Bookkeeping For Real Estate Investors

Troy: Hello, everyone.

Toby: Troy is the executive manager of our bookkeeping department. I think I said that right.

Troy: You did. It’s a very fancy title for a very fancy man.

Toby: You are kind of fancy. He’s going to be joining us today because Jeff is slowly losing his mind with all the accountants as they go into tax prep abyss. This is where they get that look in their eyes of all the accountants. When you see someone just staring ahead on the street, they’re probably a CPA, EA, or an accountant.

Anyway, Troy’s group here does all the bookkeeping so that the accountants don’t lose their minds completely. So he’s going to be on, and we have his whole team, or it’s not everybody but a big chunk of his team. I’m just going to read off some names.

Oh, Eliot just popped in. He’s not part of your department, he just can’t help himself. He just misses us. You got Patty on, Ander, Matthew, Eliot, Dana. And then from bookkeeping, you have Trisha, Blanca, Landsey, Kiera, and Cindy, all on to answer your questions today about bookkeeping. This is a very special Tax Tuesday. Usually, we’re just doing tax stuff.

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Today, we’re going to do bookkeeping stuff. So if you have a bookkeeping question, this is the time to be asking it. If you ever like those things, debits and credits, credits and debits, debits that pretend to be credits and sometimes credits that mask themselves as debits, this is your time to ask the question and see if you can stump the bookkeepers.

All right, here’s our fun rules. You can ask questions live in the Q&A feature. If you want to ask an individual who’s just going to immediately respond directly to your question, you go into Q&A. If you have general questions, put it into the chat. In the chat, you can say, hey, guys. You can say hi or whatever just so we can see you. We can be like, Hey, you’re everybody’s alive. That’s great.

Actually, let’s test it right now. You could probably see Patty up in the chat. I’m going to see if I can make my thing go over. There we go. “I want to launch a self-directed IRA.” There are a whole bunch of high people. There we go.

We have hundreds of folks on. I don’t know if we’re quite to a thousand. Hopefully we will, but we got lots and lots of folks there. We got some Rhode Island there. There, we see some people. If you feel like it, you can put in where you’re sitting today. That’s always fun.

Word in Cuenca, Ecuador, Iowa, Anacortes, Rockfish. Whoa. I know Rockfish Grill very well. Dottyville, Haydenville, Carlsbad, Vermont, Bonnie Lake, Honolulu, Idaho, Georgia, Redwood City, Fairbanks, Oak Harbor. Not too far away from Anacortes. Jacksonville, New Jersey, Tampa. Mark, nice to have you with us and glad that you’re still with us.

Seal Beach, Katy, Texas. There’s a Gig. Harbor, Morrisville, Florida, San Jose, California. We’ve got people from all over the place. Isn’t that fun? I always think it’s amazing that we’re going to have people from all over the country. Frankly, all over the globe get together with us. Then we get Redondo Beach, Garden Grove, California. There are some great places to eat in Garden Grove. Then Memphis, Tennessee, and there’s somebody from Las Vegas. That’s where we’re at right now.

Troy: I wasn’t nervous until now.

Toby: Really?

Troy: Yeah, just seeing all those places.

Toby: They’re from all over the place.

Troy: Yeah.

Toby: You’ll get nervous in a second because we’ll go over all the fun questions. I changed all the questions without you even knowing.

Troy: Perfect.

Toby: All right. You could always email in your questions to taxtuesday@andersonadvisors.com whenever we have downtime in between our sessions. We do them every two weeks. You could ask questions, we respond. We pick your questions that we are going to read here in a second and answer live. We pick them from those emails, so you just go ahead and shoot them in there.

We call it fast, fun, and educational. What we’re trying to do is just bring tax knowledge to the masses. Today, it’s going to be bookkeeping knowledge to the masses. Let’s jump in on our opening questions.

Here are the questions we’re going to be answering today. “I’ve had two separate tax attorneys tell me that the IRS always expects a tax return filed for every EIN it issues. So if I request an EIN so I can open a bank account for my disregarded single member LLC, do I have to file a return, or can I somehow inform the IRS the EIN is for a disregarded entity?” Great question, we will answer that.

“I have a basic accounting question on how the C-corp handles the accountable plan when it does not have enough funds. Say the shareholders took a course that would benefit the C-corp but paid from personal funds, then the shareholder can fill out the form for the accountable plan and submit to the C-corp for refunding, reimbursement. Since the funds are still not available, does the C-corp treat it as money owed to the shareholders on my books? Does this need to be treated as a loan?”

Troy: It’s a good question.

Toby: Really good questions. I like them already, but we got lots, lots more. “What is the best way to record, handle reimbursement for business expenses that were charged on the owner’s personal credit card to avoid giving the IRS concerns about the legitimacy of the business?” We’ll answer that.

“Can I deduct other courses I take that are general business-type classes, not specific to real estate investing, and if they are for the purpose of helping me build my business?” Great questions again. All of those will get into. That sounds a little bit like a tax question, but we’ll make it into a bookkeeping.

“I have an S-corp without employees. My 14–16 year olds help out when needed. I’ve been paying them for my own bank account because I’m confused as to how I should be paying them for the work they legitimately are doing to help with my business.

Should I Venmo them from the business account and then issue a 1099, or should they be on payroll even with their sporadic hours? What is the smartest tax advantage way to pay the kids for helping the S-corp? Can I reimburse myself for the payments I have made to them from my personal account?” Good questions.

“How do I not pay taxes at the end of the year?” I think that’s the question everybody’s had at one point in time.

Troy: That’s my favorite one.

Toby: Yes. We like open-ended questions. “I have a three-member LLC taxed as a partnership. The members want to take a distribution each of $100,000. How is that taxed and how is it recorded in the books?” Really good questions thus far, and we will get to the answers on all of those.

Just because we are gluttons for punishment, we have quite a few more. “How does the bookkeeping service integrate with the accounting service, et cetera? I have personal bank accounts and do my personal return. I have a business bank account, credit card, and a self-directed 401(k) brokerage account. How does the coordination between platinum members and bookkeeping services work with multiple accounts? How often do we submit info, receipts, et cetera? How does the pricing work?” All good questions, all will be answered.

“Can you please discuss some big picture strategies to help with bookkeeping automation, AI, we should be considering?” AI and bookkeeping. It’s one of those little things everybody’s been chasing.

“What is the best way to keep track of miles and the best software for doing bookkeeping?” Really good questions. “Does Anderson offer small business or real estate book bookkeeping services?”

Troy: I don’t know.

Toby: Maybe we should. All right. “I’m trying to figure out how to property log and transfer friends from the property LLC to the holding LLC and vice versa. I found a video that Clint made that outlined how payments of rents and expenses are structured, but there wasn’t anything on, (1) how to capture my personal mortgage loan into the property LLC and then do the holding LLC, (2) how to record all transactions from the property LLCs throughout the year and distribute to the holding LLC for tax filing.” We’re going to get into all of these guys. That’s a good question that we will answer.

By the way, if you have lots of questions about things that are asset protection, tax related, even some bookkeeping, head into the universe of YouTube. You could either go to this link here right now at aba.link/youtube. I’ll flash on it, or you could just type in Toby Mathis and you will find me there. You could even type in Clint Coons. That’s my partner. He has a ton there.

If you like the tax stuff, just make sure that you’re coming over and you’re spending some time looking at the videos that are there because usually, (a) we record all of these and we make them into YouTube videos, so you can always go in there and watch past episodes, and (b) I probably put up two videos, specialty videos a week just on unique topics. I grab a lot of them from you guys. I always like to break it down into pieces. It’s a lot of fun.

Please subscribe to our YouTube channel. Let us know that you like us, and then also you can interact and ask for more things, and then interact with Tax Tuesday. In other words, if you’re not getting tax answers to your questions, it’s not because we’re not here to help you, we just go there and take advantage of it.

All right, let’s go over this one. Troy. “I have had two separate tax attorneys. Tell me, the IRS always expects a tax return filed for every EIN it issues. So if I request an EIN so I can open up a bank account for my disregarded single member LLC, do I have to file a tax return or can I somehow inform the IRS the EIN is for a disregarded entity?” What say you?

Troy: Sure. It’s in the name, disregarded. It means it’s picked up on another tax return. You’re not going to file a tax return for a disregarded entity by itself, so that would be included. Let’s say if it’s disregarded on your personal return, that would be included on your 1040.

Toby: Your attorneys aren’t really correct, but they’re kind of correct. If you have an EIN, the IRS expects it to be on a tax return. Not that each EIN has a separate tax return. I could literally have a bunch of consolidated companies filing a single tax return. I could have 40 or 50 companies all on a single tax return.

At the end of the day, there’s an EIN. The IRS just wants to know who is recognizing that income or loss from that EIN. That’s it. Sometimes you say, hey, ignore me and look at this individual, and you disclose the tax identification number that they should be looking at. You could have a disregarded entity going to a disregarded entity, that goes to a disregarded entity, that goes to a C-corp.

At the end of the day, the IRS can go, this one goes here, this one goes here, this one goes here, this one goes here. This is the return, boom. We are happy and satisfied. Capeesh? All right. Easy question to start with, so now let’s get into the hard one. Let’s go.

“I have a basic accounting question on how the C-corp handles the accountable plan when it does not have enough funds. Say the shareholder took a course.” It sounds like they took an educational course that would benefit the C-corp, so probably something involving something that makes profit for the C-corp and their line of business or something that is going to lead to profit in the C-corp, even if it’s not in that line of business, but you paid it from personal funds.

Troy goes out. He’s doing something for Anderson, but he pays for it himself. Then he says, hey, I need to get reimbursed. They called it refunding, but it’s actually reimbursement, so I need to give you the money. Since the […] are still not in the C-corp, the company has no money, what do we do? How would you treat this, Troy?

Troy: First of all, if I paid for something on behalf of my corporation, I would make sure that I’m submitting a reimbursement sheet. I would do that monthly where I’m putting together everything I paid for personally, putting it on a sheet, and submitting that to my company for reimbursement. I would recommend that you do that at least quarterly, if not more frequently. You don’t want to wait till the end of the year to get one big reimbursement.

Toby: Do it quarterly as a matter of course. If you’re in Anderson and you’re part of our tax services, you already know I do a quarterly tax event, and that we’re grabbing all those things and saying, here, make sure that you’re articulating how much it is so you can get your reimbursement.

Troy: That’s step one. Step two is, how do you record that in the corporation’s books? Those expenses that you paid for are expenses for the corporation, so that’s going to be your debit. We love talking about debits and credits. Your debit is going to be your expenses, and then your credit is going to be loans from shareholders.

Your loans from shareholders are going to increase for everything that you paid for personally. You do want to treat that as a loan from shareholders. You want to charge interest on that loan. The reason for that is it makes it a bonafide loan in the IRS’s eyes. Whereas if you just put money in, don’t charge interest on it, don’t issue a 1099-INT for the interest. They can consider it a capital contribution. Then when you go to pay yourself back from those loans, it’s dividends at that point.

Toby: It’s not horrific. If it’s paying you back on a loan, like I put money into a company in exchange for shares, it can redeem me at that same amount and not be taxable, necessarily. But what if it’s short-term? Let’s say that this is the case. Hey, I did a course, I paid for it. The company doesn’t have any money. Can’t it just keep it as an IOU?

Troy: Absolutely. You can have a revolving line of credit.

Toby: You just say, hey, it’s that. And it’s over $10,000, you have to charge interest. If it’s a small amount, you might be able to get by, but make sure that you’re doing something to bring it current, at least on an annual basis.

A guy like Troy, you can be a summary for this, he looks at it, he wants to close your books up for the year, and they see a bunch of IOUs, they’re going to book it into a shareholder loan. They’re not going to let it just sit out there as an IOU. They’re going to say, hey, it looks like the company owes you $5000, that’s a loan. Let’s charge interest, let’s get you some paid interest on it, and that makes it simple. Does it have to be treated as a loan?

Troy: In the books, it’s still going to be treated as a loan. Even if it is a small amount, you’re going to put it as two loans to shareholders until you pay yourself back.

Toby: Yup. How about during the year?

Troy: Same thing, you’re still going to book it to loan from the shareholder.

Toby: If it’s an IOU, it’s a loan. It’s a liability of the company. It would be an asset to you as the shareholder.

Troy: Like you said, Toby, if it gets to $10,000 or above, we recommend that you do a promissory note, set up the terms of the loan, I’m going to pay it back over X amount of time at X interest rate, and you can set the terms of that. You just don’t want to have it be lower than the IRS’s blended average rate, which is crazy low.

Toby: Yeah, it’s probably about 3% right now, maybe even less.

Troy: It’s less, 1.3% I think.

Toby: Federal AFR?

Troy: Yeah.

Toby: Every quarter, they put that thing out, and it is really, really low. Here’s an interesting one. Somebody’s responding to the question that we just asked. I’m going to go back to the two tax attorneys. They said, “Is there a particular form to file to declare a disregarded entity using an EIN?”

Troy: Not really.

Toby: You’re just letting it know that it’s disregarded on your SS-4. Is there a particular form? Your SS-4 when you’re requesting. If it’s a partnership and you’re changing it, then it would be an 8832. All right, we’ve done this fun stuff. I’m going to see if there are any questions related to accounting here. Nope, we’re good.

All right, lots of questions going on in the Q&A, which again, I invite anybody that’s on to ask questions now we’ve had a few hundred more people pop on since we started. We have Cindy, Landsey, Kiera, Trisha, Blanca, Dana, Eliot, all answering questions. You have everybody from tax attorneys, CPA.

We have a bunch of bookkeepers answering questions. This is all today about bookkeeping. We’re going to end up doing some tax stuff, but we love to do the bookkeeping because Troy here is head of our bookkeeping department. All right, let’s get into some more fun questions.

“What is the best way to record/handle reimbursement for business expenses that were charged on the owner’s credit card to avoid giving the IRS concerns about the legitimacy of the business?”

Troy: It ties into what we were just talking about. Again, you would want to submit those charges that were business related on a reimbursement sheet. What you don’t want to do is you don’t want to put that credit card that’s in my personal name on your company’s books. That can be looked at as co-mingling.

Toby: It is your credit card, it is your expense. The easiest way to think about this, if we just do a timeout, you always pretend you’re working for the man. I’m working for a big Fortune 500 company. I’m working for Bill Gates. Bill calls me up and says, get some Krispy Kreme donuts on your way to the office, and I use my personal credit card. It doesn’t pierce the veil. Microsoft is not going to be in trouble. It just needs to reimburse me, and it needs to reimburse me personally, and then I pay for my credit card.

Some people would actually have the company, and the company might just say, hey, Toby, let me just pay off that credit card. They could write a check directly to my credit card. It’s treated the same. It’s a business expense that I’m getting reimbursed for. I incurred it.

Here’s the expenses I paid for personally, please pay me back. It is not reported on your 1040. It is not reported anywhere on your return. The company now takes the expense. It’s actually pretty easy. Is it harder than that? Did I miss anything?

Troy: I don’t think so.

Toby: So don’t worry. The co-mingling is when, like Troy said, there’s no difference between the business and you. There’s no reimbursement. You’re operating out of the same bank account. You’re a sole proprietor.

Whenever I see a sole proprietorship and they lose, by the way, 95% of their audits. Not 9.5%, they lose literally 95%. It’s 94%–95% on average of what they lose when they get audited. The reason being is because it’s all the same bank account. The IRS says, great, prove to me that that is a business expense.

Troy: That’s impossible to do.

Toby: But flip it around. I have a company bank account, I have a personal bank account. I run my personal expenses on my personal, my business expenses on my business, and I have a business credit card and I have a personal credit card, and there’s a clear line between them. Now it’s really easy.

A guy like Troy will back you up and track this stuff on your books, which, remember—I say this for people that are hyperventilating about QuickBooks—these rules existed when we had abacuses. You’re tracking expenses. Now we have software and a lot of other ways. I remember using double entry bookkeeping in a paper ledger with a pencil.

Troy: T charts and all that? We’ve been using the same system for double entry accounting since the 1400s, I believe.

Toby: 1400, so just a few years. Some of you guys remember those days. I think Jeff does. Jeff definitely remembers those days.

All right. “Can I deduct other courses I take that are general business like classes, not specific to real estate investing if they are for the purpose of helping me build my business?”

Troy: It depends. That’s a classic Tax Tuesday answer, right? It depends.

Toby: We never say it depends. Sometimes, maybe.

Troy: If it’s for a new line of business and it’s on an S-corp or a personal return, that might be a little dicey. Maybe not so much on that one.

Toby: But this says general business.

Troy: General business if it’s you’re improving your current lines of business. I don’t see an issue with that.

Toby: And if it was a separate line of business?

Troy: At that point, we would recommend you set up a C-corp for that new line of business to be able to deduct that educational cost.

Toby: There you go. There is a difference between the type of businesses. If it’s something that’s creating a new line of business, you don’t get to write it off. That’s why we can’t write off school. But if it’s something that’s in the wheelhouse of the business itself, then you can, unless you’re a C-corp, which creates a little bit of a difference, because again, it could be so many different things. There could be so many different lines of businesses.

Somebody says, “I might have missed it, but the mileage and expense tracking app.” We will get there, Richard. You don’t even worry about it.

Speaking of not worrying about it, sign up for our next virtual event, the Real Estate Tax and Asset Protection Workshop. My partner, Clint, does a great job in the morning. I do an okay job in the afternoon going over taxes and legacy planning. The next one is on the 15th, and there’s one coming up after that on October 29th. Register now and then you won’t have to worry about it.

Troy: That was a really good segue you did.

Toby: There we go. You like that?

Troy: Right in there.

Toby: Some days. All right. “I have an S-corporation without employees. My 14- and 16-year-old helped me out when needed.” They’re not employees? They’re just being mean. “I’ve been paying them from my own bank account, because I’m confused as to how I should be paying them for the work they legitimately are doing to help my business.

Should I Venmo them from the business account and then issue a 1099, or should they be on payroll even with sporadic hours? What is the smartest tax advantage to pay for the kids for helping the S-corp? Can I reimburse myself for payments I have made to them from my personal bank account?”

Troy: First of all, don’t let these kids talk to my kids. They’re not getting paid for sweeping or whatever they might be doing. Secondly, there are a couple of options here. I am a believer in payroll. The reason for that is if they’re on payroll, if they make less than the standard deduction as employees, they’re not required to file a tax return.

Toby: Whoa. So if they’re on payroll and they make less than $12,950, even if they’re dependent, they don’t have to file a tax return.

Troy: Correct. But the other train of thinking is to do a 1099. 1099 is cool, because you don’t have to pay payroll tax. You don’t have to file the quarterly payroll, annual payroll reports, but then the kids have to file a tax return, and they’re going to pay self-employment tax on the said tax return.

Toby: They’re going to have to file that form, SE, which is about 14.1% of the first $147,000. There’s a little bit of tax. It’s really, really low, though, because we’re talking about teens versus you. If you’re having to pay this stuff out of your pocket, you’re in a substantially higher income tax bracket. Plus, if you pay your kids, have them put money into a Roth IRA or set up a 401(k). If you’re paying them $20,000 a year and all go into a Roth, they’ll never pay tax on that money again.

“For Fed, states are lower standard deduction levels.” All right, so we have standard deduction, so there might be some state tax. Jeff is right. What is typical?

Troy: Typical for what?

Toby: State deductions and standard deductions? What are they, like six or seven?

Troy: Yeah, they’re usually about half of whatever the federal is.

Toby: All right, so there’s a little bit of that. All right. Good call, Jeff. This is probably our Jeff.

Troy: Jeff’s pulling his hair in the padded room currently.

Toby: Yes. He’s thinking, hey, the tax deadline, it’s next week.

Troy: It’s next Monday. We’re going to make it.

Toby: Next Monday, they’re almost through. By the way, somebody’s going to always ask, why would I pay my kids? Because they get, again, tax-free income, federal. I make sure I’m specific to that tax-free income.

Even if they pay a tiny little bit of self-employment tax on it, if I’m having to pay with after tax dollars for things like their schooling, if they go to college, that 16-year-old, again, you’re probably incurring a lot of expenses for a 16-year-old. Let them incur those expenses and have them get paid.

If you’re paying out of a sole proprietorship, by the way, which we almost never recommend, but if you did have another parent here, where we paid the parent and had them pay for the 14- and 16-year-old, then you don’t have payroll taxes either.

Troy: Correct.

Toby: But they would still have a—.

Troy: They still have a filing requirement, but there wouldn’t be payroll tax on it.

Toby: Yeah, and I’ve done both, guys. I’ve actually done this with younger folks, my daughter. I’ve done it both ways. I wouldn’t say there’s one. When you’re dealing with payroll, especially if you have an S-corp and you are doing payroll for yourself quarterly or whatnot, then it’s easy. Just put them in.

Troy: The one downside to doing payroll is you have to do the payroll reports. You probably have to pay someone to do the payroll reports for your behalf. In the end, it probably works out the same. I just don’t like filing an extra tax return.

Toby: I get it, and this one’s easy. Again, you could do your payroll once a year, too. You could advance them on their payroll, which is what you’re doing, and then reimburse yourself, and then run them through the payroll at the end of the year.

I know people that do that, too. Just to make sure that they do have withholding, because there are people that will take draws all year out of their S-corp, and then at the end of the year, they run one payroll to do the withholding on a portion of it.

“How do I not pay taxes at the end of the year?”

Troy: This is the question we all want the answer to, right?

Toby: Yes.

Troy: The answer is don’t make any money.

Toby: Buy, borrow, die. No, I’m just kidding.

Troy: You can pay quarterly taxes. Having good books is key here to know what you are going to owe at the end of the year. It allows you to do tax planning and figure out what my net profit is so I can account for it correctly and, oh, I have a profit of $40,000, maybe I need to go buy some equipment. Maybe I need to prepay my rent, or what are some other examples?

Toby: Before the end of the year, if I want to lower it? You can’t really go beyond 12 months. There are certain things that you could cover that might be expenses over equipment, things like that. I might jam that, but you’re going to be paying taxes. It’s just, I may not want to be surprised.

Troy: Two things in life are guaranteed, right?

Toby: Yeah. When I look at this and I say, how do I not pay taxes at the end of the year? Don’t make income yourself or have enough losses to offset any income you possibly have. If you want to know how to make losses, be a real estate investor, and be a real estate professional, and then you’ll probably never pay taxes again.

If you buy enough real estate, you’ll never pay taxes because literally, it unlocks passive losses. Or do oil and gas. Or make sure you’re giving away a lot of your money. Or make your money through an entity. That way, you don’t need the money, and maybe you live off of borrowed money, off of other assets you have.

There are lots of ways to not pay taxes legally. But at the end of the day, when I read this and I said, hey, at the end of the year, pay them as you go. Make sure you’re doing quarterly taxes. I don’t want to have a surprise.

Technically, your taxes are due on April 15th. If you’re making money as you go, then there might be a requirement to pay them quarterly. If you don’t pay them quarterly, then there could be penalties. You want to make sure that you’re paying your taxes as you go. If you’re a W-2 employee, you’re already getting withholding.

I’m trying to think of anything else that that could be interpreted as. How do I not pay taxes at the end of the year? To make sure somebody else is making the money? Yeah. Don’t just retire.

All right. “We have a three-member LLC taxed as a partnership. The members want to take a distribution each of $100,000. How is that taxed, and how is it recorded in the books?”

Troy: That’s not a taxable event. It’s a distribution. That’s an equity transaction. That’s going to get recorded as a member distribution. Again, that’s not a taxable event, unless it exceeds your basis. The money that you’ve put in versus the money earned, and there are other things that factor in. But for 99 times out of 100, it’s not going to be a taxable event.

Toby: If you were a limited partner in something, and somebody else was on the hook for any debt, and they borrowed and they distributed money out of the (let’s say) a syndication and they distribute more money than you put in, in theory, you could have a long-term capital gains tax on that, the difference between those two.

I put $100,000 in, I get $150,000 out, and I’m not on the hook for any of the loans, then I could have a problem. I don’t have basis. And if I have a return or monies in excess to my basis, that could cause me a problem. But in this situation, when you’re just looking at it, it should not be taxable at all. The distribution of money has nothing to do with the profit. Whether or not you distribute profit, it does not mean it’s not taxable or taxable. It always flows through to the individual partners.

Troy: Correct, via form K-1 on the partnership’s tax return. It’s going to produce that form K-1, and then you’ll take that K-1, give it to your person who does your 1040, put it in there, and you’ll pay the tax there.

Toby: Think it like this. Let’s say this was typical, you’re doing self-storage. You’re borrowing money, you’re levering it, you’re getting rent, all this stuff is getting baked into the cake. At the end of the year, the accountants give you a K-1 that says, here’s what you make, but you take a distribution along the way of $100,000.

The $100,000 is not the taxable event. The taxable event is the numbers that come on that K-1 and say, you made profit of this or you made loss of this. I could take $100,000 out of a business that’s losing money, and it doesn’t make it taxable of taking distributions in this situation. I could be losing money on paper and still taking distributions. Again, we just have to look at what our basis is. It’s so much fun.

All right, next one. I’m reading all the questions, so sometimes I get too distracted.

Troy: Do you need me to jump in here?

Toby: No, I was just having fun.

Troy: Oh, okay.

Toby: I’m always looking for ones that are relevant to something we were just talking about. “Do I have to report taxes if I’m not making any money since I created my entities?” No?

Troy: It depends.

Toby: If you’re not making any money. I don’t believe you have a requirement to file taxes if you don’t make money.

Troy: On your personal return, that’s correct. But if, let’s say Angela has a corporation, she would still have to file a return.

Toby: All right. This is a perfect question for you. “How does the bookkeeping service integrate with the accounting service, et cetera?” I’m assuming they’re talking about Anderson, or we could do it in general, too. “I have a personal bank account and do my personal return. I have a business bank account, credit card, and self-directed 401(k) brokerage account. How does the coordination between platinum members and bookkeeping services work with multiple accounts? How often do we submit info, receipts, et cetera? How does the pricing work?” Troy.

Troy: All right, I’m going to put my salesman hat on here. We work very, very closely in the bookkeeping department with the tax department. We’re like brother and sister departments.

We are constantly in communication going over our clients that are with the tax team, with the bookkeepers going back and forth like, hey, how should I treat this? Hey, this client has X, Y, and Z going on with their books. Here’s a heads up. We work in conjunction with the tax team quite a bit.

The same with the platinum team. We work with them. If we have questions, we’ll ask the platinum team and vice-versa. If they have bookkeeping related things, they’ll ask our department. Should you become a bookkeeping client, how often do you submit info, receipts, et cetera? It depends.

What we like to do is we like to get what we call administrative access to people’s bank accounts and credit cards. That allows us to pull these statements and look at all the different transactions one by one, rather than you having to submit things every single month.

Toby: You can actually pull it, and then you’re going to ask them, hey, what’s this for? What’s this for?

Troy: Correct. Yeah, we’re not going to know what every single transaction is, so we’re going to give you what’s called an ask-my-accountant report, which seems backwards, but that’s what we call it. It’s a listing of, hey, what’s this transaction for? What is this Amazon?

Toby: It’s actually ask-my-client report.

Troy: Correct, but QuickBooks has an ask-my-accountant thing set up already, so we just use that. We’ll send you that report monthly if you’re with our full service team. If you are with our virtual bookkeeping team, we’ll do it quarterly.

We have two different main services. We have full service bookkeeping. That’s where you’re getting monthly financial reports. You’re not having to do a whole lot of the work. It’s very hands-off. All you really have to do is answer questions or again answer those ask-my-accountant questions.

Then we have virtual bookkeeping. That’s quarterly, but that’s a little more hands-on for our clients. They’re having to take their transactions and put them on a Google sheet, which is like Excel, but it’s online-based. Then we take those and we put it into QuickBooks on their behalf to make sure they’re taking advantage of everything.

Toby: Basically, there are different options depending on how involved you want to be. Somebody says, “Do you charge per entity or per hour?

Troy: It depends. Virtual bookkeeping, it’s $995 for a year for the first set of books and then $495 for each additional set of books.

Toby: You could have three companies and you could be getting done with all the bookkeeping for less than a couple of grand a year.

Troy: Correct, for the virtual bookkeeping.

Toby: And you’re getting QuickBooks?

Troy: Kind of. Virtual bookkeeping is, again, you put your info on a sheet, we put it into QuickBooks on your behalf. There’s not a subscription charge, there’s not anything like that. If for whatever reason our client would like a copy of their QuickBooks desktop that we use, we’d be happy to provide it to them.

Toby: You get the P&L on the balance sheet done in QuickBooks, but you don’t have to buy the QuickBooks account.

Troy: Correct.

Toby: Actually, if you knew how that worked, what is it? $50 QuickBooks online per company?

Troy: More than that. Yeah.

Toby: Yeah. So it’s almost cheaper just to do the virtual bookkeeping. That’s why we created it that way. Or you just figure out, hey, how many transactions are you doing? We get to know your business and we discharge you based off of, hey, every year we get together and say, here’s a set amount per month or per year.

Troy: Right.

Toby: Somebody says, “What if you already have QuickBooks?”

Troy: Virtual bookkeeping probably wouldn’t be a good fit for you at that point. What we could do is full service bookkeeping. That’s where we’re using QuickBooks. We recommend QuickBooks online, which we’ll talk about here in a little bit.

That allows us—me as your bookkeeper and you as my client—to look at the same set of books at the same time. Again, that’s more hands-off for our clients. We’re doing all the hard work. The price for that is a minimum of two hours per month at $100 an hour.

Toby: Yeah, so you’re just sitting there. It’s not rocket science. It’s not extraordinarily expensive. What you find is that we’ll try to find something that fits you and to what you want to do, because sometimes people want to do all their own books. They want to go through all the transactions. They just want to give the numbers.

“Here on an Excel spreadsheet, can you guys do the books and keep it in QuickBooks?” Yes. Or we could keep the QuickBooks and you could just give us access to the accounts. Let’s talk about how it integrates because this person says, I have a business account, credit card, and self-directed.

In that particular case, there’s the individual, there’s the business, and there’s a 401(k), all of which would have separate sets of books. And then if you’re the platinum person, it’s you individually. You could ask questions about all three under the platinum service and you won’t be charged anything additional.

The platinum works really, really well when you’re asking questions about certain things. If you have the bookkeeping service, obviously you just say to your bookkeeper, hey, this is what this was for, where should I classify it?

Troy: Correct. Even to add on to the platinum side of things is we have our office hours, where if you have bookkeeping questions and you want the answer to them, you can go there and ask general questions in our office hours.

Toby: How often are the office hours?

Troy: They’re every week, Thursday at 3:00 PM Pacific Time. It’s very similar to this, except we are answering the questions live. We have the Q&A, we answer the questions.

Toby: It’s just for bookkeeping Q&As?

Troy: Just for bookkeeping. Any platinum people or platinum members.

Toby: All right, so all platinum members can pop in and ask all the bookkeeping questions you want, so you can go nuts. I hope that answers your questions. There’s a lot of it.

“Can you please discuss some big picture strategies to help with bookkeeping, automation/AI we should be considering?

Troy: Sure. The first level, I’d say, of automation that everyone should be taking advantage of if they’re using QuickBooks is using bank feeds. What that does is it automatically pulls all the transactions from your bank and credit cards.

Toby: You can download it otherwise, but you can actually give access.

Troy: Correct.

Toby: Do you guys build that into the…

Troy: We do.

Toby: So if you do virtual bookkeeping, we will tie directly into your bank account and it’ll pull the data?

Troy: That’s full service. Virtual bookkeeping isn’t tied to QuickBooks, it’s just the sheet.

Toby: But QuickBooks can have…

Troy: QuickBooks can do that.

Toby: All right. If you’re doing the virtual, then they would download it and just put it into their sheet for you?

Troy: Correct.

Toby: In the full service, again, the pricing is really simple. You talk to one of these guys, and they figure out what you want and how much it would cost, and then you could say, hey, you know what, this is really great. I can actually have my bank account just going, I don’t have to do anything, and somebody asks me the questions and does my books for me, which by the way, it’s easy to do corporate returns if you have good books.

I’ll just be the first one to tell you, return prep, the only reason it’s difficult is because you waited till the end of the year and you gave everything to your accountant, and they’re acting as a bookkeeper and an accountant. If you do your books, everything else becomes really, really less expensive and you’re much more effective because you could actually tell whether you’re making money.

Troy: I can tell you right now that our bookkeepers charge at a lower rate than our tax preparers do.

Toby: Much less, like a third. AI. There were some groups that were trying to create bookkeeping AI.

Troy: I’ve watched presentations from a number of them. They all seem fantastic. Botkeeper is one that I’ve watched a presentation for.

Toby: They’re still expensive.

Troy: That’s the problem. They’re really expensive, much more than hiring a bookkeeper would be for the most part. They’re not going to be able to do the complicated things like a normal bookkeeper would. They’re not going to be able to do HUD statement entries, or if you have a 1031 exchange, or anything like that. They’re not going to know how to do that.

Toby: And they can’t ask you a question either.

Troy: Correct. Like I said, I would make sure that I’m doing bank feeds, and I don’t think we’re there yet for automation, at least at a reasonable price point.

Toby: Yeah, I know. We’ve talked to the different AI companies, Botkeeper was one of the big ones. Basic, one set of books, one company, $100 a month at a minimum, plus all the customization, plus additional. It’s much cheaper to use a human being right now. Maybe that changes at some point.

Troy: Got to watch out for Skynet, I suppose.

Toby: Skynet. All of a sudden, it says, ahaha, I’m going to mess with your books, and it starts filing returns for you.

“What is the best way to keep track of miles and the best software for doing bookkeeping?”

Troy: Let’s start with the miles. There are two options in my opinion. The best, MileIQ. I think they’re pretty good.

Toby: I like MileIQ.

Troy: Reasonably priced as well. I think it’s $5 or something like that.

Toby: Swipe left or swipe right, depending if it’s business or personal. If I have a home office, and I have a work office, and I put down that those are two separate work locations, you don’t have to track it anymore. You drive between your offices. It’s tracking it as a business expense. That actually works. That works for the IRS purposes.

Troy: It works really well. The reports they generate are really good. Then the other option for that is, there is a mileage tracker within QuickBooks that works reasonably well, but I would recommend MileIQ.

Toby: I like it. “What was the name of the miles tracking?” MileIQ.

Troy: Patty, put a link in chat boards.

Toby: It’s an app you get on your phone, your iPhone, or your Android. MileIQ, it’s really easy. It tracks you. It’s using GPS. If you drove here, to here, to here, and you stopped, it knows that you did three separate trips and asks you, was this one personal or is this one business? How do you want to do it?

You swipe left or right. It gives you a list when you drove to here, was that business. You can just swipe, swipe, swipe, swipe, swipe, swipe, and it tracks it for you. Then if it sees that you’re doing the same trip over and over again, if you’re driving between two offices or you’re driving to one of your rental properties or whatever, […]. I use a software called timr. It tracks everything, including mileage.

Troy: I’ve used that one.

Toby: There’s another person saying timr. Paula, was it easy to use? Are you happy with it? How much is it, by the way, Paula?

Troy: I like MileIQ because I missed the boat on Tinder and all that, so I get to do the swiping.

Toby: You missed the boat on Tinder. What’s that?

Troy: I wouldn’t know.

Toby: Just kidding. All right, it’s about a hundred a year. Maybe a little bit more than MileIQ, but it sounds like it does everything. We got to take a look at that one.

Troy: All right. We’ll check that out. And then the other question, best software for doing bookkeeping. There are thousands, and thousands, and thousands of accounting softwares out there. Most of them do a pretty good job.

I am partial to QuickBooks online. I grew up on QuickBooks Desktop. That’s what I learned on, so that’s what I was partial to, but they’ve come a long way on QuickBooks online. That’s what we recommend. That’s what we use here at Anderson, QuickBooks online for all of our clients.

Toby: That’s the big one here.

Troy: The cool thing about that is if you do run into an issue like, I don’t know how to do X, Y, and Z, you’re not the first person to have that issue. There are forum posts, there are videos, there are all sorts of stuff out there to help you out.

Toby: Again, most major firms are probably using QuickBooks. The same thing like most major firms are going to be using CCH. There are certain things that you’re going to do. QuickBooks online has great tech support, so we’re getting live commentary from some of you guys.

It’s a behemoth. If you don’t have to learn QuickBooks, don’t learn QuickBooks. It’s set up to be very, very robust. It has features that you’ll never use. Let somebody who deals with it every day use it. That’s what I would say. That’s what I figured out because I used to mess around with QuickBooks all the time. Then I realized, ah, let’s let somebody who knows QuickBooks use QuickBooks.

All right, MileIQ, timr sounds good. Somebody says, “They set up projects so I can track my time for everything, and it gives great reports.” That’s for timr and QuickBooks. We have three things that we could say.

“Does Anderson offer small business or real estate bookkeeping services?”

Troy: If we didn’t, I wouldn’t have a job. Let’s hope that that keeps going.

Toby: I’ll tell you that Anderson started in the 90s. When we first started out, we didn’t do tax, we didn’t do bookkeeping, we would work with other accounting firms, and you just realized you’re pounding your head against a wall. You have to have people that are aligned with what you’re trying to accomplish, to your philosophy, your values. All that stuff comes into play, and we expanded.

I want to say it was probably 15 years ago that we really started to expand in earnest into the bookkeeping side. It’s always just tough to find good people and train them. It takes probably about a year-and-a-half to really get somebody up to speed. People are always like, why don’t you just hire more?

Troy: It’s not that easy.

Toby: Yeah. It’s hiring competent people that are trainable, and it’s way harder than you realize in this world.

Troy: And you really don’t know if they’re going to work out until they go through at least one big tax deadline.

Toby: It’s hard. Everybody’s in the same situation. Most accounting firms, we had to shut off incoming for a long time this year, probably for about half the year. We have to be very careful about who we let in as a client because we want to make sure we can service everybody.

You get people that yell at you for not allowing new clients. You get people that yell at you because in their minds, you didn’t respond within 24 hours or something like that. It’s always a delicate dance. But yes, we do offer those services when it’s available. If you can take advantage of it, take advantage of it because it’s shut down quite a bit.

I know you’ve done a fantastic job expanding your staff. There are about 500 of us here, if you didn’t know that. A big chunk of them are in bookkeeping and tax.

Troy: We’re about 10% of the company. Just to touch on that, real estate is our bread and butter, but that doesn’t mean we can’t do other things as well.

Toby: The only one that was really crazy for us was crypto, where we used to stay away from crypto because there was no guidance on it.

Troy: Correct. If it’s just investing in crypto, that’s one thing. But if you’re doing mining, day trading, or staking, that’s a different story.

Toby: I just had one last night, it was a Ponzi, and they allocated a ton of money to the individuals the year before the Ponzi. They have all this income. The receiver and the government had nothing that they could do about it. The Ponzi usually is deductible in the year of discovery.

These poor folks are going to get killed in taxes one year for mining, and then the next year, they’re going to have a big fat loss, and it’s capital loss in nature. It’s just, oh. I hate it when stuff like that happens. You just look at it and go uh-yoy-yoy. Anyway, these guys do a really great job on real estate, which is its own little world, because there are all sorts of different nuances there.

“I’m trying to figure out how to properly log and transfer funds from the property LLC to the holding LLC and vice versa. I found a video that Clint made that outlined how payments of rents and expenses are structured, but there wasn’t anything on: (1) how to capture my personal mortgage loan into the property LLC and then to the holding LLC, (2) how to record all transactions from the property LLCs throughout the year and distribute to the holding LLC for tax filing.” Let’s go over both of those.

Troy: Okay. Let’s start with how to capture my personal mortgage loan into the property LLC and then to the holding LLC. I guess you would just record the mortgage as a liability on the company’s books. As long as the holding company or the LLC was the one who owned the property, I wouldn’t have an issue.

Toby: If I’m the individual. I think what they’re saying is I have a personal mortgage loan. Maybe they either borrowed against the property itself. You have a rental property that’s now transferred into an LLC but it was your mortgage, then that’s a company obligation. But what if it’s your home and you mortgaged your house to buy an investment piece of property?

Troy: Got it. At that point, it would be a capital contribution. You wouldn’t record the loan on your company’s books, it would be a capital contribution at that point. It’s an equity transaction.

Toby: Yeah. I bought a piece of property that’s in there. I’m paying interest on it on behalf of the company. The company is probably reimbursing me and capturing the expense itself, saying, hey, I paid the interest. It’s not you. We ignore you. It’s an investment expense that I’m going to show on my Schedule E, which is going to allow me to take that deduction against my rental income if it’s real estate.

How about recording all the transactions from the property LLCs? Let’s say I have 10 properties going to a holding LLC?

Troy: What you want to do is you want to set up classes.

Toby: This is probably the most important thing. I’m just going to stop you there because when you have QuickBooks and you have multiple properties and you have an accountant that says, let’s do a partnership for each property (which a lot of them do, unfortunately), you have a set of QuickBooks for each property. That’s $50 a month right there just for the license for the software, not even opening it up and doing anything with it.

The hard part is that for each one of those properties, then you have to close out the previous property, go to the next one. You’re going to have to do that every month. If you have 10 properties, at least 10 times.

Troy: It’s a lot of work.

Toby: It’s a lot of work.

Troy: Like Toby’s saying, for each tax return that you file, you need a set of books. But if you have entities that are disregarded to a holding company, they can be within one set of books.

Toby: And that’s where you have classes. I have the holding entity—ABC LLC—let’s say it’s a partnership, and then I have 10 LLCs beneath it that hold a variety of properties. Let’s just say 10 properties. You’re going to have 10 classes on one set of books, and it’s all going to flow up.

From a tax standpoint, it doesn’t matter. The mortgages can be paid out of the parent. All the rent could be received by the parent. You’re allocating it to the subsidiary or to the sub LLC. Or if it’s an S-corp, to the QSub, or however you’re structured.

Again, we’re trying to make it as simple as possible from an accounting standpoint so that we’re getting one return to track all that. Recording the transactions becomes, hey, in theory, it went through one of the LLCs that holds the property up into the holding. And that’s how we’re going to paper it. In reality, your property manager paid the holding. Super simple.

Troy: With those classes, it allows you to see how each different property is doing, how the profit is for each and every property, and lets you make decisions like, oh, why isn’t this property doing as good as this one? Did I advertise it better? Do I have a better renter? Is it a better property? Having books that are classed allows you to do that.

Toby: That becomes really, really important, guys, is to break that thing down so that you can see how your properties are doing.

Troy: And then in addition, that’s how it’s reported on your tax return as well. Each property is going to get reported separately. You don’t lump it together.

Toby: This is a good one. Somebody says, “I own a beauty salon in three rental properties. Can I do them all together?”

Troy: You can.

Toby: By the way, if I have three rentals and your beauty salon is the tenant for each of the rental properties, you can group them all together as one activity.

Troy: Again, you’d want to use classes for sure.

Toby: But if there are two different businesses, you’d have your rental properties on one, you’d have your beauty salon on another, but it would flow onto your return. Unless the beauty salon is a C-corp, in which case, then it would be on its own. But yes, you could get it to where you’re doing it. “Where do we watch these classes, and what is the name of the class?”

Troy: Class is just one of those things that accountants like to say to confuse the average Joe. That’s just a term that means a bucket for each LLC or property.

Toby: Somebody says, “Are you familiar with the Nevada Series LLC? Would this work well for four unrelated businesses under one holding company?” Not really, unless the series LLC was flowing into a C-corp, then maybe. Otherwise, a series is a separate business for each one. It doesn’t matter whether it’s the series or just four LLCs.

Troy: I think you could do it. Is it a good idea? I don’t know.

Toby: It depends on the business.

Troy: Yeah, it depends on your structure. It depends on the business.

Toby: Somebody just asked, “Is everything under the same LLC with the beauty salon and the rental properties?” Hopefully not. We want to make sure that those are separate or different types of business.

All right. If you like this type of stuff, and you’re already starting to say, you know what? Where do I find out more, head to our YouTube channel. This is actually pretty fun.

Let’s see, “I own three different service companies. Can I bring them under one roof and do classes?” Yes. If you create a QSub and there are subsidiaries of one main company, you absolutely can.

It’s what I like to do, by the way, especially people that have franchises. You might have three restaurants and you really want to do three tax returns on three different restaurants, or do you want to consolidate them? Yes, you can absolutely do it to where it’s one set of books. You can break out each location, but it’s so much simpler, especially if you’re sharing employees and things like that. It’s so much simpler.

Troy: Having good books is key there when you’re doing that, though. Otherwise, it becomes a jumbled mess. You definitely want to make sure you’re at least discussing with a professional bookkeeper if that’s your case.

Toby: This is scary. We’re actually right on time.

Troy: I think that’s because of me? Because I’m here. Usually, you and Jeff just gallivant for an hour-and-a-half.

Toby: It could be. I own that. All right. If you like this type of stuff, you can go in and watch the old videos. This is not doing it justice. If you go to the YouTube channel, you’ll see probably a few hundred videos. You can do that.

“The other young man misses his name.” Nancy, this is Troy here, and Troy’s doing a fantastic job filling in for Jeff, because Jeff is losing his mind during tax season. No, I said to the accountants, work on your returns. They’re behind the eight ball. It’s always tough. I said, let’s do a special event on bookkeeping, so you had bookkeeping all day. I can already see they’ve answered a ton of questions. There are still 44 questions open.

Troy: Answered 190, though. That’s pretty good.

Toby: Cindy, Landsey, Kiera, Trisha, Blanca, Dana, Eliot, Ander, Matthew, and Patty, are sitting there popping these things out for you guys doing a great job. If you have questions over the next couple weeks, you can email us at taxtuesday@andersonadvisors.com. We never charge for this.

You can always come in and visit us on the web. Some people are giving you kudos there. “I love this segment on bookkeeping.” There’s something. “When was the announcement of the special event for bookkeeping?”

Troy: Welcome. You’ve made it to this special event.

Toby: Yes. This is a special event. This is it. This is always fun. We love these guys. “You’re going to be done on time tonight?” Yes, we are and probably because of Troy.

Troy: You’re welcome.

Toby: Yes.

Troy: Hey, if you guys have additional bookkeeping-related questions, like I said, come out to bookkeeping office hours, Thursdays, 3:00 Pacific Standard Time.

Toby: That is for you, platinum folks. You could ask all the questions you want, there’s no cost for it. People always trip out as part of your platinum membership. If you don’t know what your platinum membership is, reach out to us. We’re happy to explain it to you. It’s $35 a month. You can ask all the questions you want, talk to attorneys and accountants ad nauseum.

We just love making sure that you guys are on the straight arrow and doing things right. Because if you do it right, then you don’t have to sweat. Plus, it’s usually in your best interest.

What we’re going to do is end Tax Tuesday, but we have people answering questions, so we’ll keep on. If you have a question that’s waiting to be answered, you just chillax. They’ll get to it. They’re answering as fast as they can. But Troy and our ugly mugs, we’re going to get off of here and let you guys go enjoy the rest of your evening. Thanks for joining us. Do you have anything else?

Troy: Nope. I think that’s it. Thanks guys.

Toby: A big, special thank you to Troy. We will see you guys in two weeks.

Troy: See you next time.