Tax Tuesday Episode 130: Joe Biden Tax Plan

Toby: Hey guys, it’s Toby Mathis.

Jeff: And Jeff Webb.

Toby: And you’re listening to Tax Tuesdays. Welcome to Tax Tuesdays where we are bringing tax knowledge to the masses. I guess I should actually say that. There’s a whole bunch of questions already. Somebody says, “Is there any audio?” Apparently. Hopefully guys you can all hear. If anybody’s having trouble hearing, or they won’t get to tell me, would they? I’m not going to ask. Hopefully, everybody can hear.

“Will this be recorded?” Yes. There’s a bunch of other questions, but we won’t worry about it. Let’s just jump right on in. “What is Tax Tuesday?” First off, happy Thanksgiving week. Jeff just correctly noted that it is hump day today, if you are not having to work on whatever it is.

Jeff: Thursday and Friday.

Toby: Thursday and Friday. So it’s hump day. I’m brain dead at this point. Ask live and we’ll answer questions before the end of the webinar. Especially today, we’re going to ask you guys to work with us on this since we’re going over the difference between the current tax laws and the proposals that have come from Biden. I guess you’d say President-elect Biden. I don’t know if you’d say that yet. No matter what you say, somebody’s going to be yelling at you, so Biden camp versus Trump camp as far as their tax policies.

It’s really easy with Trump because he didn’t make any. He just said, status quo and I see one in every reduced to middle tax burden. Other than the payroll tax, he hadn’t really talked about too much. 

Send in questions to Tax Tuesday to Anderson Advisors. We answer quite literally hundreds of questions every week, and we get inundated. You guys just keep doing it, it’s fun. If you need a real detailed response, you need to be a client. You need to be a part of Platinum portal, you need to be a tax client. One or both. This is fast, fun, and educational. We want to get back and help educate.

We do have opening questions and what are the differences between the Biden and Trump tax plans. And what should you do before the end of the year if you’re worried about tax increases. I’ll let you guys know. I was teaching a class about two weeks ago. That was really well. I was getting into a little bit of the comparison on Trump and Biden, but I didn’t get a chance. We’re too short. But I had mentioned a couple of the proposed changes by Biden. 

A guy wrote me about a one page letter, telling me how a partisan I was. Just giving me this big old, hey, you should let somebody else talk if you’re going to give a partisan discussion. I went back and listened to myself. I was like, all I had said was this is what Biden proposed and when I explained what passed in 2017 under the Tax Cuts and Jobs Act, which apparently, I didn’t specify that Trump was president and that he doesn’t make laws, but the Congress has passed it. They want me to blame him for something. Anyway, it was just really wild. 

I know some of your guys have some triggers on this. Try not to be too much in if we say Biden or Trump. We’re just giving you facts. I don’t want to be supportive on either side. I’m just going to tell you what the numbers are. Then we’ll go over what should be done and what can be done before the end of the year if you’re worried about the tax increases because there is a candidate that I had tax increases as part of their platform and one that didn’t have much on the way of tax, but who’s saying that they wanted a lower taxes. We’ll go over these. 

Let’s go over some of the questions real quick. Here’s a few. We have Elliot on, we have Tavia on, we have Piao on. You have a couple of tax professionals, bookkeeper. I know we have Patti roaming around out there, you and I. Tavia, Patti, Elliot, yup, there we are. You’ve got a bunch of people that are able to answer your tax questions while we’re going through this as well. I am going to be reading some of these out and Jeff and I will answer as best as we can.

Somebody says, “Can you compare Solo 401(k) with Checkbook Control versus IRA with Checkbook Control?” Ryan, real simple. A Solo 401(k), you can contribute more. There’s an employee side, there’s an employer side. They’re not the same limitations as far as income that exists with traditional IRAs. There are some businesses that simple IRAs and SEP IRAs. The biggest difference comes day in and day out is that an IRA always has to have a custodian. IRA is also subject to something called Unrelated Debt-Financed Income. If you have a loan in an IRA, you’re going to have tax consequences most likely.

That same is not true with a 401(k). In a 401(k), you can be self-trust deed. People with IRAs oftentimes will put together an LLC inside the IRA and they call it Checkbook Control because the LLC allows them to write a check. That covers the custodial issue, though what it doesn’t ever cover is the UDFI issue. That’s always a big one. Plus, in an IRA, it’s an individual account. Mom and dad have IRAs, they want to have Checkbook Control. Guess what they’re doing? Each either having an LLC or they’re going to partner up and try to do it that way. Whereas in a 401(k), you could have one LLC for the plan and it could have both mom and dad without any issues.

I’m sure there’s a bunch of others that we could dive into. I was giving you the 10,000-ft view. Somebody says, “I wanted to ask a question about capital gains tax in some of our property. I want to open an IRA and reduce my tax liability and pay less capital gains tax. What will I need to do to protect my money received when the house is sold?” Roxanne, they’re not really related to each other. It depends on what type of capital gains you have, but if those are long-term capital gains and any capital gains, you can’t fund an IRA without active income.

Jeff: No, you’re going to have to have earned income to fund any kind of retirement.

Toby: Yeah. Usually, with real estate, there’s a question as to whether it’s your personal property, whether it’s rental property, whether it’s an investment property, because if it’s an investment property, you can 1031 and defer the liability indefinitely. If it’s personal property like your personal residence, then it has to be a primary personal residence that you lived into in the last five years. You can avoid tax on single to $250,000, married up to 500,000. If it’s a flip, it’s something entirely different. It’s not even considered real estate. It’s considered inventory. There are all little pieces there. 

“Are solar income tax credits likely to go back up? They were on a sunsetting trajectory?” Yeah, they’re down to 26% income tax credit on solar and they’re still going down. I figure that’s what it is.

Jeff: Yeah, but I think we’ll probably get into that. That’s one of the things I see under Biden, has actually going back up.

Toby: I do, too. I think that Biden is showing, at least verbally, he said he wants to promote alternative energy. 

Somebody says, “It’s awesome that you answered the question. It is a rental property.” Yeah, Roxanne, I’ll probably do a 1031 exchange on that. If you don’t know what that is, I’m sure the guys will be happy to enlighten you on it. It just means that I can trade it for more property of equal or greater value. It doesn’t have to be one property. It could be 2, it could be 10. It can be whatever real estate as long as you’re replacing the value.

Somebody says, “Changes to SALT, will it happen?” One of my guys is responding. It depends on who gets to the Senate. Before deadlock, it’s going to be really tough to get rid of stuff. But I don’t want to get rid of it. I think Biden wants to get rid of that state and local tax, and right now, it’s capped at $10,000.

Jeff: I’m fairly certain that SALT is not going to get more beneficial to taxpayers. If anything, it’s going to get worse.

Toby: You think so? I don’t know. I thought that Biden might want to—

Jeff: I can’t see him doing it, because it tends to benefit people that have more wealth.

Toby: That’s true because he wants to raise taxes to anybody over $400,000. It seems to me like if you’re in Connecticut, New Jersey, New York, Maryland, California, you’re probably paying over $10,000 just in your property tax.

Somebody says, “Toby, you mentioned that if I live in a property during the last five years, I can write off $250,000. However, I am one of five joint tenants on the property. The write off is still $250,000 or $50,000?”

Jeff: Joint tenants. It has to be your primary residence and you have to own the property. If you own it in joint tenancy, I don’t think that’s going to work. I don’t think you’re going to get that exemption.

Toby: I know for certain that it’s going to be the $250,000 for the property unless you’re married to one of the joint tenants. Husband and wife owning joint tenants, they’re considered the same owner, but in that particular case, I need to look at it. That’s really interesting. I have a feeling that you’re going to be limited to either a proportion or not eligible at all because you have to be the owner and you have to have lived in it two of the last five years, primarily in that. It’s that ownership hurdle that throws us off. Elliot or Piao, if you guys know that, chime in, please. It’s right down there. I’m curious.

Somebody else says, “Biden wants to eliminate the 1031 exchange.” Let’s jump into this. As of next year, we’re going to start doing these with videos so you look at Jeff’s and mine’s smiling faces, so you’re not just looking at an empty screen sometimes. We’ll move over to the Zoom platform like all our other events and we’ll see if we can figure that. 

“Some people need a civics lesson.” Yes, they do, Mark. You’d be shocked. I actually wrote the guy back and it was not very nice. Some people are just very partisan and I said, I didn’t blame Trump on anything because he didn’t pass it. Technically, it was congress that did it. I said if he had given us any proposals, I wouldn’t have to prop it up.

Jeff: Presidents get credit and blame for things that they have nothing to do with all the time.

Toby: Yeah. We have a system whether they’re supposed to have gridlock. “Joint tenants is amongst the five siblings or a 20% owner.” It sounds like you might be tenants in common, but maybe you’re joint tenants. I think you might be eligible for a portion, but I’d have to look at it. [00:10:57] to the opportunity zones, I didn’t hear anything on the opportunity zones, but we are going to jump into a bunch of other front stuff first.

Numero uno, which I’ll go through each of these and Jeff will just pontificate on these because there’s a whole bunch of little changes out there. The biggest difference is, and since Trump really didn’t put anything out and you just know that most of this was put out by presumptive President-elect Biden, is it fair to say that?

Jeff: They had started to transition.

Toby: I would say President-elect Biden then. If some of you guys are out there that are conservatives are going to flip out at me.

Jeff: Mr. Trump has not conceded but he did authorize the transition to start yesterday. 

Toby: Yup, the GAO. It’s always nice when he finds out that they’re threatening her dog. That’s not very nice. If you threat somebody’s animal, you’re just not a good human being at that point. 

All right, let’s talk about tax plans. The first one was an additional payroll tax on high earners. I’ll go over how this works, but it’s just basically understanding that there’s two pieces to payroll taxes. There’s the old age, disability and survivors, also known as Social Security, and there’s Medicare which is a medical catch-all. Medicare never goes away. It’s taxed in every dollar you earn, income you make.

If you have OASDI, it phases out this year I think it was $137,700. And then it comes back. What he’s going to have to do is come back. I’ll show you guys how that works. This is going to increase income tax and high income individuals, specifically anybody over 400,000. He proposed an increase to the capital gains rate by basically taking away the 20% bracket for folks that are making over a certain dollar amount, being that a million dollars. And then he wants to tax wealth generally.

He hasn’t really shown us exactly what he’s going to do. He’s talked about letting the estate tax sunset back to the $5 million. If tax sunsetting the $5 million, they talked about an annual wealth tax, but it sounds like they’re open to anything to hit the higher-end folks, and then they want to increase the corporate income tax rate. Right now, it’s at 21%. They want to pump that to 28%. And then the elimination of 199A deduction. He surely let it phase out. It’s said to phase out anyway. They would just let that die over time. That’s the 20% deduction for passthrough income, so we’ll hit all of that.

Somebody is writing a book on our Q&A again, one of our guys. I can’t even move it. Anyway, it’s funny, you guys would have to see this to understand what I’m talking over here. When somebody writes a lot, it just tries to cram it into a small space so it ends up being a really long question. Takes up half the page.

Let’s go over what the Social Security tax looks like. I’m going to get my little pen out here so I can scribble for you guys, so you get some idea of what we’re looking at. Social Security tax, self-employment tax, whatever you want to call it is this 12.4%. There’s also Medicare at 2.9%. This goes on all dollars. We’re not talking about increasing that at all and we’re just going to leave that alone. What we’re talking about is letting there be a donut here in the middle between $137,700 and $400,000 where the tax is $0 and then that 14% or that 12.4% comes back. This is why it’s important. It’s because employers pay half. If you have employees that are high-income earners, you may be actually increasing that on the employer, right?

Jeff: Yup.

Toby: All of a sudden, the employers are paying a little bit more. Which might be a little surprise to some. Anything you want to hit on that?

Jeff: No. That’s when I actually have less issue with. I don’t know if I would go about it this way. The problem on Social Security right now needs more money. I just don’t know how much they’re going to get with $400,000 and above.

Toby: You’re going to have to address the issue. When Social Security came about, I believe you had about a two-year life expectancy beyond the date of earning your Social Security.

Jeff: Nobody was expected to live to get Social Security.

Toby: You’re talking about a few years tops. Now, that’s how we plan for retirement. A lot more is going out than it’s going in, so we need a lot more in there. Others were married, filing jointly 1040. This is just your regular tax rate. The big area is always fun. This is before the Tax Cut & Jobs Act. We have the Tax Cut & Jobs Act come in and we move to these brackets. You could see there was a big expansion of this 35%. We moved to 24%.

In other words, this was supposedly better for people, this Tax Cut & Jobs Act. What they’re going to do is just take these two and make them 39.6%. Pretty good pump up for just increasing it. That’s over the $400,000 mark. You make $400,000 and below, no change.

Jeff: Not a fan of this one.

Toby: Why not?

Jeff: I like the idea. That’s a huge jump from 32%–39.6%. I don’t think we get much out of it. One of the things I see is more of how we punish the wealthy without us getting a whole lot of benefit from the changes.

Toby: Before, somebody says, “What about all the billionaires that contribute, why are they cutting their own throat?” Because they’re not selling any other stock. The whole big one is, you don’t pay tax until you sell something that’s a capital asset. I always joke about that. Why would they do that? Because these guys aren’t going to be paying any tax anyway. They already have their wealth. They have more money than they’ll ever be able to spend. If they do, they’ll probably borrow against their asset base, which is also non-taxable, so it’s kind of a joke.

This is Chris, “Two part question about a self direct 401(k) where I’m the trustee. Is it possible to contribute fully to my 410(k) this year and cash out a portion of the 410(k) to convert it to a Roth IRA?” Yeah. You would contribute to it and for your employee deferral portion, you have to do that before the end of the year, Chris. And then after the end of the year, but before the business files its tax return, the company would do a 25% of your compensation contribution to the 401(k) and be able to write it off. They can actually contribute up to whatever they paid you, but not deduct it all.

Assuming that we want the tax deduction and assuming everybody’s under 50, that would be $57,000 total between your deferral and the company match. You would want to convert a portion of that to a self-directed IRA. In other words you want to make a portion of it taxable to go to your IRA. You can do that. If you need money to pay the tax and you want it to pull it out of the 401(k), more than likely, you’ll end up having to borrow it. I’m just trying to see, you’d be right on the cusp of being able to borrow out enough to pay the tax on it because the withholding rate would be 28% on a conversion.

Jeff: I think the withholding rate may have dropped to 25%, but I’m not sure about that.

Toby: In so to say, the $200,000 to be able to contribute enough to it or they’re about to be right around there to get your full max contribution. You could borrow out enough to pay for the tax. You can do that. 

Somebody says, “If a husband passes, does a surviving spouse residence get a step-up in basis on half or none?” And the answer is it depends. Community property make any difference? Yes. If it’s a separate property state, then half of the house gets a step-up.

Let’s say we have a house and it’s worth $600,000 and your basis is $200,000. Spouse one, spouse two. Spouse one passes. Then in a separate property state, half of this would step-up in basis.

Jeff: The whole step-up here would be $300,000.

Toby: His share would be $300,000. Only $100,000?

Jeff: The spouse two would be at $100,000. Their basis would actually jump by $200,000.

Toby: Yeah. You’d have spouse one’s basis is $100,000, spouse two $100,000. It would step-up to $300,000, so $200,000 step-up if you’re in a separate property state. If you’re in a community property state, then you step-up to the full $600,000 upon one spouse passing. That’s why it’s funky. That works not just for the house. That works for everything. If you have any capital asset, stocks, everything pops up in value. Hope that makes sense.

All right, let’s go over some of the repercussions of some of these changes because not everybody really grasps what it means when you mess around with tax brackets. You’re saying what does it really mean to me? Let’s just say you are S Corporation and you’re making, I’m just going to use the $300,000 mark. Let’s say you’re making $300,000. Pre-2018, you’re paying a total of about 33%. This is federal, there’s also in your state. 

What ended up happening under the Tax Cut & Jobs Act was you’re a little bit lower than that. Again, we’re just factoring everything in, 19.2 Biden proposal wouldn’t change at all. Where you see that changes is at that magic number of $400,000 and you see a big jump up. The big jump up is what Jeff was saying, what he didn’t like which was you’re stepping from 20%-something to 39.6%. It’s because of this big jump from 32% to 39. You’re skipping right across. This is small compared to the 24%. You’re jumping 15% pretty quickly.

But the big one is that 32%. You just skipped right over 35%. You increased it to 39.6% anyway, but you’re having a 7.6% increase on all the dollars and you could see it planning out here when you’re looking at the numbers. Realistically, these are the big ones. When you’re getting over that $400,000 mark, this is when this stuff really starts to show some pain. That’s without factoring in 199A and some of these other things. Capital gains and dividend rates, this is the big one right up here.

For those of you guys who don’t know, when you receive qualified dividends from a regular company like the United States company, they’re taxed as long-term capital gains. Dividends are long-term capital gains. When you increase the capital gains rate, you’re increasing the tax on your dividends. A lot of people make their living off of their dividends. A lot of the higher income folks that have accumulated stocks, they’re disciplined, they don’t necessarily sell them, they’re going to get hit possibly with this 39.6%. What percentage of people do you think actually get up over that million? Because it’s got to be a fraction of a fraction.

Jeff: Oh yeah. I’d say it’s probably under 1%.

Toby: Yeah, so this is going to have an impact on a very small number, less than 1%. It’s going to be a fraction of a 1%, but they’re going to get hit hard. All of a sudden, they go from this 20%, which really isn’t 20%, because when you get up over this line here, this $250,000, you have something called the net investment income tax, which is 3.8%. You have to act like it’s knocked down to this so it goes up to 23.8%, and now you’re going to be up over 40%.

Jeff: Another place I see this really hurting people is people that have windfall capital gains. They’ve been bought out for something, maybe their stock in the company or something like that. Something that maybe they may not have done normally, where they may be in the higher thousand bracket year after year. We see it all the time that a client now has a couple of million dollars in capital gains and they’re going to get killed with this.

Toby: Yup, then one time deal. This is where it pays to have your friend accountant online because you may be doing installment sales, you may be trying to defer some of these out. Some of you guys are saying, hey, wait a second, this is only on $400,000 and above? Yes, this is the $400,000 line. Anything above this line. It’s not 39.6% on every dollar. It’s 39.6% on amounts above that. We have a graduated tax. It’s not retroactive. On this dollar, you’re paying $0.32 on this dollar. You go above, you’re paying 39.6%. Just so you get an idea.

We have a whole bunch of questions. “Does the capital gains rate of 39.6% apply for real estate sales or just docs?” All capital gains are short and long because short-term is going to be a regular rate anyway. And also dividends. Chris says, “What about the 199A?” They’re talking about letting it expire or putting a fork in it. I think they would have a lot of contesting against [00:24:35] getting rid of it. I think those let it expire.

“On the spouse dies example, is there a difference if a property is owned by joint tenants versus tenants in common?” Somebody says, “I don’t know what the legal terms means.” I don’t think so, because your basis is your basis. The step-up of all community assets, they’re all assets. What we care about is that it’s capital. A tenant common just means an undivided 50% interest. In other words, it’s like I don’t own the northeast part of the property, I don’t have the property. In joint tenants, I own all of it together with somebody. In order to separate it, I’d have to bifurcate it. And a tenant in common, I can sell my tenant common interest. Still just an undivided interest.

Jeff: Have you seen any tenants in common between spouses?

Toby: No. The default is almost always going to be joint tenants with the right of survivorship. Sometimes you’ll see people buy it before they get married and boom. 

“How would a living trust affect the rulings?” It’s not new, but it wouldn’t affect those. It’s the state in which you live. 

Somebody said, “Why not corporate taxes?” It’s interesting you say, what about corporate taxes? The corporate tax rate is going from 21%–28% in theory. Remember, Congress has to take action. Right now, we don’t know who has Congress. We might be a deadlock, it might be Republicans, but the proposals are what we’re talking about. Just remember, it wasn’t even 35%. Corporate tax went up to 39%. They forget that the $300,000 mark was 39%. Yeah, really sizable decrease. You also have these qualified dividend rates. This gets funky.

The reason they’d say this is because you have the 3.8% net investment income tax on amounts over $250,000. I’m just going to draw that in there to make a little line so you guys understand why there’s an increase, but you kind of just see that there’s this huge jump. The reason that there’s this big jump is because of that $1 million mark. You have this big jump because of the $400,000 mark. You see these numbers increase. Again, I’m a business advocate so I’m just going to say you’re going to make it a little bit less attractive to do business here.

“When does 199A expire?” I believe it’s phased out in 2025, if I’m not mistaken. Most of those will sunset in 2025. It’d be gone in 2026. I don’t know. Biden wasn’t exactly easy to talk to before the election on nailing down specifics on tax. They just put stuff out. That’s not a knock. Again, I’m trying to be factual here. I’m not criticizing any candidates. I’m not trying to be partisan. Just saying that there are a few things that we don’t know because it wasn’t like he was a Chatty Cathy on the stuff.

Jeff: I’m not sure even if they control both houses and the White House that they can get that corporate proposal passed. I think it will probably move up, but I’m thinking more along the lines of between 25% and 30% for corporate rate. I don’t see any way that 59% proposals are ever going to happen. It’s too much money.

Toby: Yup. Here’s a funny one. Somebody’s saying, “Hey, there’s something wrong about California. It depends on how a title is held. Joint tenants versus community property with right of survivorship.” There is no community property for the right of survivorship. You either hold it joint tenants, you own it tenants in common or you own it tenants in entirety, which doesn’t exist in California. 

The capital asset is a capital asset. If you’re married and you have a marital asset, the federal defers to whatever the state is holding. I’ll look at it if there is something weird there. I’ve just never seen it. Have you ever seen an issue? Got a lot of clients in California, but we’ll absolutely take a look. If I own stock, my stock base still steps up. I’m not aware of any reason that wouldn’t hold true in real estate, but happy to take a look, Wendy. 

All right, proposal to restore the Pease limitation. This is on automized deductions. They never liked Pease. What they’re doing is looking at phase out. The easier way to look at this is actually a really good accountant did a breakdown on what would actually look like for people and depending what bracket. 

Let’s say that in this particular case, I’m making $1 million a year. You would subtract off the level of $400,000, which is anything above that is what Biden is proposing that we hit. You’d have $600,000. You’d multiply that by 3 which should be $18,000 and you’d subtract that from your total itemized deductions for the year. 

Let’s say that you have $40,000 of total. You gave some to charity. I’d just pay it in local taxes and mortgage. You’d take the $40,000, you’d subtract that $18,000 and that would be your limitation. That would be how much you could take. In this particular case, it’s $22,000. If you’re married, filing jointly, you’re better off taking that $24,800. 

Somebody says, “In a 1031 exchange, if 1031 exchange will be abolished, will this go away from 2022?” We don’t know what they’re going to do. Basically, they want to tax wealth generally. You’re going to see the big ones that you’re going to hear about is the step-up in basis this is going to go away. We’re just talking about step-up in basis and what happens with the house. Those are the things that are on the chopping board. 

They didn’t say this is what we’re definitely going to do. What they said is, hey, we’re going to explore these areas. The idea is that they would get together and decide what’s the most palatable and make sure that they don’t meet a huge amount of resistance. Most times, politics are pretty good about seeing which ones are going to tick people off the most and trying to avoid that one if they can.

What ends up happening is, for people that are making a lot of money, if you had $40,000 of itemized deductions—we’re just using as an example, we’re just picking that out of the air—the $40,000, what is the actual tax benefit? Right now, it’s $14,800. If you put in that Pease limitation, you’re just reducing the actual tax benefit, and you’re reducing to the tune of about $3600 or roughly 30%. It starts to hurt a little bit.

What do they look like together? Individual tax rates are capped at 37%. Under Biden it would be 39.6%. Corporate rates right now are at 21% flat. This is good actually, 28% and it’s still going to be flat. They went back a few years before 2017, which really the Tax Cut & Jobs Act came out at the end of 2017. They went back to 2016 and you told me you could have a flat corporate tax. The only thing I would’ve said is, make it graduated. Don’t have every dollar taxed at $0.28. Have some taxed at 15%, some at 20%, and then 28%. Have it bathe in a little rather than just flat.

I’m still glad that we have a flat tax. This isn’t going to be astronomically hard. Qualified dividends, right now, are taxed a high of 20%, which if you’re over $250,000, you’re really at 23.8%. Under Biden, you would be at 39.6%. You’re at 20% at $250,000 plus you’re at 23.8% at $1 million plus you’re at 39.6% plus 3.8%.

Jeff: 43.4%. That’s insane.

Toby: Don’t candy coat it, Jeff. Payroll taxes, the math ends up being (I’m just going to say) 15.3%, although part of that is deductible up to $137,700. And then it’s the 2.9% thereafter. There is a plus of 0.9% because of the 3.8% or something over a certain dollar amount.

Jeff: Over $250,000.

Toby: Yeah, over $250,000. We’ll say 2.9% up to $250,000 which then goes to 3.8%. And then, under Biden, that would be 15.3% up to $137,700, and then you’d go 2.9% up to $400,000, and then you go back to 15.3% or you go back up to 15.3%. They’re making it complicated. 

Estate taxes right now are at $11.58 million. Don’t quote me on it; it’s pretty close. You have this big chunk. It’s going to drop down to right around $5 million plus in index per inflation. It should be right around $5 million.

Trump didn’t do that. Under Biden, it’s going to back down to about $5 million. And then the step-up, yes. If Biden, I’ll just say no question mark because they said these are the things they’re considering, but that’s just sometimes I wonder whether they’re going to look and come up with some idea again that might be palatable because I think they’d get a lot of… 

Jeff: No. Has Biden talked about increasing the tax rate on estate tax?

Toby: No. He’s talked about letting the exclusion phase down and go out. 

Somebody is saying, “Hey, it’s interesting because Trump’s tax cut caused me to pay more in taxes.” Joyce is absolutely right. When the Tax Cut & Jobs Act came out, I did a webinar called Taxmageddon. They did away with miscellaneous itemized deductions. If you’re an investor, you understand how important those are because that’s how you write off your expenses. If you have unreimbursed expenses as an employee, you didn’t get that. And then they put a SALT limitation.

If we want to be fair, Trump will do bad stuff, the miscellaneous itemized deductions was a big one. In the SALT, that may hold everybody that was in New York, New Jersey, Connecticut, Maryland, where there are high—

Jeff: California.

Toby: California, Oregon. They nailed a whole bunch of people. It hurt. When I look at the numbers of how much tax revenue was brought in, tax revenue off of individuals went up. Some people say, more people were employed and all these other things. I’m just stating the fact. Tax revenue on individuals went up and it went down for businesses. They gave a tax cut to a lot of businesses, which in turn will equal oftentimes more money for individuals. Then the economy did take off. Interesting.

Jeff: Another place that corporations got hurt that a lot of people don’t realize… If your corporation made under $75,000 a year, you are actually paying more tax under TCJA because you had to give up your 15% and 20% brackets to pay that flat 21.

Toby: Really, really bad is no more 15% corporate tax and no more entertainment expense. They got rid of the entertainment expense in businesses. Somebody says, “The elimination of the itemized deduction was the achilles heel.” Yup. Somebody says, “Has Biden made any comments regarding the Cadillac tax and high value health care plans?” I don’t think so. Have you heard anything?

Jeff: I haven’t heard anything about that.

Toby: Yeah. Somebody asked about the opportunity zones too. I haven’t heard anything on the opportunity zones either.

Jeff: I don’t think we’re going to hear anything in regards to health plans until spring court makes a decision on ACA.

Toby: Yeah. We’re going to have to because they don’t know. Again, if you listen to the Supreme Court, they seem pretty open to the idea that they could bifurcate out anything that was unconstitutional in the Affordable Care Act and keep it. That was contrary to what a lot of hundreds were saying about that. Again, if you just apply the principle, you try to keep the portion. You’ll try to strike down portions of the line unless it’s so integrated in the law that it can’t stand on its own. You’re going to try to knock off the portions that are unconstitutional and keep the rest.

The Affordable Care Act, I believe is going to be fine. I’ve been wrong before with the court. You never know. They are the ones that write all the opinions, I’ve just been watching it. 

Somebody is asking, “Will SALT go away?” I don’t know. I don’t think you said specifically. I apologize for not knowing. There just wasn’t a lot out there on it. My guess is that if he’s smart, he’s going to look at his constituency and say, hey, these are the states where there’s a lot of blue and I’m going to take some of the pain off for them. I wouldn’t be surprised if it does become a bargaining ship.

Somebody says, “0.1% over $1 million of income. 1% over 400,000.” Cynthia, that is awesome. You’re actually right. If that was a fraction of 1%. You’re talking about the Biden plan, really the bad stuff, bad for top 1%. There’s a lot of truth in the idea that it’s only really going to hurt people in that big one. But unfortunately, they have a lot to do with what goes on in our economy. It’s always that unintended consequence that I get worried about.

“What should we do in 2020 going into 2021—end of the year?” One thing that I want everybody to consider is gain harvesting. Gain harvesting just means sowing now to incur gain at what we know it is. Say hey, I’ll pay the tax now, assuming that you’re not in the highest tax bracket and you’re going to add fuel to the fire. Especially if you’re married filing jointly and you’re below $80,000, your capital gains don’t go to increase your bracket, but they’re taxed based on your bracket rate. It’s not going to raise your bracket to a higher level, it’s just used for calculating the capital gains.

If you’re at 80,000 or 70,000 and you sell $50,000 of capital gain assets, your tax bracket now, you’re not sitting in the 50 plus 80 or 70. Was that 120,000. You’re sitting still at the 70 for purposes of your bracket, but your capital gains would be partially at 0% and partially at 15%. Right?

Jeff: Yup.

Toby: You’d have about 10,000 at 0 and then you’d have 40,000 of those capital gains taxed at 15%. But you didn’t just pump up a bunch of your tax bracket. You’re not flying into a higher tax bracket.

Jeff: Unless we talk about what this gain is harvesting. If you sell it on December 31st, it doesn’t mean you can’t buy it all right back.

Toby: Yup. You sell now. Let’s just say that you bought a tech company at $100 and it went up to now at $500. You sell it. You have $400 of gain. And then you buy it back. Your basis is now $500. You’re allowed to do that even within the 30 days. The 30 day wash sale rule is only about losses. You may want to look and say, hey, I want to harvest some of my gain and get it back that way. The reason you would do that, especially if you’re on a lower tax bracket, I tell people to do this anyway. Use up, get up to 80,000 if you’re married. Don’t be sitting there at 40,000. They’ll be like, well, I have a bunch of stocks, I have gains. I’m like well sell it, buy it back. Doesn’t cost you anything. You might have a little spread there, but it’s so much less than paying the tax eventually.

Jeff: Let’s say I’ve been playing Corona roulette. I bought a bunch of depressed stocks and have watched them rise back in value to the mark across 30,000 points today. But now I have all these short term positions that have gained dramatically. Is that something to take into consideration?

Toby: I’ve been looking at it. The way I’ve been looking at that, Jeff, is I’d be saying, I don’t want to sell it early and buy it back. I want to hold it for a year. I’d probably just be sitting on it even though maybe it’s gone up a little bit. If you’re really worried about it dropping, then just buy a put through to ensure the drop out of it.

Somebody says, “Why would you not do gain harvesting at a higher tax bracket given the tax rate is going to get higher next year?” That’s what I’m saying, Sam. If it looks like it’s going to go up, and nobody has a crystal ball. I don’t know. What I would probably be doing is saying, hey, if I know that right now, I could pay 15%, I don’t have to worry about it, I’d probably do 15%. If it’s not going to change my lifestyle, I might just lock in my gain at 15%. 

Biden is also only really talking about things that are over 400,000. If you’re over 400,000, you’re already sitting in a pretty high tax bracket. If I could lock in 20% and I’m a really high income person, I might do that so then I don’t have to worry about if 39.6% hit or 43.4%. I don’t want to get hit with that.

Especially if you live in a state that has a tax too like California. You’re not 43%, you’re at over 50%. You’re going to give up 53.4%. That’s pretty painful. I may take a smaller hit now just so I don’t have to worry about it. “But capital gain does increase your AGI?” Correct.

Jeff: It does increase your AGI. But if you ever want to lose your mind, take a look at the calculation of taxes when you have capital gains. It’s a page long mess of about 30 or 40 lines and how you calculate the gains. It’s not as easy as it sounds.

Toby: I think what they’re saying is because they want to make sure that you don’t go above the taxable income on 199A deduction. You may be looking at that. That’s taxable income, you could still offset it. 

“Are capital gains rates for foreigners 15% or 30% if the taxable event occurs in the US?” It’s going to depend on your treaty. The US is going to tax you on that at long term capital gains rates at our rates. It could be 0%, 15%. They do withholding, but you get it back after you pay, you file your tax return, your 1040-NR. A 1040 Non Resident, assuming that you don’t live here. If you live here, then you’re filing your 1040 Resident, if you’re filing your 1040.

This is fun stuff. Roth conversion. Roth conversion, I just want to go over the math with you guys. Actually, I have a slide that I did this. I did not think about that. A lot of people look at it, this is the difference between doing a Roth, this a Roth IRA versus a traditional. All I did is I said 5% growth rate, 2% yield. It’s somewhere around 7% annual cap turnover. 25% ordinary tax rate and 15% capital gains rate. 

I’m just looking and saying, hey, assuming that I’m turning the account over and I have somebody managing it or I’m managing it, I’m selling a few things here and there, I’m getting a decent growth rate, and I’m getting a decent dividend yield out of it. Then, realistically, over a period of years, this is 25 years, this is how much I’m saving quite a bit my doing my Roth because I’m not paying any tax when I take it out. 

In a traditional IRA, it’s a smaller gap, but the one thing you have to consider, this is why it’s fun to do the numbers because I’m getting a tax benefit. Actually, I’m not sitting at the same level. I’m actually starting slightly higher. It ends up being about the same place. If all things are equal—I’m just going to give you guys an example—if I started off with $100,000 that I put into a Roth somehow someway over the years, I contribute it, and I had a traditional. That traditional, I have to have my 100,000. I either subtract the tax hit from my Roth. Let’s say it’s 25%, so 25,000. I actually only have $75,000.

If you don’t want to say I’m going to subtract the tax hit from the Roth because I got no deduction for it, then you would say, hey, you got an added benefit of $25,000 over here on the traditional. You have to factor that stuff in. If your growth is the same, if your tax is the same when you contribute now versus retirement, they are equal. The Roth in the traditional, there’s no difference on the money because you’re getting more bang for your bucket in traditional because I’m saving.

Now, where the traditional is better. If I’m going to give a check to the traditional is better when your tax rate is higher now than retirement. If you are sitting at the 37% tax rate and you’re putting money into a 401(k) for every dollar you’re putting in. When you retire, your tax rate is going to drop down and you’re going to be at the average tax rate for retirees is less than 10%, but let’s just say it’s 22%. Then I’m going to go traditional because I’m getting a $0.37 bonus for every dollar I’m putting in there.

Always consider this stuff. Do the math beforehand. Where a Roth is better, and again, I’ll just make this really simple. Roth is better when you are in a lower tax bracket now than when you retire. That’s why they’re so awesome for young people and stuff. It’s like, hey, we’re just getting started. Get that money in there. Somebody says, “But no one can predict the future tax rate. Then isn’t it difficult?” Yes, you’re absolutely right. That’s why it’s so mind numbing. Everybody that says oh, this is better. I’m always like, well, it depends. If you’re in a really high tax bracket.

Jeff: It’s like the question, when should I start collecting social security?

Toby: It depends. It’s a calculation. Somebody says, “Do those gains have to be around at least a year if you’re going to gain harvest?” No. “Why would you not harvest a higher bracket given that it might go up?” You could. There’s something to be said for certainty. I’m cynical, yes. “For short term gains, is there a benefit to gain harvesting at the 37% bracket?” If I have short term gain, let’s say I have $10,000 and I’m at 37% bracket. The only time I’m doing this and doing my gain harvesting is if I have long term capital losses. I’ll put losses in there. Because let’s say I have long term capital losses, then I have zero capital gain. They offset. Even though long term losses, long term gains are taxed less, this is actually better off.

Jeff: I’m a fan of anytime you have unused capital losses, you should be harvesting any gains that you got.

Toby: Absolutely. You always look and see whether you have any long term losses, see what they are. Because then you could harvest some of your gain. What you do is, again, this is the […]. You say my long term capital losses equal x dollars. So sell short term capital gains equal to x dollars then buy them back. Make sense? Because these create zero tax. They offset each other. I hope that makes sense.

Somebody says, “I consider my Roth to be a hedge against future tax increasing and there is a benefit of not having required minimum distributions.” Yup. I’m just saying from a tax impact, there’s really no difference.

Jeff: Don’t forget, you can actually do both and contribute to the one depending on what kind of year you’re having.

Toby: Something that we didn’t hit here, by the way, was this carry forward NOL. We have folks that pick and choose when they’re going to do cost segregation, things like that. If you can create a loss and you can pick and choose a year to make a loss, do the conversion during that year and take your traditional IRA and convert it into a Roth or your traditional 401(k) and convert it. Somebody says, “If you have a loss in a Roth, does it count as long term or short term?” No.

Wait on harvesting losses. Remember, long term capital losses offset all short term capital gains and long term capital gains. If you have a bunch of losses and you’re in a decent tax bracket this year and you think you’re going to go up. If you’re sitting there and you’re like, hey, you know what, I could take my loss this year but it’s worth $0.22 to me if I wait until next year. Maybe it’s going to be worth more to me, maybe it’s going to offset. Especially if you have some positive stuff coming up. If you have some deals that are going to close next year, then maybe it’s a good idea to say, hey, you know what, I just want to wait on my losses. I don’t want to sell these things at a loss right now, I just want to wait and sell them at a loss next year when they’re worth more to me.

Gifting both form a standpoint of gifting to heirs. Especially the folks that are over the 25 million mark, then we need to talk about getting it transferred to your estate. Because if that 11 million goes away, portability may go away, there’s a lot of things that may go away. You have a huge gift tax exclusion right now of over 11 million. Maybe it’s time you use some of that if you want to get it out of your estate.

The other one is gifting to charity, that goes up to this 100% of adjusted gross income. You can give up to 100% to charity in 2020 under the CARES Act. It’s 100% AGI. If you want to give away a bunch of money, this would be the year to do it. 

Somebody says, “Waiting on using a loss means you have to hang on to the dog and not sell?” Yup, you’re hanging on it. Maybe it comes back, maybe it doesn’t. You’re just sitting on something that’s a loss. I’m not saying for a long period of time. We’re sitting here at the end of November, you’re talking about waiting six weeks to sell it. Just waiting until January and saying, hey, I’ll do that and harvest some losses.

There’s tons of questions coming on. “What about bonus depreciation?” Bonus depreciation is phasing out. They haven’t said anything about bonus depreciation. I guess this is phase out. Here’s charity, two things for 2020 and that is that the limitation went up to 100% and you have an above the line deduction of $300.

Jeff: If you can’t itemize or you’re going to take standard deduction, you can still take up to $300 of deductions on the front of your 1040.

Toby: Yup. You can take the 300 plus standard deduction. That’s a lot of stuff we covered.

Jeff: Yeah.

Toby: Somebody says, “Did you find out if it’s $300 per person or $600 married filing jointly?” Joyce, it’s all over the place. We have multiple sources that say it’s $600 and a bunch of accountants that are out there saying it’s $600. But our reading, my initial reading was it was $300 per tax return. That’s what I believe there was a tax ruling whether […] was given that said it was $300 per return. It’s going to be weird. The answer is I don’t know, and nobody knows. But the treasury says we’re going to treat it as per tax returns. 

The treasury sometimes, they don’t see eye to eye. They just put out another thing on the PPP loans that got Grassley all up in arms again saying that they’re wrong. But they said you can’t deduct expenses taken from the PPP loans. That’s not what the law says and Grassley keeps writing saying that’s not what we meant.

When you have the guy that was chair in the committee saying that’s not what we meant, you’d think they’d actually listen, but now, they double down on it and just put out more guidance. It’s like we don’t care what you thought. It’s what it says that’s how we’re going to treat it. They’re not being too nice. You’d think that they would give us a break, but they’re not.

You guys like this sort of stuff? I’m going to give you guys two things that you could do. If you like tax planning and you want to really dive into the year end tax planning, number one is pop on in, go to this hot link, the Tax Toolbox and get The Tax Toolbox. There’s 200 pages plus of materials in there to help you save tax dollars. 200 pages, hours of videos, I think it’s somewhere around 7 or 8 hours of videos, over 30 videos. You can jump in. You could jump into the Tax Toolbox and grab that and you’ll get in to our December 1st Tax Wise Workshop, all of that, I believe we’re looking at $595 for the Toolbox plus class. You’ll get the recording of it of course. If you want just the electronic version, it’s $495. If you don’t want books, then we just give you that savings because we don’t have to buy it. Makes our life easier, makes your life easier, you don’t have to wait either.

Jeff: But I’m all for nice looking pages.

Toby: I like books. I like to make piles of them, tick my wife off. But there’s lots and lots in here if you like this stuff. I’m also going to be doing something else. Before the end of the year, I’m going to be recording a year end checklist and how to do some year end planning. This year is going to be really interesting. One of the things that we do have in our benefit is that you can actually create a 401(k) after the year end. It used to be you had to have your plan in place before December 31st. You could actually do it after. We still have a chance to do some planning even after the year’s out, but we’re going to be limited to the employer contribution, the profit sharing portion. We won’t be able to defer employee pay for 2020 unless it was in place.

Jeff: And we’re going to need some compensation for that person.

Toby: The figure that year company can match 25% whatever you paid yourself. If you’re S-Corp or something like that and you’re paying yourself $100,000 a year, your company can contribute 25,000 and write it off all the way up until it files its tax returns. That would give us until September 15th. Other things we may be looking at is doing cost segregation. We look at these things carefully, especially in October when we’re making the elections.

I can tell you that there’s some people, I think there were probably 20 people this year where we carved off huge chunks of tax because of the cost segregations that were done in October for 2019. Know that we don’t ever give up on getting some benefits. Some of the things we have to do like charitable giving and things like that, you have to do this year before the year’s out. If you want to pay yourself compensation, you have to do it before the year’s out.

If you want to write something off like extra mortgage payment, you have to do it before the end of the year. There are things like that, but a lot of things we can do even after the year end. Just to give you guys some ideas. There’s a couple more questions and then we’ll get out of your hair. We’re already over but what’s new? 

“If I pull $100,000 from my 401(k) with the CARES Act, am I required to pay it back to the same 401(k) or any QRP?” If it’s the early withdrawal, you can put it into any plan as long as it’s a qualified plan. You can put it into an IRA or 401(k), all that fun stuff. 

Somebody says, “Are Tax Tuesdays every Tuesday now?” Every other Tuesday because we can only love you so much. We have some pretty loyal followers out there and they like to write the things that I say that are whack. They’re like, what about this? There’s a ton. As you guys see, sometimes we have conversations with the people that are out there. We’ll look up the California thing and see if there is any way you could somehow lose your step-up on title. I don’t think there is, but I’m willing to eat crow if I’m wrong. I don’t think there is.

I’ve been wrong before. I’ll be wrong again, I’m sure. We sit here and do enough of these, we answer so many questions. This is being open and inquisitive and willing to listen. “I’d like to take advantage of the CARES Act probation to pull $100,000 from my retirement account before the year ends without penalty. I’m wondering, if there is a benefit to pulling from one type of account over another?” Can you pull out an inherited IRA?

Jeff: I don’t think you can.

Toby: I think there’s a limitation. You probably want to do it on SEP. Somebody says, “Inherited IRA versus SEP.” I think you do the SEP. Somebody says, “Hey, is the Tax Toolbox free for Platinum?” No. The Tax Toolbox is normally $1500. I’m just giving you guys the best deal ever because you guys are on a Tax Tuesday. We just give you the best lowest price. It’s normally $1500. We just say, hey, forget that, it’s $595. And then it’s $495, e-version.

Jeff: People are hitting print screen left and right.

Toby: If you don’t like it, you say hey this was bonk, then I’ll just give you your money back. Make it really easy. It’s kind of weird though if it’s electronics. Just be honest. I don’t want anybody to ever feel like they buy something and then not give them a big value add. 

The way I look at tax stuff, you should be getting about a 3:1 return on every dollar you spend on tax. Whenever you do tax planning, it should be paying you somewhere in the thousand dollar an hour realm. We have people that we blow it out of the water, and some people that are closer. But in any event, if you’re doing tax planning, it should be paying you money back in your pocket. We want to make sure that we’re getting it.

Jeff: What about Tax Wise? That’s December 1st, right? For anybody who’s listening, I am actually encouraging my people to attend Tax Wise because there’s always something new to learn and a lot of good strategies talked about.

Toby: Yes. We’re going to give it a big thumbs up. Jeff oversees all the accountants here. We have a ton of them, 30 plus. So much changes, guys. We always want to make sure that we’re staying up on it. I know right now, I’ve been doing the research on solar. There’s a bunch of cool stuff that you can do at solar. I think that’s going to be going up in using tax cuts and working with charitable organizations. We’re looking a lot on the cost seg plus the accelerated depreciation. We’re going to be going over 280A obviously and also the offices, different ways to deduct your offices. We have over 30 different strategies including how to put $57,000 in your Roth account and that’s using a Roth 401(k). But you can do it. There’s a whole bunch of other fun stuff that you can do. Income splitting, real estate professional status—all those things go in there.

Somebody says, “About the third event.” Look at this, somebody was talking about the third edition of Tax Wise. Nelson, reach out to Patti, she’ll get you a free version, free copy. We’re on version four. 

“Will Tax Wise be recorded?” Yes. 

“Is the Roth 401(k) the same as the Solo 401(k)?” They have different pieces in it, but yes. If you set up a Solo, you can actually have three buckets in it.

Chris, I owe you a document. I’m almost done. Every time I see somebody where I owe him something, I start feeling immediately guilty. I’ve been working on stuff. I want to make sure everyone will get that promise last week. You’ll get it from me.

“When you pay back an IRA withdrawal under the CASE Act, is it considered a qualified tax deduction?” No, they consider it a trustee to trustee transfer. You don’t have to worry about that. And then somebody said, “The CARES loan available?” I’m assuming you mean, Mike, the $100,000 loan that was out of the 401(k). That expired at the end of September 20 something. It was not mandatory for those folks either. It wasn’t mandatory by the administrators. But you can do it for the Solo. That’s gone. It’s still $50,000 and then we’ll see if it comes back.

“What are the three buckets for a 410(k)?” Deferred, undeferred, and Roth. When I say undeferred, non deductible bucket.

Jeff: Yup. Though they’re different from Roth.

Toby: Yeah. A Roth is a Roth but the non deductible portion is where we’re putting money in that we’re not taking deductions for that’s in the standard plan and then we do it in company distribution. We’ll get into all that fun stuff. If you like this sort of stuff, there’s lots of free, go to our podcast andersonadvisers.com podcast. We do record our Tax Tuesdays, you can go out there. 

Somebody says, “What’s the best way to structure a management company?” If it’s management it’s going to be an S Corp, a C Corp, an LLC taxed as an S Corp, an LLC taxed as a C Corp. It’s going to be something that’s an act of business.

“I have real estate I’m inheriting from the death of a parent earlier this month.” I’m sorry, Kevin. That’s horrible. Been going to more funerals than I want to go to and dealing with estates this year. “Will has noted beneficiaries. We’re worried about step-up base elimination.” You don’t have to do anything, Kevin. Because they can’t retroactively change a lot and eliminate your step-up. You’re good.

Jeff: In case it’s like this, I know it’s hard to do it in times like this. But would you recommend getting appraisal on the property?

Toby: I might do it just to lock it in.

Jeff: Yeah. When you do that, you want to make sure you’re telling the appraiser why you’re getting the appraisal.

Toby: “Is there a possibility of blanket forgiveness for PPP and no administration?” Yeah. They have talked about it. But I don’t think it’s the no administration. I think the congress needs to do something. I think they will do something, Ken, before the end of the year. I think that it’s horrible that they haven’t come up with something now. I think there’s lot of companies. 

I was talking to an attorney friend of mine who’s preparing lawsuits right now in Nevada to keep a chain of gyms open. There’s just a lot of action being taken by the governors on its face appears to be unconstitutional. But whatever the case, it’s putting people out of business and people are starting to get really tired of it. I’m not going to pick a side if it’s good or bad. I’m just saying that from a constitutional standpoint, I think that there are some problems when people are talking about your conduct inside your home and putting people out of business.

It seems to me that on the day that they put Costco and tell them to shut down, it’s the day that they’ll start listening about what they’re doing to a lot of these smaller businesses. No offense to Costco—I love Costco. I just think that COVID lives in Costco. Been saying that since it started. I’m like, ever since they ran out of toilet paper. I’m pretty convinced that everybody goes to Costco, it’s always jammed.

Jeff: I’m just glad I don’t have to make those decisions.

Toby: Replays are in your Platinum portal. If you’re Platinum, you get all the Tax Tuesdays rolling around in there. You can always listen to our iTunes, Google Play. Just go to Anderson Business Advisers Podcast. They do a bunch of other stuff on there too. Michael and Clint have been far more active on the podcast than I have. I’ve been doing a lot of the events recently because we’re getting towards the end of the year. We have lots of folks that are a little nervous.

And then also, do stick your head in and join us for Infinity when you get a chance. You’re all invited, and membership is going down to free. We’ll talk about that. You don’t need to do a link. I just made Patti probably have a panic attack because I’ve been talked to. What we’d do is just make sure that you’re going out there and checking out. We have a lot of material to help you guys through these trying times. “Yes, of course, you are doing the advancing there playing on podcasts.” Yes, probably. “Poor Patti.” Yes, Sherry, poor Patti. She has to deal with our nonsense. 

“What is Infinity?” We reversed engineered. We have a lot of clients that do really, really well and we noticed trends with them. We just tell you guys what everybody’s doing that’s making the money. It comes down to real simple strategies. There are about 60 companies that we follow. Paul, if you were charged, they will fix that. There will be no more charge for Infinity for the basic Infinity. There might be a thing where you have to drop down, there might be something you have to click on there. I don’t know what they did. Just go into our website and look at Infinity. You cannot get away from Infinity once you get to Infinity.

It’s Infinity Investing. We teach you guys how to trade. Once a week, we have a trading room open on Wednesday mornings. You can go in there and trade for free with our professional. He goes in there and he shows you exactly how to trade. You can ask him any questions you want. There really is no cost to it. It used to be $100 a month, it went down to $9.95, and now it’s down to free. 

Somebody says, “You have to downgrade the subscription.” Go in there and click on there. Check with Patti if you guys have any issues on it. But it is a great way. If you have young people, if you have anybody that’s a young adult, get them into Infinity just so that they learn the rules on money and how it actually works. Patti will get your email. She’ll reach out, she’ll give you her email. She’s rolling around out there.

The advanced is still $99 a month or $995 a year if you want to go to a bunch of events and have the private placements offered and the more advanced content. We’ll make sure that that’s clearly the one you needed next year for sure because we’re going to have a whole bunch of events. We’re having more live events as soon as we’re done with this pandemic. It’d be great. We’re still livestreaming the live events too. But the whole goal is to get you guys to get cash flow properties and cash flow investments, including in the stock market.

You treat the stock market the same way you treat being a landlord in real estate. You want the asset to grow, but you also want it to kick you enough cash flow that you can live off the cash flow without having to sell it. I hate seeing people when they’re in retirement selling off stuff. I live it because my mom’s always calling me up because she’s in that situation. She’s scared, she doesn’t want to lose money but on the same token, she’s nervous as heck when the market starts to fluctuate. Because she doesn’t want to be in a situation when she has to sell.

Hey guys, we’ll send out the Infinity link to you all after this so that you guys have it. We weren’t going to do one this year, but we will find out tomorrow. I’m thinking that we might do one on December 19th, one more event for the year. I know I said this November was the last one, I’m thinking we’re going to have to deal with all the changes that are going on the economy. There’re so many opportunities floating around out there right now. It’s pretty insane. I want to make sure people get their heads on straight going forwards. Because we have some clients killing it. Jeff, you see their returns.

Jeff: Oh yeah.

Toby: A lot of them do the same stuff. Do you think it’s earth shatteringly difficult?

Jeff: No. I think it’s a little knowledge of what they’re doing and practicing what they know.

Toby: Yup, and patience.

Jeff: And patience.

Toby: Crockpot it. Even really crappy meat is good in a crackpot. Cook it long enough it gets better, right? That’s what we do with the investing side. We bring you a whole bunch of experts including people that put together ETFs, people that put together syndications, everything from mobile home parks to pre-IPO companies. That’s right, crockpot meat.

Jeff: The one with a couple potatoes.

Toby: Potatoes and a little bit of veggies and it looks good. Your stocks, what you’re doing is you’re looking for companies that are kicking off some cash which eliminates a big chunk of them. And then you’re renting them out, it’s a fancy way of saying cupboard calls and we show you how to do it in a very few companies.

Jeff: I was going to mention that. Infinity is not about speculating.

Toby: It’s about cash flow. I buy cash flow. We got a bunch of apartments. What was interesting is the sellers were some folks that had purchased, they were California investors and North Carolina. It was funny because they were going to do a big old rehab on it then they decided that it wasn’t going to increase the appreciation. I could have told them that before they bought it. But the cash flow is great. But that’s not what their investors want. What they want is to buy something for $6 million and make it worth $8 million, and then make their million dollars. Put a million in it and walk away with a million.

I’m like, why would you do that? Fix it up, it’s kicking out cash. You’re going to make a lot more than a million dollars in the next few years if you just let it cash flow. It’s just being able to recognize those opportunities all around us so we’ll be able to make sure. 

Somebody says, “Am I subject to UBIT (Unrelated Business Income Tax),” which is a fancy way of saying active income, “If I’m using self directed Roth funds to invest in a C Corp? And it is an LLC taxed as a C Corp.” You are not if you’re receiving dividends and you’re a passive owner, you are if you’re actually running the C Corp. That’s where you get into this thing called a ROBS transaction.

It’s really hard to be a subject to UBIT if you own a C Corp. Chances are somebody else is running it. As long as they’re not a disqualified person, you have nothing to worry about. If you’re just investing in a friend’s company and you’re not doing anything to help that business along, you’re just an investor, then you’re fine.

Jeff: A good example of that is if you invest in Apple stock, you’re investing in a corporation.

Toby: I believe the PayPal guy did.

Jeff: Elon Musk was PayPal.

Toby: There’s somebody else, but I can’t remember. But they invested through a Roth and it blew up and made millions of dollars. I’ve actually seen a tax case where somebody had a small investment, they put it in a startup and made over six million. The IRS contested it saying that wasn’t intended, it wasn’t fair. Somebody said Peter Thiel. Yup, they’re already getting it. Yeah, that made millions of dollars and didn’t have to pay any tax.

You can do that. You can make a ton of money and never pay tax on it. 

“What tax planning strategies can we use that we just went over today until December 31st?” All the CARES Act. Your 100% AGI is this year only. That’s a big one. Loss carry back is this year only. All of the CARES provisions for early withdrawal from your retirement plans are 2020 only. Trying to think of any at the top of my head. Those are a few, but we can always go through. You can also do conservation.

Pio is doing something weird. “What tax can we use as of today until December before tax season?” Giving, cost segregation, that’s right. But you can make an election next year. Conservation easements, you can do a contributory retirement account, you can actually go after that. If you are deferring your pay into your retirement account, you have to do that before the end of year.

That is it, we’ve done enough. “Can a donation of appreciation stock get the 100% charitable limit this year?” No, that is actually […] 30%. 

“How do I purchase the Tax Toolbox and the class?” I’ll give you guys that link one more time, aba.linktaxtoolbox. If you guys want to jump in. It’s a pretty screaming deal. I can guarantee you this, if you don’t get at least three times your money back, if you don’t get a whole bunch of stuff that saves you money, we’ll give you your money back. You just email me and yell at me. It works. This stuff isn’t magic. Frankly, it’s not even new. It’s just not a lot of people talking about it and you have to do it by doing.

Somebody says, “Hey, are there any cash flowing properties for sale under $100,000?” Yeah. I guess we do. We have a whole bunch. I can put you in touch with people if you want them. The group we work with in Charlotte has over 40 properties, we bring them to our Infinity. The best thing you can do is get into the Infinity group and say that you’re interested and we’ll get you squared away. We buy cashflow. The only thing we ask is that if you do buy cashflow with our folks, sell them back to us if you’re going to get out of them.

Perfect, guys. Thanks for joining us and Happy Thanksgiving. Hopefully you’re able to get through it without too much rough stuff and everybody is telling us not to drink and to get together.

Jeff: Remember only two people at the table at a time.

Toby: Only two people, put a mask on your turkey. God knows it’s the dirty birds. All right guys.

Jeff: Happy Thanksgiving!

Thank you for listening to today’s podcast. Show notes for links to everything mentioned in this episode can be found on our website at andersonadvisers.com/podcast. Be sure you subscribe to our podcast. If you are already a subscriber, please provide us a review of what you thought of this episode.

As always, take advantage of our free educational content and every other Tuesday we have Toby’s Tax Tuesday, a great educational series. Our Structure Implementation Series answers your questions about how to structure your business entities to protect you and your assets.

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