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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
Thursday Nov 10, 2022
Thursday Nov 10, 2022
In this episode, Toby Mathis of Anderson Business Advisors welcomes John Anderson, an attorney from Anderson Advisors.
John and Toby discuss the need for a living trust – and why you don’t have to have an enormous “estate” to have a trust. Trusts provide protection from going through probate court, which is expensive and time-consuming, possibly taking 2-4 years to get through. Your living trust can also have a third-party trustee such as a bank or attorney that will look out for your interests and wishes once you pass away. This protects your descendants from having to deal with probate, and even prevents them from fighting amongst each other (or fighting with another sibling that is acting as trustee) for your estate.
Highlights/Topics:
- John Anderson’s background and early years
- A few interesting stories from John’s experience
- Probate - challenges and specifics
- Living trusts to avoid probate court
- Dynasty trusts for multiple generations
- Trusts and the court system
- Advice: Give your younger kids and grandkids some inheritance, let them play around with it
Resources:
estateplanning@andersonadvisors.com
https://andersonadvisors.com/
https://www.youtube.com/channel/UCaL-wApuVYi2Va5dWzyTYVw
Tuesday Nov 01, 2022
Tuesday Nov 01, 2022
Today’s Tax Tuesday episode covers a variety of questions about short-term and long-term rentals, the IRS rules around those entities, and lots of tips and stories about how to report and document your time so as not to trigger an IRS audit. Toby Mathis hosts, with special guest Eliot Thomas from Anderson Advisors, and some of the staff from Anderson including Dana, Patty, Ander, Matthew, Dutch, Cindy, Trisha, Cristos, Piao - are all online today to help answer your questions. If you have a tax-related question for us, submit it to taxtuesday@andersonadvisors.
Highlights/Topics:
- "For a 1031, does acquiring the beneficial interest of a land trust holding title to real estate qualify as replacement property? Same question, but an installment sale for the beneficial interest of a land trust." First question: When you look at the 26 USC 1031 and I want to say a to e, I believe, are the list of all of the exceptions, you'll see that the acquisition of a beneficial interest in a trust is one of the exceptions to being able to qualify for a 1031 exchange. Second question: What you can't do is go ‘no debt’ to ‘debt’.
- "How can the IRS prove we as owners used our short-term rental for more than 14 days or 10% of rental rented days?" How can they prove it, dang it?" The reality is they probably can't unless they somehow got the ability to go out there, research, find out, bring it into court, and documents were produced, et cetera. The reality is they probably can't. But I would suggest that you'd be very honest.
- "My wife is the property manager of our small real estate portfolio. What is the best way to document the hours she spends on our business as we are claiming she is a full-time real estate professional to unlock the potential extra tax benefits."We hire professionals for plumbing, AC repair, and she handles items like semi-annual home inspections, painting AC filter, deliveries, all advertising, bookkeeping, et cetera. Thank you." Put the date, what the activity was, the amount of time you spent. I'm assuming this is a local property, kind of in your town area, put down the time you drove there, the time it took to drive back, the time on the phone calling, et cetera. Any of that, just document it in an Excel spreadsheet. Use MileIQ if you're tracking mileage, for example. It'll GPS you. It'll also tell you the times and everything along those lines if you want to track everything.
- "I have a Fidelity brokerage taxable mutual fund account. It is not a retirement account. The taxable account has two mutual funds inside. One is a diversified growth and the other is a more balanced 60-40," probably bonds. "I started investing in these accounts in 1992 and directed all dividends and capital gains to be reinvested in the same funds." So a drip. "On a positive note, the account has grown dramatically, but the bad news is that both funds have high costs associated with them, i.e., actively traded, high turnover, which drives up costs. I would like to somehow move the money to a more tax-efficient index stocks such as XLY, the Dividend Kings, Dow Diamonds, QQQ, S&P 500, VOO, et cetera. Will I be able to do so with no tax or minimal tax implications?" I think you'd have to sell and that is a taxable event. Now you're going to have to move it over. We might be able to do things to mitigate that around it—some lost positions or something like that—to offset that gain. But I don't know personally how you would be able to get that transferred over. So is there a way to avoid the tax on the capital gain? It's really hard. You could sell other assets that have capital losses and harvest some losses like maybe you have crypto.
- "After using accelerated depreciation on a new Airbnb this year, can I avoid future recapture in the case of a sale through a 1031 exchange? Can I exclude some nights when I stayed overnight on the Airbnb property for the purpose of improvement, say installation of the gutter guards by a company the next day? I had to be there to receive the furniture delivered, which I also had to unpack, move, and put in the right places." Yes-If it's used in trade or business, yes.
- "Can I take a primary home loan on a property that has been bought with 1031 exchange funds and live in the property myself?" Yes. But of course, there are rules behind it. I don't know that there's a fast and steady rule for how long you have. You have to use it after the 1031 in a trade or business.
- "How does the new corporate transparency law affect our LLC structures? Are you confident that Anderson can figure out a workaround to maintain anonymity? What are the good and bad takeaways from this new law?" Well, every LLC for our clients typically is going to be underneath this because it hits all small businesses.
- "Our family has Christian healthcare medical bill sharing. I'm always told this is not insurance. How does the IRS view this? Can it be deducted for Schedule A? Can it be used as an insurance deduction?" It is not insurance in the eyes of the IRS. It is just a group of people coming together and helping pay one another's medical claims and so that's why it is not insurance. Insurance is defined as something that can be deducted. This cannot be deducted. It cannot be used on Schedule A. It cannot be used as medical reimbursement. there is a proposal out there for regulation where the IRS is trying to change that. They're trying to get to this where this would be deductible.
- "My husband and I acquired a short-term rental this year and are hoping to close on a multi-family property for long-term rental by the end of the year. I am on track with REP status," that is real estate professional status for 2022. "We have come across several potential listings. However, requiring a gut down in major rehab. The likelihood of having this rental done and rented is slim by the end of the year. My question is if having the listing up and ready for rental is considered in service?" If it's someone just putting the listing up there, no. It has to be available for service. It is the status you're trying to get. That means that if you did put it up there, then I could move in there right now. You run the whole risk of needing asset protection if you do something like that.I'll have it available by the last week of the year. Does that allow me to take the deduction this year? The answer is yes.so you can talk to somebody like Eliot because you are dealing with two or three issues that are very fact specific that we don't want you to screw yourself up.
- Be sure to subscribe to our podcast. And if you are already a subscriber, please provide us a review of what you thought!
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
Thursday Oct 27, 2022
Thursday Oct 27, 2022
In this episode of Anderson Business Advisors, Toby Mathis speaks with Aaron Adams, CEO of Alpine Capital Solutions. Aaron has been a full-time real estate investor since leaving his job teaching high school Spanish in the early 2000s. He has purchased thousands of properties in California, Indiana, Missouri, Texas, Florida, Idaho, Nevada, North Carolina, and Illinois. His focus is on single-family homes in blue collar and middle-class neighborhoods.
In this episode, you’ll hear why this environment is NOT like the crash of 2008, and in fact, even though this country is short 4 million homes, there are fantastic short-term rental and other opportunities for anyone interested in getting into real estate investment. From mobile homes to accessory dwelling units (ADUs), this country is in desperate need of affordable housing, and Aaron believes that the Airbnb/short-term rental space is where it’s at for investors right now.
Highlights/Topics:
- From high school Spanish teacher to flipping homes in Riverside County CA
- Cap rate explained- net income on a property after all expenses
- Inventory is about 4 million short on homes right now - the environment is terrible for new builders
- The “Silver Tsunami” - will those 55 and older be selling? Millenials and younger don’t want the boomer-style McMansion homes- they want metro area, tiny home styles
- ADUs, short-term rentals, and the homelessness crisis
- The Fed, interest rates, and “core inflation”
- This is NOT the same situation as the crash of 2008
- Get educated about real estate investing with Alpine and Infinity
Resources:
aadams@infinityinvesting.com
http://alpinecs.com/
http://infinityinvesting.com/
https://andersonadvisors.com/
https://www.youtube.com/channel/UCaL-wApuVYi2Va5dWzyTYVw
Tuesday Oct 25, 2022
Tuesday Oct 25, 2022
In this episode, Clint Coons of Anderson Business Advisors welcomes Brian Bradley, Director/Partner at Bradley Legal Corp. He's also the director of the Asset Protection Council.
Brian explains what offshore trusts can and can’t protect you from (not divorce!), who is the right candidate for offshore trusts, and why he recommends the Cook Islands and hybrid trusts. Brian tells us why and when you might need to “break the bridge” that ties you to your money in case of a doomsday lawsuit that will literally take your entire legacy from you. In most cases, when someone comes after you and discovers your money is offshore, particularly in the Cook Islands, 9 times out of 10 they settle or back off, because of the high likelihood of losing against this scenario.
Do your research, vet the organizations setting up your trust, and do all this before getting into any trouble, because coming to set up a trust after any litigation has begun is like getting insurance after a car accident. Plan ahead!
Highlights/Topics:
- Who is the right candidate for an offshore trust? High unprotected income (over $1M), doctor/surgeon, rental real estate in multiple states, at high risk from doomsday lawsuits
- The Cook Islands - benefits for tax-neutral trusts
- Hybrid trusts and your position
- Swiss bank accounts - they can be overkill and burdensome
- Protecting your assets from doomsday lawsuits
- Only about 20 states recognize asset protection trusts - so hybrids are better
- Questions you should ask when vetting
- Hybrid trusts and the IRS
- Asset protection trusts do not protect you in divorce court!
Resources:
http://www.btblegal.com/
brian@btblegal.com
Asset Protection Council Website
https://www.assetprotectioncouncil.com/
https://andersonadvisors.com/
https://www.youtube.com/channel/UCaL-wApuVYi2Va5dWzyTYVw
Tuesday Oct 18, 2022
Tuesday Oct 18, 2022
Today’s Tax Tuesday episode is focused on bookkeeping. Toby Mathis hosts with special guest Troy Butler, Executive Manager of our bookkeeping department at Anderson Advisors, and some of the bookkeeping staff from Anderson including Patty, Ander, Matthew, Eliot, Dana, Trisha, Blanca, Landsey, Kiera, and Cindy, are all online today to help answer your questions. You’ll hear our advice on things like what bookkeeping software to use, expense reimbursement and mileage, grouping your businesses using “classes,” and even some detailed information on how you can become an Anderson Advisors client and the services you’ll have access to. Submit your tax question to taxtuesday@andersonadvisors.
Highlights/Topics:
- If I request an EIN so I can open up a bank account for my disregarded single member LLC, do I have to file a tax return or can I somehow inform the IRS the EIN is for a disregarded entity? – Any EIN should be on “a” tax return, but doesn’t have to have it’s own return.
- If I paid for something on behalf of my C-corp and it didn’t have enough funds to reimburse me, how do I account for it? – First of all, if you paid for something on behalf of your corporation, I would make sure that I'm submitting a reimbursement sheet. I would do that monthly where I'm putting together everything I paid for personally, putting it on a sheet, and submitting that to my company for reimbursement. Step 1 - Do it monthly or quarterly. Step 2 - You can have a revolving line of credit.If it's an IOU, it's a loan. It's a liability of the company. It would be an asset to you as the shareholder.
- What is the best way to record, handle reimbursement for business expenses that were charged on the owner's personal credit card to avoid giving the IRS concerns about the legitimacy of the business?" – Again, you would want to submit those charges that were business related on a reimbursement sheet. What you don't want to do is you don't want to put that credit card that's in my personal name on your company's books. That can be looked at as co-mingling. It's a business expense that you’re getting reimbursed for.
- Can I deduct other courses I take that are general business-type classes, not specific to real estate investing, and if they are for the purpose of helping me build my business? – General business if it's you're improving your current lines of business. I don't see an issue with that.
- What is the smartest tax advantage way to pay the kids for helping the S-corp? Can I reimburse myself for the payments I have made to them from my personal account? – There are a couple of options here. I am a believer in payroll. The reason for that is if they're on payroll, if they make less than the standard deduction as employees, they're not required to file a tax return. You can also pay them by putting money in their Roth - they’ll never pay tax, or do a 1099.
- How do I not pay taxes at the end of the year?- This is what everyone wants to know!! My reply is, either don’t make any money, live on borrowed money, have someone else make the money, or buy real estate as a real estate professional which unlocks passive losses.
- I have a three-member LLC taxed as a partnership. The members want to take a distribution each of $100,000. How is that taxed and how is it recorded in the books? – That's not a taxable event. It's a distribution. That's an equity transaction. The $100,000 is not a taxable event. The taxable event is the numbers that come on that K-1 and say, you made profit of “X” or you made loss of “X”.
- How does the Anderson bookkeeping service integrate with the accounting service, et cetera? – We work very closely between teams! …we have full service monthly, or quarterly “virtual” service that uses QuickBooks. Virtual bookkeeping is $995 for a year for the first set of books and then $495 for each additional set of books.
- Can you please discuss some big-picture strategies to help with bookkeeping automation, AI, we should be considering? Botkeeper is one AI we’ve learned about. They can’t do complex things. It's much cheaper to use a human being right now. Maybe that changes at some point.
- What is the best way to keep track of miles? MileIQ is an app, it works well and creates good reports. There is also a function within QuickBooks works reasonably well. And Timr is easy to use, but it is $100 a year
- Best software for doing bookkeeping? There are thousands, and thousands, and thousands of accounting softwares out there. Most of them do a pretty good job. We use QuickBooks online for all Anderson clients.
- I'm trying to figure out how to property log and transfer friends from the property LLC to the holding LLC and vice versa. (1) how to capture my personal mortgage loan into the property LLC and then to the holding LLC? – It's an investment expense that I'm going to show on my Schedule E, which is going to allow me to take that deduction against my rental income if it's real estate. (2) how to record all transactions from the property LLCs throughout the year and distribute to the holding LLC for tax filing. –Like Toby's saying, for each tax return that you file, you need a set of books. But if you have entities that are disregarded to a holding company, they can be within one set of books. If you have 10 properties, you're going to have 10 classes on one set of books, and it's all going to flow up.
- Platinum members: Log on to our bookkeeping office hours, Thursdays, 3:00 Pacific Standard Time. We’re live and answering all your bookkeeping questions!
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
Thursday Oct 06, 2022
Thursday Oct 06, 2022
If you’re an investor and you’re worried about interest rates, and don’t have a ton of cash, what products are out there for financing your purchase?
On today’s episode, Clint Coons of Anderson Business Advisors talks to Rick Floyd, Executive Vice President of Homebridge Financial Services. Rick explains some of the basics that you’ll find in the agency space, such as the typical Fannie/Freddie guidelines, but there are also options out there for investors such as the non-qualified mortgage that has very different requirements and doesn’t carry some of the limits and restrictions you may find in the Fannie/Freddie underwriting.
Highlights/Topics:
- Background on Homebridge Financial
- The traditional Fannie and Freddie guidelines
- Avoid common mistakes investors make - talk with your advisor, make sure they are looking at your ‘big picture’
- How important is ‘seasoning’ of cash - it should be able to be sourced
- Portfolio loans use Fannie and Freddie guidelines
- Non-qualified mortgages - qualifying, terms, cap limits, rates and other details
- HELOCs- only on primary residences, not on investment properties
- What does the next year look like for investors? Lack of inventory is the biggest problem
- One last question -nonQM property transfers- it’s not an issue
Resources:
https://www.linkedin.com/in/rickfloydremn/
https://www.homebridge.com/
https://andersonadvisors.com/clint-coons/
https://andersonadvisors.com/
https://www.youtube.com/channel/UCaL-wApuVYi2Va5dWzyTYVw
Tuesday Oct 04, 2022
Tuesday Oct 04, 2022
Several of today’s tax questions address bonus depreciation and when you can take it on single and multiple property groupings, including on short term rentals. Toby Mathis and Elliot Thomas, tax attorney, of Anderson Advisors, discuss the detailed specifics relating to several different tax scenarios involving bonus depreciation. They also discuss cost segregation and frontloading depreciation deductions for real estate assets into the early years of ownership. Submit your tax question to taxtuesday@andersonadvisors.
Highlights/Topics:
- Taking the 5,7, or 15-year depreciation - You can only choose one, but you can spread them out over different years and different properties.
- Bonus depreciation - equipment leasing company rents to a) a construction company and b) another company with no employees. Should they add a third? - No, adding would have the opposite effect. If you wanted to group a and b together, you probably could. This is active income and if you want to avoid self-employment tax, pay yourself a small salary.
- A listener rents a single family property on flat lot that gets a lot of rain/water damage, can they deduct rain barrels/hardware? Yes, you can do it all in the first year, bonus depreciation, as it is not an “improvement” and it’s under $2500 per line item.
- Can I group short term rental activities if one property has an out-of-state property manager? This falls under passive activity loss rules - a STR can be passive if you’re not participating. Each rental is a business, like a pizza parlor. This is a trader business. Make a statement for aggregation on your return.
- Can I amend my 2021 taxes to do cost segregation? Yes you can, the deadline is Oct. 17th- send us how much you saved!
- A US citizen gets gift of property in another country. Do I need to report to IRS? Typically no, and you pay no tax, but fill out a form if property value is over $100K and foreign. You have to list it on Form 3520.
- Bonus depreciation on rental, if taken in first year of service, can I use any of depreciation for next year? It’s only the first year that you break out that property.
- If a CPA does your taxes, and you get revised/audited, it’s ultimately only your responsibility at the end of the day.
- Shout out to the staff for helping to answer questions in the middle of tax season
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 Sep 27, 2022
Tuesday Sep 27, 2022
In this episode of Anderson Business Advisors, Toby Mathis speaks with Jeff Mason and Chris Hammond about cash balance pension plans for business owners. This is not a 401(k), it’s not an IRA, it’s a way to defer and even reduce a portion of the taxes you might need to pay and set yourself up with an annual income when you retire - if you are a business owner.
This is for all business entities. True pass-throughs, S Corps, sole proprietorships, and partnerships work best in this savings scenario. Many people that have even heard of defined benefit plans, or cash balance plans, might think you can’t start contributing until later in life, and that used to be true, but now people like Chris and Jeff are designing plans for people in their 30s.
Jeff and Chris will go over what the benefits, timelines, and rules are regarding these plans, give you some sample scenarios with actual clients they have helped, and also answer some specific questions that Toby has about their validity, value and future potential for participants.
Highlights/Topics:
- The basics - How business owners can set up an income for themselves at retirement, the requirements to contribute, how much you can put in, how much you can take out and the tax implications
- Some examples of Jeff’s clients and the actual numbers they are working with
- Deadlines and potential increases in contribution limits from the IRS
- Are Jeff and Chris going to try to “sell you” stuff if you go to them for help? No- the retirement community is very small, everyone would know if you were operating in an unethical way. We want more referrals, not less, so everything is highly ethical and we don’t take advantage of people
- Get in touch with Jeff and Chris - there’s no cost for your initial consultation and even developing a sample plan - they just want to see if their services can help you!
Resources:
jmason@redwoodrs.com
Call Jeff Mason 815-516-0560
https://andersonadvisors.com/
https://www.youtube.com/channel/UCaL-wApuVYi2Va5dWzyTYVw
Thursday Sep 22, 2022
Thursday Sep 22, 2022
In this episode, Clint Coons of Anderson Business Advisors welcomes Kim Lalande, Founder and CEO of Key.
Key is a ‘one-stop shop’ that partners with quality vacation rental homes (usually 3+ bedrooms and a certain aesthetic) to take all of the “concierge” burden off of the host or homeowner’s plate and provides one place to book all the in-home services to enhance each guest’s stay. Before launching KEY.co in 2015, Kim was the Director of Business Development for DLA Piper, a law firm representing many leading technology companies.
I talk with Kim about some of the reasons that investors who own or are looking for short-term rental properties should use this type of service. From my own experience with a rental in Hawaii that I sold because I hated doing all the work with guests, it is obvious what a relief this service would be to any short-term property owner. Kim says that naturally most of the “vacation destinations” with beaches like Hawaii, Florida, Nantucket, and The Hamptons are perfect spots to invest, but there are also some up-and-coming areas such as Austin, Nashville and Charlotte that are hotspots for short-term rentals. You’ll get better reviews and more bookings when you offer a concierge service such as Key, and there are a number of tax benefits as well.
Highlights/Topics:
- Kim came up with the idea for Key during one of her own short-term rental stays
- The types of “quality” homes Key represents - they personally vet every home
- The most attractive markets: Data shows lake, beach, Florida, Hawaii, Austin, Nantucket, Hamptons, mostly vacation destinations
- How should a person stage their rental? Think high end hotel
- Using Key services - what’s the return on cost of your services?
- At Anderson, we say if you spend 100 hours managing it, you can accelerate the depreciation. Key shares all their marketing and promotion with each homeowner to increase bookings
- Today’s short term rental market is even getting large hotel chains participating. If you DON’T have a service like this, it’s harder and harder to compete
- Each type of renter needs different services - families vs. couples vs. bachelorette party. Flexible service is best, trips types are so different
- Cleaning, pre-arrival groceries should be automatically included, along with a “mid-stay” cleaning
- Smaller properties (condos, townhomes) will have high volume, large homes may only need to rent out six times a year with their higher cost
- Make sure your rental is in the “center” of local activities (beach, skiing), people don’t want to drive on vacation
- Outlier homes, drive to go anywhere, ppl don’t want to go driving, not nec city center, lake? Boat rentals/beach, center of activities.
- The pandemic took many rentals off the market - people moved out of city centers to their second homes
- It’s important with today’s hybrid/remote workers to include highspeed internet and a desk/office area – consider adding a cool background wall for video calls!
Resources:
https://www.linkedin.com/in/kimshrum/
https://partners.key.co/
https://andersonadvisors.com/
https://www.youtube.com/channel/UCaL-wApuVYi2Va5dWzyTYVw
Tuesday Sep 20, 2022
Tuesday Sep 20, 2022
Several of today’s tax questions are related to STRs (Short-term rentals) like Airbnb and VRBO. Toby Mathis and Jeff Webb of Anderson Advisors discuss the differences between passive or active income on these popular investment properties, and answer additional tax-related questions. Submit your tax question to taxtuesday@andersonadvisors.
Highlights/Topics:
- Investing in multiple family syndications - I think when you make an aggregation election, you're electing to treat all your rental activities as one activity
- Setting up ongoing support for 501(c)(3) organizations that support the advancement of religion - Make it a private foundation. Spell out your values and then say, here are the organizations that I believe meet that at this time- but understand how wildly society and religion might change over time
- Short-term rentals/hotel syndications - active or passive income? Unless you’re an employee like the general manager of the investment property, you’re passive. This is not a rental activity, period. Hotel syndication or short-term rental, just remove the ‘rental’ and it’s a regular business
- A real estate investor pays almost no taxes, but her husband is a 1099 contractor with a huge tax burden. Should they put some properties in his name? If you’re filing jointly, it won’t matter. You could also donate a property for a community service/non profit to get the deduction of the full market value
- There are still actions you can take if you’re getting killed on 2021 taxes, the clock has not stopped on 2021yet!
Resources:
taxtuesday@andersonadvisors.com
https://www.amazon.com/Next-Level-Estate-Asset-Protection/dp/1950863883
Tax and Asset Protection Events
https://andersonadvisors.com/real-estate-asset-protection-workshop-training/
https://andersonadvisors.com/
https://www.youtube.com/channel/UCaL-wApuVYi2Va5dWzyTYVw