Year End Tax Strategies LIVE with Mark Kohler

Welcome everybody. Before you scroll past this, please let me introduce this important topic for live YouTube, live Facebook. I'm going to be sharing a white screen here. This is all about helping you save money, protect it, year end tax strategies. I know it's a miserable topic, a lot of people think, but it's actually not that bad. It's fun, it's interesting. My name is Mark Kohler. I'm a CPA attorney, best selling author, radio show host and blogger, YouTube personality, blah blah, blah. But what I love is helping Main street businesses across America save taxes. And I try to keep it fun and interesting. Yes, I've said fun twice. Isn't that crazy? But it is. I'm going to try to ham this up, tell some jokes, tell some stories and do the whiteboard and answer your questions from around the country live right now. So I'm all yours because I've got some year end tax strategies that we've got to talk about that are coming up and we're going to do it right now. We're going to jump into it. So let me lay them out and here on the whiteboard. And then I've got Jack here on a microphone. He's going to be fielding your question. I need your first name and the city or state you're from. We appreciate that. If I don't hear your first name or city or state, we're not taking it. Jack, right? It's required. No more John Doe from Duluth, Minnesota. I want to know where you're from, but please, we got. I'm all yours for the next 45 minutes to an hour. And there's money that people leave on the table every year. And this has been a crazy year. Many of you have made more money than you imagined. Many of you have lost your businesses and you're trying to figure it out. Now, I may not have all the answers on this tax, legal and business stuff and PPP and property tax and sales tax and Internet sales. But I'm going to do my best. And if I can't get you the answer, we'll work on it. Being in one of our upcoming blog articles or podcasts. Got a podcast, Two of them every week. Our newsletter, blog books on Amazon, YouTube channel. I'm here for you. I've got amazing partners, amazing employees, paralegals and accountants. We've got a law firm, accounting firm and trust company. All right, let's do it. Year end strategies. Now I've got my top 10 tax strategies. Maybe I'm going to make that list over here and Then I'm going to talk about year end strategies, meaning there's a deadline that if you miss you're screwed. You know your sol. I'm not talking statute of limitations, I'm talking not good. So top 10 tax strategies versus year end tax strategies. Now a lot of times I'll do a webinar live broadcast on April 15. Strategies that are period pending or deadlines. So year end deadlines and strategies. That sounds really good. All right. If you have again any questions, throw them down. So here's the top 10 real quick self employment tax savings which is going to generally be an S corp deal. Real estate pro, real estate, real estate professional and rental losses. That's what we're looking for. Very big. These are my top strategies. I talk about in my books conferences around the country. I got my basic and advanced class last ones of the year tomorrow and Saturday so and I think our website cuts off in a couple hours on if you want to go to that retirement accounts and that's funding retirement accounts and then the next major strategy is self directing your retirement accounts and how can you those same accounts, how you can invest in what you know best and get a better rate of return and oftentimes do it tax free, not just tax deferred. We're going to talk about health care strategies and that's going to be your HSA hr, a flexible spending account. Huge strategies there. We're going to talk about auto, auto deductions better than they've been in 30 years. This is car, truck, SUV, RVs, Carvey, RV truck, all of them, dot, dot, dot. We've got family on payroll. That's how do you pay your kids, your spouse? Do you do you not? 1099 W2 how do you do it? Family pay Next I want to really drive home the easy stuff like dining and there's 50%, 100% issues. Travel, want to always make sure we are writing off our travel expenses which is different than auto and dining. Auto, dining and travel all take place on a trip. We want to always take advantage of home, office and I want to throw in all the goodies and I'm going to say electronics supplies, equipment, furniture, cameras, drones. I mean just all these little things that a lot of people forget if they have a business use. I don't want to pay taxes and buy them personally. I'm going to let the business buy them. Now I think there's actually 10, 11 or 12 there and I'm gonna put startup costs here and a lot of people forget that one. So let's add these up. Now these are great strategies that you just say Mark, I don't even thinking of these on a regular basis and we're not even to the deadline ones. So number one, I'm gonna number these 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11 and 1212 days of Christmas 12 strategies. All right. Okay. I know I'm a dork. Okay, so now let's talk about which ones have a deadline and then I'm going to field your questions. We're going to do it. Probably already have some questions rolling ready. Okay, so let's get over to this so deadline self employment tax. Here's some important year end strategies. This is a big one. You've got to make sure your payroll number, how much you're going to take in payroll is decided upon and reported by 11521 at the latest. You also so the payroll number how much you're going to do next. You've got to make sure on your W2 you list your health insurance premiums and any 401k contributions you might be doing in your business. Like a solo 401k. Also, some of you that have been in LLC all year need to think about doing your LLC retroactively to 1 120. So I'm going to put an LLC s election and that's got to be done to 1120 which you can do and then start pay and then plus payroll which has to be done by 115 21. All of this has got to be done in the next five weeks people. So any of these strategies, the next one is. Well Mark, I don't have an S corp, I don't have an llc but I'm making money and self employment tax killed me this year. Well, you better have your new S corp set up by January 1st for next year. Our fees are 150 bucks. Knock it out. Same price as legalzoom with paralegal or $800 with a tax attorney on the phone with you, planning your situation, answering any of your questions for an hour. Okay. This is all related to in my opinion self employment tax. We want to make sure we got the S corp, the payroll, the W2 done right and the LLC selection and the new S corp. So any of your questions on that, that is your first really piece of deadlines real estate professional. Nothing before December 31st I'm going to worry about. I want you to try to buy a rental every year I talk about passive losses and rental losses and buying real estate as a key tax strategy. But if you haven't done it by now, there's nothing to worry about before the end of the year. Okay? Retirement funding. Oh my gosh. If you're going to do a Solo 401K, the Solo 401K has to be set up by the end of the year. Now the problem is the IRS shuts down their system sometime before December 20th. We never know when. And if you don't have your ein for your 401k by then, it doesn't happen. So our deadline at our office is December 15th. So that's the deadline I'm going to put here. You might look it up online, Mark your line. There's no December 15th deadline. That's an internal for us. Because I'm telling you, I don't think it's going to happen if you don't nail it by December 15th. So solo 401ks, if you want to get a write off this year, you don't even have to put in the money till next year at all. This is your solo 401k in your business. It has to be completed. And I'm going to put 12-15-kkos. That's, that's for us to help you get it done. All right, now next on retirement funding, if you're going to do a Roth conversion which is part of the backdoor Roth strategy. Roth conversion or backdoor Roth. And I have clients at every income level. Do this at a phone call today with a lawyer that said, mark, I make a lot of money as an immigration lawyer, but I don't know what I'm doing with the tax stuff. My, my advisor told me I can do a Roth ira. Bad advice. Everybody at every income level can do a Roth IRA through a backdoor method. So backdoor Roth IRAs have to be converted by 1231, 20. Okay, so we've got those two deadlines. SEPs you can do next year. You can fund your traditional IRA by April 15th. DB plans, it's too late for those. Okay, so there's our deadlines there, self directing accounts. No December 31st deadline that I would worry about. Health care. All right? If you're doing an hra, you have to get it set up and do the reimbursement, which is a health reimbursement arrangement. You have to do that by 1231, 20. Now I have an HRA. I use it with my family. It's a great small business strategy to get a write off for all of your medical above insurance premiums. It's in my book right up here, my book, Tax and legal playbook. I have a whole section on health care strategies. Read up on the hra. If you have a small business, health savings accounts you don't have to fund until April 15th, so you're okay there. HRA. Don't deal with it in the next three weeks. Set it up, get it funded. Done. The next one is the flexible spending account. If any of you have one at work, you have to use it or lose it. That's the rule. So you have 2750 is the maximum you can turn in your receipts for. Depends on what your work's offering. Check with them. But that has to be done by 1231, 20 as well. Isn't this crazy? I haven't done this type of list before. This is good. I get better every day. I'm trying. That's what the ladies say. No. Why are you guys all laughing? I thought that. I didn't think that was funny. Okay. All right. Healthcare is good. Auto. If you want to buy an auto before year end, there's a good chance you're going to get a big right off of that. And Corey. Yes? That light is bugging me now. If you want to put that light. So it's a halo above my head, I'm all for it. But this little shadow thing. Oh, look it. Oh, it's this one. It's this. No. Where's that light coming from? All right, so. And we get a lot of compliments on our studio and you do a great job, Corey. Okay. Auto. If you want to buy an SUV, truck, car, motorcycle or RV by 1231, the write offs can be amazing. Now I'm not saying that everybody should do that. I have an article on my blog@markjkohler.com Is there any chat that you can put it in? There's not on this thing, right? That. That auto article. I'd love you to put it in there. So my blog@markjkohler.com you can put in the search window under the blog any of these topics and you're going to see articles. You can go to my YouTube channel and please subscribe. Hit the bell icon. Every time I do a new video, you'll get a ping. I try to keep my videos under 10 minutes right to the point. But get to markjkohler.com and search auto and you're going to see an article where I go through eight rules of thumbs, rule of thumb on how I should write off my vehicle, and should you buy something before year end or not. So think about that. Okay, family pay. Next one. If you're going to pay your kids by the end of the year, you got to do it by the end of the year. So pay kids. Oh my gosh. This is above age 18 or 18 and older under age 18. I've got a whole chapter in my book that. Countless YouTube videos and blog articles. People, if you have kids and you have a small business and you're not paying your kids, you're making a major, major mistake. I cannot emphasize that enough. And it's legitimate. I want these kids working in the business for real. So paying kids and I can answer questions on that. That has to be done by 1231, 20 as well. If you're going to pay your spouse, you've got to make sure that he or she is paid properly with the right method. I have articles on again, paying your spouse, how, where, when in YouTube as well. Pay spouse. That has to happen by 1231 20. He or she. Family pay dining. Nothing big there. Travel. Here's the thing. I want you to have your travel write offs for Christmas. At Christmas I want to make sure that you're having a board meeting during Christmas, board meeting at Christmas, Hanukkah, whatever you're doing and have a big shindig. And I want you to write off all your travel this holiday season if you can. Have some business meetings or check things out. Okay, so there. Let's summarize everything to deal with your S Corp payroll. Making sure you're saving on self employment tax. If you're making more than 40 grand a year net in your small business, there's going to probably be savings to be had. I don't care if you're in California or New York or everywhere in between. Solo 401k got to be set up in the next 15 days. You can go to our website@kkoslawyers.com and we have a $500 version and $1,000 version. You get an hour with a real attorney. Darren Charrington in our Office is our 401k attorney right now in December helping get all those consults done. If any of you are thinking about a 401k kkoslawyers.com get over there Roth conversion have to do by 1231. That includes the backdoor Roth. If you want to do a backdoor Roth you've got to get over to directed ira.com and when you get over to directed ira.com go to the forms and go to the very bottom. New new accounts and you're Going to see the backdoor Roth strategy. You only pay for one setup, but you get the two IRAs set up to do the conversion HRA. Call our office if you need to do an HRA. We charge 400 bucks. Get a half hour with an attorney, nail it. Flexible spending account. Deal with that at work. Buy an suv, truck car, motorcycle or rv. Don't know. Look at your situation. Pay your spouse, possibly if you're married, on a board meeting at Christmas, travel, a boom pen drop. That was good. This is freaking awesome. This is a good list. I can write an article on that. All right. Okay. Well, my questions now are all yours. I'm here with you folks. Want to give back love and appreciate you love the American dream. It's been a crazy 2020. And let's answer questions. And I'll use the whiteboard here as needed. Okay, what do you got, Jack?

Okay, Asia from Ohio says if I buy real estate for a hundred thousand dollars cash, can I deduct all 100,000 for the first year of filing tax returns, or do I only get depreciation? And can I only deduct a percentage of it?

Tasia, is everybody here in Jack. All right, Corey. Okay, it sounds like we're good, so I'm not going to repeat that. Tasia. Asia. Asia. It sounds really good. Asia, like the country. Okay. Continent. Okay, all right. Asia. That would not be a country. I'm not that stupid. Asia is a continent. Right. Okay, Asia, here's how this works. Here's your revocable living trust. Here's your 1040. We're going to split your life into two. Your sole prop or your LLC or your S. Corpse. Over here. You're going to put your rentals over here. Now, I do not care if you pay cash or have a mortgage. Doesn't matter. But when your accountant takes your rental property. People, if you go buy a rental property, I'm going to give you a backup strategy. Asia, you're going to love it. Everybody, this is serious. I know it sounds weird, but it is. This is good. If you go buy a rental, the accountant has to split it into land and building. So if she goes out and buys this for 100 grand cash, I don't care if you have $1 down and a $99,999 mortgage. Does not matter. We're going to split a certain amount into the building and a certain amount into the land, typically, and it depends on the location around the country. CPAs don't freak out. We're going to do an 80, 20, let's just say 80 grand to the building, 20 grand to the land. There is no write off for the land ever. Sorry Asia. No depreciation, no write off. What we can do with the building though, and this is, oh my gosh, it could be such a long answer. We can depreciate it now. You can immediately write off closing costs. Certain fees at closing can go immediately deductible. Some have to be added to the basis in the building and the land. But it's more technical. But you have to generally write off the building over 27 and a half years. What some people do is they will do what's called a cost segregation. And a cost seg allows me to write off a number of things in the building, maybe $10,000 worth immediately. It's called a cost seg. Under the bonus depreciation of 179, I can cost seg now. I've done podcasts on cost seg. I've got articles on cost seg. I've got a YouTube video on cost segs where I actually warn people, be careful about the cost seg. Go watch that Asia. Just YouTube Kohler cost seg. And it's segregation. But I just go cost seg. You might get an extra ten grand. Those are immediate. Now the one strategy that I throw out that I think is serious and cool is because it's real property. You have to do this depreciation thing and there's no bonus depreciation for the 80 grand where you could write it off all at once. Only on the cost seg number. But you can do an RV or a mobile home because they're bull, bull. It's an rv. It's not real property, it's a title. Now I can bonus depreciate the whole thing. I just was on a phone call with two of my clients down in Texas yesterday. They're buying four RVs for 200 grand. So here's our die. This is ugly. So they bought four RVs for 50 grand each. 50k each. They're putting them into a rental park, a rental pool at an RV park. They've already got them booked for rent during the holidays. These are going to cash flow about 15 grand a year. Now that's a big deal. That's a 30% cash on cash ROI. And guess what? They can write them off 100% this year if they take delivery this year and available for rent at least one day. 100% write off. So they're getting a write off for 200 grand. And again, Asia, they could do it with cash, a mortgage, do not care. So RV rental or mobile home rental versus a real property rental treated differently. There you go. Thanks, Asia. Okay, next question.

Hey, Brandon from New York says hi, Mark. Can I write off the appraisal I paid for a home I'm interested in?

Okay, Brandon. Generally, yes, but let me give a couple caveats. This is where 50 shades of gray in tax write offs come into play. I made that up years ago and have been using in taxes. I don't know what you're thinking about. I'm just thinking about taxes. But where it's black and white on this extreme, in this 50 shades the black, clearly you could write this off is if you're in the business of buying rentals, you're in the business of buying fix and flips. You know, chip down in Waco, Texas on Fixer Upper is going to go get an appraisal on a place because he's in the business of doing that all the time. That appraisal is certainly a write off. Then we start getting going through these shades of gray where. Where if you're over here and go, I don't own any rentals. I'm not in the business of real estate. This was a whim, this was an idea. And I paid for an appraisal and I don't own any other real estate. I don't think it's going to be a write off. Now. It could be a startup cost. If next year you actually do buy a rental, maybe it's related somehow to the appraisal you got. Maybe it's on the same street, same town and that appraisal is part of a process of launching your new business. I'm open to it. But an appraisal is going to be a hard write off on this extreme. But then clearly a write off on this extreme. Okay, I was going to write a book, fifty shades of tax write off gray area, but I don't know, it didn't seem appropriate. I don't know why. Okay, go ahead.

Okay. Rosa from California says, I'm married with four kids. I have an S Corp and LLC for rentals. I'm in the process of setting up my irrevocable trust. I have a property that I would like to do a post nuptial agreement with. How would that work? If I file jointly, does that impact our taxes or should I just continue to file as usual?

Wow, do we want to hit world peace as well? You're killing me, Rosa. That's tough. Okay, Rosa, In California, CA has a rental, llc, has an S corp, and says, I'm in the process of setting up a trust. Okay? So the trust is going to own her S corp and own the llc. Very common. The title should already be in the name of the llc. And in the process of drafting this revocable living trust, Rosa has some marital concerns. And she says, I want to have my husband sign a postnup. Now, I don't know many guys named Rosa, so I'm assuming Rosa is female and she's got a husband who's whatever. I'm not going to joke around. I know marriage can be very challenging. So Rosa says, this postnup agreement, I want to say, if we get divorced, this is mine. That's usually what a postnup says. We're going to keep. This is the answer, Rosa. We're going to keep reporting it on our tax return. We're going to keep filing married joint because you're married. So you have to either do married filing separate or married filing joint. Usually you're going to go married filing joint. There's more write offs, and it's better that way. So you're going to do a joint 1040 married filing joint. That's what accountants call it MFJ. And the postnup only comes out of the drawer if you end up getting divorced. The trust only comes out of the drawer if one of you die. The two D's, divorce or death. So the postnup is kind of protection for Rosa. And she's going to go to her husband and go, hey, I don't want to really get a divorce, but I ain't going to do this real estate thing anymore because if we get divorced, you're going to get half of it. And that's bull crap. So either we get divorced or you sign the postnup. Your call. Now, Rosie, you can't force him to do this. He needs to go get his own attorney. You want to follow certain steps. We have an attorney in California, our Lee Chan in our California office. He does postnup agreements. He can help you. You want to call her office, call Lee and go, Lee, help us out with this postnup. But they have to follow a certain protocol to be effective. And if you get divorced, this build, this house goes to you. And I'll put, you know, this is you with a skirt here. And the husband, he gets nothing in that if he signs the post note. And if Rosa goes to him and he goes, no, I ain't signing a postnup. She'll go, all right, let's just get divorced now. Maybe you'll continue to date, work on your relationship. But if Rosa goes ahead with this real estate without a postnup and they get divorced in California community property, state, he's more likely going to get half of that. And that's why she's thinking about a postnup. That's what Madonna and a Rod did. That's a whole other story. But I watched the news called Extra, very important news channel. Extra, Extra. Because you want to know what's going on in Hollywood. It's a big deal. Okay, next.

Connie from Napa, California says, is it better to have a solo 401k than a traditional IRA for tax saving?

Connie in California says, is it better to have a 401k or an Iraq? Well, for tax savings, Connie, what's better is both. It depends on what you're able to contribute, what type of write off you want. Are you focused more on Roth IRAs or more on the deduction? So let me give you all guys a few ideas. Connie, we want to go to left side, right side. Here's operations, here's assets. Every time I talk with a client, we build a diagram. And I, and I want to make sure everything makes sense visually. So on the operations side, I don't know what's going on, but I presume she has a business of some sort, and we call business B.S. that's her acronym for that. Sorry. And she's going to say, well, should I fund a 401k? Because you have to have a business to do that. And you can have a 401k at work and 401k in your business. Absolutely. Or should I do an IRA? Now, there's a big question mark here, everybody. If Connie needs the write off, we're going to focus on a traditional contribution to the 401k and a traditional IRA. Now, she's not going to be able to do both, but why I said I like both is because she can do the traditional 401k and get a bigger write off and do a Roth on the side. It's called the backdoor Roth. So she can do both a backdoor Roth and a traditional. If she wants to put away more and get the write off. Or if she goes, nah, I don't. I just need a five, six thousand dollars write off. Okay, let's do the traditional IRA and get the write off, but do a backdoor Roth with that. So you could do a backdoor Roth or a Backdoor in a traditional IRA. Another option is you could do a non deductible 401k contribution, which is 19,500, and convert it to Roth inside the 401k and still do a traditional and get a deduction. So there are all sorts of variations. Connie, what we would. This is where you'd get on phone call with Darren in the next two to three weeks at our office if you were to so choose, you know, if you chose to do so and Darren would help you decide on the 401k or the traditional, the back door and answer all these questions. And we're going to look at your income and your family situation and how much you want to put away and how much you can afford to put away. And. And that's going to play out. So that's the. That's the answer, Connie. I wouldn't say one is it's going to depend on how much you want to put away and in what way. And so I don't think it's a better or an. There's a lot. There's a lot there. So Darren Charrington. That's Darren Charrington and he doesn't have a Y in it. Is it chair? C H E R R I N G. I don't think there's. It's not cherry is Cherrington. Anyway, I feel bad. Darren's going to kill me for misspelling his name. Okay, next question.

Okay, Richard from Wisconsin says if you have a vehicle for business only and you have a decal, can you write that off as advertising and still use the mileage deduction?

First name again, Richard. Richard in Wisconsin says I've got a. When he says only, that's what kind of threw me off. It sounds like he has one car for business. Is that or one vehicle solely. Okay, Solely for business. So I'm going to assume, Richard, you've got another vehicle, whether your own or you're married and you've got this other vehicle will go to the grocery store. In the movies. If you go to the movies in Wisconsin with COVID I don't know. I do. In Idaho. I went to the movies Monday night. A real movie theater. It's pretty exciting. Okay, so Richard in Wisconsin wi has a business. I don't care if it's an LLC or a corp or a sole prop. Doesn't matter. When it comes to the auto. And he's got an auto here that is 100% business use. There's two ways to write off the auto, actual or mileage. Now, the year you purchase it you got to decide in the year of purchase, which way am I going to go? Actual or mileage? Actual or mileage has nothing to do with a wrap. That's what they call it, where you wrap it with decals or something cool. The wrap does not matter. I'm just gonna even write it out. Does not matter. Everybody thinks that, oh, if I put a logo all over my car, then it's 100% business. I get to write it off. The IRS says we don't care if you wrap the vehicle. What we care about is where you drove it and if you drove it to the grocery store for your personal use, which is typically the grocery store. That's not a write off. I don't care how many decals you have on it. So, Richard, do not focus on it. Now, if you're like, well, I was only going to get the wrap because I wanted the car to be a write off, don't spend the money. But if you wanted to do the wrap on the car for advertising, great. Now the wrap itself is a write off. It's marketing. You spend 500 bucks, thousand bucks, 100 bucks. I don't know. Whatever you spend on the wrap, that's a write off. But your vehicle, you have to decide actual mileage independent of the marketing deal. And go to my blog, MarkJ. Kohler.com Go to the blog. In the search window, type auto. I've got a great article there, at least four pages long. It's. There's a little video in there, and it goes through seven criteria or rules of thumb. Check that out. And Richard, look at those rules of thumb. Independent of this wrapping. Don't focus on that. Okay, next. Well, I just want to say Merry Christmas to everybody. Jack's pulling up another question here. Remember, type that in YouTube or Facebook, first name and the city or state you're from. Back on this list, too. A couple things I want to say is this payroll thing and the W2 and your S Corp. You don't want to wait till December 30 or January 10 to do that. We've got. My payroll team is already stressed out to the gills, and they're like, mark, I don't know if we can take any more payroll. We got to be careful there. Now, Costco even has a service for this payroll for S Corp owners. But this. All these steps you want to get on right away so that you're nailing down that payroll. Now, if some of you say, well, what's the payroll number? I thought we'd already have a question on that. So I'm going to just do real quick, even if. Jack. Is that okay? Jack? I'm going to do what's called the Kohler payroll matrix. And what this is, this is for S Corp owners. And the Kohler payroll matrix is all about choosing the right amount of payroll. It's called reasonable compensation. Now, I don't mean to disparage some very, very sophisticated smart attorneys and CPAs around the country that do continue in education and teach professionals what reasonable comp should be. They've got elaborate computer programs and their own little way of figuring it out. And they're very good at that. And I go to every one of those. Those seminars and learn. However, in 20 years, in interviewing IRS agents on my podcast and doing S Corp tax returns, we've done 10,000 or mores Corp tax returns in our firm over the years. We have never had a client audited for taking too little of payroll. Because what you want to do is take the lowest amount of payroll. So you pay your fica, the F word, fica. You pay that, and then everything else falls out the bottom. Even if your payroll or your cash flow is up and down, you just take a draw, and then we nail down your payroll every quarter. Very straightforward. Every accountant, lawyer, engineer, plumber, electrician, anesthesiologist, dentist, realtor, broker. We all do an S Corp. Makes sense. It's easy. It works great. Not unless you're in the five boroughs of New York City. I'm sorry, that's one of the few places in the planet doesn't work well. But we've got a relatively easy way of figuring out a payroll that works well with the irs. It hasn't got anybody in hot water. And you pay your fair share. And here's how it works. The more money you make, the less payroll you take as a percentage. So here's your payroll percentage. And I'm actually going to fix this right here. I want to say this line here actually kind of levels out. So what I do is we start out payroll at maybe. So if you're at like anywhere from zero dollars to about 50 grand, we're going to do a 50% allocation. So here you would take payroll of about 25 grand W2, and you'd be. You'd be okay. When you get to around 100 grand, we're going to do about a 40% allocation. When you get to 150 grand, we might do a 33% allocation. And so you can see how we bring it down to about a 20% baseline, you take your patient, you do your fair share. This will determine your 401k contribution and determine your savings and your 199A deduction. And there's all these things. Now what you can see here is that I have a sweet spot at about right here are 80 to 90% of small business owners. And this is where we do around a 30 to 40% allocation. So how this works is if you have a sole proprietorship or an LLC and you make 100 grand, you're going to spend 15% in self employment tax. That's $15,000. Now let's assume you brought in 150 grand and had 50 grand in expenses, so you netted 100. Now if you do this in an S corp, you get the same net of 100. You brought in a 150, you spent 50 and you netted 100. Okay? We're going to take a payroll of 40 and a pass through or whatever falls out the bottom and it's technically called a K1 is going to be 60 grand. Well, now I only pay this FICA on the 40, so whoo. I pay six grand over here. I'm out of hot water. I pay nothing over here. I just saved $9,000 on 100 grand. 9,000 is not chump change. So this is very common. It's legit. It's been around for 30, 40 years. The IRS is, they deal with it, it's okay. And that's how it works. So in this tax strategy list, this is why I put this number one, because it's like low hanging fruit. You gotta get on board for 2021 or fix 2020 as fast as you can. All right, Jack, questions. Where are we at?

Okay. Nick from Denver asks, how come you don't advise business partners to be under one S Corp

from Denver, Colorado says, why don't you have partners, an S corp? Why do you do something different? Oh my gosh, Nick, I was dealing this with yesterday, my two Texas clients that I talked about earlier with the RVs. They can't wait to get this switched over. We do this all the time. Now here's, here's what Nick's talking about. Okay? So if you have an operational business, restaurant, your dentists, your doctors, your plumbers, your electricians, your realtors, and we're partners, you'd say, well, why don't we just do option one, okay, let's make this prettier. Option one, we're going to do One S Corp and we're going to have partner number one and partner number two. And we're going to go 50. 50. All right, cool. And. And. Option two, we set up an LLC and we have partner number one with his or her own S Corp. And then down here is partner number one. And he or she owns 100% of the S Corp, but 50% of the LLC. And then over here we have the other s Corp, obviously 100% partner number two. Now, Nick may be saying, well, Mark, we got to do three tax returns. Now, this is ridiculous. I don't want to do 1, 2, 3 tax returns. I just want to do one tax return. All right, here's the pros and cons. So you bring in all the same partnership revenue. Let's say we bring in a million bucks, you know, in your business, whatever it is, and you got all sorts of partnership expenses. Let's say 600 grand of expenses. Wow. Okay. I don't know what the business is. I'm just going out some ideas. And you're going to net 400. Okay, well, here's the first problem. Partner number two went and bought a new computer at home. Wants to write it off. Can't. Well, why not? Because he's an employee. It's an unreimbursed employee expense. Partner number two can't write it off. Now, maybe partner number two is lucky enough to have another entity somewhere where they can write it off, but if not, it's not happening. Partner number one wants to go buy an expensive sports car. Partner number two wants to go buy a truck. Two different rules, Two different ways to write it off. Well, let's just give each partner money to go do it. Okay, but where do they write it off? They can't. They're employees, Nick. This. This isn't working. And so every day they're like, well, I got all these write offs. I want to pay my kids. I want to do this write off. I want to do that write off. And oh, my gosh. And I've got other income. I'm selling crap on ebay. My spouse has a job or a small business. It is a mess, Nick. But under this, what's beautiful? Let's say it's me and Nick. So this is my Mark, and this is Nick. Mark and Nick. Now, what's cool is Nick is like, oh, my wife has a small business. Oh, we can run it in the S Corp. Too. Oh, I want to write off home, office. I want to write off car, truck. Oh, I've got kids. I want to write off my kids. And I got to buy. I Bought new computers for everybody, and they're all on the board. And. And he can choose his own payroll, whatever level he wants, based on the matrix. Nick, you got a whole new world of tax planning because you have your own S corp. You can't do that over here. And by the way, you both have to take the same. You and I'd have to take the same payroll. And you go, whoa, you worked. I worked harder, Mark. I get a bigger. I get more money. Well, the only way to give you more money is to give you a bigger payroll because you have to do all splits of profit. 50. 50. Because S Corps can only have one type of stock. So what we do is, you got two W2s. And if I pay you more, what do you pay more? F word. Fica. You don't want to pay more? Fica, But I want to get paid more. We can't do it with the draw. It's a mess, Nick. Now, in my book, I have a whole chapter on how to pay partners and why. And we are converting clients this time of year, all the time. Over here. I had two consoles this week on this. That's how. That's how busy this is. So if we ever have our choice, we're going to go this way every time. And this is very common. This is the. The dental. This is the dental office. And every dentist is an S corp. This is the law firm. Every lawyer is an escort. This is the brokerage. Every realtor is an S Corp. This is a electrical company that every electrician's an escort. This is so common. So, Nick, you're. You're going to regret option one, I promise you. So, okay, next question.

Okay, here's a quick one. This one's from diamond in Detroit. She asks, does the upcoming webinar offer CPE credit?

Diamond in Detroit says, my class that I'm holding tomorrow, Friday and Saturday, by the way, it's six hours each day. We're giving giveaways, we're doing breakout sessions. I got basic and advanced tax strategy. If I don't save you ten grand in strict taxes with these. These classes. Yeah, I'm going to. It's a fail on my part. And I'm going to go over asset protection, privacy, estate planning. You're going to love it. You get a workbook. Go to markjkohler.com if you would like to sign up. And I'm not kidding, in the next two hours, registration closes. Because we got to prep all the zoom emails, workbooks, or go out. I mean, we've Got way too much to prep tonight. It's going to be a long night. So if you want to sign up, go over there. Now diamond says, can I get continuing education credit or hours? And diamond, it depends on your profession because you want to turn it in in Michigan. And so in Michigan, the rules for a Realtor could be totally different. The rules from a doctor, from a pharmacist, from an architect, from an accountant, from a lawyer. Let me just say generally, I'll give you a certificate. Absolutely. And CPAs, attorneys and financial advisors, that certificate is as good as gold. Realtors have a harder time getting continuing education because they push the levels down so much they want to qualify the people that teach it. By state, you might have a hard time as a clinical family therapist. A dentist or doctor might have a different rule too. So I can't guarantee it's going to be covered for CE in your state. But diamond, if you're a CPA or attorney, I, I'm 98%, you're going to be fine. But I want the class to be so freaking awesome that you're not there just for ce. So check it out, Diamond. All right.

Janelle from Pennsylvania asks as an unfranchised owner, do I qualify for self employed? Self employed tax.

Says as a unfranchised business owner. So I'm going to, I'm going to guess think of McDonald's as a franchise, but you own a restaurant that's not a franchise. So that's kind of what I think because you have to think of franchises. Franchises are normally operational businesses like carpet cleaning, restaurant, all the franchises that are out there, window clean, you know, who knows? So Janelle, we're talking about her operations side and she goes, I'm not a franchise owner, but I have a business. And then she says, am I subject to self employment tax?

She wants to pay taxes like a business owner.

Janelle, we might need more clarity on your question, but I'm going to say if you are a non franchise business owner, cool. You're a small business owner. So either you're a sole prop, you're an llc, or you're an S corp and you're going to have to claim it as business income. You're going to have all the write offs that any other business owner would and you're going to get subject to self employment tax right out of the gate and state tax in Pennsylvania and federal tax. And so what you want to do is maximize all your write offs, pay yourself, be a smart business owner, keep a good set of books and if you're making more than 30 or 40 grand a year, I'm going to push you towards the S corp. Start out as an llc, get some protection. Is that do you think I'm answering that? We're not getting more from Janelle so we're going to move on. But Janelle, you're a business owner. You got to deal with it. You're going to have self employment tax to deal with as well. Maximize your write offs and get to work. Love it. Okay, next question.

Mary Kay from Iowa says you stated take the lowest payroll possible. However, if you wanted to maximize the 401k contribution to save stash away cash, wouldn't it be best to increase payroll to maximize the 401k?

I love your question, Mary Kay. Little ironic thing, I hope you're not selling. Maybe you are the real Mary Kay that you know, you're selling your beauty products around the world. Probably not. You wouldn't be calling me. Okay, Mary Kay in Iowa now this is really good question. She's got an S corp and she's doing the W2 thing and everything else is falling out the bottom. That's a K1 or pass through. All right, I'm telling her don't take a big W2 because you're going to pay too much in FICA. And Mary Kay's like, okay, Mark, I get it but I want to put as much as I can in my 401k. Now this is where it comes to the sweet spot and using a 401k. So what we do is we decide how much are you able to put away anyway? Because if you call me up and go, well Mark, I only want to put away 20 grand. Okay, well that's easy because think about it, your deferral is 19. 5. So you can put the first 19,500 away and the company can put in their contribution or match up to 5,000. Well, you're already at 24,500, so you got your 5K match which is 25% of the payroll and you got your deferral. You're already at 24. 5 and we're just getting started. Your payroll amount to do this. If you want to put away 24, 5, check this out. Your payroll has to be enough FICA to COVID 19 5. So it's about 24,000. Oh my gosh, look at that. It's about $24,200 approximately. I'm going to go 24,000. So you take a payroll of 24,000, you sock away 19,500. You only pay taxes on 3,000. Because if you did a traditional 401k, you get a 19,500 write off. Your W2 is like 3 grand. Then the company can do 25% of 24,000, which is really 6. So I take 6 plus the 19, 5. You're 25. 5. So, Mary Kay, the first issue is I always ask the client, how much can you put away in your 401k? And if you're already at 10, 15, 20, 25, I'm not even going to worry about up in your payroll because you don't want to put away a ton anyway. Now, this is good, everybody. So then she goes, well, Mark, I can put away a lot more. I've invented this little thing called Mary Kay, you know. Okay, I'm just joking around. Okay, so Mary Kay says I can put away more. Well, this is where you have to say there's a law of diminishing returns. Because let's say you take 40 grand in payroll, you can do 19, 5 plus 10,000 from the company. All right, well, let's say you do 50 grand in payroll. Well, now I can do 19,5, but I only can do 12,500 in my. Sorry, I did. No, that's right. So I can only do 12,500 in max in my match. Now think about this. For an extra 10,000 in payroll, you can only put away 2500 more because it's 25% of your payroll. You with me, Mary Kay? Because, see, you've already got your 19, five. That's the baseline. So now you're only taking more payroll for the match from the company. And it's your company. I get it. But think about this. 25% of 10,000 more in payroll only gets you 2,500 in your 401k. Well, what did that cost you? Well, it doesn't affect your W2, but now I've got a the $10,000 write off. It happens with the company. You have $10,000 more of W2 and. But you get. Okay, I got to say this over again. You get 10,000 more on your W2, and you get a $2,500 write off in the company. Okay? So you've got to pay FICA as well on the 15 of the 10,000 of 15%. So you're going to pay $1,500 more in FICA and to only get $2,500 more in your 401k. And your W2 went up by 10 grand. But you say well, Mark, I got a write off of 2,500 over here in the corporation. But see, you're, you're, you're trading, you're trading nickels or to get a penny. It's just not, it's not worth it, in my opinion. So, Mary Kay, here's the issue. You want to find out what the maximum payroll I got to take and then figure out what my 401k would be. And so when you're doing this payroll matrix, I'm looking at what is your payroll have to be then? And I'll do this in blue. So if your payroll has to be right here, I'm going to figure out how much can your 401k be? And if I take more payroll then now what's it going to cost me in fica and is it worth it? That's a heart. It's complicated. So I just let the chips fall where they may when it comes to payroll. Now, once you're above 137,000 in payroll. Oh, now it's a different story because FICA goes from 15.3% down to 2.9%. Now it's worth it to only pay 2.9% to get a 25% contribution. See what I mean? So you're going to find kind of a sweet spot. Spot. And then it really gets better later anyway. Is that it? You don't want to do any more questions? Nothing else looks good. All right, well, everybody, thank you for watching. I will be here next week Thursday at 4 O' Clock Mountain on YouTube and Facebook Live. Please subscribe on YouTube and hit the bell, icon. And you'll know every time I go live. Love and appreciate you. Hope you have a wonderful holiday season. Keep living the American dream and don't give up.