How the Ultra Rich use Holding Companies for Tax Savings

all right guys welcome back to taxes made simple where we teach you every single week new and exciting tax laws that you can use inside of your business or your organization whether you're an investor a w-2 taxpayer or someone who's just getting into the tax realm welcome in this video we're going to be discussing holding companies holding companies are different than your operational company because they have different responsibilities and when you're thinking about taxes and being a business owner you're always looking for ways in which you can leverage other resources or other tax avenues to avoid your tax bill taxation is theft one of the ways in which you can avoid taxes legally is by setting up another business that has different responsibilities from your existing business let's dive in [Music] so [Music] so when it comes to thinking about entity layering i want you guys to look at it like a house okay at the top of the house is the roof and typically the roof is the trust because the trust is gonna own everything because in the event that you die you want everything passed off to your beneficiaries right so you're probably gonna take it upon yourself to establish a trust but the trust owns the title to your llc's and if i have multiple llcs because i decided to invest in investment properties and put each investment property inside of a separate llc i can get to a place where i'm dealing with a ton of tax liability excluding the trust you're receiving income from each llc that all goes to your personal tax return because llcs are flow through entities which means all the income flows over to the person who owns those entities now if you have llc's that are owning your investment properties you may get to a place where you say carlton how can i avoid some of the taxes associated with all of my investments and rather than going directly towards depreciation and trying to accelerate depreciation we might say hey let's set up a parent company a parent company has a different responsibility than your existing llc's in most cases the parent company becomes a management company when you set up a management entity the management entity can hold assets that the current entity does not hold when i say assets i'm talking about some of the personal assets that you might have that you don't want to put inside of your existing operational llc for a lot of my clients that have investment properties they will have their investment properties sitting inside of an llc but the only expenses that are really coming out of that llc are expenses associated with just that property so if they're doing maintenance on the property fixing the washer dryer stove countertop the expenses are going to come directly out of that llc but then they will have a management company that is the parent company or the holding company for their existing llc if you have a management company that's the parent company for your existing llc then your management company can hold your personal assets this can be your car cell phone home office retirement [Music] because you can have retirement accounts or it can even have some of your children's retirement [Music] inside of this new entity structure so if i'm an existing llc owner and i have 25 000 coming over from llc number one and i have 25 000 in passive income coming over from llc number two and i have 25 000 in passive income coming over from llc number three i can set up llc number four and ask llc1 llc2 and llc three to pay llc number four a management fee now let's say that llc number four was paid a management fee of ten thousand dollars from each of these entity structures that means that between these three entities we can record a 30 000 tax deduction because they're paying out an expense management is an expense that gets to be recorded on the llc's tax returns hey guys thank you so much for joining me in this video i wanted to interrupt it to say that i appreciate you for even clicking on this video it was something that you didn't have to do but i'm appreciative of it one of the things that i've done to help you and other individuals like yourself who want to know tax law is i created a private group below my own patreon where you can click on the link and learn a little bit more about the different groups that i've created so you can get more tax education outside of just a video once a week from me i really look forward to teaching you and i hope to see you inside take care so now we have a 30 000 expense that shows up on the returns now the management company that we've created [Music] has 30 000 in taxable income you might be saying carlton aren't we just moving money around if i have llcs that already are pulling in passive income and they just pay another company aren't i just going to pay taxes in that other company you're right unless you do something in this other company we talked about how management companies have a different responsibility than your existing entity and if they have a different responsibility than your existing entity then they can hire different individuals than your existing entity then you can do different write-offs than your existing entity so if i had thirty thousand dollars in taxable income sitting inside of my management company what are some of the strategies that i can leverage to avoid taxes on the income that i put inside of my management company while also still being able to get the 30 000 deduction between my llc's because i want those deductions this is where the upstream strategies comes in let's draw it out we have llc number one llc number two and llc number three all of these llc's are paying llc number four a total of thirty thousand dollars okay so this is the number that we have to offset how are we going to be able to offset 30 grand tell me how let's start off with what i know that many taxpayers have many taxpayers have families and one of the really cool tax laws that the government allows for us to take advantage of is being able to place children on payroll the government says that if you place a child on payroll that you can pay them up to the standard deduction amount without the child needing to file a tax return the standard deduction amount in 2021 is 12 and 550 dollars that means that if i have two kids i'm already receiving a 25 550 deduction without my children actually having to file a tax return or pay taxes now i'm in a place where all i have to do is offset the other 450 dollars and if i'm running a management company i probably have a cell phone home office and vehicle that i can use to wipe out the other 450 that i need to wipe out to avoid taxes on the money i paid myself for managing my own investment properties guys this right here is called an upstream strategy because we're moving money from your existing entities and pushing it upstream to a new entity that has different responsibilities and when it's up here you're wiping away the income that you put up here with expenses that are different from your operational llc's this right here is a strategy that many business owners try to go in at alone and they end up getting caught not being able to offset the liability up here because they don't know what to do in the parent company i advise you guys to always speak with a tax strategist when you're considering setting up a parent company so that you can make sure that you understand what is a reasonable compensation between your entities to pay out and management fees on top of that now that you understand what a reasonable compensation is to pay out between your existing llc's how do you offset the tax burden that's in your parent company now what things do you need to make sure that the parent company is doing to be operational to be able to wipe away its tax liability on a yearly basis and these are the types of things that i want to be able to make sure you guys have access to as you're going about becoming better business owners i like leveraging parent companies but you also have to understand that it extends far past real estate you can have parent companies just from you owning multiple businesses we have clients that own a couple of different amazon stores which require them to have different llc's associated with each amazon store that they might have so what we've done is we created a parent company that owns each llc and those llcs pay management fees up to the parent company that has completely different responsibilities from their operational llc's i love being able to play with entity structures but one thing is for certain if you try to do it alone you could end up getting into a place where you end up owing instead of saving money my name is carlton dennis and if you're trying to become a savvier taxpayer hit the subscribe button hit the like button i look forward to creating more videos like this for you so we can build our wealth strategically i'll see you on the next video [Music] you

Channel: Karlton Dennis

Views: 56,550

Keywords: how to form an llc, limited liability company, how to start an llc, cpa, tax, taxes, understanding your deductions, taxes made simple, tax strategy, tax expert, karlton dennis, taxes made simple karlton dennis, deductions in taxes, tax deductions, tax planning, easy tax tips, tax tips, taxes made easy, taxes explained simply, small business, income tax return, tax strategist, llc tax tips, How to Start an LLC for Asset Protection - Holding Company Structure, holding company

Id: 7iTuRsRqHy0

Length: 9min 55sec (595 seconds)

Published: Fri Sep 17 2021