When To Change Your Client From An LLC To An S-Corp

Okay. My accountants and tax professionals, lawyers, financial advisors, we're going to talk about when to convert your client into an S corporation that may be taking an LLC to an S Corp, filing a new Inc and just going right out of the gate as a S corporation. But we're talking about S Corps. Not S Corps. Those are in Vegas. We're talking about S corporations. We're going to have a good time, too. Now, if you're a business owner and you just want to poke your head in here and learn some kick ass, cool accounting stuff, please join us. But I want to be talking to my professionals because this conversation about the S Corporation is very, very important. It's one of the best tax saving strategies for a small business owner with operational income. Now, I'm a cpa, an attorney, best selling author. I've owned multiple companies in the tax and legal space over the last 25 years. I've worked for KPMG, the tax court. Where do I start? I've done 10,000 consultations with clients. I've been to tax court people. When I talk about the S Corporation, I want you to know I stand behind what I'm going to tell you. And I'll tell you accountants out there right now, and I might piss off some of you. There are way too many accountants conservative on reasonable comp. And you know, that's what it comes down to. You know it and I know it. Now, I've taught classes on reasonable comp. Every year I teach continuing education on reasonable comp. I'm on the board of the AICPA here in Arizona. I carry malpractice insurance. I have filed thousands of 1120s tax returns in 25 years. I have never, ever, ever had a client audited for taking too low of reasonable comp. Ever. I've interviewed prior IRS agents on my show. Our podcast has talked about this consistently for 20 years. And I've written articles, even an Entrepreneur magazine, Yahoo Finance, Forbes on reasonable comp. So please, I'm telling you, back it down on this. Back off on the reasonable comp. I'm going to show you how you can help your clients save thousands and thousands of dollars with not paying unnecessary fica. Cause we hate the F word. Fica. Spit on it. Fica. We hate fica. What? The fica. You know, that's the F word for us accountants. It's fica. All right, Now I'm going to talk about when a client is a good candidate for an S corp, when to file the 2553, how to do a retroactive 2553 and give you an answer, any of your questions. I'm live on YouTube, Facebook, Instagram, Twitter, whatever, TikTok, I don't know. We're live all over the place today right now. So in whatever format you're watching, type your question down below. Dana here in the studio is going to start asking me those questions in about 15 minutes. But I want to get through some points here. The number one reason we're going to do an S corporation is to save on self employment tax. And can I go to the whiteboard? Would they see that if I go to the whiteboard? Can we do that? Okay, I'm going to go on the whiteboard here and I'm going to compare. I have to go like. There you go. Okay. All right. And we're up. Okay. Okay. All right. So people, I want to compare the LLC to the S Corp. Now for those accountants out there, this is easy. We know an LLC is, is going to be filing a schedule E. That's. Oh man, I'm embarrassed. I was just talking about rental property earlier today. We know an llc, a single member LLC is going to file a schedule C, as in Charlie. An S corp is going to file an 1120s. Now here's how the normal LLC or sole prop works. Even if you have a client that doesn't have an LLC, because remember, LLCs do not save taxes. So let's say you have a client that brings in 100 grand. You know what, let's be a little more realistic. I'm going to say client brings in 150 grand gross and they have 50 grand in expenses and they net 100 grand. Okay, net $100,000. Perfect. This could be a realtor, a landscaper, influencer, restaurant owner, whatever. They're going to net 100 grand. They will pay self employment tax of 15.3%. They will pay this tax of $15,000 plus state and federal tax. Not good. This client is a perfect candidate for an S election. Reasonable comp. And I have taught this with the matrix. I will show you my matrix here in a moment. I would do this all day long. Assign a client's tax return every day of the year and on Sunday and have for years. We're going to net the same hundred grand. And when I net that 100 grand, I'm going to take 40,000 in payroll. That's the W2. And we're going to take a K1 of 60. Now some of you just fell off the chair and are like, Mark is a heathen. He, he can't do that. He's going to get audited. When? Where? I don't need software to do this. I've never gotten audited on this. And countless, countless professionals around the country, some are even more aggressive than this. All right, now let's see what the math shows here. 40,000 and a W2, 60 and a K1. We do not pay FICA on the 60. No self employment tax on the 60. I just saved $9,000. I saved $9,000 by converting to an S Corp. So. Well, you got to, you know, you got to pay to elect to be an S corp and you got to convert. You got to do an 1120s tax return. You got to do payroll during the year. Yeah, we'll talk about that. I'll give it to you. Even in California, you pay $800 a year for the franchise tax, let's say, and you got to file a tax return. I'll give you 1,200 on that. There's two grand. And then you're going to do payroll throughout the year. 150 a quarter. 300. 600. Okay, you're out 2,600 bucks to maintain the S corp. Let's just say, worst case scenario, that's California. $2,600 to have an S corp. Hmm. Okay, help me out with the math here. Spend 2,600, save 9,000. Now this is really hard. I can't. I don't know if I can get my head around this. Spend 2,600, save 9,000. I don't get it, Mark. Are you crazy? Holy crap. The more money you make, the more you save, people. This is the beauty of the S Corp. Now I'll talk about reasonable comp here. Then we're going to get into the steps and the process and the timing and the 2553 RevProc 2013. We'll do it all. But let me show you the Kohler payroll matrix. Now, here's how this works. In this matrix, and I don't need software. You know, I'm not selling you software today on how to calculate reasonable comp. I'm not. I have a program called the Main Street Tax Professionals. Main Street Tax Pros. I am educating twice a week in training, learning from the tribe and community myself. 12 modules, 80 sections, a thousand quiz questions, all CE approved. And we're changing the accounting industry. We're kicking out Real Tax Advisors with Street Smart Strategies. The S Corp is one strategy in that entire program. That's what I do. And we've got our law firm. We're helping clients around the country. We've got our trust company people. I'm not going anywhere. I stand behind what I teach. All right, so that's side note. Okay, now here's the matrix. So in this matrix, it's really interesting. This will be your net income. So let's put this at zero. And then maybe, okay, 100 grand, 200 grand, 300 grand, 400 grand. That's net net income. Okay? And then our other axis will be your percentage of payroll. 0, maybe 25, 35, 40. Go 50, 70, 80, blah, blah, blah. Okay, that's our payroll. Now check this out. As a client's net income goes up, the payroll allocation goes down. And then I flatline it. Actually, I kind of flatline it. Let's fix this. I flatline it, start at 50, and I bring it. And I go down like that. Okay, so this is the net income. This is the percentage of payroll. So at about 100 grand. See, I've got to get my chart here. I'm just roughing this out at about 40%, 100 grand. I want to be out here a little bit more. There we go. That looks a little better. So this is where the sweet spot is. This is where middle income America is. They're making between 100 and 200 grand. Small business owners. And I'm going to allocate their payroll around 40%, 35%. And as they start to make more money, I'm going to bring that payroll down and flatline it at about 20%. Yes. If I have a client making 400 grand, I probably do their payroll at 120, something like that. And it's going to be subjective. I'm going to talk about their business, the goodwill, how many employees, how many hours they work for. Sure, this is a starting point. But look at this. At 100 grand, I'm going to do about a 40% allocation, which I just showed you up here, a 40% allocation. Save nine grand. The more money I make, the more I save. So this, my friends, is the Kohler payroll matrix. It's a start. And let me just give you a disclaimer for anybody that wants to print this out. Go file a tax return and sue me. That's not going to work. You get to do your own tax return. I'm going to teach you the concept, the principles, and then you do your homework, and then you come get trained and you come to real classes where I break this down and give you white paper. People, this is legit. And you're saving your client Thousands. So that's the matrix, the Kohler payroll matrix. And we're going to start there and then have a conversation with our clients. That's it. Payroll matrix. All right, now let's talk timing here a little bit. Okay. A lot of accountants are still caught in the mindset that if I don't do an s election by March 15, I missed it for the year. There's a 75 day rule, Mark. 75 days? Yeah. And there's also a rev proc 2013-30. It's been around since 2013, 10 years now. 10 plus years. That if you attach that to the 2553, reference it at the top of the 2553, that's when you make your S election and I'll backdate it to the first of the year. So any client you have right now that's making more than 50 grand a year should be considering an S corp, because even on 50 grand of net income, I'm going to do a 50, 50 allocation. I'll take 25 grand in payroll, 25 grand in pass through all day long. And then they're going to save around 3,000 right there. That's paying for the S corp right there easily. So I make that 2553 election back to the first of the year. Now one of the rules here is you've got to do payroll. Now this is where clients and you're going to talk to your client about doing this and they're going to freak out. I don't have cash flow to pay myself a paycheck. How do I pay myself a paycheck? My income goes like this. That's right. That's why we're going to do quarterly after the fact payroll. We call our clients up in April. Hey, how'd you do the first three months of the year? Oh, January, February, March. Oh, I took 30 grand in draws. Oh, okay. Let's allocate 10%, 10 grand or 30% to payroll and we do a 941. We send off payroll. Done. Client didn't get a paycheck, didn't care. They take draws whenever they want. And then you do quarterly payroll. ADP has this set up. We love adp. I'll put links down in the description for adp. Get down there, get the payroll done for the client. Super simple and easy. In the fourth quarter, you clean it up. You know, you ask client, how'd you do this year? Maybe you need to increase the payroll a little, maybe decrease the payroll a little and then you knock it out. I got my PR here. You got an S corp. Is it that hard? Okay, Kirby, it's not that hard. Did you do payroll last year? Did you ever get a paycheck? No, she never got a paycheck because we do the payroll reports after she took her draws super easy. So when you sell this or talk to your client about this, you can easily look at their last year return and modify it. Now, let me speak to your soul. You accountants out there, I know what you're scared about. I've been there. You've got to go to your client and say, hey, I got a new strategy. I learned from Mark Kohler. I think we could do a little better with some more aggressive, reasonable comparison. Maybe we make an S election or, oh, we did an S election, but let's change your payroll and you're going to save them five grand, ten grand, who knows how much? Here's the problem. They might say, and this is what scares you. They might say, why didn't we do this last year? Now, I know that drives you crazy to the point where you get protective, oh, Mark Holder, you're way too aggressive. Because heaven forbid you look in the mirror and go, maybe I could have done it better. Maybe you could learn something new. In my trainings every week with my tribe, my community, I learned something new every week. Right now we're on the 401k deadline for S. Corps and contributions and this, that and another, and with deadlines and what can I do with the sole prop? When did I set up my 401k? Can I still do a contribution for last year? Do I do a SEP and convert over to a 401k whole or cool topic. I did a training on that two days ago. I probably learned three new strategies just myself. I take them to my clients. I go, hey, I learned something new. I want to help you. Thank you, Mark. That's what your clients are going to say is, thank you for calling a meeting, selling me on advisory services, teaching me new strategies. Thank you. If my doctor calls me up and goes, hey, Mark, I went to a conference and I found a new blood pressure medication. Am I going to get pissed and go, why don't you recommend it last year? I'm going to say, great, thank you. Write me a script. So go to your clients, go to them and bring advisory services and new strategies and new ideas. And don't. And if they are like, why didn't we do this before? Well, we're doing it now, and I'm learning new strategies and I want to wow you. Okay. Thank you. It's not malpractice to recommend a new strategy that you weren't doing before. It's about practice to make a mistake on a return. This is not a mistake. It's a new strategy. A better strategy, a better approach. And that's okay. A couple other items. Do we do. Do we put your spouse on payroll? Now I've got whole other videos on this. I only put spouses on payroll to max out his or her 401k and do a whole 401k strategy. Do not put spouses on payroll to get them Social Security. They get the spousal benefit anyway. Social Security benefits. You don't need your client paying so much FICA to get nominal benefits. They're going to get anyway. It's a law of diminishing returns. Never, ever, ever put a spouse on payroll just to get Social Security. It's not worth it. It's not worth the math. Spousal benefit will kill it every time. Put them on the payroll to max out the 401k kids. I only put kids 18 and older on payroll if they look like and act like all the other employees. If I can sub pay them as a subcontractor, put them on the board of directors, have them help out remote. I'm going to 1099. My kids that are 18 and older, I only put them on a W2 if under state law, they're not a contractor, they're a working employee like everyone else. Kids under age 18. Whole other strategy. They're not even going to be paid out of the S Corp. We're going to do that in different structure. You can watch some videos on that. Okay. So we talked about the retroactive S election. How much to pay in reasonable comp, triggering a point to when. You should talk to this to your client about this. I love it. I think you're off to the races. So now I just want to answer your questions. And Danan, if anybody's pissed and wants to call me out and say I'm a loser or I'm wrong, I want to hear it. And if any of you are like, Mark, holy crap, I love you. This is great. I've been a follower for years and I've been using this strategy. And you have a win. Please share it. Let's get this going here, people. And I'm all here for you. Thank you so much for being here today. This is so fun. Okay, Dana, what do we got?

The comments are pretty livid right now with a lot of Aloha's and blessings, Mark and hello from nc. Hello from nj. We have one. Please refer to them as Scorps to avoid further confusion.

Scorps. Scorps is what we should be calling them. That's good. Instead of escorts. Escorts are in Vegas. We're talking S corpse. So we're going to have fun with that. Yes. And thanks for the good well wishes. I got engaged a week ago to the woman my dream. She's amazing and Patty Burke Campbell. Got to go check that out on my social media and see some pics of the engagement. It was just awesome. Just love her and life is so sweet right now. Okay, what do we got? Good question.

Okay, first question. How far can you back date an S Corp?

Okay, so here. Here's where I. How far can you backdate an escort? Well, holy crap. You could do it a couple years back, but you don't want to. Just because you can doesn't mean you should. Your mom taught you that one, right? Okay, so how it would look and is if you. Okay, so let's say this is 2023 and this is 2024. Okay. And we're sitting about right here. Okay. And we've got four quarters, right? And that's a little ugly. There we go. Okay. Boy, I butchered that four quarters. Let's get this cleaned up. Jeez. There we go. Okay, so if we're right here, I want to back date to 11:24. And I'm not going to worry about payroll because it's already gone. And the next payroll I'm going to do will be at the end of third quarter in October. So I'm going to do payroll in October and then payroll in January. Okay, now this. I'm getting to my point here. So when I do my retroactive 2553 and I'll use RevProc 201330 and reference that we're off to the races with our project. Now if someone out there is going well, Mark, this is awesome. I haven't filed my LLC for last year yet because they're due in five weeks. You may say, ooh, ooh, I'll make an s election for 2023. Well, here's. We could. We could go back and make an s election here. 1, 1 23. But what's the trick with the S Corp? What's the trick? I've got to go take a payroll to make the engine run. If I don't take a payroll, S Corp can't do its job. That's when you get audited. Can't just run it all through his profit and pay no fica. We have to pay reasonable comp. So it wouldn't work for 2023 because I have no W2. There's no way I can do it. And so I will do an election up until mid January for the. For the prior year so I can knock out payroll, and then I'm out, and then I've missed it. Some accounts will try to finagle shareholder comp, kick it over to a schedule C, pick up some fica. It's an audit risk. Could work. Could work. I'm aggressive. Some days that could work. But the safe bet is do your s. Elections up until mid January, retroactive, get your payroll done, and then walk away. And that's the best move. So you've got plenty of time for 2024. Next question.

Okay, didn't turn my mic on. All right, next question is, how do I suggest these strategies to my accountant without risking offending them or acting as if I know it all? Or do I just get a new accountant?

I love it. Isn't it funny? And bless your heart, you're worried about offending your accountant. It's so funny. This whole industry is so funny. Do you know I was teaching 100 accountants today who feel guilty that their clients have not turned in their information yet to do their taxes. They feel like it's their fault, like they're more stressed than the client that hasn't turned in their information. You accountants out there, is that funny? We get more stress than our fricking clients. And then you clients out there are worried about offending your accountant. Oh, my gosh, I love you. Here's what I would do, is you got to go in with this mindset first. You are the captain of your ship. You sign your tax return, your accountant is not liable for the taxes or are going to go to jail. If you sign a fraudulent return, you do, that return is yours. You are the captain of the ship. Your accountant is your first mate. They take orders from you. Your accountant should be on the same side of the table with you, not on the other side playing like they're their IRS watchdog. And I know some of you accountants, and I'm sorry, some of you accountants out there think it's your job to be the IRS is watchdog. No, it's not. Your job is to help your client save taxes as legal as possible, strategize, build a relationship, help them get out of debt, help them build wealth, talk to them about all of their financial matters. Be an advisor. That's your job. No one said cheat the irs. No one said rip off the irs. No one said file a fraudulent return. No one said that. What we're doing is helping our client save every dime they can legally with every strategy that, guess what? You might learn a new strategy once in a while that you didn't learn in the CPA exam or a master's class or a law school or undergrad. I did it all. I didn't learn any of the strategies I teach today in school. Still go to school. I still loved it. So go to your accountant with the mindset, this is your tax return. This is your relationship, this is your life, this is your money. And. And you say to your accountant, hey, I've been following Mark Kohler. He's pretty well known, you've probably heard of him. And in the accounting industry am. I'm trying to be the man out there, the goat in tax and legal strategies in America. I've got best selling books on this. Any accountant that's done any searches on YouTube on any tax topic, they've seen me. So go to your accountant, say, hey, I was following Mark Kohler. You may follow him as well. Maybe buy him a copy of my book to be nice. There's my tax and legal playbook. Here we go. This one you get on Amazon. Tax and Legal playbook, second edition. I have a whole chapter on this topic of S Corps. A whole chapter. Go give it to your accountant and say, hey, I'd really like now this is serious and your accountants are going to love this. You clients out there, go to your accountant and say, hey, I really want you to be my tax advisor. I want a tax advisory relationship and I want to pay you for that. I want to save more in taxes. I'd like to meet with you more regularly and pay for your time separate from the tax return. Tax return prep is totally separate. This is not included with your tax return. Go to your accountant, say, please become a tax advisor. If you're not comfortable with some of these strategies, you can get trained as a tax advisor with Mark Kohler. I will bring you clients. I will make not. I'm. This is you. You're going to go tell your accountant this. I will refer my friends to you. I will bring you more business than it costs you to become a tax advisor with Mark Kohler. I need you, please work with me now. If your accountant can't swallow that now, they're going to get some. Accountants can be a little pissy and territorial and know it all ish. They can. I know the community, and if they get snippety, you say, hey, I'm just. I tried. I wanted to work with you in this way, but I want it to be collaborative. This is my tax return. It's not yours. So let's work together. And if you don't want to work together, then I'm going to go somewhere else. You want to know where to go? Markjkohler.com I have the Tax Pro network. It's right up at the top. Click on it. Hundreds of tax advisors that have to meet with me every week and get certified on a thousand quiz questions, get my books, come to my conferences, get continuing education to be on that list. Young and old, male and female, west coast, east coast, speak Spanish. Don't no crypto. Don't. No real estate. Don't know this, no that. Whatever. There's a whole variety of them, and you can interview any of them with a discovery call for free. Have a discovery call with them and say, how could we work together? I make no money on that transaction. You are going to pay them to be your new tax advisor. And don't think you got to walk in their freaking office. You know, I have an accountant that's four states away, and I've never even been to his office. I don't care. Get on Zoom. Get on a call and talk with an advisor that speaks your language. Check it out. March. Find a new advisor. All right, Danan, another question.

Next question. Can we get an Uber matrix to LLC to S Corp example while getting 32k benefit?

Can we get an Uber.

Can we get an uber matrix to LLC to S corp example while getting 32k benefit.

So I think they're an Uber driver making 32 grand. Yes. Okay. I was trying to, like, Uber matrix or whatever. Okay, sure. Let's diagram it. So let's say in my example, I have a Uber driver. Now I'm going to. And they're making 32 grand a year. They probably have a day job or married or partner and whatever, but they got this Uber business going. This is a 1099. It's going to go into a sole prop, which is a schedule C, and. Or they might have it going into an llc. Okay, The LLC does not save taxes. Taxes. LLC does not save taxes, people. Okay, here's. I right on the face of this, you are not a candidate for an S corp. And here's why. On that 32 grand. Holy crap. I'm going to write off 25 easy. Because I'm going to write off mileage. I'm going to write off home, office. I'm going to write off cell phone, computer, electronics, conferences, cameras. I'm going to website. La la la la la la. I'm going to drum up at least 25 grand in write offs. So there's 25 grand in write offs, 32 grand in income. You're going to only make about 7 grand. And you're going to pay tax on that. Consider yourself happy. Go lucky. Put it in an llc. You're filing the same tax return. Now, if you were, say you're married and you both drive Uber, okay? And you guys kill it. You're working hard and let's say you bring in 90 grand, okay? And I still write off everything under the sun, maybe 40,000 in write offs, you net 50. Okay? Now we run that through your LLC and. Sorry, my pencil here. Run that through the LLC. You net your 50 grand. Now we do an S election on a $50,000 net. I do 25 in salary, 25 in goodwill. And I know some of you are like, you don't even have employees. And you don't do this and you don't do that. You can't do that. Then don't. If you want to keep costs in your client taxes, feel free. If you think that's too aggressive, then don't. You have your. It's a free country. You can do what you want. I've been doing this for 20 years, never had a problem. IRS agents that I interview, I've had clients come to me that take unreasonable comp and we try to help them. This is more than the people that get audited. So I'm just saying. So 25 grand times 15.3%. That's going to be around $3,200 in savings. So I save $3,200 by taking that 50 grand through my LLC, but on 32 grand, you're not making enough. I wouldn't worry about it. But now, one thing people you may not know is you can run multiple sources of income through the same entity. So if we take this LLC and turn it into an S corp, and by the way, it's really expensive to convert to an S Corp. I think we charge $250. I know, I know. It's over the top. It's criminal. I know. It's so expensive. Is it dripping with sarcasm enough for you? 250 bucks. Convert to an escort. So you could run your Uber through this. You could run your Etsy sales through this. You could Run your landscaping services. You do through this. You could run multiple businesses all through one entity. And my life, I only have 1s corp in my whole life. That's it. 1s corp. That's all I need. My S corp owns other businesses. See, this is where the trifecta comes in, people. Here's your trust. We split your life in half. Here's ops, here's assets. A realtor would be a perfect example. S Corp, llc, whatever, Inc, I don't care. But it's an S Corp. The Realtor gets a 1099, has an LLC to buy a rental property, and their trust owns both. That's how it works. W2K1 schedule E, boom, bada bang. This is your 1040 down here. This is called the trifecta. When you work with our office, you'll get a trifecta. When you get your entity set up and we design your whole plan. It's amazing. If you want to get a new entity set up, get a plan. Get a strategy session. Go to kkoslawyers.com and you can meet with any of our tax lawyers and they'll hook you up and get you a new entity and a trifecta. You will love it. It's called a comprehensive consult. Okay, next question,

next question. A new client started an LLC business in June of 2024, making money, going to convert to an S Corp. Can I still backdate the 2020-2553 to January?

Hell yeah. All day long. And on Sunday, you said new client, they hold on. You said they formed the LLC when

in June of 2024.

Oh, that's the killer. Okay, if this is the LLC and it got started in June, I can only backdate you till the day the LLC started. So the first six months, five months of the year, you're going to have to do a schedule C. And then the last six months, you'll do an 1120s. So what you want to do is estimate is there going to be enough savings in the second half of the year to justify it. So you could still start with the llc. And if you don't have enough savings here, then say we'll do the election 11 25. So that could work out. By the way, this LLC is like insurance whenever for you advisors out there. What I like to do is when a new client walks in the door and they have an operational business, okay, I'm going to do it in a trifecta format. So here's my trifecta, okay? I'm going to start them out in Fact, I'm going to. When a client comes in, there's 50 million Americans now with a side hustle. So a client walks in, they have a side hustle and a day job and maybe a day job, 401k, maybe a little Roth IRA over here and they're, they're off to the races. There's a revocable living Trust and they're 1040, but they have a side hustle. I'm going to ask them, how's it going? How much are you making? Oh, 20 grand, 30 grand, 40 grand. I'll go, what's your plans for next year? Oh, I'm going to blow it up. I'm getting ready to go big. Okay. What I want to do is make them an llc, right? Then I'm not going to make an Ms. Corp right away because I don't know how their year is going to turn out or next year. But I can always back date to the first of the year because the LLC acts like S corp insurance. But in the year I set up the llc I can only backdate to the date the LLC was formed. Then I convert to the S corp when the time is right. So every side hustle business, I really like to be in an LLC format and then we'll convert them over later. Next question, next question.

With crypto, if you have an S corp, do you sell and buy back assets to determine payroll every quarter?

If you're buying and trading crypto, it is not subject to self employment tax. You would never ever, ever put crypto in an S corp. Here's where we do crypto. By the way, I have a crypto mine. You would do a crypto mine in an S corp because that's a business. But trading crypto is like trading stocks. It's passive. So in our trifecta, so here's our trifecta, we're putting passive income over here, we're putting operational income over here. So advisors out there, you want to build a trifecta for your client, you want to say, okay, side hustle llc, maybe full hustle S corp, oh, passive, that's going to be rent, it's going to be trading, it's going to be notes, it's going to be my IRA, it's going to be my 401k, it's going to be rental property crypto. That all goes over here. Now I might use LLC for asset protection and certainly for rental properties but. And that would be owned by my trust, but I'm not. But operations, that's going to Be selling a product, doing a service. It's going to be getting a 1099 that's over here on this side. And we have a wall between the two. So we're trying to create. This is going to be subject to self employment tax. This is not. We're trying to get capital gain over here. That's our long term play or no tax at all with a Roth. So you're going to build this for your clients and talk about this operational side, passive side. But crypto stays over here. No escort. Next question.

Hello Mark. Currently a non resident alien with my husband partner who is a resident. We currently own a business making about 15 or 150k gross income. Can we pay ourselves under a 1065 and if so, how much?

No, you cannot pay yourself under a 1065. You cannot take payroll out of a 1065 if you're an owner. But you know what you're talking about. You're saying, Mark, you know what they're saying in code is I'm a non resident alien. I cannot have an S corp. Yes you can now by the way, non resident alien, that means you're not even living here in the country. Resident aliens can have an S corp. You don't even have to have a Social Security number. So we're going to use an ITIN. Get your 1065 for you and your husband and then you're going to make an S selection on that llc. It's okay, you can look at the rules under the 2553. We help clients that are that don't have citizenship yet can still be an owner of an S corp as a resident alien because you meet the residency test. So look at that option. But you cannot save self employment tax with an LLC on a 1065. You got to convert to 1120s. Oh by the way, let me say this. We have a whole class on undocumented workers and strategies at our 360 event. So every six months I hold a three day conference of tax professionals, lawyers and business owners all coming together to talk tax and legal and business. We have huge parties, open bars and we study all day and have great learning and fun at night. The next one is December 6, 7, 8, something like that. The first week of December you can go to taxandlegal360.com let's drop it down there in the messages. Tax and legal 360. And we have 30 classes. One of them is on undocumented workers. We have one on Strategies for the Uber wealthy. We have one on real Estate. We have one on crypto. We have classes on paying family members, how to write off auto. Incredible classes. Over 25 hours of continuing education. Qualified continuing education for an enrolled agent or a CPA or a lawyer. You're going to walk away with all your CE for the year. Tax and legal 360. We reserved the entire Scott Hotel in Scottsdale, Arizona in December. Who doesn't want to go to Scottsdale in December? Holy crap. It's going to be like 70 degrees. Go out by the pool in the evenings. It's going to be beautiful. And I took down the whole hotel. It will sell out. You've got to get your ticket right away. We've blocked out every room in the hotel. There's an Embassy Suites one block away or less than a block away, and a Marriott and plenty of hotels around there, too. But come to tax and legal360, we'll have a whole class on undocumented workers. That class alone will pay for your entire trip and more. Check it out. Okay, next question.

Your code cracking was pretty on point. She later, the person who said that later said, I believe you have to be a citizen to switch to an S Corp, which you.

No, no, you do not have to be a citizen to be an S Corp. No, no, no, no, no. We stand behind it. We had an IRS agent in our class at Salt Lake. 360. Yeah, great guy. An IRS agent in the class from the Ogden office in Salt Lake. And Ogden's a city north of Salt Lake. But anyway, in our undocumented class, no one went to jail. All right, next question.

Next question. How do you pair stock trading income with real estate investments, specifically rental property, to qualify as an LLC. LLC? S Corp. 70% income comes from trading mid six figures, then rolled into rentals. Currently getting killed in taxes.

I don't know why you're getting killed in taxes if predominantly you're doing real estate. Maybe it's because you're trading a lot. And trading is. You're not going to get any write offs against those trades. Trading stock or trading crypto is not a business, it's an investment. And so I can feel your pain. You want to write stuff off on schedule C, but let me tell you your strategy. And by the way, you don't need an S Corp. Let's do it. Let's do your trifecta. This is why I recommend you get a consultation with one of my lawyers. 1500 bucks. Approximately 1500 bucks. You can meet with one of my tax lawyers and build a whole plan. If you don't save 10 times what you pay my lawyers for. Just a one consult. We failed. We will save you that. Give us a call. KQS lawyers get on Zoom. Okay, so in this example, this person says I have rental property. So we're going to put that in an LLC and then they do trading. Now I'm hoping you're funneling money into a Roth big time or your health savings account. I have a whole class that are training on just health savings accounts. A whole class on Roths. Okay. But anyway. So you at your llc, your business, this is your trick. I don't care about 70% of your income coming from trading. Don't care. You my friend. What I would argue, and this is what I don't know all your facts but what I would want to see you do is make the election as a real estate professional. See, as a real estate professional, I can take all of your write offs here. This is your business. This is your business. And you can take the profit out all you want. No self employment tax. You don't need an S corp, you don't have to have one. This is perfect. I have clients doing this all the time. You're a real estate professional. I want you to take all the write offs you can here. And as a real estate professional, there's no limits. And we might do cost segs. We buy a new property every year. You, you shouldn't be paying tax like there's some. I'm missing something here. If you're telling me you do not have a day job and you trade to make your pay the bills and you're a real and you have rental properties, you just have to show you're doing this 750 hours a year. That's 13 hours a week. Now if you only have one rental property across the country, it's going to be tough. But I'm assuming you can do 13 hours a week of running real estate. You please call the law firm, get a consult with Ashley or Max. I love them. Right, Ryan, Ashley, Max or Ryan. They're right here in the office down the hall from me here in Phoenix and get a consult. They will teach you how to do this. You'll love it. Okay, next question. I'm having so much fun. I hope you guys are. I love this. This is my happy place when I get to do a live with you once a week. This is super fun. So let's save some more money. What do we got?

Eric, who asked that question, clarified that the biggest burden is the short term trades taxed as ordinary income.

Yeah.

And then he also went on to ask if I can find his comment again. Is it possible to short term trade in a self directed IRA that flows through LLCs down to a trust?

Yes. So let me show you what he's doing. And by the way. Yeah. Your short term gains are going to be taxed at ordinary rates and, and there's nothing you can do about it with an S corp or write offs. It's not a business. So what you want to do is bury all of your business expenses which we would want to drum up a bunch in your real estate business. So you're going to do your real estate business and that will generate a loss and offset your trading income. Now if you go, well, I'm cash flowing all my rentals too much. All right, we've got some deeper issues. That sounds like your rentals are paid off, you're not using leverage properly and you may not have enough rental property. And are you using depreciation? Are you checking the box? Real estate professional. So there's some strategies buried in there. But the bigger strategy down the road that you just alluded to is every. Okay, I'm going to give you guys a kick ass strategy here too. But what he said is can I do a Roth that has an LLC and the LLC does short term trades and all of it goes tax free down to my Roth. Let me. This is a technical answer. Hell yes, do that all you want. Love it. Now I want to give you a side door strategy. We call this the side door 401k. So some of you out there have rental property and you want and you have an LLC and you can even be a real estate professional and you take your profit but you're like damn it Mark, I can only put seven grand in my Roth. I want to do the mega backdoor Roth. I want to do a 401k Roth. I want to really throw some money down because you could do seven grand in a Roth and you could also do 23,000 in a 401k plus a match. I might be able to get 40 grand in a Roth just in this easy example. But you have to be an employee and you need a W2. So what we do is we set up a management company over here. So I set up an LLC over here. Super simple, easy. And you pay a management fee in the exact amount. What you're going to take is a W2 and we're going to zero this out. So there's no self employment tax and the LLC is Going to sponsor a solo 401k and you're going to, let's say you drop 50 grand in the 400 in the management company. You get a write off over here. The write off offsets your personal short term trades. So you're getting a tax write off to offset your trades. Then you push the money over here. Now you could do a traditional or a Roth. I prefer Roth. And when this 50 grand comes in, we're going to push out everything into a 401k and zero this out. So after FICA and all that and we do a solo 401k with after tax contributions, this is called a Mega Roth. I could drop probably 45 grand into the 401k and make it a partner in your LLC. Guys, is this serious? So you professionals out there, this is what you'll learn as a tax pro in my program. This LLC is a self directed LLC owned partially by the Solo 401K and owned by the Roth. Now I've got over $50,000 sitting in the LLC to go out and do short term trades. I could do short term rentals, I could do long term rentals, I could do crypto, I could do stock. And I got a tax write off in my LLC to do it. And then I can decide if I want this all Roth or not. That, my friend, is freaking awesome. So anyway, all right, next question, next question.

Warren Buffett and others pay themselves in stock and only end up paying 20% capital gains tax. Why can't I do that with a C Corp?

Oh my hell. Oh my hell. I don't want to hear the word C Corp come out of anybody's mouth today. Please. C corporations are for big companies, not for small business owners. The double taxation is a killer every freaking time. And I stand behind it in my books. And if someone's trying to sell you a C Corp, please do some due diligence. Get a second opinion. Not from the bozo recommended the C Corp. I'm sorry, I know someone's watching. That's a C Corp fan and I just called you a bozo. But I'll stand behind the fact it's bad. I shouldn't have called you bozo. You do not want a C Corp. C Corps are terrible for small business owners. The only time I use them is once in a while to zero out with a fringe benefit for health care or something like that. That's a whole other strategy in another chapter in another book. But you do not. Warren Buffett. Freaking A. You're trying to do A Warren Buffett plan. When you're making, you know, 20 billion next year, we'll do a Warren Buffett plan. All right, here's the thing. He takes a salary if he works. Everybody has to. He's taking stock because he's selling stock. He's living off his stock and his dividends. That's okay. This other person that was just talking and asking a question, they make 70% of their income trading. They're trading on stock. They're living off the stock. Now you say, well, Warren Buffett, he's only paying capital gain of X percent, by the way. It's more than 20% when you put ACA in that and estate tax, too. But anyway, if you want to hold the stock 12 months, you can live on capital gain, too. But people, a C Corp is not where you go. No, no, no, no, no, no, no. S Corp. Llc. Trifecta. And I'll stand behind it and prove it to you all day long. We don't have time today. Call. Okay, next.

Hopefully at some point we get to hear how you really feel about C Corp. Yeah.

So

I want to be an investor in my son and his friend's business. How should the structure look like, me being an investor instead of a partner?

Well, the investor word is a dirty word. You are going to be a partner, an investor. The I word means that you are a silent partner. You put money in, you have no say. And that is regulated by the securities and Exchange Commission. Now, I know it's your son's business and his friend, you're not going to sue them, they're not going to sue you for losing your money. But everybody, unless you get the LLC blessed as a securities document, which is called a PPM. REG D. Crowdfund. There's all these different funds. 504, right? REG. As an investor, you have to either meet certain criteria. As a. As a qualified type investor, I won't go down that path. But they're called accredited investors. That's the I word. So I would not use the investor word. Just use partner, because that's what it's going to be. That's option one. So you're going to do an llc. You're going to take an ownership percentage. You're going to put your money in, and then son and his friend are going to have the rest of the ownership. You will have a say. You'll be able to see what's going on, and you'll put the money in and you're going to get a K1 and you've got to be careful about this. They could make money, but not distribute money. Now you've got phantom income on a K1. You need to have very specific rules and guidelines on how you get paid, when you get paid, where you get paid. That K1 and that operating agreement are very, very important. Let me give you an option to loan them money. Be a lender, loan them money, Get a rate of return, a percentage. They write you. Maybe say, first six months, you don't need to pay me. And then I want my money back plus 5% or 8% or 10%. And don't worry about ownership. Don't worry about the headache. Now, if you're like, well, Mark, they're going to make millions. I want to be a part owner. Okay, okay, now you're talking. Llc, you're going to get that operating agreement done, right? Please meet with one of my lawyers. We will do the entire operating agreement and a trifecta for you for around 1500 bucks. You just want an LLC, thousand bucks. And you meet with a lawyer and we'll design the whole llc. Get your son, your friend, his friend, you, your spouse. Get them all on the phone and my lawyer will walk you through the LLC to protect everybody. You don't have to have 10 lawyers involved. One couple more questions.

He did clarify that he is just wanting to give them money to start out.

Yeah. If you're just giving money to start out, just do a loan. And I'll tell you as a father, don't plan on getting paid back. It's just going with the right perspective. I'm going to loan you money. If you do well, pay me back. Inside you have a voice that says, I may not get paid back, but that's okay. What I would do, dad, this is very, very important. Do the llc, make them do it. Be involved in the call. Be there. Lead them, guide them. Teach them how to do business right. Create a board of advisors. I've got videos all this all over the web. Build a board of advisors for the LLC and you sit on the board. Then you're going to have quarterly meetings to get reports on how the business is going. Teach them financial literacy. Teach them business skills. Get your dollars worth with that money. You know what I mean? What are you really doing? You're helping your son make a difference. Live his dream, live his passion. Just don't give him the money and let him run out the door, have some strings to it. I want quarterly meetings. I want to be involved. I want to hear about how it's going. I Want a seat on the board? And then I'll loan you the money. Boom. That's a game changer. Get a call with one of our lawyers. All right, I'm going to say one other thing. We'll do one or two more questions. If you're an accountant, if you're a financial advisor, a lawyer, a cpa, an enrolled agent, you have got to, I beg of you to please do a demo of my Main Street Tax Pro certification. It is freaking amazing. 12 modules, 80 topics, constantly getting updated, CE approved, at least 30 hours, semiannual conferences, weekly trainings, a tribe, a community. You get listed on my network and you get all the work from it that comes, that's yours. We do monthly trainings on Mindset. We do monthly trainings on how to build your business as a tax advisor. And I was giving out engagement letters today, teaching how to do a proper engagement letter when clients aren't turning in their crap before the deadline. I learned from them, they learned from me. It's an amazing community. A demo is free. Go do a demo@markj kohler.com it will blow your mind. It's so affordable. Complete tax write off. And it will give you the freedom to make more money, help more people and be less stressed. You will love it. So check it out. All right, one or two more last questions.

Yeah, we have time for one more. Could you explain a bit more on how an S Corp can utilize Schedule C for additional above the line deductions? Is this possible for multiple members within the S Corp?

How the S Corp would use Schedule C. Yeah, well, an S Corp is not going to use a Schedule C. Okay, and then you said multiple partners. This is a tricky question because I want to vet what you guys are asking. So. All right, let me say this. If you have a Schedule C, and I said that may be how you're asking, you're asking it a little different, but if you have Schedule C's, you've got, let's say two or three businesses. And, and let's say you may even have an LLC or whatever. What we want to do is take all of that operation and move it into one S Corp, all those operations, and it could be an LLC taxed as an S Corp, whatever. But we're going to bring all that revenue into this S Corp and it's going to be owned by you, maybe your spouse. That's it. 100% you. This is me, my S Corp in my life. Then if I call you up and go, hey, hey, let's go out and start an online business. You're like, cool, that sounds great. And they'll say, mark, do you want to go? You really want to do this? I go, no, I don't want to do it. My S corp is going to do it with you. See, whenever I do partnerships, my law firm, accounting firm, any sort of real estate business that's operational, not passive, that's over here. This is ops. I use my S corp. My S corp owns multiple LLCs and they all flow into 1s corp. I take 1w2 and a river runs through it. That's it. So your partners should have their own S corp, Their own S corp. By the way, dad, if you're still listening, you would have your son set up an LLC with his partner. And then depending on their income, we might set up an S corp for each of them. That's how it would work. You are the lender, you loan money and you're on the board of advisors. That's how we would do that. So One S Corp owns all the businesses or LLCs. The partners are S corps. Any entrepreneur that, and I've taught this for years, if you're an entrepreneur, you have an S corp. So all of you should just love and maintain your S corporation and let it do the business that's operational. Then you might have a holding company, LLC that does your hold your passive. Anyway, people, thank you for being here. I love you. I love America. I love small business. I love Main Street America. The American dream is still alive and well. If you're stressed, if you're overwhelmed, if you're trying to make ends meet, creating a side hustle and ultimately a business of your own, coupled with a day job, maybe, maybe not. You or your spouse, partner whoever, is a path that's legit and real. If you want to save taxes, I need a small business in your equation. I want to build your Roth. I want you to get out of debt. I want you to build real estate. I want you to invest in crypto and stock and notes and anything that floats your boat. But people, it's your ship. This is your life. And you as tax advisors have a chance to teach your clients this. Help them to become the business owners of their own dreams. And you can guide them through that in charge for advisory services that they're starving for. So don't give up, people. I will not be here next week. I've got a big speaking gig in Florida next week at the Kennedy Space Center. I'll be out for the live, but I'll still be recording videos and posting regularly on YouTube and Instagram and Facebook and blah everywhere. So please make sure you subscribe, hit the bell icon and continue to follow. I will not let you down. We've got an incredible team.