Real Estate in Retirement and Q&A - Mark J Kohler LIVE

Foreign. Welcome everybody, to another live Facebook. Talking about live YouTube as well. My name is Mark Kohler. Please, before going, before you go anywhere, let me tell you what the topic is today. Every week I talk about tax and legal strategies. My exec is saying, oh, pita chips are on here. Very unprofessional. Come on. Alright, I'm like, where am I supposed to go here? Okay, everybody, I'm a CPA and attorney, partner in a law firm and accounting firm and a trust company helping clients around the country save taxes, protect their wealth, build it, grow it, all the above. I don't know everything, but I know quite a bit on this topic and I'm here for you. Today we're going to talk about real estate in your retirement plan picture. Where does it fit? What do I see my wealthy clients doing, which I want to talk about? So I'm going to present here for maybe 20 minutes, hopefully give you some thoughts or some ideas you've maybe never heard of before and then do some Q and A for you. If you just throw down your question there, I'd like to know your first name and the city you're from. Jack, you're ready to go on Q and A? All right, Corey, my producer's here. It's going to be a good day. Want to tell you how much I love small business, Main Street America, and grateful that you're willing to watch this for a minute. If you find anything helpful here, please share it with your friends or family or business partners. And also down below if I've got a link there where you can sign up for our weekly newsletter and access to podcasts and blog articles. We give away a lot of content for free to help you as a small business owner. But if you need help, you can make appointments, talk to any of our attorney CPAs, yada yada. All right. Am I missing anything? Sound good? Ready to roll. All right. Now, I know some of you may think, man, that guy looks young. He's probably in his 20s. No, I'm actually over 50 now. It's crazy trying to live the dream, looking young, working hard. Why bring that up? Is I've been an attorney CPA for over 20 years. About 21 years, actually. If I do three appointments a day, you know, 365 days a year, take out weekends, yada yada, yada, I could do a thousand consultations in a given year and I kept that up for a long time. I may only do one or two a day now as we've got a lot of administration to Deal with. Now, why I bring that up is do you think after a thousand consults a year for 10 straight years or more, and the ongoing classes I teach and all the writing and the education I try to provide, do you think I see patterns with clients? I do. I see good patterns and I see bad patterns. Clients that are making awesome decisions and I'm like, oh my gosh, I gotta be doing that. I gotta share that with every client of mine. And then I see patterns of, oh my gosh, that's a train wreck. Make sure to warn your clients about that. I'm not kidding. And I say this honestly, not that I'd say anything dishonestly. I say this honestly from the bottom of my heart. 9 out of 10 of my successful clients that are killing it, meaning they got cash flow, they've got a little breathing room, they're out of debt, they're not making millions. But they're comfortable and they have flexibility. It doesn't mean they're sitting on an island somewhere sipping margaritas all day long, but they're comfortable. They have some financial freedom, some financial flexibility. Hence one of my books here. Nine out of ten of those clients have real estate, real estate in the equation. Warren Buffett does, you know, Tony Robbins does, Dave Ramsey does, Bill Gates does. You start thinking of all the wealthy people that might be on a list somewhere, they own real estate in the equation. Now, I'm not saying you got to have a little single family home rental and you're over there plunging toilets in the middle of night. This could be a commercial building, it could be storage units, it could be a warehouse. In my personal portfolio, I don't have 50 rental properties, but I got a few. But I've got commercial building, I've got a warehouse, I've got a college married housing duplex. I've got a low income housing section 8 rental. I want to get a kind of a mobile home rental going. But you can have a variety of real estate that can be stress free and still provide an amazing rate of return. And I know some of you that follow me, you love bigger pockets. Love those guys. I've been on the show a number of times. They've been on mine. Bigger pockets of teaching how to do real estate. Love Renatus. Renatus Education. Amazing. There's so many different educators on how to do real estate. Do you learn this in high school or college? No. You got to get out there and figure it out. Be careful where you spend your education dollars so that you're not throwing down huge dollars and never buying anything and never taking action. But where I bring this up full circle is I want to kind of share some ways I see my successful clients buy real estate and where they put it in their equation. So I want to go split screen. Can we do it, Corey? Let's do it. I'm drinking water, man. This tastes gross, but okay. You want me closer? Mike, bring up the mic closer. All right. Okay. All right. And they can see my screen. Okay. What I try to teach to. And this is what all my attorneys and tax accountants in my office teach is we want to teach the trifecta. Now, the trifecta is I've got operations in my life over here, and I've got holdings on this side. Down at the bottom, I've got my family trust. That's my estate plan. Maybe some privacy. It's not for asset protection. I just want everything to go somewhere so if I die, everything's going to go to the right spot. Over here on the holding side, I might have an LLC with a rental property that I own 100%. And this LLC is going to be owned by my trust. I own it 100%. This is a couple little rental properties I might have over here. I might have an LLC with partner. I have a partner and we're going to buy a rental property and we're going to share it. 50. 50. I've got a partner that I just talked to this morning. Like that. Okay, so I'm in 50%. Do I own it? Nope. My trust owns my 50%. My partner's in 50%. Another good rental property strategy for retirement. I had a call with a client today. Very good example. I don't know if they're watching. They're out of Florida and New York. They have an LLC that owns a building that their business rents from themselves. Wonderful tax strategy. I own a couple commercial buildings, just parts thereof. They're not multi million dollar, you know, Trump Plaza, whatever buildings. But I own a couple little rentals and I can rent this commercial building to my S corporation or my LLC that I have with partners. And I can rent this and pay rent to myself. Very common. Now I'm building equity in a building and building equity in a business. And my trust is also going to own my personal residence where I want to build equity. And this is where Dave Ramsey would say, pay off your home as quick as possible. I'm with you. So. So here's your personal home. But look at this already. If you're building wealth, where are you going to put it? You Going to put it in stock every day? Well, I'm going to put it in my IRA. Oh, okay. Can your IRA or your 401k, can it own real estate? Yes, I have many, many clients that do that, as well as stocks, bonds, mutual funds and ETFs. So your IRA can own investment assets like cash or stocks. And your IRA or 401k can own an LLC that owns rental properties. I have an LLC with partners, maybe, and this LLC is owned by my trust, maybe 20%. And this LLC owns a building I rent to myself. So look it, I got real estate going on in multiple ways. Another strategy I see clients go with is the Airbnb vacation home strategy. I had a call with a client last week. They wanted. He was working on a lake house up near Lake Michigan and, and he wanted to buy this lake house. And no one ever goes there. It's just he and his family and we started to crunch the numbers. I'm like, that's a whole other frickin mortgage. Can you afford that? And he's like, no, you're right. And I go, you know what I'm going to suggest? He's like, yeah, I know. We're going to Airbnb it. We're going to go out there and rent it out maybe 10, 20, 30 weeks out of the year. It's going to help cash flow, the whole thing, and then you can use it 2, 3, 4, 5 weeks out of the year as well. Great tax strategy, Great cash flow strategy. Now I've got another property up here, an LLC that owns a vacation home. The vacation home is creating cash flow, but it's also a place I can get away and it doesn't cost me an arm and a leg. That can be here in the trust. So we got some questions flying in. Okay, we got a few questions. So let me summarize with this. I'm going to, I'm going to do four quadrants real quick. I've got other videos on YouTube on this. Corey, if you find why Rental real Estate on YouTube and put the link down below, that might be helpful for people. But what I normally teach are the four quadrants of rental real estate. And this is why we, as accountants, we love rental real estate. For this reason, you get four benefits, you get appreciation. Someone's paying the mortgage for you, so the mortgage is going down. Mortgage reduction, that's building equity as well. So look at this. I've got an arrow going up with long term appreciation, ups and downs. This is a property I'm going to hold seven to 10 years. I got mortgage reduction, tenants paying the mortgage. Then I've got tax benefits because I'm going to write off the big D. That's not divorce, that's depreciation. So I'm going to write off all these write offs. They're going to help save taxes. Sometimes I have to delay it, carry forwards sometime I can write it off immediately. I got all sorts of good videos on that. And I'll answer your questions today. Then, finally, I've got cash flow. Nine times out of 10, the cash flow is tax free. Because what I'm doing is I'm generating a loss over here, but I'm getting tax free cash flow that I wouldn't have otherwise. These four quadrants, 1, 2, 3, 4, generally provide a 20 to 30% return on investment. So if I go buy a rental for a hundred grand and I put down 10,000, I should be getting a return of 20, 30% on my 10,000 by the time I add up these three, four quadrants. That's why real estate kicks. But. And you take these quadrants and then you apply it to a rental with a partner. A rental that I own 100%, a rental that I use as an Airbnb, a rental in my IRA or 401k. If you want to ask me, Mark, I've heard I should never buy rentals in my IRA or 401k. Ask me the question if that. That's what you want to talk about. I'm here for the next 30, 40 minutes. Here for you, answering concerns. If you say, mark, I think you're full of crap. Someone over at Rich Dad, Poor dad said this. Someone over at Anderson Consulting said this. Someone over at Club wealth said this. Someone over at Renata said this. Bring it up, let's talk about it. I got things to learn. I want to be out there right with you learning great things. And the companies I was just throwing around do great things. Sometimes we have a differing opinion. Let's talk about it. That's all. Not saying, not saying anything good or bad about anyone else. But don't believe everything you hear without getting a second or third opinion. Maybe I'm number four in that opinion row. I don't know. I'm here for you. So we've got rentals and all over different spots. Love real estate. Hope you can see my handwriting. Let's kill the split screen for a minute, Cory, and let's do some Q and A. What do we got?

Okay, Arthur from New York City says I'm about to get my real estate license. Your advice? Better to be an agent or just get straight into investments, or both.

Oh, I love it. Arthur. In New York City now, I'm going to assume he's in the five boroughs, which adds a layer of complexity. Because if you're a realtor in Queens, Brooklyn, Staten Island, Bronx or Manhattan, those are known as the five boroughs. If you're in the five boroughs, an S corporation can be good or bad because the five boroughs, the city of New York, with those five boroughs, they do not recognize. The S corp is a flow through entity. So you've got to pay corporate tax at the city level. So sometimes an S corp doesn't work well. So, Arthur, I want to point that out. Keep that in the back your mind as an operational realtor in the five boroughs. Now Arthur says, well, should I just get commissions and be a realtor? Should I buy real estate? Should I just develop real estate now that I have my real estate license? Arthur, do both. Why not hang up your shingle? Hang out your shingle as a realtor with a brokerage that's got a low desk fee that does some good training. There are so many good brokerages out there that can help you learn about real estate in ways you maybe have not imagined. But that also means I want you to learn the street strategies of buying real estate. This is where I get. Okay, now this is interesting. Some of you may not know this. The realtor community is not usually friendly with the on the street investment community and vice versa. They kind of point their fingers at each other. I think they're both great. I love to talk to both groups. Everybody's got to get their chip off their shoulder. If you're a realtor, learn how to buy properties with no cash down. If you're out there buying properties, subject to learn what realtors are doing with commercial property. See, we can learn from each other. So, Arthur, I want you doing both. Now you're going to find out real quick, they're two different worlds and they can be a little pissy towards each other. So here's what it would look like in Arthur's trifecta. I don't know if he's married or single, but here's his trust. And what we're going to do is have an operational entity. I'm going to probably say LLC for now, Arthur, until I know how much money you're going to be making. Do you have a day job, you married, you're single. And especially if you're in the five boroughs of nyc. I'm going to put S Corp as a big question mark. But you're going to get your 1099 commissions from a broker and you're going to go out and sell real estate and you're going to learn so much about real estate. I love it. And you're going to go out there and start creating pass through income. Next. What are you going to do with some of that money you're making? You're going to pay off debt, you're going to invest in a retirement account, you're going to have an emergency fund and then you're going to start buying your own freaking real estate. So now you have an LLC and maybe you buy real estate across the river over in New Jersey. I had a phone call with a client from New Jersey this week and they're buying rental properties in New Jersey. Great cash flow over there on the type of real estate in the small town, big town, whatever you want to do. So you can live in New York but buy rentals in New Jersey. We set up a New Jersey llc. We buy rentals over there. Oh, and then what did I say? You're going to invest in your Roth IRA. You might set up a 401K, a solo 401K. This month we do our special on solo 401Ks, 400 or 800 on your own with an attorney. Boom. Have a 401K set up by the end of the year. Now you can get tax Write offs in 2020 and use a tax write off to put cash in a 401k to go buy a rental in Florida. Maybe you find a good little rental down in Florida. So you go down there once in a while, Arthur, and you're buying real estate in Florida inside your retirement account. You're buying real estate in your own name in New Jersey and you're getting commissions in New York as a realtor. Do all three pen drop. There we go.

Okay, lots of great questions. This one's actually about the solo 401k special. Okay, Vincent from Kentucky says if we do the solo 401k deal on KKOS, does the lawyer consultation talk about our total financial picture and strategy or just setting up the 401k new?

Good comment, Corey. Are they hearing Jack's full question or do I, should I repeat it? Okay, I'm gonna repeat that. We gotta get Jack on a mic over here eventually so we can get him. I know that's a whole other process, but thanks, Corey. First name? He was in Kentucky. Vincent. Vincent in Kentucky says Mark I'm going to set up a solo 401k. Now, I don't know the background on why he's doing a 401k, but his question was over at KQS, our law firm, we have two options to set it up. Now, this is not a paid infomercial, so. But just let me. So you can shop around for this too. You have to have your 401k set up before the end of this year to get a write off in 2020. But you don't have to put the money in until next year. You could wait several months into next year to put your money in. Now, some of you accounts are going to go, oh, that's against the rules. You can't do that. That's with a group 401k. With a solo 401k, the only employee is you. Who are you going to complain if your employer doesn't put in the match by January 31st? No, it's you. So don't worry about a solo 401k rushing in to put the money in before year end or January. You got options. So Vincent says if I do the DIY for 400 bucks, I get all my docs, I get off on the races, I get my 401k bank account going. I can do my own thing. Yes, you can. But what if you have questions? What if you don't know how to really operate that 401k? So we have the full service 401k which includes is $800, which includes an hour with an attorney. Okay, now we get to Vincent's question. What can I talk about in that hour? Vincent, it's your hour. If you want to talk about the Biden Trump election and who's president yet, Who? I don't even know yet. This is live and it's on Thursday. We all voted on Tuesday, who knows? Or you want to talk about the NFL or you want to talk about the 401k or you want to talk about your big picture? Vincent, the hour is yours. Now here's the concern. If you're setting up a 401k and we take the hour to talk about paying your kids and setting up your S corp and your payroll and your year end strategy and should I do a health savings account and how am I going to pull this all off by end of year and set up a Roth, we'll talk about that. But at the end of the hour you go, ooh, I got still a bunch of 401k questions. Now you go on the Clock. And so we do a la carte. You can pay my attorneys for a half hour or 15 minutes an hour and just talk about what's better, what you need. I had two consultations today where I just billed for my time. And they said, mark, those are the questions I needed answers to. I'm good to go. So, Vincent, anybody out there, when you do the full service 401k, you get to choose what we talk about for that hour. And we can do a big plan for you in that hour, talk about your tax return. But if you don't get your 401k questions answered, you're gonna have to spend some time studying on your own or book another half hour to an hour and just pay the hourly rate. 400 bucks to talk about 401ks then. So it's up to you, Vincent. We're there for you. Next.

Okay, Lisa says if I'm buying my first home and and I want to buy a duplex, do I put that in my name or should I put it in an llc? Even though it's my first home, I'm living in it.

Great question, Lisa. From. Lisa, you didn't tell us where you're from. Darn it. Hey, you. Message back Jack here and tell us where you're from. We'd like to know. We got New York, we got Kentucky. It's exciting. We're a country that's getting smaller and smaller and we're all getting Covid. Okay, now was a joke. I hope some you took that as a joke. Lisa says, I'm buying my first home and I'm buying a duplex. I love it. Do you know what, Lisa? My first home was a duplex. My wife and I bought a duplex. Where's she from? Chicago. Chicago. I love it. I bought my first home. It was a duplex. It was actually an up and down. We had a basement rental and we lived upstairs. I moved in a month before we got married. We owned that home about seven years. And I probably went through 20 renters and I learned how to be a landlord. It was ugly. My dad would just sit back and smile. Bless his God, rest his soul. Sorry, I didn't expect that now. Anyway, we bought this little rental upstairs, downstairs. It was a great deal. We built equity. We doubled the value of that house. I put it in a sprinkler system. I built this. I fixed that. I learned how to do the whole everything. It was so good. Lisa's question is, do I put it in an llc? Now, if we go to our Trifecta. The trust should always own your home because if you die tomorrow, I want to make sure that the home and its value goes into the trust. No probate, it's clean. And we know where the value of your home goes if you pass away single or married. Sometimes it's more important if you're single because I don't know where it goes. At least if you're married, your spouse is going to make make a good argument for it. So here's your home. Now, if you have a rental, I want an llc. And you're going to put a rental up here, right? So you got your personal home down here and then you got your rental up here. Well, lease is somewhere in the middle. Here's what I like to do. And I'm just going to be, I'm going to give the general answer and then, which is most of the time. And then the exception to the rule, option one is I'd like to to just have your duplex in the trust. I'm going to get a good insurance policy that reflects I have tenants in there, which is going to cost you a little extra premium. But you want to be upfront with your insurance agent, say I got tenants in here. I'm not saying it's an umbrella. Umbrellas are not everything they're made out to be. They're cheap for a reason because they rarely pay out. It's an excess insurance policy, no, not an umbrella to cover you if all hell breaks loose. So you're going to get a good insurance policy. You're going to let your agent know that you've got tenants, and I'm going to put it in your trust. Now here's why. If I put it in the llc. Okay, actually, let me do it this way. I'm going to erase that. Uh oh, I just set up a new one. I'm all jacked up here, Corey. Okay, so I am going to go. Here we go back here, Lisa. If I have an LLC with a rental in it and I have my home over here, why did I set up an llc? I set up an LLC so if the tenant gets mad and they're over here as their tenant, they can only sue the llc. Get anything that's in the llc. Now, if I have a couple rentals in there, that might be the case, or I've got a little money in the bank account. I want to be careful of what I keep in that LLC because this tenant can get it anything in that llc, so I got to be careful. Can they get my Home? Nope, because that. My home is protected from my llc because I've got this barrier. That's good. Well, if I take my home, which is a duplex, and I put it up here in an llc, have I. Have I really protected my home? No. It's all in the same bucket. You've got a tenant over here, and if they sue you, they can get at the house that's in the llc. So the LLC doesn't really protect your home because your home is in the llc. So the general rule is I just keep your home. I just. So the general rule is I put your home, the duplex, in the trust because I think the LLC doesn't give us any benefit in this situation. Now, what happens if you've got a duplex and your home in the same llc, but you've got a farm over here, you've got another vacation home, you've got other assets? Is the LLC a good fit at that point? Yes. You have to think, what am I trying to protect that's outside of the llc? If you're like, Mark, I'm just getting my life started. All I've got is my first home, like Lisa said. So if I'm Lisa and she. And she's got just her first home and it's a duplex and it's. And it's her only asset, the LLC does no good. I hope that makes sense. So option one, keep it in your trust, get good insurance. Don't worry about an LLC, because there's nothing else I'm trying to protect. If you've got other assets to protect. Option two is put the duplex in the llc. It doesn't protect your home because your home is in the llc, but you have other assets outside of the LLC you're trying to protect. Then I go with option two. That was a tricky one. I know. Thanks. Lisa in Chicago. All right, next question.

Okay. Janice says, my husband and I own a construction company. We have rentals and plan to do more real estate. Would it be beneficial for me to be classified as a real estate professional for tax purposes?

Janice, do we know where Janice is from? Come on, let us know. Janice, give a quick message back. Janice says, my husband and I own a construction company. And she goes, we already have some rentals, so I'm going to assume Janice has an LLC with some rentals. Also, most of my contractors, because they're contractors, usually build their own home first, so we're going to assume that Janice has their own home here. So here's their personal res here's. Their rentals and here's their construction company. Very common structure. And she says, If. Okay, Janice brings up a tricky point. She says, if I'm a real estate professional, I'm going to say it a different way. Janice says, I want to be a real estate professional. Now, I've got YouTube videos on that as well. Type in real estate professional Kohler on YouTube and watch a little video or two on that. What it means is that I'm going to get losses from these rentals. And if I'm a tax attorney, which I am, I'm not a real estate professional, nor is my wife. So any losses I have from rentals go into a bucket. And I carry that bucket around the rest of my life. It never runs out. And I can pour out losses whenever I sell a rental. Now what Janice says, well, I want to be a real estate professional. Because if I'm a real estate professional, all of these losses can be deductible against my day job. Our construction company, K1, our W2 from the S Corp. She's like, oh, my gosh. I want to be a real estate professional so I can get these losses as a write off. Okay. That's why Janice wants to do this. So Janice asks a very interesting question. She goes, should I become a real estate professional so we can get better write offs for our rentals? Janice, you're going to love this answer. You already are a real estate professional. Sorry if I scared you there. Someone's driving down the road. Holy hell. What's going on? Okay, Janice, you're already a real estate professional. A contractor, by definition under IRS code already qualifies as a real estate professional. Pen drop. You're there, girl. So you and your husband get 100% write offs every year from all of your rental properties. Guess what my contractors retire on. Usually not a big 401k, even though many of them still have one. My contractors retire on rental property. So, Janice, you're getting the best of both worlds. You're finding little fixer uppers. Your construction company is doing the work. You got low basis on these rentals. You're getting an incredible ROI and you're getting write offs for all the depreciation 100% every year. People, Janice is on to the perfect setup. And I teach it in several of my books. I love it. So, Janice, you're good. You go, girl. You ever find out where Janice is from?

Denver.

Denver. I love it. Denver.

Okay, okay, here's the tricky one. Mike from Iowa says, if I own a hotel, 100 under my name as LLC renting or sorry, as an LLC renting it to my S Corp owned 100 by me. Which business should own the content? Which TV, furniture, boilers, carpet. Is my LLC business considered passive income, even though I work at

and it's a hotel. And his name again? Mike in Iowa. Wow. Mike in Iowa trying to throw me for a loop. I know the answer, but it's I'm going to try to figure out how to answer this for everybody and have it make sense. Mike says, okay, we got our trifecta. Now, people, some of you might get sick of this trifecta concept, but it's just like Dave Ramsey. He's saying, get out of debt, fund your Roth account every year, pay off your home and get out and invest. And then he kind of stops there. I want to say go out and invest and build businesses and real estate. And if you use debt along the way, as long as you're creating cash flow, that's okay. Dave and I disagree on that point. But Dave Ramsey has saved the lives of million of people, millions of people, and I love him. The trust is just like that same basic conversation. Get out of debt, pay off your home, fund your Roth, take your profits, live on 70% of your income after tax and save the rest. And make sure you've got a will and a trust. So if you die tomorrow, there's a plan. No court, no lawyers, no judges. You dictate where your assets go. We set up estate plans all over the country. If you're single or married, $1,500, you get the kick butt awesome binder with all the pieces and parts and updated every five or 10 years. So that's why I say that it's the foundation. So Mike in Iowa, right, Mike in Iowa has his trust and he says, I've got an LLC with a hotel. All right, so we've got this hotel. This is like the Bates Motel, right? All these little doors out here. Now maybe it's a high rise motel or hotel, I don't know. But here's his hotel. Now this is very common. He has an S corp that is the manager of the hotel. So this would be like if you see a Motel 6. Motel 6 is a corporation holding company owns the hotel. Applebee's Restaurant holding company owns restaurant, law firm, law firm building. So Mike is right on it. So he's going to have an Iowa LLC that owns the hotel. Perfect. Then he's going to rent it to the S Corp and the S corp is going to run the operations. Now this is the tricky part. You can, you can do this agreement in a variety of ways. Probably the most common is you're going to have a kind of a triple net lease where this S corp rents the building and this rent after depreciation and mortgage and all this stuff, whatever comes out is passive. Now I know, hold on, I know you accountants out there are going, whoa, whoa, whoa, Mark, hotel income is not passive. Long term rental income is passive. But not a hotel. That's right. But the LLC is not running the hotel operations, it's renting it to an S corp that's running the hotel operations. So you may say, well Mark, rental income is passive but a hotel is not rental income, it's an operation. So I just wanted to say it a different way. So you're going to have all the hotel operations go into the S corp. You're going to pay for cleaning and employees and blah blah, blah, and, and you know, crappy waffles in the morning and blah blah, blah. Whatever you're going to do. This is your hotel operations, Mike, in an S corp and you're going to, and that's going to be subject to self employment tax. So that's why Mike's got an S Corp. Mike, I love what you're doing. You're going to take a W2 and you're going to have all these other expenses that go along with your employees and you're going to have net income that is allowed to get the QBI199A deduction. And your W2 is going to be a salary to Mike. And by doing the S corp you make it passive. And by doing an LLC and renting it to the S corp you create passive. So the only part of Mike's equation that's subject to FICA, the F word, FICA is the W2. So Mike, I think I can say based on the facts you gave me, yes, the rent is passive, the operations on the K1 become passive and you take your fair share of a W2. That's ordinary. Your accountant should be going, this is the most typical way to do it. There's other ways. So you accountants out there that are lawyers that have figured out other ways to do it, that's cool. This is probably the most common and I think you'd agree with that. But Mike, I like what you're doing. Yeah, this is passive. And this is passive. That's a K1 and a K1 over here. You're taking your W2 and that's going to be the key I have a feeling you may. Oh, I'm not taking a W2. Get on it. You got eight weeks to knock it out. Okay.

You deserve an easy question.

Jack says, I got an easy question coming. Right. Okay.

Greg from Houston, Texas says, my wife and I work with 1099 income. Can we use that income like S Corp income?

Yes, Very good. So we've got first names again, Houston, Texas. Greg in Houston says, mark, my wife and I have 1099 income. Now. I had a call like this earlier this week. I had a client that was a contract. The husband was a contractor and the wife was an MFT Marriage Family therapist. A lot of times it's lmft, Licensed Marriage and Family Therapist. So let's, let's use that example. So we've got husband that's a contractor and we've got wife who is an LMFT that's a licensed marriage and family therapist. I want to give a shout out to Zinni me. I love you girls down in San Diego helping licensed therapists around the country learn how to run their operations. If you haven't looked into Zinni Me and you're a therapist, just Google it. These ladies are great and they can really help you be more successful. So if I'm a licensed marriage family therapist, all of my income is 1099. Even if a, you know, HMO is paying me and I'm in an office, whatever. If I'm a contractor, I'm getting a 1099. Right? That's how it works. So Greg in Houston says, well, can't we run this like an S Corp? That's kind of what he's saying, right? Isn't that S Corp income, Greg? Absa freaking lutely. What? For many, many, many of my clients. Oh, and I shouldn't have used the LMFT example, but I'm going to do it anyway. We're going to set up one S Corp and I want all the income from both operations to go into this S Corp. And we're going to set up a W2 for wife and a W2 for husband. All the K1 pass through, loving it. And that's the typical structure. Do not run this through a schedule C. And a schedule C, it's going to cost you 15.3% in self employment tax. If you don't do the S Corp, you're going to pay out the rear end in taxes. Now for you accountants out there and lawyers and licensed professionals, you're going to say, mark, you can't do what you just Suggested and I started out a path with a bad example. Because here's the problem. Under the Doppel rules of both states, that's the division of professional licensing, they do not want non licensed marriage and family therapists owning an S corp with a licensed individual. For example, my law firm can only be owned by lawyers. An accounting firm has a little more flexibility. But engineers, doctors, lawyers, accountants, we all fight this battle that the Doppel does not want non licensed professionals owning part of their company. So in this example, based on the income, if I was doing a consultation with these folks, what we typically do in that situation is the wife is going to own the one S corp and she's going to run her licensed marriage and family therapist income through it and husband's going to own his S corp and run the construction through that. That's happened. Sometimes I get a unique situation where the wife is a lawyer, the husband's a doctor, the wife is an engineer, and the husband is a realtor. So sometimes you have these licensing problems that don't allow me to combine everything in one escort. But when I can, my first choice is to have 1s corp for both husband and wife. In some situations, I have to have two S corps. So, Greg in Houston, talk to your accountant, talk to your lawyer. If they don't know what you're talking about and you just learn more in this five minutes in a while than you have talking to your own advisors, give us a call. And I'm going to throw that out for everybody. If you want to get a consultation with one of our tax lawyers, give us a call at 435-586-9366. That's KKOS Lawyers. What I like most of our clients to do is do a consult with the tax lawyer first. Just for an hour. You're out 400 bucks. Get a plan. Put together your whole plan for the year. They can look at your tax return. They'll give you some advice on all your steps and strategies before you're in. Then when you're saying, ooh, now I need payroll, or now I need bookkeeping, or now I need tax prep, then you come over to Our accounting firm, KE CPAS Kohler Air, and you can work with one of our accounting team members. So we can do one or the other or little of all three or whatever you want. So get a consult. If you're hearing unique strategies from me you've never heard anywhere else, please get a second or third opinion. Two or three more questions, we're doing all right. Okay. Okay.

Tiara from Philadelphia says if I put real estate at my self directed ira, if the rental income exceeds the contribution limits, how do I get around this and avoid the over contribution penalties?

Tierra, I love your question. Tierra is in Philadelphia. Love Philly. Oh my gosh, so fun going there. Every time I go and I'm downtown, I've got to do the little rocky run up the, you know, steps and run back down. I feel all cool. Tierra has got a misconception that's very common. And you people out there, you're gonna love this. So pay attention. This is really, really good. Tierra has an ira. Now, I'm not gonna say it's a Roth, I'm not gonna do 401k. But the concept is the same. Tierra has an IRA. And let's say that Tierra put in her had an IRA from an old job. You know, it was an old 401k and she rolled it into an IRA. Or Tierra's been making contributions for years and now her IRA has 50 grand in it. Okay. She says, I own a rental in my IRA. So let's say she put down 20,000 and got a mortgage for 80 and she bought a rental. Can she do that in an IRA? Yeah. So she has 30 grand cash now sitting in her IRA. She's got a $20,000 down payment and an $80,000 mortgage, and she bought a rental for 100 grand. Okay, that's just very, very common. Now you can change the numbers, add zeros, add whatever type of rental, whatever you want to do. But let's say this is what Tierra is sitting on in Philadelphia. She goes, well, Mark, my rental is cash flow and freaking awesome. And it's creating $10,000 of income or cash flow every year. Oh, my gosh, that's great. Now I'm going to even back up further though, and say when Tiara is ready to do this, because she doesn't want to call the custodian every day and week and pay bills and all that. Typically we set up an LLC that's owned 100% by the IRA, and then we go out and get our rental property. Now, Tierra can be the manager of the llc. So she's out there, she's running the llc. Now, can Tiara pay herself?

No.

Prohibited. Can Tiara go stay in the rental? Nope. Could she let her mom rent there? Nope. Can she put her kids in there? Nope. But she could put any third party she wants in there and rent it all day long. Do the four quadrants 1, 2, 3, 4, killing it. Get a 30% rate of return. Very, very common. That's how we build million dollar IRAs all the time. Because we're not just buying a stupid stock for 5% rate of return. So we're cranking along now. This rental creates $10,000 of cash flow. And she goes, mark, oh no. I'm in trouble because I can only put six grand in an IRA every year. The contribution is 6,000 every year, but you can make whatever you want in profit. Did you hear in the news yesterday there's a billion dollar wallet on Bitcoin? A billion dollar wallet, one of the biggest ones out there. And someone was draining it and they're like, what's going on? So you could have a billion dollars in your ira, still put in six grand every year. They're different. And I'm going to even use a different color here. The contribution is red. The rate of return is blue. So Tierra, every. And the other way I like to look at this is a Monopoly game. Every time you pass go, you get $200. So I go around, I get $200. You can't see what, what? No one can see. Blue. This is blue. Rate of return is blue. Contributions, red. Sorry, everybody. I'm black now, are we? Okay, okay, so I apologize, everybody. I was trying to indicate that your rate of return is blue, your contribution is red. That's what I was trying to do. But let's forget that for a minute. Everybody pay attention. Let's go back to the black color. Black. This is Monopoly. Now this is important. Every time you pass go, you get $200. But what happens if someone lands on my. As I'm going around here, I land on free parking. Don't you love it when you land on free parking? You get like two grand. Do I still get 200 when I pass go? Yep. Well, I made two grand. I shouldn't be able to get 200. I went past go. Do I really? Yes. The 200 for passing go is like your $6,000 you put in your IRA every year. Whatever you make going around the board doesn't matter. Peter Thiel started PayPal with a Roth IRA. It's estimated it is now worth over a billion dollars. Peter Thiel has a billion dollar Roth ira. How much can he put in his IRA next year? Six grand. Well, what happens if Peter Thiel hooks up and with Elon Musk and invests in the new Tesla truck in his billion dollars turns into a billion five hundred million? Does he, does he pay tax on that? Nope, it's in a Roth. Can you still put in his six grand? Yep. They're different. Hope that makes sense. Tierra. Okay.

Okay, last question here.

Going.

George from California says, I just signed a contract to purchase a rental property in Baltimore. I am planning to use my solo 401k to hold the title. Do I need an LLC to protect my personal assets?

George in California just made an offer on a property where in Baltimore. Okay, so he's buying a rental property in Baltimore, Maryland. So George has two options and what he's asking is if I take the ira. Now this is really deep. This is good. Everybody, George asked a great question. And by the way, I didn't say this for any of you that stuck around. If you share this video, Corey, right now you're going to choose three random winners. Can we do it while we're on the show? Can we do it? We're going to choose three random winners here. In about five minutes, I'm going to answer this question. Anybody that shares this video right now where we're out, can they share it while we're watching? Okay, share this video and you're in the drawing. Corey, you're going to choose three winners. Now here's the problem. We choose winners on this show all the time and we never can get back in touch with you. You don't tell us your address, we can't mail you anything. So we're going to choose three winners and we're going to message you right now in the chat or whatever. Can we do that? Okay. And you got to say, that's me, and we need your email address and if you give us your email so you don't have to put it out there in the, you know, ethos for everybody to see, we're going to get your email and then in the morning Jack will get a hold of you and we're going to get your address and I'm going to give away three books. Here's my three books up here. Well, your CPA isn't telling you financial freedom and the tax and legal playbook. The workbook, too valuable. I'm not feeling it today. Okay, but with these three books, or I'm going to give away three books. And so Corey, in. In five minutes, we're going to let people share for a minute, Is that okay? Then you're going to choose three winners. Okay, here's the answer. George, Not George. It's George, right? George in Maryland. No, George is in California and he's buying a Maryland rental property. He has two options. He can take the IRA and form an LLC and then buy the rental in the LLC in Maryland. Or some people say, you don't need an llc, just let the IRA go on title and own the rental in Maryland. And you're still the beneficiary of both IRAs. But you don't want to set up an LLC in Maryland because really, you know what George is upset about is that if he's the manager of this LLC, California wants $800. Right, George? That's what you're upset about. You're trying to trick me into not talking about this. You just want to know an easy answer. So here's what George is debating. I don't want to get an LLC in Maryland and be the manager of it because now I got to pay $100 to California. Do I really need to do it? Or I'll let my IRA own the rental directly. No llc. And his question is, do I need the LLC for asset protection? Okay, now this is deep. Who's in charge of this rental? You got a property manager, maybe, maybe not. With an ira, I hope you have a property manager because you can't manage it yourself. So you got a property manager and the property manager calls you up and goes, hey, George, I got asbestos flying all over over here. We need to tear out the insulation and put in better insulation because this asbestos, it's jacking up your renters. And George says, you know what, I don't care. I'm a slum landlord. Are they paying the rent? Yeah, well, don't fix it, George. You should really fix it. You got asbestos going everywhere. I don't want to do it. Property manager is like, okay, it's your call. It's your self directed ira. So I'm going to let you tell me what to do because you're the one in charge of your self directed ira. Now everybody, I'm going to ask you. The tenant gets sick, Covid hits him on top of asbestos, it could kill him. So he's got a tenant that's in a life threatening situation and maybe dies. Who are they going to sue? Well, can they sue the property manager? Property manager is going to go, we just took orders from the owner. Well, are they going to sue the ira? Did the IRA make a decision? Oh, we're going to go to the custodian of the ira. Well, the custodian of the IRA didn't know what was going on. That's not their job. They just hold the funds and do what George says. So who do you think is liable for being a slum landlord, the property manager, the custodian, or George? You're right. It's George. George is personally on the hook. What happens if it's a slip and fall? Doesn't matter. George is on the hook. George was like, I was a good landlord, I fixed the asbestos, but someone slipped and fell, got hurt, and it's beyond the insurance. The insurance couldn't pay all the bills. Property manager on the hook. Probably not. Custodians? Certainly not. So, George, you're on the hook for making decisions about your ira. That's the personal liability. Now, I know some of you are out there going, IRAs are asset protected. That's right. If George is driving down the road and gets in a car accident for texting and driving, can they get into his ira? Most likely not, because the IRA is asset protected from George being an idiot texting and driving. But that's not what happened here. George is in trouble for an asset owned by the IRA for which he was the self directed manager of. So how do we solve the problem? Number one, we set up an llc. George is the manager and he is not personally liable for any decisions as long as he's not negligent. So as long as he's a reasonable property manager. So if there's asbestos, George made the call and got it fixed. But if there's a slip and fall, can they get it George personally? Nope. Because there's an LLC in the mix. So I said this was a hard question, but a lot of people think I don't need an llc. An IRA is asset protected. They can't touch me. Yeah, they can. Because you're the one making the decisions. You think they're gonna. Custodians gonna pay for that? Do you think the property manager is gonna be on the hook? It's you. So the only way to protect yourself personally from what your IRAs invested in is to make sure you have the LLC. Hope that made sense, folks. Okay, we are gonna announce our winners for sharing their. You guys are so organized. I threw you a curveball. Then I. Cory. Cory's amazing. Thanks, Jack. Okay, these guys chose three winners of my three books. We did four winners. Why did we do four? You thought I said four. What the hell? All right, you know what I'm gonna do? I'm feeling generous. I'm gonna also give away my eight steps to grow or start your business. Steps to grow or start your business. 99 bucks on Amazon. Comes with a business plan, a strap plan, a marketing plan. Over 60 videos and webinars. I had a client today, Mark. Where do I buy it? I need to get my business plan done. Done. Two of my clients in Colorado bought that today. So I'm going to give that. Should I give that to the fourth winner? Okay, I'm going to give it to the fourth winner, the grand prize winner of my workbook. But first, the three books. We're going to give away the what your CPA isn't telling you to Yvette Jones. We're going to give away financial freedom to Melissa Dupre or Dupay. I'm going to give away the tax and legal playbook to Mike Jahala. And the grand prize winner of my 8 Steps workbook is Judd Lewis. So, Yvette, Melissa, Mike and Judd, we need your email addresses. So before you log out, give us your email address. Jack will write it down. He'll get in touch with you tomorrow, get your mailing address, and we're going to do it. Oh, email you. Okay, here's the deal. Don't put your email out there. You don't want everybody else to see it. Maybe you already did. Who cares? It's an email address. Delete their email. We want you to email Jack. So you're going to email jackarkjkohler.com Jack. Jac can't screw that one up. Jack. Jack@markjkohler.com Mark M E R K J as in Jolly Kohler K O H l e r jackj kohler.com Yvette, Melissa, Mike, Judd, tell us you're the winners and Jack will mail those out for you tomorrow. And you're the winners, everybody. Thanks for being here. Don't give up on the American dream. It doesn't matter who's president. Don't stress. Get out there and build your own dream. Businesses will still be in business tomorrow no matter who our president is. So keep working hard. Don't give up. I'll be here every week trying to share tax and legal strategies that'll rock your world and save you money and make you money. So think about real estate in your retirement plan. I think it's big deal. Appreciate you. See you next week.