Realtors and Re-habbers - The New Tax Reform | Mark J Kohler | CPA | Attorney

Hi, Mark Kohler here with another important tax and legal tip for my realtors and rehabbers. Yes, those small business owners I love that are out there creating ordinary income, doing real estate transactions every day. Now this is exciting. There's some good things in the new tax reform for the realtor and rehabber, but believe it or not, they're different. It's almost worse for the realtor in some ways. So let's break it down and see what you need to know when it comes to filing taxes. So our two groups and they're going to be treated differently. Realtors and rehabbers. Now, in both of these situations, when my clients are out making money and this is not buying rentals, this is buying a property and flipping it within 12 months and my realtors getting commissions, if you're going to make more than 50 grand, so let's say maybe 75 grand in gross sales, 25 in expenses and net 50, you might be just getting started as a realtor, maybe your first rehab. So you're just getting rolling. Now, of course, many of you have bigger aspirations than that and you're going to net maybe 100 grand or more. That's our goal. Right? That's a sweet spot for a lot of my clients that are realtors and rehabbers making 100 to 200 grand a year. And that's a, that's middle income America or better. And that's what we're shooting for. Now. What's our strategy here and what's going to be different under the new tax law? Now first we're going to compare apples to apples and all your revenue, of course, is going to go through an S corporation. That does not change. And I've got a lot of material out there. You're going to want to check out my blog, get to my weekly free newsletter. The information is down below and videos on how the S Corp is still the most powerful entity for saving on FICA and getting the 20% deduction pass through write off, you're going to see it here big, but it's a double whammy. You want to be doing both. So whether you're a realtor or you're a rehabber, you're going to want that revenue to flow through your S Corp. So let's say you got 150 grand of income and 50 grand in expenses, you're going to net 100. You're going to get the same equation in this when you're either a realtor or rehabber. Now a rehabber, you might have more gross Revenue, but you're going to have repairs or I should say construction costs, improvement costs and you're going to net 150 gross. So you might sell a couple rehabs and make 150 and then you're going to have your standard expenses of 50. That's what we're talking about here. Home, office, travel, meals, Internet, cell phone, dining, all that kind of stuff is going to be here and then you're going to net 100. Now under both scenarios, we're going to generally take at least maybe a $40,000 salary, kind of a 6040 split and you're going to have a salary with a W2 and a net of 60. Okay, now this gets us to an important point here. And this is going to be the baseline for the new tax reform law. So right here, all my realtors and rehabbers making money going to be in an S corp scenario, you're going to save FICA here of almost 9 to $10,000 right off the bat. So we're going to want to be an S corp that's nine grand in savings. Be careful thinking, oh, I want this pass through deduction. So I'm going to be a sole proprietor or I want a corporate tax break of a rate of 21%. So I'm going to be a C corp or a sole proprietor. Guys, every time I do the math, the S corp wins. So this is our baseline. Now what does the tax reform bill get us on top? So, so under tax reform we're going to see two different scenarios. Believe it or not, you're both doing real estate, but the successful realtor takes it in the shorts. Now let me explain why both of you get a 20% deduction on the pass through income. Be careful hearing about a special rate. There's no special pass through rate. You get a special 20% deduction. So you would offer 60 grand, you would get a $12,000 deduction and so you'd be down to 48 of income. Well, I'd rather get taxed on 48 grand rather than 60 grand. Good thing. Well, the rehabber, you get the same deal. You get a 20% deduction of $12,000 and your net is 48. This is how Congress, Donald Trump, whatever felt that we were going to stimulate the economy is that with this $12,000 in savings, the rehabber might go out and hire more employees, the realtor might go out and close more deals, pedal a little harder, maybe even hire an assistant. So you're going to get the economy going with this tax reduction. It's going to get injected back into the system at least. You may even go buy a big screen tv, which I do not recommend. Get out and save this money. Set up a 401k on the side topic for another day. Now, where's the difference? Here's the difference because this is personal service. You're out as a broker agent selling a service. And this is the same thing for dentists and doctors and engineers and accountants. I've got other videos up for those poor professionals getting hit with this is that if you're a successful realtor, this starts to phase out at 157,000 if you're single and if you're married, filing joint, 314. So if you're making over 314 married couple, over 157,000 single, this 20% deduction phases out. Gone. That's right. If you make more than these two figures, 157 single, 314 married, filing joint, then you don't get this write off. Now I know that's going to make some of you mad and you're going to say, mark, you've got a loophole for me. No, not at this point. This is personal service. This is out hiring contractors, subcontractors, workers, employees. They see this as stimulating the economy more. So there's no phase out. Now some of you doing rehabbing are whistling Dixie right now. I get it. Now mind you realtors, I have a lot of realtors out floor flipping properties and they're going to love to flip some properties because you still get the pass through rate on this even though you may not get it over here. Now I need to say this again. This is a tax law that's evolving. There's going to be IRS regulations and cases as we figure out a lot of this phase out stuff on your AGI and what type of income you're generating and do you get the phase out here, but not over here. So stay tuned. Please get to my website, sign up for my newsletter and I'll be keeping you posted. Please subscribe to the YouTube channel. As I get more videos on this topic, I'll be shooting them here for you, for you. So please pay attention to this. So Realtors, you got a phase out problem. I guess the rule is don't be too successful and then you're uber rich apparently. I don't know rehabbers, you're going to make more money, get more phase out so you can hire more employees. That's the rule. Just to be aware of it. In summary, bottom line Real estate still good. Making money in real estate still a great occupation. I love my realtors. I love my rehabbers. Keep living the American Dream. Don't give up and continue to follow my information. I'll be there for you to help you save more taxes, build wealth and protect your assets. Thanks so much for watching and if you found that helpful, please look in the description below. I've got links to my tax and legal library, my QuickBooks training videos, how to start a small business 50, 60, 70 videos, some as long as 30 minutes, explaining more information on tax and legal strategies that will change your life. Also, if you'd like to subscribe to my newsletter or check out my social media links, please click here. There are weekly free tips and strategies and articles that you'll find extremely helpful and I would appreciate it if you'd subscribe to my channel. I've got so many videos here. I produce every week on my YouTube channel and I'd love to give you a ping every time I shoot a new video. Thanks so much and keep living the American Dream.