Toby Mathis and Jeff Webb of Anderson Advisors are here to ease your nerves and help you make intelligent decisions by answering your tax questions. Do you have a tax question? Submit it to taxtuesday@andersonadvisors
Highlights/Topics:
- If I liquidate a 401(k) and take the cash, what taxes will I pay? If your younger than 59.5, you’ll pay a 10% penalty for a traditional 401(k); penalties are different for a Roth 401(k)
- I have a home office. How do I indicate that on my taxes? Use Schedule C and Form 8829; but go for a business reimbursement, rather than a home office deduction
- My phone is for personal and business use. How do I indicate business use on my tax form? If required to have a phone for business, expense the whole thing by being a corp
- I purchased another vehicle for business use. Do I title it under the name of the business? No, to avoid additional liability and higher insurance costs
- What’s the minimum income required for social security/medicare benefits to receive your four credits? In 2018, you’d have to earn $5,280; in 2019, it goes up to $5,440
- Does the C corp have to be setup in 2018 to carry forward the deductions to next year? No. If you pay during your tax year, it’s not an applicable deduction in that particular year
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Resources
Anderson Advisors Tax and Asset Protection Event
Full Episode Transcript:
Toby: Welcome back to another fabolous Tax Tuesday where we’re bringing tax knowledge to the masses. My name is Toby Mathis and I’m joined by none other than Jeff Webb.
Jeff: Welcome.
Toby: And we’re going to go and spend some time with you going over fun stuff on Tax Tuesday. We got inundated with a lot of questions after last week, but some of the questions are specific to people freaking out from last week because they heard something that set them up, which is good.
Jeff: Yes, yes.
Toby: We’re getting it before they get a big tax bill, which means they can usually fix things. We’re going to go over all that, put some nerves at ease, and continue to make sure that we’re making intelligent tax decisions.
If you send in any question to Tax Tuesday, to Anderson Advisors, then we like to take them and make them part of our actual presentations, we answer them. If you send them in, chances are we’re going to kick them to someone to get an answer to you right away. If you need a detailed response, in other words if you’re asking very specific questions about tax matters that affect you, you’re not talking about a law or anything but you’re talking about, “Hey I filed my 1040 and I have questions about line 58,” then you’ll need to be a platinum client or a tax client. You could always become both or either by going to Anderson Advisors or just reaching out to us and say, “Hey I need to become a tax client.”
Hey this is fun, fast, educational, and we want to make sure that we’re keeping you entertained while we’re doing it but there’s lots of questions. This week’s questions which we will go through one by one here in a second. Here’s question number one: “I am in Florida. If I liquidated all of 410(k), $5300, and take the cash, what taxes will I pay at tax time?” That’s a good question. We’ll answer it. “I have an office within my home, how do I indicate that in my taxes? My cellphone is used both business and personal use, how do I indicate business use on a tax form? I purchased another vehicle for business purposes, do I need to title it in the name of my business? My husband and I have been incurring educational coaching expenses for our new real estate business, we will not earn any income this year. However, we want to be able to deduct the expenses. I understand we need to create a C-Corp in order to do this, but my question is does the C-Corp have to be set up in 2018 in order to carry forward the deductions to next year? Or can we wait until 2019 to set up the C-Corp and still apply the expenses from 2018 to offset the 2019 income?” Good question, we’ll answer it.
“Heard something scary on the last Tax Tuesday. Wanted to follow up to ensure I wasn’t doing something terrible on a flip I’m scheduled to close next week. What I heard, if you get identified as a real estate dealer by the IRS, you get taxed 100% of the gain on the sale of the property in the first year, even if you’re selling on installment, owner financed it, the property being flipped by an S-Corp, can an S-Corp get identified as a dealer? I’m the president of the S-Corp. Based on the time I spent in 2018 engaged in real estate activities, I should be designated as real estate professional. Does this matter? If so, how? Any pointers on how this should be carried out in the future?”
“What is the minimum income required for 2018 to receive four credits towards self security medicare benefits? In 2017, we paid my wife’s mother a small amount for administrative services on 1099, my wife and I are the only employees of the company currently, but was wondering if we could get around the self employment tax if we’d made my mother a direct part time employee. Also we are considering health benefit plan for the corporation, was wondering if there’s any negative aspects to doing so. Could health benefits be provided by the corporation to part time employees as well or is there a minimum hours worked requirement? We are conducting a full time real estate business out of our home,” it says C-Corp, so I’m assuming that the business is a C-Corp, “what is most beneficial way to calculate the home business deduction? I’ve heard there is several options.” Let’s just start jumping through these.
Jeff: A lot of questions.
Toby: Yeah. I don’t want to leave you guys hanging wondering what to do with yourselves if I’m not there. “If I liquidated my 401(k) and take the cash, what taxes will I pay at tax time?” First off, we have to ask the question, is it a rough 401(k) or traditional? It sounds like a traditional 401(k) and you’re taking the cash all at once. We’re making an assumption there that this is a traditional and just a standard 401(k) and that you’re taking the cash right now, what taxes will I pay at tax time? Jeff, what do you think?
Jeff: We’re also going to assume here that you’re under the age of 59 ½, for the first part of the answer, you’re going to pay ordinary tax on this $5300 if you pull it all out at once.
Toby: Yet if you’re under 59 ½, then you’re going to have two choices. You’re either going to pay a penalty of 10% plus that tax, this is a traditional 401(k). If it’s a rough 401(k), then you’re not going to pay any tax on the money that you put in but if it has gain, you’re going to pay penalty on that.
Jeff: Unless you’ve held it for five years.
Toby: Even if you held it for five years, you’re always paying a penalty. Maybe. I got to take a look at that one right off the top of my head. But I think that you can always get the money back out off of a rough. That’s first off. There’s a misnomer there, that’s actually a great savings accounts for young people because if they get into an emergency and they actually need the money, they’re not dealing with how much penalties to take the money they put in down, it’s always the gain.
You might be right. Maybe they’re paying tax on that gain but they don’t have the penalty if they held it over five years.
Jeff: When you pull money out of the rough, you’re pulling your contributions out before you put an income out.
Toby: Correct, you’re taking the contribution back. If I put $10,000 in rough over the years, I can take $10,000 out anytime. Now, that’s different. If I’m putting it in a traditional, where now I have taken a tax deduction, now they penalize you. If you take it out early, then you are going to be getting hit with the penalty tax plus you’re paying tax at your ordinary rate and this is going to be your highest bracket, this is going to be your highest marginal rate.
The other fun part of this is if you are 55, you can make what’s called the 72T election. What that means is you cold take equal payments over five years if you are under 59 ½ and I think you have to do it at least five years.
Jeff: I believe so.
Toby: Even if you’re 58, you’re still taking over five years. And then you would avoid the 10% penalty. You’d still pay ordinary tax on it.
Jeff: Right.
Toby: If you’re over 59 ½, you’re just paying the tax on it, you avoid the penalty.
Jeff: Pulling the money out of a retirement plan, especially if you pull it out early, can get quite expensive tax wise.
Toby: You got an introduction when you put it in.
Jeff: Right.
Toby: Here’s the scenario that we see all the time, somebody makes a nice big fat deduction, they were in a high income year, and then they have a bad year and they’re pulling the money out. If they’re having a bad year, chances are they’re in a much lower tax bracket, that’s when you should be either pulling the money out or switching it over to a rough and taking the tax hit on the conversion. Anyway, that was fun.
“I have an office within my home, how do I show or indicate that on my taxes?” This is tax 101 for Anderson. We do not like home office deductions, number one. That means you writing it off on your Schedule C. If you have a business and you’re using a home office, you’re filing I think that’s an 8829.
Jeff: Right.
Toby: You are writing that off as part of your business and it’s on your return and that’s what everybody says, “Hey there’s a red flag.” The red flag is that you’re filing a Schedule C on your personal return, not just the home office. But that home office certainly doesn’t help. What I’d rather see is a corporation as sort of C-Corp in the mix, reimbursing you as an employee for the company’s use of your home office. It’s not renting it from you, it’s reimbursing you, the expenses, attributed to that portion of your home.
I’m going to draw this up. Let’s say you have a house, and you have this little section of your house called a home office. Let’s say that this one is 10×10, so it’s a 100sq. ft. What the IRS allows your employer to do, and as for a C-Corp, is reimburse you the expenses of that home office. The reimbursement is based off the fact that you had expenses for the whole home. It doesn’t matter whether it’s a rental or a purchased home, you still have expenses. You have expenses like real estate taxes, mortgage, utilities.
Jeff: HOA.
Toby: All of it, HOA. Even things like depreciation. Those are all expenses and what it does is it lets you pay a percentage back and guess what, nowhere on your return does this money show up. I say your return. I always use Krispy Kreme in my examples but I say if I asked Jeff, on your way into the office, grab some Krispy Kreme and I’ll reimburse you. And Jeff goes and he buys a whole bunch of Krispy Kremes and he comes into the office and says, “Hey, that was $50.” And we write in the company check for $50, where does Jeff report that? The answer is he doesn’t. He got reimbursed.
This is the most important word you’ll ever hear, accountable. This is called an accountable plan. When you have an employer, they can reimburse you for things that you incur on their behalf. There’s a laundry list of them, but the most important ones are things like your computer, your cellphone, your home, your utilities that you’re using for the convenience of the employer, all those things.
Now, it can reimburse you. Now we know that we want to get reimbursed. Don’t do a home office, because that’s you. This is a business reimbursing you for the use of your home at their convenience, changes up the rules a little bit. Now, the way to calculate this, there’s a number of ways. The IRS has what’s called a simple test where this is $5 per square foot per year. This is 10×10, you would get a $500 deduction at the end of the year of reimbursement, you don’t have to report it, the company gets to just write off $500 as a lease expense. That sucks.
The other way that people do is they look at the entire house. Let’s say the entire house, let’s say you have a 30×30 house. You have 1/9 would be the deduction. If you have expenses of $9000 throughout the year, you would get a $1000 deduction, you would get 1/9 of that because this is 100sq. ft. versus 900sq. ft.
Now there’s another method, that’s not the only method. There’s actually nine, although I’ve never seen all nine. I use about three. Jeff, what do you think?
Jeff: I only use a couple. I use these two. I use a simplified method.
Toby: You’re such an accountant.
Jeff: I’m such an accountant.
Toby: There’s two ways to do it. You could do the square footage method, which is based off of this 30×30 versus the 10×10. It’s 900 versus 100. You could use the net square footage, where we remove hallways and bathrooms and places for your water heater and your air conditioner and all those things, you remove them. And say, “Hey, we’re only looking at the net useable square footage.” This is what you use in commercial and stuff like that. Let’s say that your net useable square footage, we have a hallway that runs through here and we have a couple of places here but here is where the water heater is. Once that we removed 200sq. ft., now it is 700-100 which I don’t know what that is but I always pretend that that’ll be about 14%.
That’s another way, is that next square footage, and now there’s another one that is not used enough, in my opinion, which is the number of rooms method, where we look at the total house and we say, hey, here is the area being used there. Let’s just say we have six rooms, now we are 6-1 and that’s going to be way better. That’s going to be six goes into one how many times? I’m just going to go and grab and flip a calculator. 1 divided by 6, that’s 16.6%. We would look at all the expenses and you take 16% of that. What did I use?
Jeff: Let’s say 9000?
Toby: 9000. Let’s say that we have 9000 to 3 times 16. Now I have a $1400 expense which is by far the best. Now I can reimburse me that amount and again, I’m throwing numbers out. Your number is going to be way different just because 9000 is not what it costs actually on a home unless you’re living in Indiana, in a funky area.
Jeff: And while we talk about mortgage and real estate taxes, depreciation lot, a lot of people rent their homes, and that rent expense is also a part of this formula.
Toby: I’m going to do a shameless plug and I’m going to tell you if you want to learn about this stuff, you have the calculators and all that jazz that we use, then you’re going to want to come do an advance that’s called Tax Wise. You’re going to want to go to that.
Jeff: That’s a blast.
Toby: Yeah, because we break it down, and so there’s my shameless plug. You’re going to want to go to that. Now, if you’re platinum, you’re probably getting free tickets. If you’re not platinum you’re not, you’re going to pay something. But for the platinum folks, this is a no brainer, you always want to come hang out with us about tax. That’s 1 of 29 different deductions we talk about.
“My cellphone is used for both business and personal use, how do I indicate business use on a tax form?” You want to hit this one?
Jeff: For my point of view, if you’re required to have a cell phone for business, I’m going to expense the whole thing.
Toby: Alright. Here is where it becomes really important. It’s this term accountable again. If your business says, “Jeff, you need to have a cell phone because we like to call you at night or whenever you’re wandering around if you’re going between locations, I need you to have that.” It is 100% now not going to be personal, it is now going to be 100% business because it’s for the convenience of the employer. And you don’t have to worry about how much business use there is.
If you do not have an accountable plan and this is just you, your business, you’re Mr. Sole Proprietor, then you have to say what percentage is business and what percentage is personal and you have to take that total bill and divide it. If you’re a sole proprietor, you’re dividing it up, you’re having a look at it. I don’t want you to have to do that, I don’t want you to have to worry about that. We’re never going to recommend you to be a sole proprietor, it’s just not going to happen. From all three areas we look at, which is asset protection tax and the state planning, you’re all for three, there’s no reason to do it.
If you are one of those people, then you need to be tracking this, that personal percentage. You can’t say it’s all 100% business, it’s just impossible. Unless you have two cellphones. You could say here’s my business phone, here’s my personal phone, or you have two lines, in which case you’re going to be able to write out proportionally. If you want to write it all off, make sure you have an S or C-Corp reimbursing you under an accountable plan.
“I purchased another vehicle,” I like the way you say another vehicle, “for business purposes. Do I need to title it in the name of the business?” Jeff, you like this stuff.
Jeff: No. We recommend that you not title it in the business name for a couple reasons. Liability for one, it presents additional liability to the company, to your business. And second, it’s a little more expensive to put it in your company. You may find that interest rates are higher if you’re getting loans on the car. Commercial insurance on the auto’s definitely going to be higher than personal insurance.
Toby: Yeah, because in theory, again if you have it in a business, anybody in that business can go hop right in and drive that car around, and whenever you’re doing business, now you’re liable for anything that happens. Just by the nature of it, it’s now a business asset, so the business is exposed plus you’re exposed. Two people to defend equals more money. It’s more expensive.
Jeff: Sometimes we forget that we’re using that car on non business hours and we’re getting a wreck some, it’s still a business vehicle.
Toby: Alright. Here is our deal. Taxable, personal use. Let’s say that you’re spending $50,000 on a car, and you’re using it 50% for business. First off, that’s a problem, you have to use it more than 50% for business or is it right at 50%?
Jeff: I think it’s right at 50%.
Toby: If you’re going to write that thing off, it’s very easy for the IRS to come in and say, “We think that that was actually disallowable deduction because it wasn’t being used for more than 50%.” This isn’t something where you just say it’s 50%. You have to track this and prove that you used it more than 50%. Otherwise, no deduction. Zero, zilch. It is actually personal asset and now you’re being thwarted. If you took a deduction, they make you claim that as taxable income which is very bad.
But here is the other side, depending on the value of the vehicle, the IRS has a cool layout, the schedule on how much taxable income you have to include in your return every year for that vehicle based on its price. If it’s $50,000, you’re going to be paying, I think it’s close to $10,000. You’re going to have to claim if you use it for personal use. That’s 100% personal use. If you’re using it at 50-50, you may have $5000 taxable to you versus what’s the alternative?
Jeff: Have a personal vehicle in your name and you’re reimbursed under an accountable plan for the mileage taken, is the easiest way I see doing it.
Toby: Yeah. Mileage is $54.5 a mile, and I should say business mile. And the easiest way to track that is something called MileIQ, easy app, you can just go on if you have an Apple or Android phone, it’ll GPS you. I think you swipe right for business, swipe left for personal, whatever it is. It’s one of those types of apps where you’re swiping, and you just say hey, this was a business trip, this was a personal trip. And it tracks it for you. At the end of the year, you can say, “Here is the amount of miles.” And the company cuts you a check and you don’t have to report it personally and the company writes it off as an expense.
That’s typically our recommendation. There are exceptions. The reason that we say this is our typical, is because you better show me there’s a really good reason to have the business vehicle. Maybe of a construction company where you have some truck or something like that, then maybe, but otherwise, if it’s just your family car and you’re just running around doing some real estate business or an MOM or something, you got to be really careful with this, there’s a lot of people that have gotten burned on this one. And then once it’s in the business, it’s kind of a pain to get it out.
Jeff: Yes.
Toby: It’s not like you just hand it to yourself and say, “Congratulations! Here is a bonus.” That’s taxable to you. That fair market value gets hit. I tend to be with Jeff, I like to see it in your personal name because it’s cheaper, in the long run you’re getting a lot more benefit. My commercial insurance, I’ve done this before, was almost twice as much. It always depends a little bit.
“My husband and I have been incurring educational and coaching expenses for a new real estate,” probably new real estate business, “we will not earn any income this year.” I’m assuming they’re talking about the real estate business.
Jeff: We like real businesses.
Toby: Yeah, says it’s a real business as opposed to a fake one. “However, we want want to be able to deduct the expenses.” I understand you need to create a C-Corp in order to do this and we’ll explain why you’re probably hearing that. Is that a 195? This is startup expenses.
Jeff: Right.
Toby: “My question is does the C-Corp have to be setup in 2018 in order to carry forward the deductions to next year?” The answer is no. “Or can we wait until 2019 to set up the C-Corp and still apply the expenses from 2018, to offset the 2019 income?”
Here is how it works, just because you pay for something during your tax year does not make it applicable as a deduction in that particular year. Once a start up expense, what we’re doing is anything that’s in the investigation or the creation of your business is captured as a startup expense. It’s actually 26 USC 195. What that allows you to do is go back and grab things that would have been deductible to the business had it been in existence, but knowing that the business is not in existence, we’re getting it ready to go, you’re able to go back and grab those and then you can write off up to $5000 in the first year of the business but you amortize the rest over 15 years.
Unless it’s over $50,000 then we’re amortizing over 15 years without regards to the $5000 bonus. I know that sounds complicated. What it means is it really depends on how much you’re spending. If you’re spending a few thousand bucks getting some coaching, then don’t worry about it. If you’re spending more, then you better get setup sooner than later unless you want to just be kicking portion of it, 1/15 every year. If you spend $60,000, you’re taking $4000 a year as a deduction. If it helps, you’re writing it off but you’re writing it off over a long period of time. Hope that helps.
If you’re a few expenses, wait. If you’re not, get it going really quick because we want to capture those as ordinary expenses which means we may look and say what’s the value of what you already paid for. Expense that as a startup and look at the value of everything you still got, and expense that as ordinary expense right away.
The other thing is C-Corps don’t have the same tax year. 2018 for the C-Corp could be next year. If we set it up now, we have a taxable year end and at the end of November, it’s still a 2018 expense. Sounds weird but it’ll be all the way in November of 2019 and you’d be filing your tax return in 2020 but the expense will be from 2018. I love just trying to confuse everybody.
“Heard something scary on the last Tax Tuesday,” it was close to Halloween and I was trying to scare everybody.
Jeff: Good job.
Toby: “I wanted to follow up to ensure that I wasn’t doing something terrible on a flip I’m scheduled to close next week. What I heard: if you get identified as a real estate dealer by the IRS, you get taxed on 100% of the gain on the sale of property in the first year, even if selling on installments.” If you’re dealer, then you do not get something called installment sale treatment. Is that 475?
Jeff: I think so. Yeah.
Toby: I think it’s 475. Actually I can probably type it in here. It’s 475, I’m reasonably certain. But what it says is that there’s an exception to being able to designate something under the installment sale method. In other words, installment means I’m taking money over time. If I sell Jeff my house, and I say pay me over 10 years, then I am electing to treat that as an installment sale, then I am receiving that income over 10 years. It is a great way to defer the tax out into the future.
If you hold inventory for the resale to customers, which is what a dealer does in real estate, I’m buying real estate, I’m holding it as inventory and I’m selling it. I buy property with the intent to sell it, I do not get to take installment sale. Did I pick the right statute?
Jeff: No, wrong statute.
Toby: Oh, which one is it? 445.
Jeff: 475 is market to market.
Toby: Darn it. I’m thinking about traders less installment sale. I’m going to trip myself out of here.
Jeff: It’s not participating.
Toby: I’m going to find out.
Jeff: 453.
Toby: 453, so that’s the installment method. Too many sections both running around my head. 453 and the exception to that is the dealer. Here is why it’s really bad to be treated as a dealer if you’re doing this. You are taxed on 100% of the gain the year that you sell it. I’ll give you a real life situation that happened to a client, is they bought a piece of property for about $4 million, they were going to develop it and sell off the pieces, and somebody comes in. This was actually in 2007, it says, “Hey, I need that land.” And they said, “Well, we don’t really want to sell it to you.” They said, “How about I give you $7 million for it?” They’re like, “Oh wow! A $3 million gain.” But they said, “We’re going to pay you overtime.” And they said, “Good! Because we don’t want to have to pay tax on all this money.”
Of course, think of the timing of it, they never got a dime on the sale and the IRS taxed them on the $3 million. They defaulted, the land ended up not being worth half of what we paid for it. All these losses, all this stuff. And the problem was it didn’t matter, the taxable event happened the day that they sold the property to the guy for $7 million.
It took them two years to figure out the project was down. In that two years, there was interest and penalties on that non reported $3 million of income. They got slapped around very hard. They eventually were able to write off the debt having reasonably trying to collect it as bad debt but that took till year three after the sale, then they were able to carry back some of those losses but it doesn’t erase the penalties and interest and they ended up out about $300,000 that they never thought and their accountant completely missed, so when they came to us, they were like, “What do we do?” And I said, “There’s nothing you can do.” Except we got them right when they were trying to collect on the note. And I said, “You have to use reasonable methods to collect the down, then you have to write it off as business bad debt.” And the accountant dropped him of course because he was scared of getting sued.
That’s dealer. “Being the president of the S-Corp, you may be able to be a real estate professional, does that matter?” The answer is no unless you have losses. Real estate professional status only matters if you are taking massive amounts of depreciation on properties and creating losses, because then you can offset your active income, your W2 job and everything else with those losses. But in this case, would not matter.
“How should it be carried out in the future?” Don’t do installment sales on flips because you’re not going to get that treatment. It’s going to be denied. If you’re going to do this, I wish I had an easy method for you. What you may want to do is fix the flip, sell it to something that’s going to be owning it for a longer term period, that’s an investment company. You’re going to have to be disciplined about it and hold it for years. And then sell it under installment sale and let is season. Otherwise, don’t do that installment sale. If they need financing, have them go to a bank or have them go to another lender because you are paying tax on 100% of that regardless. If anybody tells you differently, they’re wrong, flat out. Simple. You can go read the statute. It says this is not available to people that hold it in the ordinary course, go read it yourself. 26 USC, what do you say, 453. Fine stuff.
I’m sorry I scared you, I hopefully were lessening the beating you’re going to take tax wise. And if you are getting beat tax wise, it means you’re making money. It doesn’t mean that this is horrible, just means you’re not going to pay tax in the future on that money as you receive it. The only money you’ll pay tax on is the interest that you’re earning on that installment note because you’re going to pay all the tax this year.
Jeff, you love this stuff. “What is the minimum income required for social security/medicare benefits to receive your four credits?”
Jeff: In 2018, to get four credits you would have to earn $5280. And then in 2019 that goes up to $5440. It’s bumping up about the same rate as the social security increases are.
Toby: That was too easy. See, Jeff answers things very quickly right to the point using accounting.
Jeff: I believe you have to have at least 40 credits before you can collect self security.
Toby: There you go, they want their four credits. There you go.
“In 2017, we paid my wife’s mother a small amount for administrative services on 1099,” we’re not going to discuss whether she’s an employee or a contractor. We’re just going to say okay. “My wife and I are the only employees of the company currently, but was wondering if we could get around the self employment tax if we’d made her mother a direct or part time employee.”
The answer is no. You either pay it or she pays it. If you 1099 her, it’s her responsibility to pay the social security and the medicare. If you pay her as an employee, you’re paying half and she’s paying half and it’s being withheld. If I’m you and I want to get money to mom, I’m probably going to say, “Hey, can I rent your house for a meeting,” and I’m going to 280 it which means I’m going to give her tax free income.
That’s it or I’m going to have her sit on the board and your next part of the question comes up where you say, “Hey, I want to do a health benefit plan.” This is what’s called a fringe benefit and depending on the type of company, it might be taxable or non taxable, unless it’s assumed that this is a C-Corp where you enter into a 105 plan which is a medical reimbursement plan, you’re going to have to conform with the ACA, meaning everybody has insurance, or that the company is at least providing basic coverage and it’s going to be really tough because there’s very few people that provide coverage on their group plans. What I’d probably say is you’re going to go with the faith based or they’re going to already have insurance coverage.
Jeff: What the ACA says is that if you have a group plan, you have to cover full time employees. You do not have to cover part time employees.
Toby: I don’t know if you can. I guess you could.
Jeff: You can cover them. I did double check on this. You can opt to do it. I think a couple things are going to happen if you add your mother in law to it, I think it’s going to make your group rates much higher.
Toby: Here’s the thing, if you don’t have mother in law and it’s just you and your wife, then you don’t have to worry about the ACA.
Jeff: Right.
Toby: Because you’re exempt. If you bring mom, and mom is an employee, now we have a little bit of an issue. I’d be looking at other ways to get it to mom. But now she is on, then any benefit you give yourself, you have to give her unless she is less than 1000 hours, in which case you don’t have to give it. You just treat her like she’s not there, which case that defeats the purpose you want to give her something.
What you could do though is if she is an employee, and you only have to pay her a wage to do this, you give her other fringe benefits. Again, home office or cellphone, computers, things like that. There’s ways to get money to somebody that is not what you necessarily think. Could the health benefits be provided? Yes, sounds like they could.
Jeff: They could be.
Toby: You know what, you’re right because I’ve looked at this, there was an audit where the guy, all he did was work for his medical benefits and there was an hour requirement, he was like five hours a week or something. Less than a thousand hours, you’re not required to give to him. Over a thousand hours, I think you’re in that point where you’re probably going to be required. I forget the exact, so don’t quote me on that, but it’s something around that.
“We are conducting a full time real estate business out of our home, C-Corp, what is the most beneficial way to calculate the home business deduction?”
Jeff: This sounds familiar.
Toby: Did I already do that one? Maybe they asked it twice. I’m going to ignore that.
Jeff: Our answer has not changed.
Toby: Yup. And look at that, did we already get to the bottom? I guess we did. No, they did ask that question twice which is funny. That’s me being crazy. Wow, we went through a lot of questions, I thought there was a bunch more. I was getting all excited to think we’re going to be here all day, but I guess that we didn’t. If you have questions anytime, just put them in at taxtuesday@andersonadvisors.com and we may pick it and put it on in one of those areas.
Now, I want to switch gears here just for a quick sec that there is a Tax Wise special for $197. This is what’s cool, if you go to andersonadvisors.com/taxtuesdayoffer, you’re going to get to see it. What it is, real easy, is this last Tax Wise that I taught we did 29 tax strategies, and of those tax strategies, we jumped into the qualified opportunity zone where you can defer capital gains for at least 7 years if you invest in qualified economic zones and explain what that is and jump into accelerating your depreciation. Even on single family residences now, you can accelerate that depreciation and potentially if you’re a real estate professional, offset all your other income. Just get your taxes, weigh it well, depending on how may properties you have and how much improved value they have. We can get about a 20% boost on the value of the house in the first year just in extra depreciation, so you can do your own math or calculations, it’s usually right around there.
Win over how to use the home office, how to use things like vehicles, 1031 exchanges, how do the real estate professional, all the different requirements on those, along with another 20 or so different types of deductions. Everything from how to use maximize rough 401(k)s to get $55,000 a year into a rough to how to use a traditional 410(k), how to use defined benefit plans, we just won over an example of a guy who had put over $600,000 a year tax deferred into a defined benefit plan.
We do all that, it was just a really good Tax Wise event that we just did a couple of weeks ago. You’re going to get a recording of that plus we’re going to do a new Tax Laws for 2019, special Tax Wise on January 25th and 26th. You’re going to get access to that too. You’re going to get the recording, so you can get yourself up to speed for a year in tax strategies, how to hopefully reduce your taxes even before the end of the tax year, so you pay a whole bunch less come tax time. And then we’re going to show you how to avoid and reduce your taxes in 2019. You’re going to get both of those for one cost of $197. You just go to the andersonadvisors.com/taxtuesdayoffer.
This is why this is cool, this is for everybody. If you are platinum, you can come live to the event in January. You’re still going to be the $197 but you have to be platinum if you’re going to come and we’re going to give you two tickets to come to that so you can come in and watch it live. The Tax Wise event, with 99.99% certainty, this one’s going to sell out and it’s going to sell out early. Go in if you want to be live, make sure you have signed up for the offer and let our office know that you want one of the live seats. It will sell out so jump on that one.
The livestream where we can have thousands of people on the livestream, that one’s not going to sell out. The recordings, there’s no limit on the recordings, everybody can watch the recording. I just think it’s really cool, it’s two days and we go over a whole bunch of strategies. I’m excited about what we just did and I’m excited for the new one.
Alright, that’s it for me, I just wanted to basically tell everybody that you had that opportunity. Hopefully I’ll see you again at another Tax Tuesday.
As always, take advantage of our free educational content and every other Tuesday we have Toby’s Tax Tuesday, another great educational series. Our Structure Implementation Series answers your questions about how to structure your business entities to protect you and your assets. One of my favorites as well is our Infinity Investing Workshop.
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