Passive Income RANT: The Truth

Five, four, three, two. And you're live.

Hey, everybody. Welcome to this week's Facebook YouTube Live with yours truly, Mark Kohler, a CPA attorney, entrepreneur, Lemonade stand owner, real estate investor, crypto miner, crypto. I'm living the American dream, trying to live it with you. Now, please don't go anywhere yet. Let me tell you what the title is about Today's Live, because I can promise you, if you have any business investment or interest, you've got to hear this. And it's so important. I've titled this a Rant because I'm a little upset, but it's going to be for your benefit. I'm not mad at you. I'm mad at just the complexity of the tax law. And I. That's, that's my career. I love saving taxes. I love building wealth. And there's a lot of websites out there and a lot of YouTube personalities sort of like the 10 best ways for passive income. The five best. The 25 best. The 21 best. Okay, that's all good. That's all well and good. I want all of you, young or old, 15 years old or 75 years old, to be making money online or with a small business on the side or a little rental property or whatever. I love it. But you have got to know how it's going to be taxed. Just because it says passive income doesn't mean it just goes in this little box on your tax return. And you pay little tax? Hell no. Now, I know it's been in the news. Elon Musk saves this much in taxes, and Warren Buffett only pays this much, and Jeff Bezos only pays this much. And it's passive income. And there's a lot of misrepresentation from some of those reporting companies on what their actual tax rate is. They're paying taxes, folks. But what I need to tell you is I'm going to talk about your income. Not billions, not millions or hundreds of thousands. If you're going to make a little bit of money, I want to show you how it's going to be taxed. And the best way to save and not pay the most. There's a ying and a yang. If you're going to make money, you got to know how to protect it. And I know it's a pain in the butt and so many of you hate talking about taxes, but I'm going to try to make it fun, energetic, entertaining, useful, helpful, all the above. So I got my white yellow pad here, whiteboard, iPad. I'm going to write on It I'm going to try to help you get a straight answer on this topic and I want to welcome your questions. Now, I'm going to explain passive income and it's going to rock your world. You're not going to like a lot of this, but you've, you've got to know it. Now with me today, I've got one of my senior attorneys. I've got them out of mothballs. I, you know, he's buried in the office. We're just putting food under the door. Devin Muns, the man, the myth, the legend. This guy right in the middle of the CPA exam process. He's got a master's in taxation, he's a lawyer, he's been to court, he's been fought the irs. This guy, he's amazing. Not as good looking as me, but that's okay. We won't hold that against. Well, do you heard that? I thought his might. I thought his headphones were turned off. Okay, I also have Darren Charrington off the camera. You can't see him. Darren's a regular here on our weekly live. He is answering questions in the chat. So if some of you get an answer from a Darren Charrington, you're like, who's this bozo? Just know he's with my team. He's a legitimate lawyer. I love him. And he's here answering questions. I want to say thanks to my producer Corey, our Cameraman. He's got four or five cameras. We're going live on YouTube and Facebook for entrepreneur and my personal. And I've got my marketing director over here, Ashlyn at directed Ira. She's helping us bring this all together for you today too. So listen for a minute and then I want you to type your questions below and I'm going to give away some books. We're going to have a good time today. I'm here every Thursday trying to give you straight answers from a real accountant, a real lawyer with a law firm and accounting firm and trust company giving you the straight answers. Okay? Now here's the deal. You've seen it before. If you've been a part of my life, we got to bring up the trifecta. The trifecta starts with your foundation, which is your 1040 tax return. And right above it is your revocable living trust. Now, whether you're single, young or old, married, divorced, kids, no kids, whatever, a trust owns your home. And it's the owner of or the beneficiary of life insurance, your investments, your trust may own your boat, your rv Everything flows down into your trust. That's the base of your trifecta. Then I divide your life in half. And on this side I put your operations. And your operations is your ordinary income. And ordinary income is taxed the worst. This is going to be the highest rate of tax. And if you have a day job, that's cool, you got a W2. Your W2 is going to flow down here to your 1040. But you might have a little side hustle or even an S corp or a full time small business. So I'm going to put small business over here. Okay, now what are we talking about today? We're talking about this side, passive income. And a lot of you are like, mark, I want passive income. I'm seeing those videos and workshops and trainings and I'm trying to create passive income with a YouTube channel affiliate income mining commissions, my multi level marketing, my downline. I'm flipping land, I'm flipping real estate. Guys. I help all those clients at our firm. We've got over 100 employees in our law firm, accounting firm and trust company helping clients around the country. That's what we do. I am Entrepreneur magazine, their resource on their social media. For this topic, you're getting a straight answer on what to deal with. All right, Devin, I'm going to throw down now. I know you're already answering questions. You keep doing it, then we're going to tag team some more questions. But let me get this out. You keep doing your thing over there. All right, now I'm going to erase some of this mess over here so we can take some notes and I'm going to list for you what this passive income is all about. Okay, so let's go through our list now if some of you want to write here, tell me what you think is passive income. All right, I want you to start typing it in there. Tell me what you think is passive income. I'm going to start with two lists. Let's talk about rent, short term capital gain. So you're selling stock. You're. Can they see that pretty well, Corey, Is that okay? Should I write it bigger? Oh, you're zooming in a little bit there too. A little larger. Okay, long term capital gain. So if you're holding crypto or stock for more than 12 months, you're buying and selling real estate interest. We love that. Okay, dividends, Time to trade. Says dividends. What else we got? Node income. Okay, we've got. Yes, right. Bigger money while you sleep. Okay, now that's a good one. All right, Money While you sleep. That's what we think is passive income. That's not what the IRS calls it. All right, selling online. Okay, so we're going to web sales. You know what? I'm going to do this. I'm going to make it a little bigger, okay? And can I kill that line? I can't. Okay, hang her tight. Everybody. I'm going to make this line a little bigger, okay? Hang, hang tight. Rent, dividends, short term capital gain. That means you hold a stock or crypto less than 12 months. Now everybody, this is classroom time. You got to know this. And this is street smarts. Forget about what you learned in high school or college. This is street smarts when it comes to building wealth. Long term capital gain. Okay? And we had rent. Someone set a side hustle. Network marketing. Go a little slower, Cory. Okay? We got MLM income. That's multi level marketing. Network marketing. Network marketing. I'm getting back online. Selling online. Someone said selling online. That's okay. Don't beat everybody else. Somebody's going, hey, that's passive or whatever. Hang tight, Etsy. Cool. That seems passive. I've got oil and gas. Oil and gas royalties. So you kind of buy into an oil well. You're like, that's passive. Full paid lending income. So if you're making money from lending, you're getting interested points. Okay, I'm cool with that. Retirement income. So you might Social Security and retirement income. Now, Devin, I'm going to have you add to this if I'm missing anything. So look at that list. You kind of like it, right? Okay, now what else have we got? Is it is not clear enough, please. Thanks. I can't zoom in. We're going to try to make this bigger. Okay? Investment income. Investment income could be dividends, interest, a rental, real estate and a 401k. That's going to be retirement income. A personal loan. You're going to get interest. Okay, this is all good. Someone said selling online. Okay, how about this? Mining crypto. You set up your little rig and you're mining crypto. That sounds passive. At night your rig is making you money. How about you have a YouTube channel. You have a YouTube channel. Your YouTube personality. You're making money on ads. Sounds passive, right? How about royalties from selling a book or royalties from a audiobook? How about residuals from selling insurance

because

you sold the insurance and you're getting residuals for years and years to come. Sounds passive. What else we got? Content related royalties. Okay, so royalties from book, audiobook, maybe a podcast, something like that. Crypto staking. Oh, I love it. Crypto staking. That sounds passive. See, this is all great ways to make money. I'm loving this, but I'm going to shock you in a moment. Moment. Crypto staking. Hey Devin, we're on staking, right? We're counting that as mining, right? Okay. Okay, good techie here. Anything subject to the limitations under code section469. Derek will come back to you. I know. 469 AF6. That's a passive loss. Limitations. That's more IRS stuff. We'll come back to it. Defi is passive income like liquidity pools or crypto staking as well. Can you help me out on some of these? Okay, what you're doing right now, getting people interested in your knowledge and posting your page and inviting friends. Okay, Hilda, I'm trying to get people interested. I'm marketing right now. I'm teaching. I might sell online fair and be Airbnb. Okay, so an Airbnb is rent. You guys are still missing a couple that I had here. Well, I'm going to put land flippers. A lot of people think flipping land is short term capital gain. Or some see capital gain. Short term capital gain I don't want to pay self employment tax on. So people think a fix and flip. How about affiliate income? Did anybody write affiliate income? Affiliate income. I'm an affiliate on Amazon, Walmart, Target. I want to get affiliate income. Car advertisement. Crypto staking. What is crypto staking? Whole other topic. We'll pass on that for a minute. Oil wells. There's good. Is there a real estate age limit to the trifecta? We'll come back to that. Not the same as mining. Da da da. Okay, now let's do this. All right everybody, now what was the one person said passive to them? Okay, everybody listen now. No more ideas. There's probably some more on the list, but hang tight. Someone said passive income is making money while you sleep. Okay, I agree. That's passive income. I want to make money while I sleep. Some. You might buy my books or some of my videos tonight online. Hell, I put a lot of time and effort into them and I want you to get the biggest benefit I can from it. I don't sell anything on Etsy, but I do have a YouTube channel. And when you watch my YouTube videos, I might get some ad revenue. Okay, so YouTube ad revolution. Love this stuff. This is all passive. Okay, you ready for the the reveal? The bad news? I'm going to put it in red. The IRS does not have that same Definition? Hell no. Everything over here is not passive in the eyes of the irs. Are you still sitting down? Some? You might have just careened off the side of the road. I'm dead serious. All of this income is subject to the F word. FICA, self employment tax, MLM income, network marketing, selling online Etsy mining, crypto, YouTube ad, rev royalties from selling a book or audiobook residuals, crypto staking, land flipping fix and flipping, affiliate income. That is all subject to self employment tax and it's going to kick your A. That's the bad news today. And my rant, my rant is no one's talking about it. So I'm going to give you the strategy to try to minimize the tax on this. Devin, am I missing anything? You liking it?

Seems like a good list.

Seems like a crappy list.

Well, seems like it's complete.

Seems like it's accurate.

Accurate.

Okay everybody, let's go back to the trifecta. So what I say, and this is what is typical, is a lot of people go, okay, so here's my revocable living trust. If you're 18 and older and have any property or income and you're trying to build a business, you could use a trust. If you're 70 years or older and you have any assets at all, you could use a trust. A whole topic for another day, but we take your trifecta here. Passive income in the eyes of the IRS is only rent, dividends, short term, long term capital gain, oil and gas royalties, interest points, Social Security and retirement income. That's it for the most part. I mean that's going to grab 95% of it. That's passive. This is where we put our LLC to hold rentals, to hold investments like stocks or crypto. I'm going to maybe buy land, a farm, a ranch, hold the land there. This is where I put my home. This is all passive. This is where I'm going to put my IRA, my Roth, my 401K. But people, if you're going to be generating any of this type of income and this is where you get like if you're doing Uber, if you're doing consulting, if you're doing services like landscaping, you're getting a 1099 of any sort. You're an attorney, you're an accountant, you're a realtor, dentist. Gosh, Devin. Yo. I mean all of this income is ordinary income. And if you make 50 grand doing this, you're going to pay self employment tax of 15.3%. That's 7,500 bucks. Then you pay state and fed. And if you're in a 20% fed and a 10% state 30, you're paying 45% taxes on your, on this money. Is that crazy? Okay, so how we save from this is we focus on the fica. We want to get rid of the F word, which is right here. This is the, this is the problem right here. We want to deal with the fica. So what I do, and this is for all of my clients, whether they're a dentist, a doctor, an engineer, an accountant, a YouTuber, an affiliate marketer, MLM, you're selling crap on Etsy, you're selling online in the middle of your night, in the middle of the night as you're sleeping, you're making passive income. But the IRS is going to hit you with self employment tax. So what we do is we create an S corporation or an llc. And the LLC taxed as an S corp or you can be an inc, I don't care. But you've got to have the S corp classification. This is, this is where I run my mine, my crypto mine. This is where I sell cows. This is where I've been accountant. This is where I do drywall. This is where I do hair and nails. This is where I'd be a lawyer. This is where I do YouTube. This is where I sell books. Your S corp, you funnel all the money through that. No self employment tax, no Obamacare, no corporate tax. This is a freaking amazing. I'm an S corp. Every dentist, doctor, lawyer, realtor, contractor, developer, plumber, electrician, we're all S corps. So the trifecta really starts to look like this. I've got your 1040 down here. You've got an S corp here and you've got an LLC here. And the LLC owns your rentals because that's passive income. And then your S corp runs your businesses. Even if they're passive to you, the IRS still calls them businesses. And we do a little W2 so that you're cool with the IRS. And then everything else is a K1 where there's no self employment, no Obamacare, and no corporate tax. That's what we're shooting for. And we've been setting these up for 20 years. And if some of you freaking out going, well, Mark, you got to take a big W2. You can't do that. We do this every day. I had an audit three weeks ago for one of my clients in California. Past their payroll level perfectly. No questions asked. Perfect. So if I make it, if I have A client bringing in 150 grand and they spend 50 grand on expenses and they net 100. I'll probably do 40 grand in salary and 60 grand in dividend. I just saved 15% on $60,000. Okay, now everybody take a breath. Take a breath. Now we're going to do Q and A here in two minutes. I'm going to take a drink. Take a breath. Now I want to slow down and give you one last example. Let's say you have an LLC and you bring in 50 grand on your YouTube channel or affiliate marketing or Etsy or MLM downline. You bring in 50 grand. Let's say you spend 10 grand on expenses. You write off cell phone, home, office, dining, travel, auto, all the goodies. Watch my videos. I'm all over it. You net 40, so you take home 40 grand and you're just a cute little LLC. The IRS is going to tax that at 15%. 15.3% to be exact. That's $6,000. Then you're going to pay state and Fed. Let me Repeat this twice. LLCs, limited liability companies, do not save taxes. Let me repeat. LLCs do not save taxes. Whoever in the hell told you that you should set up an LLC for your MLM or your etsy or your YouTube? They don't save taxes. The only way they save taxes is if you convert this LLC to an S Corp. We charge 150 bucks. It's simple, it's easy. Or you just set up an S corp to begin with. We charge the same amount to set up either one. I've got 10 attorneys at my office meeting with clients around the country. We do this in all 50 states. But you go to the LegalZoom or go online and set up your LLC and think you're okay, you're screwed. Because your list of what you think is passive income is is going to get hit with the F word, fica. And it sucks. So here's how it works. When you make the same $50,000 and you spend the same $10,000 on expenses, you get the same write offs, same freaking write offs, and you net 40. I issue you a W2 of 20 grand and then the rest I take out is a draw or a dividend or a K1. And I know you accountants out there hate to call it a dividend because I know that's a C Corp thing, but people understand it, so chill out. But we're going to take this 20 grand as passive. Okay, now we're back to passive income. This is the trick I took what you thought was passive and it wasn't. And I put it in the S Corp and washed it. This is how you launder money, people. I put it in the S Corp and washed it, and I spit out a W2. And then everything else is now passive. The S Corp makes the passive income passive. After you take your salary. That's the trick. So how much did I save here? Over here, you're paying FICA on the entire 40 grand. Over here, you're only paying FICA on the W2. The more money you make, the more you save. If you make 100 grand, I might do a 40% allocation. Here, I did a 50% allocation. 50% to W2, 50% to draw 100 grand, I may do 40%. You make 200 grand, I might do 35 or 30%. The more money you make, the lower I can bring your payroll as a percentage of your income. People. I teach this to accountants around the country every year. I've got books on this for 20 years. I've never had a client audited for taking the wrong salary, ever. Knock on wood. This works. If your accountant is saying, I'm crazy, I'll sign your freaking tax return. We do it every day. Thousands of tax returns this year from around the country. Get a second opinion if your accountant is afraid of their own shadow. If your accountant isn't talking to you like this, you may have the wrong accountant.

Whoo.

That was my rant. Was that ranty enough, Corey? I freaking ran it. I'm worn out. I'm sweating. I'm so upset, I'm sweating. Oh, my gosh. Bella G. I'm gonna take Bella G's question. Go back down. Go back down. Bella G. Look how pretty she is. Okay, I'll go to Patrick, the boring white pea on red. Okay? Bella G says individuals with a 1099. Is that allowed? Hell, yeah. Bella, I want you to get a 1099. Is it okay to stay an S Corp, or should we switch to a partnership? No. If I have to switch, how do I do that? Help me, Mark, please. Thank you. Bella, Bella, Bella, if this is you, okay, I'm going to pull this now. I'm at 17%. I'm sick of that cord. Okay, Bella, here's your trifecta. You get the next question, you better be ready to blow right here. I want you freaking out, okay? 10:40. So Bella's down here. This is cute little Bella. She's down here, and she is making money, okay? And she's got an S Corp. Now, some of you are going to ask this question. Let me say it right now. You can have an LLC taxed as an S Corp. Same damn thing. Number two, I only want you to have one S corp in your life. Let me repeat that. If you're making more than 40 grand a year net in any of your businesses combined, 1s corp, that's all I have. 1s corp. You may say, well, Mark, you got a bunch of accountants and lawyers and blah blah, blah, you can have as many S corps as you want. No, I only want one. So Bella, you're going to get a 1099 for driving Uber, you're going to 1099 for doing hair and nails, you're going to get a 1099 for your YouTube channel, you're going to get a 1099 for crypto mining, you're going to get a ten99 for consulting. I don't care. You can have ten 1099s going into 1s corp, but you're going to clean the money. You're going to take all your write offs. So this is your write offs. And then you're going to take a W2 and everything else is no self employment tax, no corporate tax, no Obamacare. And you just made all of this income passive. Bella, you're golden. Now if you say you have a partner, then I take partners and I do this. One S Corp. One S Corp, LLC for the partnership. Done. If Devin calls me up and says, hey Mark, let's set up a new restaurant together. Restaurant. Ordinary income, not passive. You go, well, Mark, you're going to sleep at home. You're not going to flip burgers at the restaurant. It doesn't matter. It's a restaurant. We don't look at me and how much time I play into it is. If it's passive, we look at the operation. It's a freaking restaurant. Anybody involved at all is going to be subject to self employment tax. So I set up an S corp. This is Mark. Devin sets up his S corp and this is the restaurant. And then we filter the money through our 2s corps. So Bella, if you have a partner, we gotta talk about an llc. All right, Devin, the floor is yours.

All right, this one classes off of Bella's question. It's a smaller income. It's Harshal Patil and he says, I have a large W2 and 40,000 in house rental and Airbnb passive. And then 25,000 in car rentals, which would be active. Does it make sense for me to have an S Corp and have two solo 401ks for me and my wife to save on taxes. Basically, same question. Just. He has a large W2, but less than $40,000 of income.

Okay, now let's get this up on the board. You stay with Devin. Corey, stay with Devin. We got a W2, husband and wife, and they have rentals. And how much income are those producing?

The rentals are making 40,000.

Okay, 40K. Now, I don't know if he's making that on paper or cash flow because he might have a loss here even though he has tax free cash flow. Story for another day, people. Okay, then he has a car rental business,

and he makes $25,000 in his car rental business. I don't know if that's

personal property.

No, rental. Personal property I thought was active or.

You mean subject to se.

Subject to se tax. Yeah, that was my understanding. I might be wrong.

What about the RV? See, that's passive. RV's personal property.

Something to look up.

Corey, Ashlyn, I'm gonna. I'm gonna make a call here, okay? We're gonna figure this out while we're on the line here. Okay? Let's build another question while we're hanging. Devin, take another question. What else you got? Going to come back. What's his name? Patel.

Harsha Patel.

Harsha Patel. Okay. Okay. Do another question. Go.

You're up. I'm looking.

Grab one, Dude. Nick, can I create an LLC and use it together with a partner and their llc so we can both get write offs?

Absolutely. Right. So Nick asks, can I create an LLC and use it to partner with. To partner with partner and their llc so we can both get write offs. So there's a lot of different ways to structure this. You can have a partnership LLC with your partner, and then each of you have your own separate partnership, separate individual LLCs. Or you can have your two LLCs go into a joint venture with this partner. Just depends on your specific situation. But there's a lot of ways to structure this. And. Absolutely. You can. You can do this on your own or you can do this as a partnership. Good.

Yeah.

Let's get another question mark's out of the way.

Yeah. Right.

Cats away. Let's play.

Okay, now, I just caught. I just called. I just called one of our. Bring it back to me. I just called Rick Taylor. He's in our office. He is a former IRS agent. He's one of our partners, and I just made a confirmation call with him. Now, this is important for Patel's question is that. Okay if we go back. Okay, all Right. So here's the question. Patel said, damn it, what's wrong with my thing? I'm frozen. Okay, Corey, help me out. Oh, I know what it is. It's probably this. There we go. Okay, so here's the problem. Everybody check this out. Patel's making 40 grand in passive income from his rentals. Okay, I can live with that. That's passive, no problem. Now over here he may have IRAs and 401ks and all those goodies. We're not talking about that. Over here he has a sole proprietorship. He has a sole prop, which I hope is an llc. If he's renting cars, right? And he rents cars. Now cars are personal property. And then therefore the income from this, even though he's at home in bed, is considered ordinary income. So the ordinary income from renting these cars is going to be subject to self employment tax. Now how much did he say he made from that $25,000 gross. What do you think?

I'm going to say net, because gross. It wouldn't make any sense.

Okay, let's go both ways. Let's say net. He's got net 25 grand. He's going to pay self employment tax of 15% on that. We're looking at about 3250. Yeah. So $3250 of self employment tax depending on what state he's in. We might want to make an S election, but I just don't think that's smart. For 25 grand we usually say the triggering points around 30 or 40 grand net. Now let's say he's doing 25k gross. Now we can whittle that bad boy down. I want to write off home, office, auto, cell phone, travel, get the kids involved, cleaning the cars. I mean, I want to write off a ton of expenses and get this 25 grand down to 10 grand if I can or less. So in this situation, he's still going to be subject to self employment tax. So we still have a self employment tax problem. But until he exceeds 40 grand net, I'm not really interested in it. And he's got a big W2. So we've got, we got to figure out what's the wife's income. Where do we want to push this money? We could set up a solo 401k and maybe push some of this income over there. My goal would be to wipe this out.

Exactly. And the big thing on the W2, if he's got a big W2, what I'm thinking, can you hear me?

If he's got a big W2. What? I'm thinking he's probably already maxed out his self employment tax. He's already wiped out his Social Security. At least if he's over 150. So if he's making more than $150,000 a year, he's only paying 3.8%. So who needs an S corp. Yeah, right. Not at 25 grand. You're never going to need it.

Yeah, I like it.

Yep. We've got another question you mentioned you were going to answer Patrick with the boring red picture.

Patrick. All right, go ahead.

So if I took a margin from my brokerage account and before we go on, I have to mention we didn't spend enough time on this. But I was right, right?

Unbelievable.

Just had to bring it up.

Fair enough. You were right. Okay, so personal property is 7 to self employment tax.

Okay, so moving on to Patrick's question. Sorry, Patrick, he's been waiting a long time. If I took a margin from my brokerage account as down payment for investment property, can I use the margin interest in the same way as mortgage interest as a reduction on the rent income?

Okay, let's diagram this, people. So he's got a stock brokerage account, Patrick. And he's got the stock account with let's say 100 grand in it. Okay? And he took out a loan and let's say a 50% loan, let's just say. And he got $50,000 and he takes that 50,000 and injects it into an LLC. And then he uses the LLC and uses the 50 grand is a down payment and he goes out and buys a rental property and maybe he's going to do an Airbnb and he's going to create cash flow and he's going to get a second mortgage. Well, a first mortgage. But look what he did. He took money from his stock brokerage account and a money from a bank. And so he's into this rental with no cash out of his pocket. He borrowed everything. Now Dave Ramsey may go. Hold the phone. Dave Ramsey be freaking out. You got it. You took a loan here and a loan here. Now if this thing is cash flowing over and above the mortgage payments, because remember, he's got two loan payments. He's got a loan payment here and a loan payment here. Now let's just say if he's can cash flow above those two loans and the risk tolerance makes sense, which is a whole other topic. Dave Ramsey wouldn't touch this with a 10 foot pole. I'd be willing to talk about it. But being 100% leveraged on a rental doesn't make me too excited. But let's just say the cash flows and things are rocking. He buys the rental. The question is Devin, can you write off the interest on that loan?

I would say yes.

I was hoping he was going to be wrong. I agree. The answer is yes. So the answer is you could write off the interest on this loan because it's for an investment property. So the LLC would be making the loan payment and you get to write off the interest. You also get to write off the interest on the first mortgage, plus property taxes, plus hoa, cell phone, travel, dining, electronics, computers, home office. So this little rental property is going to make some sweet write offs that you might be able to use against your other income. It's going to hopefully cash flow. And you don't put any money in out of your own pocket. Now that's passive. But if you did that with a crypto mine, you're going to have self employment tax because a crypto mine and staking is subject to self employment tax. Now some of you may go, staking is not subject to self employment tax. Make sure your CPA that carries malpractice insurance that's signing your tax return told you that and signed your tax return because if you get audited your accountant can pay the bill. But if you just found a sexy website that says staking is not subject to self employment tax, who knows you could get audited. You go, well this website said who cares? Who cares? So if you're staking crypto, make sure you got a professional stand behind that. All right, next question. You got one?

One. And then we'll have to find a longer one. I can't even say his name. Pez da candy boy I guess says I have an S corp but I don't get a W2 from it. I do get a K1 though.

Ouch. Okay, Pez the candy boy says I have an S corp and he says I do not take a W2. No W2. Okay. Now on the face of it, that may not be bad. I'm going to be very technical. If you're taking draws, meaning you're living on any income from this S corp, you are required to take a W2. If you take a W2, the IRS is happy you pay your FICA. Everything else is no FICA. That's why we do an S corp. Now if you say, well Mark, I'm not taking any draws or I just have losses, okay, cool, you're getting a K1. But you're not required to take the W2 until you take draws or income. If you have draws or income and you're not doing a W2, freaking get on it. Second quarter payroll is due this month in July. So when you have year 2021, you've got to take payroll four times during the year. April, July, October, and at the end of the year. And then you get a W2. That's how it works. Every S Corp has to do it. I have to do it. And you save a ton of money in taxes. It's all good. Okay, can I take one up here? All right, I'm going to do. I'm just going to read it. I don't know how good this is. Micah, don't let me down. Micah, Allen says, hey, Mark, I have a rental property that I purchased in my name and want to transfer it to my llc. So he has a rental and it's over here in his name, and we want to move it to an llc. Love it. So far, so good. Without triggering the due on sale clause. How do I go about doing that? Love your stuff, Mark. Thanks for all your help. Well, Micah, thank you for the question. It's a good question. And, Micah, I'm going to give you a book. So even though. Patrick. Patrick, your question was good. So was yours, Bella. I'm just feeling generous. Just want to help Micah out. Micah, Corey, will you make sure Micah has a book what your CPA isn't telling you? And you know what? I'm just going to do it. Bella, you get Tax and Legal Playbook. Write this down. Ashlyn. Bella, Tax and Legal Playbook. Patrick, Business Owner's Guide to Financial Freedom. And Freedom.

Just heads up. You might want to add Rob's question on this, because they kind of go together.

Okay. All right, Rob, A. I'm going to answer your question, but you don't get a book. Okay. Where's Patel? I got to get Patel in there, too. So, Patel, we will give you another what your CPA isn't telling you. Corey, you got all those names. Okay, Patel, write down Patel. Okay. Tax and Legal playbook. Bella. Financial freedom. Patrick. Well, your CPA isn't telling you. Micah. Allen. That's impressive. Right? I just remembered all that now. If you have won a book today, you just email Corey, C O R e y@markjcohler.com, say, hey, I'm the person that won that book. Hook me up, and Cory will get your information and verify it's you. If you did not win a book, Today, please don't email Corey unless you're single, age 24. Blonde or brunette? Corey, let's go all the way to 40.

I'm feeling really good about it.

All right. Okay. TaxMatch.com if you're a real estate professional, Corey wants to hear from you. Okay, now we will. We will give away some more books here too. Okay, now back to Micah. Everybody listen. If you buy a rental property, you do not under any circumstance want to keep it in your name. Hell no. Because if anything goes wrong, they're going to sue you. You don't want to get sued. So you say, well, Mark, I want to deed it over to my llc, but the bank's going to call the loan due. No, they're not. They've already sold your mortgage five times over. You have a new servicer. I'm sure you do from the day you closed at your frickin bank. As long as you were still the underlining owner, you haven't sold the property anyone. I have never had a client in 20 years, by the way. I've interviewed bank attorneys over and over again throughout my career here. Even on the podcast, I have never had a client have to pay the due on sale clause for transferring a property to their own LLC or their own trust. Please do not listen to anybody freaking out and do not, whatever you do, walk into the bank and go, hey, is it okay if I deed my property to the llc? What are they going to say? No, because you can't even go to the bathroom at the bank without getting manager approval. So don't go into the bank. Just freaking do it. We have a transfer agent in our office doing deeds at 3,600 counties around the country. Start the manager of that department, Brady Wehner. Just talk to Brady Wehner in our office at KQS Lawyers. He'll help you with the deed transfer. Micah. But people, make sure your trust owns your llc. Deed that rental into your LLC so you get asset protection. That's what we're shooting for. And Rob said, how many properties? Okay, Corey, I need to see the question there. Thanks. Rob says, will transferring rental properties which have been held in my personal name or revocable living trust for 10 years or plus into a newly created LLC, incur substantial transfer taxes and be reassessed. Now that's a different question. When you deed the property to this llc, there are some states that charge a transfer tax because they don't have a state tax. So where the government giveth, the government taketh away. We're talking about Florida, Washington state, possibly Nevada. Now there's certain exemptions you can check on boxes when you do the deed transfer that can get you out of the transfer tax, but make sure that you're consulting with your accountant to avoid any transfer tax. The answer is, Rob, and Everybody out there, 95% of the states, you're not going to have a problem. And it is true in California if you deed into an LLC, you might have a Prop 30, 13, Prop 13 reassessment on your, on your property taxes. So you got to be careful there if you're worried about property taxes and the property's gone up to tremendously in value. So are we going to try to get that property out of your name? Absolutely. We might use a land trust and backdoor into an LLC just to get you protection, but those are good questions. All right, Devin, your question.

All right, says, looking to buy my first property using the resources you made available, live in it for one year, then switch to a rental. Is this a trust property or an llc? Basically, should I put the property that I'm going to live in for a year, should I put it in my trust or should I put it in my llc? If I'm planning on moving out in

a year, I'll play Pictionary while you answer the question. Trust owns it.

So yeah, if you're going to live in it, just put it in the trust. We can always transfer it to the LLC when you're ready to start renting it out. That's usually what we do because you might change your mind in a year. So I would want to make sure to keep it in the trust in the meantime. And then as soon as you start renting it out, we can always transfer it into the trust, into the LLC at that time.

And that's the right thing to do. People live in it as your personal residence until you're ready to make it a rental. Now if you sell it within two out of five years, you can sell it tax free. So you may sit on it and own it for two years and then sell it and kind of cash in on that equity. But if you're going to just turn it into a rental, transfer it to the LLC and be off to the races. Rob A says, are short term rentals passive or active income? Rob? Great question everybody. This was an IRS notice. Not a lot of people know this a trust. Here's your trifecta. A lot of people think, oh, with my S Corp because it's short term rentals, I better put my airbnb over here. And I'm going to put it in my S corp to avoid self employment tax. But the IRS has said Airbnbs are considered passive. No self employment tax. We do not want it in your S corp. We're going to put it over here and let it run through passive. Now what the IRS has said you cannot provide daily concierge, hotel type services. So no nightly cleanings. Turn, you know, turn down service, chocolate on the pillow, crap like that. This is going to be, you know, two, three, five days or more. And you clean at the end of the rental process, yada, yada, yada. So Airbnb's are considered long term in the eyes of the irs. So that's a good thing. Okay, your turn, Devin.

All right, I'll take an easy one. T truong said, I sold some bitcoin, but I bought another coin right away. Do I have to pay tax on what I gain? Yes. You bought Bitcoin at $8,000 and you sold it at $55,000. You're going to have gain on that difference. And then you turn around and bought another Bitcoin at $55,000. Okay. When you sell it for $65,000, you're only going to have $10,000 in gain. Or if it goes down to $35,000, you'll have $20,000 in losses. But g gain is assessed when on on the income you made while you own the property.

Okay, I'm going to play with this for a minute. For all of you crypto investors out there, there's really three things to deal with. If you're mining crypto in your own name, you have got to funnel it through your S corp. That's the income. And if you're paid in bitcoin, you have to recognize that income in your S corp. And then as soon as you recognize that income, I did it over to your holding company. And your bitcoin or whatever crypto you're mining goes over here. See, this is your personal wallet that you started with fiat currency. So your personal wallet owns all of your cryptocurrency and let's say an llc. Over here, this is for asset protection, it's not to save taxes. Over here is where your Roth IRA is, owning your cryptocurrency, that's where we want to own our crypto. So if you mine in your own name, your trust owns your S corp, we're saving on fica. Then as soon as you mine it, you recognize the income from the mining, then you transfer it. The IRS has said there are three ways crypto is taxed. If you sell it, it's taxed gain or loss. And if it's a loss, you get to take the take the loss. Some of you might want to harvest some losses and turn around and buy some crypto right back. Right now crypto's down for the based on the last 18 months. Sell it, capture a loss, use it. Okay, the next thing you can do if you trade it, if you trade crypto for another coin, it's taxed gain or loss. And then the last thing is if you use it to buy something. So if you take your bitcoin and go buy a Tesla. So if you go buy something, it's taxed. So you've got these three taxes of taxable events. Okay, how did losses factor in? Cruising. Cruising crypto. What's cool about. Let's go back to this example right here is if you've got crypto and Devin, you can add to this. I'll just give my two cents. You might have bitcoin that makes you money and you sold some ethereum that loses money. They all net out and then they come down onto your 1040 on a schedule D. It's called a schedule D and you've got to recognize your income. Now by the way, I know some of you are thinking, well, I'm using my crypto in an off site storage site in Europe and the US isn't going to tax it. Bull crap. Do you know what the number one question is on your tax return this year? After your name and address, did you buy, sell, exchange or have any interest in cryptocurrency? Yes or no? Under penalties of perjury. If you answer that yes, you got to account for it. If you answer no and you get caught, not good. And you're like, well, but it's not in my name, it's in this, you know, some storage. What were you going to say on that?

Oh, I was just going to say this is where contacting a tax professional is going to be a great help. If you experience a huge gain on your from from crypto gains this year or from stock gains. I've just helped clients with this, this last week where we harvested some losses to offset those gains. So they had some stocks that were down in value, they didn't want to sell them, but we sold them and turn around and bought them again. Same exact stock, sell them, turn around, buy them. It's called harvesting losses. You harvest those losses in years that you have a large capital gain. The opposite is true as well. If you have a huge loss one year you can harvest gains. You take some of your other stuff stocks and offset those losses by harvesting some gains in the future or in that same year. And you use it to offset those huge years where the huge influxes or huge downturns in the market and you happen to have a selling event. Use some of your other passive investments to offset that.

I love it. Totally agree. Now the last place you can put your bitcoin is in your retirement account. If your Roth owns Bitcoin. Doge, Ethereum, Litecoin. What? Doesn't matter. No taxes ever. Gains or losses do not matter. So I really like putting crypto in a Roth ira. Okay. Okay. Triple eight says hey Mark, you guys are awesome. My question is can I thank you 888. My question is can I have more than one crypto wallet designed or designated to my CRT? Yes, you could put real estate, crypto and a business and stock all in the same crt. You're good. Triple A, you're good. Devin, you got a good one.

I'm still looking.

Okay, Gold color says please speak about shutting down my Wyoming LLC down Wyoming LLC sold to California residents. These I found are useless and very much frowned upon by the state of Commi. California. All right, Gold color boy say how it is. Tell us how you really feel. Okay, Gold color I agree. Wyoming and Nevada and Delaware LLCs are oversold not only to Californians but to people all over the country. Now does that mean Wyoming, Nevada, Delaware, New Mexico LLCs are bad?

No.

Gold color. It depends on your situation. The reason why people are getting away with this. And I'll tell you, I set up Wyoming LLCs for California residents. Sometimes it depends on their situation. What's got you ticked off is there's people in a selling to everybody and they don't need it. And so you say they're useless. Well they can be helpful. Now Commi California, they don't care if it's Wyoming, Nevada, Utah or New Jersey. If you have an entity set up in another state and you live in California and you're a California resident, they're still going to freaking tax it. So number one point is not all Wyoming LLC are bad for everybody across the country. It depends on the situation. Number two, California is going to tax any frickin entity, not just Wyoming. Hence why I moved out of California. But I love to visit Wyoming llc. Where do we use them? I use them for two things. So we're back to our trifecta. Where do I use them. I use them as a holding company. I can create massive privacy and better protection. But what does my Wyoming LLC do? It owns my other LLC in other states. So I still have my California llc. I still have my Arizona llc, still have my Pennsylvania llc, but I may funnel them all into a Wyoming LLC for privacy and a double layer of protection. You want to add to that, Devin? Sound good? Perfect. Perfect Today. All right, question. Next call.

I got one. So Jason Jarrett says I have bitcoin that I haven't sold. Do I pay tax if I transfer it to an ira? Full stop. Right.

We got to back up here a little bit and kind of make a help you understand what an IRA is here. So if you own bitcoin in your own personal name, this is what I'm presuming, that you own bitcoin in your own personal name. And you're thinking about transferring that bitcoin or that cryptocurrency to the ira. We can't do that, right? We're not allowed to do that. You're not allowed to see sell it to your IRA. You're not allowed to just transfer it into your IRA. The only thing you can put into your IRA is cash. So you're limited to $7,000 a year if you're over 50. $6,000. 7. Did I say 70? Hopefully it's not. That would be great if it was $7,000 a year if you're over 50 and 6,000 if you're under 50 and it's cash. You put the cash into the IRA and then the IRA buys the Bitcoin. But you can't take bitcoin that you already own and transfer it into the Iraq. You sell the bitcoin, take the cash, put $6,000 into the IRA and then take the IRA and use that $6,000 to buy cryptocurrency. But you can't transfer that. Transfer is prohibited.

Okay, now I feel inspired here. I'm going to give you one last question. Plus, we're going to give away four more books. Corey, prepare names to. Just read them off to me when you're ready. Two males, two females, YouTube and Facebook. Okay, now I'm going to. I'm just going to throw down a killer strategy based on Devin's comment. Guys, this is. This is deep. This is master's doctorate level stuff. Now, I'm going to talk about it in the framework of crypto, but you could do this with real estate, affiliate marketing, YouTube marketing, MLM marketing. Let's talk about what Devin just said. So let's say you've got your 1040 down here. You got your revocable living trust, and you've got some bitcoin over here. So let's call it bitcoin little B. And you've got an llc. Now, some, you could say that's a rental. So you could call it real estate or bitcoin. It's just an asset. And it's sitting here inside my llc. We divide your life in half. Okay? And over here, let's say you have your S corp with a crypto mine. All right? Or let's say you're over here doing a fix and flip. Or you have a 1099 as a realtor. See the difference? I got real estate hold realtor, bitcoin hold, crypto mined. Same concept. Right? Makes sense. Now here's what's cool. You say, well, Mark, I want to sell this bitcoin and get it over to my Roth ira. Well, we tell you, you can't do that. No way. So what do we do? We maybe sell the bitcoin, take that cash, and we come over and contribute that cash to your Roth. And you go, yeah, Mark, that's great, but it's only freaking six grand or seven grand. That's nothing. Oh, you want more? Well, what the S Corp can do, where you're doing your crypto mine, it can establish a solo Roth 401K. Now, this little bad boy in combination with your backdoor Roth combined, I could do 60 to 70 thousand dollars in one year. It's called the mega backdoor Roth. I've got articles on it and videos on YouTube. Go Google Kohler Mega Kohler Roth. You'll see all the videos. So now I can take cash from the sale of this bitcoin, or cash or bitcoin from the mine, and fund the 401k Mega Roth strategy. If you're married times two. Now, maybe you're doing real estate fix and flips in 1099. Maybe you're doing rentals. Same concept. I can push all that over here to buy rentals inside my Roth OR Mega Roth 401K. That was deep. We've got methods to help our clients make big money tax free. You can do the same thing Peter Thiel's doing. Jeff Bezos, Warren Buffett, all those mega rich people we see in the news, they're using the same strategies we're teaching our clients. They just have a few more zeros. You can do the same thing. Okay, Devin's going to answer a question, then we're going to give away some crap. I mean some good books.

Okay, I did not have a question ready.

That's all. Time. I said get a question ready. Okay. Now Spike says bitcoin sucks. Now Spike, please note, when I'm saying bitcoin, I'm just talking about cryptocurrency in general. Now if you're down on cryptocurrency, that's cool. I'm not saying cryptocurrency currency is the next best thing to slice bread. I have clients that are all real estate. I have clients that are all notes. I have clients that are all cattle. I have clients that are all import, export or YouTube rev. It's all the same to me. It's either a small business with ordinary income or it's passive. And I'm hiding it, I'm protecting it and I'm saving you fricking taxes. So Spike, I like what you're saying. Heck, I hardly own any bitcoin. I'm mining bitcoin through my nice hash miner. But I'm not going out and buying bitcoin. So don't get down. It's all good. Everybody. Okay, you got your question now. I was killing time for you.

Thank you. Appreciate it.

Damn it.

Quantum Shore asks please note 401k or he doesn't note. He says please note 401k. Employer contributions are 25% of S Corp compensation. Okay, True. Right. When you're trying to put money into a 401k, Mark says you can put $70,000 in there. How does he get to $70,000? Well, two ways. One is the way that Quantum Shore is saying where the company you put in as an employee. Now we're presuming you're over 50 years old to get $70,000 in there, but you're over 50 years old. You put in $26,000 as an employee, the company matches you at 25% of your salary. And your salary would have to be somewhere around 150,000. And you're putting in a maximum of 63 grand into the 401k. And then you add that to your backdoor Roth IRA of 7,000. That's where we get to 70,000. That's option number one. But quantum sure there's another way to do this. What Mark was talking about is the mega backdoor Roth 401k. With a mega backdoor Roth 401k as an employee, you can contribute your entire salary minus your, your, your side, the employee side of the self employment tax. But you can put your entire salary into the 401k. So your salary would only have to be if you were trying to put $63,000 in somewhere around 65, $67,000 for a salary to do the Mega BackDoor Roth 401K and max it out. Am I right?

I'm doing some math here. So in 2021, I can do 60. I can do my 60 if I'm over. If I'm under age 50 people, I can do 58,000 in a 401K. What's the name of this person that asked this question?

Quantum Shore.

Okay, Quantum, you're pissed. I know you're, like, saying, you guys are wrong. Hang tight, Quantum. Trust me. Do you think I'd go out on freaking YouTube and Facebook Live and post this for millions of people if I was wrong on this? Maybe I would. I'm in stupid, but I'm trying not to be. So hang tight, Quantum. Okay, if you're under age 50, in 2021, you can put 58,000 or 401K. Now, I'm going to talk about how to get there in just a minute. Plus, you can do your backdoor Roth for six grand. You may say you can't do both. Yes, you can. We can teach you how this is going to be a backdoor Roth. And plus, you've got your 401k. You could even have a 401k at work to stack this, and we'll talk about it together. You could have 64 grand if you're under age 50. Okay? Now, if I'm 50 or older. So I'd go like this, 50 or older in 2021, I can do 58,000, plus my makeup of 6,500, plus my backdoor Roth of 7,000. All right, so now I'm at 64,500 71,500. Right? Okay. Now Quantum's going, how in the crap do you get this all into Roth? I have a whole video on it. I have a whole article on my blog that's vetted by 20 different attorneys and CPAs. Quantum People, this is legit. You can drop that into a Roth. Now, just quickly, what Devin was commenting on, and I'll put it in red here, is that he's saying, this 58,000 or 65. 5. And this 58,000 here, to get that into the 401k, you do your first $19,500 or $26,000. That's your employee deferral. You could do it at work and get a match. You could do it in Your own solo. That's a whole other conversation. Then the rest of it you said, well, it's only 25% of comp. Okay, cool. And then you can do what is called a non deductible. Non. Oh my gosh. Yeah, it's called an after tax contribution. If you've never heard of this, it's killer. You can do what's called an after tax contribution and get up to this amount. I'm not kidding. It's the truth. This is called, in combination, I call it the Mega Backdoor Roth because you're using the 401k backdoor and the Roth backdoor. And once you do the after tax contribution, you convert it to Roth on day two. There's no limit on that. If you guys got chills. Did you get chills? This is legit, right? I hope you're having a good time, people. We call this Hot Live webinar, not Hot Yoga. We call it Hot Live Webinar because we can't turn on the ac. It makes too much noise. We can't turn on the Crypto Miner because it's too noise. Oh, so we're in here sweating. Okay, Corey, tell me who my winners are. Dan d' Angelo is a winner of what? Your CPA isn't telling you, but we're telling you. Your CPA may not telling you, but we're telling you. Okay, Financial freedom. Who's the winner? What? Key trong. Okay, Key trong. Now if any of you win, you got to go to Corey C O, r, e, y@markjkohler.com

Key letter T. No letter T. And then T, R, U, O, N, G.

Next time choose an easier name. Okay, he was active. Okay, T Trong. Let us know who you are. Okay, Tax and Legal playbook. Who's the winner? Kerry C. Kerry C. T. T as in taxes.

Terry C. She's a realtor and she

wants to get in touch with Terry C. Okay. And Corey wants to get in touch with her. She's a realtor. Terry C. Corey, Corey's making an overture here. This is highly inappropriate. But. But you can come visit our corporate offices and come live. I'm going to give away a core Matt Sorenson's book, the Self Directed IRA Handbook. This is good. Yes. Lori Crawley. Crawley. Okay, that was a little easier. Lori Crawley. Now see, Corey's going to give me crap later that I can't hear him. But he made me wear these frickin headphones. So you know, you're the problem, not me. Okay, all right. I want to say thanks to Devin here, one of our tax attorneys at the firm. Darren's over here, been answering questions. Corey, thank you. Kinda. Ashlyn, we really appreciate you. Terry, get out here and meet Corey, everybody. We're gonna have another great event next Thursday at 4 O' Clock Mountain, right here on YouTube and Facebook. Answering your questions, helping you make money. Learn what passive income is. Be careful. Go out and make money. But you gotta pay the tax man. Have a good strategy. Thanks, everyone.