillion dollar client and da, da, da. And he was so proud that he and his wife's tax return, their 1040 was like four pages long. He was like, I keep this thing tight. But he had all these other business interests going into companies, but they just give us simple K1 or maybe a W2 to him. And so his 1040 was really clean. And since 1040s are the most often audited, I think keeping all those K1s off might be nice there. Just another thought.

I know that's a good idea. Now, Eric, would, you know, probably need to be, maybe if you're married, do a partnership with your spouse. So you could do a partnership return actually. Because otherwise you're gonna need a way to get a return where you're filing a return for the llc. Otherwise they're single member. If it's just you or you have Your trust too. That's another thing. We love the trust in there because it's single member. So it's kind of a weird situation to elect into partnership or a way you'd get a return because we do like the trust being the single member. But there's ways you could do it. You could list yourself as a 1% owner and your trust is 99%. Or there's. There's other strategies to do it if, if that was super important in your situation. Yeah, yeah.

Okay, let's jump over Matt to why don't you read Ryan? Do you want to go up to Ryan's question? Just kind of take these. By the way, everybody, if you have a question, we are not taking these questions live today. Sometimes we do. The best way to submit a question is at main street business.com mainstreetbusinesspodcast.com or mainstreetbusiness.com and just submit a question. And when we do our open forum, we grab from there. If you like a question of someone else's heart, it's because those questions get a little more priority and it appears someone hearted.

Ryan's yeah, we got some of Ann's up here and Thomas's has gotten hearts. We'll get to those guys. So let's hit Ryan's though. Ryan says Mark and Matt, thanks for setting me straight on the last podcast. I needed that. Okay, I'm sure. I think this was about, you know, restructuring your business maybe, or, you know, maybe you did your LLC wrong. I don't know. But he says now that you've knocked some sense of me, I think I need to restructure my business entity. What pitfalls do I need to be aware of when shifting my electrical contracting business into its own llc? Should I make the S selection for it? I'm waiting for the books to get here so I can hopefully find the answers and many more on my own. Until then, I'll throw them up here, probably hear them on the podcast and partly because I like hearing other people's questions and figured I'd share

as you start to talk. Corey, am I able to share my iPad whiteboard?

Ryan what I would do an electrical contracting business I would separate into its own. I don't know what you may have mixed in there. Maybe it's real estate, I don't know. But you didn't indicate that. But electrical contracting could be a liability inducing business, right? I mean, I did just watch the new Spider Man. I didn't know that that was it. Jamie Foxx was A villain. An electrical villain. What was that? Yeah, you seen that?

Oh, an Andy Garfield. What?

Andrew Garfield's in it too, but yeah. Okay, well, anyways, you know, things can happen in electrical contracting businesses, and so you have liability there. And so we want to keep that. That operational business separate from any assets you may have. That's a fundamental when we're doing structuring. So. So. But that could be in its own LLC or it could be in an S corporation. Now your question was, should I make an S selection for. For it? If you're making 40 to 50,000 net, this is after all your expenses in this electrical contracting business, Absolutely. Add an S election to that llc, have it in a separate entity, and don't add assets to it.

Okay, so, Matt, let me add a little whiteboard to Ryan's question. So everybody, we love the trifecta. And you know, this is a perfect question, Ryan, where you might want to set up a one hour consult with one of the attorneys and have them build out your trifecta for the year with some action items, very affordable, okay? And save you thousands. Okay? So everybody watch what we would do for Ryan here. So we've got his trust down at the bottom. I'm going to actually give two options here because what Matt said was electrical contracting should have its own llc. Well, the hard part, and this is why a consult is so helpful, we don't know what else is going on in Ryan's life. How many other entities does he have? Is he married? What state?

I made an assumption. I made an assumption that he had real estate in there and assets. So that's what I had to go with.

Oh, okay.

Sometimes you have to kind of make up the rest of the facts to fully answer the question.

Matt likes to make up facts when he answers questions. That's not how I roll. It's.

It's called creativity.

It's called jacking people up. For those that are watching, ingenuity.

Okay.

For those that have the pleasure outside

the box thinking, okay.

For those who have the pleasure of watching this on YouTube, you get the benefit of our little quotation fingers. We say each one of those. Okay. All right. Well, I would throw this out, Ryan. I. Having multiple S corporations in a client's life is something we try to mitigate. We would like to have a scenario where you have one S Corp. Now, if you have multiple business operations, you might have the electrical as a subsidiary. So it's out there. Like Matt said, it's got its own little liability shield, its own merchant account, its Own bank account may have its own employees because your parent S corp might be doing some other things online or have some other operations or other income, or maybe your spouse has some income. So there is a possibility here of having an LLC parent own the electrical business up here and separate the liability of that operation, but have it all flow into one parent s corporation where you might have a W2, your spouse might have a W2. And so I'm not gonna. I'm not gonna say anymore. Matt's comment was actually right on. What I tried to do is compliment my co host, unlike others, but. So I think Matt's comment was excellent. But if you're able to watch this on YouTube, I think that's a possibility here of having this subsidiary scenario rather than just one main entity.

Yeah.

Okay. All right. A lot of people like Ann's question here. Wow, lots of hearts there.

Yeah. All right, I'll give it a read. Okay. Says, hi, Mark and Matt, you've said to put my vehicle in my LLC instead of my name. We'll come back to that. It's currently in my name and I use mileage across different LLCs, plus personal. Which LLC should I put my vehicle in? Operating Oregon, passive, Michigan, Wyoming, or it in or out of state. Real estate or non real estate are options for me working with.

Oh, my gosh, that was a mouthful. You're gonna have to. Can you put that in English? I got a little lost there. I don't know.

It was a tough one. And man, you killed me on that last sentence there. Basically, what Ann's trying to know is, do I need to put my vehicle in an llc? Now she's saying we said this. I don't know who said this. I don't know if Mark said this, but maybe an rv, but I don't think your regular vehicle.

Hey, I'll come to Anne's defense. I have talked about putting entities. I'm sorry, putting vehicles in your business entity when possible. The only correction I would say is everybody. We're not telling you, just across the board, put your vehicles in your entity. But there can. It can work. But Matt, what are you. Typical. I'll draw while you talk.

Okay, let me just make a couple of points first here and how you're expensing this. And this is the issue. One of the issues is we don't need the vehicle in an entity for you to take the mileage and take expenses on the vehicle. So if you're using that vehicle for business use, whether this is to go to a rental property or in your operational business, use that mileage for each respective activity. Totally fine. And that's going to be expense against the rental property. It's going to be expensive on the operational business. But don't. You don't need to put it in an entity for tax purposes. So just know, for tax purposes doesn't matter one way or the other. Now, would you want it for asset protection? I'll let Mark throw this basketball, Mark, because.

All right, we're going to use the trifecta. And I. I know, people, please know we're not making a shameless plug every time to this trifecta, but it's simply because a picture says a thousand words. It really does. It helps so much. Whenever a client is on a phone call with us, with any of our attorneys, we have trained all of our attorneys to get, you know, get PowerPoint open, get on Zoom if possible, and start showing what you're talking about because it just makes so much more sense. So if you're able to watch this again today on YouTube, what we've got here is Ann's situation. On the left, she says she has an operating entity in Oregon. And then over on the right side, she has an LLC in mi. Is that Michigan? I'm embarrassed.

Yeah, Michigan.

Okay.

Right.

There's a lot of. It could be Mississippi's Ms. That's ms, yeah. Okay. Missouri.

Minnesota's mmo. MO is Missouri.

Gosh, man, you're just a little encyclopedia today, aren't you?

You know, I know the 50 states.

Okay. Wow, man, this is going nowhere good today.

Okay, all right, now, what podcast are you guys listening to right now? I don't know, but you're listening.

Yep, yep, yep. All right, so if we're looking at this, on the left side, we have an LLC in Oregon. Then on the right side, we have an LLC in Michigan with, let's say, a couple rentals. And she says, where am I putting my vehicle? So Matt's first point is write on. Again, you can write off the vehicle in pieces and parts on both sides of the transaction. You could write off mileage on the operation side. You could write off mileage on the passive side. If you're going to actually depreciate the vehicle and take actual, you're going to have to choose which side of the equation you're going to put this vehicle, typically, we're going to write it off on the operation side when you're out visiting clients and customers and picking up supplies and blah, blah, blah, blah, blah. Well, but again, if you have a lot of rental properties. You may say, well, I use this truck to maintain all my rentals. And so you might write off the truck over on the rental side. So again, more facts in a consultation help out a lot. But here's the thing. Where do you actually put the title of the vehicle? See, the IRS doesn't care where the title is. This is more of an asset protection thing. Well, heaven forbid you put a vehicle in the title of your LLC on title to your LLC where you've got your rentals. I mean, heaven forbid there's an accident and they're going to sue the driver and go after anything the owner of the vehicle has, which is your rental. So I'm going to put a big X through that. We do not want the vehicle on that side. And if I had to choose between an operational entity or Ann personally. Now, this is generally going to be with a vehicle that's paid for. If you've got a lien against the vehicle, you're not going to have much choice. But if this vehicle's paid for, think about it. Should I put that vehicle in Ann's name or should I put it up here in this LLC S Corp. That is simply a shell. Remember, shell entity should be running your operations. And I would tend to lean on having the business vehicle in the operational entity for asset protection, if that made sense when we had all the facts and Ann's scenario. But that would be preferable over Ann owning it personally, because if she's driving this car that she owns personally and gets into a crappy accident, they're going to sue her and try to go after all of her personal assets, yada, yada, yada. Where if we have just this shell llc/s corp owning the car and there's an accident, we're hopefully going to be able to get some sort of barrier and protection between the entity and Ann's personal assets.

So, yeah, so let me say. Yeah, yeah, let me say, of course, for those of you business owners that have employees, where you have equipment, you have trucks that are going out on job sites or delivery or whatever it may be, those are definitely in the operating entity over there. That on the left side, all right. That you got employees driving that stuff, that's definitely over in the business operating entity. But it's kind of this quasi. We're presuming this is a personal auto. Where does it go? This is where the quandary happens. So hopefully that was helpful. And now Ann has another question, by the way, which is also a pretty good One, she got five hearts on the next one too.

Oh, wow. She's got. Hopefully she's got her own questions here.

Can you even do that? I don't know.

Maybe. Probably not. Okay, so what's her next question here?

All right, she says you mentioned putting an LLC between the self directed IRA and the investment. The self directed ira, in order to eliminate interacting and paying the IRA custodian every time we do something where it might be required. Is there an optimal state to put the ira llc? I live in Oregon. Again, we know, Ann, from your last question. And you have LLCs in Oregon and operating in Michigan, Pennsylvania and Wyoming.

Okay.

All right, so, man, Ann's getting a full consult here today.

Yeah.

So great questions, Dan. Seriously. So let me hit this one. So your IRA llc. So you have your IRA and it can own assets directly. Of course, we have our company directed ira and hopefully you're using them where you can set up the self directed ira. But that IRA can own an investment property directly. It could make a note, it could invest in crypto, invest in a startup like Eric's earlier that we talked about. So. But a lot of clients, particularly the real estate clients and some crypto defi clients will use an LLC where the IRA owns the LLC 100%. The LLC in turn goes out and makes the investment. And this could. So now let's say it's a rental property. Your IRA invests in the llc. The LLC in turn goes and buys the rental. Your manager of the LLC and controlling everything in the investment through the llc, which has a bank account and everything. We have a lot of prior podcast episodes, the directed IRA podcast. Mark and I both have videos on this. There's a whole page of how the IRA LLC works. Two chapters in my book, lots of content on it. But to your specific question, Ann, what state?

Yeah, you can answer a question. Yeah, you want me, I can jump in and answer a question.

You know, I was getting there. I mean, you were doodling a lot on the last one, so I figured I'd, you know.

Okay. Take a few laps. Okay.

You know, the, the speaker recognized me for, you know, five minutes and I want to take. Apparently.

Okay. All right.

So. All right. So, Anne, this is an easy one. We're going to set up the LLC in the state. You're buying assets. If you are buying real estate, we're going to set the LLC up in the state that that IRA LLC is buying real estate. If it's Oregon, it's going to be Oregon. If you're buying Michigan properties We're going to do Michigan. If you buy Michigan properties and then you buy Pennsylvania, we'll set up in Michigan and register at foreign into Pennsylvania. So always look at where you're buying. Now sometimes you might be doing something like that doesn't it's not a property. Let's say maybe you're doing lending or you're using as a holding company for some crypto stuff or startup investments, which in that case you could just do Oregon, the state you're in, but otherwise we're going to look at the state you're buying assets or property. I'll yield back the balance of my time.

Okay, well, great, great comment. And I would just say this folks, as you. If you're able to see this in the diagram, this section here where the IRA is the owner of the llc, notice how that's juxtaposed for some of you, Matt, you may want to know that means different.

I'm going to have to look that up. Okay, Juxtaposed. Different. Okay.

It's different from the alternative. So juxtaposed or compared to the this over here, this LLC is owned 100%.

The compared to are different. I don't know.

Hey, will you roll with this? Dammit. Okay, work with me, work with me. Okay. All right. I'm trying to use, you know, new words all the time. Working on my thesaurus internally here. Okay, now notice everybody, this LLC is owned. This right LLC that she has in Michigan on the right hand side is owned 100% by her trust. This LLC is owned 100% by her IRA. It could also be owned by multiple IRAs, brother, sister, mom, dad, husband, wife, you know, they could have kids, all in this llc. To create a multi member llc. One thing she alluded to in her question was it makes transactions easier to do the llc. And I do want to echo that comment that that makes sense because is you're collecting rent, paying bills, you get to be the manager of this llc. Anna, and that's totally. Or Ann, sorry, that is totally allowed. It's valid to do so to be the manager of the llc, you can't pay yourself. We have a podcast on prohibited transactions. But don't listen to any custodian out there, people that says Ann can't be the manager of the llc. She can easily pay bills, do the bookkeeping, hold this thing together and not have to call directed IRA or any of these other trust companies every day with transactional requests. So you're getting some asset protection, you're able to pool your money, you're also able to expedite transactions and make life easier. So this LLC, owned 100% by the IRA and your beneficiary to the IRA would more than likely be your trust. So this is how it all flows downhill into your trust. Just beautiful work of art, if I may say so. Boom.

Love it. And you should like sign that and sell it. They should make an NFT of that picture.

NFT right there.

That's nice.

I should. Okay.

All right. Thomas has a question about owning property foreign. Not in the US but using a living trust in the US how does that work? How should I title my foreign real estate? Okay. Now in the US we have a set of laws that we have a constitution. The states have to recognize other states laws. So if you have a trust set up under the laws of one state, other states have to recognize it if you have assets in those states. We also have a federal income tax system that all of our estate planning and trusts are designed around and are contemplating and they're taking into account. Now it is not taking into account foreign jurisdictions. Once you start owning property in a foreign country, your estate plan is flipped upside down. It's going to work in the U.S. for assets in the U.S. but assets in a foreign country, you need to go get foreign counsel. You're going to have a foreign probate system that you're going to have to deal with and you're going to need to go get foreign legal counsel for that, unfortunately. And Thomas, I know that seems like a simple question, but it's a complicated answer.

Yeah, yeah. And I think the best approach to take in this situation is you've probably got about 100 and what is 187 countries that you are going to have different rules for. And you're just going to have to look at what does that country provide as way of ownership for that asset. And hopefully you can make the owner of that structure or trust in Austria or I think in Mexico that has specific corporate laws that are really specific to Mexico. You can't go down there with a U.S. trust or a U.S. corporation. You've got to set up a corporation in Mexico, but then you make the shareholder of that corporation or the beneficiary of that trust in Austria or whatever the structure might be in Ireland or Australia or wherever it is. Try to get your trust in as the owner of that entity or the beneficiary of that trust in that country. So deal with their structure first, but try to make your US Trust the owner beneficiary of that. What do you do concur, my co host.

Yes. Sometimes possible, sometimes not. That's why it's like, you know, 187 different answers. And really, you need a lawyer who understands Austria law. You know, the law in Austria and, and has a little bit of understanding of the US and this is why there's international law firms out there that charge an arm and a leg, because this is a tricky area. So. But I do like the idea and I've done this with clients. They'll have their trust, own a US based llc. And in a lot of countries that US based LLC owns a foreign entity. And in that way they're based, they're protected, they have a company. Companies don't die. But the underlying ownership of that can pass through the trust and it could. And that structure can work. Thomas was asking here in terms of a personal asset, not a rental property, but you could still use the LLC structure and entity structure where the underlying ownership is eventually a US LLC and a trust that owns the US llc. That can sometimes be an easy solution, but again, not always certain it's going to work in the foreign country where you're looking at. Plus you have issues of who's the officer in that country. What happens in changing that when you pass away? You got to think of some logistics there too.

Yeah. And for those of you that enjoy my artwork here, I can come play Pictionary on the team at any point and hopefully add to the experience. Right here we have our trifecta, and this is our asset side and over here is our operations side. And so those again, that are new to this trifecta diagram. This really just kind of puts it in context from a visual standpoint. You might have your little LLC side hustle here. You might have an S corporation. You can even have a little sole proprietorship. And maybe your day job is over here. But this is all flowing down to your US 1040. And I, and I like to show here that you might have an ira, that your trust is a beneficiary of your LLC in Arizona, that your trust is the member of or owner. And then here's this LLC in Austria, or a trust in Austria, where again your trust is hopefully the owner, or as Matt said, maybe a US LLC provides a little buffer as an owner in the in between area here. And this is where it all again flows downhill into your 1040. And from a tax perspective, remember that as a US citizen, you're taxed on your worldwide income. And so whatever you're doing over in Austria or whatever country you're owning that real estate, you're going to have to report your taxes in that country, whatever their rules are. And if you pay any tax in that country, you're going to get what's called a foreign tax credit. Foreign tax credit on your 1040 in the United States, typically. Now, again, there's U.S. treaties and a lot of different countries can put a twist on this. Even NAFTA between Mexico and Canada in the US can get tricky. But hopefully you're enjoying your trip to Austria, Thomas. I think this is a lot of fun. So, yeah, get out there, go at it.

So, yeah, isn't that where. What's the musical in Austria?

Oh, dude, the Sound of Music.

The Sound of Music, yeah. Sound of Music.

Yeah.

That's all I. That's all I think of Austria. And isn't Arnold Schwarzenegger from Austria?

Yes. And Hitler's Eagle's Nest was in Austria.

Okay. Yeah, yeah, I'm gonna, I'm gonna reference Sound of Music and.

Fair enough.

And Hitler's Lair.

Yeah, Hitler's Lair was over there. But no. Yeah. So fun fact.

Fun fact.

Yeah. So the cool part here from a tax perspective too, is that as you're taking trips to Austria to go check on your rental property, you're going to make those tax deductible expenses, hopefully not only under Austrian law, but US Law as well, because that is a business. You have a business in Austria. And so that's going to be a valid write off and really a nice little perk. Well, great question, Thomas.

Yeah, Tim has a good question.

Tim from Texas.

He got two hearts on it.

Ooh. Okay.

He says, can you. By the way, you got his calendar this week?

Oh, okay.

I don't know if the MJ calendars are out, but are they all out?

Yeah. Let's do a little shameless plug here. I carry my calendar around with me everywhere. The MJK monthly planner.

Mine's on my desk over there. I just can't reach it.

Okay. Oh, thank you. I appreciate that, Mr. Matt Sorensen. We've got tax deadlines and little charts and tables and maps of the United States with different tax and asset protection strategies. And every month of the year, your ten year plan is, is a spot for that. So everybody, we will sell out by the end of the month. So get to markjkoler.com and it's I think 30 bucks and it'll save you thousands with your attentiveness to the tax strategies and the tax deadlines you should be aware of. So. All right, Tim, In Texas. What does he got, Matt?

All right, says, can you discuss the tax and legal asset protection implications of getting married? Okay, I'm not.

We're gonna touch that one, huh? All right. Okay.

All right, you got one minute. Now, he's got some spec. He's got some specifics.

Okay, so we're gonna go to the three day seminar on this.

Yeah, yeah. We don't have. We're gonna add some facts here. And these are Tim's facts. Okay. He says specifically, my soon to be wife and I are both doctors and it seems like we will get penalized for getting married. That is true. I'm going to come back to that. There's a marriage penalty on taxes for high income earners. It's total bs. It's true. We'll come back second says, would a prenuptial agreement protect us in some way from a liability lawsuit? And finally, Tim, you're going for three here. Finally, if we get divorced, does the common law versus community property law apply based on the state of marriage or the state of divorce? All right, well, we can work. I don't know if you want to work forward or backwards on that one,

but I would throw. I really think we've got to be careful here because this. You know what? I'm going to propose this. And this could be dedicated to Tim. Why don't we cover in one of the next upcoming podcasts this very question, tax and legal considerations when getting married. Because these three questions could easily absorb 10 to 20 minutes just trying to give them a good answer. And there's probably several other things to consider. What do you think, Matt? We bumped him to his own podcast dedicated to Tim next week or the week after.

Yeah, I'm going to give a short answer, though. I'll get the Reader's Digest version.

Okay, go ahead.

I mean, I just. I want to leave Tim hanging, you know, Plus, I want to, you know. All right, Give him one tease for this next episode. Okay.

Okay. There's a teaser for our podcast coming up. Okay.

I did not believe this, and I was proved wrong on this. There is a marriage penalty for high income earners. If you are single and you're a high income earner, you marry another high income earner, you're going to pay more in taxes than you would if you stayed single. It just is what it is. Write your congressman or senator, nobody cares. You're both high income earners. They're like, bless you, you get a cut. At least cut your living expenses and live together. I don't know. So, so yes, that's, that's true. Yes. A prenuptial agreement could protect you from a liability lawsuit to separate your assets. If one of you had a lawsuit, the other didn't, and you had your, your assets held separately, that could be that. I could see some legitimacy to that. And then common law versus community property is usually beyond the state of divorce because you're going to be, you may move around from where you get married to that essentially is some state you establish residency. That might be the. You can be on the state of divorce, but you would have had to both establish residency for that to change. So. Love the question though, Tim. It's going to get an episode. It sounds like.

We'll give it a, we'll give it an episode here. Okay, great question from Tracy today on the show. Are crypto rewards that I get on Voyager to taxable even if I haven't sold any crypto yet? What if I'm even at a net loss in my crypto investing? Well, Tracy, you're at the right spot. We are holding our next crypto tax summit in Miami on May 19th and 20th, a two day event which the last one sold out for the in person attendees in Phoenix. We're going to be doing networking lunches and networking breakfast. We have a VIP all access experience and preferred seating if you want. It's going to be a lot of fun. And then for all of you that can't attend in person, you can get the virtual broadcast and all of that is available@cryptotaxsummit.com but let's answer this question, which is actually a section in that two day event that would probably take up almost 30 minutes or more. So we'll try to answer this as easily as possible here, Matt. So why don't you. Rewards. I hate this word. You know, this is kind of the, the crypto industry's way of saying, oh, you get a reward, like somehow like,

like points from your credit card. They want it to be like that. Yeah, yeah.

You're not going to get taxed on this. We're just going to call it rewards. Well, Tracy, should I give her the bad news or do you want to? I don't want to be the bad guy.

You're like, this is a great question, Tracy. We got a tax summit. Matt, give her the bad news. All right, Tracy, here's the bad news. Well, yeah, here's the bad news. I mean, I saw that one a mile away, by the way.

Yeah.

All right. It's like you can kind of through the material, they're like all right, now it's Matt's turn to talk. Okay, Tracy, I'm sorry. Yes. Your rewards here are, is, is an income to you. So that's going to be taxable even if you've just bought crypto through Voyager that has gone down in value because you haven't sold that crypto yet. So you haven't locked in the loss. So but it's the same, works the same way if your crypto is going up in value, you're not paying gain until you sell either. So it works, does work both ways. Don't feel like you're getting a raw deal here. So. But yes, you are taxed on the rewards. Yield, earn, whatever it may be called on what platform you're on. I'm gonna, and that's get the fair market value of whatever that is worth.

Yeah, I, I'm gonna try to highlight this with our trifecta in ex. For example because believe it or not, when Tracy says rewards she's generally talking about staking. And staking can be taxed in three different ways or there's really three types of staking. On one extreme, if Tracy was to go out and buy her own nodes and be a validator and manage her own staking operation, that's a business. And so over here we would recommend on the left hand side of your trifecta and operations you're going to use an S corporation generally. Again, we don't know Tracy's complete financial picture but she's going to pay self employment tax on staking where she's actively involved in the process. Now when she says well I'm using the Voyager staking reward platform, well that's going to be very passive. So you over here you have a staking scenario where this passive involvement is still income but it's going to be reported on a 1099 miss where it's miscellaneous income or other income that is not business income. So you can't take write offs against it. It's just this quote unquote reward that accountants are referring to it as other income. But I have to distinguish this between and here in the diagram you can see this, you've got, I'm going to put this in red, you've got your capital gains from your coins. I use the emblem of Bitcoin here. So you've got growth that would only be taxable through long term or short term capital gains or you may have losses if it goes down. If you were to sell it and we've teach this Strategy of wash sales and cryptocurrency. Traders can use the wash sale and capture a loss and rebuy it the same day. Stock traders cannot do that. But see everybody on this side of the equation, she's dealing with this capital gain scenario but when she's staking that is a different revenue source, that is other income. And so that is going to be taxed whether even if she does take it and then hold because she's typically going to be paid in tokens or crypto and then that's going to sit over here and then have capital gain or loss in the future. But as you earn it, you're going to pay tax on that piece. Matt, thoughts? Is that kind of a helpful layout there?

I hope visually yeah, I love that. And we've had a lot of content prior episodes on crypto tax and the crypto tax summit. You're going to get a deep dive in that. So make sure you're tuned into that case. You can watch it, stream it too. If you don't want to be in Miami for all the festivities and fun. You can stream it virtually too and have the convenience of that as well.

And I don't think I'm going to wrap this up with this point. I didn't think I closed the loop on this. If you're staking actively engaged in the staking and node operator status, I'll put active staking, you're going to want to run that through the S corp so you can create some savings on self employment tax. So there's no self employment tax on the pass through income of an S corp. You may or may not have to take a W2. That's going to be very taxpayer dependent in the situation and what you're doing with the money. But if you don't, you're going to just pay self employment tax on a schedule C which is ugly. So everybody out there. Hopefully this little introduction here kind of wets your whistle or gets you excited for the crypto tax summit. So hope to see you there.

Yeah.

All right. Final question today, Matt.

Okay. Ooh, there's two good ones here at the end. Let's go with Jeffrey.

Okay.

Says hey guys, love the show. I have an LLC residential rental property for liability protection. I have 100% equity in the property. You've said in the past that an LLC needs to have cash in its bank account in case it gets sued and goes before a judge to be considered a well quote, real business to assist with maintaining the corporate bill. Now I retain about 12 months of operating cash in the account. How many months of future operating capital should I maintain in my llc? Of course, Jeffrey here wants it to be the minimum, as little as possible to have a real business. Now, I think, Jeffrey, on this question, if you don't mind, mark me, you know, throwing my thoughts in first here, I'll let you clean it up. I would just worry about the operational cash. I don't even know that I would do 12 months. No, especially if it's a rental property with current active income. I might do three to six months of operating capital in there because if it has a property in it that generates income, it's reasonable for that business to only have a few months of operating income. Now, would it be zeroed out every month? No, that's not reasonable either. But having some little bit of operational income for a few months of future expenses I think would be reasonable and sufficient so that any plaintiff or creditor couldn't make the claim that this LLC was a sham because it held no cash or assets and therefore wasn't operational.

I would add a. A little different analysis to this, or I think I'm going to pretty much say the same thing as Matt, but from an accountant's perspective, I'm going to be more precise instead of, you know, general, like Matt Sorensen. So I'm going to throw out here, I think Jeffrey gives me an important fact in this fact pattern, an important tidbit. He says there's no mortgage. When he said he has 100% equity in the property, that means there's no mortgage payment.

So, yeah, great point.

So we've got to look at what are the operational costs for this property. So maybe utilities, if that. Maybe your tenants covering utilities, Property tax. Yeah, maybe there's some landscaping, insurance. Yeah. So I'm more worried about what are your operational costs. And some people call it the monthly nut. What do you got to pay for every month and those costs per month? That's really what I'm worried about. I want to have a reserve for that. And so you could say, well, I want to have three to four months of operational costs in the bank just in case. I think any more than three or four months in this situation would be a little excessive. Now, Matt's perspective, I think is a good one too, is saying, well, I want two to three months of rent in reserve, because if that tenant leaves me hanging, I want to make sure I've got two to three months of reserves of accrued rent to lean on while I go find a new tenant. Then There's a third perspective. So, I mean, I'm going to put these in red here in our diagram. Number one was look at your cost per month and maybe do a 3x. You could look at your rent, you know, rental income per month and do a maybe a 3x. Another perspective is what type of repairs may I need to foresee in the future? Am I looking down the pipe at a new roof, a new furnace? Do a little audit once in a while if you're a rental and go, ooh, I'm going to have to throw down a new driveway here in the next couple years, or a new this or a new that. And this is what hoas do. They kind of look and forecast out, what are the reserves I need for a future improvement. And you could start saying, I'm going to start saving up for that now. And so a third strategy would be to create a reserve for future repairs or future improvements and be thinking ahead. It's the tenant, the clients of ours that are just living month to month on their rental income. Not usually the best approach here, because you're going to have to do something maybe three or four years from now and you're going to have to go dig up that money somewhere. You go, oh, well, I'll refi the property or I'll do this. You know what? You're now praying that the property continues to grow in value and all these wishful thoughts that you may have not lived through 2007 and 8. So think of a maybe an improvement bank account and start setting aside a little money for that future rainy day expense. So just another thought.

Yeah, okay.

All right.

Just another thought. He said, you know, just a little spin on that. Just a little spin. Five minutes later. All right, thanks everybody for listening to this week's Open Forum podcast of the Main Street Business podcast. We'll be back next week. You know, we do this open forum, I think every three to four weeks we try to do open forum. So we skipped a couple questions and they were good. We just didn't have enough time. I'm so sorry. Ethan and Kurt, you guys both had great questions, too, but we'll try to get to those on the next episode. For any of you that have questions, you want to get in, of course, go to main street business.com hit submit a question. We'll be back the next few weeks with another Open Forum episode.

Thanks, everyone. See you next week.