In this Tax Tuesday episode, Anderson’s Barley Bowler, CPA, and Eliot Thomas, Esq., address listener questions on a wide range of tax strategies for real estate investors, business owners, and healthcare professionals. They explain how seller financing affects the ability to use cost segregation and bonus depreciation under IRC Section 465’s at-risk rules, and how a single-member LLC can recoup startup education costs through a C Corporation structure with shareholder loans. Barley and Eliot walk through the powerful tax advantages of setting up a management C Corporation over a Wyoming holding company — including medical reimbursements, accountable plan deductions, and W-2 solo 401(k) options. They cover what Medicare premiums and COBRA costs are reimbursable through a C Corp’s medical reimbursement plan, how the Section 121 exclusion works for primary residence sales, and what options exist for mitigating a seven-figure business sale gain. Other topics include write-offs for uncollected insurance balances in healthcare practices, avoiding required minimum distributions by rolling into an employer plan, and electing pass-through entity tax in New York for investment partnerships. Tune in for expert guidance on these strategies and more!

Submit your tax question to taxtuesday@andersonadvisors.com

Highlights/Topics:

7:18 — “How does the use of seller financing impact the ability to use strategies such as cost segregation and bonus depreciation?” Under IRC Section 465, your deductible losses are limited to the amount you have personally at risk. First phrase: “This is a great question. This covers a lot of different angles.”

15:27 — “The business failed to make any profit in year 1. How are those initial costs recouped, and how much can be carried forward to future years?” A C Corp election allows full education deductions; fund via shareholder loan for tax-free recoupment. First phrase: “A single member LLC spent $9,500 on training and other related startup costs.”

21:06 — “If I operate one LLC per real estate project, does it make sense to have a separate management entity to deduct shared expenses like an assistant, office costs, business meals, travel, and pre-development work? What’s the correct tax structure?” A management C Corporation reduces rental income and allows tax-free reimbursements to the owner. First phrase: “If I operate one LLC per real estate project, does it make sense to have a separate management entity…”

27:45 — “What components of Medicare premiums are reimbursable by my property management C corporation?” Out-of-pocket Medicare and COBRA premiums qualify; general wellness supplements typically do not. First phrase: “What components of Medicare premiums are reimbursable by my property management C Corporation…”

38:10 — “If I sell my house, how long do I have to buy something else before I owe capital gains tax? Do I need to purchase the next home for more than the sale of the house or is there a percentage of that value?” Section 121 excludes up to $250K single or $500K married with no replacement property required. First phrase: “If I sell my house, how long do I have to buy something else before I owe capital gains tax?”

44:45 — “For my healthcare practice, where can I write off balances that insurance refuses to pay, and promotions/certain population deals where I give service discounts or free visits/supplement packages for charity events?” Cash-basis taxpayers cannot deduct uncollected income, and donated services are not tax-deductible. First phrase: “For healthcare practice, where can I write up balances? Insurance refuses to pay.”

50:02 — “Can I avoid taking Required Minimum Distributions at age 73, if I roll over my retirement contributions from a previous employer’s plan to my current employer’s plan?” Rolling into a current employer plan may defer RMDs if you are not a greater-than-5% owner. First phrase: “Can I avoid taking required minimum distributions at age 73?”

53:12 — “Can an investment partnership elect the Pass Through Entity Tax in New York? What are the issues creating/dissolving investment partnerships?” New York allows any partnership to elect PTET, generating a valuable federal-level tax deduction. First phrase: “Can an investment partnership elect the pass through entity tax in New York?”

59:38 — “I sold my company, and I am coming into a 7-figure settlement soon. What can I do with that money to decrease my taxes?” Explore charitable remainder trusts, qualified opportunity zones, and capital loss harvesting strategies. First phrase: “I sold my company and I’m going to come into a seven figure settlement soon.”

Resources:

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Toby Mathis YouTube

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Clint Coons YouTube

Full Episode Transcript:

[00:00:00] This is the Anderson Business Advisors podcast, the show for real estate investors, stock traders, and business owners. We help you keep more of what you earn and protect what you’ve built. Let’s get started

[00:00:11] Barley: Hey, welcome back everyone. Tax Tuesday live here on Utah. Well YouTube and your Tax Tuesday, tax workshop bringing tax knowledge to the masses as a slight indicates. Welcome back everyone to your tax Tuesday session here. My name is Barley Bowler, one of the CPAs here at Anderson business advisors. Mr. Eliot Thomas joining us as usual on deck.

[00:00:30] Eliot: Great to be here

[00:00:32] Barley: Yeah, you guys know him then you guys know the drill for anyone here for their first time, big welcome to you very happy to have you here. Fast, fun, and educational going over your tax questions every two weeks. We do this, send your questions in every two weeks. We go over your questions. Again, anyone here for the first time. Thank you so much for joining us.

[00:00:47] Let us know where you’re tuning in from please. Shout us out in the chat, you got any comments, post, any questions to the Q&A. A shout us out in the chat, where are you tuning in from you guys from your home office or your second home office? Are you on the road or 

[00:01:01] Eliot: Getting those reimbursements, 

[00:01:03] Barley: Yeah, getting those reimbursement, getting those mileage reimbursements. Let us know where you’re tuning in from in the chat section there.And of course, let us know what questions you have as we go fast, fun, and educational. We want this to bring a lot of value to you and hopefully have a little bit of fun to this.Those words can go together sometimes right? Tax and fun.

[00:01:22] Eliot: Yeah, we got San Francisco Orlando and the train. I used to live in a train believe it or not true story

[00:01:31] Barley: Like a train car. 

[00:01:33] Eliot: Yeah, I did. Yeah, we remodeled it was my apartment.

[00:01:35] Barley: That’s cool.

[00:01:36] Eliot: Hong Kong, welcome. 

[00:01:37] Barley: Night there, we’ll try not to keep you up too late, but right. 

[00:01:41] Eliot: Make it worth the while, right?

[00:01:42] Barley: Exactly, email your questions here to Tax Tuesday at Anderson advisors. Again, we go over these every other Tuesday. Guys send your questions in try to format them in a way. If there’s similar ones we can group together and just trying to bring as much of this kind of upfront education to you as much as we can. Obviously a lot of this stuff, we got to go deep in the weeds and crunch the numbers and all that stuff.

[00:02:03] But we can at least get you started on your path to tax deductions here in Tax Tuesday. If you need a detailed response, please become a client. We would love to have you as a tax client. We focus on asset protection, tax planning, small business, real estate. That’s our area of focus here we’d love to have you become a client and yeah, let us know to tune in the Q&A, post questions.

[00:02:25] Any questions you have you can post here. Obviously if they’re related to the topic we’ll try to keep them relevant if we can go through some of those live. But you can ask any questions. This is your open forum for those of you that are platinum clients here, you can submit questions 24 hours to the platinum portal or join us five days, a week five hours a day in the platinum knowledge room there.

[00:02:46] Let’s get started. All right. We got some tax questions, opening questions. How does the use of seller financing?Common in real estate, right? We know that term. How does that impact the ability to use strategies such as cost segregation and bonus depreciation. Big buzzwords there.

[00:03:02] Eliot: A single member LLC spent 9500 on training, often refer to it as education and other related startup costs the business failed to make any profit in year one. How are those initial costs recouped and how much can be carried forward to future years?

[00:03:18] Barley: Okay, if I operate one LLC per real estate project, generally kind of recommended there. Does it make sense to have a separate management entity to deduct shared expenses like an assistant office costs? Great question, business meals travel for a pre-development work, like getting the property ready for rent. What’s the correct tax structure there? How can we maximize those debt deductions? Great question.

[00:03:40] Eliot: What components of Medicare premiums are reimbursable by my property management C corporation, is cobra medical coverage pre-age 65 reimbursable? I purchased supplements for my family and myself to stay healthy. Can I somehow deduct this cost?

[00:03:55] Barley: Medical through a C Corp. If I sell my house, how long do I have to buy something else before I owe capital gains tax? Do I need to purchase the next home for more than the sale of the house or is there a percentage of that value that I need to follow?

[00:04:10] Eliot: For my health carrier practice. Where can I write off the balances that insurance refuses to pay and promotions or certain population deals where I give service discounts or free visits or supplement packages for charity events?

[00:04:24] Barley: Can I avoid taking required minimum distributions at the age of 73, if I roll over my retirement contributions from a previous employer’s plan to my current employer’s plan?

[00:04:35] Eliot: Great question there. Can an investment partnership elect the pass-through entity tax in New York. Get in the state there. What are the issues creating slash dissolving investment partnerships?

[00:04:46] Barley: Okay, and finally I sold my company and I’m going to come into a seven-figure settlement soon. We sell anything, it’s coming to a seven figure settlement. What can I do with that money to decrease my taxes? We’re going to definitely be covering that big purchases, big expenses like that.

[00:05:02] Of course guys make sure you turn tune into the YouTube channel. Clint Coons focuses on the asset protection, Toby focuses on tax planning. Somebody’s going to get in trouble for not being subscribed to Clint’s page here. Make sure you subscribe, tons of good, content thousands of videos, right? These interviews are invaluable in my opinion going just talking to various industry leaders, various business owners, a lot of great information there. What do we got here?

[00:05:25] Eliot: A little bit of learn how to structure your business versus [inaudible:00:05:33]  all long-term growth. Live event here in Vegas, beautiful, Las Vegas for fabulous, Las Vegas, Nevada, $69.

[00:05:42] Barley: You’ve discounted to $67 now, right? March 19 through 21st live here in Las Vegas. Love to have you guys come visit springtime in Vegas. It’s beautiful here

[00:05:52] Eliot: I think we’re on the strip this year down. That’s a hair. I heard I’m not sure if that’s true. 

[00:05:57] Barley: We try and save some money on that C corp and if you’re smart like the rest of the clients. You will reinvest in the business, but you can always come to Vegas. We can spend that a weekend, no problem.

[00:06:07] Eliot: I think that’s March Madness week. So get down here. Yeah tax deduction, huh?

[00:06:11] Barley: Real estate asset protection workshops. You guys know about this right tax and asset protection. Let’s see I think we got a couple of these are virtual. 

[00:06:18] Eliot: Yes, February 21st? 

[00:06:21] Barley: Yeah, live one, lots of events guys. We’re really back on with the live events if you have any questions about that, reach out we can very easily get you in touch with somebody to give you more information about that. Plus as we go, scan this QR code, you can set up a strategy session right now if you want to get the ball rolling if you want to learn more about these strategies. Maybe have us help prepare your asset protection and tax tax filing needs scan this right now. You can talk to an advisor, get the ball rolling and let you know what’s next. Alright ready to hop in here?

[00:06:52] Eliot: We are ready to go.

[00:06:54] Barley: We got a whole team guys joining us in the background answering your questions. It’s not just Eliot and I here at CPAs tax advisors in the background answering your questions. So keep them busy.

[00:07:04] Eliot: Yeah, we got Dutch, George, Jay, Jared, Murray, and Rachel.

[00:07:09] Barley:  Excellent. Thanks team. Time to talk tax or what? Okay. Let’s dive right in. This is a great question, this covers a lot of different angles, challenging question, but very relevant to what a lot of you guys are doing. How does the use of seller financing? We’re going to talk about what that is.

[00:07:26] How does the use of seller financing impact the ability to use these tax reduction strategies such as cost segregation, a bonus depreciation. There’s a certain type of financing. Does that affect our ability to take these large deductions?What say you Eliot?

[00:07:43] Eliot: It depends.

[00:07:45] Barley: Man, let’s try that again. I’m just kidding. What does it depend on? How about that?

[00:07:49] Eliot: So first of all, let’s break out some vocabulary here. Yeah, we often talk about real estate. We’re seeing this right away with the cost segregation and bonus depreciation. Let’s look at what those are. Start at the very basics if we have let’s just say a regular rental property. Just a single-family home that we’re renting out. Typically long-term rental, you’re going to take the value of the home itself, the improvement divided by 27 and a half years and you have the equal amount, call that straight line depreciation not a bad deduction.

[00:08:20] However, we have these other concepts that you can come into it and have a study done cost segregation study and look at that same building and its different components. Could be five-year, could be 15 year property, and some will be 27 and a half. But the key here is that if you’ve taken some portion of it and turned it into five-year property. Carpet is probably the best example of that.

[00:08:44] We’ve now sped up that cost and instead of doing it over 27 and a half years that portion. We now do it over five. So we’re accelerating how fast you deduct it. Okay, we’re not actually adding any dollar amount.It’s just coming along faster. Well, then we couple on to that the concept of bonus depreciation. And that says that if we make that election anything that’s under 20 years of depreciation, that’s going to be your 5 and 15. Typically you’re going to deduct a hundred percent of it right away. Can you beat that? Well, you can probably but this is a really great deduction. 

[00:09:20] Barley: Not without government subsidies.

[00:09:23] Eliot: Exactly. Well, we understand now what we’re trying to do. We’re looking into taking massive amounts of deduction. For instance,if you had a, I don’t know, a $500,000 building, let’s say a hundred thousand was for land, 400,000 was for the billing itself. As a rule of thumb you can take maybe 25% of that amount or a hundred thousand as immediate deduction after you do a cost.

[00:09:44] Say that’s just kind of a rule of thumb that we hear from those performing those studies. If you had a $100,000 loss, right away on your business and you were able to offset other income on there which gets into some other issues that we won’t get into today. But the point being is it could be a really powerful tax play and that’s what we’re asking here.

[00:10:03] If as Barley pointed out we use this different kind of financing seller financing which we’re going to find here in a second and we use these other cost segregation and bonus depreciation methods. Is there any change in how this all operates? Now we look to seller financing, which is really a pretty simple concept. It’s just that let’s say, I’m buying a house, a rental house from Barley instead of getting my own regular financing through a lender or mortgage company or something like that. I just pay directly to Barley.

[00:10:35] He may have a note. He’s still paying the bank and maybe even the bank doesn’t know we’re doing this, which is another issue. However, the idea is he’s really the one, he’s the seller. He’s really financing it for me, I’m just paying him and that’s how our arrangement and that’s the concept of seller financing that we have going on. Three terms, cost segregation, bonus depreciation, seller financing and that helps us lead in to what else is going on in this question.

[00:11:06] One of the things we have to watch out for is this type of non formal financing. The seller financing is what we call a non recourse. Typically if I stop paying Barley after we have this arrangement, he’ll just take the house back. But he doesn’t come after me for anything. 

[00:11:20] Barley: No other forms of recourse. 

[00:11:25] Eliot: Exactly. Thus. It’s non recourse. That’s where we get the term. Now we step into we and we bring in a whole different section in the code called section 465, it’s the at-risk rules and these have a lot of different parts to it. But we’re going to focus on one and pretend one in particular and that has to do with lending mortgages, loans, things of that nature and how that all plays out.

[00:11:47] 465 basically says if you don’t have any skin in the game, that would be me the buyer. Well, then I can’t take any deduction. I can’t create a loss and take deductions for it and that’s where we have a potential pause here in our system. Basically, I have to have what’s called an economic investment and that means that I put cash into it. Maybe I put some kind of other asset into it and I get value for the basis in that.

[00:12:14] Something that nature or if it’s a recourse loan that Barley could come after me for something other than the house those are all things that could add to the ability where I could maybe take more deduction. An example again, let’s go back. I’m buying a house from Barley, let’s say it’s a million dollars. And I put 200,000 down, I write him a check for two or give him 200,000 cash and the rest we’re doing through this seller financing. I didn’t go through a traditional lender. We have a non recourse loan. We have an agreement, I’m paying him a little bit and he’s doing whatever he does paying his own lender or what have you.

[00:12:49] In that situation because I put the 200,000 in, well, I can take a loss up to 200,000 because I have skin in the game up to 200,000 at that moment. Well, Eliot you have a note, but it’s a non recourse note, so they can’t come after me. The code doesn’t allow me to get any credit for it if you will. As far as how much deduction I can take now again if it was recourse and Barley could come after me if I failed to pay let be something else, but we don’t have that going on here.

[00:13:15] But there is one exception, anything in the code and this is actually the tax code is trying to be favorable to people in this position. It recognizes well, maybe some people do this quite a bit.  And so there’s an exception or if you’re a qualified non recourse lender, financing exception then maybe you can but that’s for someone who does this on a regular basis all the time basically as a business. In our situation we don’t have that going on.

[00:13:42] Barley’s not doing that with a lot of other people and he would have to do that, it’s a regular course of business giving out these non recourse loans. We don’t have that going on in this situation. Again or limited here in the case of my situation, I put 200,000 in that’s the most I could take from a loss in the first year or at any time until I built up more being at risk and again. That’s if I put more cash in things like that, I’m more at risk then I could take more of a deduction and this is a very complicated area of the code.

[00:14:14] This is why you need tax planning, be it with us at Anderson we’d love to have you or with your own tax professional. You want to make sure you look over these issues. But the simple question is can I use seller financing, and do a cost segregation, and bonus appreciation? You very well might it just depends on the facts but you got to work with somebody knows what those are and what’s going on so we can kind of guide through till we get to a good resolution on it

[00:14:39] Barley: Absolutely. Yeah, so much there. Absolutely way to cover the cost segregation study, that’s going to result in the accelerated appreciation. Obviously, like we just outlined there. Can we take the loss? That’s the number one concern. Of course, we can do the caustic study, we can take bonus depreciation assuming it’s a business asset, all that stuff. But very similar to whether we’re determining it’s an active or passive loss, same kind of decision-making process there. Great question and hopefully relevant to a lot of you and this generates questions. Please let us know you can submit questions here or in the Platinum portal.

[00:15:09] Eliot: Definitely seen an uptick in questions about seller financing. So one of the reasons we chose this question.

[00:15:16] Barley: Anything else you want to cover on that one? 

[00:15:18] Eliot: No, I think we’re good. 

[00:15:20] Barley: Okay, right. A single member LLC spent $9500 on training and other related startup costs, like Eliot mentioned when we see that training we think education. That’s the buzzword to the IRS that they look for that right? The business failed to make any profit year one, also very common. How are these initial costs recouped and how much can be carried forward into future years? I don’t think what you’re saying there. If there’s a loss how much and how long can it be carried forward? Where do you want to start on that one, sir?

[00:15:48] Eliot: We got an LLC. Yeah, that’s our first question. How is it taxed? LLC single member that helps when I got a feeling we’re probably talking disregarded. What’s disregarded?

[00:16:00] Barley: Just reports on the texture of the owner. Yeah likely disregarded or an S-corp.

[00:16:05] Eliot: But it doesn’t have to be and so we just stop and pause for a second. It could be disregarded. It could be a C-corp. It could be an S-corporation, single member, it’s not a partnership. We know that’s the only thing we know for sure. That’s the one thing we do know. But then we spent the 9500 on training and other related startup costs.

[00:16:22] What do we do with that? Well, we often hear, Barley and I talk a lot about if we have education training expenses that we can only deduct them on a C-corporation. Maybe we want that LLC taxed to see if it’s for a new line of business. Now if Barley has some business out there and let’s say it’s an S-corporation. He’s got a hiking business or something like that. He takes people in hikes around the valley or something like that and maybe he does some kind of continuing education.

[00:16:49] Learning about what kind of, snakes or poisonous or whatever so he can shove Eliot in front of everybody in case, you know viper comes at us or something like that

[00:16:59] Barley: Enhancing my current skill set. 

[00:17:01] Eliot: Exactly, he’s already got a business going on and he’s got a prop. So he’s got that all going on for his business. Well, that’s continuing education. No problem. You can deduct that there. 

[00:17:12] Barley: In any entity really.

[00:17:14] Eliot: But if it’s not, if it’s a new line of business now, we gotta think that C-corp so we want an LLC taxed as a C-corp. Which could be a single member LLC, but that’s how we want that. That’s how we get that training deduction. What about the fact that we failed to make any money year one? That’s on that. 

[00:17:35] Barley: You’re going to have a loss if you have an S-corp. It will pass through to you a C-corp can just carry that forward loss. But if you have an S or C-corp and you want to take these tax-free reimbursements out of the corporation. We may want to get some cash into the corporation first. That’s one thing we could look at capital contribution to an S-corp, shareholder loan to a C-corporation. Why would you even do that? Because what we may want to do is get cash into the company in the first year while we’re getting up and running to take advantage of these tax-free reimbursements.

[00:18:03] This is kind of something we got to wrap our head around for any of you hearing this for the first time when we talk about reimbursements through an accountable plan. The real magic here is this is a deduction to the business. But a tax-free reimbursement to you. We sometimes want to maybe put extra cash into the business because you may be asking yourself, why would I put money in the business and then take it back out? 

[00:18:25] Just because what we’re doing is putting cash in as a capital contribution or a loan and then when we take it out, it’s a tax deduction against income current period or future, but it’s a tax-free reimbursement. We don’t even have to report it on our tax return let alone pay taxes on it. If you don’t have a profit in year one, you may want to make a loan or capital contribution so that you can just like you said, how are these initial costs recoup? 

[00:18:48] You can reimburse yourself for some of that, for example the education portion? Out of the funds that you contribute. I know that sounds a little circular, but that’s how we legally isolate these funds, we can take them as a tax-free reimbursement through a corporate accountable plan.

[00:19:03] Eliot: If maybe we have again 9500 training, and maybe we have another let’s just say 500 or other startup costs, we will consider that a loan from shareholder typically in the case of a C-corp and then you have that deduction already and that deduction will go forward. Because the C-corporation spent the money or maybe it’s already spent. But we’re going to give that expense 9500 of training to the C-corp.It shows that as a loss we had no income this first year, and that’s fine.

[00:19:30] It could take depending on when we incurred that. It could take that whole 9500 right away the first year or a portion if it’s something part of a startup cost we simply divide by 15 years. We amortize over time if the amount is over 50,000 inducted up, excuse me 5,000. We conduct five thousand immediately anything over that we amortize over 15 years no matter what we don’t have a problem here.

[00:19:53] Okay, the good news is that we can if this is a C-corp we got a place for that training education. We did deducted, you got to call it a loan. It starts taking off and making money you get your loan back. That’s how we recoup just as Barley pointed out, and we’re able to take those deductions, right?

[00:20:09] Barley: Yeah, it’s all about how do we get the cash back out when we’re talking about putting money into an S-corp or C-corp you’ll hear, well my capital contribution to an S-corp shareholder loan to a C. It’s all about when the company is profitable. How can we get the cash back without any tax repercussions or with the least amount of mess right? Capital contribution to an S-corp. 

[00:20:27] We can withdraw as long as it’s within our basis no tax repercussion there. Shareholder loan to a c-corp as soon as you’re profitable pay the loan back you might get a little interest expense but then that’s the end of the line there. No other tax repercussions.

[00:20:40] Eliot: Quite slick. 

[00:20:41] Barley: That’s right, a C-corp, just FYI it can carry forward losses. If you have a loss in your C-corp, that’s fine. You don’t have to necessarily make a contribution or loan to the corporation just to let you know that. What’s next here? If I operate one LLC per real estate project does it make sense to have separate management entity to deduct shared expenses like an assistant office costs business meals, travel, pre-development work. What’s the correct tax structure?

[00:21:11] One thing we’re asking about here is, what if we have expenses that are kind of related to all the rentals? That’s just a bookkeeping issue there. We can easily allocate funds there, but if we have a management entity. Just like we were talking about there that can create a lot of good tax benefits all of a sudden. If we have an incorporated entity like an S or C corporation.

[00:21:31] Eliot: I would even step back. Let’s just say we don’t. Let’s just say again Barley has three rentals out there, and he’s managing them himself. It’s no problem, he’s allowed to manage his own property certainly. But he can’t pay himself anything or if he does let’s just go with that. He doesn’t pay himself, he’s got the billings. He’s putting the time in.

[00:21:49] Barley: His management fee income.

[00:21:51] Eliot: Before we even do that, he’s just taken the rent okay. He takes the expenses against the rent, nothing wrong with that and then he says well, you know what I’m really acting more like an employee, I’m putting a lot of time. Let’s say he does charge a management fee to his own rentals. He can do that and it’s even a deduction against that rental income.

[00:22:11] But now let’s just say he does it as himself a sole proprietor and let’s say he gets $10,000 for doing that great. He’s got a deduction, but now, he just earned $10,000 of earned income. Which is not only subject to employment tax, but also federal income tax now. He’s getting tax, he’s gone the wrong direction on that, so we don’t want to do that. But if we had some solution, some different taxpayer that was doing this for 

[00:22:37] Barley: Some way to legally isolated funds. 

[00:22:39] Eliot: If we could make it sound like maybe there is something like that. Management C-corp. That’s why we use it, that’s one of the reasons we use it all the time. It’s so very powerful. Now he does the same job, Barley’s still working as the property manager, but he’s doing it as an employee of his own C corporation and his properties paid management fee to that C-corp. Now we got money in the C-corp. Let’s say again $10,000, It’s deducted against the rental income on those rentals. We’re good there.

[00:23:09] Barley: Lowers your taxable income.

[00:23:11] Eliot: Certainly does and we got that income in the C-corp and now we can use all those reimbursements, 280A Augusta rule meetings, accountable plan reimbursements, have an administrative office. Maybe some medical reimbursement. We’re going to talk about that coming up. All these ways to get that $10,000 back to him as the employee tax-free. That’s a deduction to your C-corp at the same time.

[00:23:32] Effectively what’s happened in this I don’t want to call it a shell game because we’re allowed to do that. These are legitimate arrangements, but we’ve taken 10,000 office return got it tax deduction there. And he’s got 10,000 tax-free in his pocket and whatever he wants, pretty powerful

[00:23:49] Barley: Just like Eliot said this is a common practice. It’s just you’re the one managing the property as opposed to paying a third-party property management. It’s the same relationship. You can pay a third-party property manager. They’re going to pay their employees, they’re going to reimburse their employees and take the discounts right or you set up your own corporation and play that same role. And you get those benefits, certainly a great option.

[00:24:09] Yeah, just before the end of the year, all that management fee income in the C-corp before we pay tax on it. Reimburse as much of that into our pocket tax-free may even look at a W2, look 401K a lot of options from there.

[00:24:20] Eliot: Pull off that last part there. What’s the correct tax structure? Can we draw that up? Just get a look at what you know, what are we talking about?

[00:24:26] Barley: Rental one, rental two, typically held in the Wyoming holding company. This Wyoming holding company that might be a partnership might be disregarded, but that is going to flow to your tax return. Either way whether it’s a partnership or disregarded a 100% of the income and expense all that stuff’s going to pass through right to you as the taxpayer. So that means if these are cash flow positive, they’re making money. Let’s say them, you know each making $10,000.  I have $20,000 flowing to my personal tax return. 

[00:25:00] What we’re proposing, set up a c-corp over here to act as a property manager, pay a management fee. Again, that’s going to reduce the amount of income that flows down to our 1040. Pay $2000 over to the C-corp. We now have to pay tax on 10,000 minus 2,000 on 8000 now, so that’s a benefit right there, right? We lowered our taxable income. Now we got the income here in the management fee income, not the rental income, right guys.

[00:25:30] Just the management fee portion. Rental income all the related expenses are reported here at the rental level. This is just management fee income here at the C-corp, 10%, 15% of your gross rents at whatever money we have in here in the C-corp. That’s what we’re going to use for reimbursements before the end of the year. It’s going to reimburse you, tax-free, 280A meetings, for example, you just you know get three local quotes, turn in your reimbursement transfer the cash out of the account, that’s it.The IRS is going to look for your three local quotes to, you know, substantiate that but that’s for example. Just how easy it can be to get the money out of the court. 

[00:26:10] Eliot: Exactly right, powerful tax play. Just by doing things a little bit different, keyword there is structure. We’re going to start using entities, put them in the right place, have them doing the right function. We’re going to get tax savings and free tax free cash in this case.

[00:26:26] Barley: Yeah, and this can have a W2. It can have a qualified retirement plan. It can have a medical reimbursement plan, home office 280A meeting like we mentioned there a lot of benefits, medical, remember that’s you spouse and dependents a 100% of your medical, dental,and vision. Again deduction to the C Corp tax-free to you reimbursement to you great option there. 

[00:26:50] Eliot: Hopefully we’ll have a question about that, right?We got a big one. 

[00:26:53] Barley: Eliot and I might have looked into the crystal ball to see what’s coming up. 

[00:26:56] Eliot: I foresee.

[00:26:57] Barley: That would be the correct tax structure that we recommend. Often a Wyoming holding company holds our passive buy-and-hold type rentals. We got the management company. It’s not part of that Wyoming holding company structure. It’s an active business, right?

[00:27:12] We’re out in the public saying hey give us your money, have business cards or whatever. You might be your only client, but this is still considered a public facing business. That’s the structure we’d recommend there C corporation for management purposes. Hey, are we just talking about this, right? All right. What do we got?

[00:27:33] Eliot: What components of Medicare premiums are reimbursable by my property management C corporation? Just like Barley was just talking about is Cobra medical coverage pre age 65 reimbursable? I purchased supplements for my family and myself to stay healthy. Can I somehow deduct this cost?

[00:27:49] Barley: We don’t incentivize those kinds of things around. 

[00:27:52] Eliot: No, right? Well, let’s figure it out, let’s tear it apart. We got a management C corp, just drew all those up. It’s got some cash in there and you’d made mention of some kind of reimbursement plan in it.

[00:28:04] Barley: Medical reimbursement plan, 105 B plan, we have this as part of your template if you set up a corporation through us. You have that as part of your initial documents, just included there. This is the way you can reimburse for a 100% of your out-of-pocket medical. Unique to a C corporation. We talked about education only through a C corp, first year education. This is another one of those a 100% medical reimbursements only through a C.

[00:28:27] Eliot: But let’s get it down a little more narrow. What about Medicare premiums? And actually we had a couple questions about this and some of them went into the detail. What if we had parts A,B, C, D and G they have the whole alphabet of Medicare going on? Just real quick. This is not a lesson about Medicare but just so people are aware of part A for Medicare.

[00:28:49] That’s going to be for your hospital visits, typically, B is going to be more for your medical insurance covering the doctors and things like that, supplies things that aren’t covered maybe under A. You got part C, that’s more of an overarching they call it Medicare Advantage. That’s basically to replace both A and B with maybe some other bells and whistles.

[00:28:10] It’s a different type of premium. We have D. That’s the prescription medication itself and then G medical supplement insurance that’s kind of thought of as gap insurance covering some things where maybe other parts slip through or something like that. All these have different rules and things like that. But when we talk about reimbursement, especially we’re talking about medical premiums.

[00:29:31] Be it any of those parts we just talked about or maybe it’s not even in Medicare. It’s regular health insurance premiums. The idea is if you paid with after-tax dollars, okay to pay for this then you can reimburse. 

[00:29:45] Typically you’ll always be able to now your plan, your medical reimbursement plan, the 105 B the [inaudible:00:29:52] all these different terms we use for it. It has to say you can be reimbursed for premiums,insurance premiums, that’s the key. The law allows it but then we look at the plan documents to see what exactly was put into that plan. But typically speaking near these out-of-pocket medical expenses. You can get reimbursed through your seat. 

[00:30:09] Question is again. It’s not with pre-tax dollars, it’s with after-tax dollars. If it was pre-tax dollars, you would have gotten a deduction at that point and now you’re reimbursing effectively double dipping and that’s what we can’t do and that makes sense.

[00:30:24] Barley: Yeah, just to reiterate that out-of-pocket again just means pre-tax. We didn’t get a tax benefit the first time our way around. That can be a great cobras included in that too, right? 

[00:30:35] Eliot: It is, next part here. What about the Cobra? That’s a premium. It’s a medical premium. You can be reimbursed again if you’re paying with after-tax dollars, you already paid tax on it. Now you’re paying your cobra premium. Yes, and this works for an employee, employee spouse, and dependence, tax dependence, but we can’t use it for everybody else outside that circuit. This medical reimbursement plan is what we call non-discriminatory, meaning that if you give it to one employee, you have to give it to all.

[00:31:03] Alright, so we can’t, we have to be careful with that. Maybe you have a bunch of employees and you don’t want to reimburse all these medicals out of your C corporation. Well, that could be an issue.

[00:31:12] Barley: Yeah for a lot of you guys though, a lot of our clients are closely held family held C-corps,this education, medical right. This is going to be very beneficial to a lot of you guys. If you got 20 employees or even two, that may not work for you, but just want to throw that out there.

[00:31:28] Eliot: Classic question, get asked every year, without fail,multiple times a year. What about supplements? I get that vitamin D, I get the vitamin C. Gym memberships it’s another popular one. Well, let’s just stay with the supplements right now. Can we get those reimbursed? In this case, we’re saying we’re using them to stay healthy. No things that you incur just for general welfare and health, we cannot reimburse.

[00:31:54] That must mean that there must be a different way of approaching this. If your doctor if your physician happens to say, Eliot, doesn’t look like you’ve been in the sun for a while, here’s some vitamin D that you get from the sun. Whatever it is, he says I have to take the specific amount, for a specific period time, for a specific condition. Then typically that’s medical care. Now all of a sudden that changes it into a new perspective under the code. And yeah, we can get reimbursed for that. But just for general health? No, can’t do it.

[00:32:24] Barley: Think about when you’re back in grade school. You guys see the doctor’s note.

[00:32:27] Eliot: Yes exactly, right. Need that doctor’s note. I wouldn’t suggest in this case, this is a medical provider that was a couple of them that were asking and excuse me presenting these questions. I just tell from the context of the question. I probably wouldn’t do it for myself in other it’s like my sister’s a physician. I wouldn’t tell her to go ahead and write herself a prescription for vitamin C and try and do it through a reimbursement plan.I would really probably get someone else to do it, another physician or medical professional.

[00:32:53] Barley: Quick comment on that guys when you see that accountable plan for reimbursements in that medical portion. You will see in there that you can reimburse out of the company for supplements and gym memberships, but you don’t get a tax deduction. I almost didn’t even want to bring that up, I don’t want to go too far in the weeds there, but it’s part. It’s in that literature. I just want to bring that to your attention.

[00:33:13] Kind of a tricky one there. We don’t get a tax deduction if you had a lot of employees. There may be a benefit there to offering that as a perquisite to your employees even though you don’t get a tax deduction. For anyone that read in there, hey, what said we could reimburse for for supplements and gym membership. You technically can let us know if you have any questions. You don’t you just don’t get a tax benefit from it.

[00:33:34] Eliot: It’s actually income to you. We don’t recommend it for those typically but to the end can we somehow deduct this well you can for those parts that we went over today that can be reimbursable paid without a pocket money. After-tax dollars whatever you want to call it, get reimbursed. It’s not you the individual that’s getting the deductions, it’s your C corporation because remember this all started with a medical reimbursement plan under our C corporation. 

[00:34:03] Again just stepping back full circle here to where we began with the last question. Another reason why it’s so important to have these, C corporations if we can set them up with a structure that works for you.

[00:34:13] Barley: Yeah, and that’s a great point. It is the medical reimbursement to owner. That’s a legitimate business deduction through the C corp, keep saying that, tax-free reimbursement. And a deduction to the business, medical reimbursement from owner, will be right there on the profit-loss statement for your C corporation. That’s where you get the deduction in a report. 

[00:34:34] Whenever it pays you back, that’s when it’ll report the expense in whatever year. Remember you don’t have to report it ever, right? Doesn’t matter when you get it, what year you receive it.  And you don’t have to report it or pay tax on it.

[00:34:45] Eliot: I’m just looking at just a recap of those last three questions. We talked about having the education C corporation looked really good for that. And then how we could recoup those class, those costs, through a loans from shareholder arrangement of that C Corp. Then we saw well, what if we use it as a management corporation to oversee our rental properties? And now we see well if we’ve done all that we got this cash in our C Corp. This particular question really narrows down into how we can use it to the full max, benefit of getting that money back to us tax-free. 

[00:35:14] Barley: Yeah, especially for any of you transitioning out of third-party W-2 and to managing your own investments. I mean that C corp’s probably looking pretty attractive to you right now, right? The reimbursement, the medical, put yourself on W-2, solo 401k, a lot of benefits there. Alright, you guys know this guy. Mr. Mathis, make sure you subscribe. He was just here in the building. 

[00:35:38] Eliot: He was here today. There’s more videos.

[00:35:44] Barley: Make sure you tune in. Nothing but good, nothing but great, free educational content here, you know Toby who’s out there running with the big dogs doing it. Let’s take his advice when he gives it to us for free. 

[00:35:54] Eliot: He knows a couple things. 

[00:35:55] Barley: He knows a couple people, he knows the president. Mr. Clint Coons, make sure you subscribe focusing more on asset protection. Of course, they go hand-in-hand right? It’s hard to have conversation, one without the other. But we got to focus on both that kind of the three-legged stool so to speak as Clint talks about a lot. And again just a reminder if you want to schedule a strategy session right now get the ball rolling scan that code.

[00:36:18] We got people on deck waiting to talk to you set up an appointment to talk to you. So please reach out. We’d love to have you become a client, multiple kind of packages. We can offer from bookkeeping, tax to general asset protection.

[00:36:30] Eliot: Something that you just mentioned on the bookkeeping. We haven’t gotten too in-depth on this show so far on that. Remember all these numbers we talked about if you don’t have good bookkeeping, you can’t really be assured that those numbers are correct. I can’t overstress enough that you have a good bookkeeper, if you’re not doing it yourself. If you know what you’re doing that’s fantastic.

[00:36:51] You get your real whiz with the debits and credits, great. But just make sure you have because your tax information is only as good as your bookkeeping. Back on that scan code that Barley just had up. You go to money sessions, that’s one of the things you can get geared up and find out if you need bookkeeping. We have several different packages and things like that that might be able to help you, but it is so essential. If you use our services fantastic, just make sure you have good bookkeeping. I don’t care where you’re getting it from.

[00:37:17] Barley: Yeah, because we get that a lot. It’s a general kind of nebulous concern, but still valid concern nonetheless. I just want to make sure I took advantage of everything. How do you know? Well, if you look at those books you can go through and see well here, I took this deduction, I took that. If you turn in an S corporation to me or a C corporation and I’m reviewing your return, I’m going to go right to that other deductions page at the back.

[00:37:39] Did you reimburse for your home office and you know all these list of expenses? This is easy money that we can save there through the corporation. If I sell my house, how long do I have to buy something else before I owe capital gains tax? Do I need to purchase the next home for more than the sale of the house? Or is there a percent of that value? Sounds like we’re talking about a couple concepts are potentially a primary residence or maybe a business use of a rental property.

[00:38:05] Eliot: That’s exactly why I picked the question because for those who are old-timers a little bit older or know the code from way back when. This is actually what happened if you sold your primary residence. You had to take that money and go and buy a new house. You got a time frame that I couldn’t tell you all the details, I don’t remember because it’s a long time ago. We do get asked this every couple years, it doesn’t happen often but people are just kind of remembering the old way the code was and at that time.

[00:38:35] Yeah, you had to go out and buy something real quick. Otherwise you get taxed on it and you could do it once. Things have changed. But if it’s a primary residence, we don’t have any of that. We have something now called section 121 and that just says as long as you own it and you use it as your primary residency to the last five years. Then if you sell you can exclude up to a quarter million, 250,000 if you’re single, 00,000 married, finally joint right off the top of your capital gains. 

[00:39:04] Maybe we have capital gains, maybe it’s an issue we have to tax plan. But we have to tax plan for a lot less once we do this exclusion. That’s what’s going on now with a primary residency. But now we go over. What if we’re selling and what if it’s just a rental it’s been placed in service? It was used as business. What else do we have to do at that moment, you sell it, you have capital gains tax. Okay, now we just have to look for things that we can do to mitigate that’s the whole game right there.

[00:39:31] Do I need to purchase the next home for equal value or is there some percentage of that value or something like that? That last part of this question kind of drew me in because it starts to sound like maybe they’re talking about a 1031 exchange.What’s going on in a 1031?

[00:39:47] Barley: All right. So if we’re assuming this is not your primary residence. This is a rental, a business asset, right? Then we can sell that and exchange it for another property of higher value and defer all the tax. That’s what I want to do, defer, not exclude, right, that just pushes them forward. But we can trade up in value and then we can again defer a 100% of the capital gain. 

[00:40:08] That’s if it’s a business asset, we can’t do that with a primary residence. But we have the section 121 exclusion very very powerful on the personal side. Kind of a combination of both there, but to Eliot’s point, once you sell, I guess the reverse 1031 exchange would be the opposite order. But once you sell your, it’s not too late.  That’s where the tax planning part it kind of ceases to be as effective if we can talk about this before the fact, there’s a lot more we can do. For example a 1031 exchange and then what you do with the funds.

[00:40:42] I guess we could transition to that right? Now you get the tax bill now. What do you do? What do you do with the money? You’re saying, can I purchase another piece of property or something like that. Absolutely, and we’d look at structuring that in a way to reduce those capital gains, to offset those capital gains.Several ways we have doing that.

[00:41:02] Eliot: We talk about the 1031, if we picked up more property in this exchange. It has a lot of rules, but it’s very effective for deferring that tax. We also have what Eliot likes, the lazy 1031 much more my speed and all you have to do there is just go buy another rental property get a cost segregation donut. Create a bunch of maybe this was a passive activity. If you got that then create some passive losses on this new property.

[00:41:26] It’s going to offset the gains if you do it within the same calendar year. We got a lot of options, a lot of things we could do, other things maybe you set up a non-profit, put some of your funds into that get a deduction there. Or perhaps you do oil and gas investments. Whatever it be and there are a lot of things it could be whatever this tax advising is.

[00:41:45] Just make sure you’re working with somebody who understands these things, who can walk you through, give you ideas what these strategies are. What they really mean to you, the goods and the bad of them and that way we can start to mitigate whittle down that.

[00:41:58] Barley: It’s a common misconception too, you incur it or you sold something. Then you have this amount of gain and the misconception is, well by invested in something else maybe I won’t have to pay tax on it. Just very generally speaking, when we have a transaction to realize income. We don’t pay tax on it till the end of the year, but it’s immediately reportable, taxable income and then we just look to ways to offset that kind of as we go. Just to clarify that.

[00:42:30] Eliot: We are coming up at the end here of 2026 of the opportunity zones. That was another strategy, just want to briefly touch on that. I probably wouldn’t recommend it this year. Basically, it said if you had capital gains, you could come from this kind of selling of a property or even stock just had to be capital gains. You could invest in an opportunity they won’t fund which is simply in a partnership or maybe an S corporation something like that.

[00:42:54]  That had invested in buildings or businesses in a designated area to encourage investment, usually your areas that were a little bit hard hit economically and it would defer that capital gain. But the problem is that the clock stops at the end of 2026. This started all the way back in 2017 so it’s been going and going, going and now slowly winding down. We already know as of last July 4th under the big beautiful tax bill that this is going to come back in a different form.

[00:43:24] We’re going to have a new and improved opportunity zone, but it wouldn’t help us here. We’re not allowed to take 26 gain in this situation and put into 27 or at least even if you could it hasn’t been addressed yet. That’s going to kick off in 2027. But at the end of this year in 26 for right now, probably not an option but something thinking down the line. Maybe you’re thinking, next year, I’m thinking of selling a property. Maybe an opportunity zone under the new format might be for you.

[00:43:48] Barley: If you said instead, how can I reduce tax? How could I reinvest this money effectively or something? Well, it’s not my job to tell you that but a qualified opportunity zone if you hold that investment for 10 years. The gain is generally going to be tax-free there. So certainly a play there if you want it, you know looking to invest the money for good growth. Any questions on that work? 

[00:44:08] Eliot: I think we beat that one. 

[00:44:14] Barley: For health care practice. Where can I write up balances insurance refuses to pay? You guys with small businesses running your own practices here and promotions, certain population deals, where I give service discounts for free visits, supplement packages for charity events. I’ll even throw in here, maybe you have low income clients are offering kind of discounts to them. This can apply to anywhere you’re offering discounts or insurance involved here.With the insurance you had a good point earlier. It’s going to be it depends on if you’re a cash basis taxpayer or accrual.

[00:44:45] But the majority of you guys if you’re here, you’re going to be a cash basis taxpayer and the bottom line is here if you don’t collect income for whatever reason a client refuses to pay you we don’t get a deduction for that. We just don’t report the income and pay tax on it. This is as a cash basis taxpayer with which the vast majority of you are going to be.

[00:45:04] Eliot: And that just means if you’ve received money, you got an income. When you pay that’s cash basis. It’s the simplest form. But as Barley points out if we didn’t receive any well, then we didn’t have anything to tax, so there’s nothing to take as a deduction. But what if we’re accrual basis? That’s something else, that’s if you earn it. We could have a situation where we’ve earned the money and maybe we have to recognize the income. But maybe we haven’t been paid all that yet. 

[00:45:34] That’s where you could have a write-off for bad debt. That’s a little bit different, that would be obviously for those in the health care services probably a little more familiar with that. But you’d have to work with, you know, those insurance companies and things like that. We go from a situation where there’s no deduction because we didn’t receive any income. We weren’t getting taxed on anything to where accrual maybe in some circumstances we had recognized.

[00:45:58] But we didn’t get paid so we have to do an adjustment bad debt perhaps or something of that nature to take that back out. Then you have contractual changes that occur as well in health fields and that usually changes as you go along. Typically there’s no write-off for bad debt. They’re either the contractual arrangement just changes with the flow of income and in business, etc. 

[00:46:22] All that would be more for someone who’s really invested heavily in medicare or something to work with, excuse me medical practices, to work with somebody who handles those contractual arrangements and things of that nature. But as far as the promotions, what about that? We put some money together a deal. I’m going to give away free medical services it is. Maybe you’re a dentist. We’ve had clients set up their own nonprofit for that if you’re giving away things like that. Are we looking at a deduction?

[00:46:52] Barley: Well, not really.

[00:46:54] Eliot: No the answer the not really is the kind way of saying it. You don’t get a deduction for providing services to a nonprofit or the needy or so. 

[00:47:04] Barley: Yes providing services. No, that’s a hard no. I think you’re talking about the supplements possibly. Services we don’t get a deduction for a charitable, right?

[00:47:14] Eliot: No, no, we sure don’t and even if you gave great deals or anything like that. I appreciate that but one of the popular things in law school is to work at the legal clinic. A lot of my friends did that and stuff like that. You don’t get a deduction for that or anything like that. You don’t get paid, so you don’t have any income. There’s no deduction to be had or anything like that.

[00:47:33] But what about if you give free visits or supplement packages, again referring more to vitamins and things like that for charitable events, even if they’re extensive. They have a lot of dollar value to them. We don’t really get a deduction there either typically along with the same concept of the services, unless it’s inventory. If this particular medical practice had these supplements as part of its inventory that would ordinarily in the course of business sell.

[00:48:00] Now all of a sudden we might have a deduction but it’s going to be based on the lesser of the fair market value or the basis to the business. That they’re holding that inventory out that would be the amount of deduction.

[00:48:13] Barley: You basically can deduct it at your cost? 

[00:48:15] Eliot: Exactly, right benefit. We’re not enhancing any kind of deduction here. You’re simply getting your money back as far as a deduction if you will. That’s how those things work and this is a popular question. We get asked that quite a bit, I gave some time, gave some resources. What’s that look like for a deduction? This kind of hits all of it, we have especially when we start getting that charitable area a lot of clients set up their own nonprofits.

[00:48:42] We have an excellent team who sets those up and over 1,500 that we’ve done so far. Send up a non-profits, public charities, private foundations, you name it. Never been questioned by the IRS because they’re done, right?

[00:48:54] Barley: Yeah, a 100%  acceptance rate there. Kareem used to work at the IRS for a couple decades, we have an inside source. 

[00:49:02] Eliot. Yes. He heads up our nonprofit department that whole team, Savannah, Kareem, excellent.

[00:49:06] Barley: Kareem used to work at the IRS works here now. We also have former people that used to work here that now work at the IRS. They know who we are. We talked to them all the time. 

[00:49:15] Eliot: Now we don’t get favors. Not to insinuate anything like that. 

[00:49:21] Barley: No, we’re not, we just file a lot of tax returns. All right. Great questions. Let’s see. Can I avoid taking required minimum distributions at age 73? When do those start again? Is that one of those half numbers? Mmm, who knows right? This is a great question if I roll over my retirement contributions from previous employer’s plan to my current employer’s plan. Will that affect my required minimum by RMDs.

[00:49:47] Eliot: A couple things going here first of all, I’m going to jump out of the concept here of going from my prior employer plan into a new employer’s plan. Because we talk a lot with RMDs when it comes to IRAs and people get this confused, an IRA doesn’t having anything to do with your employer, it’s you, it’s the individual and if you have those funds it’s time to start paying the RMDs. There’s no getting around it

[00:50:11] Even if you took those funds and you were still working, you put it into your current employer’s plan. We can’t defer those RMDs. They’re coming. We got to pay them out. We got to pay tax on our look for a tax advisor or somebody who’s going to help you mitigate elsewhere on your return. But the RMDs come with okay, that’s the IRA, no getting around it but directly to what we’re asking here. Well, this is different.

[00:50:35] We’re using a prior employment plan and putting it into our new employer’s plan. That might and very well might if you have your standard 401k a bunch of numbers. That’s what most people have the 403b of the 457 all different kinds. The same thing like a 401k these retirement plans you could possibly roll them over into this new employer. The law allows it even allows the deferral of that RMD particularly.

[00:51:01]It’s one of those things where the umbrella is really big under the law. And then you got to look at this smaller umbrella, what your actual plans the one you left, the one you’re going into. What do they allow? Often they might allow that and defer all the RMDs and things like that. They may not even allow rollover. You just have to check most of them do but you just need to check out the rules of your particular plan if you do.

[00:51:23] The plan allows for it and you’re not an over five percent owner of that business of the employer. That could be a problem for our clients because we have a lot of those C corporations that we talked about management C corps. Maybe we set up our own solo 401k, I guarantee you, you own over 5%. Oh, no, no, no my spouse. I’ll just give it to her. She owns a 100% on any that’s a related party. You own 100%, what are you doing or not? 

[00:51:49] Barley: Does this still working thing come into factor here? I’m still employed.

[00:51:54] Eliot: The still working exception,

[00:51:55] Barley: But if not, you’re more than 5%, right? 

[00:51:59] Eliot: Exactly, right? We got to get it into a plan where we’re not an over 5% owner in the new employment. Then we can roll it over as long as it has these provisions that if you’re still working you don’t have to have RMDs it allows all this and yeah, we can. 

[00:52:14] Barley: You can avoid RMDs by going back to work.

[00:52:16] Eliot: Exactly. One of the right circumstances is exactly right. What a bonus.

[00:52:20] Barley: But then just on the rolling of retirement plans there. If you have a 401k with a previous employer, roll that into your if you set up a C-corp with your own qualified retirement plan. That certainly is an advantage there.

[00:52:31] Eliot: Absolutely

[00:52:34] Barley: All right. Pastor entity tax. What the heck is that? Can an investment partnership elect the pastor entity tax in New York? I think we got some state taxes there.

[00:52:44] Eliot: Yeah, I think they tax.

[00:52:46] Barley: What are the issues creating dissolving investment partnerships kind of side question there. But yeah, What’s this first one? Can an investment partnership? Let’s elect the pastor entity tax in New York. I think you can any partnership can. Would we want to?

[00:52:59] Eliot: Think first we want to talk, what is the pass through entity? What we got going on there. 

[00:53:04] Barley: Just run through acronyms and terms here all the time, right? The PTAT, right? Everybody knows that.

[00:53:08] Eliot: Basically all we’re saying here is, if you have a pass through entity, two types,  partnership, S corporation. Got that K1 that comes through on to our personal return. They may file their own returns, but all that money is coming on to someone else’s return. The idea is that maybe it pays tax. Normally those aren’t taxed at all, but imagine you had a $100,000 of income coming through that’s eventually going to hit your 1040.

[00:53:33] You decide you make an election to have that entity, pass through any partnership, or S corp, pay tax at the state level. Let me get this straight. You want my entity to pay more tax at the state level. Well sort of, let’s just say it pays 10,000 because that’s what the state rate is 100,000, 10% pays $10,000 to the state.

[00:53:56] The state’s going to give you credit for that. Okay, so you’re not paying an extra penny of tax at the state level. But it’s just the form that I came from, 10,000 or 10% in our case came from our pass through entity. Big difference here is that at the federal level. you get to recognize that 10,000 as a deduction. So we have $10,000 times your federal rate. That’s your tax savings for making this play, okay?

[00:54:21] Fifty different states,50 different rules on how this happens and it doesn’t even apply to the states that don’t have state income tax. Okay, because you don’t it wouldn’t make sense. New York does and the specific rules we usually don’t get into specific state items here. But New York does actually allow us to do this. They do have a pass-through entity tax for your asset partnerships and things like that.

[00:54:43] But another common rule out there we see here is investment partnership, which gets me to thinking, I wonder if they’re talking about a trading partnership or something like that where they have it’s a partnership. The majority of it goes to them as an individual and then they have maybe 10%, 15%  owned by a C corporation. One of those management C corporations we were talking about, that might be what we’re referring to the idea of investment partnership.

[00:55:08] Now we have to look at the various states because some states will not allow us to do the pass-through entity tax if there’s a corporate member in there. Okay, but some do. But here in New York, they allow any partnership to take advantage of this. They allow all of them to take advantage of this, but the corporate part obviously doesn’t get it because it’s only for this is only on individual taxes.

[00:55:34] In other words if you had a $10,000 credit coming through and 10% of that was owned. Let’s make it 15% owned by the C-corp, 85 by the individual, $8,500 of that credit would go to the individual. They’re going to get their pass-through entity tax. Benefit at the federal level the other 1500 is going into the C-corp. We’re not going to see any tax benefit there because it isn’t for corporations. It’s for individuals. So quick recap here. Do they have pass-through entity tax in New York? Yes, can they do it when they have a corporate if they happen to have a corporate partner? Yes

[00:56:14] It’s just that you’re going to be limited to how much. Now we know we can do it. We understand some of the parameters but every state’s different because this may not be the same thing in Idaho, Oregon you name the state you have to check in your particular state. But what about the issues, are creating and dissolving one of these investment partnerships and I’m going to go with the trading partnership. We have that C-corp any ideas of what are we looking at when we put it together? Thoughts?

[00:56:40] Barley: It’s considered a complex structure. A lot of moving pieces there, when you’re going to be dissolving that would be it’s a partnership, you’d have liquidating distributions that they, accounting on it, actually gets kind of technical. I’m not sure where they’re going with the question there.

[00:56:56] Eliot: Well, so if we’re going to create one of these partnerships. We got to remember we have two partners, the individual, the C-corp. We want to make sure we’re tracking again getting back to the basis of all this. We got to have really good bookkeeping to understand how much these entities are putting into this investment partnership. We got to track all of that. We have to have good bookkeeping, what comes back out.

[00:57:18] That’s one of the issues are creating. It’s not a horrible problem. We do it all the time with tons of these up. It’s something you want to work with somebody who knows what they’re doing. We do know what we’re doing on these and so we can set one up without too much part and problem in creating them. As long as we’re attuned to what’s really going on as far as that investment.

[00:57:38] Once we have that understanding what kind of income is going to be earned how much, etc. We can start putting the pieces together and get a really good format here. Same thing with the dissolution. If we’re going to tear it down and time we want to shut it down. We just have to make sure again that we kept a good bookkeeping records throughout time. We understand what’s going on in the balances because any time you dissolve a partnership.

[00:57:59] There are certain steps you have to go through in certain tax rules. That’s something that would be another not issue, but something we want to be aware of when we’re dissolving is that we properly account for all the money’s flowing correctly and maybe it’s a buyout of one of the partners and how why are we dissolving and how we’re dissolving are all questions that come into play. Again, we deal with it all the time. Not a big deal to us, but I assure you it’s a big deal for those who aren’t initiated and understanding how these type of things work.

[00:58:30] Barley: Absolutely. I’d set a flashback there to the ordering rules for partnership, distributions, and liquidation. But that’s what we what we focus on your partnership. Obviously mostly used in real estate a lot of you have partnerships for real estate. But this can provide benefits here, a little bit different structure. Let us know if you have any questions on that. Any question? We got a hit. I want to skip anybody here. 

[00:58:54] Okay, got a big gain here. I sold my company coming into a seven figure settlement. What can I do with the money to decrease my taxes? And again, this can be your business, a capital asset, maybe you have a monster property you sold or something like that, but for [inaudible:00:59:14] here. We’re talking about a business, all the business. First want to start, kind of the structure of the sale, right, kind of where we start there. 

[00:59:20] Elio: Exactly. It’s sold a company. Well, that doesn’t really tell us anything as far as a tax consequence because you can sell the ownership of it. Stock sell or you can show you can sell the assets and they both have a different tax consequence. That’s the first thing but here we’re looking at past tense, sold. It’s already been done. That would be one thing that we’d always ask a client because we’re going to have different tax purposes going on.

[00:59:46] But I’m actually going to stop here and go back. Let’s say if it wasn’t, I sold but I’m about ready to sell. We haven’t done it yet, now we have maybe more going on. That we get more options on the table, what we can do for our tax mitigation, our tax planning. Popular thing in this situation sometimes used is a charitable remainder trust. We put the asset, take the ownership units, the shares of stock if he will if this was a C-corp.

[01:00:13] Put them in one of these fancy irrevocable trusts, the trust sells it out there to the general public, an unrelated party and then what happens is money streams can start flowing in. That takes care of our last portion of the question, I didn’t put it on here. But if we wanted to have monthly amounts coming back from this that would be one way to do that.

[01:00:35] Barley: You’ve got it from a lump sum to an annuity. 

[01:00:38] Eliot: Exactly. It could be monthly.

[01:00:41] Barley: Charitable, remainder trust option.

[01:00:44] Eliot: Exactly the money after it’s sold. After there the charitable remainder trust sells the property. It has all these funds and it can slowly disperse out monies to you for up to 20 years or until that beneficiary passes away. At that point the rest of the balance of it, the remainder of it, all goes into a nonprofit. Make sure you’re working with someone who understands set up nonprofits again where we have a team that’s exceedingly good at doing that.

[01:01:12] Make sure you’re working with somebody who understands how these trusts and these remainders can happen. But that would be one thing we could have done beforehand and gotten a lot of tax benefit. But erase all that because we don’t have it. We’ve already sold it, we have the money coming in, if it’s capital gains. We might want to look for that we sold because we sold the stock.

[01:01:32] That means you got capital gain coming at seven figure. Well, maybe you have some other capital losses out there. You have some stocks that have lost you a lot of money. You can start harvesting losses that way, that’d be one way. Maybe you invest in oil and gas, real estate, short-term rentals, a lot of different things you can do. But you’re going to have to have tax planning.

[01:01:50] You can also again throw into a nonprofit, donate a little bit there, lots of different things we can do. But you got to work with somebody who understands, tax advising to be able to help you mitigate and walk through the land mines out there.

[01:02:05] Barley: If you wanted to go big if there are capital gains you, could invest in a qualified opportunity zone. Substantially increase your investment and then grow it over the next 10 years and it depends on what you’re trying to do. After the fact of the sale and then just FYI backing up before the sale those of you. They’re kind of wondering about, that’s either an asset sale.

[01:02:24] That’s two ways we can look at it. You’re either just selling the assets or you’re just selling the whole company. It’s typically going to benefit to the buyer of one seller to the other so that’s that kind of deal structure, we’d look at before the fact. 

[01:02:36] Eliot: We’re always going to look at this, for if it’s before the fact. What are your needs? What are you wanting to accomplish? I want to save on taxes. Well, that’s great, we get that we want you to as well. But we’ll dive a little bit deeper see  what other issues that might be coming up. I also need to have steady income. Okay. Well, maybe the charitable remainder trust might be good or if it’s too late here.

[01:02:59] You maybe already just buy a bunch of dividend stocks or something like that, that give you a nice evening even stream typically coming out. Lots of different things we can do but the sooner you do it before the fact a lot more opportunity on the table.

[01:03:12] Barley: Right, like we talked about earlier. You’re right. You have a recognized gain. So now you’re just going to be looking at tax mitigation. Great questions guys. Well good work. Make sure you turn into the YouTube pages, you guys are already there. Go ahead and subscribe, show Clint and Toby some love. They love you guys, plus tune in for the live events. Virtual events, live events, lots of them coming up. I think we’ve got a calendar right there on the website, all the live event information there. So tune in there or scan this QR code and come visit us. It’s going to be beautiful in late March here in Las Vegas.

[01:03:45] Eliot: It is.

[01:03:46] Barley: We’ll have a great time. 

[01:03:49] Eliot: It’s definitely not 115 typically.

[01:03:50] Barley: And $67 doesn’t really buy you a whole lot in Las Vegas. That’s a great price for this workshop. You can pay 70 bucks for two drinks at Cosmo or we can go to meet Clint and the boys at the tax asset team. Schedule a free strategy session, scan the QR code guys. Get the process started there. Now’s the best time start planning. Especially, we’re still early in 2026 a lot of things we can do right. We don’t want to get to the end of 2026 feel like we’re running out of time.

[01:04:22] Eliot: I can already hear those voices come November, come December. I know, I heard, I should have done something. Do it now, please, please we plead again. We would love to help you if you have your own tax professional, fantastic, just make sure that they’re doing planning for you, right now. This is a time to do it early in 26. So that you can have been a great position at the end of the year. 

[01:04:44] Barley: That’s right. The IRS has this word, they love its contemporaneous record-keeping requirements. What does that mean? It means do it as you, don’t wait till the end of the year. Email your questions guys Tax Tuesday, we’re going to be back here in two weeks answering your questions. Amanda, when all one of the attorneys, will be sitting in with Eliot’s going over more kind of legal stuff, land trust. She’s the head of the land trust and deeds department.

[01:05:06] You guys know Amanda and of course come to the website, all that information is there any questions you have. Please let us know and thanks so much for tuning in. 

[01:05:15] Eliot: Thank you. 

[01:05:16] Barley: Yeah, great to see you guys. See you in two weeks.

[01:05:20] Outro: