The Biggest Tax Break for Business Owners | Mark J Kohler | CPA | Attorney

Hey, welcome everybody to another Facebook Live talking tax illegal that's gonna make you money. Now, before you scroll past this, let me tell you what the topic is here real quick. You're gonna love it. Now, I'm CPA attorney Mark J. Kohler. Shout out to entrepreneur for making tax and legal strategies important enough to post on their Facebook page. Folks, they know what saves you money and makes you money. It's not just about making money every day, it's about saving it too. Taxes are the biggest cost in your business. Maybe there's some payroll and some rent, but generally for most business owners, taxes are the number one cost. I want to save you money. So I help small business owners all over the country talk about ways to save taxes. Now, the biggest tax break in the new GOP tax bill signed by Donald Trump in December is what's called the 199A pass through deduction. It's a 20% pass through. Now some of you may think, oh, Mark, I'm just going to get this deduction in the end. Oh, no, no. Before you scroll past this, it is not the Same benefit for LLCs as S Corps or the type of business. You've got to plan for this. You've got to know some of these differences and plan now in 2018 or you're going to miss out and leave some money on the table. You might get some write off, but are you going to save as much as you could? So it's a big deal. Now it's a little technical. I'm going to do my best to break it down and I'm taking questions. I, I want you to type your questions down below. I've got Annika, my marketing director, she's going to holler them out to me as we go. And I've got my glasses on because this is technical stuff. This is cool. Mark Kohler hip. This is smart. Gotta be focused. Mark Kohler. So we're going to try and do this. So hang with me here. Now, this deduction. Now here's the basics of it and then we're going to do some examples. I got all sorts of good stuff for you. I've got the new Mark J. Kohler payroll matrix. We're going to go through this in a minute, so pay attention. Get a pen and paper handy, take some notes. Now, in this deduction, it basically says this is the basic concept and this is for Main Street. This isn't for Wall street, it's for you on Main Street. Is that when you make money in your business, money in expenses out and you net when you're ready to take money home in your business this year to help stimulate the economy. This is what Donald Trump's trying to do. Love him or hate him, it's a good thing. Let's take advantage of this tax strategy while we can. You get a deduction of 20% then you pay taxes. So if you make 100 grand, you get a $20,000 deduction. Now that's the basic concept. But then it gets crazy because the type of business, you may not get it, you may get it, you may have self employment tax. We got to get tricky here. So this is the general rule. Now I would give one distinction here. The more money you make in if you're in a personal service business, realtor, broker, agent, dentist, doctor, attorney, engineer, cpa, actor, actress, athlete, you're going to phase out. You may not get the write off. You may have other types of businesses that do get the write off. That's where the strategy comes in. And I want to say this right now, just real quick on a call, type it right down. Below is I'm giving regular updates in my weekly newsletter. I've been doing it for 12 years and every week kicking out a newsletter. Go sign up for my newsletter. It's free and if you don't like it that week you can just close it out but scan it. I want to be your tax and legal resource. So get over to markjkohler.com sign up for the newsletter and I'll give you updates. Because if this is too complicated, I'll be filling in in the future. Now let's go through a basic example. Now then I'm going to take it to the next level. First we've got two types of income here that are allowed under this rule. We've got qualified business income. This is the one that gets the. I'm going to put business income. Then we have what we might call passive income. Well I don't even know if I want to call it that. I'm just going to say it non preferred income for this strategy. That's really kind of what we have to call it. So with these two types of income, you get the 20% deduction here, but no 20% deduction here. Now let me give you some examples of what's not included. This is short term capital gain, which means if you're doing bitcoin currency trades or you're ethereum, I can never say it right. Cryptocurrency and maybe you're flipping some type of asset that Gets you short term capital gain or long term capital gain. If you're selling a rental property, dividends, interest and basically your day job. If you work for someone else or you take a W2, you don't get the 20% deduction on that type of stuff, no deduction. But here's where you do get it. Commissions, you get it on your 1099. And yeah, if you're an Uber driver, you get this deduction. If you're selling stuff on ebay, Etsy, whatever, if you're selling a product, if you're selling a service. And this is where again, if you're providing professional services, the engineer, the accountant, the realtor, the contractor, you're going to get this type of stuff. And then here's what's interesting. You can even get it on your rental income. Now that's cool, right? Rental income. Now there's some strategies here. You're going to want to stay in touch with me on this. For those that are generating positive rental income. Now I know most of my rental clients that have rental properties with depreciation, mortgage interest and all those little tax strategies, you've got probably losses that you're taking write offs on. We've talked about this before. Why buy rental real estate? And being a real estate professional, well, for those of you that have real estate that's paid off, or you've got commercial property with triple net leases and you've got positive rental cash flow, you get the 20%. All right, so maybe I've piqued your interest so far, right? This deduction is a big deal. Now let's go through an example here of just a basic llc, basic sole proprietorship. Let's run the numbers. Now, I appreciate you hanging with me and I want you to ask some questions. I know I'm going to get a lot of questions on this because I'm going to wow you here with a minute on this. LLC point. So what we do is we divide clients lives into two sides. So let's say this is your rental business. You got rental properties here, rental business, you've got all your little properties out here. And. Or let's say you have a sales business. Just, I'm going to just call it any regular business. So just business income. And you've got your sales coming in, you're making money. And let's just do some rough numbers here. Let's say you're bringing in 200 grand. Let's say you're spending 40 grand on expenses and you net $160,000 wouldn't that be nice? Many of you are doing that much or better. Maybe you're selling Internet marketing. Same strategy here. Now, let's say you got rental income and you got rental expenses, and you net 160 on your rental income. Same deal. You get this 20% deduction. So if we're doing our math here, that's going to be a $32,000 deduction off your bottom line. This is cool, right? A $32,000 deduction? Pretty cool. Now, there's a catch here. You're gonna love it. That means you netted 128. So I netted $128,000. Now, if I take an average of, let's say, a 25% tax rate. Say you're paying 20% fed in five state. That means you just saved $8,000. Now remember, this is not a tax credit. It's a tax deduction. So you just saved $8,000 in taxes. Now, guys, this is the number one tax strategy in 2018 for small business owners. So if you're swimming a little bit, don't, don't go anywhere. I'm going to slow down. I'll repeat this, and I want you to ask some questions if you've got it. So hang tight. I know this can be complicated, but again, you've got a business, you're making 200 grand, you have 40,000 in expenses. Cell phone, travel, dining, entertainment, home office, blah, blah, blah. You net 160, you take 20% of that, you get a deduction, and then you're only paying taxes on 128. We have to say, well, what's the tax savings mark? Well, if you're in a 25% rate, that means you save taxes of 25% times 32,000, which is $8,000. You saved $8,000 in taxes. Now, here's where the problem is. Let me say this before any of you pass through this and go on to your next post on Facebook. LLC is do not save taxes. Did you hear that? Let me repeat this again. LLC is limited liability. Companies do not save taxes. I have meet so many people that think, oh, if I set up my llc, I gotta have it, I'm gonna save taxes. I can't save taxes till I have an llc. None of that matters, guys. I'm telling you as a CPA national expert in tax planning for small business owners, LLCs don't say taxes. Let me tell you why, because on this, I'm going to do it in red. Before you get this deduction, you have to Pay self employment tax on this. 160 grand. That's right. You got to pay self employment tax. Now I'm going to give you some other options for this which you're going to love and it's going to save you thousands of dollars in this little Facebook live. And I'm not selling anything at the end of this. There's not like, oh, buy this package or whatever. Entrepreneur has more faith in me. I'm not going to do that to you. I'm just here to add value. I want you to listen and follow and stay in touch with me because I love to help small business owners live their American dream. So there's no sales pitch here. I'm not hiding the ball. I want you to ask questions. Now here's the crazy part. The self employment tax on this is 15.3% on the first 130 grand, then 2.9% on the rest of that, which is 30,000. The rough math on this, you're looking at $20,760. And in self employment tax, sure, you saved 8 grand, but it cost you 20 grand. What the freak? Now the cool part here is with rent, there's no self employment tax. So for those out there that own a lot of rental properties, commercial rentals, you're going to get this 20% flow through on the net, assuming depreciation and mortgage interest and chew it up. But over here, the LLC has cost you people. This is the llc. Not good. Not saving you taxes. All right, now I got one question here. And then we're gonna go to the solution which you're gonna love. What do you got, Annika?

Mike is asking, what if an LLC is being taxed as an S corporation?

What's his first name?

Mike.

Mike. Oh, Mike, you're stealing my thunder, baby. Mike says, what happens if my LLC is taxed as an S corporation? Well, that's where we're headed. Mike. You're gonna freaking love this. And I've got a payroll matrix that's going to blow your mind. So hang tight, Mike, you're going to like this. Now let's say we do the same equation. So let's say we do the same thing. And I'm going to go over here to my S corp and I'm going to do the same business, I'm going to make the same money, same expenses. They're the same in an LLC and an S Corp. So I bring in my 200 grand, spend my 40, I net my 160. But here's the catch. I'm going to take 55,000 of this in salary and I'm going to take 105,000 in K1 or pass through. Now if you have an LLC, I make it tiny because it's an LLC taxed as an S corp. When you say I have an LLC taxed as an S corp, you have a freaking S corp, don't call it an llc. Now yeah, it has LLC at the end of your name. But for all purposes of tax planning, it's an S corp. So what we do is we take a salary, you pay your FICA over here. The F word. Fica, F, we hate it. We're paying our self employment tax over here, but not over here. Now here's what's cool guys. You get the double whammy, you save on self employment tax. And let me tell you the numbers, by only paying self employment tax on 55,000 rather than the entire 160, my savings on this in this one right here. Oh my gosh, this is crazy. You're going to save $12,925. Yeah, $12,000 in savings getting rid of the freaking LLC and electing to be an S corp. All right, then I still get my 20% deduction on this. So that's 21,000, which if I'm at a 25% rate, we're going to compare apples to apples. That means I save $5250. Now some of you, now this is where the big confusion is out there. People say, well Mark, I'm not going to do an S corp because I want a bigger 20% deduction. So I'm going to run my income through an LLC and, and get a bigger deduction on this. 160. But you don't realize that FICA is killing you on the way there. So yeah, with an LLC you would have gotten an $8,000 deduction. With an S corp you only get a $5,200 deduction. But I saved 12,000 in FICA getting there. That's why guys, every dentist, doctor, engineer, contractor, Internet marketer, MLM, direct sales, 1099 eBay, salesman. What do we do? We use an S corporation. We maximize the FICA savings, we maximize the llc. The pass through that we would have gotten through an llc, but it's just on a littler amount. So the combined savings is in the end by doing an S corp. When I compare the S corp to the llc, I save, here's the bottom line, number in this example and $10,175 that's my savings by doing an S corp. So if you have a question right now, I want you to pose it. Mark, should I do an llc? Mark, should I do an S corp? Which one should I do? Why does this matter? Blah, blah, blah. Now, I'm going to give you some more examples here in a minute, and we're going to go through the payroll matrix. But, Anika, what's our question here?

So we actually have a lot of questions about this. So one of them, Trenton, asked, what happens if I missed section of tax as S or C Corp? Am I automatically a sole proprietor? What if I missed the election? What do I do?

Okay, so what's her first name?

Trenton.

Okay, so Trenton says Mark. Oh, my gosh, it's April. Have I missed something? Well, maybe, maybe not. So let's look at a timeline here. So this is for everybody there, Annika. Maybe you can kind of look at two or three questions and combine them into one or something. Okay, so let's say we're right here, right now. We're here in April 2018. Okay, now what was his first name again?

Trenton.

Trenton. Sorry, bud. Okay, so Trenton says Mark. Have I missed anything? Now, Trenton was an LLC starting the year. And any of you that are an LLC, if you think you're going to make more than 40 to $50,000 this year doing Internet sales, marketing, fix and flips, rehabs, realtor, contractor, engineer, dentist. I don't care if you're going to make more than 40 or 50,000, Trenton, we can go back and do an S election and turn it into an S corp back in time. So I can do this S election back to 1118. Our office only charges 125 bucks. That's it, guys. Get a consult with one of my tax lawyers, you might spend two or three hundred bucks. We can do whatever you need to get done. And even just in a half an hour with one of my attorneys, you could save thousands this year. You should have a tax attorney in your back pocket, right? So many people think that Mark, tax attorneys are too expensive. Hey, we built our whole business around you, the small business owner. So if you feel like you need some help, give us a holler on a call. Type our website address for the law firm KQS Lawyers in there. So, Trenton, we can do an S election back in time. And now for some of you, where you're like, mark, this is the first I've heard of this. I'm not an LLC at all. I'm just a basic sole proprietor. Am I screwed? Well, the first part of the year, you would be a sole proprietor. And so I would set up your S corp immediately, probably make it effective May 1 at the minimum. And so from here till the end of the year, you're an S corp. So what I can do for those of you that are maybe late to the game this year, I set up an S corp. Now, for those of you that are LLC already, I can back date you in you get the whole 2018 as an S corp. Pretty sweet. Next question, Monica.

Yes. So Tawny says, if I'm going to start a concierge business, what business should I use?

Okay. So Tani says, mark, I'm going to start a concierge business. All right, let's think about money. You out there. Many. Maybe you're starting an Internet marketing business. You're doing something on Etsy or ebay. Maybe you're driving for Uber. Maybe you're just starting your service business as a handyman. Any of those businesses. Tawny, your question is good for so many people watching right now. What you would do is you'd have an LLC do it. Just pull the trigger on an llc, but the LLC can be changed to an S Corp. So what we would do, We've got a $400 setup. We've got an $800 setup. You go online, be careful. We have literally a fix. My legal Zoom service, not the legalZoom's bad, but people didn't know what they were checking. But be careful. Get your LLC set up. Get going. This year, if you only make 20 or 30 grand, we'll leave it in LLC. If you hit it big, let's say it happens and things go well, I can back date you into an S corp, but if you don't set up the llc, I can't back date it. You can't call me in November and go, mark, I made it. I made 50 grand. Help me. I'm like, you're SOL and I'm not talking statute of limitations. You're not going to be able to be an S corp. I can't backdate it. So get this going. That's the way we want to go. And get it started. Now, for those of you that are like, Mark, I'm already making four or five grand a month. I'm already killing it. I'm doing better than that. Then freaking pony up and get your S corp done. Call my office if you want. Go somewhere. And if they can't speak the language I'm talking, you got the wrong people. Okay, Monica.

All right, so Kelly asks, would you set up an S corp even if you live in California and make around 20,000 a year?

Okay, now that's a good one. What's her first name?

Kelly.

Kelly. Kelly throws in the California twist, which kind of is a bummer. California is one of the most expensive states in the country. For those of you in New York City, and I'm talking the five boroughs. Manhattan, Staten Island, Brooklyn, Queens, and Bronx. Yeah, that's right, baby. I know the five boroughs. I used to live in New York. So if you live in five boroughs or you live in California, the S Corp can be really ineffective or expensive. In New York, it really doesn't even work in the five boroughs. You got to get out of the island. I have clients move to Long island, get into Suffolk county, or go to New Jersey to save taxes. Believe it or not, in California, if you're only making $20,000 this year, you don't have a lot of business exposure, like lawsuit exposure. I'm going to probably leave you as a sole proprietor, maybe have you do an LLC. But see, California has an $800 minimum tax. It's brutal. So I got to pay 800 bucks just to play the game. That's like anteing up at the poker table. 800 bucks just to play. So if you're only going to make 20 grand, I may keep you as a sole proprietor in California, you start to make more money. Let's get you into an LLC and then make the transition to an S corp when the time's right. This is why a little planning session once a year can save you thousands. You don't want to be going around on Google trying to figure this, freaking out. We're here for you. Okay, next question then. We're going to keep going here.

Yes. Okay, so Andy is asking, is the S Corp for independent contractors starting out to maximize deductions?

He says, is an independent contractor. Is an S Corp the best to maximize deductions? Well, first name again. Andy. Andy. Okay, now this is good for everybody here. Andy says, mark. Now this is important. Everybody listen. Andy says, mark, which entity is best for tax deductions? That's a trick question. Andy might be trying to trick me here because, guys, you get the same deductions whether you're an LLC or an S Corp. So, Andy, you don't even have to set up an LLC or an S Corp to get deductions. If you spend money on rent, marketing, and cell phone and Apple Watch, dining, entertainment, home office, pda, I'm writing all that off Anyway, the issue is what's going to happen to your net income. So Andy, I would rephrase the question, Mark. I'm starting out as an independent contractor. Which entity is best based on the amount of income I'm going to make. And if you're going to make more than 30 or 40,000, you need to be an S corp. That's the way to go. Now if you are kind of starting out and you don't know where you're going to be, then go with the llc. Now I want to hit another major point before I go to questions. Everybody out there, for those of you that are already S corps, I'm going to blow your mind. Let's take it to the next level. So you've got your S corp and you're doing your salary dividend split, right? Salary dividend split. Well, the question that people ask, and I know there's CPAs out there watching this, well Mark, that's an aggressive salary because you're taking an aggressive salary. The savings make the S corp look better. Let me just say this to everybody. We've been doing tax returns for 17 years. I have never had a client audited for taking too little of salary. In fact, we will sign clients tax return if we help advise you on your salary. And, and if you get audited and your salary was too low, we'll pay the penalty. That's how confident I am that we're not in right field. Now with this new deduction coming down, I have improved and better made my, my matrix that's taking the country by storm is called the Kohler payroll matrix. Now we're going to zoom in on this a little bit. So what we want to do people is as your income grows, so as you start to make more income and this is your net income in your business. So as my income grows, my payroll actually goes down as a percentage of net. So here's the example. If you're going to make 50 grand in your business net your salary will be 25 grand. Now what I mean by that people here is, this is the example. If you make, if you make 100 grand or 50 grand, your salary would be 25. So I want to find the perfect salary level based on your income. So in this example of 150 grand, your salary is going to be somewhere in this 55,000 range. 160, 55. So I'm going to look at the percentage of your income. When I have clients making 400 grand a year, their salary level might be 25% or 100,000. And this is a schedule that we found to be very fair and honest with the irs. I've interviewed ex IRS agents sitting. Currently employed IRS agents won't come on my radio show, but ex IRS agents will. We've had every case out there on payroll, and we feel that this is the way to go. So, folks, when you're determining your payroll, if you're taking too much payroll, you're losing the 199A and you're paying too much FICA, you see that the problems could be astronomical because you're paying way too much in tax because your accountant's too conservative. So let's get your payroll as low as possible without an audit. You say FICA and ramp up the 199A. Boom. Is that sweet? So this little payroll matrix, I'm going to be getting it out there in my next blog article that comes out next week. Sign up for my newsletter@markjkohler.com and if you want to consult with one of my attorneys, you can check a box. Have your team call me. Anika will give you a call. I mean, we're not, you know, there's not thousands of employees in my organization. We're just a boutique firm helping business owners like you. Okay, Annika, next question.

All right, this is from Eric on your YouTube channel. He says, do you need to separate ein for a holding company and your operating company?

Okay. Eric says, should you have a separate ein for your operation company versus your holding company? Great question, people. This is where you have your operation company. Your operations are on this side. Your holdings are on this side. There's a wall between the two. Well, Eric, you're going to have an LLC over here. You're going to have an M Corp over here. You're darn right they're going to have separate eins. You're going to have separate bank accounts. This LLC is going to be on title to your rentals. This one's going to run your merchant account for your sales. They're totally different. You do not want to have an entity in the middle trying to do it all. You're going to get into problems. It's going to screw up your asset protection, and it's going to screw up your tax planning. Annika, next question.

All right, Rachel says, can I set up an S corp if I don't have regular income? Meaning how do I set up the payroll that is necessary for an S corp when I don't know when my income is coming up?

Okay. April says, well, mark this S Corp Idea is great. Well, I'm sorry, Rachel. Rachel, I called you April. Maybe it's because I saw April here, Freudian slip, and she's over on YouTube. Thanks, Abe. Thanks, Rachel. Okay, now here's the trick, everybody. You're not going to have a regular paycheck. We're going to do payroll reports quarterly. Guys, I don't even get a paycheck in my own business. I take money anytime I want. Then I do a payroll report quarterly. It's simple. It's easy. So, Rachel, my team is going to do payroll in April, in July, in October, and then at the very end of the year, in January, we're going to do four payrolls. My team will call you up, Rachel, and they'll go, hey, Rachel, how'd you do in the first quarter? And you're going to go, oh, I made no money. Okay, zero report, no payroll. You've already taken any profit. If you've got it, then they call you July, how much money did you make, Rachel? Oh, I was killing it. I took home $30,000. They go, Ooh, what do you expect to happen the rest of the year? Oh, I'm not sure. Maybe another 20. So then they go, oh, okay, that's $50,000. Let's look at the matrix. Let's come up with what Mark said in the matrix. Okay, your payroll is going to be here. They issue a payroll report. You do your deposit to the irs, you're done, finished. No paycheck, payroll reports, done. We charge 125 bucks a quarter to do payroll. That's it. Just do it quarterly based on how much money you're making. So, Rachel, the answer is if you don't know when it's going to come in, but you know you're going to make 50 grand this year, get your S corp, start on payroll. You'll just do the payroll throughout the year based on how much money you make. No big deal. Okay, one more question that I'm going to give you another example, because it gets crazy here, because some of you want to get more technical, and we're going to get more technical.

Annika, this one's a little bit off topic. Eric asks, I would love to know how the IRS would consider the interest from my primary properties heloc, if I use it as a sweep account and for home improvement in 2018.

Okay, so Eric says, mark, I want to talk about mortgage interest. Eric, this is a great question. Everybody out there, listen. You're going to have mortgage interest in one of two places. You're Going to have mortgage interest on your home or you're going to have mortgage interest for a business purpose. You take money out of a HELOC and you go buy a rental. He talks about a sweep account where he's trying to pay down his mortgage. Well, Eric, the question is I don't care if you have a sweep, I don't care if you have a heloc, whatever. The question is, what was the money used for? If you're going to take out a HELOC and go buy a rental property, I'm going to write off that interest in your LLC with your rental property. I don't even care if it's a HELOC on your primary residence. The loan was used for business. Therefore the interest is deductible in 2018 and 2019. But for many of you, the interest on your primary residence is going to be an itemized deduction. HELOCs for your primary residence to consolidate debt. No longer. A write off interest on your primary residence has been limited. Itemizing has gotten worse. So what Eric's trying to figure out here is, Mark, I got a sweep account, I got a heloc, I got all this stuff going on. Bookkeeping is the key people. When you have a HELOC and you've got more mortgage interest, we need to trace it. That's what us accountants call it. Trace the interest and then I deduct it in the best spot. Eric, you better have one heck of accountant if you don't give us a call. Alrighty. Now I want to hit a couple examples and we're going to wrap this up now. Hang out, everybody. I hate to say this, this is the basics. I mean, it is really the basics. That's why having a professional on your team when you're a business owner is critical. You're not going to knock this crap out on TurboTax or tax slayer when you have a business this elaborate. Okay, now I want to give you an example here. Now this is deep. I prepared some major notes here for you. Okay, we've got two different types of businesses. And then I'll do Q and A for another five minutes and I'll catch any of your questions. I'll do my best. You might have what's called a traditional business or you might have a personal service business. Now the IRS is very clear that the rules are different in 2018. So you got to understand this. Now let me give some examples. A traditional business would be I'm rehabbing property. I'm a contractor, I'm a Restaurant, I sell on Etsy, I sell on ebay. I sell a service, I sell a product. I do Internet marketing. I do Internet sales. That's a traditional business. Personal services. I'm an athlete. I work for the NFL. I know. That was my prior life. You're maybe a dentist, a doctor, an engineer, an architect, a lawyer, accountant, broker, agent, financial advisor. Those are considered personal service. There's two different rules here. Now, here's the rule. When you start to make more than 157,000 to 207,000, or you're married, filing joint, MFJ, married, filing joint, and you make 315 to 415. Okay, guys, this is the next level. You have to ask yourself, if I'm single and I make more than 207,000 or I'm married and make more than 400,000, you got to know these rules. If you make less than that. Done. Don't stress. You can stick around for a little bit more Q and A, but you don't need to know this crap. But if you're making more than 157 or 315, you've got issues. So if you're in a personal service business, once you make more than this, boom, no deduction, no write off. If you make more than 207 or 415. Now, if you're somewhere in the middle, I'll explain that. In fact, I'll do it now. Let's do it right now. So if I'm any of those personal service businesses, let's say I'm a dentist and I bring in $340,000. All right, that's cool. But, oh, no, I'm married, dentist, and I made more than 315, but I didn't make more than 415. So you're in the middle. So you have to do the math. And you say, okay, Well, I am $30,000 over the limit. So I'm sorry, 345. So I'm $30,000 over the limit. Well, it phases out over $100,000. So 30,000 divided by 100,000 is 30%. And that means you get to. You have to exclude 30% of the benefit. So you take your 20% of profit times seven times your profit. I know this is crazy. People, hang with me. We're getting on to something fun. But I want to give you the details. So you take the. What you're allowed in this example is 70% times 20% times 345. That's your deduction, which adds up to $48,300. So that is your deduction. So you have to look at this percentage before you know what your deduction is. Now, for those of you in a traditional business, here's what's cool. It doesn't ever phase out. If you make more than 207 or 415, then there's just a new rule. And here's the new rule. You have to go one of two ways. You have to say, I'm going to take a 20% deduction or 50% of my payroll in my business. So whatever my payroll is in the business, then I get that deduction, whichever is less. Or if I have very little payroll and I just use robots in my business, then I get 20% of net or I know this is crazy. 0.025% of my equipment plus 25% of my payroll. And so you have to take the lesser of this. So this is test one, and this is test two. And then you take the lesser of the two. Okay, now I know several of you barely made it through that before scrolling on and going to something else on Facebook. I'm proud of you for staying with me. This is technical. Maybe that was interesting. Go back and watch it. I'm writing articles on this on a regular basis. And my tax lawyers in my office can consult with you on getting the right structure. But this is why it gets very technical, that there's thousands of dollars waiting for you to gather to grab and enjoy. Okay, Monica, let's hit a few questions.

All right, so Michael says, great advice so far. I'm setting up an SEP IRA for tax purposes for my S corp. Would you recommend that?

Yes. So what's his first name again?

Michael.

Michael says I'm doing a sep. Now, let me tell you, everybody, if you have an S corp, and that's what Michael has, and he's trying to get a write off for 2017, what he's going to do is take his payroll, which we already talked about, and the other is the K1. And then we're going to figure out a SEP. A SEP is like a supercharged IRA. So we're going to do a SEP and he gets to take 25% of his payroll and take a tax write off for last year, even though he may not put the money in until October. Well, he has until September 15th of this year to do it. So, Michael, you bought yourself some time. You can do a SEP as a supercharged IRA for now. But let me just tell you, I called a SEP the I Screwed up and didn't do a 401k plan. So I'm stuck with a SEP. So, Michael, you want to watch my videos on YouTube as to whether or not I should consider a solo 401k? Now, here's why. Let's say Michael's payroll is $50,000. How much can he put in his set? He can put in 25%, which is 12,500. Well, 12,500 is a lot better than an IRA. And Michael thinks he just hit the jackpot. But his old school CPA forgot to tell him in December that if he would have done a 401k, he could do 18,000 plus the 12. So he could put in, oh my gosh, $30,500 and get a write off for last year if he would have done the 401k. And it's a solo 401k. They're cheap, they're easy. You freaking love it, Michael. So do the set now because you screwed up and didn't do a 401k. Call me. All right, next question.

All right, Saheed says, I just registered my LLC. My business set up costs was almost 15,000. How can I deduct business costs?

So Saheed said that he set up a new llc. He had a bunch of business costs that total almost $15,000. Now, I know to set up an LLC, worst case scenario, we're 800 bucks. So I know he didn't spend $15,000 setting up his LLC, but maybe he had some business development costs, maybe some training, some equipment, supplies, startup costs. So Saheed, your accountant should be deducting those as a startup cost. You take $5,000 this year, you amortize the rest over a 15 year period. So you'll get the write off. It just may be more delayed than you want. Now, the key is that if I was your accountant, I'd look at when you spent the money, when did you make your first dollar and try to write off as much as could before it was a startup cost or sorry, write up as much as you could before I had to call it startup. Anyway, Saheed, hopefully you got the point. Yes. Next question. Okay. All right, folks, we are going to wrap this up. I got the note from my producer. This has gone on way too long. We're having way too much fun. They're saying, pull the plug. People are going crazy. They're tearing off their clothes. They're having so much fun. Everybody. Thank you for watching. Get over to martjcoehler.com sign up for my newsletter. I'm not going anywhere. I'm here every week with tax and legal tips. Follow me on my Facebook. You'll get notes of when we're going to be here. But I do my Facebook lives on entrepreneur. I love Ryan Shea. I love the team over there. Vanessa, I love you. I've got a great PR representative or entrepreneur. They're committed to you guys having this tax and legal content. It's critical. So keep learning, keep watching, don't give up, and live your American dream.