Tax Tuesdays w Toby Mathis – Aug 20, 2019 EP 98

Tax Tuesdays w Toby Mathis – Aug 20, 2019 EP 98


(bright music) – [Toby] Hey, guys, this
is Toby Mathis and… – [Jeff] Jeff Webb. – [Toby] And you’re
listening to Tax Tuesdays, bringing tax knowledge to the masses, you being the masses and us hopefully bringing you
a little bit of tax knowledge. Nothing else, you’ll be entertained. – [Jeff] That’s the truth.
– [Toby] Yeah. So starting off another Tax Tuesday, first off, welcome, welcome, welcome. Let’s get everybody in here. I see a lot of questions
already being asked. And let’s see what’s on the docket today. We have a lot on the docket
today, we have a ton. So it’ll be very interesting to see how we get through all these. If you haven’t already, go onto YouTube and subscribe to our YouTube channel and click that little icon next to it, I don’t even know what it’s called. It notifies you when
there’s new videos posted. It doesn’t email you or anything, but the next time you go
onto YouTube it’ll say, hey, Anderson has new
videos, do you wanna see ’em? Other thing is, like us on
Facebook and interact with us, because we try to throw lots
of cool stuff out there, give you lots of good deals. Taxwise, our Tax Tuesday,
let’s go over some rules. Ask live, and we will answer
before the end of the webinar. Send in questions at
[email protected] If you need a detailed response, you do need to be a
client if you’re gonna be going into lots of
specifics about yourself. You just want a general one,
we’ll probably answer it live. This is fast, fun, and educational. We wanna give back and help educate. So we have a ton of
questions to go through. We’ll just start off by
listing the questions so you get an idea of what
we’re gonna be covering today. Is it better to pay myself
higher or lower wages from my C-corporation in order
to maximize tax benefits? I have a vacation rental I live in about four months per year and rent out the other eight months. What is the best strategy? What is the best state to form an LLC in for charging order protections? So we’ll go over all those. When you have different functions of a business under one entity, how do you write off the
expenses if you have one EIN? What type of entity should I choose for my e-commerce business? Is it preferable for tax purposes to pull all of my 401k money at one time for real estate investing? I think they mean pulling it all out. Is it OK to keep rental payments in my personal bank account, or does it have to go into the
property LLC’s bank account? I am selling a house to my brother and doing a 1031 exchange with proceeds. I heard that the IRS may
disallow this transaction. Is it true, and how can we get around it? Are charitable contributions
deductible to a C-corp? We’ll answer all those. I provide gas, food, and
lodging for an unrelated person. Is any of that deductible
on my personal return? What are the advantages of
switching from an S-corp to a multi-member LLC/partnership? Here’s kind of a long one which
I thought was interesting. I wanted to go over this with you guys, because it’s a very interesting answer. My partner and I own a lodging business that has broken even
over the last few years. There are seven cabins, none of which have ever been depreciated. Next year, the mortgage will be paid off and our K-1s will begin to show income. Will we still be able
to take depreciation? I have an HSA, health savings
account, with my W-2 job where I contribute the max annually. My wife and I have a separate C-corp. Can I create another
HSA through our C-corp and contribute to the two? And then the last one, can I qualify as a real
estate professional even though I have an unrelated W-2 job if I can prove I work 750 hours
in my real estate business? So we’re gonna answer
all of these in order. We already have a bunch of questions. Oh, somebody says, hey,
they’re having some issues… So let’s take a look at some of these. Somebody asked, and I’m
just gonna jump into this, just because I remember answering these, but sometimes people jump
on and off the webinars. Advantages and disadvantage of a lease purchase of a
vehicle through my C-corp? So first off, you’re either
doing a lease or a purchase. If you’re doing a lease where
you’re buying out the vehicle at less than 10% of its fair market value, it’s gonna be treated as a purchase or you have the right to
treat it as a purchase. So here’s where you have
advantages and disadvantages. First off, if you take depreciation and you rapidly depreciate a vehicle, so a lot of people wanna
write off the car in year one, you’re gonna have restrictions, depending on the type of vehicle. But here’s the rub. If you use that thing less
than 50% for a business, you’re not gonna get to use that anyway. If you are using it 100% for business, then I would recommend you actually possibly have the vehicle in the business, depending on what type of business it is. Otherwise, I would just keep it where you’re just reimbursing
yourself mileage, guys. It just doesn’t make a lot of sense to put yourself in a
situation where you could have something called depreciation recapture. You fall below that 50% threshold, and you have to track every year. So for example, vehicle’s
what, a five-year… – [Jeff] Five-year property.
– [Toby] Five-year property. So if you take that vehicle and you take a big chunk of
it right off in year one, you’re doing bonus depreciation, it’s a pretty good-sized chunk of change, let’s say close to 20 grand, and then you fall beneath
that 50% period threshold, you’re gonna have to recognize
all that as ordinary income. It’s not a good situation. It’s better to just reimburse mileage. And we use MileIQ. All right, so that was a freebie. Now let’s get to the
questions that were posed. Is it better to… Is that the first question? Is it better to pay myself
higher or lower wages from my C-corporation in order
to maximize tax benefits? Jeff, I know you’re gonna
have some thoughts on this. – [Jeff] We’re gonna say what
we usually say, it depends. And the reason it depends is, if you’re talking about benefits
such as retirement plans where you wanna be able
to contribute more, especially if you’re in
a defined benefit plan in your corporation, you’re
gonna wanna pay yourself more. – [Toby] Yeah. So what Jeff’s saying is, hey, if you pay yourself active wages, you could put them into a retirement plan. They qualify. You can’t do that with dividends, you can’t do that with
reimbursements and things like that. It has to actually be your wages. – [Jeff] But on the other hand,
if you’re raising your wages but you’re just increasing
the loss on your corporation, that doesn’t make a whole lot of sense, because you’re paying more tax personally and the corporation’s not getting a current-year benefit out of it. And then we run into other areas where some people want to
be able to show W-2 income for loan purposes or other such things. – [Toby] You’re hitting on a lot of ’em. So from a tax standpoint,
it’s an easy calculation. You say, hey, do I need the money? If I need it personally,
then is it better for me to pay it out as a wage to myself, or am I better off
treating it as a dividend or the profits, where it’s gonna be taxed at the corporate level
and then at my level? It’s almost never better to
have it taxed as a dividend, and it quite often is much better to have it stay in the corporation if you’re in your accumulation phase. So my wages are high, let’s say I’m already in the top bracket, so I’m sitting into, what is it this year? – [Jeff] 37. – [Toby] Yeah, 37% for
federal plus my state. So in some states, you guys
are at a 50% tax bracket, versus letting it sit
there at 21% in the corp. You just saved yourself
30 cents on the dollar, just for leaving it there. You just have to have a justification for accumulating the capital if you’re gonna do it year after year. – [Jeff] Yeah, I mean, otherwise, there’s no requirement to pay a salary out of your C-corporation.
– [Toby] Yep. A lot of folks don’t realize that. You don’t have to pay yourself a salary. There’s no technical requirement. It’s always weird ones like that. And by the way, your compensation includes wages and fringe benefits. So if you’re just giving
yourself benefits, there’s nothing wrong with that either, even if they’re nontaxable benefits. So it’s reimbursing all
your medical expenses, it’s reimbursing business expenses that are un-reimbursed but that
still benefit the business. It’s doing a home office, it’s doing 280A, it’s doing a bunch of these things. It doesn’t have to pay
you a wage to do that. That’s considered compensation, it just happens to be nontaxable. If the company gave you a car, like handed you a Lamborghini,
that would be taxable. They actually have to
do withholding on it. That’s a taxable fringe benefit. So you know, you always look
at those things and evaluate. Where I look at the big benefit
when you’re looking at wages is A, wages always have to be (mumbles). So you can’t just go willy-nilly and say, oh, this year I’m gonna give
myself a million dollars, this next year zero. You gotta be a little
more deliberate than that, and you gotta be careful. But you really wanna do
a calculation saying, here’s the trajectory I’m on. I’m in a very high-earning
stage in my life. Maybe I’m better off accumulating
more in the corporation with the idea that it might
pay me out those dividends in future years when I need ’em. I’m still working for the corp, it’s not a deduction to the corp, but I’m able to get the
money out of the corp at my longterm capital gains rate when I’m in a much lower tax bracket. And for those of you who are not aware, your longterm capital gains fluctuates depending on how much money you make. So for example, a married
filing jointly couple might be, I think it’s less
than 78,000, it’s at zero. So, you know, hey. I’m in my retirement years
or I have a bunch of losses that I took out of my real estate, maybe I’m gonna pay
myself out some profits. It’s not a bad idea. I’m not gonna pay tax on it. Somebody said, can you go to
the slide with the questions? The first question I answered was somebody who asked a question via the Q&A and they said they submitted it last time, and so I was just trying to be kind and answer it sooner than
later, ’cause it’s important. So let’s go through these next ones. Fun one. I have a vacation rental I live in about four months per year and rent out the other eight months. What is the best tax strategy? Well, Jeff, you probably have
some opinions on this one. – [Jeff] I don’t know
about a tax strategy, but there are rules for handling
rentals with personal use, and what the rules primarily say is that you can’t deduct certain expenses for the personal use.
– [Toby] Right. – [Jeff] So your–
– [Toby] You can’t depreciate the house against your personal use. – [Jeff] Right. So your real estate taxes
and your mortgage interest is still gonna be fully deductible, either on your rental
property or personally. But other things like your
HOA fees and your repairs and your landscapes may only
be partially deductible. – [Toby] Mm-hmm (affirmative). See, I think here you’re
gonna be getting the old 2/3 of your depreciation,
2/3 of your expenses would be treated as investment. You almost treat this like you have a threeplex
and you live in one of ’em. So you’re breaking this
into little pieces. Now, that said, unless you’re in a state where we would lose the benefit, I would more than likely be
putting this rental into an LLC from an asset protection standpoint, and from an estate planning standpoint, assuming that this may
even be a different state than where you reside
the majority of the time, where you could be looking at probating in two different states. The only states where I’d have an issue is possibly a Texas or a Florida where we don’t wanna mess up the homestead if this is considered
a personal residence. I don’t necessarily think it is, because you’re in it four months, and I imagine that you’re staying eight months in some other location. That’s probably gonna be
your primary residence. – [Jeff] I mean, this almost sounds like he’s staying in the offseason, maybe these are all short-term rentals during that eight months.
– [Toby] It could be. Or maybe during the summer
you’re just going someplace. I know people that do that. They go up and they’ll
spend the summer months in a place that’s not so hot, and the other eight months of the year, they’re wherever they work, and maybe they’re a teacher, maybe they’re a professor,
something like that. I’ve seen that a number of times. Anyway, so you just know
that if you’re renting it, it’s not gonna be as
straightforward as we’d like. It’s not one or the other, it’s both, and it’s proportionate. What is the best state to form an LLC in for charging order protection? It’s a good question. The two that we recommend, and it’s not in any particular order, it’s Wyoming or Nevada. And you know, Wyoming got into the habit of not putting out officers and directors on their Secretary of State
site, so it’s not listed, and Nevada, you can list a nominee. They’re pretty much identical statutes. The biggest difference is Nevada has a business court
that you can apply to, pay a little higher fee and you get judges that are used to commercial
complex litigation, so if you’re an operating business, maybe that’s where you wanna be. But for the most part, I’m
a dollars and cents guy, and it’s pretty cheap
to do Wyoming right now. But the statutes are identical,
so it really comes down to are there any nuances. But I think they’re both great. Somebody asked on that
last question, by the way, on the LLC, I’m gonna go back to it just so I don’t confuse
you guys, so that one. Somebody said, what if you pay rent? Well, you can’t really pay yourself rent. – [Jeff] Right, you
cannot rent to yourself. – [Toby] Yeah, you are the same taxpayer, unless you put that into
an S-corp and rented it, then you could, but
then you lose all the… Yeah, don’t think I’d be doing that. – [Jeff] And it’s
primarily for that reason that they don’t want you
deducting personal expenses. – [Toby] Mm-hmm (affirmative). Let’s see. Somebody says something about
a spendthrift trust, IRS rule, (mumbles) zero out your taxes. Oh, no. Yeah, I know what you’re
talking about, and yeah, no. There’s some fun stuff out there that’s… You know, the 643b common law trust. – [Jeff] Oh, OK.
– [Toby] I always see this. About once a year I
have this stuff pop up. I would just advise you not. IRS has already ruled on most of this, if it’s what I’m thinking of. I understand a spendthrift trust, we have a great statute
here that we like to use for asset protection trust, if warranted. You know, it’s a bazooka to a gunfight. And then Gary says, what
about New Mexico LLCs? They’re pretty strong, and
Alaska’s aren’t bad either, but I like sole remedy states. So what’s the best state? I’m just gonna tell you. I’m gonna use Wyoming
probably nine times out of 10, Nevada the other one, and everything else is a distant second, third, or fourth, you
know, it’s way down there. And that’s just from doing
this for a long time. All right, when you have
different functions of a business under one entity, how do
you write off the expenses if you have one EIN? – [Jeff] Well, I mean,
a good example of this is some of the Fortune 500 companies. They’re filing one tax return. Procter & Gamble, General
Electric’s a good example. They have propulsion systems and they have power
systems and the appliance, but all of those expenses are flowing up into one tax return. Now, the difference comes when it’s different types of income, and by different types
I mean rental income versus ordinary income
versus portfolio income like interests and
dividends, capital gains. Then you have to break out the
expenses to match the income that it’s going to.
– [Toby] Mm-hmm (affirmative). But let’s just say,
hey, I have one business and I have multiple DBAs or something. Then how do you write off the expenses? You treat it just as one business. It’s one return, and you’re writing off all the expenses as one taxpayer. So there’s no difference. What Jeff’s saying is that if you have different types of income being generated inside that same business, that might be considered portfolio income. You might have limitations on those as to what the expenses are. So you treat it almost, from
an accounting standpoint I’m probably gonna break
your divisions into taxes, I mean I’m gonna break off
each division into a class. Excuse me, I must be drinking today. But you’re gonna break
it into different classes underneath the same PnL. A lot of folks don’t realize
that that’s what we do, for example with real estate. I don’t wanna have a whole
bunch of different accounts that I have to open up for
each property in my QuickBooks, unless you really enjoy closing
down a set of QuickBooks and opening up another, which, how long does that take nowadays? It’s getting faster, but it
used to be several minutes. – [Jeff] Yeah, it doesn’t
take a long time… Well, I saw somebody trying to open a set of QuickBooks this morning and waiting and waiting and waiting and… – [Toby] Yeah, so it’s like, I don’t wanna have to come in and out. I’m just gonna use one
set, one main tax return. So that’s really what it boils down to. So if you have different
functions, you can label ’em as different classes underneath
the same set of books. – [Jeff] And in that regard,
if you have different classes or different LLCs or locations, divisions, whatever you wanna call it, you wanna try to apply those expenses to the income that’s being generated. But sometimes you have
those overhead-type expenses that you may wanna
allocate across everything. You may only have one bank account and five rental properties. So there are various
ways of handling that. But it’s all gonna end
up in the same place. – [Toby] Yep. So a bunch of questions, and it seems like we’re getting them from the previous question we had. Oh, boy. Somebody says, it’s not a necessity to have multiple LLCs
for liability purposes? It depends on what you’re protecting. If I have a bunch of cash
and I have stocks, bonds, I’m using one LLC. If I have multiple pieces of real estate that cause liability to each other, there’s a good chance I’m breaking those into separate LLCs. Any rules against renting from
an LLC I have an interest in? No. If it’s a partnership and
you may have a piece of it, then you’re renting it
from the partnership. It’s just when you own it completely, there’s just no reason for you to do it. You can’t really rent from yourself. You’re the same individual, especially if it’s personal property. – [Jeff] One of the
things I’ve thought about, though, as far as… We often hear, how many
properties can we put in an LLC or something like that, and one of the things I often think about is how much can you afford
to lose in one gulp? You need to determine your risk level when you’re making this decision. – [Toby] That’s it. Do I wanna lose 20%, 30%, am I willing to lose half
my assets in one shot? And granted, chances are
it’s not gonna happen. It’s a very small percentage,
but it happens enough you have to be aware of it. It’s gonna happen eventually that you’re gonna have
to deal with a lawsuit. The bigger question is, do you want it to be one that
could take out everything? And so you just say, here’s
how much I’m willing to lose. Somebody says, what are the tax advantages of having rental properties and LLCs versus sole proprietor, AKA 1040? Rental properties go on your Schedule E, not on a schedule C, sole proprietorship. There is no difference,
depending on how you set it up, but if you have rental properties, the whole idea is that
we want them to flow under your personal return
onto your Schedule E, where rental properties go. The question is, should
I have them in LLCs? Yeah, from a liability
standpoint, LLCs are awesome. From a tax standpoint, we can ignore ’em. So are there any tax advantages? No. We want all the advantages to flow to us. So you wouldn’t use LLCs
for a tax reason unless, here’s a big unless, unless you have a tax appetite where you have a management
company, like a C-corp, where you’re pulling money
off of your tax return legitimately by putting it
onto a separate taxpayer, being your C-corp. If you have a common expense for multiple properties, one tax ID, do you prorate the expenses
across the properties? So we have that same question. Would you prorate ’em, Jeff? Internally you would, but on a tax return probably not, right? – [Jeff] Yeah, on a tax return… We do it both ways. Sometimes we prorate ’em
across rental properties if we’re talking rental properties. If we’re talking about
operational-type income, we’re probably not doing that. There’s no reason to
break it out separately. But yeah, it’s perfectly
acceptable to prorate ’em, prorate those overhead-type costs. – [Toby] Somebody says,
do you file multiple DBAs with the state the LLC is in? Well, it depends on where you’re located and it depends on where
you’re conducting business. So your DBAs are either
gonna be city level, county level, or state level,
depending on where you’re at. – [Jeff] And I think mostly in California they’re county level. – [Toby] County and– – [Jeff] And I think some city. – [Toby] Texas is state, Nevada, we would be looking at county. It always depends on where
you’re doing business. And all you’re doing is saying, basically, hey, I’m operating under, you
know, Jeff Webb Accountants. You do not put an Inc after it, you do not put an LLC after it, and it is a DBA of something else. By not putting the designation after it, you’re telling them to go look it up to figure out who it is that actually they’re operating under. So it could be ABC Inc
DBA Jeff Webb Accounting. – [Jeff] And it’s pretty cheap to do. I mean, the most that I’ve
seen is like, $25 a year, and it really protects you from having other people
use your DBA name. – [Toby] Yep. And you’re basically
putting the world on notice that it’s not you as a person. So the default is, if there’s no entity they’re gonna look at you personally. I’m in Salt Lake City,
running a dealership. We should file our LLC in
Wyoming, question mark? Probably not. What we’re probably doing
under that situation, ’cause you have an active
business, car dealership in Utah, is I would more than likely
have that be an entity like an LLC taxed as a corporation or a traditional corporation,
either an S or a C, depending on the ownership
and what you need, and what we may end up doing
is having the interest in that held by an LLC out of the state, and the reason being, there
are two types of liability, inside liability and outside liability. The inside liability of a business is, let’s pretend that we have a business and an employee sues you for something and they’re trying to… They can take what the business has. They don’t come after you personally, unless you personally did something goofy, but they’re limited to the inside. In the rental world, if
you have a tenant issue, it stays inside that particular entity. Then the opposite is, let’s
say that I give my keys… I’ll give you a real-life case. A doctor, they found
out this the hard way. They had people over at the house. One of the individuals at the house, they said, hey, can I borrow
your car, run to the store, they loaned the car, the individual had a massive accident and caused grievous bodily harm, and of course, who’d they sue? The person who entrusted that
individual with the vehicle, meaning the doctor. So that’s outside liability. Now they’re coming after your stuff. And so the reason we
use Wyoming and Nevada is because they can’t
take away that stuff. So that the thing. Somebody’s asking, one of
Anderson’s YouTube videos says the IRS specifically started looking more at real estate investors
with multiple properties on their schedule E for audits. If you have a main partnership,
plan to have multiple LLCs. Parent LLC taxed is a… OK, so Chris, what you’re referring to is that when you have lots
and lots of rental properties, I think you get three
properties per Schedule E, so you’re gonna have
pages of your Schedule E. The more complex your
return, the more chances are that you might be enjoying an audit. Same thing with the more money you make on your personal return, the greater chance
you’re gonna be audited. So what some people do is
they set up a holding entity that is a partnership, that’s all. Set up an LLC taxed as a partnership, either between spouses or a corporation might have a 1% interest. And all you’re trying to do is
get a 1065 partnership return to list all the properties,
and they just hand you a K-1 and that goes on page
two of your Schedule E, and voila, you have one-line item. So some people are proponents of that. Quite often we’ll recommend that. And then sometimes, depending
on how complex you are, you’re saying, no, I
wouldn’t wanna do that, you don’t need an extra return. It always depends. So I think that I would
probably side on the, if you have more than a few properties and I’m gonna have multiple pages, I’m probably gonna go the 1065 route. Probably gonna have
the LLC holding company file its own tax return, just ’cause it makes my
return look a lot cleaner, and that’s probably because
I’m gonna be showing it to lenders and things like that. I may wanna get a loan, and I don’t wanna have
a whole bunch of stuff. Will the rental property
holding company, LLC, need to file a 1065, and will I get a K-1? The answer, Ron, is yes, if you have more than
one owner of that LLC, so again, if it’s husband
and wife we could do it or we add somebody else. Fun stuff. – [Jeff] And I kinda like in that case having a corporation with a
1%, making them our manager. – [Toby] Yep, I do too. – [Jeff] Gives you a little more liability protection on top. – [Toby] And I like having a C-corp or a corporation that I
can split income with. Here’s the thing. I’m gonna put this as a complete aside, I’m gonna go back to this one. All right. So if you are doing an LLC and if you are doing real estate, which it sounds like a lot of you guys do, because I’m seeing the questions come in and they all seem to
be real estate-related, with the exception of our car dealership, you can take a pretty
massive tax deduction at any given time on that property, depending on when you purchased it. So you could always take it and, you know, we just went through another course today on cost segregation. Love having those types of guys come in. We’ve talked about it a number
of times on Tax Tuesdays. But you don’t have to take
your property depreciation over 39 years, or 27 1/2 years if it’s residential investment property, 39’s for commercial. You can accelerate and take a
big chunk of those expenses, and it’s as high right now as about 30%, via cost segregation this year. So it really comes down
to what your need is, but I always look at it and say, hey, I wanna make sure that I’m capturing all those expenses. I’m always gonna wanna have that option, and I don’t wanna stand
in the way of doing that. On the same token, so I
have this big, massive loss, I may still have expenses and other things that I still wanna get to. And so maybe I’m
offsetting a lot of rents, but there’s still tax-free money that I can upstream into a corporation and still get to myself. You cannot do that if you
are just a partnership, you cannot do that if you are
just a sole proprietorship. Technically, you cannot be an employee of your own partnership
or sole proprietorship. So if we want a bunch
of the fringe benefits, if we want the tax benefits
of an accountable plan, then we need to have a
corporation floating out there, and when you pull that money off, it’s off your personal tax return, even if it’s compounding
and making a bigger loss. We don’t care. And if you have losses, somebody asked this
question a little earlier, if you have losses in a corporation, you just carry ’em forward if it’s a C-corp. If it’s an S-corp, it’s gonna
pass down to the shareholders. Anyway, so that kinda brings
us to this next question, ’cause this does have a lot to do… When somebody says,
hey, what type of entity should I choose for my
e-commerce business, I’m gonna tell you two things. First off, the entity, from
a liability standpoint, I’m just gonna care
that you have an entity, an LLC or a corporation,
doesn’t matter which to me, ’cause the inside liability,
that’s what I care about. I don’t want your e-commerce
business to spill over and cause you to get garnished
the rest of your life ’cause you had a business
debt you couldn’t pay and they just keep following
you around personally ’cause you’re personally responsible. So I’m gonna put an entity around that, just to keep the inside liability at bay. Then we look at the taxes. And if you have an e-commerce business, chances are you can choose what jurisdiction you’re gonna be in. I could pick a favorable jurisdiction to operate my business. Now I’m looking at the questions
of whether I need the money to live off of, whether I’m
already independently wealthy, whether I have a tax appetite,
have a bunch of expenses that I’m not getting to write off. Maybe this business could
be the one that does it. And so I’m gonna be factoring it in. But as far as entity-wise,
it’s gonna be an LLC or a corp. As far as a taxable entity, I’m gonna probably push you towards, a starting point, most
people would say an S-corp for an active business, or a C-corp, depending on whether you have other income coming in
that you wanna separate out and have a tax appetite. So I’m gonna be looking
at either of those two, and it really comes down to are you making money,
are you creating losses, do you want those losses, do you wanna just carry
those losses forward? All that stuff comes into play when you’re choosing an entity. So I’m sorry to give you a
little bit of a general answer. And then somebody asks online, I wanna create a consulting business with four other friends. What is the best entity to form? So when you say consulting,
that’s a magic word for us. That’s a specified service
business under 199A. Used to be bad tax treatment
if you were a C-corp. So what it really comes down to is, I’ll tell you what I would probably do. Your business entity,
I’m probably making that an LLC taxed as a partnership, or depending on how
much money you guys make I might even make it a limited partnership with a corporate general partner. If you guys are a partnership, then you guys could
each choose what entity you own your partnership interest through. So for example, if I
have four consultants, all of you guys making pretty good money, all of you guys wanting to take salaries, all of you guys wanting to
have your own retirement plan, and you don’t have a
bunch of other employees, I’m probably setting you
guys all up as S-corps and a partnership that you’re operating
your business through, and then the money just
flows through to you and you could choose how much salary you wanna pay yourself. You don’t have to do the same thing your other partners are doing. You can reimburse yourself
to your heart’s content without it affecting other people, and you could do your own 401K. – [Jeff] So let me ask, four buddies get together and
form an entity for consulting. Other side of the coin, which of these entities are the easiest to either break up or let people leave? Sometimes, these entities
don’t always work out. – [Toby] Mm-hmm (affirmative). They’re all about the same realistically. – [Jeff] OK. – [Toby] So what I would do is, in your operating agreement, have a rule. You don’t want somebody to be able to sell their interest to
somebody without asking you. You might wanna have the ability to… – [Jeff] Make a first refusal.
– [Toby] Yeah. I don’t want ’em just to
go off and hit me that way. (Jeff laughs) You know, and stiff me and… I may go on to say, hey,
even if you do sell it, they can’t become a member
without my approval. They might be an assignee interest holder, they might be treated as a
creditor of the organization. That’s about it. – [Jeff] Does any of these
entities offer more protection from inside liability, that
is, a partner or somebody making a bad decision? – [Toby] As long as you have
the entity around the business, it’s not gonna make that
much of a difference. The only issue you have,
for example in Nevada you have LLCs, but they have corporations. Corporations have charging
order protections here, but they’re also susceptible to alter ego, where you’re saying, you and the business are one and the same. So what would I do? If in doubt, if I’m
not looking at the loss and I’m not looking at
a 1244 stock election, you should know what that is, I’m probably doing an LLC. And yeah, it’s like a balancing test. I wish it was an easy answer, but everybody’s scenario’s
a little different. – [Jeff] I agree. – [Toby] Somebody says,
can I 199A as a trader? The answer is, it depends. I think you can 199A, which is the qualified business income. It doesn’t work on
capital gains and things– – [Jeff] Trader and securities? – [Toby] Yeah, I think they would have to make mark-to-market
election as a trader. – [Jeff] Otherwise, most of the income is not gonna be eligible for the 199A. – [Toby] I could tell you,
unless you become a trader and make the mark-to-market, I don’t believe you get the 199A, and even if you do, I’m not
certain that the answer’s 100% that you can. I don’t know, sitting here. I would like to donate one
of my cars to my foundation. What is the process? Depending on how much value it is. If it’s less than 500, you just retitle it into your foundation. If it’s more than 500, you
gotta get an appraisal. Right, pretty sure.
– [Jeff] The alternative is the charity has to sell the vehicle, and then your deduction is
whatever they sold it for. – [Toby] Do they always have to sell it? – [Jeff] No, they can retain it. A lot of these, they’re buying ’em and selling ’em at an auction. – [Toby] Mm-hmm (affirmative). So somebody asked that– – [Jeff] (crosstalk drowns
speaker) –for charities. – [Toby] Let’s see, I’m new to the real estate
business under the C-corporation. I’ve personally financed my
trainings, travel, et cetera, and I have not had any
returns on my investment. What should we be doing
now to protect my business, get a return on my tax, ba da da da da. If you have a brand new business and you are doing a corporation, then, Janelle, it sounds to me like you’re probably doing training and you may not have been in the business of real estate yet, which means you’re just
going to grab those expenses on that first-year return and carry ’em forward indefinitely. It is possible to take ’em personally if you dissolve that
corporation at some point, as long as it’s an actual corporation and not an LLC taxed as a corporation, and so long as you made
a 1244 stock election, which you could do anytime
prior to dissolving. – [Jeff] If it was a corp. – [Toby] If it was a corp, yep. You’re gonna capture those deductions, and chances are you would not get them if you were not in that business already, so that’s always the rub. And that’s why when you see people doing real estate training, our motto is always gonna
be to put you into a C-corp if you’re not already in that business. Lots and lots of questions today. Last time we didn’t
really have a whole bunch. Somebody says, update your slide. All right, all right, all right. Some guys are impatient, Jeff. Is it preferable for tax purposes to pull all of my 401K money at one time for real estate investing? So the answer’s gonna be
a resounding, it depends, and it depends on a lot
of different factors. – [Jeff] I didn’t wanna say it. – [Toby] Yeah, well, it kinda sucks. If you have a ton of losses
and you’re over 55, 59 1/2… 55, you can make a 72t, right? – [Jeff] Yeah. – [Toby] Where are we gonna
be to avoid the 10% penalty? – [Jeff] 59 1/2.
– [Toby] 59 1/2. So let’s just say you
have big loss, 59 1/2, lots of 401K money, no
tax for taking it out. That’s OK. You’re 40, you’re making lots of money. Now you have a 10% penalty
and it’s all taxable to you. Probably not. If you really want to, you could always do real
estate investing in your 401K, and then you choose to take pieces out whenever you feel like. – [Jeff] I think the only time
that it would be necessary… Well, it’s not even
necessary at that point, but I was thinking if you
were doing a Roth setup, the rollover business startup, you might wanna jerk your whole 401K out and put it in your new 401K for the Roth. But otherwise, I think I’d
probably just pull what I needed. – [Toby] Mm-hmm (affirmative). Somebody says, I understand
the liability issues on the LLC but not the tax advantage
of the LLC versus the 1040. OK, so Gary, here’s the deal on the LLC. LLCs do not exist for tax purposes. So if we are comparing
an LLC versus a 1040, you’re actually comparing
a 1040 versus a 1040 in many circumstances. In other words, the LLC, if it’s just you, is gonna go on your Schedule C. So there’s no difference,
there’s no tax benefit. It just gives you liability protection. If I want a tax benefit, I am going to treat that LLC
as an S-corp or a C-corp. And I can just give you the numbers. You guys can proof me if you want, but go look at the 2018
data book by the IRS. If I’m making $100,000 as a sole proprietor versus an S-corp, I am 1,200% more likely to be audited as the sole proprietor, and when I get audited
as a sole proprietor, I am 93 to 95% guaranteed to lose. If I am audited as an S-corp, it’s a fraction of the
time, it’s literally 0.02, and I’m gonna lose about 2/3 of the time when they audit you, but
it’s just so much less. Now, here’s the rub. On $100,000, the average
savings of being an S-corp is gonna be right around $10,000 per year. So if I’m just comparing
one thing to the other, and I do these during Tax-Wise. I think I do three almost every time where I just break ’em down and compare two businesses side by side, one’s a Schedule C and
the other one’s an S-corp. I have never had it where that S-corp did not substantially exceed
the amount of take-home pay that you get to keep in your pocket, just because S-corps, when
you take the profit off, it is not subject to self-employment tax. It is not subject to old age, death and survivors, or Medicare. It’s going to mathematically
save you 14 cents on the dollar that you take out as profit. Now, if you’re breaking even to zero, who cares, be either one. But, you know, again, that’s
probably the only time I’m gonna say that. – [Jeff] Yeah, the only
time I can think of where being an LLC is gonna make a difference
for tax purposes is if that is an LLC
filing as a corporation. It cannot make a 1244 election. It can’t take that 1244 loss,
because it doesn’t own stock. – [Toby] But if it’s a sole proprietor, you’re gonna take that loss. – [Jeff] For all the others, yeah. – [Toby] No, I know. And here’s the other thing. You don’t get to do an accountable plan if you’re a sole proprietor
or a partnership, so we don’t like those just by themselves ’cause we lose some serious benefit. So I think we belabored that one. We’ve got a lot of questions. Actually, Colton, you asked
a really good question. So I’m gonna go, where
did Colton’s question go? We’re going, too many questions too fast. Here we go. If you have a high-income W-2 job and started an LLC real estate business, we should have one rental, what is the best structure
to be able to reduce taxes? So first off, I have a bunch of income. Now I have rental property. I’m gonna tell you what my answer is. It’s gonna be to qualify
yourself or your spouse as a real estate professional and rapidly depreciate that thing so I can offset some of my high income. At a minimum, what I wanna do is make sure that I’m
depreciating my asset enough to where I don’t
have any more income. So even if I can’t take a loss because you or your
spouse does not qualify as a real estate professional, I just wanna make sure that I don’t have a single more dollar in my highest bracket
from that rental business. So I can tell you what I’d
be doing, is at a minimum, and I could tell you, you said you have an LLC
formed as a partnership, that’s fine. I’m just gonna flow on to you. Perfect. I already know what I’m doing. I’m probably taking that property and I’m gonna make sure
that I’m depreciating enough to where I’m not adding
any taxable income. And if you don’t know what
a cost segregation is, real easy way to think of it is, let’s say that you bought a house and all it had was carpet in it, no light fixtures or anything. You’d be able to break off what’s the value of
that carpet pretty easy. Well, the carpet’s what,
five-year property. So you would write that
off over five years, and with bonus depreciation, we could write it all off this year. So I get to write that thing off. I don’t have to take it over 27 1/2 years. So if I have a rental property, I may want to be able
to write all that off. Even if I did, like hey, I bought it, I wanna write it off, if it’s worth 20 grand,
that’s a $20,000 deduction. OK, perfect. Somebody’s… (laughs) I love it when people
say, I’m always confused. When I start an LLC or corporation, is the seed money
considered capital stock? So in a corporation… Not necessarily. So the answer is, depending on how that
LLC is taxed or that S, then the answer is, it’s
either paid in capital or it’s a shareholder loan. The reason you’re confused is because there’s plenty of options. It’s up to you how you wanna treat it. So it’s not always considered anything. – [Jeff] Yeah, it’s not
a cut and dried answer. You get to help determine
what it actually is. – [Toby] Mm-hmm (affirmative). Somebody else asked a
really good question. They said, what’s the best way to use a HELOC to fund my business? Well, if you use a HELOC, you can’t write it off
on your personal taxes. So I’d be looking at
your standard deduction, and I’d probably be calling
that a business loan and I’d be writing off the
interest through my business, let it reimburse you. See? Now we’re putting it
on a Schedule E, right? – [Jeff] Yeah, and sometimes we see that, where we’re taking one property and we’re buying another property with the equity on the
first property and… – [Toby] Somebody says, I
thought as real estate investors you don’t wanna be
classified as a professional, since it’ll hurt for future deals. A real estate professional
for tax purposes does not harm you in any way. You’re thinking of being an actual agent.
– [Jeff] Trader. – [Toby] No, this is real estate. – [Jeff] Oh, OK.
– [Toby] Right. So yeah. So Regina, no, no. This is from a tax standpoint, it will not hurt you in the slightest. It only helps you. What it is is, it’s the exception
to the passive loss rule for real estate losses. So when you qualify as a
real estate professional, those passive losses can offset your active ordinary income. All right. Hey, (laughs) you’ve been
staring at this slide and I didn’t even look at it. 2fer Tuesday, this is
what we did last time. We’re gonna keep this going,
’cause it was successful. So when we’re successful at
something, we keep doing it. All right, so I’ve done two
Tax-Wise workshops this year. Those are two-day, we go over about 30
different tax strategies. They’re two days in our Las Vegas office. What this is is, you get the
livestream and the recording for this year. You’re gonna get the two
classes we’ve already done and you’re gonna get
access to the livestream for the upcoming Tax-Wise, coming up, I believe it’s in November. It’s the year-end Tax-Wise workshop, so we’re gonna be going
over all the strategies you can use to save a few dollars. And then we’re also going to give you, it’s just crazy, the Make
Your Investments Bulletproof, we call it the Bulletproof Investor. And it’s gonna be two tickets to a three-day tax and asset
protection workshop class. You can come to Vegas, or we
have ’em around the country. We’re doing Chicago upcoming, we just did Dallas and
San Francisco and Houston, and we’re always popping around. And you also get Clint’s real
estate asset protection book and a three-part video series from Clint, Michael Bowman, and myself on making your investments
tax wise and bulletproof and making sure you’re passing
on and creating a legacy. And then, as the icing on the cake, you’d get a strategy session to make sure you have a wealth planning blueprint. You get all of these things
all together for $197, so it’s a screaming deal. – [Jeff] Every time this slide comes up, maybe it’s the accountant in
me, but I just shake my head. It’s like, we’re giving stuff away. – [Toby] It is giving stuff away, but that’s what we wanna do. Give, give, give, get. So the whole idea is that… Just got my book in the mail,
so let me know how it goes. All we’re doing is, you get blueprints just to give you guys an idea of what a structure would look like and what the results
would possibly look like. So I always look at things– – [Jeff] I would buy it.
– [Toby] Well, yeah, I’ll take your credit card. – [Jeff] You already got my dollar. – [Toby] All right. (laughs) Hey, yes. Some of you guys may remember. I think you owe me another dollar, but… I don’t know.
– [Jeff] I don’t know what you’re talking
about here, but go ahead. – [Toby] All right, is it
OK to keep rental payments in my personal bank account, or does it have to go into the
property LLC’s bank account? So this is a very good question, because the answer is,
if you want the courts to respect your LLCs, you
need to respect your LLCs. So it doesn’t implode it. So let’s just say that I have an LLC that is my holding LLC, and it holds three other LLCs that have rental properties in them. So I have three rentals, and
they pay a property manager. And to that property manager, I say, hey, skip the LLCs, just
send it to me personally. That will not implode your deal. Contrary to what anybody
else will say out there, that is a factor that they look at. If you skip it and you skip other stuff, you may have an issue. If you put it in the LLC and then just transfer it to yourself, that one little step removes that arrow. I used to have a professor
that always said, you shoot arrows at things
until you have enough of ’em it takes it down. He used to always call it a train, you try to derail the train. Well, that’s just one of the little arrows that could hit you. Somebody else says, my
rental is in an LLC. Should I manage the
property through my corp, bank account in the corp maybe… Oh, that’s fair. Yeah, that’s fine too, as long as it’s not
going to you personally. There’s some really good questions
that are coming in, guys. I don’t mean to be distracted. Usually I just go through the questions, but as I’m watching
these questions come in, there’s actually some really good ones. Can indexed universal life
insurance or mutual whole life be funded with my IRA or
401K without tax penalties? So Deirdre, the answer is yes, it can now, but there’s a tax ramification to having a bunch of cash value
in your retirement plan, ’cause it has to get out someday. But yeah, you actually can. It’s something that you
would talk with somebody who’s gonna get a calculator out and tell you the good, bad, and the ugly. Somebody says, would it be better, since notary fees are
not subject to SE tax… That’s weird. I didn’t know that notary fees
weren’t subject to SE tax. Did you know that?
(crosstalk drowns speaker) Yeah, I don’t know about that, Josh. I’d have to look at that. But I kinda think that maybe
your personal fees would be. Hello from Florida, what is
the best way to use the… Oh, somebody already asked that. I rehabbed a property, but my
contractor is not giving me a breakdown on the
stuff, cost segregation. Oh, so what you do is, since they did it, you get them to give it, or otherwise you just do
a cost segregation study. And that’s somebody who
goes into your house, and I can just tell you depending
on the value of the house, so Christian, how much
is that house worth, if you don’t mind giving me the number? So let’s see if they
have quickly, if he’s… Just asked a question, but all right. Let’s see, about 180,000. So you’re probably talking about somewhere between a 30
and a $36,000 deduction. I would get a cost seg. It’s probably, on a $180,000 house, it’s gonna be $1,500 or less. I can send you some
good folks if you want. For cost seg, does the asset
have to be a certain amount? Well, no, it really depends. So Rory’s just asking, why
would you do a cost seg? Does it have to be a certain amount? No, you can actually… It used to be you couldn’t do
’em on residential property. Now they’re doing it below 100,000. Sometimes it works out. If I have a bunch of income and it’s gonna hit me
in the 50% tax bracket ’cause I’m in California or something, I’m doing a cost seg. I’m getting a pretty
good return on my money. But I wanna have about a seven to tenfold return on the dollar. So if I spend $1,000 on something, I’d better get about a seven
to $10,000 tax benefit. That’s the way I look at it. – [Jeff] Well, I was
gonna say, the lower… – [Toby] And not a deduction,
I want a tax benefit. – [Jeff] The lower the cost is on that asset you’re doing cost seg on, I think your percentage of what you need, the percentage of… Short-term property,
it’s gonna have to go up. – [Toby] Yeah, so Christian,
this is really interesting, ’cause you just put this
property into service, you’re doing the rehab
now and everything else. They could break it off pretty easy. But again, on about 180,000,
I’m looking at that thing at $36,000 deduction. Well, if you’re in the
highest tax bracket, if you’re a high income earner,
or let’s just say it’s 30%, that to me is about a $9,000 win. So it’s kind of a no-brainer,
I’m probably doing it. Let’s see, somebody says, does the $197 fee apply to Platinum? Yes, Bob. But some of this stuff’s already
included in your Platinum, so I would talk to somebody here. If you’re already in Platinum, you already get the blueprint and stuff. Anyway, I’m reading too
many questions at the one. For the cost seg, does it
have to be a certain amount… Is the HVAC unit eligible
for cost segregation? Absolutely, Tim. In fact, that’s one of the
items that they’re looking at. So the easiest way to look at it is if I have an item that is less than 20-year property, right, so it’s 15-, seven-,
and five-year property, they’re breaking it out
and they’re telling you how much you could do bonus
depreciation, which is 100%, how much could you write off right now? And if you didn’t do cost seg, you could actually go back, right? You can go back and
recapture if you missed it for previous–
– [Jeff] Right. – [Toby] It’s just that
year’s laws apply, right? – [Jeff] Correct. And you can determine where
you’re gonna take the loss. You can do it in ’18, the current year. You may wanna wait ’til the ’19 return if you think you’re
gonna have more income. But you’re gonna take the
loss in the current year. – [Toby] So here’s what I’m gonna… Some of you guys are asking
for a cost seg person. Email in at taxtuesdays, so
Patty, if you could type up into the whatever it is… Let’s see, can cost segregation
be done on existing rentals? Yeah, absolutely. The only time I wouldn’t do a cost seg… Actually, there isn’t a single time when I wouldn’t possibly do a cost seg. Even if I’m about to sell a property, I may do a cost seg so I
don’t have to pay recapture on stuff I’ve completely depreciated. If I can say, hey, my carpet
is now worth zero, great, or if it’s considerably less, then I don’t have to do the
depreciation recapture on it. So I’m gonna treat that as
long-term capital gains. – [Jeff] Right. – [Toby] So here’s the deal, because you guys liked cost seg, it’s free to do an
evaluation to a guy I know, (laughs) Eric, oh, you’re looking at it. Yeah, that’s my buddy. So Eric at costsegauthority.com. So here’s what we’ll do. Email me. They’ll do it if they get
three pieces of information, so we’ll gather a little
bit of information. That way you don’t have to pay a cost. We’ll make sure that we’re getting you with the people that it doesn’t cost. So they’ll do a free evaluation, and what they’re doing is, they’re seeing how much
you could actually save. So you could say, eh, is it worth to spend a little bit of money
to save a bunch of money? Yeah. But is it worth spending
a little bit of money that’s gonna save you
a little bit of money? No, but wouldn’t you like to know that? So yeah, absolutely. All right, keep going on. So the answer to this, is it
OK to keep rental payments in my personal bank account,
is run it through the LLC. If you really wanna have
it in your personal, go through the LLC first. If you don’t, then you’re just
giving somebody an argument. And the chances of them
pushing that argument are very low, but… Yeah, but it’s not hitting you. Somebody just said this. The IRS publication notary public, fees you receive for services
you perform as a notary public are reported on Schedule C. These payments are not subject
to self-employment tax. There you go. So Josh, the answer would be… And what Josh is doing,
he was the notary who said I don’t think he’s gonna
pay self-employment tax. Good one, you don’t pay
the self-employment tax, but you do not get to
do an accountable plan if you are a sole proprietary, and your audit rate’s infinitely higher. So it’s not gonna save you much from a tax standpoint. Actually, so many of you guys are asking about the cost seg stuff, now
I’m kinda slightly distracted. Patty, can you… Let’s see, maybe I can do this. Oh, she already wrote it out there. [email protected] for cost seg. Send an email to Patty and she
will introduce you to Eric. But he’s got a bunch of accountants, and they’re all over the country, so he wants to make sure
you get to the right people, and we wanna make sure
they’re getting a discount. We don’t charge for this, guys, so we’re just gonna be
forwarding you to somebody else, but we wanna make sure we
get a really good discount, and they’ll do stuff for you for free, including the initial evaluation where a lot of people will
charge you an hourly for that. All right, here’s a good one. I am selling a house to my brother and doing a 1031 exchange
with the proceeds. I heard that the IRS may
disallow this transaction. Is that true? What do you think, Jeff? – [Jeff] Well, that is true
under certain conditions, and what they’re mainly
looking at is base of shifting. That is, between related parties, you’re trying to allow one person to take losses or even gains, and… It’s kinda hard to describe.
(Toby laughs) There is a prescribed
way to do these properly. – [Toby] I’m so setting you up. – [Jeff] I know you are.
– [Toby] There is a way to do it properly. No, so what it is is… (laughs) ‘Cause this was a
question somebody texted me, and they were freaking out. They were about to close, and they said, oh my god, somebody just said that they’re gonna disallow it. No, it’s not disallowed. You just, your brother can’t sell it for two years after you do a 1031 to him. So you can 1031 exchange
with related parties, but you have to hold onto it. And then the other thing is, you can even 1031 exchange that you buy an investment
property and you go live in it. People always say, oh,
I can’t go live in it ’cause I 1031 exchanged.
– [Jeff] No, that’s not true. – [Toby] Yeah, you can
can actually live in it, you can go live in it. You just can’t do your 121 exclusion if you’ve 1031’d within
the last five years. Think that’s the rule. Pulling that one out of the air, but I’m pretty sure that’s right. But this one, I remember
looking at the statute ’cause I was like, oh, no, I
think there’s a way around. So I just happened to be looking at it, and now it’s here in front of us. So yay, we got a cool question. – [Jeff] (crosstalk drowns
speaker) really concerned with this, that you’re
doing this as though it was an arm’s-length transaction. – [Toby] Hey, look at this one. Somebody says, if one
sells a 1031 exchange valued at $100,000 with
existing mortgages of 70,000 and acquires replacement
property valued at $150,000 with 125,000 in new mortgages, in this example, the taxpayer cashed out $5,000 equity, potentially taxable. Does this cash boot be offset by $4,000 sales commission to agent? Believe so. Your cash boot, so what
he’s referring to is, you had $30,000 of equity and now you have $25,000 of equity. You ended up with $5,000. You have to look and say, are there expenses that
were associated with it, because that would lower the amount that you actually have in the transaction. – [Jeff] Yeah, there’s two things. You don’t wanna receive cash, and you don’t wanna be
relieved of any debt. – [Toby] Yeah. – [Jeff] Both of those cause boot. – [Toby] Yeah, well, they
increase the value of the property and they increase the amount of debt. – [Jeff] But I don’t see
how this is, so what’s… – [Toby] He took… Well, because the difference,
the spread between them is, he went from $30,000 to
a difference of 25,000, so he was able to take
$5,000 of equity back out. So he got some cash boot. That’s what they call it. So technically, you have expenses
that offset some of that. So sitting here today, this is something, I can do a 1031 exchange of primary home and get $500,000 plus buy a rental. Oh, Sam, Sam, Sam, Sam. He’s gone. I like Sam. All right, so the answer, Sam, is I would ask your 1031
exchange facilitator, since they have to do
all your forms. (laughs) That’s a punt. But I believe you get
to take your expenses. So your cash boot under that transaction would be about $1,000, which
wouldn’t be earth-shattering, and chances are no one’s
gonna make you report it. All right. Can I do a 1031 exchange
of my primary home and get the $500,000 tax rate? So what Sam’s referring to
is, can you do a 121 exclusion plus a 1031 exchange? The answer is yes. And when you do it, you do get
the 500,000 if you’re married and you lived in it two
of the last five years. In fact, just that rule,
two of the last five years, it’s not the last two years. It’s two of the last five years. So you could live in a
property for two years, make it a rental for
two years and sell it, and you get both the 121 exclusion, which is that $500,000 for married couples of capital gain exclusion or 250,000 if you’re single, and that ups the… Yeah, somebody just said, just for the record,
notary fees are exempt. Yep, no, I already got that. So you guys are absolutely right. I didn’t know that off the top of my head. – [Jeff] I didn’t either. – [Toby] But we’ve been
corrected, sir, now we know. And that’s really cool. You know, we probably
have a bunch of notaries rolling around out there. I’m sure that our guys
would catch it, yeah, but… So what were we chatting about? Oh, the 121 plus the 1031 exchange. So this is where it’s really cool. I’m gonna give you guys
a real-life situation. Somebody buys a house, $500,000. They sell it five years
later for two million, they’re down in San Fran. So this is actually
kind of a fact pattern. So 1.5 million increased in value. They have a $500,000
capital gain exclusion. So they paid 500, they’re
gonna get a $500,000 exclusion. They’re gonna have a
million dollars of gain on their sale of their
house in California, which is gonna be, they’re
in the top bracket, they’re a very successful
software engineer. You’re talking about not only the top capital gains rate of 20%, but you also have the net
investment income tax, so 3.8, plus the, I believe you’re getting that even on a personal residence, I didn’t even think about that. He has 3.8 plus the California tax of 13%. So they’re looking at, a lot
of people say, oh, it’s 20%. No, it’s actually about
36% for this chap, 36.8. So $368,000 in tax on
the sale of that home. So here’s all you have to do. Instead of selling it right
away, you just rent it. And there’s no set
timeframe for renting it. In fact, there’s one case where
they weren’t able to rent it but they really tried hard. But just to be safe, rent it to somebody, maybe somebody you know, for six months. Then sell it as a 1031 exchange. Now, here’s the rub. The 121 exclusion only
covers capital gains, not depreciation recapture. So you have your 1250 recapture. So you’re gonna have a tiny bit of… And that where we tax it, your
new bracket capped at 25%. But what’s really cool is that entire million
dollars now is nontaxable. That entire million dollars of gain, now you can roll it into other properties. And then if you wanna
live in that property, make sure it’s an investment
property when you buy it, rent it again for six months,
and then go move in it. So the answer is, would
you go through a headache for three or $400,000 bucks? Yeah, I would.
– [Jeff] Absolutely. – [Toby] But wouldn’t you
rather know that going in, saying, is there a way around it? And obviously the numbers
go up, so it gets kinda fun. – [Jeff] Just keep in
mind you can only rent that property that you’re
selling for a couple years. You don’t want the
clock to run out on you. – [Toby] Yep. Somebody says, in a 1031 exchange when one sells one
property and buys multiple, how does the deferred
loss and capital gains get assigned to the multiple properties? It’s actually basis, and it gets assigned amongst the replacement properties, so you wouldn’t have loss. This is only for gain. Let’s keep going around. So is it true, and how
do we get around it? The answer to the question is, you can 1031 exchange with your brother. You just have to sit on it, make sure your brother
sits on it for two years. So if you’re selling it to him to live in, then you’re fine. Somebody says, how do you
get the 121 exclusion? How many years do we
need to live in a 1031… Oh, before it qualifies for it? Somebody says, how many
years do we need to live in a property from a 1031 exchange before it’s a home and
qualifies for the 121 exclusion? So Betsy, I’m paraphrasing you. It’s five years. And what it really comes down to is, you cannot use the 121
exclusion on a property that was 1031ed within five years. So once you’re over five years, you no longer have to worry about that. Fun stuff, you guys are fun today. Are charitable contributions
deductible to a C-corp? Jeff, you know this. – [Jeff] Yes, they are deductible, but there’s an income limitation,
taxable income limitation. – [Toby] 10% of net income, right? – [Jeff] 10% of net income, so… – [Toby] I kept thinking
that went to five, but I was looking…
– [Jeff] I wanna say it’s five too, but… – [Toby] Tax cut and Jobs
Act, it’s something weird. But I looked at the publication
today and it was 10%. I was like, eh, it’s 10%. – [Jeff] So the problem with this is, if your corporation’s running at a loss or isn’t making lots of money… You have to make at least $10,000 to make a $1,000 contribution. – [Toby] Mm-hmm (affirmative). But you know what you can do instead? – [Jeff] What can you do instead? – [Toby] Do a sponsorship. Don’t do advertising,
’cause advertising is UBIT to the recipient organization. So if you advertise with your church, that church, it’s not exempt anymore. They have to pay 21% on that, I believe. It’s UBIT, Unrelated Business Income Tax. But if you do a sponsorship and you’re not getting anything of value other than, hey, ABC
Inc is a proud sponsor of the, you know, pageant or whatever. I’m trying to be noncommittal
to any particular religious, but let’s say it’s… So I said a church, so I guess I… Christmas pageant, we’re
gonna do a Christmas pageant. All right. Then sponsor it, and that
way you don’t have to worry about writing it off as
a charitable donation. It’s now a sponsorship,
and it’s an expense, and you can write off all
the expenses you want. – [Jeff] I agree. – [Toby] See, fun stuff. Learn something new every day. All right. I like to talk about charities. I don’t know, we skipped right
past that one pretty quick. [email protected] came back
as non-deliverable. That’s weird. Patty, could you reach out to Shawna and make sure she gets
your correct email address? And I may shoot something out. You know what I’ll probably do, is include Eric’s information when we send out an email as a followup. So we’ll get all that. Let’s see. I provide gas, food, and
lodging for an unrelated person. That sounds like you’re
just, like, a nice person. Is any of that deductible
on my personal return? – [Jeff] Well, actually, what you’ve done is you’ve given this
unrelated person a gift. – [Toby] And the good news is, if it’s less than $15,000 a year, you don’t have to pay
tax on you being nice. – [Jeff] Right. So if you’re extremely nice,
you may have to file a return and later pay taxes upon it. – [Toby] (laughs) Yes. This is just bizarre. I provide gas, food, and lodging, and the IRS wants to punish you for it. – [Jeff] But no, it’s not deductible. It’s not a recognized charity or anything. – [Toby] You know what you like to do? So in certain circumstances… And I run across this a lot with people helping their parents out. They have aging parents,
they wanna give ’em money and they give ’em a gift,
and they can’t write it off. Instead, I say, figure a way to have… If you’re gonna go to their
house, rent the dang house and have a business meeting at the house. If it’s less than 14 days,
they don’t have to pay… You can write it off through your company, and they don’t have to
recognize that income. So I’m kind of a twit on these things. I look at it and say, you know what, decide you guys are gonna
have a family meeting, invite your parents in
to participate, talk… I’m a big advocate of
having a family corporation where you actually bring everybody in and you sit down and
have an actual meeting. So I would do that. And that way, you can
get some money to ’em. Otherwise, if you’re providing
gas, food, and lodging to an unrelated person, I immediately start
thinking it’s a girlfriend or a boyfriend or something, (laughs) they’re sleeping on my couch. Sure. No, but yeah, it’s hard
to get a tax benefit if you’re just being a giving person. Otherwise, you gotta
have a business reason. What are the advantages… Oh, somebody asked a
really good question here. What if that person becomes a
dependent on your tax return? Well, that’s cool, except
your exemptions are gone. So you get a standard deduction. You really get nothing for dependents. – [Jeff] Yeah, and it’s no longer a gift, it’s now, you’re providing for
their support as a dependent. So again, no deduction. – [Toby] Yeah, Angela, don’t do it. Don’t be nice to people. (laughs) – [Jeff] No, that’s not what we’re saying. – [Toby] You know what you can do is, you set up your own charity
and you help people, and then you don’t have to
worry about deducting any of it ’cause every time you give
money to your charity, you’re writing that off,
or you give assets to it, if you’ve been listening to us. All right, should I be making investments as a limited partner in hedge funds and real
estate syndications through my Wyoming company, or is it better to set
up a separate entity that the holding company is manager of? So I’m not sure I follow
that one completely. I have a limited partner in hedge funds and real estate syndication. So here’s what I’m doing. So again, you have inside
and outside liability. It doesn’t matter from an
inside liability standpoint how you own your investment
in a syndication. What it matters is whether
somebody can take that ownership away from you in that syndication. So if somebody were to sue you, right, and wanna go after your assets, can they take away your syndication? The answer is generally yes, unless you place it into a safe, and a virtual safe is
like an LLC in Wyoming. Nobody can take your assets out of it. So if it’s me, I’m putting it into an LLC in a state that nobody can touch, just because I never know
when something’s gonna pop up. Plus I’m orderly. I like having all my stuff
in one or two places, and I know where everything is, and I made it really easy so that if I get hit by
a Mack truck tomorrow, my estate’s actually
really easy to identify. They’re like, all right,
here’s where everything goes. Not everybody is like that. Some people like having
lots of different interests and lots of different things and it’s all all over the place, and it becomes kind of a puzzle when something happens to ’em.
– [Jeff] Yeah, I mean, there’s very, very little inside
liability with securities or those type of things. It’s like having a lot
of money in your wallet. Nobody’s gonna sue you because you have money in your wallet, but they will sue you to get
the money in your wallet. – [Toby] Yeah. You know what, there’s two
letters in the English language that make somebody really
sue the heck out of you, and that’s MD. So if you know any of those
chaps and wonderful women that are medical doctors, you know, and they get into a car accident, don’t admit (laughs) that you’re a doctor. Say anything else. Hey, I’m in NorCal and
want to Airbnb my home. How do I do this without
the LLC in California or paying tax on the full
rental Airbnb earnings? Alicia… In fact, I don’t even know why I just picked that one out of the air. Darn it. I would like to sell my MD. (laughs) That’s fun. All right, so this is
kind of an odd question, and I don’t know why I just grabbed this, ’cause it’s not related to the other ones, but what the heck. Airbnb, if it’s seven days or less, is an active trader business. So if you’re in California and you’re making money as an
Airbnb and it’s your house, the big issue is, is it worth it? If you’re doing it for
your personal house, then if you can keep
it to 14 days or less, then you don’t pay any tax. Yeah, somebody says,
the house isn’t selling so I’m trying to make some cash. Do it 14 days or less, Alicia. Otherwise you’re gonna have self-employment earnings on that and tax. If you’re gonna go above 14 days, then here’s how I would do it. I would have an LLC hold your home, which, gosh, this is
really frustrating for me. – [Jeff] I wouldn’t do that. I disagree with you. – [Toby] No, because you’re
worried about the $800. – [Jeff] A year.
– [Toby] Yep. But again, if you’re
Airbnb-ing in Northern Cal and you’re going over 14 days, you’re gonna have to do the math on it. Number one, contact your insurance and let ’em know you’re
doing short-term rental so they add a rider on
that’ll cover the people and cover your house in the
event they steal everything. And what I would probably
do is have it in a trust, and I would make the
beneficiary of that trust outside the state,
probably an LLC in Wyoming, just to keep that house, so that it doesn’t follow you around if somebody does a header in your house. And there have been
death claims on Airbnbs. So make sure the insurance is good. Make sure that you’re putting, it’s actually called a land
trust that holds the property, have it assigned to an out of state, and this is what I would do, is I would… It depends on… And I don’t wanna go
down this rabbit trail. I’m already biting my tongue. If you’re gonna make,
let’s say, $30,000 or more, then I’m gonna probably
be doing that through, I’m gonna rent the house
to a C-corp or an S-corp and have it be the host. That’s only if my rentals
are seven days or less. And the reason you do that is because you wanna
be able to get your… Somebody already said, 20
to $28,000 monthly earnings. So she’s got a badass house. I wanna run the numbers, Alicia. This is a prime example of
when you take your home, you break it into an LLC, and you rent it to your corporation, and your corporation then
turns around, is the host. And the reason you do that
is, you want your home, the rents, fair market values, to still be subject to depreciation. You still wanna be able
to get all the benefits of passive income. And then your host is the one
who’s getting the short term and it’s being sheltered from you, so it’s not subject to
the self-employment tax. If you do that, there’s a good chance you’ll get the most money
back in your pocket. But we’d have to do a little calculation to make sure the complexity is worth it. All right, going to the next one. Oh, what are the advantages of switching from an S-corp to a
multi-member LLC/partnership? And Alicia, just email in. We’ll get somebody to walk you through it. And our guys are good. They’ll be able to break it down for you. What are the advantages of switching from an S-corp to a
multi-member LLC/partnership? Well, an S-corp could be an LLC, so it could be an LLC taxed as an S-corp. If I’m going to become a partnership, the biggest advantage is you
don’t have to take a salary. But the disadvantage is, then all earnings are subject
to self-employment tax if it’s active income. So if this is real estate, I would never have you in an S-corp, or I’d rarely have you in an S-corp, I should say, not never, just
because you never say never. But more than likely, if it’s real estate, especially commercial property, we’re gonna have a multi-member
LLC taxed as a partnership. If it’s a business where
it’s generating profits, then I’m probably gonna
have you as an S-corp. And you can still be
an LLC taxed as either. – [Jeff] But would you switch from an S-corp to a partnership? I mean, the only thing I can think of is if you’re looking to have more than the 100 investors
or something like that, where you have to switch to a partnership. – [Toby] Yeah. You could always layer it. Buy yeah, you’re gonna
have to have a partnership under either of those circumstances, so I stand corrected, you’re right. If you’re gonna have more
than 100, you’re doing a… Especially if you’re doing…
– [Jeff] Or foreign members, stuff like that. – [Toby] Foreign, yeah, unless
they’re a resident alien, they cannot be an owner in an S-corp. You’d violate the status. Plus if you have a bunch of
people that are investors and you don’t put the
kibosh on them being able to transfer the ownership, you could unintentionally undo
your S status pretty easy. All right, so I gotta crank
’cause we’re way over again. Does a Florida single-member LLC have any personal
protection from creditors? Some, but you’re the jurisdiction
that had the Olmstead, where they pierced the single-owner LLC, so Wayne, you’re running a risk. Usually what I’d do is, I’ll
just tell you how I do it. If I have an LLC in the state of Florida, that’s good inside liability, and I’m gonna have it
held by my Wyoming LLC, which is great outside liability, and I’m just gonna do it that way. And if I don’t want your name to show up in the public records in Florida, I can actually do that. I can have the Wyoming
entity be the member manager of the Florida and keep your
name out of it completely, which has a funny way of
keeping lawsuits away, if nobody can tell what you own. (laughs) Somebody says, if I join Anderson, can I get you to do my taxes? Yes. So we can always get you handled there. Yeah, we love doing taxes. How many returns a year are we doing now? – [Jeff] 6,000?
– [Toby] 6,000. So we do two or three. We get a little busy. – [Jeff] Think we only have time for two more returns this year. – [Toby] Yeah. (laughs) The good, the bad, and
the ugly of Anderson is really smart people, there’s
about 250 of us here, great, but the bad is that we’re
really, really busy, and the ugly is that when
you have 500 people decide they want your return to get done and you have 30 preparers,
you just get killed. And then everybody’s mad at you, and they write you hate mail saying, why didn’t you do my return? I gave you my stuff. So that’s just the nature of the beast. It’s either drive your prices up, which we don’t wanna do, we
try to keep our business model, and we believe in doing stuff
like this and giving back, so we’re altruistic. But it’s not without its downsides. The downside is you have a lot
of people trying to come in. But absolutely we’ll talk to you, and absolutely we love
working with entrepreneurs. What tax software do you use? Jeff, you–
– [Jeff] CCH Axcess. – [Toby] Yeah, which is
like the ProSystem’s fx, it’s top of class.
– [Jeff] Yes. – [Toby] Let’s see, my partner… Did I answer that, by the way? – [Jeff] Yes, you did.
– [Toby] All right. My partner and I own a lodging business that has broken even
over the last few years. There are seven cabins, none
of which have ever depreciated. Ouch. Next year, the mortgage will be paid off. So they had to have owned this for awhile. And our K-1s will begin to show income. Will we still be able
to take depreciation? So the rule is, you wanna hit this, ’cause it’s… I don’t like giving bad news. – [Jeff] What’s your bad news? – [Toby] Bad news is, if
you missed the depreciation in the past, I don’t
think you can take it. – [Jeff] Well, I’d say you can. – [Toby] I think you have to
go, and you can amend returns. – [Jeff] You can actually do
change of accounting method, like we do for the cost segs, and go back and recapture
all of that depreciation recognized in the current year. – [Toby] You can do a 3115?
– [Jeff] You can do a 3115– – [Toby] And allow you to catch it? – [Jeff] Yep. – [Toby] ‘Cause I remember
reading it like, you’re toast. So you’re sure of that?
– [Jeff] Yes. – [Toby] Thank god you’re here, ’cause I would have told him
that he’s hosed. (laughs) – [Jeff] And if you
haven’t had the property for a long time–
– [Toby] Talk to Jeff. I’m just gonna give you bad news. Jeff’s like Santa Claus over here. – [Jeff] See, I’m
usually the bad news guy. – [Toby] No, I was thinking that. But yes, so here’s what it is. Depreciation, you have to take it. I mean, you don’t have to
take it, it’s may take, but you have to recapture it. – [Jeff] They’re gonna
act like you did take it, whether you took it or not. – [Toby] I remember reading that, that you couldn’t go back in, that you would have to go
back and amend returns. – [Jeff] Well, yeah, you can actually do that change of accounting method where you’re saying, oh, I did this wrong, I wanna change to this, and then– – [Toby] And then you
recapture all the previous, then holds you to that.
– [Jeff] And you can even do that in the year you’re
selling that property, which is just crazy talk.
– [Toby] Yeah. Yes, so the answer is, will we still be able
to take depreciation? I know the answer is, yeah, you
can still take depreciation. It’s going back and capturing, and Jeff and I have a split decision. I’m gonna say Jeff is
probably right on this, just because I haven’t looked at it. – [Jeff] Bet you a dollar.
– [Toby] Ha, ha, ha. You don’t wanna bet me a dollar,
’cause then I’ll be right. I’m always taking dollars from you. I don’t wanna do that today. But I’ll, for a penny. – [Jeff] And I just wanna add in, the mortgage being paid off really doesn’t have anything to do… But I see what you’re saying, that now you’re gonna have more income since you’re not making
those mortgage payments. I don’t know how long you’ve had this, but like Toby says, it sounds like you’ve probably had it for quite awhile. If you haven’t had it for real long, this is a perfect case of
where a cost seg would work really well in your favor, because this is the kind of property, it sounds like a lot of it’s gonna be land improvements and such, but you’re not gonna have a whole lot of 27 1/2 year property in this. – [Toby] Yeah. So the idea, again, is
that you have property that’s depreciated
inside 15 years or less, and especially if you’ve
owned it for 15 years, well, you’re not selling that. In other words, your gain, well, you’re not really selling here. But your gain gets spread out as though everything
that’s in it appreciated, which is just not the case. You have stuff that’s not
worth anything anymore. – [Jeff] Correct. – [Toby] So you should not
be paying gain on that. It says, no amendments on depreciation may take in the year you
realize the depreciation was not deducted in the past. Oh, see? I love having an accountant. So he says you’re right.
– [Jeff] Thank you. Again, what is a cost segregation? Bill, a cost segregation is when you take a piece of property that would ordinarily
under the, what is it, the modified cost recovery system, MACRS, and normally you would… Let’s say you have a building
that’s 39-year property. The IRS would say, oh,
it’s all 1250 property, it’s all the structure, you’re gonna write it off over 39 years. But a lot of that stuff
is not 39-year property. A lot of it is five-year property, seven-year property, and 15-year property. So for example, my electric system, what would that be, 15? – [Jeff] No, the electrical system is usually whatever the building is. It’s considered structural component. – [Toby] What if it’s part of the, it goes to a circuit breaker,
it has its own box… All the wiring and all that stuff, I know they can break that out. – [Jeff] Maybe for certain machinery or stuff like that.
– [Toby] Yeah. – [Jeff] So if it’s for specific use, then that is not 39-year property. – [Toby] Then that would be what, 15? – [Jeff] That would be 15-year property. – [Toby] All right, then
you can write it all off in one year.
– [Jeff] Actually, I think it’s even shorter than that.
– [Toby] Seven-year property? – [Jeff] Whatever whatever
it’s hooked up to is. – [Toby] All right, so five, seven… So what you’re doing is, you’re taking all those
shorter periods of time and you’re writing ’em all off. And the good news is that if it’s less than 20 years, you can write it all off this year, whether it was put into
service this year or past, it could be used, it could be new. – [Jeff] Well, the thing
with the cost segs, though, is whenever it was placed in service, that’s the rules you have to use. So the 100% bonus didn’t
exist before 2018. – [Toby] Yep. All right, so now we have to look at this. Somebody said… I like having accountants out
there that help, thank you. So Robert, I owe you one. God, I gotta get through this, ’cause I actually…
– [Jeff] (laughs) We’ve got more to go.
– [Toby] All right, so… (laughs) Still be able to
take depreciation, yes. I have an HSA with my W-2 job where I contribute the max annually. My wife and I have a separate C-corp. Can I create another
HSA through our C-corp and contribute to two?
– [Jeff] No, next slide. No, I’m sorry. (laughs)
– [Toby] Yeah, you can. You just have one limit. – [Jeff] Well, he’s saying they’re already contributing the max annually, so… – [Toby] The question is
whether you contributed the max as single or whether you
contributed the max as a family. – [Jeff] Right. Those maxes are determined no
matter how many HSAs you have. – [Toby] Yeah. And here’s the deal, is if
you have a separate C-corp, why are you doing an HSA? Why not just do a medical reimbursement? ‘Cause you can write off
100% of all your stuff, you don’t have to put it
in a separate account. You’re not getting a write-off
for the HSA, you’re just… That’s how it is. – [Jeff] Well, it is a write-off. – [Toby] Well, I guess,
yeah, you’re getting– – [Jeff] That’s reducing
your taxable income. – [Toby] It’s sitting in there,
and then it’s just growing, as long as it’s used for medical. I would just use the C-corp. I would just write it off as you have any income to the C-corp, unless you have employees of that, in which case–
– [Jeff] No, what you said is a good example, though, that you have an HSA, you max it out, expenses over the top of that HSA that aren’t reimbursed
go through the C-corp. – [Toby] See? You just (mumbles) to
medical reimbursement. So we’ve got good accountants out there. All right. Which is rare, Robert. I usually don’t like accountants. – [Jeff] Oh, come on.
– [Toby] All right. Can I qualify as a real
estate professional even though I have an unrelated W-2 job if I can prove I work 750 hours
in my real estate business? What do you say, Jeff? – [Jeff] I’m gonna say it’s difficult, because doesn’t that need to be your primary use of your time? – [Toby] Yes. So here’s the rule. 750 hours plus 50% or more of all your personal service time. So if you’re working a W-2 job, you’d better be a part-time employee. ‘Cause if you worked 750
hours in your W-2 job, then you have to exceed 750 hours. Now, that’s step number one. Step number two is, you have
to materially participate in your real estate activities. Usually we make an aggregation election and treat all of your
real estate activities as one activity. But if you have a spouse that
can meet the 750 hours test, then your joint return would
be a real estate professional. So let’s say that I work
too much as a lawyer and I have a spouse who does real estate, and she does 751 hours every
year as a real estate agent, and she doesn’t even
help on our real estate. Let’s just say that she’s
a real estate agent, she does buying and selling or broker, doesn’t matter, as long as
your involved in those fields, or construction or any of those, and she meets that requirement. And it could be your spouse,
he meets that requirement, don’t wanna be sexist, but let’s just say it’s
my spouse, it’s a she. But let’s just say that
boom, we meet that test. Now, the second test is
both spouses together. Now, do we materially participate? There’s three levels of tests, 500 hours, 100 hours, or we self-manage. In our case, we’d be doing the 100 hours, and between the two of us,
do we exceed 100 hours? If the answer is yes, then we are a real estate professional. You just pass go, and voila. But if you are a W-2 worker
doing full-time W-2 job and it’s just you, it’s
gonna be a really tough time, because there’s no physical way you’re gonna exceed 2,000 hours. – [Jeff] Yeah, you’re
gonna have to come up with at least 2,100 hours to make it work. – [Toby] Yeah, and the
courts have looked at that. The courts don’t believe it. Somebody says, I’m doing 2,000 hours, they’re gonna say,
there’s not enough hours. You’re not working 16 hours a day. They’re just gonna scoff at you. – [Jeff] Yeah, usually it says they find out you’re a full-time
employee, they’re done. – [Toby] Yep, so let’s not do that. We have our personal
residence paid off this year and have only owned it for four years. Should we do a cost seg
on our personal residence? You can’t. Cost seg is only on investment property. You have to be able to depreciate it, and you can’t depreciate
your personal residence. All right, I think we’re
getting towards the end. So let’s there’s our 2fer Tuesday offer. I’m not gonna belabor you guys. You can email on in if you’d
like to take advantage of that. Maybe Patty has a link. I don’t know, Patty, do you have the link? Maybe she does. It looks like she sent it, yeah, 2fer. Andersonadvisors.com forward slash 2fer. How do I track hours of work? Any reasonable means. So when you’re tracking your 750 hours, it’s any reasonable means. It could be your phone,
it could be writing it up. Let’s see, fun stuff that’s free, iTunes. Come to our podcast. We do make these Tax
Tuesdays into podcasts, so if you miss one, you
can always listen to it while you’re running around the gym. You don’t have to watch it as a video, you can listen to it as a podcast. We are on iTunes, Anderson
Business Advisors, or you can go to andersonadvisors
forward slash podcast, or you can email us and
say, what’s your podcast? We’re on Google Play as well. And your replays are always
in the Platinum Portal, plus we will email it out to you, and you can always go in
and watch what you missed. And then the other fun one is, join us on the social
media, Facebook or YouTube. You’ll get the gist. We like to record ourselves. We can’t stop listening to ourselves for some reason.
– [Jeff] I know, I just like hearing myself talk. – [Toby] All right, then questions, [email protected]
or Anderson Advisors. Actually, somebody was really mean. They wrote and they said, this is what happens when
you have too many lawyers, is you have these types of things. I’m like, are you kidding me?
– [Jeff] What a terrible thing to say, no matter how correct it is. – [Toby] (laughs) Yeah. Do you have to opt for a
change of accounting method to do cost segregation? Yeah, Mina, you’re actually
making a 3115 stock. But you can classify different entities, and also, you don’t have
to take bonus depreciation on all of it. You could choose to take
only bonus depreciation on certain portions of it, on different– – [Jeff] So it’s either, you take bonus on all your five-year property or none of your five-year property. – [Toby] Or you just take five years. Once you know, you don’t have… Now you’re not doing
27 1/2-year or 39-year, you’re doing five, seven, 15. And you’re just gonna run the numbers. This is the beautiful part. The three rules of tax are always calculate,
calculate, calculate, and this is where you get
to do those calculations. It’s just so much fun to sit
there and look at your numbers and say, what do I wanna pay? I choose zero, or I choose
a little bit, I’m OK. But you get to decide. All right, guys, I went way over. First time that’s ever happened. – [Jeff] I’m shocked.
– [Toby] Yeah, yeah. – [Jeff] Do you hear her out there? – [Toby] Yeah, I hear her. She’s out there cackling. All right, guys, until next time. We’ll see you in two weeks. Great having you on. Yeah, (laughs) you need
to call this a night. No, this is, it’s an hour Tax Tuesday. All right, until the next
hour-long Tax Tuesday, we will see you.
– [Jeff] See you next time. (bright music)

2 thoughts on “Tax Tuesdays w Toby Mathis – Aug 20, 2019 EP 98

  1. Why don't you guys use or mention series llc for multiple properties? Thanks love the show.

  2. Awesome job guys! Thanks for the knowledge transfer

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