How To Structure Your Side Business

Today’s Tax Tuesday episode is your 2022 send-off with a series of rapid-fire questions around year-end tax situations. Toby Mathis hosts with a few staff available to answer online.

In this episode, you’ll hear our advice on combining multiple businesses and making sure they are incorporated and isolated from you personally which protects you from liability, opening a 401(k) by the end of the year vs. before the tax deadline, purchasing cars under a business umbrella to make income with Turo, and various other valuable end-of-the-year tips on tax strategies that you should do before January 1st, and a few that you can still take care of in early 2023 before the tax deadline. Submit your tax question to taxtuesday@andersonadvisors.

Highlights/Topics:

• “Last year was the first time I wasn't able to take investment real estate depreciation or deduction due to AGI over 150. I don't have too many necessary losses or even losses that I don't know or don't think will get back up, but it seems like a way to reduce my AGI. How do multiple-unit landlords do it? I'm thinking five houses without stock could get you up over the limit." - You've probably been phasing out, you just didn't realize it. Maybe your loss was small enough.You could do certain things to lower your AGI. Harvesting capital losses is one of them.
• "My husband and I have full-time corporate jobs, but also have small side businesses—remodeling, party rentals, and online sales—which are really diverse, that are in different categories. How is it best to structure everything for easy accounting and tracking of funds from all of these? - The general rule is you want to isolate any business that's doing business with somebody else. You probably want to isolate them from each other. Keep your structure simple and have one set of books, just have one business. I would have it as an LLC. Isolate it from YOU.
• "Do I have to open a 401(k) by the end of the year to make contributions?" – If its your salary deferral, yes, if its employer, you can do it after the next year starts.
• "My CPA has suggested I take the late election of an S-corp. C-corp was formed on June of 22. I've had plenty of expenses building the foundation of a wholesaling business, but no deals yet. With tax filing, I assume I do a late election of an S-corp. Will my taxes be filed as an S-corp or as a C-corp? And how does that impact the business startup expenses I've had since March of 2022?" - My suggestion is that C-corps are a trade or business the day that they started.
• "How can I make sure our Utah-based kids pay minimal tax on the sale of our property in California when we die? We know it will be stepped up in value. When I sold my own dad's property in California when he died recently, we paid a big tax on it to California as non residents. Should we sell it and do a 1099 exchange?" - California doesn't have an inheritance tax, period. They haven't had one since the 80s, so I'm trying to think of how they taxed you. Send us an email I would like to find out more and answer this!
• "I lived in a condo for nine years and bought a house last year with a 5% down payment. The condo was rented out. If I sell it now, will I have to pay capital gains tax? If so, how can I avoid paying capital gains tax?" 26 USC 121 - It says that if you lived in a property as your primary residence for two of the last five years, if you're single, you get a $250,000 capital gain exclusion. If you're married, you get a $500,000 capital gain exclusion.
• "Looking for the best ways to protect net profits. I've seen 401(k) contributions, IRA contributions, investment and materials equipment, owner distributions, We are uncertain of future events and would like to keep what we've earned without paying it all to the government." - If it's net profit from the business- use all the business expenses. Look at a defined benefit plan, charity, accelerated depreciation...a lot of things you can be doing.
• "If I'm using a private lender to buy a property and borrow $10,000 more than my purchase price, is the additional $10,000 taxed as income?" The answer is no. You can always borrow money, and it's not taxable to you.
• "This year, we made a little more money and wanted to know if your service will help us offset anything with my somewhat new business before the end of the year is over. I currently have a massage, esthetician business that I opened in October 2018. Then the pandemic hit in March of 2019, in which my state licensing demanded we stop all services or we'd get our license taken away causing me to go in the red for 2019, 2020, and 2021. Moving forward, my business has been slowly coming back but still struggling. During the pandemic, I went back to school getting certified to work in the holistic health care setting. I'm in the process of adding that business to my existing, so I wanted to get advice on the best way to set things up if I have multiple businesses." That's a question I cannot answer for you. But make sure they are isolated from YOU like my previous question.
• "My husband and I are wanting to take advantage of the equity in our home and would like to invest into some rental properties to start to dabble in real estate investing and Airbnb. I also wanted to know if your company will be there for us on any financial advising and legal advising in our planning on this new venture." This is exactly what we do. Rental properties are different from Airbnb. As it is all real estate - probably want to isolate A, B, and C from each other, and we want a structure that allows us to get the maximum tax benefit in isolating that liability.
• "We are dabbling in Turo. So far, it's been doing well. We're interested in expanding it with more cars to add in. However, we now would like any new cars we added to be purchased under the business name." - Depending on the type of car, it could be a deductible in one year. If you're doing this in your name, you're exposed. You have a ton of exposure. You need a business name on it.
• There are a lot of things that are not time-ish critical before the end of the calendar year, but the big ones are salaries, reimbursements, charitable giving.
• Check our YouTube channel for more on end of the year tax strategies.
• We hope you have a great start to the new year!

Resources:

Email us at Tax Tuesday

taxtuesday@andersonadvisors.com 

Tax and Asset Protection Events

https://andersonadvisors.com/real-estate-asset-protection-workshop-training/

Anderson Advisors

https://andersonadvisors.com/

Toby Mathis on YouTube

https://www.youtube.com/channel/UCX5nh607M8hSBLiMB9MgbIQ