Main Street Business Podcast | Open Forum

[Music] welcome everyone to the main street business podcast this is matt sorenson along with my illustrious co-host mark kohler that's me yeah now well i don't know if you knew this but while you were away i let everyone know you were you know off and i explained that mark that we're kind of like maverick and goose you know we co-host the show much like maverick and goose you know both flying the fighter jet yeah let them know i was maverick and you were goose so that's what you're maverick and i'm goof dies in the movie i forgot about that yeah but he has meg i would have taken that's true that's true yeah pros and cons so um but it's uh obviously a pleasure to be back and this week pleasure to have you back mark sorry thank you and um this is the open forum show this is the this is one of our favorites well it is and this is challenging matt and i were just sitting here going woof not only do we have a lot of questions we have some hard questions so we skip those obviously um so sorry people uh we're gonna do our best here to have some fun it is very difficult for so many business owners to get a straight answer from a lawyer or an accountant that makes sense and if you put up with some of our dumb movie references or uh jokes or references to lyrics and if we quote john john bon jovi at some point that's okay you know uh we're just gonna have some fun so please be patient and we hope to wow you today open forum yeah and if you if you don't like it we'll give you a full refund full return for everything you paid for today we will um in the past we've done kind of a little tax on legal tip but we're going to just jump into questions today we have more questions and we'll be able to answer we try to combine questions here and there when we can like you know john laurene and terence had a similar question or something like that and we're just going to tag team here and go for it uh yeah we're also on youtube this uh broadcast tool is also on youtube for those that want to have a visual experience you can switch from your phone if you're in the car and just switch over to the youtube channel uh the channel it for this show was on my mark kohler youtube channel so just google main street business co sorry youtube search kohler main street business and you'll you'll get the channel and right there you're good to go okay yeah any other business no i mean september 15th passed i hope all of you that had your partnerships or s corporations got your returns filed it's uh september 16th now when we're recording this so um now the final stretch october 15th for your personal returns or any of you sole proprietors so just keep in mind those those deadlines are looming and um i was also going to say you know we're starting to get a little more action on ppp with respect to forgiveness so for those of you who did the ppp loans you might be in the forgiveness process or thinking about finally getting ready to do that we'll be doing a show upcoming on that or have some other content we'll be sharing on some of that ppp forgiveness i know we have a few questions that came in on that too um i love it i agree and i'm already starting to so if you see us on the youtube episode of this we're going to be glancing down at our computers pulling uh questions we will have a audio question answering machine if you will that can help um make it a little more entertaining with some of your voices with questions you pose in the future but right now we're just doing email questions and we get a better recording and production so that it's more enjoyable to listen to while you're on the road matt you want to jump into a coveted cares act just a question um it's kind of a part part tax question part 401k question so can i pause it and then i'll i'll answer the first part and throw the 401k part to you all right let's do it okay this is from mike he says i would like to know what the federal and state taxes do from the karzak distribution will be from my 401 k now i i wanted mike if you even got ppp or idle money i want to hit that as well and but i i will be and then he says i will be withdrawing the maximum of a hundred grand i live in california currently but we'll be moving to idaho next year good move mike save some taxes current agi is 120 grand plus though agi will be around 80 grand once i move there i'm willing to pay the price to get out of california well he's going to make less money moving to idaho but he's going to pay less in taxes and have a lower cost of living frankly in my opinion in certain parts of california 120 grand agi in california and your standard of living it could be very equivalent well equivalent to 80 grand adjust your gross income in idaho depending on where you go um let me say this first before matt why don't you take the 401k piece i don't want to talk too much oh so when people get this hundred grand out of their 401k or ira could we say that way yep yeah now the nice thing about this is you get to spread this over three years so this distribution rule this is for the cares act for 2020 until december 31st and by the way the loan provision which allowed you to take a larger loan expires in like 10 days okay that was or 7 to 10 days that that one goes out fast but this distribution of 100k from a 401k or ira you can do over or you got until the end of the year now there's no penalty to take it so you get up to 100 grand there's no early withdrawal penalty so mike will be paying the 10 early withdrawal penalty and he's gonna get the tax to pay it over three years now can i ask matt i have a question of you i can't is it's either one or the other i either pay all the tax on the hundred grand now in this year or on my 2020 return or i have to spread it out over three years i can't wait and pay all the tax at once in three years exactly so you can opt to pay it all now so if you did have a really crappy year wise and that's why you're taking the distribution you know take it all this year now mike i don't know your situation this year with future years but you may want to stretch it out over three years because the you'll be an idaho resident for the next two years which is gonna have a lower state income tax because if you're paying that tax over three years you're gonna get maybe this year you'll have to pay take so you'll take 100k you'll put 33 000 on your tax return for 2020 which you're probably going to have to be a california resident right np and federal and then 2021 and 2022 you'll take the next 33 000 the next 33 000. and but those are going to be idaho state income taxes which will likely be less now your income brackets might be not be too big of a difference um i don't know in the california brackets versus idaho i think idols are more flat but uh but that's uh that's how it's going to work you'll get it over three years like mark said you could take it all in lump sum in terms of paying tax on one year or you can pay it in one thirds over a three year window now the other cool thing about this is you can put the money back in let's say you recover financially and you're like oh i actually don't need all this money anymore you could put the money back in to the to the i to the 401k or you could even set up a self-directed ira let's say you took it out from your old 401k or from your 401k mike you could put it into an ira next year if you're like oh in fact even up to the three year window you can put it all back in now i i would also say last thing too like matt said you've got 10 days to make a major decision don't do a distribution just do a loan just do a loan and and then you've bought yourself even more time to figure out now let's say matt the loan you have to make quarterly payments though that's the one thing it's just a bad yeah but then tax on a third of it probably yeah are there payments over a five-year term though yes okay yeah i don't know i'd run the math both ways because if you did the loan over a five-year term with quarterly payments it's probably going to be less than the tax on a third of it so do the math on a cash flow statement basis let's say mike wakes up matt even a year from now living in idaho or two years from now and says you know what i can't make the loan payments i'll just freaking take the distribution can you still get the karzak treatment or would he have a 10 penalty let's say he wakes up in just by december 31st of 2020 and thinks that then i think he could default the loan call it a karzak distribution he'd have to work through his administrator but if he did this in january of 2021 it's done it's a loan paying it back over five years you're not going to be able to get it back in all right now well let's just get back in sorry you can get it back in on the loan of course but yeah yeah i don't know so mike i think you've got some really big decisions to make here and anybody that's wanting to pull money out of a 401k or an ira you can borrow from the 401k or take the 100 grand up to a hundred grand borrow or take out up to 100 grand and we've already explained those provisions with an ira you can't borrow from it you could take the 100 from an ira and then and and have that same three-year payback rule on the taxes okay now here here's another major point for everybody we're still waiting to hear how this is going to play out with congress and the irs the irs is kind of digging their heels in when you got the ppp money let's say you're out there and you're a small business owner and you got a 25 000 ppp paycheck protection program loan you're probably now getting ready to do your application to get it forgiven matt and i will be holding some specific radio shows and webinars and probably some facebook or youtube lives on that itself just to help you out if you'd like a consultation with one of our attorneys you can always call and do that for a half hour and we'll bring you up to speed on your particular situation but here's what's weird congress intended that paycheck protection loan to be given to you and then forgiven and if you spent that money on payroll rent lease payments blah blah blah all the things we've talked about before you get a write-off for those items but you don't have to claim this paycheck protection program check as income well the irs is like now if you use my any expense for which you use ppp money you don't get a write-off for that well it's the same thing as saying the money that came in is taxable income so congress and irs are both battling this out in the news and with statements back and forth we don't know where it stands right now uh matt have you heard anything no i have not heard any updates it was there was provisions and proposed bills in congress um that who knows if they were going to make it into this last stimulus round um that was going to fix that and clarify that uh ppp could be even though you use the money it could and it was forgiven you could expense it but the problem was yeah the irs came out with a position saying there's prior tax history and cases that say if you used money debt that was forgiven and you used it on business expenses if the debt was forgiven then you don't get a classified as a business expense the problem was the cares act itself specifically said there is no forgiveness of debt income on this money which meant congress intended this something different so we'll track that obviously we're i'm waiting for the next stimulus bill to happen we're going to write an article and give you an update of course and gosh we've got so many questions today but one last thing on this is mnuchin the treasury secretary he's in a quandary because when they give out this trillion dollars in benefits and then everybody gets a write-off for a trillion dollars for the money that you don't have to claim his income that's a big hit to the irs um so when you everybody says oh the cares act cost this much if everybody gets a write-off for what they were able to spend the money on that means you got to do the math ago it cost this plus the lost revenue on the deduction we gave everybody for income we didn't make him claim does that make sense so it's it's it is kind of a crappy deal for the for all of us as american taxpayers because we're gonna end up paying the bills somehow um i don't know right bigger picture big picture stuff okay matt you get to choose the next question okay this was from scott in michigan he writes i have four rental properties each in an llc i presume it means separate llc's can i place the four llc's into a personal property trust then place the personal property trust in the wyoming llc what would you charge for the personal property trust in the wyoming llc okay so let's go over the structure so scott's got four rentals each has an llc he says each in an llc brain presuming he's got four llc's too now he wants the llc he says can i place the four llc's into a personal property trust okay so you have a personal property trust own an llc and then the personal property trust owned by a wyoming llc and then presumably you finally own the wyoming llc or your estate plan your vocal living trust scott let me say this is not our this is not our shtick this is not our style the personal property trust thing here i don't know someone gave you this idea i don't love it why that's my first question why what's it gonna do well matt it's better asset protection and the guy at the holiday inn scared the hell out of us and said this was the way to do it and i bet you darn well scott they're trying to charge you three to five grand to do this for you yeah um no legit lawyer none does these personal property trust structures um or these land trust structures it is a very unique scenario when you use them and the typical real estate investor owning rental properties is just not the general planning it's generally people that basically sell a trust document that are not attorneys out there pitching this i like the wyoming llc you got four properties maybe you've got a lot of equity in those scott and you want kind of this charging order protection from a wyoming llc so you've got the four rentals each in their own llc and that's great if something goes wrong on one property the plaintiff can't sue you they can't get over to the other llc's that own separate properties you've got really good barriers of asset protection there with your four properties each owned in its own separate llc i like that yeah i you can use the wyoming llc we do do that that that can give some privacy it also could give some what we call charging order protection but i'd skip the personal property trust yeah and scott i i'll say this another way when matt says this isn't our stick we know this it's our stick we we know what you're trying to do generally i think based on the limited facts you gave us but we know this area and i say this humbly but this is what we do every day and so uh what do you what i would rephrase it and say we know this stuff but we would never recommend what design you just proposed and in fact i don't think i've seen a client ever do it that way ever now we're talking 20 years and thousands and thousands of clients now i'm not trying to be talked down to you scott someone obviously proposed this to you so i'd be very wary of who did that and the last thing i would say is just get a consult with one of my tax attorneys it's gonna cost you four three four hundred bucks in one hour they'll address your privacy concern your protection concern give you a proposed diagram that intuitively makes sense i can bet you it's going to be cheaper than what you're doing now and then you can say i got a b you want to go get a c go get a third opinion but i'm not signing off on the first option i don't like it okay got a question from doug down in florida and he says this is kind of interesting matt he said i have seen you talk about investing in businesses with your 401k or ira dot dot dot but the talk has always been in limited to just taking a loan from it and paying it back dot dot dot i don't know what talk that is that's not us yeah i i i'm not you could do that to start your own small business yeah obviously you can invest your ira or 401k in other personal people's businesses but your own personal business that's possibly doing a solo can alone yeah yeah i just want to say this to doug when you say but the talk has always been that may be out in your circles but not in our circle we would generally not want you to borrow from a 401k we would rather have you invest it which brings us to part two of doug's statement he says dot dot dot but what i want to know is can the 401k ira own in capital letters the business and therefore receive all the gains and it all goes into my retirement well yes doug that's what we talk about that's what we want you to do that is called self directing dot dot dot it would be he says it would be a c corp and i don't need a salary or to be involved in a daily basis okay now i presume you're talking c corp doug because it's an operational business let's think restaurant and that's right a c corp would be the way to go yeah we call that a blocker c corp you can go to matt's book the sdi or a handbook go to the index and look up the word blocker corporation that's what this c corp is you're talking about and then matt i'm going to shut up i know you're the master of all this but then he says dot dot dot i know about the robs option and everybody i'm not going to go there gaiden is the leader in this area out of seattle do your homework on rob's if you want to look at it we've even had the ceo of guidance on our show he says i know about the robs option but it seems like i don't need that because i don't want a salary i'm not involved i'm not working at the restaurant just looking to invest in what i know best he says in caps which is small business well doug you probably have just bumped into us or found us and you're getting up to speed on our dialogue but dude we are cut from the same cloth we want you to self-direct that 401k we like the c corp as a blocker and yes all the profits will go to your c corp our attorneys are setting up those entities every day around the country for more affordable than you're going to find out there with a comfort letter explaining what the freak you just got so we're on board dude i don't know matt did you want to say i didn't mean to steal the thunder there next question's yours but i yeah and doug doug phrased his question right because he emphasized that he's not going to be involved on a daily basis and taking a salary so many times people come to us and say all right i want my self-directed ira to buy this franchise and i'm going to work in it every day and be the manager and take a salary well that's different that's there's some and that's where you get into this rob's thing that doug mentioned but if you're like no i'm not going to work in it i just want my ira to make a good investment i'm going to own the small business and i'm going to oversee it and make sure things are going right but someone's going to run it there's someone else that's going to be the manager of this small business that's you know handling the things you know i'm going to have michael scott regional manager run this thing so um that's absolutely fine we love it i like the c corp you're thinking ahead too if it's going to have ubit tax and an operational business so yeah let's do it we can certainly help we can help with the ira at directed ira of course and then in kqs lawyers we can help set up the c corp we usually do an llc tax as a c corp actually um there's a couple reasons i like to do that but we can do an llc tax as a c corp and then you'll get the blocker you can be manager to oversee things have someone run on a daily basis don't take a salary you're off the races i we do that once a week i'm doing that once a week with someone well okay like it matt your question you know what's funny i was looking at that same question too so let me ask you this this is one this is an hsa question from jenny yeah you're looking at any in texas i'm looking at that one too okay she says love listening to your show thank you thank you jenny we we do need a little you know we appreciate that um i'm wondering if we can still contribute to our hsa this year he says even though my husband is laid off as of august of this year can we still contribute until december 31st as you're too late since he no longer has the high deductible insurance thanks jenny i'm going to give you the what i believe the technical man is that okay if i give it a shot yes yes matt knows i love hsas matt's the authority on roths and 401ks more so than i am and we both are yoked equally on almost every topic but we do have our areas of specialty um the health savings account i think the technical answer is going to be on the day of your contribution did you have a high deductible plan i i think if you were in a irs audit court case that would be probably the test if you had the high deductible plan in the first six months of the year and then you went to go contribute to your hsa at the end of the year when you didn't have insurance i think technically you'd have a problem but i will say this practically i haven't even heard i haven't even seen an audit ever in any publication or ce on this type of issue and i think um the irs and the government is more interested in you saving for health care making contributions it's in our paul it's a policy issue that's good for our economy and our country for you to make that contribution and i think if you did have a high deductible plan during the year and you hurry and make a contribution i don't think your risk your audit risk or exposure is is dramatic at all the worst case scenario is they just take away your hsa write-off so i and if your husband lost his job earlier in the year making a contribution to the hsa and recycling it out for some expenses that you've had in medical would be appropriate because money's probably tight i don't i just so i think you're going to be okay jenny but i just want to cover our butt too and tell you technically what the i don't know yeah yeah the other thing is like i don't know if you did cobra insurance on it or you know they left the employer um so okay um you wanted the next one you want me to bring i got your your call your call it's all you okay this was from curtis um curtis says i have a self-directed solo 401k all the money is in a 400 and the 401k is roth dollars now we had a show last week on the solo okay we talked about this so if you're like what is a solo k last week's main street business podcast kevin kennedy and i went over that there's a pretty good podcast have to say even though we didn't have you know the amazing mark kohler we did okay and i know that hurts even more because it was actually two weeks ago because last week we recorded the protecting their personal residence but that's okay if you forgot all that amazing those amazing things i said in last week's show this is true this is true all right life moves fast um all right since i only have one checking account my question is do i need to have two different checking accounts a roth account a traditional account i did roll traditional dollars into the 401k but i quickly converted it all to roth dollars and pay the taxes i'm concerned i might have done the conversion wrong with only using one account um you do need to separate traditional and roth dollars so if you do have traditional dollars and rot dollars the guidance is set up a traditional bank account set up a roth bank account in the solo k track those investment dollars separately you know the returns on those think monies have to be treated separate now if you converted everything to roth curtis let's say you set up the solo k you rolled over some traditional dollars converted every penny of it to roth and it immediately was roth and then he made some new roth contributions i wouldn't stress about it but if you had at a point the account sitting with some traditional dollars some roth dollars then you converted it you kind of did it wrong um so because you're not supposed to mix them into a separate account so i my recommendation anyone with roth and traditional even if you're going to convert is have a separate bank account for traditional move the money into it that's coming traditional let's say from an ira or other 401k or even your new contributions then convert them and and transfer them over to the roth account now again curtis if you just the only money you ever had was this traditional that came in that converted to roth don't worry about it the bank account just basically became raw so i wouldn't stress too much about it either way curtis though but um because as long as you can have some accounting and records you'll be fine in an audit you just might have some additional questions answered because you didn't keep it separate i like it i'm not going to add anything to that it was wonderful now we have a question from willian in california he says what is your next book going to be about and when is it coming out i'm sure william was talking to me uh not matt for that yeah yeah that was that was definitely mark's got four books so he's a prolific writer i got four books plus the workbook plus two ebooks no i'm out there i'm writing i love writing um my next book is i've really it's been kind of formulating over the last uh few months really and i want to do this is eight steps to start and grow your business i want to do eight steps to start your financial foundation or build your financial foundation um i know i'm not a financial advisor licensed as a broker-dealer agent under pfp all the different things that you might be called but definitely matt and i are helping people with their finances every day day in and day out and people are asking me constantly what type of account should i show up should set up should i buy a rental property how do i fund a retirement account and i think if anybody should be answering the bulk of those questions it's your accountant or your business advisor not always your broker who's going to just trade stocks for you i don't know now there's certified financial planners and advisors that are phenomenal but i think for the average person i'm going to give it a shot so that's what i'm doing i've got a book for matt i've been begging him to do uh it's anyway i was gonna make a dumb joke i'll leave it alone i was gonna matt's got the sdira handbook uh and that's uh or the self-directed ira handbook an sdi and sdirahanbook.com i would love matt to write in his second edition the book however the sd the self-directed 401k for small business owners so it would be the sd401khandbook.com the one i'd like matt to write and i think um there's a lot of small business owners that would like that just like the show matt did two weeks ago on solo 401ks but i don't know matt i put words in your mouth if you got a book in mind i do have a book but that's not it that is that my stuff my soul okay chapter is 52 pages in the self-directed diary hamlet so if people want that there's i mean that's the best content on soloques out there i think so does your book involve wizards in uh prep school or vampires in the northwest i just don't know or is it yeah about any shade of gray black or blue okay it's uh yeah it's a i got a good book coming up you'll you'll hear about it it's basically a letter to my daughters just it's like uh it's like what would i tell my kids you know what they're going into adulthood i've been i've been uh i've been working it i got a pretty good outline some nuggets of wisdom to pass on i like it i like it i'll read it okay next question from anna and montana or anne sorry i don't have my glasses right so if you're watching the youtube channel you're seeing me squinting crazily i forgot my glasses on my home office desk anne says for a higher w-2 earner with a side hustle do you recommend the s-corp great question if i make 200 grand with my w-2 and 150 grand net from my side hustle won't the escort mean i pay more self-employment tax since my business will pay employer-side social security when i won't pay if i had a schedule sc on my 1040 is there a point you'd see an s corp not helping wow i wish i could throw up a whiteboard matt do you want to take a stab or do you want me to run some numbers real quick for i got it yeah yeah go ahead and wrap the numbers but that's a great question i i like where she's going on this 150 000 net income on a side hustle is great by the way why are you working the day job making 200 grand to do this the side else is making 150 on the side just do that more i guess but yeah um now here's the problem um i don't know if she's married or single and so that's going to change the equation so i'm going to assume since she didn't mention um any sort of husband in the mix i'm gonna go with single now here's the math and um first ann has a fallacy she says well won't the s corp mean i pay more in self-employment tax no self-employment tax by its nature is built for you to pay less in self-employment tax it will help you pay less in self-employment tax the question is how much and is it worth setting up the s corp but right out of the gate if you don't do an s corp you're going to pay more it's going to go through your 1040 schedule s e and here's your rate and let me let me say it another way by adding the s corp you will not pay you can never pay more self-employment tax by having the escort that will not cause more self-employment tax than without it i like the way you said that now i've got to go to my calculator here and i'm going to i'm not going to if we had a a webinar and i do webinars on my website go sign up for them they're 20 bucks a month and i do a full webinar on all sorts of topics and i have one on this where i have a white board and i go in more detail but since this is our podcast i'm just going to tell you the math on your 150 000 even if you just do a schedule se or your llc because remember llc's don't save taxes so if you just run it through as a sole prop side hustle or an llc you're going to pay 0.038 that's 3.8 percent on the 150 000 okay the hundred that is fifty seven hundred dollars now if we did an s corp i would want to understand again your family situation the type of business how much time you spend in it but i think conservatively even i might do 50 grand in payroll so and that and i probably would even do be more aggressive than that that means you're gonna save eight hundred dollars so in summary everybody for anne's situation with the side hustle based on her numbers if she's single starting an s corp under our equation of a fifty thousand dollar salary in her s corp and a hundred thousand it passed through she would save thirty eight hundred dollars she has to ask herself is setting up and maintaining and doing the tax return for thirty eight hundred dollars worth it and that's what we do in a console yeah let me let me hit a couple other things on that just everybody knows too the context of our question is you phase out on certain self-employment texts so once you hit like 130 130 you don't pay more in like about about the 15.3 goes to the 3.8 goes to 2.9 2.9 okay up until 200 grand if you're single 250 if you're married then after that you add 9 for obamacare ooh yes okay so that's why in her situation since she already has a 200 000 w-2 everything above that is 3.8 okay so matt i love where matt's going with this people they're stages so we have to kind of carve out what's your rate going to be based on your day job keep going i love it matt yeah and so this is a little more nuanced planning for the small business owner that's like well it's all all i do is i don't have a day job where i'm making 200 grand and basically getting to the lower self-employment tax rates you're always going to be better off in an s corp always okay um and here's another benefit though and audit risk yeah if you're a sole prop and all other things you're expensing on your soul prop you're like was it 10 to 13 times more likely to get audited in your sole prop on schedule c than your s corp tax return is so you have some audit risk you know i don't know the expenses and deductions and even if you're doing everything clean squeaky clean just having to get audited as a pain in the butt so there's a little bit of audit protection by doing the s corp too yeah i'd say a lot it's 15 times i think you said that 15 times less chance of an audit so and i'm going to want you to be very aggressive with your write-offs and we're going to be aggressive with your payroll level and you've got a day job for 200 grand you're going to have a pretty good argument to take a smaller salary in that because who has 80 hours or 90 hours a week to work every week you can't sustain that so i think there's some good things there all right anyway and get a consult with us for 3 800 bucks in savings or more and the limitation and audit risk i uh i'd probably do an escort but i would think what's the future are you looking to build that business is that side hustle going to turn into your regular business yeah so i'm more inclined to do the s corp because eventually that day job's going to go away and that income and then you're going to be doing your salary just out of the s corp and maybe at that point you're making a 400 grand and you're taking a you know 120 000 w-2 you're gonna have a ton of self-employment tax savings and for all of you listening here here's a one last nuance that's important is we're almost at october 1st so if ann called our office today unless she has an llc i can back date to an s corp she didn't mention that so i don't know but if she doesn't have an llc i'm starting an s corp october 1st so i'm only getting the benefit of three months and because we want our clients to respect us and appreciate transparency and honesty if she was to call us our attorneys know to tell her and let's take all your info make a plan pull the trigger in december so new s corp starts january 1st 2021 and that's where matt's question about what's the future hold is so important because you can't set up an s corp today and save the whole year anne unless again you had this llc going on so this is where again that consultation will help you out but more than likely any of you listening if you need an escort we can only create one for the last three months of the year and a lot of times we'll create one in december depending on what income is coming in an escort could still make descents on dec it could still make sense on december 1st it just depends on your income you've got to figure it out yeah okay matt i'll throw this one at you this is from gil down in new orleans dodging hurricanes that's that's what gill says here and god bless you are you are we dodging fires in california hurricanes in louisiana or covet on the streets of new york i we are living in a weird place people okay i get your time gill says i keep hearing about the tax benefits of rental property but what about owning a property like an empty lot or undeveloped acreage any benefit okay no tax benefit so you would do it for investment purposes though thanks for thanks for letting them down easy matt that was that was funny but kick him while he's down yeah uh well it's trying to say you know i was giving him a kind of a you call i guess a crap sandwich i was okay you know there's some other there's another side to this you know there's no tax benefits like a rental property you get to expense and bait or depreciate the cost of the property the building the infrastructure on it over the life that you own it you know single family what you get 27 years and or so so you're getting an auto deduction every year from having a rental property that gets to offset the rental income it's great land though you don't get to depreciate land so there's no tax benefit to it um if you you know i guess you could lease it out and have some income on it and maybe some expenses for it you could take against that property taxes or maintenance of it but um if you're buying just raw land for investment purposes you're simply doing it for a good investment yeah and mark and i've done that we have some land you know that we've bought for investment purposes and we're holding it it's basically a zero coming through on the tax return there's some expenses but we don't get nothing out of that thing from a tax benefit but we're not doing it for that we bought it because we think it's going to be valuable in the future yeah and buying raw land in an ira or a 401k could be a wonderful deal because it's so hands-off and uh and buying raw land is not a bad thing but don't do it for tax benefits another way stated okay terrence from uh pittsburgh pennsylvania sends a fairly lengthy question and i'm gonna dodge it because at the beginning in the first sentence he says i can't wait to meet with christy parker for my cleanup next week and go over my entity i did it myself i need a clean up now first terence your question's quite involved chrissy's going to be able to answer that in your consultation and it would probably be inappropriate for the show to hijack it with this question and i love your question by the way um but this is a two side notes for everybody listening thank you so much for many of you that do use our law firm for some consulting from time to time we have five associates that are just fantastic christy parker's our newest associate last year we are looking to hire right now we have someone already in the pipeline for next year we're continuing to grow we love being of help to so many main street businesses if any of you today feel like oh my gosh i need to talk i need more when you call the office don't be frustrated if it's a one week to two week wait to get with one of the attorneys but they're going to be able to do a better job not trying to cram too much into one day and overwhelm overwhelming our staff and our attorney so be patient we'll take care of you if it's urgent urgent urgent you tell the staff yeah let me say this just like any professional or anybody who's good at anything if you can call them and they're available that day or the next day without having to work their schedule that's a sign that they haven't done a good job in their business people don't come back to them so that's almost a red flag yeah if your brain surgeon's available tomorrow for surgery maybe not the right brain surgery yeah just throwing that out you're only one you're the only person in line waiting for that yeah you're like go ahead go ahead um number two why you need brain surgery perhaps yeah yeah terrance also says i'm doing my cleanup right now we have a cleanup service where we take your old s corp or llc that's a disaster one sheet of paper in the drawer and for 4.99 for one month out of the year we do a discount and get that tidied up with bylaws and minutes and a book anything you need at the state or the irs if there's a filing fee we pass that on but all the work and mailing is included in that 499 and you get a half hour with one of our tax attorneys to talk about whatever the heck you want so that's what terence is going to take advantage of next week and if any of you want that clean up or need it and could do a half hour call on your tax or legal situation take advantage of it's a great deal and uh you go to our website kkos lawyers.com the link's down below in the bar you can see it there if you're on youtube kqslowers.com and get your cleanup started all right matt your question all right this is from michael from washington um says my friend has an llc in the state of california my friend yeah my friend and clothes yeah okay all right did he go my friend was like was a corporation in california uh were you recently on american greed okay go ahead okay michael it's okay yeah um this is attorney client privilege don't worry uh she said no one else will know yeah she has never done business in california and doesn't have an ein for the llc for the past two years she has paid the 800 franchise tax in california she hasn't paid it this year since she's not sure she would have whether she should have even paid in the past the main reason for the llc was to preserve the name for a future business interesting okay we'll come back to that two-part question here he's got does she need to pay the franchise tax in california let's hit that one first then we'll get question number two um you what i would do immediately michael dissolve the llc immediately i don't see any reason for it there's no business happening right now we're going to come back to the name the whole purpose for setting up the llc was the name which is not the right way to do it not cost effective as you're finding out now better ways to do it um but for the franchise tax purposes mark and correct me if i'm wrong i mean you're the cpa here is um when you close out an llc you can file and say on your final franchise text return that hey we are no longer conducting business we didn't have any business this year and you can get out of the franchise tax in the last year i've seen clients do that by certifying that they did not engage in any business i don't know the time frame on that if there's windows that you have to meet on how far into the year you can be yeah yeah it's not easy and to get that but it is true it's possible um but i was going to ask did he say she was a resident of california or that she lives in washington with him doesn't say okay um but if there's not a foreseeable use for that entity i would get rid of it right away and i'll answer part b probably matt you were gonna yeah okay yeah is just do a dba doing business just reserve the name and sometimes the us name that's what they'll call in california fictitious name yeah fictitious name reservation it's done at the county level not state level but uh and our paralegals can help you with that but it's not worth the 800 and it's more than that too the 800 is to the franchise tax board you still have the secretary of state of california you've got to file paperwork and if you get behind on all this there's penalties this is going to be costing her a grand a year just to hold this darn thing together and a fictitious name reservation is under 100 bucks so i would another thing too is if this is a you know something that was worth enough to get an llc going with a name you may want to look at even doing a trademark um and that's another option i mean you could set up a whole trade market for fees of you know i think we charge we charge 750 plus the the uspto filing fee is is about 350. so you're like 1100 bucks for a full trademark that's going to protect that name in all 50 states see that fictitious name is only going to protect you in california it's not going to protect it outside of that yeah and call it it's crazy and call up danica patrick at godaddy.com yeah and uh find out if you do you even have the url if you don't have the url you might be chasing your tail anyway in my opinion from a marketing and business operational standpoint if you don't have the url i don't care what the name of your entity is in ohio nebraska or arizona because it's gonna the web's gonna control what you really are able to market the real question here is michael and let's get into it is this the girl for you i uh yeah you know i i have maintained the website taxmatch.com and i'd like to see her i'd like to see her 1040. uh is she a real estate professional what's her income uh does she rent does she own yeah i like the fact that she took the initiative to create an entity that shows some gumption you know matt that that shows vision she's got a little bit of go-getter in her yeah yeah that's good and apparently she's reaching out for help that's good yeah uh you could look like her knight in shining armor this could be a big turning point in the relationship i would say you know what i really researched this out for you and tell her that you called us uh paid for a consultation and you you did her a solid you went the extra mile for i think that that could be a good move yeah so we hope that helps michael yeah i like where you're going with her though you know just be careful before you propose let's make sure there's a good tax match on the return yeah okay that's what's more important yeah a lot of lover okay okay all right all right i got a question here from chuck um from chicago chuck i love the name chuck physically he's a cool name you know what i love too is hank henry his name hank yeah chuck i love it i don't know how they ever went from richard to the d word uh that one didn't that's my grandpa actually you know as he got older did they change it back to richard no he's still i mean his friends and my grandma dick good good good guy uh anyway but chuck chuck we're on we're on teams that's a good one he says from a liability perspective what are the disadvantages of using a solo k for investing purposes how can an investor mitigate the potential risk to one's substantial retirement pen funds retirement funds in a solo k if used it's a good question things when you're self-directing your soul okay think of your soul okay as it's not you right but you're the trustee of it you're making the decisions on it so let's say you've got a rental property that the solo k owns someone slips and falls on it who are they going to suit they're going to sue the solo cave that owns it and they're going to sue the trustee who's managing which is you personally now that can create liability for not only your soul okay but for you personally and that's happened there's cases of that the plans and the trustee getting sued what we like if you're doing certain liability producing investments like a rental property it can create liabilities you know is use an llc just like we do in ira llc or now i'll see if you personally own a property that's going to protect the solo k and you personally as trustee from liability that happens on the property so that's liability protection 101 from just protecting the solo k and you personally from risks that that are caused by the assets that the soloq has now you might be doing a brokerage account or you're doing private notes you know and those are paper assets that don't generally create liabilities for the solo care you personally yeah yeah the other side of that i was going to say is what about you personally chuck someone coming you know you get a you're getting a car accident you default on a business loan you personally guaranteed somewhere and you got a creditor chasing you down personally that now wants to get into your retirement accounts now solo k's are kind of protected like iras in general i've got an article on sjra handbook on this they're not erisa plans they do not get erisa creditor protection so it's going to come down to your state in illinois and how they treat iras essentially for creditor protection which most states do a good job and protect california being the one exception to that of preventing a creditor from getting into your solo 401k okay are you done with that answer yet for crying out loud yeah yeah okay now i'm done by the hour you know i get i learned i'm just we probably caused two car accidents during that answer somewhere you know now i uh the studio is looking over at me like you've got to quit petting your dog here i'm going to show our next tax right off here here we go this is our office comfort animal okay i even bought the little vest that says i thought that was the watchdog you can ride off under the security system for that yeah she's not a killer this is winnie for those that want to be you know i mean most alarms just give a sound they don't you know yeah she'll just come up and lick you she's not a killer but here's the point your animal that does qualify as a comfort animal if you get a prescription from your dog is a tax write-off and paid for by your hsa it could be an expensive dog that you had from a breeder their food their vet bills so whitney just brings a lot of love to the studio right we're getting thumbs up yeah everybody's in on her so she just follows me around and i'm trying to give this show and she's down there just looking up at me please hold me okay now that was your other tax tip for the day people okay now i've got i'm gonna go one last question matt you can choose one of your favorites this is a this is a hard one emotionally um first it's another uh listener named mark uh with a k so appreciate that uh kindred spirit located in boise idaho and he says we'd love to have your firm help us not sure how cross state legal advice works well buddy uh mark we're helping cross country so you being in boise is the least of our problems so don't stress about that we in fact want everybody to know they're like oh they do this podcast and they're out of arizona and idaho california utah hey we have more clients around the country than in california idaho and arizona so uh don't stress about that the type of planning we do is so um boundary-less for a lack of a better word with business asset protection and tax money so he says this is the sad part he says my father-in-law was a businessman who just passed away from covent he left a bit of a mess uh he left it behind with a less left us behind with a business in the final stages of selling and more besides that i'm working if there are i'm wondering if there's any strategies that we can use to reduce the tax burden on my mother-in-law in the asset sale or if there is just any other advice you might have we are expecting the sale to close in october then the company will be closed hopefully by the end of december those of us left behind are not as versed as my father-in-law was in the business and grieving definitely clouds the mind from clear thinking so mark my uh our hearts go out to you it's just again such an odd time that we're living in now in america in this world so i've got good news mark all right now this is important everybody and this is something that president biden has addressed in his tax plan for business owners is he president already geez did you just call the election no no i just said did i say president biden oh my gosh oh my gosh no i'm not trying to provide any subliminal thoughts my studio the other day said dude you can't because i want to say vice president biden or then what do you say you can't say president-elect candidate joe biden okay candidate joe biden that's what i meant i did a pod a live youtube facebook last week for over an hour on joe biden's tax plan for small business owners he may be great with the environment he may be great in other ways i'm not advocating for trump i'm just telling you if you're a small business owner it's not great and you can see 30 000 other articles out there on that point yeah that's why it's not great that's a little mild but i don't know what to say i mean i'm not trying to hey you you trump is a train wreck in some ways he's great in others joe biden great and some train recognition everybody has to decide what's important to them so i'm just telling you from a tax standpoint what's going on and he is dealing with this very issue in his tax plan so here's what's going on when mark's father-in-law dies so let's just call him dad dad dies the family gets a stepped-up basis to the value of any assets dad owned now dad's married so we've got some community property or jointly owned property issues that we've got to deal with but in some ways a good tax advisor depending on what documentation mom and dad have already done in their estate planning we might be able to show that that entire business was dad's so what that means is all the assets in the business and the business itself is stepped up to this value so let's say the business is worth a million dollars and that's what you're gonna sell it for but dad started it on a shoestring he's depreciated the crap out of everything and if dad was still alive and so sold it he'd pay tax on a million dollars but one of the best tax strategies is dying now i don't think mark appreciates that joke i'm sorry mark but the point is when you die your family gets stepped up basis so when you go out to sell this business for dad you're going to get a stepped-up basis to fair market value and there's zero tax now yeah and the basis everybody keep in mind the basis is your starting line to determine your gain so if you started that business at a thousand bucks and that's the only thing he has that he's put into it from day one because he did it on a shoestring and he built it over a lifetime and now it's selling for a million he's gonna have a 999 000 capital gain if he sold it but now that he's passed basis gets stepped up to fair market value of at the date of his death which is a million bucks now when the family gets to sell it they sell it for a million they got they have basis of a million no tax so that's why i'm just making sure everything's what step-up basis is yep and here's gonna be the precarious part if you want to get your accountant involved right away maybe our office with some help on whatever you want to do but the big issue is did mom have a half interest in the business under idaho law under the estate plan i don't know all the facts so worst case scenario you get stepped up basis on half the assets so when you se that's the worst case i'm giving you worst case so if you sell it for a million he had zero basis now you're only paying tax on 500 grand mom's half of the business not dads because he got a stepped-up basis so you might want to look at your documentation in the drawer that was sitting there that indicates mom bequeathed all of her ownership in the business to dad under a postnuptial agreement because he was eating chips in bed and driving her crazy and she was ready to kick him out anyway mark let's get real so really there's probably a document sitting around somewhere where she said you freaking take the business you know she'd had it with him so now i know these jokes are not appreciated by mark or anybody i'm just i'm just trying to keep it real man are you okay man you didn't even smile i was trying to get you to smile i was kind of reading the next question so i was like oh okay sorry you weren't even listening to me okay fine yeah whatever being prepared i was fine okay whatever now uh uh there you go i would just get the you're gonna have to do century the other assets you're gonna have to appraise if you don't sell them and you want to get some assistance there so you you should be doing good i was gonna say something else i forgot what it was all right you're good mark get some help you're going to be okay you're going to get stepped up oh joe biden back to the joe biden point joe biden wants to get rid of stepped up basis done okay he's playing there he tied it back there we go okay that that's his plan yeah in his tax plan on his website and i interviewed one of his campaign managers last week their uh goal is one of his goals is to get rid of stepped-up basis because he feels it only helps the wealthy so a business owner that's wanting to leave their business to the family without stepped-up basis mark would pay more tax yeah yeah um okay last question matt okay this is last question from donald um from north carolina he says i'm under 59 and a half i've got a work 401k i also have a solo 401k and a solo roth 401k so he's got a solo kit it's got a traditional account or off account earlier this move earlier this year i moved about 60 000 from the traditional to roth trying to chunk it out as mark would say they chunk it out i don't think i've heard it that way uh chunks yeah chunk it out my you know that may sound like me duking it out on the boxing ring chunking it out we're moving it out in chunks that's what he meant to say okay yes um he says then all this new coronavirus rules showed up i like the idea of spreading things out tax wise over a three year period me too i need to make two dollars i'm in i'm in can i pay taxes over three years versus one yeah uh can i pull 100k out of the work 401k and in effect replace the 60k in my solo 401k pretty much presumably means traditional or can i only take 40k from the work 401k he says by the way i'm very happy customer devon set me up last year and solana takes care of mia directed thanks donald we got we do have some awesome people here um okay donald i think there's good news the roth conversion is different than the hundred thousand dollar distribution so the sixty thousand that you converted to roth does not count in this hundred thousand distribution under the cares act for covid so you could take the whole hundred you don't have to offset the sixty and only take 40 you could take a whole hundred out of the work 401k if you want now you have to qualify which one of the easiest ones is you live in a state that's had shelter in place at some some place i'm pretty sure north carolina yeah yeah and you just have to say you've been financially affected by the pandemic there's no test for that it's certified by the account or saying i was financially affected by the pandemic um you'll get the 100k out of the work 401k they're going to send it to you personally they won't send it to your soul okay or to an ira the cares act distribution is a distribution to the account owners they're going to send you the money for 100k now you have three years to replace it and put it back in somewhere so if you're like i'm really just trying to get it back into my get into my soul okay you could do that you could take the 100k out do a distribution redeposit into the soul okay you actually have three years to do it but you can do it in the next the next month you know you don't have to wait three years and then you'll avoid the tax entirely on moving that 100k out so then you could do more roth conversions and chunk it out next year you know is there is there any on the mount okay so separate from the roth separate from the 401k he's going to pull out at work and then drive it back into a solo which i love so now he can control that 100 everybody listen listen some of you are like what are they talking about i really like this strategy i haven't even heard of this strategy a lot of directed ra clients have gotten money out of their work 401ks over here to self-direct okay yeah yeah yeah let me explain in layman's terms for everybody let's say you're like ann that had that question earlier where you've got a day job and you've got a side business okay in the side business you've created a little solo 401k because you're the only owner and the only employee and you're going to put as much money as you can in there after you get your match at work so you got your day job you put money in the company matches it you get out and you go do your little side hustle like anne and then you put money in your solo 401k now which one do you like better the work 401k or the solo i would argue they're both good and here's why the work 401k you're getting a match you're doubling your money every time you put money in it doubles because the company's going to match it but after that it kind of sucks because you can't control the investments you get three choices of mutual funds it sucks we get it but in the solo 401k you're really matching yourself so it's not free money but you get the write-offs for it but the beauty of the solo 401k is you can control where you invest it so when covet hit and his match already mentioned we have people that have a solo 401k in our office hundreds of them frankly they're saying hey i got work 401k money that's driving me crazy because i can't invest it the way i want i'm not quitting my job i haven't fully bested i can't move it under any term of the 401k until congress passed the cares act now i can go to my employer and go hey i got affected by covid my life sucks i had a shelter in place i'm hurt self-certifying and say i want my hundred grand the employer has to now give you a hundred grand out of your 401k their stock broker is pissed because they don't get to invest it anymore you take your 100 grand and you go well i don't want to pay tax over it three years if you move it and put it right into your solo 401k or self-directed ira if you don't have the solo care small business even if you just have an ira yeah there is it's considered a rollover at that point so there's no contribution limit and you just got access to invest it in what you know best no tax done that's freaking awesome it's a great i'm glad i finished with that question that's a good one yeah yeah yeah good job mark god yours i mean thanks man appreciate it good closing i like it you finished strong yeah it's pretty strong uh all right i did have another point that i wanted to make but i just jumped in there i just see i'm double fisting rock stars today look at this like freaking i'm trying to get sponsored by rockstar and i thought you know if i'm double fisting my restoration recovery my recovery rock stars they got to give me a shot steve pastrano has to drive his motorcycle over trucks and buses to get sponsored i'm i'm leaping over tax returns which is more difficult yeah this is so much more steve pastrana just freaking throttle up and hold on you know yeah geez well i think a true rockstar would double fist them so good job i know so i can't remember what i was going to say but i love that last question good stuff yeah um yeah thank you donald and thanks everyone for submitting all your questions you can do them at mainstreetbusiness.com where we have the you know you can type your questions into there um we're also going to have the audio recording up soon so by next main street business podcast you might be able to record and call in a number or do it um on your phone or on through your computer record your questions so we can play it so you don't have to have mark and i mess it up when we try to read it back for the show and um thanks of course for being here uh we will see you next week

Channel: Mark J Kohler

Views: 2,163

Keywords: tax, legal, entrepreneur, asset protection, wealth building, cpa, attorney, lawfirm, Tax Tips, Open Forum, Q&A, Mark Kohler, Mat Sorensen, KKOS, KKOS Lawyers, K&E Accounting, Accounting, Rentals, Real Estate, Federal Tax, State Tax, Distribution, LLCs, IRAs, ROTH IRA, ROTH 401k, 401k, Solo 401k, LLC, PPt, Property Taxes, Land Lords, Managment, Real Estate Managment, MAin Street Business, Podcast, MSB Podcast, income tax, taxes, trump taxes

Id: fCulYY7Lczo

Length: 66min 13sec (3973 seconds)

Published: Fri Sep 18 2020