Tax Advisor Playbook: The Tax Secret To Save Your Clients Thousands.

In today's video, I am going to teach you, the advisor, how to help your clients pay family members. This is one of the most critical strategies that's going to set you apart from other advisors and your clients are going to love and appreciate it more than you can imagine. Now I'm a certified public accountant, attorney, bestselling author. I've had tax and legal businesses for 20 plus years. But again, first and foremost, I'm a dad and I have loved having my kids on payroll. And that may mean a W2 or 1099 or even a strategy that doesn't involve either one of those. But I want a tax write off when my kids help in the business. It's something you should be doing with your own family members and that's what we want to teach our clients. Oh, and they're going to save thousands and love you for it. Now I want to start with the why first and then we'll get into the how and how this is going to structured. Also, we're going to have to talk about kids under age 18 and kids 18 and older. Now I've got a training program, my Main Street Tax Pro program. You probably already heard about it. It's got hours of training on this topic and more. But today I'm going to do my best to get through it as quickly as I can and give you the boundaries, the parameters and it's going to unlock, I know a lot of interest and curiosity to really drill down on this and learn more. And I'll tell you more about that program later. Now I think why seems pretty obvious, but then there's a lot more to it than you might realize. Yes, we want to quit paying taxes and then paying our kids. I tell clients that all the time. Why are you paying taxes at your bracket and just giving your kids money? Let's put them on the payroll or pay them in the right structure and take a tax write off and let them pay for their own things. This is one of the number one reasons why we want to implement this strategy. So if I'm at a 20, 30% combined federal and state rate, I can pay my kids under age 18 or 18 and older and they may be in a zero bracket, for crying out loud. They might be able to use their earned standard deduction this year. The beauty is you're shifting income from your bracket to theirs and that's critical. Now it's got to be legit. We're not paying them to do the dishes in the kitchen or take out the garbage or chores. You Need a small business, obviously. So you're going to make sure this is implemented with your clients to have small businesses, even rental properties. And we're going to think of jobs that the kids can do that would be helpful, like shredding paper, cleaning the office, janitorial, stuffing envelopes, marketing. My girls when they were teenagers, they were already helping with me with social media. My son, he had video classes in high school, and I started shooting YouTube videos over 15 years ago. So this is something where you can get your kids involved in technology, helping with rental properties, painting, working at the office, whatever the case may be. So we want to find legitimate jobs for the kids at any age. I've had clients pay their kids, even under age 5. I had a dentist that was a pediatric dentist, and he had advertising with his little kids, 2, 3 years old in the dental chair, and he used that in legitimate advertising. And now not all clients are going to be able to pull off paying a kid under age five. But we got to have the right business structure for it. In fact, I had a client that had a children clothing line and they sold online clothes. Their kids were helping model the clothes and even as part of the pattern making. So let's think outside of the box and think legitimately of what these kids can be doing in the business. And then we want to be able to shift that income from our tax bracket to their tax bracket. Now that's point number one. Now point number two here is you got a perfect opportunity to teach the kids about hard work, about a job well done, about business, about being involved in your passion, about your business and what you're trying to do. Get them integrated into the business as soon as you can. Third reason I liked it is I got to spend more time with my kids as I would travel around and speak at conferences. Over the last 10, 15 years, my kids were on a rotation. They're like, I got to go on the next trip. I got to go on the next trip. Hold it. The next trip is Oklahoma. I want to go on the Hawaii trip. Hold on. When you go into New York, when are you going to Miami? And so I had this rotation and whatever it fell on, that's what they got to go to. But I was able to travel with my kids and have a great experience involving them in the business. Now the last reason I think, and there's probably still others, is now I get some help. I need some help. Can. I'm going to get my kids money anyway for school clothes or their own expenses anyway, why not put Them on the payroll, helping me out with menial tasks around the house and the office that help the home office or the business and I get a tax write off for it. I'm going to walk you through all the steps here too, so don't stress. But this is a perfect opportunity to get the support you might need in your business. Now, another video I shot, hopefully you've seen it or you'll get a chance to is that of the family board meeting. Being on the family board, that's one of the roles they can play as well, especially if they're a teenager. I want them on the board because remember, teenagers know everything and they'll tell you so you want them on your board. It could make your company far more successful because they know everything. You'll have an inside track. So get over and check out that video as well. I'm sure it'll be down in the description. Now, once we know that the kids have a legitimate job, we know why we're doing this. Saving taxes, engaging, teaching, learning, having time with them. Now we need to implement the property structure because if we're going to pay them, we got to legitimately pay them. We can't just say we did it. Sometimes it's frustrating when clients learn about the strategy is, oh, I want to take a write off for last year. I paid my kids last year. No, you didn't. You didn't pay your kids last year. We've got to start it right away and just, oh, sometimes it's so painful telling them that it's water under the bridge those prior years. But let's do it better moving forward. Now, the best way to explain this is with the trifecta. Now, if you haven't ever watched any of my other videos, this will be a fast learning curve, hopefully for you on what the trifecta is all about. But please get to some of those other videos. They'll be down in the description as well because the trifecta is a picture of what your tax life should look like and that of your clients because you're going to be teaching them the trifecta. And when they say how do I pay my family? You draw it on the board with the trifecta. So we're going to start with kids under age 18 first and, and then we'll graduate to the 18 and older and where we go with that, maybe even throw in some grandkids. All right, so if we're going to pay kids under age 18, we have to look at it from two or three different angles. This is the trifecta. I'm going to split my client's life into two sides operations and assets. And in a typical typical trifecta, let's say this is a realtor with an S corp and they have an LLC with a rental property boom boom revocable living trust. That's my trifecta operations holdings legacy. Now this little bad boy in the middle is called a family management company. Now that's just a term of art. It's typically going to be a sole proprietorship which is a schedule C. So we're going to put sole prop. Now when you go to pay your kids under age 18 and I'm going to put an LLC over here, let's call this the Pre S Corp. So you might have a client with a side hustle that they don't have enough income to really justify the S corporation over here, we'll call this a main hustle. All right, so here's how you can pay your kids under age 18. You're going to pay them either out of an LLC here, which could be a schedule E or it could be a 1065 for you tax professionals. This is easy Smeezy. Right? And we're going to call it outside labor. I'll come back to that in a moment and what that means and where you put this. We're also going to pay them out of here. If I have just a side hustle outside labor, it's going to be an other expense. With an S corp, I cannot pay kids directly out of my S corp. I could, but then I'd have to issue a W2 which I do not want to do. So I'm going to pay a management fee over to a schedule C for legitimate services and then pay my kids out of the sole prop. I'm going to zero out the sole prop. So there's no self employment tax. I'll give an example of this as well. Now before we go any further, let me back up and make a couple of points. With your kids under age 18, we do not want to issue them a W2. We do not have to issue them a W2. And the last thing we want to do is give them a 1099. Now this is a well established law and rule that many accountants don't realize that I don't have to give my own children a W2. And again, I don't want to give them a 1099 and create self employment income. Now some of you are already scratching your head. Hold it. They're not an Employee. They're not a subcontractor. What is it? It's family labor. Now hear me out and I'm going to say this right now. In 25 years, I have never, ever, ever had a client audited for paying their own kids and not issuing a W2 or 1099. I've had clients get audited for other things or people come to me and need help with an audit, an employment audit. They've been 1099 in people they shouldn't have. Every time they, the auditor looks at it and goes, oh, these are the kids. All right, fine. They don't care. It doesn't matter because you don't have to withhold FICA on your children under age 18. Now if I go hire your kid, I got to put them on a W2 and do all the withholdings. Now they may not pay tax on their standard deduction up to the standard deduction, but I do not have to withhold fica. And again, they're not a subcontractor. So where I pay them is on as an other expense called outside labor. That's where it's going to go. Now, in my white paper that I give to our tax pro, members of our program that are getting certified as tax advisors, I back all this up and writing. I've written about this in article after article. It's in my book, the Tax and Legal Playbook. Please, just. If your hackles are up, just let them down for a minute and continue to listen and hear me out. Now here's where this really pays off. Because. Because your kids do not pay taxes on the first $14,600. That's the standard deduction. None of us do. No American in this country pays federal tax on the first $14,600 of earned income. They have a standard deduction. Even if they're an exemption or a dependent of the parents, they can still go work at McDonald's, make $14,600 and pay zero tax. They get their own standard deduction. So if I can justify paying my teenager $14,000, remember, with a legitimate job, I can put it down as an other expense outside labor. $14,000? Really pay them. We're going to go through the paper flow here. I get a write off for 14 grand. The kid doesn't even have to file a 1040 because they have no taxable income. But if you want to, you can take the standard deduction, zero tax due. Now remember, half of the states follow the federal standard deduction. The other half don't. So you have to make sure that, you know, if you need to file a state tax return, like in California, I think the standard deduction is around 6 or $7,000. I'm going to pay tax or the kid's going to pay tax on the difference between the standard deduction and whatever I pay them above that. Now, this is my Mark J. Kohler calendar that all of you should have. You can get over to March Kohler.com and get a copy. And in here I have a table of all the states and what the standard deductions, special tables on series LLCs and cope LLCs then and then resources for the current tax data for the year. And we see that the standard deduction here for 2024 is $14,600. Now, let me give you an example. Let's back up and have a fun example. When my kids were all teenagers. Now my youngest is now 21. Time flies. And I have two kids that are working for me now in the office, acting like all the other employees. They get a W2. See, if they act like an employee, look like an employee, and they're 18 or older, we're going to come to that. They're going to get a W2. But under age 18, I can use this exemption, this strategy, this loophole that I don't have to withhold fica. So when all of my four kids were in high school or younger, I had twins. So I have four kids. My son Dylan, he was probably 16. I'll use a good example at this time, he was 16. My two twins were 14, and Molly was 10 years old. And so they were all helping in the business. Dylan was doing video. The girls are helping with social media and office. Molly's doing janitorial and paper shredding, yada, yada. So in our whiteboard here, I was going to pay Dylan. And this was very common for several years. And it would modify. But let's say it was this year where I would pay. The standard deduction was around six to $7,000 during this time. Now it's this crazy 14,600. But I was paying him $6,000. I was paying the two girls $5,000 and I was paying Molly, say, $2,000. So if you add that up, that's $18,000. That's $18,000. I was going to pay for school lunch, school clothes, gas money, parties, whatever. I was going to pay 18 grand anyway. You don't have to be rich to do this strategy. I'm just going to pay them and let them pay for their own stuff. So what I would do is transfer monthly, weekly, whatever the hell, and transfer $18,000 throughout the year, pay the kids, and then they would pay for their own stuff. Now, to make this work, each one of the kids needs to have their own debit card, their own bank account. And I would transfer online transfer at Wells Fargo from my S Corp. To my Kohler Family Management, a company I still have today at Wells Fargo. I would transfer that 18,000 throughout the year, pay the kids, and zero out the sole proprietorship. The kids would file a tax return if necessary. At that time, they didn't need to and pay zero tax. So I get a write off for 18 grand. The kids get the money. They use their debit card to pay for school lunch or school clothes or whatever. We hold their debit cards and go, okay, here's a card, go. We're going to go shopping for school clothes. And I would get write off for the stuff I was going to pay for anyway. That's the beauty of this. So it was just a management fee on the 1120s to income on the schedule C to an other expense outside labor. Zeroed out, never a problem. We've been doing this for thousands of clients around the country for years. Never had a problem ever, because it's legit. It is the law. So I could pay my kids out of an LLC over here with rental properties. I could pay them out of a sole proprietorship side hustle over here. That'd be a schedule C. Or I would pay them through the 1120s, down to the sole prop and then back out. That's how you pay your kids under age 18. Now I want to tell you one other story that kind of brings us home. I had, as I said, twin daughters. And it was a couple years after this example because they were now 17 and they were, they were going to prom. Now at the time I thought, oh, okay, they're going to go to prom. Not a big deal. Give them both 100 bucks, go buy some, you know, new shoes. Are you ladies laughing right now? You probably are, right? 100 bucks for prom. Holy crap. Shoes, nails, hair, new dress. It's a whole event. I think it's a thousand bucks per kid to go to a prom, you know? Oh, my hell. I was like, what? I'm like, I got to game this out. I got to get a tax deduction for this. So the girls are like, dad, we want to go to prom. We need money. La, la, la. I go, all right, here's your deal. Proms in three Weeks, you're going to pay for it yourself. And here's how you're going to do it. I need the office room. This was a room in my office that I needed painted. I go, you're going to paint that office? Then I'm gonna put that money on your debit card. But you gotta. You gotta come through. But, dad, we're too busy. That's fine. You can pay for your own prom, you know. Don't your kids do that? So I'm like, all right. So I got them all geared up, went to Ace Hardware, got all the supplies, lalala. And oh, my hell, they did such a bad job. It was terrible. I show up and, you know, kids, they learn how to paint when. When, you know there's no paint on them. They finally figured it out. I walk in, I think there was more paint on them and the ladder than there was the walls. And I was like, oh, my gosh. So I said, all right, training opportunity. And it was really special. I'll never forget this time. It was like, we're gonna knock this out. So we got back into it. I show them how to tape down the walls, how to properly cover the floor, how to. How to properly paint. We actually had a fun time. It's a special memory of mine. And I paid him each a thousand dollars for painting that damn room. But I did it by transferring $2,000 over to my sole prop and then putting $1,000 on each one of their debit cards. There was their prom money. I got a tax write off for prom. How many dads can say they did that? That's the strategy. Quit paying taxes and paying for your kids crap. Put them on the payroll, pay them outside labor, pay them the proper way, and let them pay for their own stuff. Well, times change. Kids grow up. And now they're all 18 or older. How do we do that? The 18 and older strategy. Okay, so now we're going to go to 18 and older. And let's get back to our trifecta. At this point, we don't need a family management company because once they're 18, I have to withhold FICA. I have to pay them legitimately as an adult. So let's go to our three possible entities. We have our side, Hustle llc. We have our main hustle S corp, and then we have our LLC for a rental property. That'd be kind of our example. We've got our trifecta down. Here's our 1040, our revocable living trust. All right, so once the kids turn 18, they have to get paid in one of two ways, W2 or 1099. And guess what? The same rules that apply to designating a contractor for proper payment under the 1099 rules is the same rules you have to apply to your kid. And I've never had a client audited for 1099 their kids but I'm pretty religious that if they're going to show up and work like the rest of the employees in the office regular hours, we're going to put them on a W2. But other than that I've 1099 all of my clients kids, once they turn 18, they're serving on the board, they're off to college, they're off doing whatever and they're providing support remotely managing a rental property, whatever the case may be. So if we look at this and one of the strategies I love teaching is having my clients own a rental property where their kids are going to college. Why pay rent to the frickin university? Go buy a duplex, a four plex rent rooms and get your kid as the manager of the LLC for the rental, the college rental. So very very common strategy. Many of you maybe already implemented that. But then I can pay my kid a 1099 for serving as the manager. So guess what? I don't even care about the American Opportunity Tax Credit. Spit on it. I get a tax write off dollar for dollar for my kids tuition because I pay them and they pay their own freaking tuition. I just got a tax write off. That's a pen drop if you didn't see it. All right, so this is a beautiful way to handle this. And if they're in AN S Corp 1099 or if they look like quack like a duck, they look like an employee, act like an employee, they're going to get a W2 and then a 1099 or W2. So it's pretty straightforward. Kids 18 and older are going to fall into those buckets. Every one of them has got to have their own bank account, they're going to file their own tax return. Now I have another strategy story here that is going to blow your mind. This was just absolutely incredible. So the three of the kids were at college, they're getting their 1099s, filing their 1040 building credit with a credit card, not going into debt but building a credit score to ultimately buy a rental property. That's a story for another day. But this particular time I was negotiating health insurance. Now if you remember under Obamacare, love it. It's a fan. It's not perfect, but it's better than the evil insurance companies. And under that plan, remember, parents can still keep their kids on the health insurance till they're age 26. Seemingly a wonderful idea. Oh, why would the insurance companies be excited about that? Because they can still extract premiums out of those parents. But I was going to get health insurance. Didn't see an angle. Here my kids are getting their 1099s. I've got all four kids still on my health insurance plan. It's time my wife went in. She had a plan for the network and the doctors. So this was kind of her thing. So she would go to the doc, to the insurance guy, and they'd start looking at different plans. Hmo, ppo, Health savings account, qualifying all those goodies. So she's in there one day getting her health insurance for the year, lined up. The premium, I think, was like 1400 and change, right? Many of you have clients with exorbitant health insurance premiums, right? So I'm like, I get a phone call. Yeah, premium is going to be about 1400 bucks. Oh, and I remember vividly being on speakerphone. And the insurance guy goes, yeah, it'd be great if your kids could qualify for their own health insurance and you could drop them from your plan. I go, whoa, whoa, whoa. What do you mean? What do they have to do to qualify? Oh, they have to have at least 12,000, $13,000 of income and then they qualify for Obamacare. And I go, whoa. And my wife right there jumped on it too. We 1099, our kids, our three kids are at college. They work in our business. The guy says, you employ your kids. This insurance agent, never heard of this, this novel, crazy idea that a business owner would pay their kids. So he's like, you send over their 1040s. So I'm at work, he's on speakerphone. I'm like, I knock, find their 1040s, knock out an email, Boom, boom, boom. He gets their three ten forties. They're all over thirteen to fifteen grand or so because I'm paying him in the business, serving on the board of directors, board of advisors and filing tax returns, building credit. He's like, oh, this is great. Drops those three kids into healthcare.gov, they get a better insurance policy than me. I remember Alison, my daughter got a $24 a month premium to have incredible health insurance. I think Sydney was at like $33. Dylan was like at $46 a month. And then he reran our numbers. I dropped the three kids. My premiums went down to like 680 bucks. I saved almost 500, $600 myself, close to 6 or $700 myself per month. And the three kids had their own plan and got better insurance than me. And it was all because I was paying my kids. I was implementing a strategy to save taxes and blew open the health insurance strategy. To this day, even my little Bali who works in our office here is 21 years old. She has her own health insurance on Ambetter. Boom. She gets better insurance than me and it's cheaper because she has enough earned income now to get her own policy. People, this is a strategy to again teach our kids, involve them in the business, spend time with them, get valuable help in our business, save taxes and possibly even save health insurance. Can you believe that people? Have you learned something today that might change your life, change the life of your clients? I hope you have so I have the Main Street Tax Pro program. I'm training tax advisors around the country. You can click down below and do a demo and check out my 80 strategies, 12 modules. You can be implementing these strategies as a tax advisor, billing for tax advisory services. I have a business builder class every month. We do trainings every week. It's a tribe or community that's going to change your life and change the lives of your clients. You're going to work less, make more money and using strategies that actually move the needle. Please check it out down below. Learn more. You're going to be blown away with everything you're going to learn in the Main Street Tax Pro program. Thanks for watching today. See you at the next video.