Open Forum | Your Questions Answered.

Okay, so Jason asks. I'm a high income W2 earner. I'm over the IRA income limits. Barely. I maxed out my employer's 401k the contribution limit. Great job. I also have several side gigs. Single member llc. So income goes much higher than the IRA will allow. Cannot do HSA as work. Insurance is low deductible. Good, you're thinking through this. What else can I do for retirement?

Would you see a way for a private jet owner to use their plane and pilot towards their own license write off potential? Would you see a way I could buy an RV and use that RV for business and still use it personally and enjoy it, but yet write it off? Well, yes, Arnold, you could be doing both.

Welcome, everyone, to the Main Street Business Podcast. This is Matt Sorenson, joined by the great and powerful Mark J. Kohler.

Wow. Thank you so much.

Great and powerful. This is the Main Street Business Podcast experience. Well, today is open forum. We love open forum. This is the episode where we hit your tax and legal question. Get over to podcast mainstreetbusiness.com where you can submit those. We've got a lot in the hopper and we're ready to give some advice.

Yeah, we already have about 42 questions on Alex Murdaugh. And so we're going to jump into the trial from last week. I'm just joking.

I've been in the cave because I don't even know who that is.

Don't say that.

Did they kill somebody?

Did they still kill me?

What is it?

Okay, when we say pop culture, you go, yeah, isn't that interesting? Then I got your back.

Can I guess who Alex Murdaugh is? I have no idea.

Only going to get worse. It's only going to get worse. It's only the number one show on Netflix right now. And there was a major trial last week on this. It's the O.J. simpson of the 2000s. I mean, this is it, guys.

I'm just reading tax code and, you know, if the glove fits. Living my best life. If the glove don't fit, you must acquit.

You must acquit. But Alex, he did not get acquitted. Four hour, four hour, four hour jury.

Bam. They convicted him.

Convicted him. Two counts of what? Oh, dude, where's lock lady? Okay, everybody, he is not joking. So he's been, you know, I don't know. Yeah, apparently he doesn't talk to anybody either because it's the only conversation I've got my, you know, mother in law texting me. Did you see that? Can you believe you said that on CrossFit?

I'll say this, I'll say this. Here's why I don't know anymore. Because I get my news from podcasts and stuff. I actually proactively seeking information out, like you might be doing with this podcast right now. So I don't hear all the BS going around of who killed who.

What podcast?

Really important do you not have the mainstream business podcast. I have the directed Ira.

I have the Nancy Grace podcast.

Okay. Is she still around?

Oh, my hell, you're killing me. Okay, all right, now we're going to dive into this, everybody. Okay? General Q and A. Okay, now we're going to bounce around. For those of you that have not participated in the Open forum before, you can get to Main street business podcast.com, mainstreetbusinessservices.com, mainstreetbusiness. We got it all. Get over there. Get over to the podcast. Submit a question. Holy crap. We have over 100 questions. I told Matt we need to hold a couple podcasts a week. Now. Dave Ramsey does it every day. I mean, what kind of Dave can

do it every day?

Yeah, we should do it every day. Okay, so we're gonna go between general Q and A, Tax strategies, Asset protection, Small business, Matt's social life, and general Q and A.

All right, let's start with. Can I get. Let's see, business planning for 100.

Okay. All right, all right, that's you.

Okay, now I'm doing this from Jason here. Retirement planning.

Okay.

You know, I was gonna go.

Oh, son of a.

Okay. Okay, so Jason asks, I'm a high income W2 earner. I'm over the IRA income limits. Barely. I maxed out my employer's 401k, the contribution limit. Great job. I also have several side gigs. Single member llc. So income goes much higher than the IRA will allow. Cannot do HSA as work. Insurance is low deductible.

Okay, good.

You're thinking through this. What else can I do for retirement? Not able to do IRA due to income. Can't do more on 401. Not interested yet in a solo K for myself.

Well, give us something to work with. He's like, I work.

I do.

Besides nothing he's already telling this is.

What's the next best step? Would it be a SEP or simple? Or am I out of that too? Because my income level and contribution to my employer. 401k. Want to reduce tax in this example. Okay, first, Jason, I would do the backdoor Roth IRA that's easy. 6,000 bucks for 2022, 6,500 for 2023. You can be putting 13,500 in right now or, excuse me, 12,500 in right now. So now the backdoor Roth IRA works if you are high income, even if you're over the IRA income limits, even if you've maxed out your employer 401k, you can still do a backdoor Roth IRA. Now, this does not save you tax today. You do not get a deduction for putting in that six grand or 6,500 into the backdoor Roth IRA. But if you love tax savings, why would you love the backdoor Roth IRA? Now you've got 6,000 or 6,500 growing, coming out entirely tax free at retirement. So save now, it's not going to save you more tax today, but you're now building a vehicle that can get you tax free all the way down the road.

Yep. It delayed gratification and it's okay, you got it. Just everybody wants it right off today. Well, why don't we do what we can today? But don't forget, five years, 10 years down the road, we can create a huge, massively successful, tax free nest egg. That's where we want to be.

And I'll say this also for you, Jason, don't rule out the solo 401k. Why are you ruling that out? If you have a side hustle with business, you can do a solo K in addition to Your day job, 401k with your employer where you've maxed out

your contributions, and you can set up a retroactive 401k for last year and still get a significant contribution. Call the office today. Seriously. Kkoslawyers.com say I need to do a retroactive 401k for last year. I just was on a consult 10 minutes before Matt walked in here. I was all excited. He was like, you're late. He was not happy. I've got to buy him lunch now. I got to buy him.

I did come in. He was a little behind. And I'm like, he's a little pissed.

But you know, he'll come around. I know, Matt, I love him now, but I just did a call 10 minutes before Matt walked. Client was able to generate a $50,000 retroactive 401k contribution. And that's completely deductible. And you can still use that for last year and build it out. Now, if you convert it to Roth, you can still choose when to convert it to Roth. That's another Topic, but get the write off now. Love it. Great comments.

Don't write off the solo. K. Bottom line.

Yeah, all right, don't. I don't like the way you said don't write off. Don't discount.

Don't count out.

Don't count out the 401k. Embrace the ones that love you.

Come on. It's a write off, Jerry. Come on.

Oh my gosh. Did I sent you that new write off? Oh my gosh.

From Schitt's Creek.

From Schitt's Creek. The write off. If any of you are social media followers or on Google, just Google write off. Schitt's Creek. That is not a swear word. That is an actual town.

S C H I T T S. Yes. We don't want this podcast to be rated. That's right, PG 13 or E mature, whatever it is.

All right, so I got a good question and some of you may not appreciate it right out of the gate, but I'm going to relate this to RVs as well. It's the same concept. So the question is from Sarnold or S. Arnold, Private jets usage training to fly. Now I appreciate this because I just recently launched the new Top Gun. There was no. What do you call it? What do you call it? Cgi. No CGI in the new Top Gun. Tom Cruise flew that jet. Isn't that crazy? So I wanted. This is a homage to Tom Cruise. So he says. I have a couple of friends who are jet brokers. They use management and operating companies to private. They to lease and hire and keep pilot certified, make money off private jets. Great. Love it. Blah blah blah. I know the plane can be written off through depreciation. 80% first year remainder. Next 23 and 24. Now S. Arnold is talking about the new bonus depreciation number. It was 100% for several years. Last year was the last year it was 100% bonus. Now it's 80% bonus plus. Don't forget S. Arnold, you have the 179. So you can stack them. You can do the bonus plus 179. You might be able to write off the whole damn jet this year. But anyway, that's a side note. Would you see a way for a private jet owner to use their plane and pilot towards their own license write off potential? Would you see a way I could buy an RV and use that RV for business and still use it personally and enjoy it, but yet write it off? Well, yes, Arnold, you could be doing both. I don't know many people that own private jets on RVs, they're kind of

two different categories of clients.

Categories of clients, who wears a suit and a wife beater. Okay. You're already using the jet to visit offices, management meetings, nationwide client meetings. This is an easy answer. Everybody in this example, the jet owner, or even the company or individual that's leasing the jet, is looking for right seat time. That's what they call it when you're trying to get your pilot's license. You want your logbook with you, and you want to be sitting right seat next to the pilot. Now, I've got a good story about this with Matt and I. In a plane was not a jet, but you want to be in the right seat counting hours. Now, could you still be flying the jet somewhere for business? Absolutely. You're riding off the jet for business because you're on a business errand. And if you're booking hours as a trainee at the same time, that's just a fringe benefit. You're still writing off the jet entirely. This is where I like my RV owners. They might be using the RV to travel to work on a rental property which happens to be in the same town as their grandkids. You might be traveling in an RV to go to a trade show where you're visiting for your business and you're enjoying some of the stops along the way. On this RV trip for business, can I write off 100% of the RV? If you have a sticks and bricks home in the RV is used for business, maybe even you're putting it in outdoorsy and leasing out the RV the other days of the year. You're not using it. That makes it 100% business use. So I'm using it for business trips, enjoying some personal travel along the way. I'm using the jet for business, clocking hours in my logbook in the right seat. It's how John Travolta did it. That's how Tom Cruise did it. And yes, someday you could fly in your own Top Gun movie. So I just want to give that. That's good. Yeah. There you go.

All right. Iceman.

Yeah, Iceman.

Which one are you? Iceman? I am dangerous.

Matt and I had to. We used to fly from Utah to Phoenix back in the day before Matt moved to Phoenix. And we'd fly in this little plane. And one day we realized this may not be a good idea for our

clients, our employees, especially when the pilot let Mark fly the plane for a little bit.

I was working on my hours.

He immediately took the controls back.

You don't Get a minute in.

You're like, let me do the. You heard the beep, beep, beep, beep, beep, beep. He was like, oh, the tower's not gonna like this.

Yeah, yeah, yeah. If you've ever been in a little plane and you hear that beep, beep, beep, beep, beep. You're like, what's going on? And I look out the window, there's another plane coming our direction. I was like, I don't enjoy that. Anyway. Okay. All right.

The pilot also did love our banter over the. Because you're wearing the headphones, right? We were like, the headphones are, like, doing all the Top Gun lines.

Yeah.

He. We're too close to missiles. Got to switch to guns.

He's like, I'm increasing my rate.

Yeah, those are good times.

Okay.

Okay. All right. This question's from Steve is in the tax and asset protection advice section. Says, I'm a W2 employee and made 225 in 2022. My wife qualifies as a real estate professional. We live in California. We own two single family homes in Tennessee, bought for 170k and 165k. We own three single family homes in Arkansas, bought for 110, 115, 125k. All were bought in 2022. All five are in our name. We're in the process of doing a cost seg on all five properties. Okay, love that. You're doing some great tax planning, trying to get that taxable income down. We have property management for all five properties. We have insurance on all five and an umbrella policy for $1 million. One million, which we may increase to 2 million. Says this feels like enough liability protection. Since we live in California, with this high cost of LLCs, it seems more cost effective to keep the properties in our names and our trust. What is your opinion?

Oof, boy, did you.

We got opinions.

Did you pay him to send this in? Because I'm loving it.

I mean, this one just got thrown in right across the plate.

Matt actually doesn't like this question because he knows he's got to hold me back from losing my. You know what?

So.

Okay, you go first.

All right, Steve.

Let me show empathy first. That's what they say when you're providing consulting and advisory. You want to empathize with them. First. Say, we feel your pain.

We feel your pain.

We understand.

Yeah, we understand what you're going through. Living in California and having to deal with the fee for everything, like the $800 annual fee for an LLC. Can be annoying. Yes, but you know what's also annoying? Paying an insurance bill and premium every month. Now, I'm not saying you're exposed insurance. Yeah. And, and getting sued and having personal liability because your insurance probably doesn't cover you. Okay, that's my big point here. Insurance is good. We want to have insurance on our property. You're going to have the regular landlord policy of insurance on the property. That protects you from liability if something happens. Sure, add an umbrella policy, but make sure you know what an umbrella policy is. All the umbrella policy is, is excess coverage of insurance on top of the insurance you already have. That's all an umbrella is. It does not give you any more coverage. So if someone slips and falls on the property, one of these five single family rentals you have, first you would claim insurance if it covered on the policy you have on the property. Then only if that is exceeded and only if coverage was granted by that company would the umbrella then come in and, and provide protection. The umbrella does not give you any more coverage or protection for something that happens on the property. It's excess insurance after your existing policies cover it. Now, I've been on this both sides this. I actually don't like to admit this, but I did represent insurance policy insurance companies for a while. Our law firm did, you know, back in 2008 when the real estate agent.

This was the dark time. This was the dark.

We had to make a deal with the devil. And we represented some insurance companies and I represented them mostly for real estate agents, brokers and some contractors. Now, one thing I learned, and this isn't a surprise to any of you, is the whole point of making money in insurance is not paying claims. Collect premiums and not pay claims. All right? And so they're going to fight you on that. If you read your insurance policy, you're going to see one paragraph of what's covered and 10 pages of exclusions. Now I remember I had a client, this was 10 plus years ago, guy had an LLC with the property, had a landlord tenant policy of insurance on it and the tenant slipped and fell. It had like a little walkway up to the property, single family property, and he had a handrail on one side. Well, what happened is the tenant slipped and fell. Got an attorney sued the client and said, hey, I slipped and fell on the property. And, and so my client's like, well, great, I got landlord tenant policy insurance, I'm going to go claim, make a claim on my policy. Well, insurance company came back and said, we don't cover that. How do you not cover that? A slip and fall on the property of my tenant. Yeah. That stairway you had was a certain number of stairs with a certain width. You have to have two handrails. You can't just have a handrail on one side. You have one on both sides. So without a code, we're not providing coverage. He didn't get any insurance coverage, but thank goodness he had an llc, he's able to negotiate a settlement and get that claim resolved. But that's the point is insurance is kind of like. It's kind of like a piece of armor that you have, but it's not a full shield. If they hit you in that specific spot where the armor happens to be insurance coverage, it helps, but a lot of times you're going to get hit in places where there's no armor.

Yeah. And if it's a big enough gun, it's going right through you. Yeah. Okay, now, Steve, this. I'm going to add another aspect. Okay, everybody, let me summarize Matt's point, which was the first one. And I'm going to add two more is. And I'll come back to you so we can have an equal number of points.

Okay.

I don't want you to think I'm hiding.

I did go for a while there.

No, it was good. Okay. The point number one is, everybody, don't put all your eggs in the insurance basket. It may help you, it may not. And I still carry insurance. So I love Matt's points. That's point number one. Now listen to Steve's question. I'm going to get very targeted here with Steve. Steve lives in California, does not want to pay for extra costs for an entity in California. I get it. That's the empathy part. However, listen, two of those single family homes are in Tennessee, three are in Arkansas. They're doing cost seg. His spouse qualifies as a real estate professional. Loving where Steve's going. Now, here's. Here's two extra strategies. The California law on the requirement that Steve register his LLC in California is if he's serving as a manager of any LLC in the country. So if he goes out and sets up a Tennessee LLC and an Arkansas llc, llc, which we would recommend, keeps his insurance in place. If he could have his brother, child, dad, mom that may not live in California serve as the manager, he's still the owner. His revocable livings Trust, which is what we would want. Right. Steve is the actual owner of the llc, but you're directing the manager to maybe sign some things here and there. But as the manager of the llc, it's not you. Therefore, you are completely exempt from the registration requirement in the state of California. That's option one. You may say, mark, I don't have anybody out of California. I don't want to do that. I want to be the manager of my llc. I got to pay bills, I got to do this. You can still be a signer on the checkbook because you're an owner of the llc. You can still make phone calls because you, as the owner, supersede the manager doing anything. So there's only a few instances where your mom might have to sign as the manager of the llc. And there's no liability for your mom to be the manager of the LLC either. So hopefully I just maybe opened the door here to get the real asset protection you need, which is the LLC and the insurance. Now, option two, set up the freakin Tennessee LLC and the Arkansas LLC and don't register in California. Now if California catches you, they're going to say you owe $800. We're going to Lien that LLC. Okay, go ahead. I'm just going to dissolve it and set up another one. The cost of setting up a new one in Tennessee and Arkansas is cheaper than frigging register in California. Who cares? When I was living in California, I didn't register any of my rental LLCs in California. Now my disclaimer is, that is not pursuant to the code. Legal advice, that is the street smart. You take the risk if you want to do it. People, I am not validating that as a. If someone from the franchise tax board in California is listening. Yes. I just told you to take a strategy that is not in compliance with the state of California. Are you going to go to jail? No. Are they going to be pissed and send you a bill for 800? Yes. That's it. Then you can deal with option three after that and decide, what do I want to do with this bill for $800? Do I even want to pay it? Do I want to register in California or just go set up a whole new damn llc? So, Steve, you know, I appreciate it. You're probably an engineer, I can feel it. So you're very technical and you're like, I got to stay, you know, toe the line. I got to go pay this fee to California. Use your mom as manager. You've got some options here. But not having an LLC is not an option. See, that is not an option. You cannot have these entities in your personal name. One bad lawsuit with any of These five properties, they're coming after everything you got and it's California. Hope they don't. They're not litigious in California. I mean, they're really easy in the court systems. You fly right through. I guess there's nothing to worry about at California lawsuits.

Don't stress. Yeah.

It's just California court systems are easy to work with.

Famous last words. Many people.

Do you have anything to add on that?

Yeah, one thing I would say is for those of you that don't know, California has this franchise tax. This is an $800 minimum tax, minimum fee for an entity. Even if you live in California but have a property in Arkansas with an Arkansas llc, with an Arkansas property manager. If you're living in California serving as manager, or if you're just living in California and California says this in their franchise tax guide. If you are in California as the manager and you make a phone call while in California to your property manager in Arkansas checking on the property, that constitutes doing business in the state of California where you need to pay an $800 fee. If you're sitting on the toilet in California thinking about your rental property in Arkansas, you also just did business in the state of California.

Both you and your LLC did business.

800 bucks.

$800 worth.

Whew. Okay.

Oh, man. Okay. All right, I got a good one. This is from Logan. And this is in the category of tax strategies, obviously, where I tend to lean at times. Hey there. I was reading something about the downside of grouping real estate activities to qualify as a real estate professional, and I didn't really understand any of it. Do you guys have any insights on potential downsides, quote unquote, any limitations or down the road consequences that you could expound on? Then he throws out the real where he's been looking. Side note, many short term rentals. Okay, so I can see where Logan's kind of leaning. Are not rental activities according to publication 925? Are they still. Still real estate activities for the purpose of qualifying as a real estate professional? Okay, now I'm going to say, Logan, we have held entire podcasts on this topic. We could cannibalize the rest of this show on your question alone. So I'm going to encourage you, please go back into at least the last six months. We did some dedicated podcasts to short term rentals and to real estate professional both. Make sure you listen to both of those. They are different issues. Long term rental activities and grouping are different from short term rental activities and grouping. Number two, I'm going to answer his question here in brief, but it's not going to do Logan justice. I can already see it coming because this is a big topic, but I want to at least answer it so he knows where we stand. Number two, all of you out there, if you were like that last question on rental properties in Arkansas and Tennessee and a professional with a W2. And now we've got Logan asking questions related to this. Spoiler alert. You're going to love this. We are holding a two day real estate tax summit. It's the one for this year. We did one last year in Austin, Texas. This is virtual only. It's going to be very affordable. It's going to be in the month of May. We will be announcing that on our websites in the next two or three weeks. And please, if any of you want to buy real estate or own real estate, you've got to attend. It'll be super affordable, virtual only. Real estate tax summit. Check it out. It'll be on our website and if you're on our newsletter, you're going to hear more about it. So Logan, we have classes. Literally classes. Not one on your question. So it's that big a deal. Here's the short answer. I don't see downsides to being a real estate professional in the grouping. I really don't. Yes, if you have captured losses previously before you make the election to real estate professional and you start grouping then those losses that are suspended can only be used once you sell all of your real estate. That could be a downside. But meanwhile you're getting pass through losses on cost, seg, depreciation and dude though pros so far outweigh the downsides. I'm not stressed about it. Number two, you have to look at your short term rental activities separate from your long term rental activities. The grouping election is made on the class of those two types of real estate. You cannot use hours for material participation. From both of those they stand independent. The third point I want to make is being a real estate professional is separate from the grouping election. See, I could not be a real estate professional and make the grouping election on my short term rentals in order to qualify for material participation. Being a real estate professional is a two part test occupation hours due in real estate. That's that. Then you have the material participation tests which are seven of those. And that's where 569 AF6 and the grouping election starts to play out. So there's. It's very, very technical. We love it. It's not that hard to Learn. It just takes some time. So please sign up for the summit and listen to those prior podcasts. All right.

Awesome. Okay, we got Jose up with this question. Jose Montoya. This is in retirement accounts too, says. Hey Mark, Great video on the solo 401k strategy. I have a few questions for you. Is it possible to roll over a defined contribution union pension plan into a solo 401k or self directed Roth IRA? I'm a union electrician and want to use that money in my pension plan to invest in real estate, but they don't allow me to do that for my pension plan. I know you need a business to start a solo 401k. I do electrical side jobs aside from my regular union jobs. However, I don't make that much money from the side jobs. Probably around 5 to 10k a year on the side. Is that enough to justify opening a solo K? Is it best to be sole proprietor since I don't make more than 10k on the side jobs per year? I will also have my fourplex rental Property by mid March 2023. I'll be doing the house act strategy where I live in one rent the rest positive Classroom will be around seven.

You're keep reading this. Yeah, I love it.

Because Jose, I got a lot of answers to your questions here, but let me just say consult. Yeah, no way, Jose. You need a consult, man. You got a lot going on, which I love. You're like going down the right lane on all of this stuff. But you do have a lot going on here. So let me give us some answers

now on that consult. Let me say you can call the law firm. This is not to be an infomercial. This is really to help Joseph. If you don't want to use our firm, don't. But you're not going to get this answer. Dialing into YouTube channels and podcasts, you can get some general direction, but please schedule a full hour. One of our tax lawyers can build a trifecta, do a comprehensive consult, set up an entity if you need it. We actually have a special right now, this month where you can get $100 off on a comprehensive consultation and get an entity set up. It's incredible. So please call and you're gonna get all these questions answered and questions you don't even know to ask. Yeah. And just call the law office. You're going to love it. Yep.

Okay. All right, now let me try to point you in the right direction. All right, so first you say defined contribution union pension plan. I don't know what that is a defined benefit, doesn't know what it is. A defined benefit plan is a pension plan. So Maybe it's a 401k and a pension plan in one, I don't know. But the point is, if it's a pension plan, which you referenced a couple times, you're not gonna be able to roll that out, particularly if you're still working. Even if it's a 401k, if you're still working there at the union, that money's locked down. You're stuck with their investment options. Once you leave, you could cash out and convert the pension to cash and then possibly do some self directing. Now let me hit your solo K1 this, because this is a good one right now. If you've got some side jobs you're making five to ten grand a year on, that's enough to justify doing a solo 401k. And we have lots of clients that have a pretty small side hustle. They're not making a lot of money. They're contributing new money into a solo K. But it justifies having a business. And it could just be a sole proprietorship schedule C as you're suggesting. And that sole proprietorship can create a solo K to roll over your other existing retirement account dollars. And now you're in the game with a solo K. You can have checkbook control, avoid UDFI, all these cool things that make a 401k nice. So I would consider the Solo 401k. I love it for your situation, but I think your money might be stuck if you're still employed working for that for the union.

Yeah. Again, please book a consult. You will not be disappointed. Yeah. Okay, next topic. I went to general Q and A. This is from Sunny. Susan, what a positive handle. You know, instead of, you know, I see some crazy handles instead of like

dark and stormy Susan.

Yeah, yeah, I didn't want that. Yeah, pass on our question. Yeah, yeah, sorry. Sunnysusan says, I plan to set up a two member LLC between my husband and me and LLC will be taxed as a partnership for estate planning. How do we transfer this LLC to our revocable living trust and keep the LLC as a partnership? And I'm going to add something. It doesn't make sense. Right. I'm going to have my trust own the llc and there's only one trust. But there's two of us. It doesn't seem to add up. Then she says, does this mean that we cannot have a joint trust if we want to keep the LLC taxes a partnership? I thought she was going to say, does this mean we have to have a joint trust in order to keep it taxed as a partnership? All right, everybody, I'm going to add another question to this because it was my son this week, Dylan. It was so fun. He was listening to my live on YouTube, which I am doing tomorrow on the Murdaugh trial. I really am. We're talking about Murdaugh versus O.J. simpson and the similarities, because now there's 92 civil cases against him. So he's already been criminally found guilty. Now the civil suits line up and the asset protection begins.

Who is this guy?

You're not serving yourself there. But the O.J. simpson story was, of course, he got acquitted and then had civil judgments against him. And the asset protection evolved into a chapter in my book. So very interesting case. But anyway, my son was listening to the Live. So people get into the live tomorrow on YouTube or Facebook. And he said, he said, hey, dad, should I make my wife the partner of my LLC so I can write off expenses of hers in the business? Because she's going to help with the business. I want to be able to write those expenses off. Do I need to make her an owner? And then he said, oh, oh, or do I need to make her an employee of the llc? Oof. And I was like, how many conferences did you go as a kid to me, to my own, you know, were you not paying attention? Anyway, but Sunny Susan, the first issue, even before your first question is I would ask you, why are you setting up a two member LLC with your husband? I've got to be honest, that's fairly rare for us. I've got to have a really good reason for you to create a partnership LLC because that's going to require a 1065 tax return, bare minimum. With a decent, decent accountant. You're going to be out of grand a year just in tax prep fees. Why would. Now a two member LLC gets better audit protection from the IRS in some states. If you're doing this for asset protection purposes, a two member LLC cope might give you better asset protection. But I mean, you gotta have a really good reason why you had to sell me on a two member husband, wife, llc. And here's why everybody. And this starts to lead into your point. Just own the llc. You and your husband is on the board of advisors. You can write off his expenses, traveling with you, dining equipment, electronics, because he's going to assist you in the business as a board of advisor or board of directors. As an example, you're not going to employ your husband unless you implement a solo 401k down the road. But you could. But you're not going to put him on payroll. You can cover his expenses and let him be a board of director. You own the LLC 100%. You, you save the extra cost of a partnership tax return and then you make your trust the owner of the LLC to boot. So you're getting great estate planning, you're getting asset protection, you're writing off all your husband's expenses as a board member to your llc. And you're saving on the extra cost of a tax return. Now, if there's some other reason, like I said, you might where a two member LLC could be helpful, I'll just say it's going to be rare. So be it. Last point. If you're like Mark, we're doing a two member llc. Get over it. Okay? Your joint trust, on paper, can still be the owner of the llc. And then you turn your body and look at the IRS and go, hey, we're a two member LLC. And you file your 1065 and you both get a K1. The IRS does not care if the trust is the owner or not. You get to elect partnership status on the 1065 tax return. Both of you can be owners there. Now I know some of you that are community property gurus or lawyers that are like, well, the computer property estate. You know, you got this rule and that it. You can deal with community property and the joint trust issue and marital assets and a prenup or a postnup. Whole other conversation. But if you really want a two member LLC with the irs, knock yourself out, Sunny Susan. But again, I would get a consult with one of our tax lawyers before you run out to legalzoom and just do this. I want IT manager managed. I do not want IT member managed. Is your trust done? So many questions you're not asking here that concern me so.

All right. Man, you went hard at Sunny Susan.

Well, I mean, I just was worried about her.

I could tell.

I was worried it was out of love. It was out of love.

Okay. All right. This question is in the small business section. This is from Dee McClain, not to be confused with John McClain. Detective Lieutenant John McClane. Lieutenant.

Oh yeah. John McClain.

John McClane. Die Hard.

Well, yeah, I. Was he a lieutenant? He was not a lieutenant. Was he a sergeant, I think.

No, lieutenant's below sergeant.

I don't know about that. I mean, Hill Street Blues. The lieutenant was above sergeant.

I don't know about that. Okay.

I'M quoting Hill Street Blues.

I've seen.

That's old school.

Hey, Sarge.

Sarge. You know.

Okay. All right, Dean McClain, let's get to your question. Stop screwing around here. He gets right to the point, Dean McClain as well. Like your question. Do I really need an LLC for every rental property? Oh, let me answer that. No, you don't. Sometimes you do, though. Not every time, but sometimes. Okay, rental properties, we're going to look at how many do you have? Let's say you have five properties. We're going to look at how much equity do you have if you've got five properties with 10,000 of equity between each property, I'm going to say do one LLC. Put all five properties in the LLC. If something goes wrong on property number one, great. They can sue that LLC, they can get the 10,000 of equity in each of those five properties. No plaintiff or plaintiff's lawyer is going to be excited for that, but what do you have protection that they can't come after you personally at all. So I like the llc, at least one, because it's going to protect me and all my personal assets from liability on any five properties. I got 100 properties in the same LLC. I still got that liability protection. But if we change the facts here a little bit, let's say I have 200,000 of equity between each of those five properties. I've got a million of equity sitting in this llc. Well, that equity is at risk. So if something goes wrong on one property out of those five, they can sue the LLC and they can get at the assets the LLC owns, which happens to be four other properties. So now I've kind of put all my eggs in one basket, so to speak. I got a million of equity at risk from five different properties. So if you've got lots of equity in multiple properties, we like to separate out properties into separate LLCs. Our rule of thumb is around 200, 250,000 of equity between multiple properties. We like splitting them up into multiple llc. So don't really look at how many properties. You have to determine how many LLCs, but look at how much equity do you have between the different properties to determine how much LLC you need.

Great answer. Have nothing to add. It was perfectly handled. You're an artist. I'm just going to say that. Thank you. Okay. I'm loving this question by North Artist.

Subway. What sandwich artist. The way you like that turkey with the lettuce.

Yeah, that was amazing. That mayo. All right, this is from North Lake, and you know, it's just a good reminder that we talk about this so much. Sometimes we miss the little things. And so Northlake reminds us here, and I'm glad he's asking. He says this is about paying kids through a corporation and constant conversation with so many new clients around the country that we bump into. And he says, you guys often talk about setting up a family management company to pay kids from an S corp, but I've never heard you explain why it's necessary. Is it illegal to pay my kids through an S corp if I only pay them 5,000 a year? Is it worth setting up a management company? Northlake? Love it.

Good question.

Great question. First of all, everybody, if you own an S corp and you want to pay your kids under age 18 or over age 18, feel free. It is not an illegal thing. It just you might be costing yourself in taxes.

It's not smart, though.

Yeah, it's not smart.

Just because it's illegal doesn't mean it's smart.

Yeah, so it's not an illegal thing. Here's why we don't want you to pay. Now he says kids, so we're going to assume he's got two kids for this example. And he said 5,000 per year. So Northlake has an S corp. Any of you that are S corp owners and have kids under age 18? I'll come to over age 18 briefly in a moment, but he's got two kids under age 18 and that's when we recommend the family management company. And he's going to pay five grand each. That's ten grand. There are only two ways to pay a person out of an S corp, because it's not you, Northlake, that's paying your kids. It's a corporation. Corporations do not have children. They pay humans. They don't care who that human's parents are. So if you're going to pay a kid under age 18, you have two options. Either you kick out a W2 and withhold fica sudo food of workers comp. Lots of fun there, north lake, or you 1099 them, heaven forbid. And some account is telling you to do that because now each of your kids have to file a schedule C and pay self employment tax of 15.3% on the 1099 you gave them. Both of those are a train wreck. That's why we don't recommend you pay your kids under age 18 out of an S corp. So pray tell, what is the solution? And it's really expensive. You have to set up a family management sole proprietorship. I know it sounds terribly expensive. Buckle up because it's off the chart. It costs you about an hour during your lunchtime to go down to the bank and set up a bank account. Yeah, that's it. I know that sounds totally expensive. I know. You gotta write checks for thousands of dollars to set up an LLC or S Corp. Wrong. Oh, I gotta get a dba.

Wrong.

I gotta go get an ein.

Wrong.

You're gonna go down to the bank and go, I just formed a little sole proprietorship for my kids to be janitors. Oh, great. You are not gonna say family management company. That's a term of art we use. Just go down to the Brain bank and open a freaking sole proprietorship. That's it.

North Lake.

There's no cost. Then you're going to open it with that bank account. You're going to pay from the S Corp, this new janitorial company that you just hired that has two outside labor employees. The beauty of a sole proprietorship is when you pay your own children out of a sole proprietorship. Because now you're a human parent with children. And when you pay your children out of a sole proprietorship, there's no FICA, no FUTA, SUDA workers, comp. There's no need for a 1099. There's no need for a W2. That's why we do it. So you're avoiding all of that headache and the taxes by going with the sole proprietorship, you're going to run the money into schedule C. Run the money out of schedule C. And we talk about the details of how to do that on multiple podcasts in my certified Tax advisor training. Get over to my website if you want to go through the training on how to be your own tax advisor or help others. We go through the detail there, but that's why we do it. And now if your kids are 18 or over, pay them out of the s Corp, but 1099 them. That's the simple answer there. So there's so much. Northlake, I think we have some podcasts specifically on the details of this. Go listen to those. But there's the reason why.

Yeah. Also in the CHAP chapter in the tax legal playbook, by the way. Yeah, pretty good read. So awesome strategy, paying your kids. You got kids, you're already paying for them, you might as well get a deduction for it too. And get them involved in your business. That's a really important point too, is like, teach them how to work, Teach them what you do. Get them involved in your business. Get involved in your Rental properties. All right, my last question here. Want to take final questions?

Okay, you choose your. This is your final. And then I'll do a final.

This was matten845. Loves the show. Really use some help on a topic about property management. Now, his question was this was in the general Q and a. Q and

A. I want to know what category. I'm going to go, okay.

All right. So basically what he says here is property manager. We collect rent through the year on behalf of clients who make regular, weekly or monthly distributions of the rent that's collected to the landlords. Depending on the size of the management company, this can be millions of dollars through the course of the year. The money is held in a designated trust account separate from the management company's money and does not belong to the property manager. It is simply held in trust with the property manager acting as fiduciary, similar to an attorney or broker. Handling of clients funds in escrow seems to be. Every year there's confusion with the accountants and everyone about whether to claim this as income on the property management company's taxes and offset it with an expense which would be the monthly distribution of the funds to the owner. Basically what he's asking here is how do you handle this on the taxes and on the books? Now, as a trust company at directed ira, we have the same issue. We have over a billion of assets of our clients, but that is not our assets. It's not on our books as our assets. We are holding it as a custodian on behalf of our customers. All right, now we have tracking of that income and that revenue and audits on it, of course. And just like you're talking about here, you have separate bank accounts for it, separate tracking. You're doing the tax reporting on that as the income is going out to the landlords. But it is not your asset, it is not your income. So I would not put it on the tax return. Do not expense it back out. I don't like that either. Now, there are different ways to do it. I will say that. And I'm familiar with different ways that people do it. Some people book it as an asset and book a liability back out too, and they do put it on the books, but it should definitely not be income to you. Only the fees that you're peeling off for your services would certainly be income to you, but I wouldn't book it as income and expense back out. Maybe as an asset or liability at most. But most situations we see a separate set of books for customer funds being held from your books.

Love it.

Do you have any comments on that?

No, I'm loving it. Very good answer for a. You know, Matt's just evolved as an

accountant for a wannabe cpa.

Yeah, you're like, you watch the Accountant with Ben Affleck.

I hang out with enough, you know, accounts.

You sure? Yeah. I mean, after you saw the movie, you thought, I can do this.

Yeah. You know.

You know, how hard is it? Okay. Yeah.

All right.

Now I'm going.

I do like Ben. I was going to give a little shot there about if Ben Affleck can do it, I can do it. But, you know, he's. Ben's coming back.

He's. He's on a comeback. Yeah, he's on a comeback tour. Always had a younger look. He's going to hit that next stride in his career with kind of an older role. You know, I'm sure he's got JLo

again now, so it's.

Didn't do anything.

He's winning now.

He's on the winning team.

Figure something out. Okay.

See, you know that. See, I want to applaud you for that. There's some podcast in your life that you're listening to that you know that JLo and Ben Affleck are together somehow. You want to know what I did while Murdoch asked? You know.

Well, Mark was asking his last. Answering his last question. I Googled, who is Alex Murdaugh?

My gosh. They're like. And Google flashed up here. Are you an idiot? That's weird. That's funny. I did that. Oh, my gosh. Yeah, there's a Netflix special. It's a good one. Okay. He really did, but he knows JLo is hooked up with Ben Affleck, so he's doing something right.

I mean, you know, you had your privacy. I follow JLO news. That's all right.

Can you blame me?

Come on.

Some people are getting murdered, but he's following JLo. So we compliment each other. There we go.

Okay.

All right.

Okay.

Oh, my gosh. Oh, my gosh. Okay. All right. This is good. Last question here. And you guys are gonna love this. This is from Squatch. Now, I chose this question, too, just

because of the name.

Oh, of course. I grew up in the Northwest. Born in Oregon, raised in Washington. So I'm a believer. Sasquatch is real, if many of you didn't know that. I will verify it here. So now you know he's real. Okay. So Squatch asks, I want to change the direction of my side hustle. Would it be better to change the name or start over name changes would be an llc. Ein. So if I was to rephrase this question, I would say I have an llc and I'm changing the direction of my side hustle in my llc. The new side hustle is completely different than the existing one. So his question is, should I change the name or set up a new llc? Is kind of where I think Squatch is going here. Now, I love this question too, because there are now over 40 million Americans in this country with a side hustle. Making ends meet, doing a little something online, a little service business, cleaning a building, doing some landscaping, some consulting, online sales, whatever. Those are all side hustles, folks. You're more than likely. If you're listening to our podcast, you're. You've got a side hustle. So what do you do? You have an llc, you got this side hustle, and then you totally change directions. Some of you may say, oh, well, Mark and Matt own a law firm. They're obviously gonna say, call the law firm and just set up a new llc. No, we're not. Earlier, when I was saying get a consult, I really meant it. These people needed an Indian consult with Squatch. I'm gonna say, don't throw the baby out with the bathwater. Take the LLC you have now and simply do a name change, even if necessary. The IRS doesn't care if you have three side hustles in the same llc. I don't care. Now, you want the LLC to be general in nature. I'm more interested about the purpose of the LLC. You might call it JLo Enterprises. I mean, that could be. You'd be on board with that?

Yeah.

Yeah, you could call it.

I'd love to be on the board of that. That's right.

You could call it Squatch Enterprises LLC. You can do 10 different businesses with it. The name of my S corp is Mark J. Kohler, Inc. Whatever. You know, I do hair and nails on the weekend, drywall on Wednesdays, tax illegal on Tuesdays. I can.

Well, we had the client with the side hustles. I remember this one. The landscaper and barber. And you know who's llc? Quick cuts. Nice quick cuts. Cutting hair, cutting grass. Doesn't matter.

Doesn't matter.

And I'm serious. That's a true story. Wait. It's like a landscape for antibarber.

And here's another take for all of you out there. Some of you might be shocked. Your LLC does not have to be the name of your business. That's why you see XYZ Enterprises. Then you can set up URLs owned by that LLC. You can set up multiple DBAs owned by that LLC. You can Set up multiple Trademarks owned by that LLC. There is only one Microsoft Inc. Spoiler alert. They own thousands of companies, right? And do thousands of different types of products and services. So can you. So change the name of your llc. Keep the same ein. We're going to send in a form with the IRS name change form. You could also do it with the filing of your tax return. If it's a single member llc, you're going to need to file that name change separately. But the name change is an easy, cheap way to go. Change the when you do the name change at the state, probably update your purpose too. So it's gonna be Articles of amendment and we do the articles of amendment, make it a more general purpose, general name generic and go out and kill it.

Yeah, some of you that might have multiple uses of your business, whether it's a side hustle or main hustle, you wanna think about that name? Just think of Google. Google changed their name to Alphabet cause they wanted a generic corporate name. Cause they're not just Google, they're YouTube. Alphabet owns YouTube, it owns Gmail, it owns Google. All these other services and products that they have, they didn't want to just be labeled as Google. So you might want a more generic name.

Well since you brought us in, I will take us out today and say thank you to all of you listening. Hopefully we made this fun and entertaining and as well as informational impactful. We are so grateful for you. Following our podcast continues to get higher and higher ratings moving up in the charts. Please share it with your friends and family. Anybody you know that has a side hustle that owns rental property, that just wants to save some taxes and build wealth. That's what we're trying to do here at Main Street Business. Grateful to have you along for the ride. Love the journey and just want to say thanks to my amazing partner who is always on time even when I'm a little late. He always forgives me and I appreciate him.

I appreciate you.

Thank you.

Thanks guys.

Kisses and hugs. Bye.