Tax Strategies EVERY Business Owner Should Know - Open Forum Show

Any of you out there that have a side hustle, small business, and you net at least $40,000, you should be making an S election and becoming an S corporation. I love it when families try to find ways for their kids to get engaged in the business from the earliest age.

Welcome everyone to the Main street business podcast. This is Matt Sorenson joined by the fantastic Mark J. Kohler. A rock star drinking a rock star.

Thank you. Yes. I want to give kudos to my soon to be sponsor, Rockstar. All you have to do is send me a case of Rockstar and you've got me. And you got me. I mean, I'm a really easy sell. I'm like Kramer in Seinfeld where he got. You got that settlement from Marlboro. He's like. And then you got the other settlement

too on the coffee one.

The coffee one, yeah.

We're prepared to offer you free coffee for life. And I'll take it.

Oh, my gosh.

Welcome, everyone. Today is open forum is the people show. We're going to be answering your tax and legal questions. Kind of what you guys want to talk about. We got some answers. I don't know there'll be any. Well, they'll be great, actually.

They will. They'll be good.

Stay in Tax and legal relationship advice or we average there sports predictions.

Well, I'm excited to be here with you. And the thing is we go out on the road and talk at conferences and. And we oftentimes can't get to all the questions at a workshop and we're out in the hall trying to answer some questions. This is your best venue to throw them down, get them out there and it's fun. A lot of people listen and say, oh my gosh, I didn't even think to ask that question. That's a really good one. So let's get into it and let's see what we got. We're gonna try to keep it light, keep it fun. Some of you that may be a new listener, please, please be taller, give us some grace and have a good time. We're going to try to keep it. Who wants to talk about this stuff? It can be difficult.

Yeah, it's stuff you need to know that will save you money, that'll make you money. But you know, we are working with the tax code here on some of this stuff, so. All right, you ready for me to go?

Yes, sir.

All right, I'm lead off batter today. All right. This question's from taildragger Said. Thanks, guys. Fairly new listener and love the advice I'm finalizing setting up my first side Hustle llc and I'm excited. After listening to the progression of real estate investing, it got me thinking. My side hustle is renting construction equipment and trailers. I recently built a new shop to use for storing my rental equipment and running the business. This year, could I move my personal residence into another LLC and rent it back to myself? I'm not moving. And take advantage of some additional tax advantages and start protecting my assets as I look forward to investing in real estate. Okay. Now this was in the asset protection category. There's a couple tax issues here, but

read this while you're to start. You give your first shot. I'm going to read this too. This is a tricky one.

Yeah. Let me just say don't ever move assets like, I think, like your home in particular. If you had a separate property here, I'd be going for what you're saying here. You want to go buy a shop, you want to go buy a store, another property, even a rental that has a shop on it and you're storing your equipment in it that you're using for renting your business.

Cool.

I love it. Let's put that in an LLC and let your operating business that's renting the construction equipment, the trailers, lease it from it. But I don't want to do that with your house, your home.

This is good. I'm grabbing the yellow pad here because, you know, I was in California this last weekend and this was a question in a little mastermind group.

Okay.

And they kind of rocked my world on it because my normal answer is just what you gave.

Yeah.

But they said we're in California and we are. Property tax and deduction is limited to 10 grand due to Salt State and local income tax. Yeah. So they go, I've got a home that's worth $2 million or more and I'm not getting the write offs on this that I could. And they said if I put it in to an llc, rent for myself. And I say right away, I go, well, you're going to have to collect rent. They're like, fine, I'll collect rental income. But they're like, I can depreciate this thing. And they qualify as a real estate professional because they added that other factoid. So they said, I'm a real estate professional. I can get flow through losses renting the home to myself and my state and local income tax is not limited. SALT does not apply to a rental property. So like I could push out major 10 to $20,000 in losses after even collecting reasonable rent. And I was like, I didn't have a good answer to say. I don't like that. Except you lose your sale of home exemption. So you go to sell your home, you don't get that $500,000 cap, but you can. 1031.

You could. Now on the other. That was the first thing I was gonna say is you lose sell of home exemption. I guess you could 1031. Here's another thing though. I mean, I guess from an asset protection standpoint, I don't know for that

reason, that is you get your bang for your buck there.

Yeah, I don't, I don't. But here's another thing is if what investment, like how much of this property can you set aside and say is truly investment property? If you reside in this home and you're using X amount of square footage of this home to personally live and reside in. Like you have to have business purpose for the leasing it to this thing. And it might be the storage area. Oh, you know, garage. I don't know what's being used here. And is that 20% of the property? You know, well.

Oh, now, okay, I took taildragger and everybody, this is interesting. I hope you're already enjoying the show. Let's start over for a moment. For some of you, that got a little twisted and holy crap, these guys are way too confusing. We got a side hustle guy here. Love it. He even said right out of the gate, I've got a small business. He built a new shop to hold trucks and trailers and crap that he rents to construction companies. I didn't take that as his own home. He says new shop. So. And then he said, I want to maybe can I move my personal.

He got excited to another llc.

Yes.

Okay. The shop. Of course, we're on that. Put that in a separate llc that probably is property real estate. We love that.

And you're going to get the self rental exemption. So I want to say taildragger, any of you out there, Matt and I love to be our own renter. Matt and I own several of our offices and rent to ourselves. You're going to do the dash for election. You're going to do the dash for self rental election. Which means you don't have to be a real estate professional or materially participate. You get to. You could do a cost seg on that shop. You got some great write offs. Then tail dragger gets excited because he's going. This new shop idea is awesome. I should put my home in an LLC and I'll rent from that too.

Yeah.

And then I think that's the question of is that a good move? And I think it depends.

And you have to have business purpose for like you have to have business use of the home. Like, how can I rent? I can't be a tenant to my. I'm like landlord and tenant.

Well, you know what, I'm going to take the fifth here and there's going to be some CPAs listening to this that are like Matt's. You're right. You can't be the tenant of your own property. And then on the flip side, I'm going to say I wouldn't be. I told the group that I needed to research it because here's the thing, you're and Matt, I think you come from the, you know, the prohibited transaction world where you can't rent from yourself. And that's a given. We just say that. But the reality is if I have fair market value rent, I'm renting for myself with my office building. Yeah. There's a business.

I say it's business. So it's going on the business return.

Well, let's say I have an Airbnb and I show up and rent for myself. Can I do that? Yeah, yeah. And then you got long term rental. It's. I turn it into a long term rental. I move in as a tenant. I pay fair market value rent. Here's the keyword.

Well, here's the other thing. Isn't it for a rental property though, you can't have a certain amount of personal use over a couple of weeks. So I say, but I'm the tenant paying rent. Well, it's personal use. It's not.

Well, the people that, when they want to go down the Augusta Rule where they say this is my home and it has a business purpose. If you're going to really put your home in an LLC and rent it to yourself, you're giving up on all personal use. You are truly now a tenant. The Augusta Rule doesn't even apply. You are a tenant paying for market value rent. And I think it comes down to related party transaction. Yeah, but if you want to be a tenant, you be a tenant and you're giving up the sale of home

exemption and probably homestead exemption. If you have homestead exemption in your state for asset protection.

And here's why I think it's. Anyway, folks, you can see how you start to think about these issues. Could you buy a home and rent it to your kid?

Yes. Okay, well, you can't stay there.

Could I rent it to a spouse and sure, I can't stay there.

Well, I mean like rent to your kid. It's your kid. It's not you. That's different. You know?

Well, I start to think of who are the related parties that are good or not. I'm not. Okay. But my kid is. I don't know. I'm gonna research this. I really think this is a good tune.

I want to know the answer to this. Yeah, I want to be wrong.

I do too now from a TLC to be wrong. No, no, no, no. Here. Here's where I think. Okay. Now I think what Matt and I are two are blending two different issues too. Matt is blending an asset protection issue that I'm renting the home to myself. Can I really call asset protection? Is there a business purpose there enough for that LLC for an asset protection thing? I think that's very questionable.

I know. Yeah, I think you're toast.

I think you're. You could be toast. It's your home. But I'm coming from the tax angle that could. If I qualified as a real estate professional. Not Everybody does. Maybe 20% of our clients at least. Well, now I give up my sale home exemption, but I'm writing off all of my state and local income tax, property tax. I'm not limited to 10 grand. I got mortgage interest, fully deductible. I got a pass through loss. So from a tax perspective, I think I'm better off. Asset protection.

Okay.

Anyway. Yeah. All right.

Boy. Yeah, that was hell dragger. You just, you know, came out of

the gate on that.

Yeah, that was a tough one. I, you know, we walked into that,

but I'm glad we did it. This, this show. A lot of our questions are going to be quick and easy and answer, but sometimes it's fun to beat it up. All right, well, okay, let's go, let's go. Hit another question here and see what we've got. That might be a little more of a base hit. I like this. This is JCO and it's a simple question. My CPA wants to keep my business as an LLC and taxes S corp but not do an election. I spoke to two other CPAs and they disagreed and said I should do an S election. Now I'm just confused what to do now. I'm thoughts. Okay, now everybody, this is important. I think there's a misspelling here in the comment. My CPA wants to keep my business as an LLC and not taxes as an S corp and not do an S election because he said we'll keep it in LLC and taxes an S corp but don't do an election. You have to do an election. If you're going to be an S corp, you got to do an election. So I hope Jayco were on the same page there that you just mistyped that. So your CPA is saying don't be an S corp and then they said I spoke to two other CPAs and they disagreed and said I should do an S election. I'm just confused what to do. Okay, so everybody, this is an easy answer. Side hustle small business and operate as an llc. So you're selling a product or service, whatever, electrician, plumber, accountant, lawyer, online seller, affiliate, whatever, and you net make at least $40,000 you're taking home 40. This is after all your write offs. You should be making an S election and becoming an S corporation. Now that's the general rule. There can be other factors. Do you have a day job? What are your plans for your business? What state are you in? But I'm saying 90% of the time we're as a tax law firm, we're helping our clients make that S selection which we charge a couple hundred dollars and you're now going to be taxed as an S corp and you're going to save more in self employment tax than it would cost to do a tax return and file the right payroll reports throughout the year. I'm still a little concerned that JCO is saying the accountant is saying go out and set up a new corp rather than just do an S election or there's something weird here. But everybody, if you have an LLC doing an S election is super easy and it morphs your LLC into an S corp. Simple, straightforward. And if you already have two CPAs that disagreed and you're asking us for the third stamp of approval, I don't know if I have enough facts here because I don't know what you're netting but knowing that you've got two other tax professionals that are on board on an election, I think you should head in that direction and you can meet with one of our tax lawyers, call the law firm kkoslawyers.com do a one hour consult and just get that final opinion to feel good. And if you get two CPAs in our firm that tell you you should do it, you'd need to fire your first accountant because they're obviously far far too conservative or just plain wrong and it's time to move on. So. So I don't think it's a hard question. I Apologize. Making it a little longer. But I wanted to.

Yeah. Common question. Common question and common strategy. Everybody should know.

Yeah.

All right. This question is from Raf, who we know well, great guy says hi Mark and Matt, officer and gentleman, or vice versa. Love you guys. Quick set of questions says I have an operating real estate business as a single member LLC in Georgia, purchasing an Airbnb 635K in Tennessee in two weeks. Question. Keep the same LLC and file foreign in Tennessee to incorporate the Airbnb operation into Tennessee or file an entire new single purpose LLC in Tennessee. Thoughts? Okay, couple things there.

The.

There's a couple of questions, couple issues here to consider. I'm going to outline them both the two issues and then let's get into the answers. There's a tax issue here on how this Airbnb is going to be taxed and what type where you want it. And there's an asset protection issue of where do you want this as an asset? The Airbnb is a property and an asset too. So the first thing is is Roth has an existing LLC Georgia. Now he says it's a real operating real estate business. I presume by that when you say operating real estate business, you mean commission income, short term sales, you know, flips. That's what we think when we say operating. When you think of the trifecta, left side is operating, right side is assets. Now we can have LLCs on the left side that are for operating businesses, selling goods and services, getting commissions, getting wholesaling properties, flipping properties. That's all operating side of the business. We don't want to accumulate assets over there necessarily. That's again short term stuff. You're flipping. Now if that LLC in Georgia is a true left side operations side llc, don't put an Airbnb in it. Airbnb is going to go on the right side in its own separate llc. So in this case I would do a new Tennessee LLC for the Airbnb and that Tennessee LLC is on the asset side. That property is hopefully going to go up in value. It's going to be an asset over time. Now your short term rental income on it, hopefully it cash flows better than it would a long term rental. That's the goal of obviously the short term rental. But you don't have to put it Airbnb on your operating side. Now if you're doing services during the stay or other things like that, where it's more of a bed and breakfast, you know, or a hotel, then we got to put it on the left side. But this is typical Airbnb cleaning it when people are gone. Short term rental, that's totally fine. It can be in its own Tennessee llc. No self employment tax. You don't need to run it through an S corp and we can keep it over here as a rental. Now, there might be other reasons why you might do some different things here. And there's the short term rental tax strategy if you're real estate professional Roth, where you could have huge write offs if you're wanting that. We covered that heavily in the real estate tax summit just a couple weeks ago. We've had some prior stuff on that as well. But I don't like putting your Airbnb in your operating real estate business. Bottom line, absolutely do a new Tennessee llc.

And a lot of people think that the, the short term rental means it's a short term operation. And so it's easy to think it should be in an S corporation because you're acting like a hotel. But there's this exception right now for tax purposes where we can keep it as passive income as long as we don't provide substantive services there. We've got trainings on that. But also it's a whole separate asset and it shouldn't be in an operational entity by, by any means. So I would, I would kind of stay clear of that point of view and be really careful. Okay, so another question here. Hi Mark or Matt. Love the show and listen to every podcast Tig from nc. You guys need to come out to the East Coast. Well, we'd love to help put together an event.

North Carolina. Yeah, we are likely doing our self directed IRA Summit, by the way, in Raleigh, North Carolina.

I love it.

Breaking news, you know. So make sure you're there.

Yes, Tig. Yeah, Tig. If you're following us on our newsletter, all of you that sometimes don't confirm that newsletters are going into your main box. They just go into junk. Please make sure that our newsletter every week comes out Tuesday, almost religiously. We'll give you updates on our events around the country and services, products, deadlines, blog articles, videos. Please make sure you're getting that newsletter and you'll know when we get that out there. I'm going to receive $100,000 bonus this year for my W2 job. It's great. I have an S Corp set up where I do consulting work on the side. Are there any issues? If I were to have my employer pay the bonus to my S Corp so I could max out my solo 401k contribution. I don't have an issue with it? I'd love it. I just doubt your employer will do it because if they were to do it and get audited, they would be screwed. So. And that's the general rule. If you're already an employee getting a W2 and an employer wants to somehow create a 1099 for you, they better have a darn good reason if it's tied to the same work you do as a W2 employee. Which is. Which is probably why you're getting the bonus. It's not going to happen. So if you can talk to your employer into doing it, go for it. Is there exposure to you? Nope. So ask them. Maybe they're dumb enough to do it. But any of you employers out there do not do this. But Tig, if you can get your employer to knock out a 1099 for you, they're the ones that take all the risk because they'll have to pay Social Security and Medicare on it. And I would just have very low expectations that it's going to happen. So. But I like it. And you could max out your solo 401k. I love where you're going with it. See if you can again talk your employer into it. Okay.

Okay. I got a question here from eimartinez. Says I'm working with a two member LLC with no S Corp election. One owner is from Japan and not an American resident, while the other is a DACA recipient with the valid Social Security number. They sell apparel on Amazon. Would they just take a reasonable salary and what kind of taxes should they be saving paying? I've heard the Japanese owner would be classified as an international investor and the LLC should be withholding 22% of his portion of the profits to turn into the irs. Would something like this apply to the DACA recipient? Then I'll say let me know if you cover this. All right, so let's talk about this structure here. I like the llc. Just tax as a partnership. Do not do an S election to this doesn't make sense. We don't like S elections on partnerships, particularly where you have this person in Japan who's not a US citizen. Not a non resident alien. Doesn't qualify as for an S corporation. So you couldn't do an S selection on the LLC and that person's going to get paid directly. There's likely going to be this withholding since they're a foreign non resident. That should be, that should be done. But let me get to the DACA recipient question because if we have, if you have a DACA Recipient, someone with a valid Social Security number, particularly here, they should be doing their own S corporation. I don't know the income level that's going to each of these people, but the DACA recipient with the, that's an American resident, you know, could be a resident alien here in the US can have an S corporation. So I would establish one for this partner. Assuming they're getting 40,000 or more net income. If they're getting 40,000 or More net income, they can have their own S Corporation. That is the 50% partner in the LLC or whatever their, you know, profit sharing is. So now that person's going to be taking a salary, right? So they'll take a salary from their own S corporation off of their 50% of profits. And that's going to generally be this 1/3, 2/3 split. We've got other episodes on the S corporation on how that works and figuring out the right payroll. And you can Google Kohler payroll matrix for the, you know, the exact science on that. So that's what I would like in this scenario. Just go another step further. DACA recipients should incorporate the S corporation on their own end. And assuming they got the right level of income to make the S Corp worth it again, that's 40,000 net. That's your best bet. The Japanese international investor here wouldn't qualify for an S corp on their own. So just leave them individually as a member in the llc. But they're not gonna get payroll either. They're just, they're gonna get paid their share of profit. And because there's a foreign owner there, I don't know the exact withholding, but there likely is a withholding required.

Love it. All right, great advice. This is from AJ Music, AJA Music. Sorry, a little older post, but it's very applicable to so many of our listeners here. She says Mark mentions paying your kids out of the business for helping around the home office and how. I have a four year old that likes to help me shred paper when I need. How much is reasonable pay for him for the task if I start using the strategy? Well, this can be a moving target. How much paper is being shred? You know, with the digital world, I end up shredding a lot less paper more and more every year. But you've got to make sure it's legitimate. Do you really have that much paper to shred and you know, what's your business and back it up. There may be other things your child might be doing. If you have a rental property picking up nails in the construction zone. Or just helping out in little ways, sweeping or picking up garbage. I love it when families try to find ways for their kids to get engaged in the business. From the earliest age. I was going to my dad's offices cleaning by I guess 8 years old every Saturday we'd go into the office and clean and on Wednesday nights we'd do a quick one. And so many years doing that my parents just, they could have afforded to pay a janitor, but they wanted to teach us work ethic. And whether or not they took advantage of the tax strategies there, I frankly don't know. My mom has dementia now, my dad's passed on. I'd love to know. That would be a. I'm gonna have to go look at their tax returns back in the day anyway. How much do you pay your kids for that? A four year old, maybe $500 a year, you know, $50 a month if you can. I like that because you can now open a IRA for your child, even if it's just a online type IRA account where you can start doing some basic S&P 500 ETFs and just start creating some income. We do love to self direct retirement accounts of course, and if you can put it in an LLC with some other things you're doing and it's worth the account fees, that could be phenomenal. But just getting the, the Roth IRA going, it's, it's a, it's truly is a snowball going down the hill. And so getting your kids on payroll as soon as possible with earned income is so, so powerful. So it's going to depend on your exact situation. I don't know. I've had clients pay five year olds five grand and there was some modeling and other things. They got audited and the IRS didn't care. I was blown away. Other people, you know, paying their kid more than $500, they may get audited and that agent has a stick up their butt and who knows, you know, so it just, it can be hard to predict. So, but do it. Get in there, talk to your accountant, find a number that works, but don't avoid it. Definitely start paying them and find a number and start a ira, a Roth IRA for that child.

All right, cool. This is a question comes up in the estate planning realm of questions here. And this is Estate Planning Month, by the way. We've got specials at KQS Lawyers, our law firm on estate planning. Get over to kqslawyers.com to save and get your freaking estate plan done. That's okay. You will die one day. You need this thing if you don't have it done already. Right. The question was from. This is from Catch 22mo. As a tax saving measure or as estate planning, what is the impact of selling my house to one of my children, holding the mortgage and paying rent to them that happens to be the same amount as the mortgage payment is? Or would this be legal and what would the ramifications be on the government look back, et cetera. All right, and I actually had a question on this just two days ago of clients mother literally in the, in the hospital about to pass away. And the family was wanting to had questions about transferring all the properties now before mom passed.

Okay.

I was like don't do that. Do not transfer her assets before someone's about to pass away. What happens is there's something called basis. And when you own property and let's say you bought property for 500,000, that's now worth 1.5 million, right. When you sell that, you're have a million dollar gain that's taxable. Well when, when someone passes away and you inherit the property, you get what's called step up basis, which means you get the fair market value when they pass away. So if the Property is worth 1.5 million, your basis is 1.5 million. That means the day after they pass, you could sell the property for 1.5 million and no tax, that gain is totally evaporated. All that appreciation that's happened over decades, possibly no taxes captured on that by the irs. Now if on the other hand, you transfer the property now before passing away, you get carryover basis, which means you get what their basis was. If it was 500 grand and now you sell it for 1.5 million, you have a million dollar tax bill now, 20% long term capital gain rate, that's $200,000 tax. You just volunteered to pay because you got a little antsy and you shot. You know, you went a little early on transferring the property. So dying is a great little tax strategy and inheriting property upon death. So that's the first consideration. Catch 22 mo here is you're going to lose this step up in basis. Now it might be a home where there's a self home exemption, but let's say mom would have lived on for another 10 years and we still would have more appreciation. We're missing out on that.

Yeah.

Do you have something you want to.

Yeah, I want to add to this because there's two words that can be used, one would think interchangeably, but they we ought to be. We got to be careful. Transferring the home is a loss. No stepped up basis. A loss of that stepped up basis later it's carryover basis. Transferring is a, is a, is a loaded word. Selling. Different story in this one. They say I want to sell the house to my kids. So when you. And like Matt said you could cash in on the sale of home exemption, maybe pay no tax, the kids get stepped up basis, up to the sales price and they get the house in their name. That's great. But what happens if the house goes up? Further value down the road, which I agree the reason why a lot of people do this and the last sentence is very telling.

Yeah.

Is government look back. What I think they're talking about is Medicare look back rules where mom and dad may need to go into some sort of care facility or you're looking for hospice and you want them to qualify for Medicare. Sorry, Medicaid. I am so sorry. I get so much into FICA with Social Security, Medicare. I always go there. So if you're doing some Medicaid planning, which is called elder law planning and you're trying to get all the assets out of mom and dad's name and doing a fair market value sale to the kids, there is going to be a look back rule of how long those funds were available for mom and dad. It could be a three or a five year look back. We do not practice elder law. It's a very unique area. I have concerns trying to do workarounds to help people get government assistance. And I a lot of times tell people, before you go do all this work, why don't you just go down and see what you can get in hospice and at a local facility with Medicaid. And you will cry and realize I do not want my parents in anything ever like that. And Medicaid pays like crap. And I'm doing what to try to get Medicaid. Remember Medicaid is a need based program for the people that have nothing else. You don't want to try to game the system to get it. It's not that great game the system to look at long term care and better planning and better investing and ways to take care of your parents or yourself properly. But don't think Medicaid is the answer. So I think that's another subtle point in this question.

Yeah, and that's where this look back question comes because it is like three to five year windows. It depends on the states and it depends on if it was done at fair market value or not. Is it was a sale of assets or transfer assets to family members or not? There's all these questions that come up and where the government will kind of claw back these assets and say, hey, you got Medicaid coverage and we paid for all this stuff, which is hundreds of thousands of dollars. Now we're going to go after all the family assets you transferred out. And so that's the, that's the issue here. So obviously getting the house out of the family and all this, it makes you look like you don't have any assets. But here's the question I always have and that people don't think about, well, what's going to happen to mom and dad or who you know, when you sell the house, you're going to get money for the sell of the house. That cash that you have is an asset too, just like the house and the equity in the house. And so are you saying we're going to spend out the cash? Which if that's the case, why don't we just use a home equity line of credit or something or a reverse mortgage or something to use that equity in the house so that, that mom or dad could be in a long term care facility that's halfway decent so just that money doesn't evaporate and go away if you sell the house, they would have got the money for it.

Yeah, it's tricky, so hopefully that helps. Okay, I'm going to jump over to Ms. Fire Snake and this is kind of a fun one. I want to live a little vicariously through this question. Some of you might enjoy it too. I'll call him Ms. Fire. Ms. Fire. So Ms. Fire says I'm a mental health coach who sees clients remotely. As I build my clientele, I stay financially afloat by doing gig app work, Uber eats, instacart, blah blah, blah. All my income goes into a bank account for my Single Member LLC, which I formed in Tennessee in 2021. In a few days. Oh, people, this is the fun part. In a few days, I will be moving out of Tennessee permanently and will go wherever the universe guides me in an attempt to appropriate help for my son who is suffering from mental health issues. I'm sorry about that. And I hope that you're focusing on this new, exciting frontier of going wherever life might take you. That's the exciting part. And that means, she says, I could potentially be moving many times over the next 12 months. And while it may be best to dissolve my LLC in Tennessee and form it in a new state, what do I do? I Don't know where I'm going to be and do I have to register this LLC everywhere I go, every time as a foreign entity. And she doesn't say this, but I'm going to say it for her. Confusing. What do I do? And thank you so much for the podcast. Well, the first thing I would say this is to all of you. When you leave a state where you have an entity already created, if you're not sure where you're going to land and you may be going somewhere for a couple months and doing kind of temporary work and you're not quite sure, leave the entity where it's at. Keep your bank account, keep making money. Now, this is from a legal perspective, we're going to come back to taxes. From a legal perspective, when you find out where you're going to end up, either move the llc, it's called Articles of Domestication, where you literally just move it, or register foreign, or set up a new one and you can work with any of our paralegals or one of our attorneys when that time comes to do it right. Don't just try to hack this out on LegalZoom and hope it works out. So from a legal perspective, leave it in Tennessee for now and travel. Do what you need to. If you're going to create some liability exposure, you might have to, you know, put down some routes and register the llc. But I would not stress about registering foreign, especially when you're just doing gig work. Now, from a tax perspective, which is totally different, I don't care where the hell your LLC is, wherever you make money, you have to pay tax. If that state has a state tax regime, Tennessee does not. Let's say you end up in Texas. Great, make all the money you want. There's no state tax there. But if you end up in a state, let's say you cross the border, end up in Georgia, and you're making money up there doing Uber eats or consulting or doordash or what Instacart, the 1099 you receive will be traced back to that state. You need to expect that. Well, it went into my Tennessee LLC bank account. It doesn't matter. It matters where you earn the money. When I go play, when I played for the Lakers, you know, in my dreams, I had to pay tax wherever they held their games. You don't get to just say, I live in LA and I play for the Lakers, so. Oh, but I played a game at the Vivint center in Salt Lake City, so I. Whatever. So you have to pay tax where you do business. So keep that in mind. Ms. Fire Snake. Keep good records and we wish you the best being in a Nomad and I love the RV community. We help with so many clients that are living full time in an rv. Do your best to track your income by state and have a good accountant. We've got certified tax advisors. Just go to markjkohler.com, look at our Advisor network and we have advisors around the country. We don't make any money on their relationship with you. Interview and find the right advisor for you, but we train our advisors so we're all on the same page in regards to everything we teach on our podcast. So get one of those on your team.

Love it. All right, question here was from Justin says Mark and Matt, you guys are awesome and your content is amazing. Thank you Justin from San Antonio.

Appreciate that.

Says if someone wanted to structure a holding company for mergers and acquisitions within their own trifecta. And he's talking about, by the way, this is owned by a Solo 401K. So let's get that out from the beginning as the holding company has paid dividends from the stock it holds. Okay. I think dividends, profits, whatever returns from the that it holds in subsidiary companies. Okay, these are the investments you've made. Could this LLC technically fall under the passive investment side of the trifecta and filter back up to your solo kit, or would that break the operational business guidelines and creep into UBIT territory? Okay, now this takes some assumptions here, and this is for many of the questions that come in. It's like, what are you meaning here? But I presume when you say filter back to your solo K, you mean your Solo K owns this holding company and has invested money into this holding company llc. That holding company LLC is buying and investing into other companies. And that's what you presume. You mean these subsidiaries, mergers for M and A stuff. Now, if those subsidiary investments that the holding company has made, which is totally common, we have lots of clients that have a LLC owned by the Solo K. And that LLC goes and makes 10 other investments into other companies. And some of those 10 other companies pay off. Some of them might not. Well, that investment income is flowing back down to the holding company and then back down into the solo kick. The question is, would you have ubit? Well, the question whether you have UBIT filtering all the way down to the Solo K has to do with what was the income that came down in the first place? What was the income that came from this subsidiary entity? Was that income, operational income from A LLC selling goods and services. Was that income from a C Corp. Was that rental income from a real estate operation? So the question is really depends on the actual type of income flowing down. So these are all flow through entities, these LLCs, which means we gotta go to the original source of what that money was. So if it was, oh, I, that my holding company, LLC that my solo K owns, that holding company, LLC owned XYZ C Corp. Stock that just went public. Okay. And it got some dividends and the shares went up in value and I sold it. Cool. That's not. That's not ubit. That's just going to pass down all the way. Not ubit. Oh, it owned rental real estate. Okay. And a big fund with 100 other people. Cool. Not UBIT. No UDFI either. Because it's your solo K that's flowing down. Oh, it owned ownership in an LLC that was selling medical devices. I don't know. All right. And it wasn't taxed as a C Corp. It was just tax as a partnership and they distributed profits down to me. That would be subject to you. But see, I get it all the way down to the original source of what the income was. To answer this question because it's going to vary. So I wish I could give you a more clear answer, but it depends and I hope some of those examples help illustrate that one of the attorneys in the law firm would be best to advise you on that. At KKO Stories, we can talk about whether this income from these different investments is subject to you, but.

Or not. I love it. I'm going to ask you, Matt, quick, easy question. This is good for everybody. Germcell that's a very unfortunate handle. Germsl I apologize. I would recommend playing with that. Does my stepfather count as a prohibited transaction in an IRA llc? He did raise me. However, he never adopted me. When I turned 18 and became a legal adult, I personally changed my last name to his. However, the way I understand it and I've read it is that it cannot be my blood parent, not including their spouse.

Yeah.

So is a stepfather. Okay?

Stepfather's okay. Stepfather's not on the list of disqualified people. It's parent only or so if you were adopted, so.

So what?

Stepparents, okay. So your IRA could transact with them or. And for them, if it's his IRA with you, you are a stepchild. You're not a descendant. So you're not a disqualified person either to his ira.

Some of you that are like, what in the hell are you talking about? So let's say the stepfather, in this example, went and took their IRA and bought a rental property and rented it to a stepson who's in college. Can the stepfather do that? Yep. And vice versa. You might want to buy a house for your stepfather and have him run it from you. You can do that. So if you want to do business inside your IRA with a step. Stepfather, stepmother, stepchild, green light. All right. Two more questions. You choose one you go. I can throw out another one.

Here you go. I wasn't ready.

Okay. I know. Okay.

You took one and gave it to me.

I know.

I usually need a little time.

Okay. I'm going to do real estate pro hours. This is a good one from Judy in Alaska, by the way. I'm going to come up to Juneau and go fishing here in a couple months and I am so excited, Judy. Oh, it's my favorite time of year.

Oh, I didn't know that. But you know, did.

Unbelievable. What do you have a 12 year old in your house practicing your dad jokes for tonight?

I do. I have 9 year olds in my house.

That's true. No wonder you went to that. Okay. You Juno? Yeah. Knock, knock. All right. Okay. Thanks, Mark, for all you do. I binged on your content. Good news, I've learned a lot. Bad news, I've learned my tax guy is a pencil pusher and not a very good one at that. Judy, please check out my certified network. Brutal.

I love it.

I love it. Brutal. Yeah. Get to markjkoler.com any of you looking for a new accountant? Oh my gosh. My network is so good. We're adding people to it every week. Training around the country. I'm happy to report I've connected with. Oh. Oh my gosh. I didn't even read the next sentence. I'm happy to report that I've recently connected with one of your tax advisor and expect my future taxes to be more accurate. Hopefully a lot less too. Okay. For the real estate pro hours, here's the question. I drive four and a half hours from my home to my rental property, usually monthly. Is this travel time allowed for the real estate pro hourly requirement? I would say yes. And I then fly two to three times per year from Alaska to the Midwest to check on my rental properties there. I usually combine this with multiple days of work on the rentals. Flight time only is anywhere from 8 to 12 hours each day. I've got to get there. Driving around, flying around, moving around, all of that I would count as definitely work hours. When you're traveling to and from your rental property, whether it's in a car, a plane, a boat or whatever, that's definitely part of the time necessary to manage your rental. She says. Sorry for the question. I've read travel time to and from your property is not allowed. I don't agree. I'm not sure where you read that. There's a lot of regulations out there and things like that towards the 750 hour minimum. Now I'll track the mileage. I'll still keep tracking mileage nonetheless. Lol. Okay, here, here's the bigger point everybody. Judy, if you're so close to the 750 hours that you're counting your flight time, we've got bigger issues. Like you, you should. And remember everybody, there's really three parts to this equation. Number one, what is your full time occupation? If you've or what is your occupation period? Even if you hit the hour requirement, but you're a part time pharmacist or a full time executive or have a W2 somewhere, I don't care if you put in 850 hours, it's gonna, it's not gonna work. So Judy, I'm gonna assume you're already like nope, I don't have a W2 anywhere else. All I do is manage my rentals. Well, if you're bumping up against 750 hours, which is the second test. So my full time occupation is real estate. The second test is I'm doing 750 hours and you're having to, you know, ticky tack track hours just to get there. I'd like to see your whole picture. I mean how much income is coming in and how many losses are coming from your rentals. I'm usually not too stressed about counting 10 hours here or there. You should be well over that or something's a little off here. In my normal analysis, the third issue as everybody, once I'm full time real estate qualified under 11 categories. There's 11 categories of which qualify as an occupation in real estate. I hit the 750 hours. Then third, you got to show that you materially participate in the group of rentals assuming you made the grouping election under Dash 9. Do I meet one of those seven tests? Now I love the third test which says I put in 100 hours and more than anyone else, you're in. So you've got to also realize that being a real estate professional hours, there's arguments that those don't count towards your material participation hours. They might, but the 750 hours has to be in Your occupation not so it's complicated. So, Judy, get with this new tax advisor in my network. We do tons of training on this. They're going to be able to guide you through it. We just held the Real Estate Tax Summit where we unpacked this backwards and forwards and all my advisors were there. So you're going to get some great consults on this. But everybody, hopefully some of those thoughts helped as you're doing some self analysis. All right, last question, man, last question.

This was from Walt Kim asked asset segregation has to be reported on seller and buyer's closing statement. True. Now I think what Walt is asking here is when buying and selling a business, was there an allocation, not segregation, but an allocation of the purchase price? So we're gonna do, actually we'll have a podcast coming up on buying and selling a business. Mark Fetzer is one of the attorneys in our office that does quite a bit of that. Mark and I have done lots of client, you know, helping them. On the legal side, the documents, whether you're an asset purchase agreement, a stock purchase agreement, but in the stock purchase, sorry, asset purchase side of things, which is generally recommended when you're buying a business, there's going to be an allocation of purchase price that's in the documents. There's also a form filed to the IRS. Mark pulled it up for me here, form 8594, that's going to actually go on the tax return. Now, why this is important, when you're buying a business, you want to allocate the purchase price to as much equipment and things like that that you can expense and write off quicker. As a seller, you want to allocate purchase price to like goodwill and things like this that you get capital gain treatment on and you don't have to recapture depreciation. So there's this, there's this give and take here of if you're the smart person, the deal where you can run with it and allocate it how you want. The other person's kind of a moron and doesn't pay attention. That's great for you. Sometimes if there's competent parties on both sides, this has to get negotiated and you know, it's got to be real and legit. You can't just throw out a number. But there's a lot of, there's a lot of leeway here because there's a lot of instances in the business that's going to be categorized under goodwill, like what's the value of all their customers and the brand you've you know, created and that that's sometimes very subjective to set. So, yes, make sure you're doing that in any cell of the business. It should be part of the process. You should be using a competent lawyer when buying or selling a business that knows how to protect you in the transaction. And make sure these tax items are taken care of, too.

Love it. Great answer. Well, thanks everybody for listening and hopefully we vetted a topic that may help point you in the right direction. Make sure you are with a good tax advisor or legal advisor. We're talking business, legal and wealth building. And that you're also taking into account. You're the captain of your own ship. You've got to know the basics in these areas. And so I know I'm preaching to the choir when I say thank you for being here because you're here being the captain of your ship. So I applaud you. Keep up the good work. Get some advisors to help fill in the blanks and apply it to your facts and circumstances. And we'll see you next week for another episode here on Main Street Business Podcast. And be looking out also for our interviews with a lot of influencers on our Main street interviews. Matt and I are both interviewing a lot of different folks that are really interesting and insightful. And don't forget, it's our estate planning special right now where you can get a pretty big discount on getting your wheel trust.

202 hundy.

2 hundies. Don't turn that down. And we're very affordable to begin with. To us, it's a big discount because we try to keep prices very affordable to begin with. It's Father's Day weekend. Get your dad an estate plan. It benefits you, too. And your dad will be like, all right, I got to get it done.

I might cut you a little bit more since you helped me get my estate plan, you know, work in your favor.

You know, also in two weeks, two, no, three weeks, we have our Alt Asset Summit. And this Alt Asset Summit will be live and virtual. Get to alt assetsummit.com on where to invest either your own funds or your retirement account funds. What are some options out there? 80% of the wealthy don't invest in Wall Street. They invest in what's called alternative assets, which can be a restaurant, a small business, a private equity. Well, we're going to roll those out for two days and just give you options. So get to all assetsummit.com and register for that. It's going to be a really, really good event. And we'll be here continuing to help. You better live your dream. Thanks so much.

Thank you. See you next week.