Tax Hacks the Wealthy Use (Attorneys Break it Down)

I would say 80% of the time. Married, filing joint. You're going to save taxes too.

You're getting jack squat. You have nothing right now.

180 grand this year is subject to 15.3% in self employment tax right out of the gate.

The smart thing to do is to focus first on the assets and who's getting them. Second, think of the tax considerations.

Are there any advantages to mining the bitcoin in the LLC or S Corp? And you have any tax strategies or general advice when it comes to mining bitcoin? Any crypto mining you're doing, you're going to want to foreign welcome everybody to another episode of the Main Street Business podcast. Excited to be here with you today. This is the People show.

The People show where the people ask their questions and we are the two guys just giving you answers. They're free, it's for you, but they're worth more than that at least. You know, pennies on the dollar.

Yeah, it's. I guess People show meaning it's for you. The people. Yeah, just trying. I'm excited to be here. We are both tax attorneys, been in the business now for 20 years plus doing small business consulting, estate planning, business planning, asset protection, self directing of retirement accounts. We try to bring all of these forces to bear for you trying to live the American dream. We need to do more of these podcasts with the open forum. We've just got so many questions today. Yeah.

And Mark and I have done the 10,000 hours with clients across the country like answering these questions, obviously charging for our time providing these services. We do it every day in our law firm with our team at KQ Solutions Lawyers. So let's dig into the questions though and I mean I can be lead off.

Yeah, yeah, you go for it.

All right.

I've got an interesting one to hear. Okay.

This was from K. Tyler 8 98. Mark and Matt, thanks for all the information you provide on the podcast. It has definitely helped us in our journey through the small business ownership maze. My partner is a realtor and I'm a mortgage originator. The realtor partner purchased an investment property loan and title solely in her name. After closing, the investment property was transferred to an llc. LLC owns. Owned solely in her name as well. We have no plans to get married or have children in the future. We do not have a revocable living trust. But based on what I've learned listening to your show, that should probably be our next move. We'll come back to that.

Sounds like they've got a little woohoo going on. We're not getting married, but we are together and that's okay.

You know, it's very, you know, modern. Very modern. You know, they're gonna. I don't. I was gonna say they're in a committed relationship. We don't know that yet. Yeah, but they're in a relationship.

This is a story that's unfolding. I'm excited here going, please.

Very interesting. Where is it gonna go? All right, now, Kay, Tyler says I was not able to originate this loan on the investment property due to conflicts of interest combing the funds. But we like to use this strategy in the future with a realtor partner as the purchaser and mortgage original originator partner person asking as the lending agent to maximize income tax and strategies.

Now I know why they're not getting married. They're working the division of real estate over. All right.

To do this, it seems that most. Most lenders will require the realtor partners assets income to be separate from the lender partners. It seems to me that a revocable living trust holds all the assets that will provide estate planning as well as another layer of liability privacy protection. But it will cause the same conflict of interest commingling issue. If we are 50. 50 holders of the trust. I'm sure we are missing some things and it's certainly possible there are ways to. There may be other strategic, other strategies that would work better for us we're not aware of. Your input would be greatly appreciated.

Wow. I know what they're trying to do. I'll say it in one sentence and you respond, yeah, they are trying to have their cake and eat it too.

Oh, they. What good is cake if you don't eat it?

I know, I know.

That phrase is the worst.

It is. It is. Well, the cake that they want is, oh, you're a mortgage lender. Oh, I'm a realtor. We can both be on the hud. And because we're not married and we don't commingle assets or have a revocable living trust, we can both get commissions and. And we can go get lenders involved. And lenders aren't going to see us as a unit. They see us as separate people for every piece of this transaction. Don't be offended, Kay. Tyler, if I'm missing this, but you want that flexibility because he says no commingling. And we're not connected from the banker's point of view or the division of real estate's point of view. But on the other hand, they're together and they'd Love a revocable living trust. And they're not getting married, but they want to be together. So that's the eat apart. They want cake separation for every business plan.

Eat it.

We want to be together and not kind of, but we don't know how.

Yeah. And let me say this for partners in general is say Mark and I are partners. We own real estate together in multiple LLCs, different LLCs that own different properties. We do not have a revocable living trust or any trust together. I've got a trust. Mark has a trust. Okay. Now my ownership stake in the trust might go to my heirs, not Mark. Okay, let's say my 50%. What?

Yeah, just dropping that now, huh? Okay.

I told you about this.

Okay. All right.

Awkward. But what we do have is a buy sell agreement, okay, that says, hey, in the event that I die, you get the business or let's say the property.

And. And.

But you're going to cash out my heirs or my estate so you can continue on with the business or property. So what I think you need most here is some partnership planning, some legal planning around what is our relationship going to be in terms of business partners. I don't care about your other relationship, whatever that may be or may become in the future. But if you're going into business together for any unmarried couple and even married couples here, let's have a real business partnership discussion about what are the responsibilities and the roles here. If your partner here, if she has this LLC and it's solely in her name and it's expected, you are actually partners in this property, but your name's not on anything. Kay, Tyler, you're getting jack squat. You have nothing right now. A trust doesn't make sense unless you're married to do a joint revocable trust. So I think we need to unpack. Like, what is the actual relationship here? I think the secondary issue is this. Well, I want to still get the mortgage commissions on this. You might need to bypass that. I think that's short term vision on this. Long term. You're trying to build assets and grow wealth. You might want to think more big picture.

All right. Kay, Tyler. Okay. I'll respond if I may. K. Tyler, do you love this woman? I mean, I just. I think that's. We need a response right now because I think that would change a little bit of this equation maybe. No. Okay. I'm just kidding. All right, all right. I'm just kidding. Here's. I'm going to take just a different angle than me that I just got Married this last year and Patty and I were doing business together before we got married. We were investing in real estate. We were doing some business projects. And not being married did give us more flexibility in the self directed IRA space. Oh, man. Her IRA could partner with me. My IRA or 4K can partner with her. It was wild, wild west. And so I get. That's why I'm saying this is kind of a cake and eater too. Because, Kay, Tyler, when you're not married, you're right. Lenders, bankers, trust companies, everybody sees you as two distinct, separate individuals and even the IRS does. So there's some planning benefits there, but there's also some drawbacks. And I would throw out that I think you do need to both of you get your estate plan done and then have a provision where you take care of each other if you die. So I would presume Kurt Russell and Goldie Hawn have individual trusts. They're not married. Famous story of them and their love affair. They totally in love. Wonderful couple. But they have separate estate plans and I'm sure they take care of each other. If something were to happen to them in their individual estate plans, then you can go wild west, partner up. And I like what Matt said, too, on that level. You definitely need some agreements, too.

But yeah, here's a reason you may want to get married, though. One thing you mentioned was reps. I think you're meaning real estate professional status. And the realtor partner here could get that. The mortgage originator partner can't. However, if you're married, the realtor partner is going to qualify and the mortgage originator partner will qualify, too. You'll be combining your income, but you'll get the real estate professional designation status. So all these rental real estate losses will offset both your mortgage originator income and realtor income. You will only do that if you're married. So not that I'm trying to push you any way or another, but the IRS does have a little perk for you. Yeah.

And I would say 80% of the time married filing joint, you're going to save taxes, too.

Yes.

So I would run your tax returns both ways. Yeah. Okay, next question. Boy, we took a little more time on that, but it really unpacked a lot for, I think, many of our listeners.

Yeah, we're billing.2 hours on that one.

Make a note. Hey, Tyler, you'll be getting an email with an invoice. You can pay via Venmo or Zelle. Okay, now. Just joking. Just joking. All right. Mr. Holb says I am renting a property I own to my elderly mom. Some other family issues going on here. Renting property to your elderly mom. We're past Mother's Day now, so I guess he's hiking up the rent. I'm not sure. The annual rent is approximately 55% of fair market value, so he's giving her a deal. And I'm concerned the IRS will view this as a not for profit rental. I have to tell you, Mr. Holben, I'm. I'm always transparent. I don't know if I've ever heard the word not for profit rental phrase. But anyway, he says, I'm worried the IRS is going to call us. This discounted rent project, a not for profit rental. Could you go over the rules for claiming expenses against a not for profit rental? Would you advise setting up the rental agreement to exclude portions of the property, say the garage or room or bathroom. Now you've got mom tied up in like this space that she can't. She can't even use the garage, man. Thereby allowing for a proportional amount of rental expenses to be included against rental income and making it look more like a for profit rental. Okay, Mr. Holt. And now, by the way, Matt and I have done entire podcasts on renting property to your parents and doing some estate planning, some rental tax planning when you might want to take ownership of the property of mom and dads and rent it back to them so they could qualify for Medicaid or some other things. There are some options there. Medicaid planning is so complex. But Mr. Hope, I would say this, and correct me, I don't know what a not for profit rental is. Never heard of that. If you're collecting rental income, it's rental income. You have a rental property, you have rental expenses. Just because you're charging 55% of fair market value just means you're taking in less rent. I. Now I'm presuming with the way this is framed that this property is a standalone single family home. I can't determine if you're living there as well. If you're just renting to mom half of the property and you live there as well, or someone else or if this is all of mom's property, I would suggest this, have a consult with one of our tax lawyers to get this vetted. And I would say you have two, two options. One, don't worry about this percentage of firmware. Just collect the rent, write off the depreciation of the whole place, all the expenses, see where it lands on your tax return. Not knowing your Situation could be a good thing, you know, whatever. Option two, just treat it as a gift. Your mom is gifting you some rental income. It's a gift and you're treat it like a second home. Because if you're not going to take

gifting his mom some value.

Yeah, that's right.

There's a discount basically.

Yeah.

45%, let's say.

Yeah. But if you don't want to claim it as rental income, what mom is sending him has to be something. So I would.

Oh, okay.

Yeah.

But how does he claim the expense?

He would. Okay, I'm saying two ways. Yeah. Either claim the rent, claim the expenses, be legit. Or number two, you just, just let mom use your second home. Take the rent mom's paying you to help cover the costs and that's understandable. Hey mom, I need you to help cover some of these costs. Don't claim it as income. The IRS is not going to come after you. Oh, but you don't get any write offs. So it's either gift mom's just using this extra home of mine until she passes whatever or expenses and claim the income. Your thoughts?

What about an option three? Tell me what you think about this one. Just have her pay the damn market value of the rent, take the expenses. You're probably going to be. Even with depreciation expense, you are going to be likely having a loss a lot of cash flowing rentals where you're making money because after depreciation, which is like a phantom loss, right. You're not actually incurring it's a percent of the value of the property over time you have a tax loss. So let's say you have that and then just gift her back the money and that's going to be the gift back. Is that actual amount you just pay her back because or you credit later on in the year and you know you can gift up to, what is it, $17,000 a year without any gift tax consequences. So I don't know another way to think about it.

Yeah, no, that I do like. Option three would be for a tax strategy. I think depending on what you where you fall with your adjusted gross income, real estate status, this, that and another. So that's why. Yeah, so great, good point. So get a call, get a call with one of our attorneys because you want to nail this. But don't worry about this not for profit rental thing. Either it's going to be a rental property or it's going to be a family gig with gifting. So. All right, cool.

All right. This is Sloan920? This is not Sloan420. These handles, Sloan920 says hello. I have a 1099 job. I recently started training to become a Pilates instructor. I'd like this to become my full time work once established for now, buying equipment, training and other expenses. Should I start an LLC or S corp? What is the best tax strategy? I will be using a home, a room in my home to train clients on the reformer. All right, Sloan, this is a great question. Okay. All right. Pilates instructor. You're going to be self employed. Now, keep in mind you don't need an entity, an LLC or corporation to be able to take an expense or a write off for any of this equipment you're buying. I'm going to come back to this in a moment. We got bonus depreciation possibly on the table here under the current pending bill. We'll see. But you don't need an entity to do that. Now, I would do an LLC despite that. Because you want to be legit, you're going to want to have this in the future and we are going to want to add an S selection to that, possibly depending on how much you make at this business. So here's what I want you to know. Get an LLC now to get a legitimate entity, you're going to do business if somebody gets injured or something doing Pilates. You know, I know you guys are doing weird things on Pilates. You know, you want some liability protection maybe. But the other benefit to it is once you have more than $50,000 of net income. I don't know if this is a side hustle. You're trying to make ten grand. If this is going to be a main hustle, you're trying to make 100 grand plus. But if you got more than 50k net income, you will save taxes by having an LLC taxed as an S corp or an S corporation. The reason I'm saying do an LLC out of the gate is it's simple and easy. You don't have to do payroll reports or an S corporation tax return. It'll flow onto schedule C, maybe this first year you've got a lot of startup expenses, you don't have much net income or anything. There's not much taxable income. But next year you're really cranking, you're operating, you've got a good clientele and you're making more than 50k of net income. Then we want to add the S election to the llc, which now you do have to start doing payroll. You do a Corporate tax return. But if you're making $100,000 a year net income after expenses with an LLC taxed as an S corp, you will save about $9,000 in self employment tax versus having no entity or just having a regular old LLC. So consider that in your situation. Give our law firm a call. By the way, if you've got these types of questions and scenarios, our team here at KQS Lawyers will help you get this set up. Spend your time growing the business, starting to market it, doing your training, teaching Pilates and charging someone. Let our team help you get this set up and structured properly.

I will offer a second option too.

Okay.

One thing that many business owners don't know is about the de minimis expense accounting policy. Under IRS code, you can expense up to $2,500 of any invoice for equipment or supplies in your business and without even relying on depreciation strategies. So you got up to 2500 you can write off in each pop. Now this has to be an accounting policy in your minutes and a statement on your tax return. So I'd love everything Matt said, but I would add get the LLC done, get an llc, get legit, get the ein. And in those minutes for your llc, we put an accountable plan in every one of our minutes that has this accounting policy in it. So that now you're expensing all of those things you're going for in this first year or two. You may even have a loss the first couple years which is allowed under the hobby loss exception. So now you're taking losses, you're buying all this killer equipment, you're showing some income and you're saving taxes off your regular W2. You've got an LLC to substantiate it. I think this is the gateway drug to the American dream, frankly. So I love it. And this is 40 million Americans now have a side hustle and. And you being a plot of you structure is part of the great formation after the pandemic. People are like dammit, I'm going to make some extra income. I'm going to start this little side hobby into a business. I love it. But I'd formalize it with an LLC de minimis accounting policy provision. Get that accountable plan set up in your llc. You're going to be doing home office deductions.

Oh yeah, all, all these separate piece of your home you're going to use to train clients. Definitely taking home office. I love it. Lots of opportunities here. A lot of other expenses you're going to have. Of course in the business. So we can help you get that dialed in. And I was just looking up what a reformer costs. I don't know. What's your guess on how much a reformer costs? This is like price is right. What do you bid?

I believe a reformer is some sort of equipment you'd use in p. Liat.

Have you seen people do pilates?

I have not. I try to avoid.

Do you know what pilates is?

Is it like yoga?

Kind of.

Is it like a row machine? Kind of.

Yeah, it's like a machine. Maybe like, it's like yoga and on a machine. I don't know.

I mean, I walked by torture equipment at a gym the other day. Maybe that was it. Okay.

We're good on tax and legal stuff, so I got. I got a little. I felt like I knew a little. I got a little overconfident on my pilot knowledge.

Oh, that was cool. Reformer. Five grand. I don't know. Yeah, okay.

Turns out you could get them for under 2,500 bucks. Now, there's different brands of this, I'm sure. There's like, a Mercedes and there's a Hyundai, you know, but. Or Kia, whatever, you know, I don't know if there's a lower entry when there's, like, the nice stuff.

So I. I'm just a scrap it out guy at the gym. In fact, I went to a boxing gym for a lot of years. I love to just hit the weights and all that. I kind of breeze past all of those torture equipment.

About the boxing gym where you fought a female. Would you just.

Okay, we don't need to go there. It was. It's called sparring. And she was a very proficient female boxer, you know? Okay, we'll go tell that story another day.

Okay.

Now, it did not end well. That's like. This is a no win situation. You don't knock out a girl.

I told him. I'm like, what are you getting yourself into? If you feed her, you're gonna feel like a jerk.

And if you lose, you're gonna feel like a wimp. Yeah. It ended up with a black guy, and it wasn't on her. Okay. Now, no pun intended. There. That was.

Okay.

All right. Okay. Here's another question. Let's transition. We don't need to talk about that. I can't. I shouldn't have opened that can of worms. All right. But this is a good transition to Sloan 920. Sloan? Yeah, Sloan 920. Because, Sloan, I'm going to want you to also take the home office deduction, which is Going to be a space where I suspect you're doing some of your Pilates training in home. But I want the home office direction. Here's why. That's the starting point for you as you take mileage to other gyms and doing personal training for others. Now you're not taking the being excluded from the commuting provision, but you can't write off commuting from your house to work. But when you have a home office and a training space for your Pilates business. Now when you bop over to all these other gyms and you're meeting other customers and clients and la la la. Now we're right on off the auto deduction, but you have to have a starting point for the auto deduction. Where does your starting point? Your home office. So Collins M13 asks. I'm going to use the home office simplified method for my tax return. My question is I have 122 square feet home office times $5, which is a simplified method. That's a $610 deduction. Is this amount to deduct the grand total for the year or should I be multiplying the 610 times 12 months for a total of 7320? Appreciate your clarification. Oh, Collins, if we can only wish it so it is only $610 for the year which you're going to go, that sucks. But Colin, this is why I brought up the auto deduction. This is one of the tricks in tax law planning that the home office I yeah, I want to write off 1500 bucks. You can write off $5 up to 300 square feet. 1500 bucks. No depreciation recapture. Done. But any specific expenses for the office like furniture, printers, cameras, lighting, anything that's specific to the office is going to be a write off on top of that amount. And you just pegged your starting point for the auto deduction. So this really is a powerful thing to get this deduction even if it's only $610 for the year. Sorry to break that bad news to you, but also let you know the glass is half full. This is a start again for your small business venture that could become a main venture someday. And that's, it's really exciting. All right, you got a good question.

Yeah. From Wooden Shoe.

All right.

Wooden Shoe says let's assume the makers of a revocable living trust have died and now the executor trustee here, I think is what you meant must go through the assets single family rentals that were titled to land trusts and the Land trusts are now owned by the living trust. All right, we typically just have LLCs here, but I'm with you. I'm with you so far, wouldn't you? What's the best course of action? Keep the single family rentals, which provide cash flow and reflect passive activity losses due to depreciation and file a trust tax return each year. Or be sure to divvy up all the single family rentals to the beneficiaries with the hope of not filing a trust tax return that first year or subsequent years. Discussions take us all up to the point of preparing a living trust. Inquiring minds want to know how to handle the aftermath in the most expeditious way possible. That provides the best financial outcome for beneficiaries. A few of us will be executors of loved ones. Does anyone have an interest in providing direction? Well, wooden shoe, I do. We have an interest in this. We want to help you out. We've also, by the way, got our estate planning special at our law firm, KQS Lawyers. So get over there to get your estate plan done. If you're like, man wouldn't choose onto something here, I'd like to know that. And if I plan my estate. If you don't have an estate plan. You do have an estate plan. It's just a crappy one. It's the one the government provides for you. It's in the law. It's the default. You're going to probate court. Your family's going to be distressed. You've just died. And you've given them this amazing opportunity to go fight about your assets because you never provided a plan. So get your frickin estate plan done, everyone. All right, back to wooden shoes question.

Good man. I. I felt like I was out there. Okay, all right, cool. Good job. Good job.

All right, great question though because a lot of people do worry, like what happens when we do die? And you can answer that now.

The trust. Wow. Okay. Whoa, whoa, whoa.

Pray to our assets.

All right, I love it. We have a question today. What happens when you die?

Okay, yes, I figured this out. I cracked the code.

The dear near death experience last night. Did you hear about that guy in prison? This came out this last week. It was so good.

A guy, no idea where you're going.

No, no, it's good. This guy in prison, okay, has.

I'm already not interested in what he thinks, but.

No, no, this is good. Has a near death. Whatever. Death experience. He has a death experience.

Shanked.

No, no, no. But actually I Don't know the ailment that caused this, but he goes into natural causes. Yeah, no, it was. It was verified. He. They went in and the paramedics show up in a cell, whatever. But he was dead. He was dead for about two minutes. And they were able to defib, whatever, bring him back.

He did not go to the pearly

gates, you know, and maybe. Maybe he was, you know, he repented and, you know, he was okay. Maybe Peter met him and said, you, you know, got an escalator choice here.

I don't know.

But here's the point. He was dead for two minutes, verified by the paramedics. Brought him back to life. He filed an appeal and said, I've served my life sentence. He did. He said, I served my life sentence. I verifiably died. Yeah, I'm back.

Let me out.

And they're struggling. It is still in court because they're like, okay, we've got to follow the code here. He did die. Definition is so I was like, man, that was creative.

That's a great one. I mean, if I was the judge on that, you gotta, like, tip your hat to him, you know? You know, now I don't know what he did.

Yeah.

Get there. So that would.

Life sentence is not a good sign.

Yeah, you probably didn't do something great.

Yeah, but that's a great life sentence without parole. Death experience for two minutes verified. And. Well, what's interesting, I was reading a case, believe it or not, last night on the home office expense, where I'm

bringing a case on the home office expense last night. What's interesting there?

Well, let me tell you, okay, Dr. Solomon, back in 1983, appealed it because, remember, he said, I'm a dentist. He was an anesthesiologist. Okay, you remember the case. Good. It's a burn. It's a Paige burner. And he's like, I'm going to go to court and prove that I get to use my home office expense. Because I. Back in 1983, I was going to say returned emails, but in 1980, he was reviewing charts, making phone calls and doing continuing ed. And he went to court and said, it went to the Supreme Court of the United States. And they said, nope, definitely, it has to be your primary place of business. And it wasn't. But he's like, but it should be. And they said, the Supreme Court said, you know what? You're right. You should be able to deduct that. But the code says it has to be your primary place. And definitionally, it is not Your primary place to do business one year late. And they said, if you don't like it, change the law. One year later, he got his congressman to amend to get the IRS to change the code and allow for this administrative office exemption. But what is the point here? The Supreme Court was bound to the statutory wording. He said, if it is not your primary place of business, then you are not allowed to take that deduction until the law changes. The same time that night, I see this case of this guy going, I died. I officially died. According to all definitions and records and according to the statute, I served my life sentence. And I'm like, wow, okay. So that's. That was my perplexing. I didn't sleep last night. Okay, I just want to point that out.

You think that there's some congressman or senator that's going to stand up for this guy?

No, What I'm saying is the Supreme Court's going to go, the statute says you, you served a life sentence. You died. That. So you're out. If you don't like it, prosecutor, go change the law. So they've got to go amend the law and say, even if you have a death experience, you have to be dead for at least.

But here.

Minutes.

Here's why. Here's. Here's why I disagree. This is, you know, Justice Matt Sorensen, if I was on the court, okay? It's not you serve until death, it's you serve for life. He's still alive. It's maybe his second life, but it's life, period.

Well, some people get two life sentences to serve concurrently. Maybe they were thinking about this when they said maybe.

Yeah. Yeah, maybe.

All right.

Wooden shoe. Sorry about your question. We got on a little tangent there. But, you know, some interesting stuff.

Okay, well worth it.

All right, here was wooden shoes. Question. Okay, let's focus back here. The question was about when you die and you have assets in a trust, the trust becomes irrevocable. Okay, let's say you and your spouse or you single, pass away. Now it's going to your heirs. Now, the trust is irrevocable. It cannot be changed, which is what you want, right? Because you want everyone to have to carry out all the wishes you had in your trust. Wooden shoes. Question. Is he or she, I don't know, is what's best if we keep the assets, these rental properties in the trust or we distribute them to the beneficiaries. Well, wouldn't you. You should have decided that when you set up the trust. That should be a consideration when setting up the trust. Now the smart thing to do is to focus first on the assets and who's getting them. Second, think of the tax considerations if you focus first on the assets and who's getting them. Let's look at the single family rentals. Let's say you've got a kid who's 16 that's going to get half of your state. You have two kids that's staying in trust. We're not giving that. You actually can't. But even if they were 18, we're not giving it to them either. Okay. That's going to stay in the trust and those rental properties will be managed by somebody. And yes, you will be doing a trust tax return at higher trust tax rates. But when that kid becomes of age and as you the provisions you put in the Trust, maybe they're 25, they get some or over time they will start getting the benefits of the trust.

So.

And the assets from it. So we want to think about who's getting the assets first. Now let's say that the people inheriting this are 50 years old, parents passed away in their 80s or whatever. And these kids are all, they're obviously now grown adults. And I would just say zero reason to keep it in the trust unless there's a creditor issue with one of them or something. But typically an alcohol or drug addiction or something. You again, these would be provisions we put in the trust to protect them from getting the assets and keep the trust assets. But assuming everything's good, most people would say just distribute this outright to the beneficiaries. Let them take the properties. They can still keep them as rental properties. They can sell them whatever they want to do. These are now their assets, but that's a little more tax efficient. You generally don't want to leave assets in a trust because you have higher trust tax rates. Unless you're trying to do it to protect the assets from the beneficiary themselves or for some creditor of the beneficiary.

Very well stated. Totally agree. No, no amendments to the, to the bill. All right. I like it.

I like. Objection.

Without objection. Please submit to the record, your honor. Okay, now this is from Gunshabila. I can't even say it. Noki Noki Babola. Anyway. Hey Mark, you got it there.

Noki Balboa.

Oh yeah, maybe I did. That's right. I love Noki. Okay. Hey, Mark and Matt, longtime listener, first time caller. Thanks for all the knowledge you provide. My question is a two parter first. I had had an S Corp. I've Used? Oh, I think I'm going to say have. I have an S corp I've used for sales consulting work in Illinois for the past few years. But recently I've scaled it back. My efforts and my side hustle income has dropped. I am willingly spending more time at my W2 for the commissions and I garner there and heading back into the big workforce. I am considering shutting down the ESC Corp completely versus converting it back to an LLC for something a bit more passive. It generates less than 40k. What is a good criteria for thinking about whether I should shut her down or convert it? Number two, the business I'm thinking of moving into is bitcoin mining. Not in my own home but through a reputable provider. Are there any advantages to mining the bitcoin in the LLC or S corp? And you have any tax strategies or general advice when it comes to mining bitcoin for instance? I have. There will be repairs needed, a depreciative life of the machines. La la la. Well you're in luck because I'm doing some crypto mining as we speak. Literally making 32 cents an hour. I'm just killing it. Just killing it. No, I'm doing. I'm doing bad man. Okay, first point. I would not get rid of this S corporation. When you said you have less than 40,000 a year generating for you, that may seem like not worthwhile to keep the S corp. I think that's great. You're going to have a day job with a big fat W2. That 40 grand that goes through the S corp. We're going to be able to drive down your reasonable comp even further so that that 40 grand is not subject to self employment tax. Remember everybody, your first 180 grand this year. 176. 180 grand this year is subject to 15.3% in self employment tax right out of the gate. So unless your W2 is paying you more than 175 grand a year, this 40 is going to take another 15% haircut just being a plain old LLC. Remember LLCs do not save tax. So I would keep the S Corporation for this additional 40 grand. The tax return for this S Corp could be 1000 bucks, maybe 1500 at most. But you could save well more than that in even Medicare or even Obamacare ACA tax that could be coming in over and above $180,000. So I like the S corp here. If you were going to quit your side hustle altogether then yeah, dissolve it. But maybe convert it back to an llc if you're going to put a rental property in it. But if you're going to have any side hustle income at all at this juncture, I'd keep it, let it play out a year or two and then we'd revisit number two, mining. Absolutely should go in the S Corporation. An S corporation is going to. Well, let me say it this way. Mining bitcoin or any sort of mining. My mind is doing soul, but I get paid in bitcoin. The point is it is a service. It is a ordinary income generator. So you're going to want that. Bitcoin mining, whatever mining you're doing. I'll say crypto mining. Any crypto mining you're doing, you're going to want to funnel it through the S Corp, let it buy the CPUs and the video cards, everything. Pay the energy bill, the management bill. And I think it's a great strategy. I haven't regretted going down that path. Let the S Corp maintain that income and pile it in with the rest of your side hustle income. Love where you're headed. Go for it. Love it.

No, nothing to add there. Mark is your guy on that question. That was right up Mark's alley. Okay, this question is from Derek. He says, and I haven't thought how to answer this one. So here we go. In the event of a divorce, okay, how do I protect my physical car wash operational business from my spouse? No prenup. Not a community property state. I would absolutely make sure her and kids were taken care of tenfold.

Oh, I'm sure.

Okay.

Derek, this is so hard.

Tricky question here. Divorce is tough and we've definitely advised a lot of clients as business owners. Now here's the thing. I don't care whether you're in a community property state or not, your spouse is going to have half a claim on the business.

It's called marital property. Yeah, so it's marital property.

Yeah, so. So what's going to happen is if you do get in the situation of divorce, she will have a claim for 50% of the business. Now, typically what most business owners will do is, particularly if you're someone still working and operating this business, this isn't like Apple stock that you own that you just split up 50%. This is like the business that requires you to show up every day. Typically what's going to happen is you will keep the business and there will be some value put on the business and you are going to pay your spouse that value of the business through other assets you might have that you would otherwise split or you will owe her over time.

Okay.

That's typically what's going to happen in the event of divorce. Now, there's lots to be negotiated, of course, but I think, quite frankly, getting a really good divorce lawyer in this scenario would be critical. And also having a reality check maybe on what's possible. And I mean this, even I don't want to get to trying to avoid divorce. That's outside of my realm of what I could advise you on. But if you do have the spirit and intent of taking care of your spouse and. And kids, I don't know where they come in the mix. Or they must be under age 18. I don't know what you mean by that, because they wouldn't be getting assets. Right. You'd typically be paying child support. But. But I would really get a good consult with the divorcer. Now, that is not something we do. We can help you on the business side of things, of course, but this is really going to get down to your state and negotiating, and that's where

the rubber is going to be thrown.

Yeah.

And Derek, I'll say it another way, too, and just be even more direct. And I've been through this. You just need to go on. I would start here and then any news you might get. This better. Don't expect it. But yeah. And it'll be nice if it comes. Everything you own, everything you've created is going to be marital property to begin with. That's the assumption. Then you're able to peel things out. Maybe if it was inheritance or something you brought to the marriage. It doesn't sound like you alluded to that at all. So just assume the business and everything you guys own, retirement accounts, everything that's hers as well be half yours. Everything that's all yours that you have in your mindset is going to be half hers. And number two, it really does come out two different ways. You're going to have a spouse that's like, hey, this is cool. I was. I was ready for a divorce myself. Let's do what's best financially and keep the cost down with attorneys and do what's best for each other and the kids. Cool. That tends to be the rare situation. The other one is going to be kind of a fight. And the sad part is it's going to not depend what lawyer you choose. It's going to depend what lawyer she chooses.

Yeah.

And if this lawyer wants to stir the pot, they will. I would recommend if you're going to go down this path, recognizing that right out of the gate and trying to ask your spouse to cooperate as much as possible and choose the right type of lawyer. What they don't realize, a lot of times the spouse that chooses the crappy fighting lawyer that they're paying for half of that, they are reducing the equitable estate with every legal fee they pay. And at the end of the day, because it is still one big pot and these lawyers will suck it dry. So good luck. It's really difficult.

The last thing I was at is you can do a post nuptial agreement just because you don't have a prenup. There is something called post nuptial agreement. If you're in a maybe you're going through counseling or you're talking about the business and separating things and the event of divorce, you may want to create a plan now with that current spouse that you might divorce in the future. Doing a post nuptial agreement. This is classic amongst celebrities. You always hear them in the news. So and so cheats on some other famous so and so celebrity, but they stay together. But there's a post nuptial agreement now in place about what happens for an impending divorce.

Well, I'll choose one more question than you yourself if you want. So here's my last one. This will turn it to a better note. Yeah, I've got Randiglia is happily married and her and her husband had traveled in their RV every year for nine to 10 months and they just got an offer to sell their home in Louisiana. What a blessing. I'm truncating this longer message a little bit. At this time, we are traveling full time. My husband's job allows him to work remote. We are loving life on the freedoms of the open road in our rv. We have researched where we might want to plant our flag and establish new domicile. She's like and she said, oh, you've heard great things about South Dakota. No state income tax, corporate tax, no investment tax on earnings or capital gains tax, low sales tax. Oh my Gosh, it's amazing. South Dakota. And as RVers we would love to domicile there. My question is, what is the best way to to do this? We have 3s corps. I would want to consolidate those. Please meet with one of our tax lawyers right away. You're spending way. I don't. I have 26, 20 companies. Whatever. 1s corp, you do not need 3s corps unless something weird is going on. I don't see any Main street tax advisors in your directory in South Dakota. Don't worry about that. Any of you looking for a tax advisor that speaks. Mark and Matt, get over to the Main Street Tax Pro network currently lodged@markjkohler.com we're going to be launching more resources for that. But doesn't matter if a tax pro is in South Dakota or not. We can help anybody, anywhere. Oh, what do we do? We like the asset protection too. We've sold our home. La la la. I'm going to try to restrict this comment to domicile. Many of you may want to change where you live from one of the 41 states that impose a state tax. There is nine states that do not impose a state tax and a few others that throw in some other, you know, non tax on retirement income or investment income, things like that. South Dakota is one of the great states that is pretty affordable to live in from a tax standpoint. The problem is you can't just say, I live there. You can't say, I got a PO Box in South Dakota. Now I live in South Dakota. The laws in all the states are, where did you live the most? You say, well, we're not going to spend time anywhere for six months. Fine. Did you spend 72 days somewhere and everyone else was less than 72 days? That's your domicile now. You're like, how are they going to know? Do they have a drone over our RV and they're tracking us? No, but you're going to have. It's going to be a hard time to get health insurance and driver's licenses and passports and the new Real id, by the way, if you've tried to travel lately, you've got all these things that follow you. We are in a different society now where you can't just say, I'm a gypsy and I live nowhere but everywhere. And so you're gonna, you're gonna find that just saying you live in South Dakota without actually buying property there or renting some space and spending some time in South Dakota. I've been there. Pheasant hunting in Kimball, South Dakota. It's amazing. But just for any of you out there wanting to change your residency for state tax purposes, you've got to actually do it. You just can't say, I'm going to do it. This is the age old problem in California where people are like, oh, I rented a condo in Nevada, so I'm a resident of Nevada now. No, the California Franchise Tax Board will literally ping your cell phone and just figure out that you've spent 11 months out of the year in California. You just have a condo over there to try to save tax. It's not going to fly. So states are onto this. Be legit, choose the state you want to be in. There's eight other states besides South Dakota that you might want to live in. Washington, Florida, Texas, Tennessee, a few others. You're down in Louisiana anyway. You're just a hop, skip and a jump away from Tennessee. But find a state where you can actually live a little bit to substantiate where you're going to go.

Yeah, great. Love it. And I think you know Jeff Bezos, Mark Wahlberg, a couple people. Bezos went from Washington to Florida. Wahlberg went from California to Nevada. And they physically moved. Okay, six months in a day I'm here. You might have a second home somewhere else back where you used to live because you got friends and family there. But you've got to get your butt over there and I think you got to go over that six month in a day to establish that over time. Now you might be on the road at some point later on in future years, but I think you gotta get some establishment in for that first year where you're breaking free of whatever high state tax you're coming from.

Yeah, we teach classes in this in our Main Street Tax Pro network. If any of you are a budding accountant, want to up your game as a tax advisor, please get to markjkohler.com right now where it's our platform where we'll tell you about it. But one of the classes on this, and I'll just say it quickly, is it's a two part deal. You have to establish residency somewhere and you have to sever residency somewhere. And so choosing the date you sever is very important too. You're going to say I moved out of the state on this date and you have to be able to show it like you sold your house, you did this, you quit your job, you changed your driver's license. So it's really a two part thing. So I like the way you said that. It's not just again saying you did it. That's why the six months and one day of actual physical movement is very important.

Yeah.

Love it.

Okay, last question here for me. This is from Travis. Asked some great questions here. Customer of Main Street Business Services. That's our sister company where we do your renewals. Your registered agent every year emailed this in there. But he said is there any benefit to putting personal vehicles into a revocable living trust? And they also do then secondly, do you recommend a personal umbrella insurance policy? Said my Attorney that set up my local living trust, not us. That was your first mistake. Travis said, you know, said said no to both. Because if there's an accident, the umbrella policy would just be a target. Now to go after. And the car should stay personal because if it's in the trust, they can now go after the trust. Florida, if it matters. Okay. I don't agree with anything that other attorney said in Florida. Bless their heart, as Mark J. Coler would say. Okay, all right.

First, not that the answers. Yeah, the answer was wrong.

The reasoning. The reasoning was bad. The answers. Yeah, the reasoning is off. Okay, first one, is there any benefit to putting personal vehicles into revocable living trust? Not really. What typically we do with clients once we set up a trust, you got to get your assets that's into the trust. Right. It's like your home. We're going to deed your home out of your name into the trust, your LLCs or corporations. We're going to transfer the ownership of those companies over to your trust as the owner. We're going to update beneficiary designations list to our directed IRA podcast, where we just went over this last week. For your insurance, for your retirement accounts, your bank accounts, we're going to update beneficiary designations to list the trust. But your car typically can transfer ownership without probate simply by going to the DMV or the motor vehicles, whatever it may be in your state and taking a death certificate and being next of kin, surviving spouse, child of that person. And they will transfer ownership based on you signing off on some paperwork. Now, the only time I would recommend vehicles in a VOC living trust is if you have like a Rolls Royce or some very valuable collection of cars where you really want to make sure that they're in the trust. But even then, I don't know that it's necessary because the trust itself can say, hey. And we do this with our trust documents. We have an additional personal property document that says, hey, anything I didn't put into the trust, I still want to follow according to my trust's terms. So my trustee still has say over that, you know, Rolls Royce, if it's worth 300 grand and how it's going to get distributed. And I got a minor kid now at 18, they're not going to come and get that Rolls Royce. So you can still have some of those protections built in the trust, even though that asset isn't in there. And the reason I would not focus too much on the vehicle is, again, it does not have to go through probate in most states, so. But your other stuff does have to go through probate.

Yeah. Before you answer the next one is your real estate. Yeah. Before you answer on the umbrella, I'll just say I'm trying to find a reason why I would want it in your trust. I wouldn't say it's going to hurt you putting it in the trust.

It's just a pain in the ass.

Yeah, it's just pain and. And that it's going to expose more of your assets in a car accident. Hell no. A revocable living trust does not provide asset protection.

The revocable living trust is the same as you on title anyways. No difference. It doesn't hurt you, doesn't help you.

Yeah, the one might be as if you're single, older, have some vehicles and you want to make it easy on this niece or nephew or someone grandchild that's going to take care of your stuff. If you're married again and are to trying children, next of kin is going to be right there, Johnny on the spot with your estate. So just very, very rare that I would really want you to stress about it. Okay. Umbrella policies.

Yeah. Do you recommend a personal umbrella policy? My answer is typically no because they're misunderstood and they don't cover anything new. I want to make sure understands what an umbrella insurance policy is. All an umbrella policy does is it says hey, whatever insurance coverage you have, your home, your auto policy, maybe you've got like a landlord tenant policy on a rental, the umbrella policy comes on top of that and gives you more coverage. It doesn't cover anything new. Okay. I want to make sure you understand that a lot of people think an umbrella covers all these other things that you didn't have protection for. No, all an umbrella policy is is excess insurance that says hey, if your auto policy pays out on something and let's say you got a million dollar limit and you bought an umbrella policy with $2 million, we will cover an additional 2 million only if that first insurance policy covered it and only if they paid out their full million then were the umbrella policy even come into play. So it's barely rarely used. A lot of people are like yeah, but it's only $100 a month. Yeah. Because it never covers anything.

Yeah. I would say do I have an umbrella policy right now? I'm trying to even think if I do somewhere, maybe in some commercial scenarios. But I would say this, if you are going with a lower policy limit, auto policy type thing and then you can bundle it with an umbrella to give you that excess coverage. And because of the bundling, I think there's some commercials on that. Yeah, you actually could save overall with your premium.

Maybe you get a discount, double check.

Yes, something like that. So you were able to use a umbrella policy that could enhance a lower level type policy and then by doing so you saved on premiums. Maybe. Some people argue, well, you want an umbrella policy from a different insurance company because then they come to bear and now you have two insurance companies fighting on your behalf. But again, this is the only people that are usually selling this are the ones that are explaining it this way are trying to sell you an insurance policy and, or justify not doing an LLC or not doing quality estate and tax and asset protection planning. So I just, I think it's money wasted generally and I know some insurance company is going to send me a nasty gram for that.

I like a. The looking at your current policies and if you go to a low value policy with low coverage amounts, maybe use an umbrella. But I don't know. We, I just saying we definitely see clients use their insurance every once in a while. I've seen a lot of clients not get coverage on stuff. I'm like, really? That wasn't covered. Which is why we like LLCs, because everything's covered unless you're doing fraudulent stuff. But otherwise everything that can happen is covered. You got, you got asset protection. They're stuck at the llc. So the other mistake I want to make sure people don't make is don't buy an umbrella policy instead of an LLC for like your rental. Your business thinking, oh, I solved the problem. No, you didn't. The umbrella policy will cover nothing except for the insurance you already had in place. In which case why did you buy the umbrella? You should have got the LLC because it's like an absolute barrier.

Yeah, I remember when I was more of an advocate of it when I had teenage drivers, I had more things going on. You have boats, you have kids driving under age 18. You've got this, you got that. And if there and maybe there was some a lack of proper coverage in one area that didn't have enough provided for the umbrella could fill it in. Anyway, be careful. Get two or three opinions on that. Wow, what a great show today.

All right, lots of great questions. Thanks everybody for the questions. Get over to mainstreetbusinesspodcast.com to submit your questions. We're going to be revamping the website, creating more of a community community feel there and vibe improving it. Mark and I need to update the photos on there from, like 10 years ago. Those were terrible photos. But we're working on it and appreciate all of you submitted your questions. We'll be back, of course, next week with another amazing Main street business podcast episode. We'll see you then.