The Open Forum Tax and Legal Live Stream with Mark J Kohler | CPA, Attorney

Hey, everybody, Mark Kohler here for a live broadcast on Facebook and YouTube. Please don't go anywhere yet for a moment until I tell you what this is about, because you might want to stick around for the entire broadcast. Now, I'm a CPA attorney, author, partner in a law firm and accounting firm, helping clients all around the country structure their businesses for tax and legal purposes. I also like talking marketing, business structuring, systemization, because I help clients with a lot of that as well as. So this is my live forum here on YouTube and Facebook. I want to give a shout out to entrepreneur. They help broadcast this life. So many of you take advantage of this opportunity. Rather than paying me per hour or any of my CPAs or lawyers per hour, per minute to help you out throughout a question, I'm here for you. And a lot of times clients just listen into this because they hear about other people around the country, around the world that have a lot of the same questions they do. So that way you don't feel as alone as sometimes we as entrepreneurs feel. We feel a little kind of isolated. We don't know there's a whole community out there of other entrepreneurs that feel like we do. So here I am live. Now, I've already got two or three questions that came in through YouTube, and I've got some from our live podcast that we do every three weeks on Stitcher and itunes called Refresh youh Wealth. So if you're a itunes junkie, podcast junkie, get over to Refresh youh wealth over 300 live podcasts. And I've got some questions from that as well. Okay. So I'm going to jump right into it and I'm here for you guys. So please give me your first name, where you're from in the world we'd love to hear. And then we're just going to throw it out there. And I'm going to move quick because we got lots of questions. I also, ooh, I'm going to give away some books today. If you share this video with. We do a drawing for three or four books and I'll announce the winners from last week. And my assistant is still waiting for some shipping addresses or else I'm going to give them away to someone else. Also, I want to do this, too. I want to give a real big thank you to my team. I've got Dylan here that does a lot of technical work behind the background for at least an hour, prepping to do this live broadcast. It's not easy. We're going live on two Facebooks and YouTube simultaneously. It's pretty tricky. And then my team, I've got Maria, Robert, Rosalie, Logan and Carly all helping here in the room. Say hello. So people, hey. Okay, this is kind of like clap if you're in the room. Okay. Anyway, they're all here and they help out a ton prepping for these live broadcasts. And if you call up or email to the office, my marketing team, they're amazing. They're going to try to help you out in any way we can. Okay, let's get into it. This is from Lakshmi. The question was, hey Mark, I run an S corp and my hubby runs a sole proprietorship. My S corp pays his LLC for various works. Can I pay my kids under age 18 through that LLC? Which form do I fill out with the IRS for the kids payroll? Well, Lakshmi, you threw out a lot. Let's get it on the board. Now here's kind of the typical structure for a married couple business entrepreneurship situation. We have an S corp going on here. This is our operations and over here is our assets or holdings. Now what's kind of unique here is Lakshmi says I have an S corp. So we know she's got some revenue and then she pays her hubby. Now I guess I shouldn't presume I his. Yes, Lakshmi is the woman because she says I pay his sole proprietorship. Now here's what's kind of odd. She says her husband, so this is wife, her husband has a sole prop and this is the husband and she pays his sole proprietorship for services. Now I don't normally like that because we're going to have self employment income here now. So I'm going to tell everybody if in this situation, if she pays her husband's sole proprietorship and they hire the kids under age 18 here. Okay with that. But you better zero this out. I want to zero this out in a big way. So that's a little odd. Normally what I do and I'm going to do this in red, I'm going to do this in red is what I would normally do, Lakshmi, is I would pay your husband here in this sole proprietorship and hire the kids at the same time. But I want to make sure that there's zero net income. And this would be on a schedule C. Your husband has a business as well. I would merge it into your S corp. So this is a family S corp and this is a family sole proprietorship just for the kids. Now that's a big topic. I've got a chapter on it in my book, the tax and legal playbook and get over to YouTube people and type in Kohler pay kids under age 18. You'll find some more videos on that. Her last question was what do I issue the kids to put them on payroll? Nothing. No W2, no 1099 because you're not going to withhold Sudafooda, FICA or Workers Comp. And they're under age 18 so you're not required to issue them a 1099 or withhold FICA. Now some of you accountants out there will go, well, hold it. I've got to issue them a W2 or there's a penalty. So let me ask you, what's the penalty for not issuing a W2? It's calculated on the FICA. You should have withheld. Well, the withholding was zero. You're back where you started. Never in 20 years have I seen an audit for not with paying your kids at W2 when under age 18 through a sole proprietorship or an LLC. There you go. Okay, we've got a question live right now from Susie. What is the question?

How do you set up an LLC to buy rental property?

Oh good. We're going to stick with this diagram. Suzy. Thank you. Now, everybody heard that, right? Dylan, I don't have to repeat it. Alright, I'm just going to keep rolling. I want to know where Susie's from. Come on. I need city and state people. Let's make this a little family oriented here. Now, she said she has rental property. How do I set up an LLC for that? Now I want to point out, people, you never put your rental property over here on the operations side. I want assets on the other side of the wall that's good for asset protection and for tax planning because rental property is passive income. So whenever my clients buy rental properties, the first rule is we want to make sure that that LLC is registered in the state where the rental property is. Now, when I've got clients with a lot of rental properties and a lot of wealth, we might set up a holding company in Wyoming or Utah, Nevada, Delaware, some sort of bigger asset protection strategy. But listen, that's only for my clients with a lot of rentals with a lot of assets. So Susie, wherever your rentals are, let's assume Arizona, North Dakota. Thank youk, Susie. So let's assume Susie's buying her rental properties in North Dakota. Then we would set up her LLC there. We charge either $400 for a paralegal setup or $800 and you get an hour with me or one of our attorneys to help Design your entire plan for the year. Very, very helpful but really it's paying a service. You don't want to try and go do this yourself. Now I know someone's watching going market so easy. It's only $50 filing fee at the state and I can download the docs myself. Yes, but are you going to get the operating agreement, the minutes, the corporate book, the stock or membership certificates, a tax ID number with the irs. You need all of that and some of you're going Mark, I don't need that with an llc. Yeah, good luck in court. So again I've written chapters on the fact you need to maintain your LLC just like a corporation and it's a great tax write off to have a board meeting and to have all those pieces and parts protect you in an audit with the IRS as well. Now this year, sorry this month, every year in September we have a cleanup special for 500 bucks we'll clean up your LLC or corporation. So for some of you that set up that LLC we with one sheet of paper in North Dakota for 50 bucks get all the pieces and parts, 500 bucks. Call my office, shop around. This is not an infomercial for our law firm. I'm just telling you what we charge so you can go out and shop around for it. Be careful paying some huge flat fee for unlimited LLC which you're probably never going to need. Just a la carte what you need at the time. So Susie Simple LLC, 400 to $800 setup. You got a filing fee. You may want to do some privacy planning, look at other my videos for privacy and then transfer the property into the llc. And don't worry about the bank or the due on sale clause. In 20 years we've had one client that the bank got a little upset and said put the property back in your own name. The banks don't care. Keep paying the bills, get the asset protection. You're going to have a bank account and transfer all the rental income you make down into your 1040 personal bank account and you're off to the races. Big topic Susie. If you get over to YouTube and type mark Kohler Rental property you're going to see a number of videos. I've got blog articles and books. Get over to Amazon, type Mark Kohler. Lots of good reading. My publisher, entrepreneur 100% behind second edition book. So you're going to love that content there. Alright, where do we go Sherry? Alright, I've got more questions here so I'm going to come back to some of those pre questions In a minute. What do we got?

I am in startup mode and will have losses. Can you explain which expenses are deductible only against businesses income and which can be deducted from other ordinary wages.

Any idea where Sherry's from? Probably not. Okay, Sherry, thank you. We're going to hit her question. Sherry says North Carolina, man. North Dakota. North Carolina. That's a little odd, don't you think? That's interesting. Okay, now Sherry says she's in startup mode. So I'm not thinking that's a rental property. She's probably got a little online business, a service business, a product business. I talked to my own staff about this. Everybody should have a small business on the side. So we're over here on her operations side and she's in startup mode. And startup mode means that she hasn't made any money yet. Think of it like this. You're out there building your lemonade stand, sugar cups, ice, whatever. But Sherry hasn't made any money yet. So she is in kind of this startup mode until she makes money. This is startup mode. I'll put su startup mode, sum startup mode. And then some point she's going to make money and then she's in business. So Sherry says I'm in startup mode. What do I do? What's a write off? Well, Sherry, frankly, I want you to keep track of every possible expense you can. Maybe some computers, some marketing, legal cell phone, Internet, laptops, anything you're doing to get your business off the ground, keep track of that list. And then at the end of the year, me, your accountant, or whoever your accountant is, we're going to ask you for what's the total of your startup costs. We're going to be able to write off that money in the year you start having sales. Okay, did every hear that? I'm going to keep track of all those startup costs. But Sherry, I can't write them off until you make some money. You don't have to make a profit, but make some money. So keep track of every possible expense, Travel, mileage, home, office, everything. I've got all sorts of books and writing and a chapter on startup mode as well. So keep track of it. So you want to know what Sherry's tax tip is today between now end of September and December 31, right now in 2019, what do I want Sherry to do? Make a sale, make some money, go out and sell that first cup of lemonade. Then all these startup costs are a write off up to $5,000 in 2019. Then she's off to the Races on all those other expenses. So keep studying, Sherry. You're the captain of your own ship. This is fun. I love the American dream and starting a small business. Keep track of all your expenses and when you're ready, we may set up an llc. We may graduate to an S Corp. I don't know. Lots of options. The business is separate from the entity, so don't feel like you have to have an entity to get started. Alright, I'm going to read one of these other questions that came in in advance of our broadcast today. This is from Diamond Reynolds. Hey Mark, thanks for all the helpful tips. I started a CPA practice. Look at this. Another CPA with a message. I love it as an LLC in 2018. So she started as an LLC. Now see this, this is important. She's a CPA, maybe in startup mode, doing some taxes or bookkeeping for people. Set up an LLC in 2018, then started an S Corp in 2019. Can I make the LLC a subsidiary of the S Corp? Even if the LLC was set up before the S Corp? Yes, and how far can I go back if. Yes, and how far can I go back? Alright, let's start a new piece of paper here for Diamond. Now this is good for everybody. Think of diamond as a landscaper, a butcher, a baker, a candlestick maker, I mean, I don't know, is selling crap on ebay. Diamond started a business in 2018 and started as an LLC. And then she said okay, that in 2019 she started an S corp. Now she may have some reasons for that, but this is a little tip. In hindsight for some of you out there, you know, you need to be an S corp. Just make an S election. We charge 125 bucks and diamond for the future, that is form 2553. So anybody out there that you're making money in 2019 and you're an LLC, let's just convert it to an S corp, call your account, call our law firm and say I want to be an S corp and backdate it to the beginning of the LLC or 1118. You could have done that maybe diamond, but she went out and set up an s corp in 2019. Alright, so here's her 2019 S corp and that's cool. She's off to the races and this LLC is kind of floating around, maybe doing something else. I don't know. We don't know all of Diamond's story, but her question was, can I make the LLC a subsidiary of the S Corp? So what I want to do is have The S Corp own the llc. And the answer is, yes, I can do that. It's a single membership transfer agreement. We charge about 150 bucks. You can call Mallory Warner at my office. Mallory, just like it sounds M a l o r the typical Mallory at kkos lawyers. It's like, mallory, take care of that. Or call your own lawyer and say, do that membership transfer agreement and make the S Corp the hundred percent owner of the llc. And then diamond says, how far can I go back, Diamond? What I would do is make that membership transfer agreement effective 11 19. Let's get it back to the beginning. Now, if you formed your S Corp in the middle of 2019, you're going to backdate this ownership to the beginning of the S Corp. Because think about it. The S Corp can't own an LLC until the S Corp existed. So I'm going to ask diamond when did she set up the S Corp and backdate it to that date. So I don't know when that date is. And I'm also going to talk to diamond about some issues of what income was in this before the S Corp was created. There's a little bit more to talk about, but the basic plan is here. Everybody moving forward, we want one S Corp to own all these businesses. I'm going to give another little quick tip here. This is important. I know you want me to move along, right? We got lots of questions. I'm going to say this fast. What does Mark Kohler do? That's what people a lot of times ask me. Well, they're like, mark, you're a lawyer. You got a law firm and a CPA firm. You probably have a bunch of s Corps and LLCs. No, I want to keep it as simple as possible, too. I'm just like you. I don't want a bunch of freaking checkbooks and headaches. So here's what I have. I don't mind saying this. I've got Mark J. Kohler Inc. That's really. It is. It's a professional corp. We call it a PC around the office. My whole team knows, do we put this on the PC or the law firm? The PC is my professional corporation. That's Mark J. Kohler Inc. And it owns part of a law firm, part of an accounting firm, part of a real estate project. I've got DBAs, I've got URLs, I've got different websites and books and whatever, but it all goes into one S Corp. That's right here. S Corp. So, diamond, the way you're Headed is great. Keep that S Corp as your parent and add other businesses and projects around it. Okay, what do we got? Lawrence from Washington D.C. whoo.

I have an LLC and a C Corp. I want to use funds from my LLC to get my C Corp going until I can get VC funds. How do I account for the funds? Leaving my LLC and going into my C corp.

Okay. Boy, you guys are asking hard questions today. The broadcast is now over. No, I'm just joking. We're gonna do it. Okay. Lawrence says he has an LLC that's making money. Alright, cool. Or it's got money sitting in it. Maybe it's an LLC over here and it's got money sitting in it. Maybe it's stock or brokerage accounts or rental income. So all we know is that Lawrence has an LLC somewhere with money in it. Good for you Lawrence. Love it. But he's got a C Corp and he's looking for VC funding. What that means is venture capital funding. And he wants some venture capitalist to come in and give him a bunch of money for so he can build his dream. Yay. What is Lawrence going to do? Well, this is his C Corp and he is looking for venture capitalists who are going to want a percentage of his company. Very common, right? That's why you watch Shark Tank. Shark Tank is VC funding, venture capital funding for Lawrence's C Corp. Now I also want to talk to Lawrence about why is a C corp out of the gate. There may be some other options or ideas there. But that's topic from another day. But let's say he's a C corp and he's looking to put in his own money. Well, I would categorize the LLC as a draw or a distribution. And you can talk to your accountant about that frankly. Because an LLC is a see through entity. You can just take out the money anytime you want. Just take it. Your accountant is going to book it as such as just a draw. You are going to already be taxed on it. Maybe it's money that's already sitting there, kind of like retained earnings that you already paid taxes on. So you're going to classify it as a distribution. And then you're going to come over here and categorize it as a capital contribution in exchange for stock. That's going to be the basis of the stock that you have in the C Corp. C Corps are a whole other animal. You're going to issue yourself a number of shares and you're going to have basis in those shares based on the price you paid for it you're now going to have money injected into the C Corp just as if it was Facebook. And now you have shares in this C Corp of yours. So, Lawrence, pretty straightforward distribution. Then a capital contribution in exchange for stock. And you're going to get shares and have basis in them based on that. I hope that's helpful. Give us a call if you need some more help on that. Okay, we got Dan. Say it again. Dan and Haley. Dan and Haley. Okay, I'm not wearing my glasses, so I've got. I'm squinting. Dan and Haley. From where do we know Dan? You're killing me. Okay, Dan and Haley say, with startup

cost, can you only do 5k and then amortize the rest?

Okay, so let's go back to our diagram. I got Dan thinking about the startup costs. So Dan and who was the other person that had startup costs? That was your question. What was her name? I forgot. Okay, we've got some startup costs over here. It was a woman. I can't remember her name. She has startup costs. And Dan and Haley are saying, well, let's say I had 10,000 in startup costs. Man, we spent a bunch of money this year getting our business off the ground. Now can I only write off five grand? What happens to the rest? Well, let's say that you're cruising along with your small business right now. You've got 10 grand in startup costs and you make your first step sale. Now, when that happens, you get to write off the 5000 is an immediate expense. Then the remaining 5 is amateurized over 15 years or the life of the business, whichever is less. So your account is going to take this remaining five grand divided by 15 and then take it as an expense every year. Now, if your business closes down in three years, whatever's left of the five grand that hasn't been written off, you get to write it off all in that year. Pretty cool. So you've got startup costs being amortized over time. So everybody, if your brain's ready to explode, let me just say this. Any expense you incur to start your business, as long as you at least start making some money, it's going to be a write off. Just sometimes the question is when. It may be a delayed gratification. So don't stress track everything. Give it to your accountant. Where are we going next, Thomas?

All right, I'd like to open a solo Roth 401k. Can I roll a traditional IRA into it or must it be rolled into the traditional 401k? I have an S Corp.

Okay? And he said he wants to roll the traditional IRA into what?

I'd like to open a solo Roth 401K.

Oh, Roth 401K. Okay, Thomas, I have a plan for you. I got to move it along. Lots of questions. Okay, I'll go fast. All right, so Thomas has an S corp, and he's going to create a solo 401k. That's awesome. We set those up for either 500 bucks, DIY or 999 with an attorney supporting you through the whole thing. So Thomas goes out and sets up a solo 401k. He's doing his W2, he's doing his K1, and he's funding the heck out of his solo 401k. I. But stop. Hold the phone. Thomas also has an old IRA, so he's going to take this old IRA that could have been even an old 401k, and now it's sitting in this old IRA, and he says he wants to create a Roth solo 401K. Now, everybody listen. This is important. When you set up a solo 401k, it's kind of like a honeycomb. There's different cells in it based on how many people are going to contribute. But if it's just Thomas, there's two sales. It's like a 2B honeycomb, and part of it is traditional and part of its Roth. So you never really set up a Roth Solo 401K. It's a 401K that's part Roth and part traditional. Well, what does Thomas want? He wants all Roth. And he says, well, can I put this IRA and make it Roth, or do I have to convert it to Roth first? Wait, Thomas. Everybody listening? The first step is create the solo 401k. Number two, transfer the old IRA into the traditional side of the 401k, and then on day three, I can convert it to Roth. You want to convert it inside the 401k? If Thomas converted it to Roth first, would be stuck as a Roth IRA. You cannot move a Roth IRA into a Roth 401K. So move it into the solo first, then convert it to Roth. You're off to the races. Okay, Mike in St. Louis. What do we got?

Mike says, continuing the startup deduction theme, I started last year and had education expenses. This year, I will make money above the expenses. Can I deduct last year expenses this year? And then he added on the bottom, currently an llc.

Okay, we're going to go back to these startup costs. We hit a but hot button today. Everybody's kind of interested in this. Not everybody, but this is cool. So we've got our startup period. Now. Listen to what Mike said. He said he had. Now let me get this straight. He had startup costs in education this year and he's going to make money next year. Is that what he said? Next year? Okay, so let's play with this and use our diagram here. Mike says, well, I had startup costs in 2019, but I didn't make any money. I just had startup costs. And some of it was education. So maybe he paid for a training course to build a business. If you go to traditional title seven college, title nine college, you cannot deduct that in a business, that's traditional education for a certificate or diploma. But if he had some education expenses, and we're going to assume they're a business deduction in 2019, but no income in 2020, he said he's going to have income. Here's the problem, everybody. You cannot write off your startup costs in 2019, even if they're a valid business cost. You cannot write them off in 2019 unless you have income in 2019. So I would keep those, put them in a bucket, put them in a safe place on a piece of paper for your accountant, and then next year when you make money, then I can write off those startup costs. But how much can I only write off? 5 grand. The rest have to be spread out over time. So the moral of the story again, guys, I've said this twice now. Make money as soon as you can so we can get out of startup mode, write that off, and then future expenses won't go in that bucket anymore. Okay, should I take on the paper or take one live? I'm going to go paper. This was from Zombie Queen 58. Obviously a living Dead fan. Or is that Walking Dead? Living Dead, Walking Dead. I am so dumb. It's Walking Dead. I know the Walking Dead. I watched three seasons until I got too bloody. Okay, Now Zombie Queen 58 says, I'm 52, married, and I have a little money, no retirement. Where should I start in order to have a million dollars in a Roth ira? I almost get emotional. I do get emotional hearing statements like this. And I hear it all the time. People that are in their 50s and have very little money and no retirement, and they're scared to death. It's hard. It's really hard out there. So I want to give this message to everybody. Even in your 40s with very little retirement and little money. What do I do? Because she wants to have a million dollars in her Roth ira. Okay, so this is going to be going to be interesting. Okay, we want to have a bucket called a Roth ira and we need to figure out how much money have I got to put into that. Have money in here. Now I did a video called a million dollar Roth IRA. If some of you would like to go to YouTube, type Kohler 1 million. Now, in that my goal was at age 67. Now I'm coming back to Zombie Queen's question. She wants to be at age 67, have $1 million in her Roth IRA, $1 million in the future. Well, if she's 52 now, that means we've got 15 years to get there. And that's tough in my math. In my video, I said, I've got 17 years to get there if you're age 50. So if I'm age 50 and I've got 17 years. So I would say to her, 69 years old, 17 years. I did the math and said if you can average a 12% return and I'll tell you how much money to put in that Roth ira, you could have a million dollars. Now let me just give you some numbers here. If you're 50 years old, that means you've got to put $412 every week into that Roth IRA to get a million dollars. Now I know some of you are freaking out going, hold it. She can only put six or seven thousand dollars on a Roth ira. What I would do is get Zombie Queen into a Roth 401K where she can do $19,000 a year or more because she's over age 52. So whether at age 40, I said you had to do $115 a week. At age 30, that's $36 a week. The sooner you get the money snowballing, the sooner you'll get to your million dollars. Typical Dave Ramsey stuff. So many last point. So many of you are going to go, well, what does Zombie Queen do? What does she do? She has very little money and no retirement. And she wants to have a million dollars at age 67 in a Roth IRA. She'll have her Social Security, maybe she'll have a home paid for. But here's the plan. She has got. I'm going to put it in red. She has got to start a business immediately on the side. Think about this. She says, mark, I've got a day job. I'm not making enough money to put away $412 a week. What do I do? How can I get there and put away $412? You know what? I'm going to throw it out. If she can start a business on the side, keep her W2 and I'm just going to hope and pray she's in good health. How can I create $412 a week in a small business? You know, I had a janitorial business for seven years. You can go out as a janitor right now or even clean homes. You range for anywhere from 20 to $25 an hour. And if I did the math on that and said okay, I need $412 a week divided by I'm going to put $25 an hour, that's 16 hours a week divided by five days a week. She's got to go out and work for three and a half hours a night in a small business, cleaning office buildings or homes in a small business and take tons of write offs. She'll probably pay zero taxes on that. Even with enough write offs that money from her small business on the side would fund her Roth IRA or her Roth 401K. Now I'm making a lot of assumptions there regarding her health, a small business, her rate of return, many of you say 12% is out of control. I've done other videos out there where I have clients self directing their retirement accounts, getting 15% or more every year. Is she going to get that in the stock market? Hell no. Now this is a big equation study. Don't give up zombie queen. And many of you out there that are facing a retirement with no income, no savings. This is an equation that I've helped clients over 20 years repeatedly do over and over again. Is it easy? No. Is it hard? You bet. If you got to get educated and get dive into it headfirst and get going, absolutely. But I'm here for you. I got a lot of content that could help you get there. Carly, that was brutal. Did you learn anything new? That was exciting. Good to start a business right now she's going to start cleaning toilets. I cleaned 92 toilets in one night. That's right. When I was a janitor I was doing my master's program for a CPA cleaning 90 toilets a night. I've been there, done it. Go ahead. What do you got? Okay, Kris.

And then Mike also has a similar, a similar question. Can I still write off startup business expenses from 2018 if my small business did not make sales until 2019 or 2020?

The answer is simply no. I'm going to repeat it. Kris had startup costs in 2018. He's looking at filing his taxes in the next three weeks as I am too. I extended and he said I had startup costs in 2018 but didn't make any money at all. But I made money in 2019. So you have to write off the startup costs in 2019. So I know that's not fun to hear but that's the rule when it comes to startup costs. If not, you'll get audited. Be careful. Okay, what do we got? Logan Valentino. What's this question?

What revenue level do you need to be before the reasonable salary on an S corp kicks in?

Oh, good question. Okay, Valentino says he's over here, he's got a small business and he's doing an S corporation and he said, Mark, now this, I'm going to give this perspective for everybody. Kill another piece, I'll come back to that piece of paper. Here's the deal. Let's say Valentino is got just a plain old sole proprietorship or LLC and let's say Valentino brought in 75 grand and he had 25 grand in expenses and he net 50. That's great. He's taken home about four grand a month. Alright, cool. If he's in a sole proprietorship, look what happens. He's got to pay self employment tax of 15.3%. That's going to be $7,500 off the top. Then he gets to take home his money. This is going to blindside a lot of brand new business owners, plumbers, electricians, realtors, online marketers. What does he do? Is there a solution? Absolutely. It is converting to an S corporation. When you convert to an S corporation and I can't backdate it, we got to get in talk and get engaged right away. If he makes the same money. So you have an s Corporation netting 50 grand. Remember 75 in, 25 in expenses, net 50. Let's go back to our last picture. So Valentino says, well Mark, I heard in an S corp you don't pay any self employment tax. That's right. He made 75 grand, spent 25 on expenses and he net 50. He doesn't pay any self employment tax or does he? He does and he's got to do what's called a reasonable salary. So, so he's going to take a W2, he's going to do it quarterly, you can take it whenever. You don't have to get a paycheck. People, this does not have to be complicated or expensive. But Valentino, if he wants to save self employment tax, we're going to do a salary of around 25 grand. The rest comes out as a draw. Now, see, he still makes 50 grand. He still made 50 grand. He still took home 4,000amonth. But now he's only paying FICA on the salary. So 15% on the 25 grand. But not over here. We cut it in half. So Instead of paying 7,500, he's only paying 3,250. By going to an S Corp, he saved over three grand. Now, Valentino asked a kind of an odd question, to be honest. He said, how much do I have to be making to take a reasonable salary? A dollar? See, as soon as you make money in an S corp, you. You have to take a reasonable salary. Anything. And so many are going to say, well, well, how much salary does Valentino have to take? He's got to take a reasonable salary as soon as he makes profit. Yes. So wouldn't it be nice if someone had created some sort of matrix that tells us what salary to take when we're an S corp? We did. It's called the Kohler payroll matrix, and I've got a whole chapter on it in my book. And everywhere out there on the web, type Kohler payroll matrix. You're going to love it. So here's what we do. The more money you make, your salary is a percentage that actually goes down over time. So if you're making 100 grand in income, your salary level is really around 40%. So I would take a $40,000 salary on 100,000 of income. The more money you make, the lower your salary is as a percentage. Now, that's a big topic. Books, videos, articles. Get out there and type Kohler payroll matrix. You're going to find it and love it, Valentino. Okay, next question. Angel. Where's angel from? Gosh darn it, you guys are killing me.

Is it possible to. Is it possible to purchase a second property using a H, LLC from a primary residence, deed the second property into an llc, refinance the second property, and use the funds to pay back the

H E L O, C. Is anything else, Angel? Oh, my gosh, you're killing me. All right, angel says now we don't know what Angel's day job is. It could be a W2 working at Starbucks. It could be a small business online. It could be an S Corp. We do not know where angel is making his or her money, but we do know that angel has a home. And what's this home got in it? Equity. His home or her home may be worth 300 grand, but the mortgage is 150 grand. So Angel's got 150 grand of equity, and angel wants to use that equity to buy a rental property. I love it. I have no problem with that. Now where is the home going to generally be located? The home would be owned by your trust. Now, when you do a heloc, you typically deed the home out to yourself, do the heloc. What's a heloc? An H E, L, O C. A HELOC is a home equity line of credit. And so she's angel is going to go get a second mortgage that's called a HELOC. And usually on a $300,000 home, you might be able to do an 80 20. So that means 80% can be sucked out minus the 150 that's already there. So 8020 would be a 200 and let's see, $60,000 loan. Nope, it'd be 200. Oh, my gosh. 10% of 300 is 30,000. Times two is 60. It'd be a $240,000 loan minus the 100 and 50 that's already there. So she angel could suck out 90 grand in an equity home equity loan, then use the 90 grand is a down payment on a rental property. The LLC would be formed in the state where the rental property is that when you call us when you're starting this process. And then we deed the home into this LLC. Now we've got 90 grand. Okay, I gotta hurry. 90 grand of equity here. And we go out and buy a rental property. We let it sit for a year and the rental property starts looking good. It's cash flowing. Then angel goes out and gets a HELOC against the rental property and sucks out more cash tax free to buy a second rental. That's why rentals grow like rabbits, people. The HELOC is the grease that makes that happen. So angel, you're on to it. You're freaking rocking. Love it. LLC's own in rentals, HELOCs. You got it. This is how rich people get richer. They buy rental properties that cash flow and they do it with HELOCs and LLCs. Be careful. Shop wisely. Don't overdo it. Look for cash flow properties with a good cash flow roi. Continue learning. It sounds simple. It looks great on paper, but it can be risky. It is risky. Keep learning, keep studying. And we're here for you as your legal and tax advisor to make this work. Okay, what do we got, DL?

I just found out that I'm getting sued Trucking accident from a year ago. The company that I worked for Is providing an attorney. What should I do? Hire an extra attorney. Wait to start my llc? Please advise.

Oh, boy. DL That's a hard one. So DL was driving a truck for the his employer. His or her employer. DL and caused an accident. And so whoever got hurt is probably suing the company that paid DL a W2 because he said the company he was working for, DL was working for, has an insurance company. And this insurance company is going to be obligated to protect the company and the employee. Now, the first question DL says, should I go out and get my own attorney? DL you should go out and get a second opinion. Go meet with an attorney, pay him per hour. Just for an hour. Him or her. Pay a lawyer that really knows civil litigation. Find out if you have exposure. If this insurance company lawyer is going to do the job for you, you need to find out. So go get a consultation with a civil litigation attorney in your town, in your city, and find out what your exposure is. Now, the second question DL said is, oh, I'm worried about all these assets I have. I have home and money and businesses and rental properties and kids. I need to form an llc. No, DL, I'm sorry. It's too late. The cause of action has already occurred. You have to set up the entity. Not before the lawsuit, but not now. You have to set it up before the accident even occurred. This is why asset protection is important. When there's nothing going wrong and no one wants to talk about it when nothing's going wrong. So you want to start your asset protection early, people. DL, it would be a fraudulent transfer to create any entity and move assets into it and try and hide it. Even if you put it offshore in a Puerto Rico LLC or an entity in Turkey, a judge can throw you in jail if you don't bring back the property. So I hate to say, get a good attorney, look at your insurance policies, buckle up and hold on and pray. And that you don't have any assets lost. Two minutes. This is our last two more questions. Two more questions, people, and we'll go from there. What do we got? Oh, the Ohana family. This is from Hawaii. I know that because I know the Ohana's, which is a Hawaiian term for family. So never mind. I'm just playing around here. I'm having a good time. Okay, what do we got?

My lawyer created a C corp for me. I'm the only employee. Do I need to file an S Corp tax election to utilize the tax strategy you describe?

Oh, my gosh, I'm so glad you're here on the show. And the answer is probably 99%. Yes. But I don't know all your facts. I don't know what kind of business you have and if there's appreciated assets or property in that C Corp, but 99% of the time you're going to get out of that C corp. Now here's what happened, people. Ohana said a lawyer set up a C corp for them. They probably did it out of Nevada or some crazy thing like that, too. That's usually insult to injury. But here's the problem. If you have a C corp and let's go back to our same old example we had a bit ago. I made 75 grand, I spent 25 grand on expenses, and I net 50. And so Ohana says, well, I need a salary. I got to get paid. All right, we'll pay you 25 grand. So now you have a W2 of 25 and you've got 25 grand still stuck in the company. Well, the C corp is going to pay corporate tax on that, which is now 21%. Oh my gosh, I'm going to be over five grand in taxes. Yeah. Just to get the money out. Oh, well, I'll just take more salary. I'll take more salary. And If I take 50 grand in salary, then there's no corporate tax. Oh, but if you take more salary now, what are you paying? Oh, Social Security and Medicare. More fica. F word. And you're like, what the fica, I don't want to pay that. Get that. That's kind of a joke of mine. I thought it's kind of funny. So you say, what the fica, I don't want to pay that. And you're like, well, take more salary. I mean, more dividend. And then, well, but I'll take more salary. And you get into this chasing your tail problem of paying too much FICA tax. Effing tax. Anyway. Okay, so here's the problem. You want to be an S corp, the stars come out, the clouds part, and the light shines down on U.S. s corporation. Because when you make that 50 grand, there's no corporate tax. You take your salary, you're off to the races. And this has no corporate tax, no FICA, no Obamacare. And you get a 20% pass through deduction thanks to the GOP and Trump, which we can't thank him for a lot of things, especially his Twitter tweeting, but we can thank him for the business growth. Here. This is good. So this is what I want, people. An S Corp. But you got to get a consultation ohana. Because if you have appreciated assets or property in this, making the conversion can be a nightmare. But it's just get a second opinion, our office can help. Give us a call. Alright, this is our last question but don't go anywhere because I'm going to do a drawing and I'm going to announce last week's winners. So. So you want to stay for this? So Kris, what do we got?

Chris wants tips on the CPA exam.

Chris wants tips on the CPA exam. Okay, well this could work for any of you taking the lsat, the gre, the GMAT or the bar exam. I'm going to go one word. Ginkgo. Ginkgo biloba. Is that how you say it? Ginkgo biloba is that I can't say it right, right? It's an herb that makes your. Get the pronunciation. Did I say it right? Ginkgo biloba. Whatever. Here's the deal. I had to pass the CPA exam. This is important. I was in law school. I'm working 12 hour days and I'm eating hot dogs and pizza and soda and I'm cramming at night for the CPA exam. Now this is when you had to pass all four parts at once. So I go sit for the CPA exam and I pass three out of the four. I blow it. I have to start all over. So what did Mark Kohler do? I started over. No hot dogs, no pizza, no soda and lots of ginkgo. My brain was on fire. I was so smart I went in it passed all four at once, baby. Right there. So it's healthy living people. It's healthy living. No soda, no lots of ginkgo. Once you pass the exam, you can get back to Diet Dew, the nectar of the gods. Now this is how you'll succeed as a real lawyer and accountant and is drinking lots of rock stars and Diet Mountain Dew. Okay, our winners last week. Here we go. And Rosalie needs your mailing address. Don't put it out there for everybody in the world to see. We are careful about our privacy but Janelle Jacoten and Esteban Collier and Nancy Harris. If you don't get back to Rosalie in the next 24 hours and tell her your address. I'm not shipping you a book, so get in touch. And. And our winners will be. Our winners will be at my. See my audio guy, Dylan, he's all over it. He's like do not talk and look this way. I've got all these books for you. The Tax and Legal Playbook, second Edition, what your CPA isn't telling you, the story that will change your life and the Business Owner's Guide to Financial Freedom and the mother of them all, the eight steps workbook. 60 videos, podcasts and webinars to help you build your business or grow your business if you're already fairly successful and you want to be really successful. So anyway, check these. Check these out on Amazon or my website, markjkoler.com and we're going to give these away to a random drawing of all of you that share this video either on YouTube or Facebook. And let me say this. In a couple weeks, I'm going to Chicago. Get over there. Sign up for the workshop in Chicago, Philadelphia next month. Then it's off to Honolulu and Orange County. It'll be a live broadcast on December 7th. For 99 bucks, any of you can watch it while you're watching football simultaneously on a December 7th workshop that's going to help you save thousands and thousands of dollars and change your life and protect your assets. You're going to love it. And subscribe to me, please, on YouTube. Early Bird Special in Chicago ends on Monday. We got our cleanup special this month. Lots of good stuff. Get over to markjkohler.com or KQS lawyers. Thank you, my team, everybody. Keep living the dream.