Welcome to the first Tax Tuesday episode of 2025. Anderson Advisors attorneys Toby Mathis, Esq., and Eliot Thomas, Esq., discuss topics including whether hours spent on personal and rental properties count towards real estate professional status, the tax implications of using an LLC for a brokerage account that generates short-term capital gains, and how to handle HOA dues when calculating the cost basis of a condominium. They also discuss the consequences of failing to issue a 1099 to contractors, how to navigate a tricky 1031 exchange, and strategies to minimize capital gains taxes when selling a rental property. You’ll hear about ways to structure personal and business finances for educational deductions, managing a 401(k) loan from a tax perspective, and tips for maximizing tax benefits as a 1099 medical professional.

Send your tax questions to taxtuesday@andersonadvisors.com.

Highlights/Topics:

• “I have a solo handyman business, do my hours performing services for homeowners and real estate investors properties count towards rep hours. Do my hours working on my residence count towards rep hours if I plan to move out and rent the house?” – Absolutely. That’s exactly what you’re supposed to do. That time is exactly what we’re looking for to get over 750 hours of material participation in the management of your properties, et cetera.
• “I am selling weekly options and was advised to put my brokerage account into an LLC taxed as a partnership. Doesn’t this expose me to the same tax liability I have now with no LLC? What is the best tax strategy for a brokerage account that is making a large profit that is all from short-term capital gains?”  -No, you’re not going to have the same tax liability by putting it in that type of partnership. But there’s a lot of other things you can do.
• “When calculating the cost basis of a condominium, how does one identify and add the portion of HOA dues spent for capital improvements to the property?” – If it’s your personal residence, we don’t deduct HOA costs.
• “What happens if I don’t issue a 1099 to an outside contractor? How do you spend a virtual assistant who made over $15,000?” – You can get penalized up to $600, perhaps more, if you don’t get the 1099 out. VA’s overseas, if not a US taxpayer, you don’t need to send a 1099.
• “How many properties must I acquire to meet the real estate professional status?” – The number of properties is irrelevant. You could have one, you could have a hundred. It’s how much time you put into it.
• “I have a rental property that I would like to sell. I purchased it in 1999 for $175, 000. The current value is $450,000–$500,000. How can I reduce capital gains taxes?”  – The quick, real easy, no brainer answer, you could do a 1031-like kind of exchange.
• “I’m in a 1031 exchange gone bad. The funds are with the intermediary in the escrow account. The replacement property seller did not cooperate and the deal is falling through. Now what can I do?” – Quick answer, you can pay tax. You could try and make the payments in installments.
• “Can I structure and set up something through my business and nonprofit or personally that will allow me to deduct my child’s college education expenses.” “I’m aware of state-specific 529 programs.” – You don’t get a tax deduction for a 529 plan.
• “I currently have a loan on my solo 401(k) and I want to pay it off early and turn around and take out another loan. How do I handle that from a tax perspective?” – You need to check with your particular plan. I just throw that out there for people who are thinking maybe of doing the same.
• “I am a 1099 medical professional. What can I do from now on to properly prepare myself to maximize my tax situation? I’m on the payroll for my S-Corp and managing the 1099 income through the S Corp.” “I don’t know if I should be doing anything else.”  – Quarterly tax meetings. That’s always the answer. Putting it in an S-Corp was the right thing.

Resources:

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Tax and Asset Protection Events
Anderson Advisors
Toby Mathis YouTube
Toby Mathis TikTok
Clint Coons YouTube

Full Episode Transcript:

 Toby: Welcome to Tax Tuesday, where we’re bringing tax knowledge to the masses. My name is Toby Mathis.

Eliot: Eliot Thomas.

Toby: We called each other this morning and said, make sure you wear the exact same thing.  Yes, we wanted to match. How many of you guys are wearing a blue blazer and a light blue shirt out there?

Eliot: With tight shoes.

Toby: Yours are cooler than mine. I got the moon boots on. Sherry’s in her pajamas. It’s great to know. Too much information, Sherry, but we appreciate it. I’m just teasing. Hey guys, let us know where you are from, and we’ll get launched.

Alright, we got some rules to go over. First off, we got no ties. I don’t know. We can wear a tie. Let’s see, Texas, Chicago. I bet you it’s cold. Indiana, Claremont, Alabama, Philadelphia, PA, my hometown. Fly Eagles fly. Orlando, Portland. It’s freezing here. Austin, DC. Happy 2025 from Tacoma, Richmond, Virginia, Santa Maria, Silicon Valley. Richland, Washington. Debbie Smith. Debbie, you put your name in there. Northern Idaho, Lake Norman, Colorado, Alexandria, Houston.

We got people in Los Angeles. Heart goes out to you, Ron.  You guys are dealing with it right now. I hope that those winds don’t whip up more fires for you guys. This is horrible.  If you’re struggling, please let us know. We’d love to help.

We’ve got Washington State. Houston, a couple, a bunch from Houston. I think your football team’s still in it, if I’m not mistaken. We’ve got Fort Worth, Haines City. We’ve got people from everywhere.

Alright, so here’s how it works, guys. We’re going to go through a bunch of tax questions. I think Eliot has teed up ten.

Eliot: Yes, we’ve got ten today.

Toby: We’re going to go over 10 questions. I’ll read them here in a second. If you have questions for our team, I have Troy, Patty, Matthew, Jared, Arash, Jeff, Dutch, Tanya, Amanda, I didn’t see Amanda, and there’s George.

You got attorneys, CPAs, and accountants in the Q and A area to answer your questions. Guys, this is like one of those weird things, the universe. We just like doing this where we just say, Hey, we’ll answer your questions. Just go in there and ask. We don’t send you a bill. Don’t worry. You can get some clarity on things that you may have heard that are wrong or that you just were wondering about, we just want to make sure that we’re spreading some information so people really learn how things work.

Alright, so you can go in there and ask via Q&A and you can also, for the two weeks when we’re not having in between our sessions, you can email into taxtuesdays@andersonadvisors.com and we’ll answer your questions there too. We’ll also take them, take your name out of it, and we use them during our sessions. That’s where we get all the questions from.

If you need a detailed response on your specific scenario that’s not just a general response, but we’re getting into your taxes, we’re getting into something where there’s great liability for us, then you need to become a tax client, or if you’re platinum, you can do that.

By the way, if you’re platinum with Anderson, give me a thumbs-up if you’re playing with Anderson. If you are and your platinum, everyday, you can go in nine to two, Pacific Standard Time, and ask questions in the knowledge room at any time. It’s like this format, except all day long, and they bring different experts in, but there are attorneys and accountants on all day that can answer your question to make sure that we’re getting it. Somebody just give us a long chat. Put that into the Q&A so we can make sure we read it.

Elizabeth says BOI doesn’t need to be done. No, right now this is good for all you guys, the Corporate Transparency Act, which was passed, I think in 2021, came into effect last year. If you have a filed entity with the state, you had 90 days to file it last year. If we did your filing, we did it for you. Provided you give us your information, for instance. It’s always a caveat.

We have to have your stuff, and we would do it for our clients. Now, if you were, filed an entity, LLC, or corporation, that was not exempt, which means it was under $5 million, it wasn’t a financial institution, insurance, or something like that but it was just a filed entity doing real estate, you’re probably filing. You had until January 1st of 2025 to get that filing done.

What happened is on July 3rd, the 5th Circuit  District Court Judge granted a nationwide injunction to Texas Top Cop Shop and the National Federation of Independent Businesses. They gave them a national injunction against the enforcement of the CTA. The beneficial ownership information did not have to be filed as of December 3rd, but as all things in courts,  the government appealed.

Fast forward to the night before Christmas Eve on the 23rd and the appellate panel, I forget which one it was, it wasn’t the merit panel, but it was one of the scheduling panels, lifted that injunction of the CTA and said it is in force, in which case the BOI was due and the FinCEN came back and said, hey, you can have until January 13th.

A couple days after that, on the 26th, a different panel of the Fifth Court of Appeals, the merit panel came out and said, no we’re going to reverse that. We’re going to vacate that and put the injunction back in place. The injunction as of today is in place. It has been appealed to the US Supreme Court, which is Justice Alito who handles whether or not to take these. If you know Alito, he’s not a big fan of government regulation so I could see him saying we’ll take it and we’re going to keep the injunction in place.

But at the end of the day, there’s two courts that have already ruled that it is constitutional, not the Supreme Court, but other courts in other areas of the country. There’s been one court in Alabama that said for specific plaintiffs that were state-specific plaintiffs that it was unconstitutional. Then you have the Texas Fifth Circuit  District Court judge that said it was unconstitutional that they believe that there would be irreparable harm to enforce it during the pendency and that there was enough question as to that would be very harmful.

You have two and two, if you’re keeping track at home. Two courts said it’s constitutional, two courts that said no, and that ultimately has to be decided by the US Supreme Court or they repeal the dang thing, which was about to be repealed in December, that was during the funding bill. If you remember, it was 1500 pages and everybody was mad about that. That was one of the 1500 pages that they got rid of and they narrowed it down to 200 pages. Well, it was part of those 1300 pages that they tossed. It included the repeal of the Corporate Transparency Act.

As of right now, we’re telling people, they already have your data, guys. Not to be mean, but FinCEN is the Financial Crimes Department of the Treasury. The IRS knows that you’re associated with your entity. They just don’t have a searchable database. That was their whole thing. It was like, oh, it’s just not convenient, right? So they said, we’re going to make a database with FinCEN. All they want is to be able to hit somebody that doesn’t report so when they catch somebody doing bad things, they don’t have to show that they did a bad thing. They could just say it’s a crime not to report.

Once they show that they were in control, it gives them a new crime. It’s kind of like how they got Al Capone. They couldn’t get him on all the stuff they were trying to, but they got him on the tax crime. They’re just creating something, and everybody’s like but they’re asking for all my civil liberties, my constitutional rights. Sorry, you don’t have a constitutional right to not disclose your financial information. You’re doing it all the time. Every time you file your taxes, when you open up a bank account, it’s not a public database. I don’t want to get into it. There’s always somebody who calls me names when I say that.

My commentary is you could voluntarily file and never worry about it again. I’m not going to tell you what to do. My partner, Clint, would probably be losing his mind right now like no. I’m like, there are hills you want to die on and hills you don’t. How about this? If in doubt, you don’t have to do it, but if you’re one of those people that’s like, I just don’t want to have to worry that the court’s going to vacate the injunction tomorrow and I’m going to have three days to file this thing.

If you’re one of those people who doesn’t want to have to worry about that, then just do it. They already have it. You have a K-1 on your partnership or it’s showing up on your Schedule E. You didn’t trick them. They already know you’re associated with the entity. This is really for other people and specifically, they’re targeting money launderers because they use third parties all the time as their straw men and that’s what they want to hit.

All the people that are like the government’s intrusive. Yes, they are, but they have been since the Patriot Act. You go repeal that. Alright. Let’s get into this stuff. Sorry guys. I’ll go off for about an hour.

Alright, opening questions, and I’m just going to read through the questions first and then Elliot will have to answer them all because I’m brain dead today. Alright.

“I have a solo handyman business,” is so sexist. I’m just kidding. “I have a solo handyman business, do my hours performing services for homeowners and real estate investors properties count towards rep hours. Do my hours working on my residence count towards rep hours if I plan to move out and rent the house?” That’s a good question. We’ll go through that. Hopefully, I’ll let you know.

“I am selling weekly options and was advised to put my brokerage account into an LLC taxed as a partnership. Does this expose me to the same tax liability I have now with no LLC? What is the best tax strategy for a brokerage account that is making a large profit that is all from short-term capital gains?” Somebody’s doing options here. We’ll answer that.

“When calculating the cost basis of a condominium, how does one identify and add the portion of HOA dues spent for capital improvements to the property?” That’s a mouthful. Hope you’d know.

Alright. “What happens if I don’t issue a 1099 to an outside contractor? How do you spend a virtual assistant who made over $15,000?” Good question. 

“How many properties must I acquire to meet the real estate professional status?” Good question.

“I have a rental property that I would like to sell. I purchased it in 1999 for $175, 000. The current value is $450,000–$500,000. How can I reduce capital gains taxes?” We got a bunch.

“I am in a 1031 exchange gone bad.” Sounds like a show.

Eliot: A show?

Toby: Yeah, like gone bad. Real estate went bad.  What was it, girls? I won’t even get into it. “I’m in a 1031 exchange gone bad. The funds are with the intermediary in the escrow account. The replacement property seller did not cooperate and the deal is falling through. Now what can I do?” You’re living everybody’s nightmare with 1031 exchanges. Somebody here advocates the lazy 1031 exchange. We’ll talk about that. So hopefully you’re on.

“Can I structure and set up something through my business and nonprofit or personally that will allow me to deduct my child’s college education expenses.” I love that question.

“I’m aware of state-specific 529 programs.” You don’t get a tax deduction for a 529 plan. Nope.  Anyway, we’ll get into that.

“I currently have a loan on my solo 401(k) and I want to pay it off early and turn around and take out another loan. How do I handle that from a tax perspective?”

“I am a 1099 medical professional. What can I do from now on to properly prepare myself to maximize my tax situation? I’m on the payroll for my S-Corp and managing the 1099 income through the S Corp.” Great job. Keeps the employment taxes low. “I don’t know if I should be doing anything else.” That’ll be fun to talk about. I think that’s all the questions we have for today.

Hey, guys, if you like this type of information, go on to my YouTube channel. That is it right there. Look at that. There are only 962 videos, probably a few more since this is snipped. But you can go on there and subscribe. It’s free. Especially if you’re looking for the Corporate Transparency Act, I’m going to do another video on that, probably tomorrow, and then we’re going to keep you posted if the Supreme Court takes it up.

The Supreme Court had actually requested a briefing by the 10th. What’s today, the 14th? You could be hearing anything at any time about whether they take it, or whether they continue the injunction. Fun stuff, right? Right around Christmas, they were just bouncing whipsaws. You’re enjoying it. No, you’re not. Yes, you are.

There’s Clint Coons channel and he does a great job. Look at him looking off into the distance. In the other one, he looks like he did something bad. He’s like, that wasn’t me. You’re like that’s what he looks like. He looks like that. That wasn’t me.  Clint’s great if you want to subscribe to his channel. His is much more real estate-focused. Mine is anything financial and tax.

Then as always, we have the Tax and Asset Protection Workshop that we do just about every Saturday.  If you haven’t been to one, go to one, and it’s a lot of fun. We have really cool people teaching them now. We got Amanda teaching them. We got ex-clients, or clients, they’re still clients that are still teaching it. It’s great. It’s really cool. Whitney’s in there teaching them. They’re just a lot of fun. If you can, get in there and spend a day and you have different flavors.

Clint and I teach them often, but there are just a lot of really cool people that teach it and there’s always something to learn about LLCs, land trusts, living trusts even. Then the tax, spend a lot of time on the real estate tax. It’s a good place to get your primer.

But let’s dive into the questions. Are you ready?

Eliot: I’m ready. 

Toby: Enough shenanigans. Alright, “I have a solo handyman business. Do my hours performing services for homeowners and real estate investors properties count towards rep hours?” That’s real estate professional hours. “Do my hours working on my residence count towards rep hours if I plan to move out and rent the house?”

Eliot: Alright, so rep status, real estate professional status. First of all, it is something that a lot of our clients try to obtain that status because normally, if you have rental activity, we’re talking about long-term rentals most often here, the activity is what we call passive. That’s just how it is under our tax code. That means you might be limited by some of the losses. You can only take those losses, passive losses, against other passive income. That means it’s not going against our W-2 income for the most part. That’s typically the status we’re going to find ourselves in.

We have another status, real estate professional status, that if you meet these certain criteria, I have over 750 hours in real estate trades or businesses. I spend over half of my work week, my personal services time in real estate trader businesses, and I happen to manage, and materially participate in the management of my rentals.

Then we got that rep status, we met that, and all of a sudden now the activity can become non-passive and if I have losses there, I can take them against anything else on our return. That’s what this individual is gunning for. What they want to know is I’m managing some properties for other real estate investors here, and maybe some of my own, some other homeowners, mine as well. Can I count that time towards that rep status hour or criteria?

Absolutely. That’s exactly what you’re supposed to do. That time is exactly what we’re looking for to get over 750 hours of material participation in the management of your properties, et cetera. This being other people’s property, but that will certainly count towards that.

But what about your time if you’re managing your own house, you’re putting time into your house because you want to turn it into a rental. That technically should not count because it’s not a rental yet. It really needs to be placed in a trader’s business before we can start counting those hours and it’s still your primary residence as far as I understand, according to this question right now. I don’t think we could count on those hours.

Toby: Yeah, I agree with you. The hours have to be something in a trader business that you’re materially participating in, and your hours towards your personal residence are in a trader business. If it’s a third party, yes. For 750 hours, for sure.

Then did you materially participate in your properties? It would not count towards that. There are two silos for example, and silo one  is 750 hours, more than 50% of your time spent on that trade or business. You have to meet both of them. I have to do at least 750 hours and it has to be more than 50% of my other time.

Here he has a solo handyman business. I don’t know if they’re married or not, but it’s immaterial. As long as they’re doing more than 750 hours in that solo handyman business, they’re fine and if they’re not doing anything else, then they’re going to be a real estate professional.

Then you go to the next step, which is are you materially participating in your rentals? And here it sounds like it’s another investor’s property. The hours are not going to count towards him until he makes his residence into an investment property. Then you could start counting them. Hopefully, he or she is spending their time on the real estate business and their rentals as well as meeting the material participation test, which is, there’s seven of them. If you’re self-managing, you already have one. If anybody else is doing substantial services, then the easiest test to meet is the 100 hours between spouses. You add them both, and more time than anybody else. Then the third one would be 500 hours in the year between spouses. For real estate professionals, that first silo, it’s one spouse.

Again, solo handyman business. Sounds like they’re going to meet it. Then the only question for me becomes, did they materially participate in their real estate? And yeah, if they are doing handyman hours on that property, that is a rental, then you would add those hours once it’s in that rental.

Yay, somebody says how does BOI affect having an umbrella LLC in, say, Wyoming? Salvador, it does not. I see somebody’s going to answer it, but it has no effect. Because the BOI is a FinCEN. It’s a treasury. It’s like filing taxes. Those are not a public record. They’re not available to the public to review. There is limited sharing of information between FinCEN and financial institutions when they have somebody that they’re investigating, but that’s it.

There’s not a public database, so it doesn’t hurt you from a privacy standpoint. Just like to make sure people understand that. Anything else you want to add to this?

Eliot: Nope, I think we’re good on this one.

Toby: I have to just give you a [clap 00:20:53]. You did a good job on that. “I am selling weekly options and was advised to put my brokerage account into an LLC tax as a partnership.  Doesn’t this expose me to the same tax liability I have now with no LLC? What is the best tax strategy for a brokerage account that is making a large profit that is all short-term capital gains?”

Eliot: Alright, so in this situation if we are doing some options, maybe short term, we’re looking at ordinary rates perhaps for all of that. If we don’t do anything, we make $100, all that hits our 1040. If we put our brokerage account into just any old LLC that’s disregarded to us, that means we own it directly, same result, that $100 still comes onto our return.

But what we’re asking here is, what if we put it into a partnership? I’d heard talk about a partnership, taxing that LLC as a partnership, and putting the brokerage account in it. Well, when we do that, we normally have, as the other partner, the individual and then we’ll have a corporation, a C corporation. It’s going to own maybe 1%, 5%, or 10%, something in that ballpark.

Toby: Twenty percent, 30% if you’re really aggressive.

Eliot: Any amount. Right there, just by simply doing that, the strategy that Toby came up with at the last Tax Cut and Jobs Act, let’s go with 20%, you just took $20 out of that $100 off your return, put it into the C corp. Right through you have tax savings on your 1040 without doing anything.

No, you’re not going to have the same tax liability by putting it in that type of partnership. But there’s a lot of other things you can do. Your corporation, being a C Corp, being a partner in a partnership can earn more money through what we call a guaranteed payment. That’s a kin to maybe a management fee. We don’t exactly call it that. It’s a guaranteed payment.

Toby: Can’t be related to profit. It has to be paid no matter what.

Eliot: Exactly right. It is just that. Guaranteed payment. Got to pay for it. Got to guarantee. We can put maybe another $10 in for that. Now we’ve taken another approximately, in that case, it’d be $8 off of your personal return, put it into our C Corp, and there in the C Corp, we’re going to learn through other questions today, we have a lot of reimbursements.

We can do medical reimbursement, we can do corporate meetings under the Augusta Rule or 280A, accountable plan, we got an administrative office, all those ways to get that money that we just earned in our C Corp back to us tax-free. It’s a deduction to the corporation at the same time. We just zeroed out all that extra cash in our pocket and we have less return showing on our 1040.

Toby: You see, you used to be able to get away from having to do this prior to the Tax Cut and Jobs Act. In 2017, it changed because they got rid of miscellaneous itemized deductions and that’s where you would actually have your expenses. Like if I pay an advisor. I don’t get to write that off anymore. I used to be able to write it off, assuming that I didn’t exceed. There was a percentage of AGI that you had to get above, and in the P’s amount, there was an additional amount if you were making a lot of money.

But using the LLC with the corporation, I just found, and I was doing this for 28 years and we started, that this trader issue back in ’97 or ’98, was just a mess, guys. Everybody was getting audited, and everybody that was trying to run a business was trading. How many of you guys remember when you couldn’t trade on your phone, and you had to use a pager to get notified if your stock was moving?

Any of you guys do that, where you had like the pager, and like if your stock moved 10%, you started getting buzzed? There’s like one. 

Eliot: We got one.

Toby: Crap. I didn’t think I was that old. I was like, I thought I was like mid level here like you guys remember. Yeah, you couldn’t always just trade. Sometimes you had to pay 80 bucks to your broker to trade. It wasn’t that common that you had somebody that was trading like they do now. I could sit here during lunch and do 20 trades without breaking a sweat. 

Somebody said I’m old but didn’t start trading until 2010, but I just remember that so vividly and we were fighting over trader status, which is this when does my trading rise to the level of a business? The reason is that if you’re a tax nerd, you know the difference between investment expenses and ordinary necessary expenses.

Investment expenses I can write off my interest charge and my margin. That’s it. What about if I go to an event? Nope. What if I get a computer? Nope. What about a home office? Nope. You can’t write off any of that stuff if you don’t rise to the level of a trader. It’s really frustrating.

Then everybody would come up and say well if I’m trading every day for an hour, then it’s going to work. Nobody knew. They still don’t know we say 750 trades per year, 70% of the days and make it your primary living because believe it or not, even if you do that, but you don’t rely on that money to make a living and they go oh, it’s not really a trader business. 

Dumbest thing ever. These courts have just made a mockery of it because I could get a wrench and some low cut Levi’s and start monkeying around with your pipes and write everything off. No demand. Tomorrow, pretend to be a plumber.

In some cases they were denied trader status with $15 million of transactions. Fifteen million. I don’t know about you, but that’s a lot of transactions. It’s a hell of a lot more than I do. I’m like that would be a business. They actually had an office and a brokerage. I was like, nope, you’re not a business. That’s the courts.

We just said, let’s make sure that we are never in that situation and that’s where we started coming up with the trader status. Then we would get nuked. Back in the day, I got into a big fight with a guy who’s still out there, a green trader, and he was telling everybody to be a trader and make a mark in the market election. They just got destroyed when Qualcomm ran up and went back. There’s carnage all over the place. I just never agreed with a super bright guy, super smart. Ten times smarter than me.

But I was like, oh man, there’s a better way. He actually advocates this, the entity side too, but back then it was kind of like we were whacking each other in a magazine at one point. It’s like no, this is how I do it. No, you can’t do it like that. You have to do it this way.

Well, 28 years later, you’re looking at it going, alright, this is the way it’s progressed. It works like a charm if you do it. It’s a way of taking money that would ordinarily be capital gains that you can’t contribute to a broker or to a 401(k) or to a retirement account. Now you can. You can have that corporation doing all your expenses, run it as a family office, and have it manage your real estate too.

As it’s making money, you could continue to compound that. But as you pay it out to yourself, now you could just put it straight into a 401(k). There’s really cool stuff you could do as a result of that strategy, but it only works if you have the corporation in the mix. It won’t work if it’s just you and the spouse as partners. It’ll flow right on to your return and it doesn’t do anything for you so you really got to have that. That corporation as the secret sauce.  Long way to go around the mountain there. Sorry guys.

Eliot: No, it’s great.

Toby: We only have ten questions so I was like, I think we’ve done three. We’re way ahead. Hey, Sherry, remember when we used to go for three hours? Some of you guys remember those days.  I would just answer questions and then somebody would be like, Toby.

Eliot: That’s why she’s got the PJs on today. She’s getting ready for bed.

Toby: Usually it’s wine and PJs. There’s nothing better. I used to have wine parties. Yeah, I do and I don’t miss it. How could you say that, Troy? You would answer everybody’s questions until they quit asking.

Eliot: Stabbing the heart, Troy.

Toby: Yeah, you hurt me right there. Troy, I’ll remember. See you at 4 AM buddy. Alright, “When calculating the cost basis of a condominium, how does one identify and add the portion of HOA dues spent for capital improvements to the property?”

Eliot: Alright, so I’m going to break this up for the condo. Is it one that you’re renting out or is it your personal residence? If it’s your personal residence, we don’t deduct HOA costs. But you can go back to the HOA and say hey, of those amounts I’ve been paying, how much has gone to capital improvements? Maybe you had a special assessment that went on to a capital improvement. There you could probably pretty easily find out how much you’d paid into it. Those are things that would raise the basis, okay? You never deducted them.

Now, if it’s a rental, most people are going to deduct their monthly HOA expenses right away. But again, if there was a special assessment or something like that, even with a rental, and you knew it was specially allocated to this, that, or the other of a capital improvement, you could get that record from the HOA and be able to add that to your basis.

Toby: I just can’t see that ever happening.

Eliot: No. But that’s what you do.

Toby: I would just expense it. Do you guys ever look?

Eliot: No, I never look at mine.

Toby: Hey, other accountants, Dutch, Tanya, do you guys ever look? Could you put it in chat, just in case? When you get an HOA, do you just deduct it against the rental income when you’re preparing the returns?

Eliot: Be honest.

Toby: Yeah, just tell me. Every time. We don’t mess around with that. It’s HOA dues. It’s an expense. Now, if you get a special assessment or something, I get it. But, realistically, no. Yeah, we do. Yeah, make it easy. Don’t rock the boat. By the way, the audit rate’s really really low.

It doesn’t mean you do things that are sketchy ever, but the audit rates are ridiculously low, guys, and they’re going to get their funding yanked even further. Hopefully, we eradicate the IRS. By the way, there was a day when there were 100% tariffs in the United States. I actually have a chart on my phone that I always used to look at, but now I look at it more often because Trump is talking about it.

But it wasn’t until the 40s and 50s that we went away from the tariff system. Everybody is like,  tariffs are horrible. It’s like, that’s one way to tax. The other way to tax is income taxes. The other way to tax is transactional sales tax. I get federal income tax. You can do all these things. Inflation is a tax. When they start going out and selling bonds to fund the government which is by the way at a $700 billion short file just since its end of its year end which was September.

In 3 months, we’re so far in the hole. Inflation is going to come get us, guys. I don’t know how they don’t have massive inflation. Even if they cut a trillion dollars out of the government, we’re still going backwards. We’re still going to have inflation so it’ll be interesting to see what happens next year. But I like tariffs. Alright, how do we get over there? 

Eliot: The tariffs?

Toby: No more drinking before we do Tax Tuesday.

Eliot: No more Mountain Dew for Toby.

Toby: Yeah. What happens if you [inaudible 00:31:33] My wife won’t let it in the house, so I have to have it here. I say, give me some grandma’s cookies and some diet dew and then they magically appear. It makes me so happy. It makes me want to come in and do these. My wife doesn’t allow sugar in the house, guys. 

Alright, “What happens if you don’t issue a 1099 to an outside contractor? How do you spend a virtual assistant who made over $15000?”

Eliot: Well, we need to 1099, but if we didn’t, the idea is that really you can’t prove the deduction and the IRS can come after you and say, hey, we’re going to hit you with penalties for not getting the 1099 and possibly even withholding sometimes so you want to do the 1099.

Toby: Oh.

Eliot: Look at that.

Toby: Caught it with my left.

Eliot: Got his cookie, got his sugar rush.

Tiby: I’m telling you, they hide them because otherwise.

Eliot: We don’t get that downstairs.

Toby: No, it’s because you guys would eat them all. It’s like there’s so many people here, so they hide them.

Eliot: The 1099, you want to issue it, you can get penalized up to $600, perhaps more, if you don’t get the 1099 out. Now, originally this question, I did change it a little bit and I apologize. I left out the part that the virtual assistant is actually overseas in this case.

Toby: You wouldn’t have to 1099 him if it were.

Eliot: Exactly right. If a lot of people, a lot of our clients have virtual assistants, maybe in the Philippines, a very common tactic used. If that individual is not a US taxpayer, then you don’t have to 1099 them and so you just send the cheque. That’s all you have to do. Don’t have to worry about that and that would go for any other country.

Toby: Here’s the deal. You have the 1099 NEC, which is due by the way January 31st, right? By the way, we do these $10 for $100. Troy, make sure I’m not misspeaking or whoever’s working with that. You can get your 1099s done electronically and not have to worry about it if you want us to do it. Put in chat. You guys just say 1099 help and Patty will get you. It’s $10 per filer.

You do a 1099 NEC for non-employee compensation. If you 1099 somebody and they are not a corporate entity, if they are a corporation, S Corp, C Corp, you don’t have to 1099 them. If they’re out of the United States, you don’t have to 1099 them.

If you’re in question, make sure that you have a W-9 from them. No matter who it is, before you ever pay somebody, get in the habit of just saying, I need your W-9 before you pay it. If they invoice you, you say here’s the W-9. Then if they say, I don’t want to fill that out, well I don’t want to pay you.

If you want to get paid, I can’t write the check until I get that W-9. Because otherwise, you’ll never get it. What happens if you don’t? Let me go through it. There are different levels of penalties.

Desiree, it’s $10 per filer 1099. Yep, there you go. Patty, just help these folks out. Just get them to the right party so that somebody can do their 1099s. There’s a whole bunch of them now. You guys are smart. Just get it out of your way because of the penalties, it’s $50 bucks if first month or something like that. Then it goes up to, get this, if you willfully fail to file your 1099, it’s $660 per 1099.

Even worse, if you file 1099s and you don’t have their social security number or tax identification number, you’ll be charged withholding and we had this with the doctor who came to us. His assistant had 1099 all these therapists and they never got their tax identification numbers. They did it for five years and the IRS charged him all these back all the withholding and everything else and the assistant was hiding it from him so he ended up with about a $100,000 bill. It was horrible and we fought it.

We successfully fought it, thank God, because these were all legitimate therapists so we were able to go get their information and they filled out and completed the W-9s. The IRS initially denied it and then the Office of Appeals approved it and gave all their money back. But it was scary.

You want to talk about being scared is you paid somebody, plus you’re paying about 30% for the withholding. My thing to you, if in doubt, fill it out. For $10, you don’t have to worry about it. If you’re wrong, you could be looking at withholding $699 or $660 per form penalty.

By the way, you could do them yourself, but you have to get an electronic filing number if you’re going to file them electronically. What is the IRS? The IRS is the police agency. Somebody says the IRS is a legal scam. The IRS is put in charge of enforcing the laws. I feel like the IRS isn’t the boogeyman. Some of them are just jerks. Let’s just be real. But there’s jerks everywhere you go. But it’s really about our laws and we decide whether we’re going to do something. As a country, hopefully, we take some action. You got a new administration coming in there talking about some major tax reform.

I would love to see it if we did something major because it’s just too complicated now. You guys are spending too much time. We do these. These are fun, but you shouldn’t have to ask a whole bunch of people about your taxes. Someone says it’s kind of crazy. Yeah, but we don’t want to beat up on the United States. They’re just trying to fund all the crazy crap that they spend their money on.

It was Milton Friedman who said the fallacy is giving somebody else your money and expecting them to spend it wisely on you. It doesn’t happen. We just need to quit giving our money or give less of it and reduce what they can spend it on. That would be great.  This is just one of those little potholes that you could fall into. There’s an easy solution. Just do it. Get used to doing it. Then you don’t ever have to worry about it.

Alright, Eliot. “How many properties must I acquire to meet the real estate professional status?”

Eliot: Fantastic question. We do get asked this question a fair amount. The number of properties really are irrelevant. You could have one, you could have a hundred. We still go back to meet that status, real estate professional status. It’s how much time you put into it. Over 750 hours in a real estate trader business that you materially participate in. Over 50% of your work week and that you materially participate in the management of your properties. That’s the test. It really has no relation to the number of properties other than maybe we can’t realistically get 750 hours if we have just one small rental.

We might need a couple. It just depends or maybe you have one giant rental commercial building or something like that where you could easily eclipse your 750. It’s again, not so much the number of buildings, it’s the number of hours we want to keep in focus. 

Toby: Very good. Gosh, the 1099s really open up a can of worms. I’m going to answer this. I’m going to exacerbate what you just said or expand on what you just said. The number of properties matters nothing. There is a case where somebody had one property and they met real estate professional status because he documented how he went to the house every single day and put strands on the house. It was an old retired guy. He just liked to work on the house and they said the IRS said there’s no way you spent 750 hours on this house and the tenants were all like, yeah, he’s here every day. He’s working on something and he just likes to do it. It’s a lot of fun.

Go back to the 1099. Somebody says, hey, do I have to send a 1099 every time I pay a contractor? No, it’s once per year. Assuming that they’re a noncorporate contractor, if you’re working with a bigger company, chances are you don’t have to 1099 them because they’re a corporation. Number two, if you pay them with a credit card, you don’t have to 1099 them. If you pay with a credit card, the credit card company issues a 1099-K. That goes to him, so you don’t have to do it.

Then the other one is if you’re paying a lawyer, so you have to pay 1099, you always have to pay 1099 a lawyer for legal services that they’re providing. I believe that’s on a 1099 MISC.

Eliot: Miscellaneous?

Toby: Yeah, I believe, maybe, I hope. I think you always have to. If you had somebody represent you in a case or whatnot because they don’t, they don’t trust them lawyers to report their taxes. We know what you guys are up to. You’re trying to say that you’re not a citizen or something silly. You, lawyers, you. What do you expect? All right, more fun stuff. 

“I have a rental property that I would like to sell. I purchased it in 1999 for $175,000. Their current value is $450,000 to $500,000. How can I reduce capital gains taxes?”

Eliot: We got a lot of fun things we can do here. The quick, real easy, no brainer answer, you could do a 1031-like kind of exchange. What’s going on there? You sell one property and we call it the relinquished property. You pick up another property called the replacement property. If that property basically costs more than what you gave up, then you can defer your taxes and now you have a new property.

The basis of the old kind of carries over into the basis of the new and we’ve got a fancy equation we have to go through and a lot of calculations. But that’s the general gist of it but there are other things we can do. We talked about the passive activity rules and things like that. Well, if you’ve built up a lot of passive losses from long term rentals over the years with this property, and if you sell it, that releases those pals, passive losses, and that can reduce the amount of gain we have here, or it could pull from some of the other properties you have as well. 

Toby, you were talking about the poor man’s 1031, you want to go through that one?

Toby: Yeah, this is assuming that you’re passive, so you’re not a real estate professional and you’re not trying to make these into ordinary losses. Anybody that has passive losses, you also have something called passive capital gains. When you sell that home, and first off, we should be pretty clear here, just because you paid $175,000 doesn’t mean that, that gain is going to be huge. Because we want to know what else you did to that property over the years to improve it. 

If you did it, bought it for $175,000 and put $100,000 into it, you might have a $200,000 or $300,000 increase. That could be capital gains and depreciation recapture. If I can create enough passive loss, I could offset that passive capital gain with it and I could offset the tax. What about the depreciation? Would I be able to use it against the depreciation?

Eliot: Yeah, the more loss we have, the less gain we have, and your depreciation recapture is only going to be based on any gain.

Toby: Somebody says what about you doing cost segregation? Irena, you’re nailing it on the head. This is what I do, because I’m the lazy man, I tell you guys all the time, I’m the laziest investor ever.  I’ll sit there and I’ll look at the end of the year. Usually, it’s in the summer so probably this coming summer, I’m going to look back at all the crap that I did in 2024. We sold a bunch of properties. We do a bunch of nutty stuff.

I’ll be like oh crap, it looks like there’s some gain. Then what do we do? Which building do you want to cost segregate and take depreciation off to wipe that out because I’m passive guys. I don’t get to be a real estate professional because my wife doesn’t meet the real estate professional status and I don’t because I spend too much time on legal and tax.

Yes, I can do a cost seg. Irena, you’re nailing it on the head you do a cost segregation study. You release a bunch of loss and then you use it against that gain. Yes, you could do it after the fact.

Eliot: And you could do that on other properties. Doesn’t even have to be the one you sold. Somebody else said, What about retroactive depreciation? You forgot to take depreciation. Yes, you could claim it all. I just had that this morning. We were just talking about that. Somebody who didn’t depreciate for 20 years and they were like, I didn’t know you’re supposed to do it.

We’re going to take it now because you got a bunch of gains. We’re going to wipe it out. They did two improvements.

Eliot: There you go. 

Toby: There was that plus they might actually meet real estate professionals. It sounds weird, because they had a full-time job, but they didn’t work at the full-time job for about half the year.  Instead, they did real estate.  There are always little facts and stuff. You guys are realizing this is a little complicated so you just want to have somebody who knows it, and then you can ask them, and then they can run it around.

I don’t know it all, Eliot doesn’t know it all, that’s why we have Jeff, Arash, Dutch, Tanya, Amanda, and George. Then sometimes we’re like, okay guys, who knows the answer to this? Sometimes everybody’s like, I have no clue. And we’re like, okay, now we have to research it and really dive deep.

Eliot: You see my phone time, I’m talking to my colleagues, looking for answers.

Toby: Stock trader, 750 hours or 50% of your time. No, all right. It’s not. Stock traders is crazy. Trader status, 750 trades, more than 70% of the trading days and a substantial amount of your income has come from it. Your trades have to be an average of 30 days or less.

Eliot: And subject to change.

Toby: But we try to avoid that. Just do the LLC Corp. Works like a charm. Then, of course, these people could 1031 exchange. They could do installment sales. There are other things that they could do to offset it. They could see if they have capital gain carry forwards or capital loss carry forwards. All those things we’re looking at. We’re always trying to figure it out like it’s a puzzle.

Eliot: These are the fun ones.

Toby: Yeah, those are the fun ones. Speaking of fun ones, there’s Mr. Coons, and he’s talking in front of a building. You can come and learn all about land trust LLCs and asset protection. We teach full day workshops on Saturdays. Brent, [inaudible 00:45:56] Amanda Wynalda, you got Whitney [inaudible 00:45:58], you got all these great people teaching it. Clint and I teach a bunch of them. We’re trying to get other people to do it because we’ve been doing it for so long and it’s more fun. People identify with other folks. Sometimes you see somebody just like I do. That person resonates with me, so go to a few.

It’s kind of interesting because the average client comes in after about four of these. Believe it or not. It’s always like, as you learn it, as you learn it, you start getting comfortable and boom. I never want to twist somebody’s arm on things. You always want them to really learn. You want them to really get what they’re doing and the best way to learn something, by the way, is doing it. So you just get there, get involved, start doing Tax Tuesdays, start asking questions, even if it seems like it’s a dumb question, and you’re like, Gosh, I shouldn’t be asking that question, just do it.

Eliot: It’s usually the question that everybody else has.

Toby: Yes.

Eliot: They just won’t ask it.

Toby: Even if you think like gosh, just do it. I can think of 20 questions I’d ask now. I just asked him a question when I forget things.

Eliot: We just ask Troy.

Toby: We ask Troy. We ask Dutch. We ask the whole group. We just want to make sure. I’ve learned a lot from it.

Eliot: That’s because I learned it from these guys.

Toby: Yeah. Wait, where’s my [applause 00:47:13]. It was one person, but they had multiple hands.

Alright, “I’m in a 1031 exchange gone bad.” It’s still my favorite thing. I want a t-shirt that says, exchange gone bad. “The funds are with the intermediary in the escrow account. The replacement property seller did not cooperate and the deal is falling through. What can I do now?”

Eliot: Quick answer, you can pay tax. There’s not much. Installment, I think we talked about that. You could try and take the payments in installments.

Toby: You’re toast. You already sold and you have 180 days, unless this is a reverse exchange.

Eliot: Right, normally in the 45 days, the first 40 after you sell, you have 45 days to list your replacement properties. If it’s a normal 1031. What’s happened here, maybe they picked one, they found one, and then it fell through. That’s why you want to have a couple of extras there, and just in case this happens.

Now, Toby mentioned the reverse. The reverse is just what it sounds like. You purchase first, and then you list within 45 days which property you’re going to sell. We sell a lot more of that when the markets are really hot and properties are just flying off. They buy first and then they look at what they’re going to get rid of. Sometimes we see that.

But in this case, if the deal’s gone past that 45 and we can’t get another replacement property, we’re not allowed to add another one at that point then basically we start looking for tax mitigation, try and make an installment sell where we receive a little bit over time, so we can lessen the amount of tax.

Maybe we have some other things going on with other properties. Perhaps you know any kind of strategy, we just look across the board at any strategies we got to lower taxes.

Toby: Yeah, I think this is a nightmare. This is why people who do 1031 exchanges, that’s why they get nervous. It’s because if somebody knows you’re doing a 1031 exchange, sometimes they do this just to get your price down. They may come back at a pass and say, give us $10,000 off and we’ll do it, and then you feel like you’re just getting raked over the coals, but you’re better off doing it. Then you can roll the tax for it.

Otherwise, you just have the tax bill. I don’t want to say it blasé, but what I’m doing if I have a tax bill on a property is I’m looking for other passive losses to offset it. Somebody says can you still do that if you have active losses? Yeah, you still can. The active, you just don’t have to worry about passive. It offsets all your income and you’re probably not using it against capital gains. You’re probably using it against your ordinary income because it’s going to be a higher tax rate.

If you have active losses, you’re using the highest amount of tax you pay. Whatever income is in the highest bracket, you’re wiping that out. A 1031 exchange is not that. In the 1031 exchange, you’re wiping out long term capital gains, which is capped at 20% federal, 3.8% for the net investment income tax. What else is there? Their depreciation recapture is capped at 25%.

The worst case scenario, like the highest tax that’s there is 25% versus your ordinary income being at 37%. You’re always looking at what’s going to be your best scenario where your accountant will do it. I’m trying to think of anything else you could do. I’m probably buying something. If it’s really bad this year, like if I’m about to, it’s going to be this year, I might be looking for either a syndication or something that’s going to kick me a lot of loss.

There is something else you could do. This is going to sound weird, but you go into oil and gas and intangible drilling costs are treated as ordinary loss. If I’m afraid of the tax hit, I might invest a little bit in that or I might do charitable giving even on my own charity on another appreciated asset.  All of those things help.

Like Elon Musk, when he bought Twitter. One of the things they found out was that he had given a substantial amount of stock to his foundation.  These guys all do that. That’s what Buffett just did. You realize that they’re getting a fair market value deduction on the value of that stock, not what they paid for it, but what it’s worth and they’re using that to create the tax deduction that offsets the tax hit when he was selling stock to buy Twitter.

Everybody that’s wealthy does that, guys. Sometimes it’s like that. Somebody says, maybe buy a fund through Grocapitus or Spartan. I think you can do a 1031. I think you would have to have identified it though, right?

Eliot: Yeah, that’s the thing. If we’ve already sold, which it sounds like it’s already been kicked into action, we really can’t change anything if we’re past that 45.

Toby: Somebody just said, I did that on a buyer in a 1031 exchange. They came down $25,000.

Eliot: Wow.

Toby: Would somebody know you’re in a 1031 exchange?

Eliot: You got power.

Toby: You got the mark. It’s like when they put the mark in front of your house and everybody that sells milk to vacuum cleaners hits your house. You got them all showing up. They’re like, oh, you’re doing a 1031 exchange. Come over. I got a great property. Ashley, you’re getting a don’t do that.

Eliot: I didn’t teach her that one.

Toby: Yes, bad. It’s good, but bad. Alright, they still saved money.

Eliot: Good job.

Toby: You figured out their pain point and said, here’s the pain point. Woo! $25,000. Alright, that’s a good woo. 

“Can I structure and set up something through my business and nonprofit or personally that would allow me to deduct my kids’ college education expenses? I’m aware of state-specific 529 programs.”

Eliot: Aright. So first of all, just point out the 529 for everybody else’s benefit here. That’s not a deduction. It’s an amount you can put into these programs that grow tax-free. There’s your tax benefit. If we use it for appropriate education-related expenses, then you don’t have to pay tax on that growth, but no deduction putting into it.

Now, what could we do here as far as education? Well, if we had a business going on, a trader business, maybe we have a management C Corp family C Corp or something like that. We might be able to pay the kids a reasonable wage for work that they’re doing and they could contribute that to pay for their education or let’s say they’re doing the books, maybe they’re accounting, maybe marketing, something like that, social media.

Then, classes that they take in college related to that job that they already have, you could reimburse and take a deduction for those expenses.

Toby: The big one here is because it’s college expenses, so they’re over 18. You don’t have the tax free payment of your kids. That’s the big one. You’re just paying them and they’re in a low tax bracket.

I did this with my daughter. I just put her on and set up an LLC. I was the manager of it. She did a bunch of work and she was doing legitimate marketing work and I paid that. Was that her tax bracket which was a lot less than mine? That’s all you’re doing but no you’re not writing off the education.

There is a limited case if you have a real business and you have a really good case that your kid is working in that business and they’re increasing their ability to be good. They went to classes because it’s benefiting that business. Then you could pay for that class and deduct it and the kid wouldn’t have to pay tax on it.

The example that I use is when I went to Seattle University and there were a lot of Boeing people there taking business classes. They were all engineers and Boeing was paying for their courses and me going through and just getting my degree, I didn’t get a deduction for it.  Boeing got to write it off, but it was improving their skill. It wasn’t creating a new skill and so that’s always the thing. If your kids go into college and they’re working for a business and they’re taking classes that benefit your business. You could write those off, even if it’s earning them a degree. It doesn’t matter. But everything else, the answer would be no. The trick is getting it to the child at a lower amount.

Let’s see. Somebody said on the 529 plan, they said you’d get certain state tax deductions.

Eliot: That is correct.

Toby: Right, so you get state, but you don’t get a federal tax deduction on 529. But you do get some state. That’s great. Moving on. By the way, our guys have answered like 160 questions, written questions. I just want to say thank you to George, Amanda, Tonya, Dutch, Jeff, Jared, Troy. I know Patty’s rolling around, Matthew, Jeff did I already say Jeff? Jared and Matthew. I already said Matthew. I’m going to repeat myself now.

But all those guys, thank you so much because you guys are just killing it tonight. There are over 500 people just on Zoom, plus we have a whole bunch on YouTube. They’re just rocking it. Troy, I think, is handling the YouTube. 

“I currently have a loan on my solo 401(k) and I want to pay it off early and turn around and take out another loan. How do I handle that from a tax perspective?

Eliot: First of all, there really isn’t a tax interest here per se because a loan is not taxable. Okay, you can take it out no tax and you pay it back, it’s just not a taxable event. However, you are limited to the lesser of 50% of your vested amount in your 401(k). That’s the most we can take out as a loan.

Indeed, it depends on whether or not, while the federal law allows this or actually the Department of Labor who makes these rules, allow you to do this, but your particular plan might have more restrictive guidelines in it and rules. In other words, even though maybe under federal law, you’re allowed to take the loan and clearly you’re doing that, maybe other plans don’t allow you to take a loan or maybe they limit how many loans you can have outstanding at any one time.

All things you want to check with your particular plan. I just throw that out there for people who are thinking maybe of doing the same.

Toby: They do have that. The carryback, that’s one thing. It’s that weird one year. I don’t know if I would pay off unless it’s like $10,000 and you’re trying to get $15,000, I think you’d be really safe. But if you’re anywhere close to $50,000. You’re not paying it off.

Eliot: Yeah, that’s another aspect of it, they have a moving twelve-month window on this.

Toby: Whatever the highest balance minus whatever the balance is when you do the next loan. That amount is subtracted from the $50,000 and it’s either that amount or $10,000 whichever is more. I remember right something goofy like that. But you don’t get to take the $50,000 anymore

Eliot: Until after the window is passed.

Toby: Yeah, if you just keep the loan and you just get more, the IRS says it’s $50,000 or 50%, you’re okay. But if you pay it off, you’re going to have some issues.

Eliot: You could be limited because of your 12-month look back. Maybe let’s say you took out $50,000 a couple, a few months ago, you’ve paid down $15,000. You might be able to take out a little bit more that way without touching.

Toby: Fifty minus 50 is zero.

Eliot: Yeah.

Toby: We have to take a look at it and run the numbers. Your plan has to allow multiple loans.

Eliot: Some don’t.

Toby: Most don’t. Some don’t, most don’t. But again.  I don’t think I’d be paying it off early, but I would crunch the numbers. We can actually take a look or you could work with your administrator to see what they say. Because you don’t want to be in a situation where you have an unintentional tax limitation.

“I’m a 1099 medical professional. What can I do from now on to properly prepare myself to maximize my tax situation?” Quarterly tax meetings. Everybody, that’s always the answer.

“I’m on the payroll for my S Corp and managing the 1099 income through the S Corp. I don’t know if I should be doing anything else.”

Eliot: Well, first of all, you did probably the greatest thing you could. You put it in S Corporation. You got that 1099 coming to you. You got it off of Schedule C so it doesn’t hit there. You don’t have a high risk of audit. You got savings on your self-employment taxes and we can do other things such as if you’re getting W-2 in there, W-2 reasonable wage, you can put into a retirement plan such as a DB plan. That has the hugest payload towards retirement right there. We’ve got the accountable plan, which could be administrative office reimbursement, mileage reimbursement, corporate meetings under Augustus rule, or 280A as we call it.

We have a whole lot of things. You did a great first step here. You got that S Corp set up, you got the money coming in. Now we can just sit there and play with the numbers and see what you like best of all those options.

Toby: The biggest thing that you’re going to see the doctor is probably a defined benefit plan. Depending on if you have other employees. But with a defined benefit plan, we have clients that put $300,000, $400,000, and $500,000 a year tax free or tax deferred into those types of plans, cash balance plans, the same thing.

There’s a really great guy, Jeffrey Mason, who works over at Redwood. He works with a bunch of actuaries. They can run your numbers for you,  if you just reach out happily to put you in touch with the right people. But you can get massive deductions, especially, like most medical professionals I know, especially when you’re putting your head down and you guys are working those ridiculous hours and you’re crunching away.

Those are your big years and it’s sad when they get into the highest tax levels. In some cases, you’re paying over 50% tax. I know that you wouldn’t be doing that deliberately because it’s a law of diminishing returns. You’re working too hard for too little at that point.

Yes, there are things you could do. Short term rental, DB plans, charitable, creating charities, doing donor-advised funds. Oil and gas is always a good one. Real estate professionals with another spouse, you could do that. All of that. 

What if I didn’t put the medical expense on my W-2? Or join Platinum Knowledge? What does this say? I have a S corp and I’m an employee for my corp. You could still write off medical expenses on your 1040 if it’s self-insured, but you’re just not able to do like on a C Corp you can reimburse 100% of your medical dental vision. You can only write off the insurance premium and assign that it’s a high-deductible plan you can still do an HSA.

In an HSA you get a deduction, I think it’s $8300 this year for family. Then you can use it immediately to cover expenses, but you’re getting a deduction for it. Hey, look, you can always do YouTube. Did we mention YouTube?  Please subscribe, if you can. It helps and you get notified whenever something cool comes out.

There’s Clint’s as well, and some people just go and look at his pictures. You can do that.  Just kidding.

Eliot: No comment.

Toby: We did find Clint on the dark web at one point. I’m not going to talk about that.

Eliot:  But you are going to bring it up, apparently. We’ll see. Knock it in. I’m not going to give you the details, the sordid details, but he has a great YouTube.

If you like the combination of I’m more tax and financial, Clint does a lot on real estate asset protection, they’re great. Of course, come and join us for the Tax and Asset Protection Workshops if you’ve never been to one, and send it to anybody else. They’re free. You can always send somebody a link and say, hey, check this out.

Let’s see. Something else. There you have the questions at taxtuesdays@andersonadvisors. You can always send in your questions. Then you can always visit us at Anderson Advisors too. There you go. Troy, send me that question because I don’t know you. I don’t know what that is, but we’ll address it.

Alright in the meantime, you have two weeks,  you can certainly email over Tax Tuesday to Andern Advisors, we’ll answer your questions, and then we’ll all take them and put them in our show. We get hundreds. It’s not for sure that you get it, but we like to grab them and we always like to see what’s the question everybody has, and in the meantime, have a great two weeks. Eliot, thanks again, sir.

Eliot: Thank you. Good to be here.

Toby: Guys, go out and do good things and you get a star. You’ve spent enough time learning about taxes. Now go do something fun.