Real Estate Pros - Don't File Your Taxes Until You Know These 3 Things!

Blair.

Hey everybody. All my small business owners out there, side hustlers, real estate investors, we're all trying to make that American dream become a reality so we can live in a have a barn and look over the Tetons. That's our goal, right? I don't know if you're watching on YouTube or Facebook Live, maybe you're listening on Twitter. Maybe you're catching just the audio or after the fact. Thank you for being here. I'm a small business tax lawyer, got a great legal team and an investment company with our self directed IRA team, Directed IRA training tax advisors around the country. We just want to help small business owner. I'm a small business owner. I want to learn everything I can to save in taxes, build wealth, protect it, leave a legacy. So there we go. So I've got a team here behind me trying to help give me the content I need to help put it into plain English. So I love to talk about taxes and keep it simple. So that's our goal today. We're going to keep hit the topic. If you're a real estate professional, two major things you need to worry about. Now if you're a real estate investor, you're going to love this too. But for you real estate pros, you have got to know this. So we're going to talk to my real estate pros and any of you that are an investor as well, you're going to love this. Number two, I want to do some general Q and A and we're going to hit the Celsius situation, the bankruptcy. A lot of crypto folks are still having questions about getting 1099 from Celsius. So they're like what doing? They're freaks going on. So we're going to answer that question too. And then we've got James and the team in the studio. It's puts, it's so much work to put together a live broadcast like this and it's been a stressful day. And I want to say thank you to James and Tristan and Deb and everybody behind the scenes making these broadcasts possible. So please ignore in the feed anybody talking about some bitcoin scam. I am not posting on the feed in YouTube or Facebook. We're peeling, we're getting questions, we're tweeting, talking live. So do not get sucked into any post by anyone or myself with some sort of crypto weird bot thing. So just a little disclaimer there. Okay, so let's dive into it and I want to talk about my real estate professionals and the first strategy you have to be aware of. And it all comes back to the trifecta. So we're going to go to the whiteboard. I'm apologize for those that are on Twitter and maybe not able to see the visual, but we're going to. I'm going to do my best to describe this for those that are not able to see the video feed. Okay? So the trifecta is the foundation for all my small business owners and real estate investors. Someone the other day said, well, I don't have enough money to have a trifecta. No, everybody should have a trifecta. I don't care if you're 18 years old or 98 years old. What's my picture? How am I building wealth? What does it look like? How should I structure my business and businesses? So what it looks like is down here at the bottom, you've got your revocable living trust. Rlt. Let me get this right there so you guys can all see it. Revocable living trust. Whole other topic we can hit. But for real estate investors and real estate pros, this is the lesson today. Many of you are going to find this very, very helpful. Even if you don't own real estate or you plan to own real estate, we want to divide your life in half. So down at the bottom, the center of the page, we have a revocable living trust. We use that for privacy planning, not asset protection. We're not going to use an irrevocable trust there. Over on the left side, we're going to put our operations and I know many, many of you have heard me go through this a thousand times for my regular followers. Fans, appreciate you. You should be able to knock this out on the hood of a car on your kitchen table for your family and friends as well. Then on the right side, we're going to put our assets. Now, as a real estate professional, you have to realize that most of your activity is going to fall on the left side or the right side. But you can't have one entity in the middle bringing it all together, especially not your personal bank account. We want to create separation. So on the left, my real estate professionals may start out as an LLC and they're going to graduate to an S Corp. If not, come right out of the game, directly into an S corporation. S as in SAM Corporation, not S Corp. It's a Vegas thing. Okay, so we're going to have our LLC and convert it to an S Corporation when the time is right. And this is where you realtors are going to get 1099 commissions. Contractors are going to build and make revenue. We're going to have our fix and flippers, our wholesalers. We're anybody that's doing short term deals, meaning you're making money in less than a 12 month transaction. You're providing services, you're a handyman, you're a contractor, you're rehabbing. That is operational income. It is going to be subject to self employment tax. Now this is strategy number one. Hang tight for all my real estate professionals out there. On the right side is where you're going to have an LLC 99.9% of the time. We're going to stay away from limited partnerships, partnerships and certainly not an S corporation. And over here we're going to have an LLC or LLC to own our rental property. So here's strategy number one for my real estate professionals. Rentals and passive income go on the right and we'll talk about the losses and cost segregation and bonus depreciation and all the little cool things that come with rental real estate. But on the left side. Okay, everybody pay attention. If you're a realtor, a contractor, a handyman, fix and flipper or rehab, rehabber, and you made profit last year of more than $40,000 and you may have ran it just through an LLC, you are going to pay self employment tax out the nose. It is at 15.3% on all of your net income. It's all active, subject to ordinary income and self employment tax. The best way to minimize that self employment tax is to run it through an S corp. I meet with realtors constantly that are like, I might, I didn't know this. My accountant didn't tell me. I just had an LLC and I thought that's the way I save taxes. Nope, you can still write off all your auto, your home office, your cell phone, your dining, your travel, your marketing expenses. All that can go in your LLC or S corp, but we want to run it through an S corp. Now if you did not have an S corp for last year, what we're going to do is consider a retroactive S election and create some nominee income onto a schedule C and make sure you pay your fair share of self employment tax for last year. It is a band aid. You need to be an S corporation for this year. You might be able to salvage last year and still make an S election if you had an llc. You have to meet with your tax advisor as soon as possible. I cannot emphasize this enough. On March 15, extensions are due for S corporations. So if you're Going to make an S election for last year and go back in time. So here's a little timeline here on our whiteboard. We're right here in 2023. And you want to go back to the beginning of 2022 and take that LLC and turn it into an S corp. That can save you some taxes big time. You need to meet with your accountant. And if they go, you can't backdate that. You got the wrong accountant. Please do a little bit of research on this. Talk to your tax advisor, talk to one of the lawyers at my law firm. Even if it's just to get your LLC or S corp set up or to transition, we. There is no waiting period to meet with one of my tax lawyers. It is extremely affordable. We want to save you 10 times what you're paying us. Find a tax lawyer you believe in. If you're setting up an entity, you need a lawyer to do an entity, not a document preparer or an accountant. It's legal work to be doing that entity. Be careful. Someone's promising you all this stuff. Say we'll sign on piece of paper that if this LLC doesn't protect me, you're on the hook. No. Then why the hell are you setting it up? Well, because I can. I'm going to LegalZoom. That's not a lawyer. So be careful out there. Get this organized. So I'm going to just put it right here and you call around. Find a tax advisor. Markjkohler.com I have got a tax advisor program and our first tax advisors are coming off the assembly line in the next two weeks. Over 100 and they're going to be helping clients around the country. If you're a tax advisor and want street smart strategies and an affordable training program, get over to markjkohler.com now. That was a lot I threw down there. By the way. Here's that phone number any of you need to get with a quick lawyer. Don't try to hack this out on Google and try and figure it out. If you're setting up an entity and you want to save tens of thousands of dollars, you've got to get good advice. So be careful. Get out there. 586-9366. Get an appointment. That is strategy number one. If you're a real estate professional and making more than 40 to 50 grand a year, you've got to consider the S corp. And that's even in California, for crying out loud. And if someone said, well, you don't need that. You got to watch out the S Corp being audited and you got to take a reasonable salary. Yeah, I know. I've been writing on it for 20 years. I've never had a client audited for taking too little of salary. I teach on it. I've got a behavioral matrix and people. I'm so sick and tired of accountants afraid of their own shadow. Man, I'm getting pissed today. I got to be careful. Now strategy number two when I hit this quickly, strategy number two is that we want this rental property that you're buying along the way. And my real estate professionals pick up rental property. They know it's got inherent value, tax free, cash flow, building wealth. The wealthy people in America buy rental real estate. They just do. I've been done. I've done over 10,000 consultations in my career. 95% of my clients that have any net worth at all own real estate. They just do. Get over it. Now you don't have to be a property manager and plunge toilets. Learn how to manage a property manager. Buy rentals across the country. Buy rentals and partnerships. Buy in LLC with other investors. You don't have to go buy a little rental down the street and start plunging toilets. Tomorrow you can make this work. You wonder how Donald Trump did not pay any taxes in 2016. It was because he made the claim that he's a real estate professional. And so all these losses that were flowing through from his rental property wiped out his income from the Apprentice and the Miss Americas and the Miss Universe and his retail stores. He used real estate depreciation to offset his other income. And so can you. Don't get pissed that Trump used the real estate professional strategy. Use it yourself. If your spouse qualifies, you both qualify. So let's go back to the whiteboard. So these passive losses. My real estate professional, you have got to know how to make this election. 469af6 election possibly. It's an election that I'm a real estate professional and I'm grouping my rentals so that I can take these losses as ordinary income. Now, there's several unique steps to it. I've got podcasts on this topic. I teach my certified tax advisors for hours on these topics. It's beyond the scope of today's live. I'm trying to do the best I can. But you real estate professionals, you can easily look at your return and see if your accountant is claiming you as a real estate professional and you're taking all these losses. If you're. You got it. You don't have to prepare your tax return. You just have to understand it. I know that sounds a little crazy, but you can. And again, my attorneys, they're going to walk you through it so you can see on your return what you should be seeing. And if your accountant's not coming through with it, then you go to and go, this is what I need to be doing or upgrade. So losses from rentals are from depreciation or bonus depreciation. You might do cost seg. You might do all these other bonus depreciation and other strategies to do that, these losses. Now, to qualify as a real estate professional, you need to really meet three tests. Number one, you have to be doing real estate 750 hours a year for the whole year. You can't say, oh, I've averaged 13 hours a week, but I became a professional in November. You, no, you got to hit it for the whole year. And number two, you got to show that real estate is your primary occupation. Now, there's a lot of detail in what qualifies as a primary occupation, but I'll just tell you now, if you have a day job, 20 hours a week or more and own a couple rentals, it ain't happening. You have to show that I'm in the industry of real estate. IRS has very clear rules on what that means. Now, if you meet both of those or your spouse, then all of these losses in rental real estate become ordinary losses and you can deduct them against your other income. That pulled off that trump strategy of being a real estate professional. Now the third test in all this is that you have to meet one of seven material participation tests. They're not that hard. I've sat across the table from an IRS agent and argued this before. I've taught on it for years. But the third test is material participate, not partition. Partnership participation. So easy schmeasy. 1, 2, 3. All these losses become a write off. I meet real estate professionals all the time that don't understand the self employment tax and they don't understand the losses and they just let their accountant do their return and hope it turns out. Then we do a quick review, find out the wrong boxes were checked and a client could have saved tens of thousands of dollars. Those are my two strategies for you real estate professionals. Now I'll field questions here. We can get into some other topics. Let's get off the whiteboard. And I am here for you. A real accountant, a real lawyer, and a team of accountants and lawyers around the country helping. Let's get you straightened out. If you got a question, James, we Are all yours? Are you ready to roll?

Ready to roll. Can you hear me clearly?

Yes, sir.

Awesome. So we got a question from Liberty. I purchased a condo that was paid for with cash and now we are building an LLC to put the condo in. Condo was purchased in the name of our trust. My insurance agent says that a new commercial policy needs to be written in the name of the llc. If we put the property in the llc. Is that true?

Yes and damn straight. And you want to do that and it's okay. And here's what happens. Everybody, let's go over to the whiteboard in this situation. This couple, they built a condo that they are rehabbing to become a rental. Maybe they're going to do a short term rental or a long term rental and they're creating an LLC and they want to have the LLC in place and the property deeded to it before they start rent renting. Because once you have tenants in there, that's when the exposure arises. Now, number one, do not worry about the due on sale. Close with any bank. Banks do not care. They've already sold your mortgage, There's a servicer involved. As long as you're paying your mortgage, transfer it over to the llc. And the thing that's important here is that if you walk into the bank and go, can I transfer my mortgage? They're going to, you know, hit DEFCON 4, red button, freak out, call New York because they can't handle that. I'm not asking and telling anyone. You're not committing bank fraud. Most of these bank mortgages allow for you to transfer your revocable living trust to your LLC and you get great protection. Get it into the llc, don't worry about the bank. And number two, in this example, if the property is currently in your trust, then you're going to deed the property up to the llc. Some states have a transfer tax like Florida or something like that, a stamp tax. Make sure you're careful there. Pennsylvania can be difficult, but you want to make sure you get that property deeded here and you're going to get the proper insurance policy. And you may say, well, I want to cut corners. No owning a rental property, there's going to be additional costs. You're going to need a good commercial insurance policy. Shop around, you may find I've gotten two or three quotes before. They're widely different when it comes to rental real estate. So get the right insurance policy, get the llc, get the property deeded there, open a bank account if you and start collecting rent in this LLC and that Gives you the asset protection you need so that you can't get sued from one of those tenants. You're going to love it. How are things going? Oh, keep working on my hair here. It's good. My studio team's like, your hair's a wreck. I'm like, I know. Anyway. All right James, next question.

Should. Okay, this is from Sergeant Sam 1. Should my LLC for my string ever be taxed as an S corp? I materially participate. I understand the 40k net threshold, but thought I've heard you say STR should never be taxed on an S corp or as.

Thank you James, that's exactly right. Can you pop me over to the whiteboard Tristan? Okay everybody, let's just stay with this quick example here. We would never ever, ever make an F selection for an LLC with a rental property in it. Short term rental, long term rental, anything. Now some of you that think, and this is normal Sergeant, A lot of people think, oh, it's a short term rental, it's got ordinary income. I need to be an S corp. The IRS treats a short term rental as long as you have average stay over seven days. We want to make sure we're on track with that. So you're going to, your average stay is going to be over seven days and you're going to have this short term rental go through an LLC and it's still not subject to self employment tax. You start having a short term rental where the average stay is less than seven days, then we've got. Oh and by the way, I want to flip that around. We want a short term rental to be less than 7 day average so that we can get into the short term rental strategy and we want to make sure we're not providing hotel like services. Once you start providing those hotel like services then this moves over here and is subject to self employment tax. Now I've got an article of Sargent on my blog, Everyone in fact James or Tristan, if you guys can put it in the description of all of our platforms. Today in my blog, just in the last two months I wrote an article on short term rentals and I explain how it's taxed. You would not ever put this in an S corp. Rarely, rarely do I ever, ever want a client with a short term rental in an S corp. It's just not a good move and we want to try and stay away from that. So there we go. Next question off the whiteboard.

All right, so here's a question Casey. Okay, question for Mark. She says we make charitable donations to our Children's charter school and our religious organization, all cash and all 501 is there advantage to making donations from our business instead of personally?

No. Great question. Everyone. You're going to get the same write off on your 1040 assuming you're itemizing and not taking the standard deduction but in a flow through pass through entity, which I'm going to assume 99% of you are. We're staying away from the C Corp

said that they're in the llc. On another comment, we have an llc, S Corp and a family management company to use.

Perfect. Perfect. Yeah. So with a pass through entity like the S corp or the LLC or the family management company, giving money to charity is going to give you the same deduction whether you gave it through the company or you gave through your personal account. So no benefit, just keep doing it out of your personal account and maybe you're able to itemize, maybe you're not. So but doing it through the business isn't going to put it on steroids. And James, should we jump over to that Celsius question? Do we have Kirby on Twitter with that?

Yes, I've got that here. So can you please do a disclaimer on the bitcoin guys?

Oh my gosh, people, is that these bots on Facebook and YouTube that are just making comments about bitcoin and crypto crap? Please ignore any of those comments and just focus on the questions in our conversation. So don't click on anything in there that looks enticing in the in the chat, everyone. Ugh, these bots, they drive me crazy. Okay, do you want to read me that Celsius question?

What I have here is how would you handle getting a 1099 miscellaneous from a crypto company that went into chapter 11 and the court ruled that creditors don't own their coins.

Yep. Okay, so this is good. Can you put me on the whiteboard now, everybody? I've been actually take me off for a second, thanks. So we got a great question here on our live today about this Celsius issue. People were doing the EARN program at Celsius where they gave Celsius money and they were getting a yield back. And there was a bankruptcy court decision recently that they don't own their own money, Celsius owns it. In the contract that people gave Celsius to create this EARN program, Celsius had some language in there that they were able to convince a bankruptcy trustee that it's their money, not the account holder. So now they fall into a different class in the bankruptcy so for those of you that are facing issues with the Celsius 1099 or now wondering what's going to happen in bankruptcy, understandably you have a lot of questions. So I want to go to the whiteboard and explain where this 1099 is all about and how this is going to work, everybody. So let's say you had been using the Celsius EARN program and in 2021, you put in $20,000 of USD, let's say 20k USD. Now, you may have transferred over to Bitcoin or course, or some type of token or coin, and you put the money in to Celsius Earn, and then boom, you made. I'm just going to use an example here, five grand. You earned $5,000 in interest through the program. Now this is important point. You would have gotten a 1099 in the spring of 2022. Okay? Now we're over here in 2023. We're going to come to this. But you would have gotten a 1099. Now some people are like, well, I never got a 1099 and I never had constructive receipt of that money. So those, you know, that urn that I received or that yield wasn't mine. I'm like, it wasn't? Whose was it? Well, it was just there, but I didn't take it. Okay, well, even if Celsius did not issue you a 1099 back then, you earned five grand. You have to pay tax on yield. Okay? So hopefully you did. And you claimed that on your 2022 tax return. I mean, sorry, your 2021 tax return, because you earned it in 21. And now what you're trying to do is create and identify your basis. So your basis is what you put in plus the five grand in earnings. Your basis is 25 grand. That's your basis. Now, let's keep that in mind. Now, you go through 2022, and then lo and behold, on June 12, 2022, Celsius freezes accounts and they start filing for bankruptcy. This is D day. Terrible, right? Now, let's say in this period you earned again, 2 grand in yield, all right? And you're like, I didn't see it. They earned it and they kept it. Well, guess what? They're required to send you. Oh, let's do this right. They're required to send you a 1099 for the 2000 you earned on your yield. So you got $2000 that you need to claim. And you're like, I didn't even get it. They froze my account. I know I'm sorry, but that 1099 has got to go on your 1040 and you've got to claim it initially. Now what's your basis? 27 grand. You put in 20, you earned 5 in yield and claimed it in 21. You earned 2 grand in yield and you claimed it and now you're at 27 grand. Now we get to the bankruptcy. See that? You see IRS is like, I don't know if they claim bankruptcy. You got a 1099, you earned 2 grand. You're like, oh yeah, I guess so. Now you claim the two grand. Now what you're going to get is a write off. When the bankruptcy court decides the payout, you're in this wait and see period and we're already in 23. And maybe just hypothetically, let's say in July, I don't know when it'll be, the bankruptcy court says, okay everybody, we're paying off, these people are paying off these people and all you account holders, you're getting 10 cents on the dollar. We're going to. And so whatever your basis is, whatever you've earned and was in your account, let's say it's 27 grand, you might get. I don't know what they're going to give you. They might give you 90 cents on the dollar, I don't know, I'm sorry, you may get nothing. But if they give you 10% on the dollar and they send you a check for $2,700 or come claim your money, there's like voyager saying in their settlement, you know, this is what we've got left, come get it. So they're going to find a percentage the judge is and give it to you. That difference is your loss. And this is going to be because it's a yield program and it was under earned in Celsius, you're going to deduct this as a non business bad debt and you're going to get a write off. So even if you claimed the two grand in income because you got a 1099, you claim it, you're going to get the write off when the dust settles of what you lost. But you're in a wait and see. You can't take the write off till the bankruptcy is final. And I know this sucks, but I'm just telling you, you are claiming the income now in order to take a write off once the bankruptcy is final. That's the rule. Now if you want to extend your tax return and find out what's going on in October, maybe by then the Bankruptcy is final, but the point is you don't get the write off until the bankruptcy is final. So you'll get the write off in 2023, but you still have to claim the $2,000 in 22 because you earned the money in 2022. So I hate to tell you now this is a great article in Wall Street Journal on this issue with the FTX and Voyager and Celsius and all these is this is most accountants are agreeing that if you're in a yield program you're getting non business bad debt as your write off. So let's go off the whiteboard. In summary everybody, I'm sorry I had to break that bad news to you, but if you get a 1099 from even a company that has claimed bankruptcy, you've got to claim the income from the 1099, then wait around and see when the bankruptcy is over how much you're going to get, if anything at all, and then your difference becomes your write off on that year's tax return. That's the answer. Hang in there. All right, James, next question.

Next question is from Flow 2023. You're going to like this. And it has to do with golf yoga teacher, which is I didn't know they had yoga teachers on golf courses, but yoga teacher living in a golf in country club, teaching yoga to golfers on the golf course or at the club gym. Can I write off some of the golf and club membership as business expense on my S corp? That's interesting.

The answer would be yes. It I don't have all the facts. You might be able to, but let's think of it this way. Let's say you're an easier way to do okay, let's not muddy the waters with golf and country club. Those are loaded words, right? Let's say you're a personal trainer. Let's say you're a yoga teacher and you teach yoga at the local gym. And in order to go teach your class at this gym, you have to be a member. The company said you want to teach your class here, you got to sign up and be a member like everyone else. You're like, all right, so it's a cost of doing business and you get to write off your gym membership because you're a personal trainer or yoga teacher or whatever class teacher at the gym. So you're able to write that off as a business expense and you're claiming all your income from training and all that. Now some accountants may argue, well if you get some personal use from the gym, you should, you know, bifurcate that write off and not take the whole thing as 100% business? Fine, whatever. If some of you are like, I only go to the gym to teach the class and I get the hell out, then great, you're writing off 100% of that membership. That's very common. That's okay. Now yoga teacher says, well, I'm doing it at the country club. If you have to pay to be a member of the club to teach this class, then that's going to be a write off. If you're like, well, we're just members anyway. And I signed and I volunteered to teach yoga classes and I get paid for it. But I want to write off my, my club membership. I might be open to hearing a strategy or a discussion, having a discussion about writing off part of the membership. Maybe the part of the membership that would be tied to the gym only, maybe some sort of portion that would be required to allow you to teach yoga. But we are not going to be writing off a good chunk of that membership if it's allowing you to golf and get to use the pool and all the other amenities. So let's try to isolate that down to a gym membership type concept and yoga. I think you're onto something. I'm not saying no, not saying yes. Just work on it.

This next question is from. I want to say it's debt. D E T E D. Is it worth electing S Corp to save only on Medicare for my side business? My Social Security taxes have already been maxed out on my W2 at my main job. Is it worth all the extra paperwork and payroll, Mark?

It can be. It depends on the numbers. So right now, in this year, 2023. Let's go to the whiteboard. For example, when someone says, I'm already maxed out on Medicare. I'm sorry, On Social Security. I'm already maxed out on Social Security. That number this year is 160 grand. So you would pay. You're going to pay into the Social Security system with Medicare on your first 160 grand as an individual. Then it goes up to two. I need my calendar. I don't know where it went. I think it's 2.9. And then it goes up to 3.8%. Thanks, Tristan. Maybe we'll get that. So there's a window here whether you're single or married, where everything over 160 is still taxed at 2.9. Then you get the ACA or Obamacare tax in here and it goes up to 3.8%. Now, here's what's going on, everybody. This per, this caller is saying, well, I have a day job. There's 160 grand or more, but at least 160 grand. So I'm paying my Social Security. I'm done. Social Security number here. I always put the number there. Okay, thank you. Our calendars are now in. Everybody, if you want to pick up a calendar, it's got all sorts of important data in here. And I turn to it every day. I'm looking at it right now. So you're going to pay this 2.9% on the difference if you're single, between 160 and 200 or 160 and 250. So let's just think about this. We're looking at about 90 grand at 2.9%. So this person over here, let's say they have an LLC side hustle. And this is where it just depends on the numbers people. If they're making 100 grand on their side hustle, and they've already paid their Social Security on the first 160. So this 100 grand is going to be subject to 2.9%. That's $2,900. Now, that's not chump change on that difference. And we want to think it would be 2.9% on 90 grand in this example. I'm sorry, but. So we've got to be really, you know, for any. If they made 100 grand over the 160, it'd be 2.9% on the first 90,000, and then it goes up to 3.8. So if I have someone that's making a couple hundred grand on a side hustle, that could be that second hundred grand could be at 3.8%. So now all of a sudden, this client, they're almost at six grand and you're saying is an S corp too expensive? An S Corp, maybe a $1200 tax return, payroll of maybe 1000. So you're out for the whole year. So you're out maybe two grand. So 2500 max. So I can spend 2500 and cut this in half or more. I mean, if I do the S Corp, I also reduce my chances of an audit. Everybody, your chances of an audit go down by 1,500%. So the real answer here is everybody, if you're already maxing out your Social Security, you want to look at how much more am I making and what's my 2.9 and 3.8% going to kick out in cost and then compare that to the savings you'd have if you did an S Corp. This person on the line, they may go, oh, well, I'm only making 50 grand here on top of my 160. Oh, well, 50 grand at 2.9. We're now at about what, $1200 in savings? Yeah, probably. The S corp's not worth it, you know, so do the math. That's where I'd go. All right, next question.

Next question is from ft Tan is subleasing out a suite spaces in a co working space considered operational income. And I'm assuming tan means I'll be possibly working as a part time site manager. Thank you, Mark.

All right, so what I think they're asking is they're renting a commercial space in their business and then they're subletting out a workstation to someone else. Yes. Okay, so someone else is showing up going, hey, you got all the space you're not using. Can I give you 500 bucks a month to use your conference room and rent out of space? That is leasing income. You are subletting the space you're already renting. So you get to write off the total rent that you're paying on your operational business for that space. Then on a separate form, you're going to show rental income. You could show rental income on a schedule E maybe, or I guess you could claim it on the S corp itself. But make sure it's not classified as ordinary income subject to se that it's just rental income. So your accountant could maybe carve that rent out on another return. They could also carve that, put that rent on the S Corp. But, but just it is not. We don't want it subject to se tax. It's going to be ordinary in the sense that it's subject to your ordinary rate, whatever bracket you're in, but we definitely don't want it subject to self employment tax. So you get to write off the main rent you're paying and then you got to claim the sub rent, subleasing income. And let's just make sure it's on the right form and classified as not subject to self employment tax. Next question.

All right, next question is from. I sold my primary home in California. Do I pay the state of California any taxes after I've lived in that house for 15 years?

Well, Nelda, we don't have all the facts. Now, everybody out there, the rule is that you need to live in your primary residence two out of the last five years. That's rule number one. To get qualified for the Sale of home exemption. So Nelda says, I lived there 15 years. Well, obviously you've lived there two out of the last five, so we're golden. And if any of you are like, well, I haven't lived in my house a full two years yet, but I'm selling it, then you don't qualify for the sale of home exemption. There's a few exceptions for multiple children, birth and veterans, A couple other issues, but it's very rare. You're going to. And then it's prorated at that. So anyway, everybody, you got to live in the home two out of the last five years. Then you're entitled to exempt 250 grand of gain if you're single or 500 grand of gain if you're married. Now, if Nelda says, I've lived in this house for 15 years in California, ooh, I already, I'm not, I'm not feeling good about this because 15 years ago she may have bought that house for 300 grand and depending on where she's at in California, it could be worth a million five. Right. That's very common. Fifteen years in California real estate appreciation. If she's taking care of it, put money into it. So we need to find out how much Nelda bought it for what she's put into it, and that's her basis. And then take the sales price of what she plans to sell it for minus her basis. Let's say she sells it for 1.5. And let's say her basis is 500 grand. She bought it for 300, put 200 into it. Over the years. That means she has a gain of a million 1.5 minus the 500 grand in basis. Million dollar gain. Well, if Nelda says I'm single, I'll go. Great. You get 250 grand off the top. You're only paying tax on 750. Oh, you're married. We'll take 500 grand off the top. Now you're only paying tax on the remaining 500 grand after the million. So your million is your taxable income. You take the sale of home exemption off and then you pay tax on what's left. So now they're do the math and that's the rule. And I think I've got a good article on my blog on the sale of home exemptions. So check it out.

Alright, our next question is going to be from Ryan Leaf. But first I want to apologize to Jaclyn Marie. It seems that you're trying to ask a very good question, but it's spanning across multiple comments. If you could please make that one comment in a short form, that would be great. Thank you. This question is from Ryan Lee. Can I write off life insurance through my business? I will make the beneficiary beneficiary the trust and not mines or my wife. Interesting.

And what's the first name?

Ryan.

Ryan. And I'm going to try to move quick here so we can answer as many more questions as we can. Ryan, the answer is no, you can't write it off. And two, I don't care if you make the trust the beneficiary, I'm sorry, you and your spouse. A revocable living trust is a see through trust, which is good. And that money is going to be that life insurance is included in your estate and that's great. And you get to decide how it's dispersed to your beneficiaries with your trust, which is awesome. But you don't get a tax write off for premiums paid. And the only way to get some type of write off on insurance premiums is to go with a C corporation with some term life insurance and is only up to a certain amount amount of the premium. It is terrible. Don't go there, don't chase it. It's not worth it people. The cool thing about life insurance, your beneficiaries get it tax free. Once you're trying to start deducting it, it becomes taxable and you don't want that either. And it, it's just not made to be a tax write off. And so life insurance premiums are not going to be a tax write off 99% of the time. Just do the life insurance for the reason you chose to. Maybe it's replacement wealth if you passed away or it could be for retirement replacement strategy, whatever. You've got your reasons, but it's not a write off.

The next question is from Angel Villarole. What? What's the strategy that I can use to save on taxes if I have an S Corp and a SEP ira?

Well Angel, I mean everybody, what's the secret to world peace? Angel's asking a big question. I've got a 12 module 75 course class on how to save taxes. So how do you save taxes with an S Corp and a sep? Well, I'm just going to say this in general. Everybody please get over to my website and get my 30 ultimate guide tax strategy checklist. 30 strategies that all of you should be very familiar with and are not going to all apply to you. But there's a whole 10 or 15 in the middle for business owners and real estate investors, grab those angel. A SEP is an outdated strategy. We rarely use it. We only use it when we screwed up and couldn't do a 401k. Or there's this couple unique situations where you've got a new full time employee and you can't do a solo 401k, but you could do a SEP for another year, we might do it. And then there's some strategy where you forgot to set up your 401k last year. Maybe we do a SEP now. And maybe if you're like, well, I don't want to put away as much as a 401k, but I want to put away more than an IRA. We might use a SEP, but I would really, really reevaluate the SEP strategy. Now. I've got podcasts on this. If you go over to the directed IRA podcast, Directed IRA podcast, you're going to see two or three shows on choosing the Right retirement account and also sep. So please watch that and you're going to listen to it and it'll help out a ton. But keep learning, everybody. I mean, I wish I could say, oh, here's the magical do this and you all save taxes. It's, it's, it's all the little things, the little things that add up that help us save taxes.

All right, our next question is from Smoney. I'm making an S election this year to change. I'm sorry, to change my small business to an S corp. This. Excuse me, let me start this one over. The comments were moving in the middle of me trying to read this, which is great. I'm making an S election this year to change my small business to an S corp this year. But I have a main job, so how would I file taxes? Still quarterly or would I file taxes from my job Separately? Separately.

Great comment. Let's go to the whiteboard now. Everybody down here. I usually put this revocable living trust, but also I put the 1040 down here. This is your 1040 tax return. All the water. And to me, water runs downhill. And so let's look at this situation. This, this viewer has. They've got a day job. W2. Where's that go? It goes on their 1040 and their W2. They're going to fill out a W4 at work and it's going to say, here's how much I want you to withhold. So at the end of the year, if in a perfect world, when he goes to file his tax return, he owes zero he doesn't want a refund. That means you gave the IRS a loan and you don't want to owe because that means you didn't withhold enough. So strategy number one for all of you with the day job is make sure that W4 nails it and you're adjusting your withholdings so that you get the perfect equation when it comes to filing your tax return. So that's issue number one then. And what was his first name? James again?

Do you remember S Money?

S Money. Now S money says oop, I want to add another variable here. I've got an S Corp over here. Woo. Okay, now remember we just talked to that person that said they had 160 grand a day job and they're paying their Social Security on that W2, so they're kind of eating away at that 160. So if S money was a client and if you called up and talked to one of my tax lawyers, they're going to go, how much are you making here? How much are you making here? Are you making money over here? Are you married or single? Do you have kids? What are the write offs over here? How much is coming in? See, this is all part of taking your blood work, if you will. We need to figure out where you're sick and where we can save money and give you some vitamins and send you out the door with a prescription. That's the whole idea here. So if we can figure out how much you're netting in the S corp, we're going to figure out if even the S corp makes sense. Maybe it doesn't. Maybe I'm not telling. Everybody has to have an S corporation. But if you're making more than 50 grand here and making less than 160 grand here, I bet you 50 bucks you're going to want an S corp. Look at my equation. Less than 160 grand, day job, more than 50 grand net on your S corp, I'm probably going to find savings. Now you start making more than 160 grand and have less than this, we may not even do an S Corp at all. And see, this is the variable that I pray for all of you. If you don't like my law firm, it's okay. The customer service and the turnaround time and the pricing is so affordable. But if you don't like, find a freaking tax lawyer or accountant that knows this backwards and forward and can help fine tune this for you. Once you're set up and going, it's great. We're not the type of law Firm charging five grand, ten grand, twenty grand for this package of this crap or this crap. Just make an appointment. We can set up a new entity and have an hour consultation for under a thousand dollars. Let's get there. Let's get you taken care of. All right, next question.

Next question is from Jacqueline Marie. She rewrote us, but it's a little shaky. So I'll do my best. Bear with me. Thank you, Jacqueline. Appreciate it. Vacation home in New Jersey deeded in my name, individual. And she wrote, I am single. Okay. I rent seven weeks out of the year. Best way to keep most of my money. Question mark.

Okay, let's go to the trifecta. This always helps me, everybody. So Jacqueline has and rental. She said second home, but then she said I rent it seven weeks out of the year. So let's call it what it is. It's a rental and it looks like it's going to be classified. Well, probably not a. It could be a short term rental. We are going to have to look at the numbers. So but anyway, she says she rents it out seven weeks out of the year. So if you have tenants there and you have a property.

There's a two part question here also. But this is a question by itself. She has two questions is what I meant.

Oh, okay. So the. So rephrase the first question. Is this rentals here?

Yes.

And it needs to be in an llc. And then what's the second question?

She says my C Corp owns outright a building in Philadelphia. I'm a New Jersey resident. I will be looking to sell in less than a year. What is the best way to set up and keep most? Is almost along the same lines as the first question.

Yeah, and you know what? And Jacqueline, I would say these are two. What was the first question again? What does she want to know with her rental over here?

Vacation home in New Jersey, deeded in my name, individual. She says she's single. I rent seven weeks out of the year. Best way to keep the most money.

Oh, best way to keep the most money. I want you to write off every expense you can, including your travel up there and working on the place. The fact that you're only renting it out seven weeks out of the year is going to be difficult if your use is greater than seven weeks. So if you're using it for more time than it is a rental, it's going to limit some of your write offs. You've got to be careful. I would meet with your accountant and make sure you're maximizing every expense you can repairs everything. You're going to write off some of the mortgage interest on this. You might want to consider turning it into an Airbnb that's available all year. Once you make it available all year and you carve out the times you want it for personal use, then we can drive up the business use percentage and that's going to give us better write offs. So one of the things, and I know some of you that are accountants out there like Mark, you're just talking high level. I'm not trying to, but I don't have all the facts. So I'm saying we want to find out what is her business use percentage of this vacation home versus her personal use and we want to look at some strategies to get that business use percentage up. Because seven weeks is not exciting me because what is that? That's barely over 15% of the year if that 12% of the year. So it's going to be tough. But max, keep track of all your expenses and consider making this available throughout the year because that's going to increase your chances for better write offs. Then she says she has a C corp with a building in it. Oh my gosh. And guys, and you know, and Jacqueline, you're so, so brave coming out and saying that because you know that's not a good structure. That is scary. I'm just going to throw out a couple of points. You got to get two opinions at least from some qualified real estate CPAs. One of the tax lawyers at my office would suffice as well because if you try to sell this property inside this C corp, you're going to pay double tax on the way out. Corporate tax at 21% plus your tax rate and it's going to be dividend. Oh my gosh. You could be spending, you could be out 50% or more in taxes. This is why we don't like rentals and C corporations. Frankly we don't like anything in a frickin C corp. But you've got this C corp sitting here. I would one option is you make an S election and then wait the waiting period. And you need to understand the waiting period before you get rid of this double tax because it's called a big built in gains tax. So if you're going to research on Google, find out how to get around big built in gains tax and a C corp, the first option is to make an S election and wait. Which means you got to wait a while, at least five years before you sell this option. Two that I would like, I'd Go down the charitable trust route, the crt. We do what's called a crud term remainder trust, Unit trust. And talk with Max at my office. Max Merritt, he's an associate of mine. That's literally his office is right next to mine. I love him. Max is a huge resource. He can explain your options. With the crut, you pay for an hour's time. If you move forward with the crut, we apply that times towards that cost. But other than an S election are the crud. Oh, I think you're. I think you could 1031 exchange, but you're just kicking the can down the road. That's one thing you could do, is make your S election do a 1031 exchange and then wait your time period. Get a couple opinions from some qualified tax advisors, because you're up the crick over here, so be careful. All right, next question.

This next question is from Heba. If an LLC with two members became an asset in a trust, how to file taxes for the llc?

If two members are owners of an

LLC and it became an asset in a trust, how do you file taxes for the llc?

Well, let's look at this, folks. Let's go to our trifecta. And some of you may appreciate this. Tristan, if you can bring me over. So we have a trust, okay? Revocable living trust. All of our clients, young or old, kids or no kids, rich or poor, we need a trust. It's so good for privacy, planning and long term wealth building and legacy. You got to look at it. We keep it very affordable and we help clients in all 50 states. So they have an LLC and there's two members. Okay? That was the first part of the statement. Now let me just make this easy for everybody. If you have an LLC with two members, you're filing a 1065 period. Then they said it became an asset of a trust. Well, the only way an LLC is going to become an asset of a trust is if you make a trust the member of the llc. So which is what we do when a client walks in the door and we go, oh, let's get your trust done. We want to transfer all of your entities into your trust. So that way your trust owns everything. Thereby the LLC becomes an asset to the trust, the way they phrased it. And you're still going to do a 1065 now with a revocable living trust. Let's say this is Tom and this is Mary. Now that Tom's ownership is no longer held personally, it's held by his trust. Tom's still going to get a K1. He's still going to do a 1040, and you're still going to do a 1065. The trust does not change the equation. So the trust owns the llc. The LLC owns the business or real estate or whatever the freak it is. And then the money is going to flow down into the 10:40 of the primary grantor. Because it's a grantor trust, it's going to go onto their 1040. Great question. Tricky. Man. Those are testing me hard today. All right, I think we got a question.

We've got time for one more question, then we can give away some books. But I want to start off with Jacqueline Marie. She said she's been trying to contact the office.

Okay, now, when someone says now, you know what? We're going to finish on this, this is a freaking awesome comment. Jacqueline says she's been trying to contact the office. Now I need to make sure everybody gets it. This is so important because I want to be a resource for you. I've got an accounting firm that is not taking new clients right now. They are going through a restructure, a rebuild, new management, a rebrand. They're trying to clean things up. And there are amazing, wonderful people. I love my operational partners there that's going through a rework. That accounting firm will be making an announcement on its new name and getting out there with its new approach and new systems in the next few months. So that, that's a lot. Do not call that accounting firm. If you're calling that accounting firm, that's why you're having a hard time getting through. But everybody, if you want to build your trifecta, you want a tax strategy, you want a tax plan. And Jacqueline, if you need answers, the law firm is one call. I got 10 helpers at least that are making, they're called our new client administrators, NCS team. They are going to be able to make you an appointment within a week. And the phone number is 435- Throw it up there. 586-9366. That's KKOS Lawyers. And you should not have to wait 10 minutes to get help and get an appointment. So if someone says you're having a hard time getting an appointment, you're having a hard time getting through. Your people aren't calling me back. That's not the law firm. Call the law firm. They will take care of you. The team is amazing. Now, I will say for those of you looking for an accountant, like I said, I have my Mark J. Kohler Tax Advisor network, Tax Advisor Network. And we just. We internally today. I'm going to say it now. We decided that it will be released and announced February 20th. So February 20th, we are going to be rolling out all of our tax advisors that you can interview around the country that are all on my page. 12 modules, 75 sections and more weekly trainings. Stick around for that tax advisor list. You'll be able to find someone that can help you there and you're going to love them.

Love to give away some books, if you don't mind.

Yeah, give me some names.

You can choose the book. I'll give you the names.

Okay, well, I don't know what Diane has in the office, so I'm just going to say this, everybody. We're going to give you away some books. It could be the tax and legal playbook. It could be the what your CPA isn't telling you or financial freedom. We're going to let Diane bring them up to me. I'll sign them, we'll get them out the door. So let's maybe give away four books. Not sure which one you'll get, folks. It's a grab bag, but they're a great gift. If you already have a copy of my books, go ahead. Who are our winners?

First name is Brenda Smith.

Okay, let's go. Thank you for the compliments, Brenda Smith. And anybody that's a winner today, you email Diane@markjkohler.com and Diane will take care of you and she will verify that it's you. Okay? Brenda Smith was our first winner. Who's our second winner?

It seems that some of the people are guessing that they're winning already. So we're going to do s money.

S money. Okay, thanks for all that. S money is our other winner. Okay.

And of course, F, F T FT Tan. It's going to be a winner.

FT 10F as in Frank.

T as in Tom, as in I got a tan today on the golf course. FT tan. And then we have. Ryan Lee is going to be our last f Tan.

Nope.

FT then tan.

I'm sorry, everybody. FT space tan. There you go. I guess. All right. And then the other person was Ryan Lee. Ryan Lee. All right, everyone come back next time

and you might want a book.

Oh, I love it. Everybody get back here. We'll be here next week and I want to give a big shout out again to my team, James and Tristan. And I know there's several others behind the scenes, but I know it's stressful. It's stressful when I'm stressed out. Too. And we're trying to make all this technology work. And I want to tell these guys thank you. They do a great job. And all of you, please don't give up on your American dream. Keep learning. Keep getting a second or third opinion. Be careful relying on what you heard on the web. Hire an advisor before you ultimately pull the trigger. We're not going anywhere. Call the law firm. Wait for my advisor network. We'll take care of you. So keep living the dream. And I'll see you next week. And we'll keep hitting this main street. Tax and legal topics. Thanks.