Anderson Business Advisors Podcast
Anderson Business Advisors Podcast
Tax Tuesdays Episode 105: Opportunity Zone
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Did you gain too much on Thanksgiving? Spend too much of your income on Black Friday? It happens. Make better decisions when it comes to your taxes by listening to Toby Mathis and Jeff Webb of Anderson Advisors. Do you have a tax question? Submit it to taxtuesday@andersonadvisors.

Highlights/Topics: 

  • Can you ever do a 1031 exchange for tax lien certificates? No, unless you have a right to own or take title of property; different states have different statutes
  • Are free-and-clear properties taxed heavier? Doesn’t matter if you have a loan against a property, but you don’t have a mortgage interest deduction
  • What are the tax consequences of borrowing money from a private lender and agreeing to pay a fixed percentage over time? You get money to do your development; paying back percentage of interest or profits reduces gain of taxes that you’ll pay 
  • What itemized deductions will be allowed for 2019 returns? Mostly the same as 2018; refer to Schedule A for medical expenses, mortgage interest, and charitable giving
  • What’s the best vehicle to use for retirement without paying taxes on it? Best and safest methods include annuities, bonds, stocks, and real estate 

For all questions/answers discussed, sign up to be a Platinum member to view the replay!

Go to iTunes to leave a review of the Tax Tuesday podcast. 

Resources:

Tax-Wise 2019 3-in-1 Offer/2fer Tuesday Bulletproof

Roth IRAs

Types of Trusts

1031 Exchange

Bonus Depreciation

401(k)

Solo 401(k)

Qualified Retirement Plan (QRP)

Colorado Homestead Exemption

Garn-St. Germain Act

Opportunity Zones FAQ

Opportunity Zone Heat Map

Depreciation Recapture

Capital Gains Exclusion/Section 121

Tax Cuts and Jobs Act (TCJA)

Cost Segregation Tax Breaks!

Form 3115

Section 179

Form 568

MileIQ

Schedule A

Schedule E

Ed McMahon Settles Suit Over Mold for $7.2 Million

501(c)(3)

Section 1244 Stock Loss

Annuities vs. Bonds: What’s the Difference?

Toby Mathis

Anderson Advisors

Anderson Advisors Tax and Asset Protection Event

Tax-Wise Workshop

Anderson Advisors on YouTube

Anderson Advisors on Facebook

Anderson Advisors Podcast

Transcript:

Toby: Welcome to Tax Tuesdays. This is Toby Mathis.

Jeff: And Jeff Webb.

Toby: All right. Let’s jump on in. First off, always feel free to follow us on YouTube and Facebook. The YouTube channel is one of the more beneficial resources that’s out there on tax and asset protection and it’s a free cost. It’s a free service so you can absolutely do that. The Facebook, you’re always going to be notified. We actually do a lot of giveaways and things like that on there, too. You’re always notified when new stuff is up. You have Coffee with Carl, you have a whole bunch of Tax Tuesdays, Clint produces a lot of content as well, so feel free to jump on to those.

As for Tax Tuesdays, you can always send in your questions. Nothing else has changed. taxtuesday@andersonadvisors.com, in fact that’s where we grabbed our questions for today. If you need a detailed response to something very specific to you that’s not a general question, you’ll need to be a Platinum client or a tax client to Anderson for us to answer. We always let you know, “Hey, we’re able to go this far for free and then here’s where you may want to retain us.”

This is fast, fun, and educational. We want to give back and help educate in the world of finance, in the world, and just in general. Our biggest expense more than on average, I could just tell you that, it’s greater than your clothing, your food, and you shelter combined, is taxes so it’s a great place to start to reduce your outgoing money and keep more of it in your pocket. So, let’s go on.

Opening question, “I recently retired from my job and had a direct rollover into a traditional IRA to self-direct the account in buying real estate property.” You had a rollover property from a 401(k) into a self-directed IRA. “Is it better to convert the account now to a Roth IRA for tax purposes since I’m anticipating spending my real estate venture in the future? Which will benefit me more in terms of taxes when I sell the property?” We’ll answer that.

I have my personal loan in rural land in my personal name and want to be able to isolate it from future ventures as well to be able to pass it over to my sons when the time comes. I have an LLC that was established a year ago without any holdings. It is registered here in Colorado. Do I use this existing LLC on the ranch or go with the trust and use the LLC for a future real estate move?” We’ll answer that.

“Does anyone know where or what would happen if I quitclaim or transfer title of my personal real property that’s a rental into my LLC? How does it affect the existing mortgage on it? The mortgage is under my personal name. Will the lender force a due on clause or disallow?” We’ll answer that.

“I have a property in a Wyoming LLC.” Anderson Advisors must have set it up. “I’m preparing to sell the property. My first time to sell a property under LLC. Suggestions on how to do this for my best tax advantage. Any other advice you can provide me will be much appreciated.” We’ll answer that.

“Can you ever do a 1031 Exchange for tax lien certificates? Are free and clear properties taxed heavier? I’m closing one business and starting another. The company I’m closing owns two vehicles. What is the best way to deal with these? Have one company buy them from the other or buy them personally? We’ll reuse them in the new business. Is it more advantageous for the company to own them or for us to own them and take the mileage reduction? The company is an S corp. We used bonus depreciation two years ago and there are loan balances on both vehicles.” We’ll go through those.

“I recently tried to open a new account in a Delaware LLC. I was told the State of California passed a new law in July 2019 requiring that an LLC from Delaware, Wyoming, or Nevada must be registered in California as well. This would remove the benefit of filing in one of the three states thereby removing the veil of anonymity.” We’ll answer that.

“What are the tax consequences of borrowing money from a private lender and agreeing to pay a fixed percentage over time?” We’ll certainly go over that.

“What itemized deductions will be allowed for 2019 returns?”

Last two questions. “The best vehicle to use for retirement without paying taxes on? The last one, I have just started trading weekly stock options as my sole source of income. How hard will taxes hit? What can I do to minimize?” We’ll go through all of those, Jeff.

Jeff: All right.

Toby: Looks like we have our work cut out for us. I always think that I only grabbed a few questions and then every time I read through them, I realize it’s more than a few.

Jeff: Some of these questions are pretty long, too.

Toby: Speaking of long, actually I think one of the longest questions size-wise is coming up. I actually had a format in my screen differently. “I recently retired from my job and had a direct rollover into a traditional IRA to a self-directed account in buying real estate properties. Is it better to convert the account now to a Roth IRA for tax purposes since I’m anticipating expanding my real estate venture in the future? Which will benefit me more in terms of taxes when I sell the properties?” What’s say you, Jeff?

Jeff: The Roth conversion question is always a difficult one because it depends on the circumstances so much. If he thinks he’s going to be profitable with the real estate properties, then yeah, it’ll probably be a good idea to do that conversion. However, he’s going to have to keep in mind that he is going to have to pay tax on that conversion. If this is going to be a low income year, then I might go ahead and do that Roth conversion. If he just retired in the current year, he may want to wait until the next year where his income may be a little lower.

Toby: It gets interesting. When you actually do this over a time horizon and the taxes are equal, there’s no difference between a traditional IRA and a Roth IRA. The reason that is, is when I put money into a 401(k) or a traditional IRA, I’ve taken a tax benefit. That bumps the value of my account up. I have to add that back in when comparing it to a Roth where there is no tax benefit. If I put $5000 in a traditional IRA, depending on what tax bracket I’m at, I may have saved an extra $1000 so I have to look at that when I’m comparing it to a Roth. I’d end up comparing $6000 over a time horizon to $5000 over time horizon.

And then when I retire, I’m taking money out of the Roth, tax free, but I’m going to pay tax on the traditional IRA as I’m taking it out or 401(k). Anything where I have qualified money, I’m going to pay tax on it. I’m going to have to take a distribution out. I’m going to be required 17½ . I’m going to take this money out and I’m going to have to pay tax on it. The big question is what’s going to be my tax bracket? The fear mongers out there say, “Do you think taxes are going up or do you think they’re going down? Up or down?” Regardless of whether the taxes go up or down percentage-wise and how the brackets work, the real question is what’s your income going to be and where you’re going to fall on those brackets.

If I’m in the top bracket right now, usually, over a time horizon, it’s going to benefit me to get a big tax deduction now and if my taxes are going to be lower when I retire, then I’m actually going to be better off doing a traditional. Of course, if I’m in the 37, I probably can’t do a traditional IRA, I’m age out. But I’m going to do a 401(k) or whatnot. Not to make this too convoluted, but all things being equal, they’re about equal, so the question to you then is, are you on a high tax bracket? So that if you do this conversion, that you’re paying a higher tax amount. If your taxes are going to stay relatively equal, it’s a push. If your taxes are going to go down when you retire, in other words, you’re in your prime earning years, then don’t do the conversion. It’s really hard to make up that money.

For example, if I convert that money and I’m in the 22% tax bracket, I just took a 22% haircut. I’m going to have to make about 30% back just to break even. For those of you guys that don’t understand the math, if I have a 20% haircut on $100, it means there’s $80 left. If I have a 20% gaini that year, 20% of $80 is $16, I’m at $96. I’m still not back to my $100. I have to make more.

A lot of people make this too simplistic. They will say, “Oh, just do the Roth. It’s always better.” No. Over a time horizon like if I have 40 years, I’m a young person, absolutely, I’m in a really low tax bracket as a young person, 18, 19, 20, 21, 22, that money is going to grow, I didn’t pay much tax on it and just never going to pay tax again.

If I’m in a high tax bracket, I do a Roth and I had to pay tax on every dollar that went in there, I just devalued that and I passed up a tax deduction to do it. Unless I had my time horizon as 15 years, it’s really tough to make it back.

I’m sorry to give you a convoluted answer, I’m looking at saying if your reason is to retire, if you’re in a low tax bracket, I don’t even know if I convert, I’m going to have to do the numbers. You got to get your pen and paper out. Just remember that in real estate, if I was buying that in my individual name, I’d be taking the depreciation. If I’m buying the in an IRA, I’m giving that up so there better be some tax benefit for me to be doing that. I’ll be looking at that otherwise, I’m going to do it outside. If you say, “Where am I going to get the money? It’s all in my IRA.” Look at opening a 401(k) and borrow the money out. You could do that, too. Anyway, I think we killed that turkey.

Jeff: That horse has been beaten to death.

Toby: I just did the Tax-Wise Workshop last week. I crunched the numbers because I said there’s a lot of conventional wisdom out there and they always tell you to do something. I was crunching the numbers and then some of the people, it was hurting them. They were fighting to do it because somebody told them this was a good thing. I would say, “All right, what’s your tax bracket? How much are you making in this thing?” I plugged those numbers in. They are usually sitting there looking at you dumbfounded when they were worse off by doing the conversion. Reality is that you have to factor in what the tax hit.

“I have my personal home in a rural land in my personal name.” It sounds like they have a ranch. “I want to be able to isolate it from future ventures as well to be able to pass it over to my sons when the time comes. I have an LLC that was established a year ago without any holdings.” We’re just going to assume that the LLC hasn’t done anything. “It is registered here in Colorado.” So it’s a Colorado LLC. “Do I use this existing LLC on the ranch or go with the trust and use the LLC for a future real estate move?” What say you, Jeff?

Jeff: A lot of times, this ranch sounds like it may be a working ranch so, it may be a business within itself. The residence is also on the ranch.

Toby: Well it doesn’t say that. I looked at that too. It said my personal home in rural land in my personal name. It doesn’t say the personal house is on the rural land. It could be that there’s two parcels here, which changes it a little bit. I’m just going to throw that to you.

Jeff: If it’s two different parcels, I would probably throw the ranch part of that and the LLC.

Toby: I would agree with that. 100%. You’re going to have to use the Colorado LLC. I may use the existing since it was already filed depending on what it did.

Jeff: Right. Now, if they’re combined property, I don’t know if I want to parcel that out separately. He does say he wants to pass it on to a son so I’m assuming that the 121 exclusion is not in play here.

Toby: 121 won’t great destroyed by a single owner LLC. What an LLC sometimes does is it destroys any homestead. I’m not familiar with the Colorado homestead, but we could probably look it up pretty quick. If that’s not a big issue, sometimes, you throw it in the LLC. If it’s worth a lot and you have other outside activities that you’re afraid may cause it to go away, if you just want to keep it and you want to keep it in the family, then you may do a QPRT (Qualified Personal Residence Trust) where you throw it in there if it’s all one parcel. That way, you don’t have to worry about anybody ever taking it away.

In any case, the LLC is for asset protection. The trust is for the estate. And so, you say, “Should I use the existing LLC or go with a trust?” You’re actually doing both. The LLC is great for the ranch. The trust is what keeps you out of probate and so, no matter what you’re doing, I’m doing the trust. Again, I don’t want make too many assumptions but let’s say this is two parcels, you put the personal house in a living trust and I’m putting the second parcel, if it is a second parcel, in an LLC. And that LLC will be owned by you as trustee of your living trust. It would be in your living trust as well. That would get you where you want to be. If you want to freeze it for your kids like sometimes you say, “I want to be able to pass it on,” and then the kids get it and immediately sell it, which is okay. They have the basis step up. They’re not going to pay any tax on it when you pass. That may not be what you want.

If you want that ranch to stay in your family, you may want it to be held in a trust without distribution rights and say that you want to keep that. You don’t want to liquidate that asset. You want to hold it for the benefit of your future generation. That way, without unilaterally, they couldn’t just do it and have an outside trustee say, “Okay, why do you want to sell this thing?” If they say, “Because we hate it. We don’t want to ever go there again,” then you’re probably going to sell it. But if they say, “I really want to buy that Maserati and buy some season tickets to my favorite football team,” they’re probably going to say no.

Jeff: And I’ve seen a lot of times talking if they don’t want their children to sell it, I’ve seen people try to put it in wills and stuff like that. […].

Toby: You just hit the nail on the head on that one, Jeff. A will is a distribution vehicle. A trust is a holding vehicle to estate planning vehicle. If you want to give the property to your kids with no strings attached, you could put it in a will. You don’t have to probate it. If you want to just give it to your kids, no strings attached, you could use a trust to avoid probate and then just immediately distribute it. If you want to hold that piece of property in your family, then you use the trust and you don’t distribute it. You just hold it in the trust. That’s just up to your draft. It’s not hard. It’s actually pretty straightforward. You use plain language. Everybody is saying it’s magic.

Lawyer-ese, “No. You’re covering your basis. You want to make sure that you don’t stick them with something that nobody wants to use and it just sits there, falls in disrepair. It’s so far off the beaten path that nobody ever is going to use it. You want it to be for the enjoyment of your family.” You could just say, “Hey, it’s really my wish that this stays in for future generations. We want you guys to meet there. We always want someone to reside there. Please don’t make this into a rental.” Maybe the eldest has the right to occupy or you use some methodology, obviously, if you have sons. It may not be a situation, again I have to use an assumption that if the personal home is with the ranch, but if it’s just the ranch that you’re trying to keep and you may be okay if they sell this personal house, they have their own houses but they keep the ranch in the family. Anyway, there’s a lot of moving pieces there. I hope you guys are getting the gist of it.

From a tax standpoint, it’s neutral. It makes no difference. Unless that LLC is taxed as a corporation, I’m going to assume that Colorado, if it’s single owner, it’s going to be disregarded and in Colorado LLC, single owners have been pierced before so you probably want to hold it outside of the state in a separate LLC, probably Wyoming LLC is the holding entity holding that one if you had the ranch. From the inside liability, it still protects you from the outside liability. Colorado is not so great. They just got some issues.

Here’s another one. “Does anyone know where, or what would happen if I quitclaim or transfer title of my personal real property that’s a rental into my LLC?” Yes, we are aware. “How does it affect the existing mortgage on it? The mortgage is under my personal name. Will the lender force a due-on-sale clause or disallow the transfer?” What’s say you, Jeff?

Jeff: Well, there are a couple of things going on here. If you quitclaim your title, all you’re doing is giving up ownership to the property. It doesn’t directly affect your mortgagee. You still own that money on that mortgage. Your name is on it and the property, to my knowledge, is still secured by that mortgage.

Toby: A quitclaim, from a legal standpoint, is just my interest and quitting any claim I have against that property and transfer it to somebody else. A warranty deed is something else where I’m warranting that I have good title. The problem that you have when you quitclaim a property over to an LLC is that you may void out the title insurance. It’s almost always better to warranty deed it or whatever that county has. It’s just saying a little bit more than just I’m giving up my interest. It has no effect on the mortgage from a legal standpoint. That mortgage is the loan with a security interest on that property to make sure that if the loan isn’t paid, then they still have an interest in that property. That predates the transfer so when you transfer over your interest, it’s subject to that existing mortgage so you don’t hurt the mortgage company at all.

That said, they usually have a due-on-sale clause that says if you ever sell this property or transfer it, we have the right to call our note due. Now, you’re going to say, “Wait a second. Why would I let them know if I’m just putting it in an LLC? Yeah, they’re not hurt so I don’t even tell them anymore.” When you ask them, their head is usually spin around because they all know is it’s not in your name anymore. They tend to freak out. Even if you did it to a living trust, even if you did it to a land trust or whatever else, still their knee jerk reaction is this is bad. You put it in a living trust or a land trust. You do have statutory protection called Garn-St Germain Act and it says that if you’re moving a property into a trust which you’re going to reside, then they can’t call the note due. You have protection against them calling it due even if you transfer it. But its intent was for personal houses. This is a rental property. Obviously, technically, they could exercise their due-on-sale.

That said, in 27 years, I’ve seen it done once and all they said is, “Hey, we want to loan directly to the entity. We want you to take it out of the LLC and put it back into your name.” That was years ago. People are now very comfortable with it, understanding that you can have an LLC that’s disregarded for tax purposes, you can have an LLC that’s a partnership, it is still going on your personal return. It’s still you on the hook. Most lenders don’t care. In fact, don’t even bother them. If you’re paying the mortgage, they don’t care. It has a zero effect on your taxes.

Jeff: Speaking of paying mortgages, in this case, they moved a rental into LLC. Should the individual continue to pay the mortgage?

Toby: I’ve never seen it matter.

Jeff: Okay.

Toby: I’ve never seen it matter. When I say thousands, we’ve done tens of thousands of these and I’ve never seen it matter. I’ve only seen one time and it was because the person brought it to the attention of the mortgage saying, “Hey, I moved this to an LLC.” And they said, “You did what?” Because they don’t know if that’s your LLC or if you sold it. There are unscrupulous folks in the  past that would set up an LLC and they would transfer the property to the LLC but it was a different owner of the LLC. They sold the property and they didn’t tell anybody they sold the property. They would do this as a disguise sale usually kind of like a forced wrap of the mortgage or because the person was in financial disarray and somebody came and rescued and kept making the payment. People would use land trust and some things to disguise those. I’m of the belief that, “Hey, if you sell it, you need to report the sale because there’s transfer taxes and you actually have a new reputable owner out of it.” That is not the situation. This wasn’t a sale so you don’t need to report it.

It works just great and the people that even did it with a disguise sale, it still worked great. There was a tax that was due that they weren’t paying so I always say like, “Hey, at least pay the transfer tax. Let them know that the equitable ownership so if the mortgage company did look, they would know that it’s no longer the previous owner that’s on the hook.” Then they can yell and scream and say due-on-sale. Most don’t. Most are if they’re getting paid, they don’t really care. By the way, just to go back to the one, just make sure you’re not quitclaiming it. You talk to your title company if you have title insurance.

“I have a property in a Wyoming LLC. I am preparing to sell the property. My first time to sell a property under LLC. Suggestions on how to do this for my best tax advantage. Any other advice you can provide me will be much appreciated.” What say you, Jeff?

Jeff: It doesn’t really matter if it’s in your LLC. It’s not going to give you a tax advantage. An LLC in itself does not give any kind of tax advantage. It’s not a tax entity. Preparing to sell a property first time, so much of this depends. I don’t know. I can’t come up with anything that really gives them a good tax advantage.

Toby: Well, the only time that I see a tax advantage is when you have a corporation managing the LLC, in which case if you have expenses that you haven’t taken or expenses from something else like some of their business venture, but you have a legitimate management agreement where you’re paying it, it’s just going to reduce the amount of net taxable gain or net taxable income out of the LLC. If this is just one LLC by itself, disregard it. No tax advantage. If this is an LLC that there are 10 other properties all going up into holding LLC, and you have a corporation managing it, and you have a strong tax appetite out of that corporation, it’s reimbursing a lot of expenses, maybe you have some other business activity in there, then yeah, it gives you tax advantage. You can shave off some. It really depends on whether the sale is short-term or long-term.

Whenever I see a Wyoming LLC and you’re selling the property, I’m always like, “Is it short or is it long?” If I see an LLC, I’m usually anticipating that it’s long. If you held for over a year, it’s a long-term capital gains, which is really good tax treatment. If it’s short-term, if it’s going to an LLC, that LLC that ultimately is owned by or that LLC needs to be taxed as an S Corp or a C corp. We do not want the short-term sales, which will be considered a dealer and it’s immediate. It’s not like how many I did this year, it’s what was your intent when you bought that property. Facts and circumstances. If they think that, when I say they, if the IRS thinks that your intent was to sell it when you bought it, you’re a dealer and it’s ordinary income. There’s no depreciation. There are no instalment sales and all sorts of that stuff. It’s actually ordinary rate.

Jeff: If this is investment property and you’re planning on buying another property, I would definitely consider a 1031 Exchange.

Toby: Great. Yeah.

Jeff: Well, if it had a gain. If it doesn’t have a gain on the sale, then no, you don’t want to do a 1031. You want to be able to recognize that loss in the current year.

Toby: Yeah. When you do the 1031, you need to use a facilitator and they’re going to tell you, “You need to buy the property in the same name of the LLC that you’re selling. If you’re going to sell the property in LLC, you need to buy a replacement property in that same LLC. Don’t be doing it in your individual name and think that you’re going to transfer it over. You’re going to need to close in the name of the LLC.”

Jeff: If you’re flipping, you’re not going to be able to do the 1031 Exchange.

Toby: Right. It’s not an investment property anymore. You have inventory. You don’t have investment property so it’s no different than if you’re a grocery store and you’re stocking your shelves with, I want to say Cheerios, I don’t know why but you’re stocking your shelves with Cheerios. You’re buying properties. You may be fixing them up but you’re still just selling them. They’re just inventory you’re going to sell so it’s not an investment.

One thing that Jeff said that’s really important that I want to focus on is he said if you’re selling at a loss. This is where it gets really interesting. When you sell at a loss and you have investment property, something that you held for trade or business, that loss could actually be an active loss. You can actually take any passive activity losses from previous years on that property and any loss on that real estate and offset your W-2 income with it. Hopefully, you made money, and hopefully you held it over a year, and hopefully you’re going to get long-term capital gains, in which case, yay! You have a choice of do I want to kick the can down the road and do a 1031 exchange or do I want to recognize it and then even if I recognize it, there’s something called a qualified opportunity zone that in 180 days, I could actually dump it into something else. It’s pretty interesting.

Jeff: One other thing that came up yesterday, when we’re talking to a client about a client who was flipping properties, selling on instalment sale. We had to explain several times that when you do a flip, even if it’s an instalment sale, you’ll recognize all of your gain that year.

Toby: It’s inventory. It’s like you sold a Cheerios on an instalment sale. You recognize the sale of Cheerios not when you get the money. That is only for investors than an installment sale. They probably love you, right?

Jeff: No. They’re not happy about this.

Toby: They don’t like the bad news and they usually blame us for the bad news. I was like, “No. This is it. If you’re going to do an instalment sale, it’s got to be an investment property.”

All right. “Can you ever do a 1031 Exchange for tax lien certificates?”

Jeff: This one, I’m not sure about. I know that real estate definition is really broad but I’m not sure that tax lien certificate falls under that umbrella.

Toby: Yeah, I would say no. Usually, you’re using the tax lien. It depends on whether you take title of the property. If you take title of the property, then I believe you could 1031 it. If you have a tax lien and you end up with the property or you own the property and you’re on title, then you can 1031. I’m not sure.

Jeff: I pretty much agree with that.

Toby: I’m going to look one thing up. I’m just curious because usually, you get tax lien and you’re going to get the interest, they’re going to pay you off, but different states have different statutes, and I don’t think that you’re ever going to be able to use it in a tax lien practice. Nothing here that I could see. I just look at my 1031 Exchange notes. I don’t see anything.

So if you’re owning the lien certificate and all lien is, “Hey, I have something against that property that I can foreclose on or that can give me equitable title.” The 1031 Exchange rules change under the Tax Cuts and Jobs Act. It’s limited to just real estate and you have to have ownership and real estate. Again, I don’t think you could do it on a traditional tax lien but if you are on title and you end up owning it because of the tax lien, then yes, I think you can. But it’s still subject to the tax lien.

Jeff: Yeah. With the 1031, you have to have a right to the property whereas the tax lien feels more like a security trading.

Toby: I think we’re a 90% on that one. What we’ll do is we’ll probably do a little more research onto it.

“Are free and clear properties taxed heavier?” That was one of my favorites. I like it. Free and clear taxed heavier. It really doesn’t matter if you have a loan against the property. The only way that it affects you is that you don’t have a mortgage interest deduction. That’s the only thing. You don’t have that if you’re free and clear. You’re going to have some expenses that aren’t there for somebody who is paying a third party. But the flip side is now you have more money. You’re taxed a little heavier because you make more money. I’m not paying a third party a bunch of interest. So no, they’re not taxed any differently otherwise.

Jeff: Yeah. Your tax is on your gain, not your proceeds.

Toby: Yeah on both sides to that, by the way. If I buy a property, if I buy a structure, it doesn’t matter whether I have debt against it. I’m writing off that structure over a period of years. The IRS follows the same rules the congress laid out. The IRS gets the prescribed, I believe that it’s the IRS that’s putting out the time frame on these things, so I don’t think it’s congress is […]. What it is, is if you have tangible personal property, it has a life expectancy. For example, your carpet may last five years. The structure may last 27½ if it residential. If it’s commercial, let’s say it’s going to last even longer. It’s going to last 39 years, which means they give you a deduction for that portion every year.

There are other little rules like, “Hey, the default is that longer period, but you can elect to separate out those elements in your building.” It’s called cost segregation. You’ve heard that a number of times. Plus you have to actually change your accounting method and actually elect to do that. That’s when you’re doing a cost seg and you’re making a, what’s the election form?  3115?

Jeff: Yes. 3115.

Toby: Yes, so I say, “Hey, I’m going to change how I’m going to treat it. Instead of one big structure, I’m going to break it out into components so I’m going to have a 5-year property, 7-year property, 15-year property.” Like your sidewalks are 15 years, your driveway is 15 years. What’s seven years? I always forget the seven years.

Jeff: Seven years is going to be your cabinets, your furnishings inside.

Toby: Some other pieces. They let you write off 1/7 every year. If you do the 3115, you break it down and then you have further elections you can make. You can be bonus depreciation in year one, when you make your election, which means I can take up to 100% of any item that’s less than 20 years in year one. That’s why you do a cost seg if you want to get a bunch of laws generated, you could do that. Again, none of that has anything to do with whether they’re debt on the property. You debt doesn’t hurt you, doesn’t help you. If you’re paying interest, you get to write it off, but you’re paying the interest like you have lots of money.

“I’m closing one business and starting another.” This is an interesting one, by the way, Jeff. Just in the minutes before we started, we’re just bantering back and forth. “I’m closing one business and starting another. The company I’m closing owns two vehicles. What is the best way to deal with these? Have one company buy them from the other or buy them personally? We’ll reuse them in the new business. Is it more advantageous for the company to own them or for us to own them and take the mileage reduction? The company is an S corp. We used bonus depreciation two years ago and there are loan balances on both vehicles. What say you, Jeff?

Jeff: In my experience, it’s always cleaner to sell them rather than distribute them. It’s possible that the loan balances on the automobiles are close to the value of the vehicle and by value, I mean the fair market value, not what the cost basis is because it looks like these vehicles have no cost basis anymore but the bonus depreciation.

Toby: The bonus depreciation just means that if these vehicles qualified, they would have—

Jeff: Heavy trucks, heavy…

Toby: Yeah. Would they have taken 100% or would they have been limited to the $18,000?

Jeff: If they took it three years ago, it would’ve been only 50% bonus.

Toby: Yeah, it depends. I got to look at the depreciation schedule. The question is did I write it off on paper? Assuming that what they’re saying is, “Hey, we used bonus depreciation and we wrote these things off.” If it is bonus depreciation, that’s much better than if they used 179. 179 is this equipment write off for heavy equipment. If your use during that period falls below 50%, which if they close the business, obviously it does for that business, you have to recognize all that depreciation you took as ordinary income. You’re going to have a tax hit on the amount that you wrote off.

Jeff: And the same will happen if they sold the vehicles.

Toby: Yeah. It’s going to stink all over or they’re going to have recapture. They’ll still write them off over the regular five-year period so they’ll get, in this case, 2/5 of the deduction and they’ll have ordinary income on 3/5 of deduction. On bonus depreciation, you don’t have that same issue but you have ordinary recognition on the fair market value if I take it from the company and give it to a shareholder or somebody. You just gave them an asset, a value, you’re going to pay tax on that. If you dissolve a company, assuming it’s an S corp, then they’re going to treat it as a distribution to you so you’re going to pay ordinary income on it. Just keep in mind that it’s based on its fair market value. If you bought this at $50,000 and you wrote it all off, it’s worth $20,000, you’re going to pay tax on $20,000.

Jeff: Which is where the loan comes into play because if you’re also taking on the loan of $20,000, your distribution has netted out the $0.

Toby: Really? So basically, it has no value.

Jeff: Right. You’ve got nothing about you taking a loan of $20,000 and you’ve taken a vehicle with a fair market value of $20,000.

Toby: So you have to look at it. This is where you have to get your pencil out. This is the rule. The IRS always looks in and says, “You’re supposed to pay tax on exchange of value.” If I give a shareholder something of value, I have to look up what that value is. I can’t just buy a car, depreciate it, write it all off, and hand it to a shareholder and say, “Nothing happened. No tax implications.” No. You got to look at it and say, “What kind of car? How much is it worth?” Like Jeff just said, they’re dead on it. “Did I really give this shareholder anything of value?” If I give you a $20,000 car that’s subject to a $20,000 mortgage, I gave you nothing. I gave you something that has zero value. There’s no tax hit.

I guess this is the second point. If you have a new company, a new company if they bought it, again, all of this is dependent on the facts and circumstances, we haven’t looked at what kind of car and all that fun stuff, is it over 6000 lbs? Assuming that that is equipment and it meets the definition, it’s an Escalade, when the new company buys it, it can immediately depreciate it. You’d have tax hit on the income but they’d offset each other. You’ll be at zero. It all comes back down to chances are under this scenario, depending on what those loans are, you probably don’t have a tax hit.

And then the question is would I be better off just keeping these individually and doing the mileage? That’s just a personal preference. Some people want the immediate deduction if it’s an ordinary passenger vehicle. I’m probably always going to go with the mileage reimbursement. A lot of accountants want to do the actual expense method. I just find it, dealing with clients, they tend not to track things so well. I can say, “Put on your MileIQ on your phone and keep track of your business. Once a month, just stop and I think you swipe left for business, right for personal, whatever it is, but you’re just going back and just keeping track that way. Maybe every week. Technically, you’re probably supposed to do it every day. Just make sure that you’re doing it periodically in keeping track of these things so that we know how many miles and then based off of that number, then you reimburse yourself. Write yourself a check and boom! You’re done.

If you’re doing any other method, you’ve got a lot more heavy lifting and if it’s in the company and these guys may have learned this, you have a different type of insurance. You’re going to be dealing with not necessarily fleeting insurance but definitely commercial insurance and it’s going to be more expensive. So much easier to have personal insurance on a vehicle, reimburse the miles. I’m not worried about dropping below 50%. I’m not worried about recapture of depreciation. I don’t have to worry about any of that. I just have to worry about how many miles did I drive and is it 58 cents per mile that I get to reimburse myself? I don’t have to report it. Me personally, I don’t have to show it on my tax return.

Jeff: And then maybe you’re wanting to go out and buy Elon Musk’s new Tesla pickup truck. You’re going to be chasing your tail trying to figure out which is the best way to go.

Toby: Because even the X qualifies. It’s so heavy. It qualifies over the 6000 pounds, so you can bonus depreciate that. If you bought one right now, at the end of the year, you can write it off against your company. If your company has a bunch of income, maybe you do that. But just keep in mind, anytime you have a company car, you’re supposed to pay taxes on the personal use. It’s based off of what percentage of the least value you’re using so you still have to track the miles.

Jeff: Yes you do.

Toby: We could go down the rabbit hole on this one. Actually, I think we already did. All right.

“I recently tried to open a new account in a Delaware LLC. I was told the state of California passed a new law in July 2019 requiring that an LLC from Delaware, Wyoming, or Nevada must be registered in California as well. This would remove the benefit of filing in one of the three states thereby removing the veil of anonymity.” There’s not a bunch of new stuff. What it is if you’re going to own real estate, I believe the LLC is considered doing business and they’re going to require you to register, but you’ve always been required to register if you’re doing business in a state. That’s subject to that state’s definition, subject to the constitution that says you can’t force someone to register and do business if it’s transitory. But if your touchings are enough, then the state can. It’s always that push and pull of the federal law versus the state and not wanting to interfere with interstate commerce and all that fun stuff.

A lot of people, they do this, “Hey, let’s set up at Delaware, Wyoming, and Nevada because I think that there’s going to be anonymity and all this fun stuff.” Then they go and they just do business in California, North Carolina, or wherever else. It’s so much cleaner to have an entity in that state wherever you own the real estate. It can be an LLC. It can be a land trust. It could be any number of things.

Jeff: And California is one of those states that has a built in anonymity. If you ever go and try to look up a property and see who owns it, you’re not going to find it.

Toby: In California?

Jeff: In California.

Toby: Depending on the county.

Jeff: Yeah. I think all the counties that I’ve dealt with in California, none of them present ownership. I’m not sure if the attorneys can get to it in a lawsuit.

Toby: No, you can get to it for sure. In the entities, you can absolutely see. The way that you get anonymity in California is I’ll give you two things. It sounds like that’s an issue. Number one, use a land trust and instead of having you as a trustee, use either an entity or a third party. That way, your name is not on the property. You have to buy it in the name of the land trust or if you transfer it, you’ll still be in a chain of title, but you won’t be the name if they search who’s the current owner and things like that.

But if you want an entity to be anonymous in California, you have to start with a parent entity in a state that has anonymity. Now, among Delaware, Wyoming, and Nevada, I’m going to pick Wyoming right now. It’s the cheapest, it has the same statute as Nevada, and Nevada and Wyoming are both better than Delaware because it’s better for you, the manager or the one who owns the property. Delaware is designed really to promote investment in the company, which means there are strong rights for anybody who gets a hold of the company or has an interest in the company. It’s just not necessary. It’s creditor good. It’s a great place if you’re a creditor, which is the opposite of what you want if you’re the real estate holder.

I’m going to say Wyoming. Wyoming doesn’t have your name listed in it. If you open up an LLC in California, your name is going to be all over it. You’re going to get subject to franchise tax, too. It’s going to suck. The easier route is to have the Wyoming entity actually set up a child LLC in your home state. If you did it that way, the member may be listed, which is a Wyoming LLC, which does not have your name listed on it so you’ve accomplished the anonymity that way.

Jeff: This has actually come up recently with California asking for Form 568, which is the reported information for the single-member LLCs and the clients are saying, “Well, we have to identify who the owner of that LLC is.” That goes back to what you were saying. It’s a Wyoming or Nevada LLC holding company, who doesn’t have to disclose who owns them.

Toby: There’s that one. Another one that misleads is, “Hey, you’re not going to get away from the franchise tax.” California is going to hit you no matter what. It’s just whether you can limit it to one entity that you own and then that’s your sacrificial lamb, maybe two. You don’t want initially to have a bunch of LLCs in California because it’s $800 minimum plus this LLC, there’s gross receipts tax if it starts to hit you, too. If I have real estate in California, more likely I’m using a land trust or I’m going to use an out-of-state LLC that might be a beneficiary of the trust. I’m probably not doing a whole bunch of LLCs. I’m going to have to think long and real hard as to whether I’ll use a limited partnership versus an LLC. If I’m generating nothing but huge gains, I’m probably using an LP. All those are little factors that you’re playing with.

Going back to their question, no, there’s nothing really new. It’s what California is doing. It’s just trying to make sure that there are no shenanigans because there are bad actors out there. Literally, you have a Delaware entity that owns a California property and they’re not registered in the state. That’s been the law for a really long time. You’re just ignoring the law. In California, in the Board of Equalization, in the Secretary of State. They’re saying, “Hey, don’t ignore the laws. We’re going to make it much more clear now.” Whether or not a law is particularly constitutional, I know it’s something I get to argue, franchise tax is notorious for losing its cases and then just modifying the law slightly and losing that case, too. They’re really good at trying to take your money. If you ask them, they’ll always say, “Yeah, pay me.”

Jeff: Nobody like the $800 except for the State of California.

Toby: That’s a tax.

Jeff: But I want to look at it as a cost of doing business in California.

Toby: You got a protection. It’s better than having somebody take everything you own. That’s for sure. In California, those verdicts are huge. You don’t want to mess around with it. Worst case that could happen, you have a house that you have $50,000 of equity, you’re up to your eyeballs in debt, and you think that maybe someday it’s going to be worth something in California because there’s not much really cash flow there. 

Let’s just say that you got it and somebody sues you a couple of million dollars for mold. The verdicts are huge. Even Ed McMahon, we use him as an example, I think on his home, he got $7 million, $7.9 million because they said there was mold and it poisoned his dog. You can Google that one, by the way. But there are really big cases. What’s the worst case scenario? I have $50,000 of equity. They’re not worried about that equity. They’re going to take everything else you own so you want to make sure you have an LLC wrapped around it under any circumstances.

Moving on. “What are the tax consequences of borrowing money from a private lender and agreeing to pay a fixed percentage over time?” This is easy for you.

Jeff: The tax consequences? Well, you get money to your development but otherwise, you’re going to pay that lender back on an agreed […] either percentage of interest or some portion of profits, which will reduce your gain that you have to pay taxes on.

Toby: So if I am borrowing personally and it’s on the acquisition indebtedness of buying a home or fixing up a home, then I could write that off as a Schedule A deduction. It’s an itemized deduction. If I am using a private lender, which more likely this is an investment property, then that interest is going to offset my income and it doesn’t really matter, the loaning of money, the borrowing of the money. Let’s say I borrowed $100,000, that $100,000 is not taxable so long as I’m on the hook to pay it back. If I borrowed the money and then they released me from the obligation to pay it back, I have $100,000 of taxable income.

Jeff: I’m not real crazy about using a private lender for purchase of a personal residence. I know you’re going to disagree.

Toby: No. I’ve seen people do it. The only difference between a private lender and a bank is that the private lender is usually an individual or somebody who’s much quicker and probably doesn’t have all the bureaucracy and quite often, usually, they’re more expensive, let’s just be straight. You’re using a private lender because you can’t get a loan from a bank. Sometimes, it’s rich uncle who’s just loaning money to nephew or niece to buy a house and giving a really good interest rate. “Here’s a 3% loan. Pay me back.”

Jeff: But something that’s really important with these private lending is, for your personal residence in particular, you have to give them a security interest in your property. If you borrowed from your uncle or your neighbor or something.

Toby: You got to […]. It’s that mortgage. It’s the lien against the property.

Jeff: If the property is not secured, you cannot deduct that interest as mortgage interest.

Toby: Love having a CPA on this. Great point because you can’t just borrow money. These people are going out and saying, “Hey, I’m going to borrow money against the equity of my house.” You got to make sure that it’s actually secured otherwise, you can’t write it off. If you’re borrowing it from anything other than fixing up the house or buying the house, it’s non-deductible. When people take the equity of the house to send their kids to college, that’s not deductible. If you take the equity of your house to buy an investment property, that is not deductible on your Schedule A. That would actually be the investment expense and you’re going to put that on your Schedule E.  Fun stuff. This is excitement.

“What itemized deductions will be allowed for 2019 returns?”

Jeff: I’m not aware that the itemized deductions have changed from 2018 to 2019. It’s basically going to be the same things that could be deducted.

Toby: You can actually go and pull up the Schedule A if you want, but it’s going to be medical expenses over 10% of your adjusted gross income. It’s going to be mortgage interest on mortgages of $750,000 unless you purchase your property after September of 2017.

Jeff: Absolutely.

Toby: It’s one of the Tax Cut and Jobs Act that was actually passed. It’s going to be charitable giving subject to unadjusted gross income cap of 60%.

Jeff: Right, which was an increase in 2018.

Toby: That was a nice big one.

Jeff: Conservation easement was also increased from 30% to 50% in 2018 and state level tax is up to $10,000.

Toby: You call that the SALT deduction. You’re going to get that, too. Gone are the days when you had phase outs on Schedule A so that’s one good thing. When you’re looking at the itemized deductions, you really need to compare it to your standard deduction, which is huge. The series for 2019 is $24,400 for a married couple, $12,200 for single person. It’s huge and itemized deductions have to exceed that for it to be detachable.

Jeff: Beginning 2018 are the miscellaneous deductions.

Toby: That’s what really kills people.

Jeff: Which included investment expenses. I know a lot of people paying substantial amounts for advisor fees.

Toby: I have a talk to a few advisors that are dealing with the aftermath of the pissed off client who just recently realized that they can’t write off the $50,000 they paid their advisor.

Jeff: And then you have the employees who are paying substantial amount for their jobs.

Toby: Non-reimbursed.

Jeff: Non-reimbursable expenses. Those are gone. Tax preparation fees, union fees.

Toby: You do have the teachers. The part that was really frustrating for a lot of us is because we know that teachers are coming out of pocket to buy things for their class. I have a number of family members who are lifelong teachers, they did give you a $250 deduction that you can take.

Jeff: From talking to teachers, that’s almost nothing.

Toby: It’s nothing. They really host a lot of people. They’ve taken away the miscellaneous. The only way to get around this stuff is you got to have a business. Absolutely and positively. If you’re a teacher, then you’re doing things that the government should be doing, the only thing I can think of is a 501(c)(3) and then you can donate your money. Again, it’s itemized deduction. It has to exceed your standard deduction, which the way they pay most teachers, you’re probably going to be taking that standard deduction. You’re not just not getting any benefit for all the good stuff you’re doing.

Jeff: Primarily, that’s hard to beat. That $24,000 standard deduction from […].

Toby: I think it’s 80% now they’re taking the standard deduction. I don’t want to get into all the tax strategies for the end of the year for our tax clients. We did a big old livecast. There are some really cool stuff. One of the things that you need to look at is if you’re somebody who […] and you’re losing the ability to do the tax deduction, you really need to think long and hard about doing a donor-advised fund or your own 501(c)(3) or instead of doing annual gifts to buy annual every two years so you can get the tax deduction. What you do is, “Hey, if I add up my state and local taxes, my mortgage and everything, it ends up being around $20,000, I gave $5000 to charity,” you’re not getting any benefit. Even if I did two years, I’m still not going to get any benefit because that $24,400 is going to eat it all up.

“What if I did it ever three years, four years, gave assets instead of the cash to again, donor-advised fund is the easy one, then I’d make a one-time big old gift and then I divvy it out over a period of years, and I do that every few years.” It’s almost like you create a savings account for your charitable giving. And then you give it. You make the tax transaction. You’re just doing it periodically. You can actually get some tax benefits.

Again, you get your pencil out, you get a piece of paper and you actually do the calculation. You see if it’s worth it. There’s the old question, is the juice worth the squeeze? You got to figure it out for yourself. If you’re paying a lot in taxes and you’re in a real high bracket, usually yes. If you’re in a really low bracket, usually no. You may as well figure it out.

“What’s the best vehicle to use for retirement without paying taxes on it?”

Jeff: I think we’re going to have differing opinions here, but the best and safest without paying taxes […] bonds.

Toby: I’m not going to disagree with you. I’m going to say you’re not going to put it all into that. But if you want something that you don’t have to pay tax, state and local or state and federal, you do a mini bond, but you’re going to get a crappy return as well.

Jeff: Right. We’re looking at 1%-2% most of the times.

Toby: Basically, that’s just a hedge against inflation and thank God we’re not paying tax on that. Again, the best vehicle for retirement without paying taxes on it where you can get a decent return, where you can control it is always going to be real estate. It’s going to be non-qualified plans like whole life and IULs. It’s going to be stocks. Stocks, you don’t pay tax.

People forget that the only thing you pay your tax on when you own stocks is the dividend. That’s a long-term capital gains rate. If you follow Jeff’s advice on the minis and you have a real estate that’s offsetting its own income, you’re going to have a tax appetite. You could pay $0 taxes on long-term capital gains up to about $78,000. Your tax bracket on that dividend that you’re receiving is $0 if you’re in the threshold. You have a standard deduction. You go up to about $100,000 and you’re still on the 0% tax bracket on anything that’s long-term capital gains dividends. 

I’m going to say that from a tax standpoint, I’m going to agree with Jeff. Mini bonds are great, but they pay out horrible. If you have an IUOE, if I need the money, it’s tax free. I pay tax on the money going in. If you built a whole life or an IUOE all over the years, that’s fantastic. If you have real estate, use the depreciation on real estate, and you don’t pay tax.

Jeff, you do […]. You guys did […].

Jeff: 5000 […].

Toby: 5000 right now and the year’s not even over. 

“How often do you see the holding LLC? I actually have positive income that makes tax on real estate.” In other words, how often do people actually have to pay taxes on the rents that they’re making on their real estate?

Jeff: Not often because between mortgage interest and depreciation, it’s usually […] revenue.

Toby: That’s a great vehicle because you’re getting the cash, but you’re not having to pay tax on it. It keeps you in a low tax bracket. When you do need money from something like, “Hey, I have stocks.” This is something you should do at the end of the year, anyway,you should say, “What tax bracket am I in? Do I have any room inside it if I’m in the 0% tax realm?” Sell some of your stocks. People always freak out at this. 

I just had an advisor meeting yesterday on this. I’m like, “Guys, tell the clients if they have a $20,000 long-term capital gains appetite,” in other words, “I can sell $20,000 long-term capital gains and pay $0. Sell it and buy it right back.” Just reset the basis.

For everybody that goes, “What about the wash sale rule?” That’s for losses only. It’s not for gains. I can sell something and buy it back immediately. I just locked in tax free money, if I don’t need it. But if I do need it, if I sell it the next year, my basis is higher. I’ll pay almost […] tax anyway.

Jeff: We had in our conversation with some clients about why I’ve helped Boeing for 30 years now? Sell it, capture your gains, and buy back tomorrow if you want. 

Toby: Yup. You’ll still will have it. Just lock it in. It’s like selling your house. You don’t have to pay tax on a portion of it.

Jeff: Another thing I wanted to bring up about the rental property is I’m still going on retirement and I have this rental property. I’m just appreciating that. Let’s say 10 years later, I passed away, and I still own this rental property, none of that depreciation matters anymore.

Toby: I don’t have any recapture when the basis steps up. My heirs get to re-depreciate it. Again, this isn’t something we want to do, and necessarily talk about today, but I was looking at it. You’re either crazy if you don’t have a big chunk of your estate in real estate. You’re absolutely nuts. When I say the real estate, I’m saying buy and hold. Don’t ever sell it because you get to depreciate it over and over again if you keep it in your name. If I’m sitting here—I do this—give it to your own charity. Sell it. Pick the deduction and sell it. You don’t have to pay any tax. You don’t have to recapture and all these other stuff. 

I’m a big advocate for, if you’re going to do your charitable giving in tithes or everything else, it’s usually not so great to be doing it just in your individual name. You might want to set up your own vehicle to do it, 501(c)(3). Then, you can donate something into it. Now, you’re actually able to give away more, and get a bigger tax deductions. Give away your house every six or seven years at fair market value. That is where your deduction is. Pretty effective. I think we killed that one, too. We’ve been eating a lot of horses. We’re going to get some paid mill.

“I’ve just started trading weekly stock options as my sole source of income. How hard will taxes hit? What can I do to minimize?” 

Jeff: That’s depends on how good you are at trading your options.

Toby: I was thinking bad things. I was like, losses are great. You don’t have to pay taxes. No, I’m just kidding.

Jeff: Our first tax advice is to keep your losses at $3000 a year but you can’t write off any more than that.

Toby: The only exception is if this is your sole source of income, you’re doing it all the time, you could be considered a trader. If you’re a trader and you make a market-to-market election, then, you get to take your losses against your other income. But if it’s your sole source of income, there’s no other income to offset, so why do we care? We’ll just carry the losses forward.

By the way, if you own the stocks and you’re selling options, that’s a whole new different animal, my experience is that the vast majority—over 80%—make money. The people that I see lose money in the stock market are the ones trying to time the market. They don’t know the underlying securities. They scare me sometimes just because they’re so aggressive. When they get hit, they get nuked. 

But if it is, you’re selling stock options, you’re buying and selling short-term capital gains, what an option is, it’s going to be treated as ordinary income. It’s going to be your tax bracket but it will not be subject to social security taxes. It’s just going to be your ordinary income.

“What can you do to minimize that?” The recommendation from our firm is going to be to hold your option account in a separate taxable entity, either directly on a C Corp, directly on an S Corp, or a combination of the two where you have your stock options account in one entity like an LLC that is taxed as a partnership—this is crucial—either a limited partnership or an LLC taxed as a partnership and it has a corporation as a general partner. The reason being, as Jeff said previously, investment expenses, you cannot write them off. They’re gone. Miscellaneous itemized deductions, gone. The only way you’re going to get deductions, if you’re going to events, seminars, conferences, you do an education, you’re paying a coach, you’re buying resources, the only way you’re writing those things off, is if you have a corporation. It needs to be a guaranteed payment to that corporation. Either it owns the account, or if you keep the account, or you need to make a living off of it, you don’t want to get into so much tax issues, you have it in a partnership or the corporation as a partner, it’s a guaranteed payment, it’s going to lower your net income.

I have clients that make seven figures a year in the option market. They tend to own the underlying securities. They’re selling […], and buying them back. They do callers. They’re not sitting there going out there and exposing themselves to massive downside risk. They tend to be very good. They do one thing over and over again like […] teaches infinity investing with us. She plays two or three companies over and over again. I imagine it gets boring but you start to see that. You get really familiar with it. 

If you’re making the money, the only way that you’re going to have the ability to change it up is to use a corporation in the mix. When you do, if you make a lot of money, use a 401(k), you can still offset the corporate income by using a solo 401(k) or another vehicle to defer the tax. 

It all gets down to how good you are, how much money you’re making, and the vehicle which it sits. If it’s in your name, your options are pretty much nil. If you’re just trading it, it’s your sole source of income, and it’s in your personal name, my recommendation is, don’t do that. Get into another vehicle like an LLC with a corporation as a manager, a limited partnership with a corporation as a general partner or just straight into a corporation depending how much you’re making. Is that clear?

Jeff: Yeah.

Toby: All right. 2fer Tuesday is going to be ending pretty soon. This is at the end of the year. We just did the last Tax-Wise Workshop. There’s three recordings, six days recordings of the Tax-Wise Workshop. Plus, you get tickets to go to a three-day Tax & Asset Protection. You get two tickets to come out.

We teach them all over the country. You can always come out to Vegas and hangout with us at our home offices. We teach them at Downtown Summerlin quite often, depending on how big the group is. Sometimes we happen to go to an outside venue like Red Rock or Green Valley Ranch or The Hardrocks, soon to be closing its doors and becoming […]. There’s a three part video series in Wealth Strategy Planning Blueprint, the strategy session where we do the Wealth Planning Blueprint.

All of these things, you get all the recordings, six days. You get three days of live class. You get Tax & Asset Protection for Real Estate Investor book. You get three part video series and the strategy session for a total of $197. We’re calling that 2fer Tuesday. Watch for the link. We always send it out.

That is a screaming deal. The best part is if you go to the Tax-Wise Workshop, I literally had people this last workshop this week—seems like it’s longer ago—we had folks in there who saved $60,000, $68,000. There’s so many with $100,000 savings. Not tax deductions but actual savings in their pockets from last year, and they were coming back.

I tell them just walk away with three strategies. They implemented the strategies and usually the results are pretty mind blowing when you understand and you actually put the numbers down over your lifetime. It could save hundreds and thousands which is an understatement. Usually, our average is about $20,000 of deductions per year. It depends on your tax bracket if you’re in a 22% tax bracket, it’s about $4400, again. It adds up over the years. For a higher next worth folks, last year was around $100,000. Depending on what your tax bracket was. That’s the savings. For a whopping $197,000, you could check it out. See what we could end up doing for you.

We also have our podcast. These Tax Tuesdays are always there. You can go back if can’t get enough of listening to Jeff and myself talk tax gibberish for you. I think of radio goo goo and radio gaga from Queen. Go tax goo goo, tax gaga. If you want more, you can go to iTunes, or you can go to GooglePlay. It’s free. 

We are firm believers that you educate the populace, to make sure everybody understands what the rules are and there’s no reason to hide it, make sure everybody’s eyes are open and good things usually happen. 

You can take it to your accountant. Your accountant can come and listen to this and become a better accountant, hopefully. Or, you could always reach out to us. Again, there’s enough business out there. We’re slammed most of the time, so we love to share it. Again, we ask for nothing more than you take the information and save some money. If you’re going to save the money that you do right by and end up spending it on things that you care about or help an organization you care about. 

Replays are in your Platinum Portal. There’s usually a few that are out there. For those of you guys who aren’t platinum clients, there’s usually a few sessions that you can go watch. I think it’s two or three. If you want to watch, we’ve done well over 100 episodes at this point. They’re sitting in your Platinum Portal. You can always follow us on social media—Facebook, YouTube. 

Last thing, if you have a tax question, just email us at taxtuesday@andersonadvisors.com. We get hundreds of questions. We’re always looking at them. Quite often, they’re specific to you so we’re not going to put those on the screen. But we grab the general questions that we think, “Hey, you know what? This is something that we should answer in front of the group.” There’s thousands of people registered for Tax Tuesdays. We know we have a lot of listeners and the feedback we get is generally positive. 

Feel free to interact and use it. Usually, we’re doing this live. The chat features usually go nuts. We average about 200 questions a session. It’s a lot. Again, just feel free to email us any question you may have. There’s not a cost to it, guys. If you ask general tax questions, we’re just going to answer it. We don’t play the game of let’s answer the question and then we send you the bill. It’s not out style. Anything else you wanted to say, Jeff?

Jeff: I just want to wish everybody a Happy Thanksgiving to you and your families.

Toby: Until next time. This is Toby.

Jeff: And Jeff.

Toby: Merry Thanksgiving!

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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