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Real Estate Investors, Stock Traders, and Business Owners guide to preserve their wealth, protect their assets, and prosper in the future.
Episodes
Tuesday Jan 10, 2023
Tuesday Jan 10, 2023
In this episode of Anderson Business Advisors, Toby Mathis speaks with Eliot Thomas, Managing Tax Advisor at Anderson Business Advisors. There are lots of people helping to answer questions online - Patti, Ander, Matthew, Troy, Jared, Piao, Ian, Dutch, and Dana are on. There are so many people here. You have a whole bunch of tax professionals that are here to answer your questions. You can just go into the Q&A and put in a question.
You’ll hear Toby and Eliot discuss several listener questions around how to report capital losses in the stock market, a few questions on real estate and business LLCs vs. S-Corps, C-Corps, and Sole Proprietorships, disregarded entities, entertainment meals vs. business meal write-offs, and an in-depth discussion about a real estate contractor not filling out a W-9 and all the difficulties that might present. Submit your tax question to taxtuesday@andersonadvisors.
Highlights/Topics:
- "Hey, I'm looking to start a new business. I need to choose a correct business entity in order to maximize my tax benefits, so I need to know if starting the business as an LLC and potentially working the business out of my home would be the best option for me." – by all means, you want the LLC for that asset protection, but the S-corp or the C-corporation—have those great reimbursements.
- "Can I write off my stock holding loss at the end of the year to reduce my W-2 earnings?" Yes, but we're limited potentially just to $3000 of capital loss that will offset against ordinary income, that being your W-2.
- "What are the rules for HSAs for people over 62?" – For 2023, the amount is going to be $3850 if you're single, and I guess it'd be $7750 for a family plan. If you are on Medicare, you can not contribute tax-free to an HSA.
- "I became a real estate professional in 2021 and have a significant net operating loss due to depreciation. What are the limitations of carrying the NOL backward in 2020 and 2019 to use that to lower taxes in the previous year?"-- As of right now, we don't get to carry back NOLs. We just carry them forward.
- "If my partnership LLC did not conduct any business this year, do I still need to file a Form 1065? -- You don't have to file 1065 for that first year.
- I'm in the process of setting up my real estate business. I already have a Wyoming LLC as a holding company. It's treated as a disregarded entity, but I have no investment in real estate yet. If I file my taxes this year before I acquire an investment property, what is the process for changing the filing election of the LLC from disregarded to a partnership for the new property?" – You don't have to do anything but file that return, or you could file the Form 8832 and declare it as a partnership.
- "I am new to real estate flipping and started my first flip last year. Construction was completed this year, and it closed this year. I asked my contractor if I need to complete a W-9 last year, and he told me not until the project was complete. Now, I'm realizing that I should have had him complete the form in 2021 for the amount I paid him and again this year. Can I now ask him to complete the W-9 and file the form for 2021 and 2022? The other issue is I had issues with this contractor for faulty workmanship he did on the flip and in the process of filing suit. What if he refuses to complete the W-9?" If you're dealing with a contractor who's organized as a business, chances are you still want that W-9 to prove that they're a business.
- "What forms do I need to fill out for my accountant to show capital loss in the stock market?" – Usually, you're going to get a 1099-B from your brokerage house. They can just use that, and that's really all you need.
- "As an owner-operator trucking company designated as an LLC, can you write off 100% of the operating fuel costs?" – If the truck that was burning that fuel was used 100% for business, absolutely.
- "I am a lender on a note to an LLC. What are the best practices for collecting payments and tracking interest payments for reporting purposes; separate bank account for the payments or create an end-of-the-year interest statement for myself?" - I like the separate bank account. Keep it separate from your personal obviously.
- "I attended your Las Vegas event. Please confirm if we are to refrain from listing items as entertainment when filing taxes." - They're probably referring to the Tax Cuts and Jobs Act getting rid of entertainment. There is no deduction for entertainment. If you are getting a meal that is for entertainment purposes, you cannot write it off. Business meals only for 2022.
- "I'm looking to convert from an LLC-S to a C-corp in 2023. Should I stay on a calendar or fiscal year schedule? What are the pros and cons?" – I like the fiscal year for C-corp because it tends to give you more flexibility, especially when it comes to payroll items or contributing to, say, Solo 401(k)s or something like that.
- Visit us at andersonadvisors.com. Grab one of the free events. We're going to do a ton of them this year.
Resources:
taxtuesday@andersonadvisors.com
Tax and Asset Protection Events
https://andersonadvisors.com/real-estate-asset-protection-workshop-training/
https://andersonadvisors.com/
https://www.youtube.com/channel/UCX5nh607M8hSBLiMB9MgbIQ
Tuesday Jan 03, 2023
Tuesday Jan 03, 2023
In this episode, Toby Mathis of Anderson Business Advisors welcomes Jose Luiz Morales, a self-made wealthy real estate professional who made many sacrifices at a young age in order to build a lifetime of wealth. Jose is a Real Estate Advisor with Morales Group, Brokered by eXp Realty, he has a podcast called “The Residual Real Estate Agent, and he belongs to a number of mastermind and mentoring groups based around investing and real estate.
You’ll hear the inspiring story of how Jose decided to stop hanging around with “knuckleheads” at age 23, and his life changed focus. By sacrificing a lot of the fun and frivolity most young people have in their 20s, Jose became a millionaire and built a foundation of assets that will not only allow him and his family to live a comfortable life, but they could feasibly even retire before age 40.
Highlights/Topics:
- Jose’s origin story
- Jose’s parents taught him the most valuable lessons, but never helped him financially
- At age 26 Jose’s monthly income was $6000
- Making sacrifices at a young age allowed for building wealth
- Moving out at age 27
- Everything Jose put on his vision/dream boards came to fruition
- Coaching, mentorship and mastermind groups
- Advice for young people - don’t hang around with knuckleheads
- Reach out to Jose to learn more about his methods and successes
Resources:
https://www.linkedin.com/in/joseluizmorales/
https://www.tiktok.com/@joseluizmorales805
https://www.youtube.com/@joseluizmorales
https://www.instagram.com/joseluizmoraies/
The Residual Real Estate Agent Podcast
https://podcasts.apple.com/us/podcast/the-residual-real-estate-agent-show/id1560901602
https://exprealty.com/
https://www.collective-genius.com/
https://andersonadvisors.com/
https://www.youtube.com/channel/UCaL-wApuVYi2Va5dWzyTYVw
Thursday Dec 29, 2022
Thursday Dec 29, 2022
In this episode of Anderson Business Advisors, Toby Mathis speaks with Trent Lee of First Choice Business Brokers (FCBB).
You’ll hear Toby and Trent discuss all the ways you can slice and dice the numbers to value a business. From EBITDA to discretionary earnings, normalizing value over the past few Covid years, using the SBA database, etc. Trent shares many stories from his experience both good and bad about how to value, run, and sell a business – from a small $70K pizzeria, to larger operations valued in the tens of millions, Trent is the expert in the business broker space.
Highlights/Topics:
- Trent’s the number one business broker in the country by volume
- The SBA database as a tool
- Seller’s discretionary earnings
- Recasting financials to normalize for Covid years
- Using multiples for valuation
- A few success stories from Trent’s experience
- Showing profit in your business for valuation vs. saving money immediately with tax write-offs
- The pizzeria story
- Matching business purchases to the background of the buyer
- Don’t touch anything on a profitable business for at least 6 months
- The mistakes - leaving value and profit on the table
- If you want to buy a business, call Trent
Resources
trent@fcbb.com
https://fcbb.com/
https://andersonadvisors.com/
https://www.youtube.com/channel/UCX5nh607M8hSBLiMB9MgbIQ
Wednesday Dec 28, 2022
Wednesday Dec 28, 2022
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:
taxtuesday@andersonadvisors.com
Tax and Asset Protection Events
https://andersonadvisors.com/real-estate-asset-protection-workshop-training/
https://andersonadvisors.com/
https://www.youtube.com/channel/UCX5nh607M8hSBLiMB9MgbIQ
Tuesday Dec 13, 2022
Tuesday Dec 13, 2022
Today’s Tax Tuesday episode answers several listener questions around end-of-the-year strategies for reducing taxes. Toby Mathis hosts with special guest Jeff Webb, CFO of Anderson Business Advisors. Online we have Ian, Troy, and Eliot helping answer your questions.
In this episode, you’ll hear our advice on the following: selling stock and how you can minimize capital gains taxes, setting up trusts - including dynasty trusts and how estate taxes are assessed there, buying a vehicle for business use and the requirements for writing off depreciation and mileage, and as always there are listener questions about real estate investments and tax scenarios, including LLC’s, partnerships, and long and short term rentals. Submit your tax question to taxtuesday@andersonadvisors.
Highlights/Topics:
- "What is the best strategy for hiring your kids?" - If your kids are under 18, you do not have to pay withholdings or Social Security. If less than $12,950, it doesn't matter whether they're my dependents or not. They don't have to file a tax return.
- "How was a 'dynasty' set up so it is not taxed at the estate rate after the death of the creator? Are both the trust and the beneficiary taxed in any year funds are distributed?" - The answer is probably not if you're distributing all the funds. If I just own a bunch of stock and I don't sell any, there's no income. There's no tax. They don't care what you sell it for. What they care about is what its fair market value is on the date of your passing.
- "I have substantial credit card debt and private debt amounting to $120,000. I own a few rental properties. Currently own six long-term incomes and two Airbnbs. Two properties are mortgage free, and one of the current long-term tenants wishes to buy the property." They're asking for an opinion here. "Should I sell and pay off consumer debt? Should I owner-finance? If I sell and owner-finance, can I avoid capital gains?" - I would sell and pay off the consumer debt. It's probably costing a lot of money. Or, I might just refi it and pay off my consumer debt. HELOC would work.
- "We want to sell some stocks to pay off some debts, but we know that if we do, we're looking at a huge capital gain. What can we do to lessen the tax that we have to pay on the capital gains?" - If you have stocks, especially stocks with big gains, there's a good chance that your brokerage house will give you a line of credit against those stocks. But, I'm probably not going to do it right now just to pay off debts. But I could borrow tax-free against those same stocks and do it.
- "Is Anderson Advisors training recommending to have an operating agreement that allows the non-pro-rata and discretionary authority to make distribution on a regular timeframe or amount? For a multi-member LLC, how do we deal with yearly taxes in this case?" - We want to make sure that we have an operating agreement that says, I get to decide if I distribute money or not.
- "What options are there to save money on taxes if you own an LLC? Can passive income be used to fund a retirement account such as a solo 401(k)?" – you have to get wages of some sort to fund a Solo 401(k). You cannot have wages out of a sole proprietorship. If the sole proprietorship is a passive activity, there's no way to convert that.
- "I'd like to take advantage of Section 179 before the end of the year and buy a business vehicle. Can you talk in more depth about Section 179 and how depreciation and bonus depreciation work? Also, what kind of vehicles qualify for this?" – If it's under a 6000 GVWR (gross vehicular weight rating) vehicle, your limitation is $19,200 of depreciation in that first year. That includes bonus depreciation. If it is over 6000 pounds, then your bonus depreciation is pretty much unlimited. It all comes down to are you actually using it for business? And what percentage?
- "What is the best way to get money from my entity, a C-corp, while limiting the amount paid in taxes personally and as a corporation?" - Repay your shareholder loans. That’s the best way to get money out of your C-corp if it already owes you money.
- "If my bill would be over $500,000, what can I do before the end of the year to reduce this?" - Look at retirement plans and advance retirement plans, charitable donations, and cost segregation.
- "I'm looking to attain two or more rental properties within the next year or so. Is it better to create an LLC for each property or take title under my current S-corp? I have an S-corp retail classification that I am considering dissolving. Should I just reclassify my S-corp as a real estate investment and take title in the name of the S-corp?" - Since this company was already in existence doing something else, I do not favor reclassifying. I would dissolve it.
- Send us your questions, and we do about 50 events a year - check out the event schedule listed in the notes.
Resources:
https://www.amazon.com/Next-Level-Estate-Asset-Protection/dp/1950863883
taxtuesday@andersonadvisors.com
Tax and Asset Protection Events
https://andersonadvisors.com/real-estate-asset-protection-workshop-training/
https://andersonadvisors.com/
https://www.youtube.com/channel/UCX5nh607M8hSBLiMB9MgbIQ
Tuesday Dec 06, 2022
Tuesday Dec 06, 2022
In this episode of Anderson Business Advisors, Toby Mathis speaks with attorney Jonathan Evans from Anderson Advisors. You’ll hear Toby and Jonathan discuss all the pros and cons of LLCs – they are expensive in some states, more affordable in places like Wyoming and Delaware, they don’t provide the stock tax breaks that other entities do, and there are some investment restrictions. However, the name itself shows one of their greatest benefits which is “Limited Liability” and separating you personally from your business entity. They are flexible, offer a lot of choice, and in the end, are still a good option for setting up your business.
Highlights/Topics:
- Jonathan’s background
- The problems with LLCs - expenses in certain states
- LLCs don’t have stock - but there are huge tax breaks for businesses that DO have stock - the 1244 and the 1202
- Olmstead v. The FTC in Florida’s Supreme Court - opening single -member LLCs to creditors
- Wyoming is a leader for affordable asset protection
- Investment restrictions in LLCs vs. corporations
- LLCs and international investors
- Disregarded entities and active businesses
- Some redeeming qualities of LLCs - “Limited Liability” being number one
- Flexibility and choice in operations with LLCs
- The LLC is still a valuable entity for your business - work with a professional
Resources:
https://www.linkedin.com/in/jonathan-evans-a3640895/
jonathanevans@andersonadvisors.com
https://andersonadvisors.com/
https://www.youtube.com/channel/UCX5nh607M8hSBLiMB9MgbIQ
Tuesday Nov 29, 2022
Tuesday Nov 29, 2022
Today’s Tax Tuesday episode answers several listener questions on HSAs, S-Corps vs. LLCs, and reducing your taxes with rental properties. Eliot Thomas hosts, along with Jeff Webb, CFO of Anderson Business Advisors. Online we have Dana, Dutch, Piao, and Troy - all kinds of resources there to help answer some of your questions.
In this episode, you’ll hear our advice on the tax benefits gained from being an LLC, S-Corp or C-Corp, and we’ll answer a couple questions concerning HSAs - their contribution limits and investing with that HSA money. There are also some questions answered about home offices, ITIN numbers, bitcoin and of course a little bit about short and long-term rental properties and their tax implications. Submit your tax question to taxtuesday@andersonadvisors.
Highlights/Topics:
- "Can you please explain the difference between an LLC, a C-corp, and an S-corp? Can an LLC also be a C- or an S-corp? I understand that C-corps and S-corps are tax elections, but are they also a type of entity?" –LLC is a legal entity, it is not a tax entity. If you want anything else like an S-corporation or C-corporation, you actually have to tell the IRS that, make an election.
- "Are the limits for contributions a monthly or annual amount? On irs.gov, the limit as listed is $3200 for single and $7200 for family." - the contribution limits are annual amounts.
- "My accountant thinks I should switch from an S-corp to a Schedule C," that's a sole proprietorship on the 1040, "because my profits are below $80,000–$90,000, and the S-corp is expensive, and I'm just one person, so I do not want to grow any bigger, and I'm happy with the sales. My question is, what is best for me, not the company? What happens if I switch? What is better for retirement and social security as I am 56 years old?" - You are going to pay for a tax return to the S-corporation that you wouldn't have to pay for extra on Schedule C. There's some work to do to put that Schedule C together. Your 1040 may get a little more expensive. If you have a health insurance plan for yourself that you're paying for, that should be paid for by the S-corporation. It will save you a good deal of money.
- "Can you convert a personal vehicle into a business vehicle if you only use it for business? What if you only own one vehicle? Can you deduct mileage, gas, or anything else?" - You can do that, but you have to actually contribute the vehicle to the business. Because what we don't want is any personal use of this vehicle. The solution is to track your mileage. If you are one who drives a lot, the more you drive, the more mileage, the better this comes out - keeping it in your name as a personal vehicle.
- "Can I reduce my W-2 taxes for my job by owning rental property?" – If you are materially participating in your short-term rental—it's not really a rental to trade or business—yes, the losses from that could reduce your W-2 income. It's plausible, but you're going to have to be within these parameters, short-term rental, or long-term rental and meet the criteria for it.
- "I have a C-corp staffing business. Since Covid, I've been using my home office. The home is in mine and my son's name. How can I count for the space used as an office for a tax deduction?
- “What is your advice for a small business owner on employing people who only have their ITIN number pending the social security number?" -Basically, you're not allowed to have people with an ITIN as employees. They have to have a social security number and be registered in the US to be here.
- "Can you discuss the step-by-step process of completing a 1031 exchange? - The forward 1031 makes more sense, because keep in mind, you cannot touch the cash. You also need a Qualified Intermediary. Determine if you want to do a forward 1031, a regular 1031, or do you want to do a reverse?
- "I have a question regarding investing with my HSA. Does an HSA function like a Roth IRA in terms of paying UBITs (unrelated business income tax)? In other words, if I invest my HSA in crowdfunding or syndication, for example, will I have to pay UBIT?" - You need to be very careful with the investments that you're going into. To your question, yes, it's subject to your HSA, it's subject to UBIT. If you invest in a real estate syndication, those typically run for four to five years. That money's going to be locked up in a hard asset that you can't get to.
- "Can I write off a loss selling my bitcoin with a $10,000 loss? I bought it at $26,000 and bought it right back at $16,000." - It's not allowed for you to recognize a loss on that. You’ve got to wait 30 days.
- "My understanding from a tax perspective, an LLC taxed as a C-corp and a traditional C-corp receive the same benefits such as medical reimbursement, administrative office, retirement plan, et cetera. (1) Can you explain the positions of the LLC taxed as a C-corp? Do I still need a president, vice-president, treasurer, secretary, or just member managed? - Those positions are usually required by state law. It has nothing to do with how they're taxed. It has to do with how they're formed. (2) Why would anybody form an LLC taxed as a C-corp over a regular C-corp? If there is no plan to take it public, why choose one over the other? Cost to maintain, paperwork required, et cetera?" - Yeah, easier form, less criteria behind it, a C-corp is required to have certain meetings, et cetera. You don't necessarily have that with the LLC.
- "Is it best to start an Airbnb business now or wait until the beginning of the next year for tax purposes? What do you think the best options are?" – You don't need to do cost segregation. It's not going to help you, unless you're renting this property out for a lot of money, like it's a beachfront property and a primary or something like that, and you're getting $10,000 a week for it. I would conserve it or save that cost seg for potentially 2023.
- Check out our events coming up later this month.
Resources:
taxtuesday@andersonadvisors.com
Tax and Asset Protection Events
https://andersonadvisors.com/real-estate-asset-protection-workshop-training/
https://andersonadvisors.com/
https://www.youtube.com/channel/UCaL-wApuVYi2Va5dWzyTYVw
Tuesday Nov 22, 2022
Tuesday Nov 22, 2022
In this episode of Anderson Business Advisors, host Toby Mathis speaks with Senior Attorney Joshua Robertson from Anderson Advisors. Josh details the five most egregious mistakes people make when attempting to protect their assets. From having no real structure to their planning, to failing to comply with their state’s regulations and paperwork, to not paying taxes correctly, people can really screw up their asset protection. Get yourself educated, find a professional to help you navigate your business or personal asset protection process, and you’ll avoid these common pitfalls.
Highlights/Topics:
- Five ways that people mess up their asset protection:
- Objectives - People have no objectives to structure their plan, and don’t do it at the right time
- Anonymity - security through obscurity– keep your assets private
- Compliance - adhere to your state’s regulations and paperwork
- Education - know how to correctly protect yourself
- Taxes - know what and when to pay
- Objectives and timing example: The Montana family land lawsuits example - you have to protect your assets BEFORE there is an issue
- Anonymity story: Patrice Cullors/BLM example - she should have used a land trust with an LLC
- Compliance example: Leland Sycamore and Grandma Sycamore’s Bread and Bimbo Bakeries - Non-compete for baking bread
- An education story: OJ Simpson was able to live comfortably despite legal entanglements because people knew how to protect his assets
- Tax example – ticket scalper in Michigan - son incorporates business as C-Corp, while dad mistakenly continues to file as a sole proprietor
Resources:
Josh Robertson, Esq on LinkedIn
https://www.linkedin.com/in/joshuatrobertson/
http://jrobertson@andersonadvisors.com/
Call Anderson Advisors 800-706-4741
https://andersonadvisors.com/
https://www.youtube.com/channel/UCaL-wApuVYi2Va5dWzyTYVw
Thursday Nov 17, 2022
Thursday Nov 17, 2022
In this episode of Anderson Business Advisors, Toby Mathis speaks with attorney Brent Nelson, partner at Rimon Law in San Franciso. Brent helps his clients understand, improve, and protect family structures that include trusts, business entities, private investments, charitable giving, and family governance. He is an established and respected thought leader in his field, and hosts the popular Wealth and Law Podcast.
You’ll hear Toby and Brent discuss a wide variety of scenarios and situations surrounding trusts – who should have them, how they can benefit you, and all the things they can’t do. People out there will try to tell you that you can avoid paying taxes by utilizing a trust, but as Brent and Toby explain, the IRS and the courts will usually always win, and they will eventually get what you owe. In fact you may even be paying more taxes than necessary with some trusts. In the end, you won’t get out of paying the taxes you owe, and you may just complicate your life by stashing your money in certain kinds of trusts, especially those promoted by less-than-scrupulous individuals.
Highlights/Topics:
- Trusts are not a way to avoid paying taxes - grantor trust rules
- Only certain trusts can own S-corp stock
- A “three-trust mechanism” – is it valid?
- When you should use a trust and its benefits?
- Promissory notes for stocks in trust
- Making sure trusts allow the client to live the lifestyle they are used to
- Non-US citizens/non-residents cap has been $60,000 since the 1930s
- If you have a green card, you can be taxed and fall under the $12M cap
- Canada’s exit tax
- Setting up a simple living or revocable trust is advisable no matter how little money you have
- Fund-promoted trusts in foreign jurisdictions – be very suspicious - you don’t save taxes, it’s just more complicated
Resources:
https://www.linkedin.com/in/brent-nelson-0a485ba/
https://wealthandlaw.com/category/podcast/
https://twitter.com/wealthandlaw?lang=en
https://www.facebook.com/wealthandlaw/
https://www.rimonlaw.com/
https://andersonadvisors.com/
https://www.youtube.com/channel/UCaL-wApuVYi2Va5dWzyTYVw
Tuesday Nov 15, 2022
Tuesday Nov 15, 2022
Today’s Tax Tuesday episode answers several listener questions on S-Corps vs. LLCs. Eliot Thomas hosts with special guest Jeff Webb, CFO of Anderson Business Advisors. Online we have some of the staff from Anderson – Dana, Dutch, Ian, Piao, and Troy here answering live chat questions.
In this episode, you’ll hear our advice on several scenarios regarding potentially switching from an LLC to an S-Corp and the likely tax benefits, along with several questions about purchasing property for your children to live in while they are attending school or just getting on their feet. Submit your tax question to taxtuesday@andersonadvisors.
Highlights/Topics:
- “I have an LLC now for a small business, and I'm wondering what the benefits are of switching to an S-Corp and what the tax deduction benefits might be?”--- If it’s an LLC, it's got liability protection. If it's not making a lot of money, (under $50K) – probably don't go the S-Corp route.
- “Can cost segregation depreciation be done on a property purchased one or two years earlier? If so, is it state-specific? Would it be a great option if that was a possibility with REP status?” You can go back in time and do the cost segregation. Let's say you bought the property in 2020. It's now 2022. You could do cost segregation. That depreciation from the cost segregation would appear on your 2022 return. If you do not have REP status or can't get REP status, normally cost segregation is not a great idea.
- “Is there a way to convert from a 401(k) to an IUL (Indexed Universal Life) or Roth without having to pay the high tax burden, or at least minimize the tax hit?” The problem is you are going to get a tax hit if you take 401(k) money and put it in an IUL. Anything you take out the 401(k), money's going to be taxed at ordinary rates. And if you're not 59½, you could be hit with a 10% penalty on top of it.
- “I'm a member of WREIN. I purchased a house and a condo in the past few months that two of my children currently live in. There is a mortgage and my soon-to-be daughter-in-law is on that with me. I pay the mortgage on the living costs, including tuition. Should I claim this home as a rental?” You can't just write a check or gift it and say, now I'm going to have them pay me rent back. The IRS has seen through that. That's a gift. It doesn't sound like they're paying anything so I see no rental here.
- “My son is 26 and in his second year of post-secondary education. The condo doesn't have a mortgage. I purchased it with funds from a private money lender in April that I have paid off with a HELOC from my primary residence. What would be the most advantageous way for me to claim this home, rent, and the best strategy? We've created a problem with our second home because we now have more than two private residences. Once again, I would probably deduct the HELOC as investment interest. Whichever one has the higher mortgage should be your second home. The next one would just be investment interest on an investment you own (the condo). And again, you can deduct the taxes on as many properties as you own. But again, you still have that $10,000 cap for state and local taxes.
- “Due to having two W-2s, I cannot qualify for real estate professional status nor can my partner. What is the best solution to minimize the tax bill coming at the end of the year? By the way, with both W-2s, I will be moving to a higher tax bracket that neither W-2 knows about. I will owe more taxes than they take out at the end of the year, unless I find some way to get my passive losses from depreciation available to lower my W-2 bill.” If you make $50,000 in each job, you’re going to have a whole lot more taxes and probably going to be under-withheld because it's based on $50,000 on each job. REP status doesn't work. You could do a short-term rental. Be sure to adjust your W4s for two jobs/withholding.
- “I just moved to Arkansas and sold and purchased properties here in Arkansas through a 1031. How do we get taxed on the remaining amount that was not used as a 1031 replacement property? I reserved some of the money from the sale as I don't know what my tax bracket here is for taxation, and how much. I would be paying income tax. Can you give me an answer using the percentage of the sale?” Every dollar that you held back from the 1031 exchange is going to be taxed. And the first tax is going to be depreciation recapture, at a max of 25%. And the rest is capital gain at around 15%.
- “I'm interested in using an accountable plan. Can you differentiate between a home office deduction,” which is on Schedule A, I believe, “and requires an exclusive home office use, versus the administrative home office which appears not to need the exclusive use?” ‘Unreimbursed employee expenses’ was eliminated at the end of 2017, so that doesn't work anymore. Your only choice (especially in an S-Corporation) is a reimbursement.
- “I'm not qualified as a REP (real estate professional) but with passive losses. Is there any way I can reduce my income with these losses and what can I do before this year is completed?” The only thing you can do with passive losses is offset them with a passive income, which effectively means you're not using your passive losses to reduce your income. Short-term rentals are not rental activity.
- “We have mainly W-2 income and also some investment properties passive. Our W-2 is too high to get tax deductions from its loss besides doing a short-term rental Airbnb. What are other ways we can deduct our W-2 income tax?” Max out those retirement contributions. Oil and gas is another still popular investment. There you have to have a working interest—that's very important—but it is a write-off that's substantially all of your investment for the most part.
- “We are about to apply for a HELOC. We do not own our home yet. My husband is the only moneymaker right now. We want to buy my daughter a mobile home. It's approximately $47,000. Our credit score is over 800.” I don't think this is a business, and I think wrapping an LLC around this property is a bad idea. But the daughter would have to be paying market rent. You would have to run it as a real business.
- Check out our events coming up later this month.
Resources:
taxtuesday@andersonadvisors.com
Tax and Asset Protection Events
https://andersonadvisors.com/real-estate-asset-protection-workshop-training/
https://andersonadvisors.com/
https://www.youtube.com/channel/UCaL-wApuVYi2Va5dWzyTYVw