How do you write off your vehicle exclusively for your business? Toby Mathis and Jeff Webb of Anderson Advisors answer your tax questions. Submit your tax question to taxtuesday@andersonadvisors.
Highlights/Topics:
- I have an LLC but I want to know if I need one for each of my properties that are short-term rentals (STRs)? You don’t need one for every short-term rental. If you can do that, it’s a great idea to have one for every rental, but you don’t have to.
- Can you write off a new truck purchase for use exclusively for my business? It depends on the size and type of truck. If it qualifies as equipment, you can write off 100% of it. Don’t put your car in your business because you have to use it more than 50% or there’s adverse tax consequences. If your company owns your truck and you start using it personally, it’s a taxable event to you.
- I operate my business out of my home and want to rent the home to my entity so I can write off the mortgage rental expense as a business expense and use a primary residence loan to purchase a new home. Can I achieve this by writing a lease to my business? Never rent to your corporation or rent your house out to a business. Instead, have the business reimburse you.
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Resources:
1202 – Qualified Small Business Stock
Infinity Investing: How The Rich Get Richer And How You Can Do The Same by Toby Mathis
Full Episode Transcript:
Toby: Welcome to Tax Tuesday. My name is Toby Mathis.
Jeff: And I’m Jeff Webb.
Toby: We’re bringing tax knowledge to the masses as best as we can. Let’s see if we can do it. Today, we have a whole bunch of folks on as well to answer your questions. You don’t see their faces, but I know for a fact because I can see them. We have Matthew, Patty, Eliot, Piao, Dana, Troy, and Ian. I don’t think there’s anybody else that I’m missing. We got a whole bunch of folks that will answer your questions.
If you are wondering if this is live, you can test it by going into chat and asking to see if somebody responds to you. No, it’s not an autoresponder. You can ask questions.
Here are the rules. We have two ways you can respond back. Number one is the chat, which is if you just have comments. If you have specific questions, go into the little thing that says Q&A at the bottom. That’s your question and answer. The reason we do that is because we sometimes have up to a thousand people on this live and if we have everybody answering a question in chat, it just flies right by us. If you have a question, by all means, put it in the Q&A.
If you have questions during the week, go to taxtuesday@andersonadvisors. That’s where we pull our questions which we’ll be going to go over today. We usually grab 10–15 of them every week or every two weeks. For every session that we do a Tax Tuesday, we will go over those, that’s what we do. Believe it or not, a lot of those questions create more questions. They become good learning experiences.
This is fast, fun, and educational. We try to give back because we know that it is no fun to ask questions to your tax person and have them bill you $300, $400, $500 an hour, or sometimes even more. It’s crazy.
Lots of good questions are already popping in. I think our guys will just be answering those. I just submitted a capital gains question. What you do is you put it in there and our guys will get back to you while we’re in here. Let’s jump in.
First off, here are the questions we’re going over today. What I like to do is read them and then we will go over them one by one. I like to go all over them so you see what’s coming up. The reason we do that is because we want you to see all the different questions so you can see what’s relevant to you so you can stick on if you see something that’s awesome. If you are pressed for time, you can go back and watch the recording, but that is going to get answered. We always go through these opening questions during the session. Let’s start off.
“I have an LLC, but I want to know if I need one for each of my properties that are short-term rentals.” We’ll answer that one here in a little bit.
“I have an investment property, a house, that is paid off and I would like to transfer it to my son who is currently living in it with his family. What is the best way of doing it to eliminate the tax consequences to him and I. I am 67 and my son is 33 years old.” We’ll hit that one too.
“How many years can you go back to look at or audit your tax returns? We had a significant loss of business, but still owe taxes for three years. My husband and sister used H&R Block and I think they screwed up.” The odds are in your favor. We’ll go over that. There’s actually a really good study that was done on […] and they were wrong 100% of the time on the business returns. I say the odds are pretty good if they did. Hopefully, we get some goodness.
“I started a roofing business in 2020 and I only did one roof for $7800, but I paid the roofer $6300 and $1200 for supplies,” I’m going to do the addition in my head. It looks like it’s about $750, so he made a tiny little bit. “I was told that if you made under $100,000, you do not have to file? I started the LLC in January of 2020. What late fees do I have to file for 2020?” We’ll try to bring you some resolution to that. Hopefully, some of these folks are on so we can ask them questions.
“Currently trading options in normal non-taxed advantage brokerage accounts and currently paying $1500–$3000 a month in trading commissions and fees. I tried no fees platform, but their fills are horrible and potentially […] positions equal more costly paying commission for faster fills. Question one, I would like to be able to write off these fees to offset. Question number two, how do I make this trading income active instead of passive for further tax benefits?” You’re thinking of it as a business. Good question. We’ll get into that.
“I started a business last year setting it up as a C-Corp. I invested approximately $180,000 in the franchise fee, equity injection, et cetera. What are the different ways to get the tax benefits while reimbursing myself? Should I leverage 1202?” Qualified Small Business Stock is what that means, a QSBS. “Is that only applicable in the sales business? Can I still reimburse myself for equity?” I’m glad you’re asking these questions. We’ll give you some clarity here.
“I bought a rental property on December 8th of 2021. The renter signed the lease on the 24th of December. I had intended it to start on January 1, 2022, but because of a state law, the lease started on the signing date and ends on December 31, 2022. No rent was paid until January. When is the property considered placed into service? When do I start depreciation? I didn’t have any income in 2021 so will the depreciation carry forward?” Great questions. We’ll get into those.
“Can you talk about writing off a new truck purchase for use exclusively for my business? What are the tax benefits of having real estate professionals?” Nothing like open-ended questions, we will get into that. Jeff loves these because he likes to explain things.
“When my Wyoming holding LLC owns another domestic LLC of mine that is an active business, both are single-member LLCs. Does a licensed insurance agent for both LLCs have to file a tax return? If so, will active one flow into holding one, which then flows into my personal?” We’ll dissect that.
“I have heard […] talk about the benefits of cost segregation. I tried to read more about it. How do you cost segregation analysis? On the IRS website, they talk about construction blueprints, construction engineers, and construction budgets. If it is part of a construction project for a new building, how do you get the analysis done if you purchase a pre-owned property? Do you hire a firm?” We’ll dive into that. We’ll go with the requirements.
Last question that we’ll be going over. “I operate my business out of my home and want to rent my home to my entity so I can write off the mortgage rental expense as a business expense and use a primary residence loan to purchase a new home. Can I achieve this by writing the lease to my business? How can I go about this?” Great questions today. We will dive into all of them.
Speaking of which, you might be watching this on our YouTube channel which we do as YouTube live or you may be watching it as part of the Zoom call, either one works. If you are on the YouTube channel, you’ll see we have tons of other content including previously recorded Tax Tuesdays. We also do a lot of videos on specific topics.
By all means, please hit that subscribe button. You can just do the little subscribe or it’s right up the right corner, you will see a little finger right up there. It’s kind of halfway cut off, but if you go to the actual YouTube, this is the aba.link/youtube. You can see the link there. Somebody might share it. There you go, Patty already did it. She’s way ahead of me.
You just click on it and subscribe then you’re notified whenever a new video comes out. It’s not going to spam you, it’s just going to say hey, a new video is put up on x. If you want to watch it, go watch it. If you don’t, save it for later. Here we go. You ready, Jeff?
Jeff: I’m ready.
Toby: Alright. “I have an LLC, but I want to know if I need one for each of my properties that are short-term rentals.” Jeff, what do you say?
Jeff: I say need is a very strong word here. You don’t need one for every short-term rental. I think it’s a great idea to have one for every rental, but you don’t have to have these.
Toby: That’s fair. I think it depends on where you are in life. Here’s what I would say. From a risk-reduction standpoint, you want to make sure you keep your personal realm separate from your investments and the risk associated with businesses or investments. You don’t want to have a short-term rental, by the way, it means Airbnb or Vrbo. It’s just a rental that’s going to be seven days or less and it’s considered an active business.
If you have an accident in one of your properties, I’ll use a real-life example. Somebody is on a swing, the branch broke, the branch came down and killed the individual that was on the swing. Horrible situation. Stuff like that happens though. If you’re a Vrbo, it can be somebody falling down your stairs, it can be somebody drowning in your hot tub, whatever, just fill in the blanks, bad things that can happen, or injuries.
Isolate that from your personal realm. The way you do that is by using a limited liability entity like an LLC around the property. If you’re just getting started out, you might have one, two, or three. I would strongly recommend that you isolate each property because each property can create liability for the others.
For example, Jeff here has a bunch of investments, he’s gone through life, he’s got his accumulation. He might be in a different circumstance than somebody who is just getting started out. Jeff could afford to lose property or two and it’s probably not going to change his retirement. If you’re just getting started out, it can really suck. If you have two properties and something happens on one and they take the other.
For that person, I would say isolate them from each other. The best practice is to isolate your liabilities, but I’m not going to sit here and tell you if you have 100 properties to have 100 LLCs. It becomes a very different situation. If you have three properties, you might want to put an LLC on each one. If you have 300 properties, you’re probably going to be okay grouping them with 20 or 30 properties per LLC because you’re like I’m not going to worry about it if I lose it.
Jeff: How do you feel about let’s say I have a property in California, one in Florida, and one in Massachusetts?
Toby: I would isolate those.
Jeff: I think when it comes to them being in separate states, you probably want the LLCs to be in those specific states.
Toby: You can all have them flow up into a holding so you have one federal tax return. You might have a state tax return which is easy to do. Let’s just say you have separate LLCs in different states. Now you know this is the worst that’s going to happen is that they take the stuff in that state.
What you don’t want is to find yourself getting sued over and over again because of an occurrence on one piece of property and I’ve actually seen it. The thing that opened my eyes is that I had a client, this was 25 years ago, and she was in a course and she said she already had got through it. She lost 15 pieces of property and she said it was like dominoes. She had a liability occurrence on one and they ended up going through and taking everything including her personal residence.
Anybody telling you that they can’t take your personal residence, it is a state-by-state issue. In some states, there’s literally $10,000 of protection. Once that liability happens, anything you do after that is fragile. They can advance, they can undo it, but for the most part they just start bulldozing right around through your stuff so you just isolate it. It’s not hard. It’s really simple. That’s what we do in our firm day in and day out.
Best practice? I would say the best practice would have the properties isolated. If there are too many properties, you don’t want to isolate it, at least strip the equity out so that if somebody sues you, they’re going after a smaller target. If they’re dead against it, you take the cash out, take it someplace else, at least that is safe. Again, just make sure you’re doing it with your eyes open.
Jeff: You don’t want to get caught with, I have a million-dollar property in Malibu, a million-dollar property in Destin Beach, and I got a $100,000 property in Dayton, Ohio all in the same LLC. Something happens to the Dayton property and I lose everything else.
Toby: That’s exactly what could happen. As we’ve seen over the last two or three years, we had really high appreciation. I’ll just tell you, you’re going to hear a lot of things on the news about the cooling, or the crash, or the bubble that’s going to burst. Here’s the thing, this isn’t a typical 2020, 2008 where we are over-billed, too much inventory, and there are liar loans out there and people can afford it.
We have really low, really low unemployment. People are serving their debt. Yes, affordability is going down and it’s going to cool the market which means stuff that would have flown off the shelves. Now people are going to stop and go oh, it’s getting a little more expensive and maybe they’re not in bidding wars. I don’t see the market crashing as a result. These were self-inflicted wounds.
We created $7 trillion of our debt in about a year and a half. It took us 215 years to reach $7 trillion of debt, the first $7 trillion, and then we just did it again in a little bit over a year. We are printing money like crazy, which is causing inflation. That’s a self-inflicted wound. The Fed is going to try to stop it, but it’s not normal inflation.
We did this. This isn’t market forces doing it. It’s a supply chain because we shut down because we had a pandemic. We devalued things because we printed so much money. It’s not the economy that did it. This is us doing it to ourselves and all the raising of all the debt in the world is not going to necessarily change that. We’re going to just have to wait for this one out.
Regardless, you want to make sure that you’ve seen massive increases in appreciation. You don’t want to expose it to one liability occurrence. You had this big run-up. Properties, some of them doubling in value, tripling in value. All of a sudden, you don’t realize you have all this beautiful equity in there and all it takes is a robust, plaintiff lawyer getting a hold of a good set of facts and they’ll try to separate you from all that appreciation. You don’t want to. You will not appreciate the separation from your appreciation.
All right, Jeff. “I have an investment property, a house, that is paid off and I would like to transfer it to my son, who’s currently living in it with his family. What is the best way of doing it to eliminate the tax consequences to him and I. I am 67 and my son is 33 years old.” What say you?
Jeff: Well, there are three ways to do this. One, you could sell it outright to him. Two, you could give it to him. He would take it over at your cost basis. In other words, your investment in that property. Three, you could kind of do a combination of both. You could gift part of it and you could sell it for a discounted value. Now, the gifting has no tax consequences whatsoever, unless that property is worth more than $12 million.
Toby: What Jeff is referring to is you have exclusion for transferring in a state to somebody if you die and that same amount can be used for gifting during your lifetime. What is it? $12.05 million or something like that?
I think it’s $12 million some change. It’s $12 million, what Jeff is basically saying, quite correctly. You could probably just give the house to your kid and you don’t have to worry about it.
Jeff: If you’re not looking to get anything out of it and you just want to provide your son with a house just gifted to them. You will have to do an appraisal on the house and you will have to file a gift tax return.
Toby: Here comes the miserable asset protection attorney who’s seen a million of these things go sideways. You said son and his family. Are you okay if a son and family become son and ex-wife, that ex-wife may take your house? That’s the question that you have to ask yourself. It’s like I want to give this. Is there any chance you’re going to need it? You’re 67, which means there’s a look-back period for Medicaid of five years. Is this going to cause you to need assistance that all of a sudden this could be a sticky wicket?
What I would do if it’s me, unless you have a really good reason not to, I’d probably do this as you just carry a note, sell it to him. A, it’s going to step up his basis. Then if you don’t want to get paid, you could just give that money back. Sell it at fair market value, say, hey, pay me this but you don’t have to get paid.
What you could do is say all right, I’m just going to give those payments to you and you’re going to have tax consequences to it. Chances are it’s not going to be horrific because every year, in theory, you should be charging them rent anyway. I don’t know how the IRS would probably look at that. They’d probably say that’s a gift if you have family members living in a property.
Jeff: They just treat it as a personal home.
Toby: Residents living in a second home so you’re not getting much tax benefit out of it. You did it like if it was your primary residence anytime in the last five years, two of the last five years, that would be great. You could probably avoid any tax on the list to gain, but if it’s a property, the second property, we’d have to explore. Was it ever used as a rental? Was it used as a primary residence? Because there are some tax consequences to both of those.
My inclination would probably be just to make sure you don’t lose control of that property is to have a debt. That way if something did happen with your son and his family—and you don’t want to curse anybody. I just saw this happen way too often where somebody is kicking themselves going I didn’t know, I didn’t know—at least you can choose whether or not to continue to give those payments to them if something happened along those lines.
It’s just a reality. It’s about a 50-50 shot. I’m sorry, but that’s just me. My horrible asset protection side of me going, it’s a pretty good chance it’s going to happen, so we should address it. Somebody says if you gift your house, where and who has the new basis? You already mentioned this. Why don’t you go?
Jeff: If I give an asset to Toby, then he gets my basis. If I paid $100,000 for a house and haven’t depreciated it, he gets the house at a basis of $100,000 even if it’s worth three times that now. It’s not like when you inherit a house, then you get the stepped-up basis.
Toby: Correct. If you paid $50,000 for the house and it’s worth $250,000, your son’s basis would be $50,000 unless you sell it to them. You sell it to them, now his basis is whatever the sale is. Again, it’s up to you.
Somebody says when the house is gifted to the son, will it be reassessed for property tax? It could be. It actually could be. Again, that’s why you look at these things before you just give something over. I’m not a big fan of gifting assets over to kids, just not, because there are so many unintended consequences. We see it all the time. Certain cultures, especially. You’ll see it often given to eldest sons and eldest sons may have some liabilities lurking. I’ve seen that more often, more than once.
Jeff: What about just holding on to the asset and just letting them live there and be bequeathing that house to them.
Toby: You could do that too. We should talk about that just for 2 seconds. The benefit of dying and leaving an asset to somebody is the step-up in basis. He’s living in the house. You just say hey, just stay in the house, you can just live here. That’s great. Your son might be saying hey, but I really want to own it, which you give them an option. You can buy it at this point in the future.
If something happens to you, something bad, you get a terminal disease, accident, COVID just like a few folks, and you pass away. The benefit is that you now have a high basis. If they do sell it at some point in the future, they don’t have to pay tax on all that increase in value that has happened during your lifetime.
Let’s keep going on because I know we’ll be here until midnight if you let me. “How many years can you go back to look at or audit your tax returns? We had a significant loss of my business, but still owe taxes for three years.” That sounds bitter. I was like man, we lost a bunch of money, but we still owe taxes. “My husband and sister, we use H&R Block and I think they screwed up.” I think what they’re really asking Jeff, is can we go back and amend the screwed-up returns?
Jeff: Maybe. The statute of limitations is three years from the time the return was filed. If you filed your 2018 return before April 15, that has already sunset. The statute ran out that.
Toby: That one particular year.
Jeff: Yes. If you got an extension for that return, which if you went to H&R Block, I kind of doubt. If you got an extension for that return and filed it later in the year, you might still be able to amend that 2018 return. The 2019 and 2020 are both still open to be amended.
Toby: If you had a significant loss for three years, chances are that it sounds like it’s 2018, 2019.
Jeff: And 2020 I would imagine.
Toby: You still owe taxes. If you had business losses, they may have treated them as investment losses and carried them forward. I don’t know how they would actually treat that. Let’s say that somebody treated something as a passive loss when it should have been an active loss. It really is the year that it’s incurred that is going to control that.
If you erroneously called it a passive, I think you’re kind of stuck with that. You keep carrying it forward, but hopefully, you’re able to go back and correct the situation because I’m with you. If I lose money in a business, it depends on the business because a C-Corp is different than an S-Corp, is different than a partnership, and is different than a sole proprietorship as to how that’s treated on your personal return. I want to make sure and go back.
Can you amend after the statute if you’re able to reduce tax liability if they owe? Bridget, no. Unfortunately, that statute of limitations is for both you and the service. The service can open it up and go back seven years if you have a significant reduction of tax. I think it’s 10 years for fraud or is it forever for fraud?
Jeff: That’s a good question. I was thinking it would be six years or seven years. For a frivolous return, I think they can go back forever.
Toby: You can go back if it’s an intentional situation. They don’t have a statute. If it’s otherwise, you’re looking at that three years and it’s for both of you guys.
Jeff: Let’s say I’m able to amend 2018, 2019, and 2020, and I got net operating losses on my tax return now. Now, I can go back and amend earlier years to use that loss in previous years where I may have had income and reduce the income there.
Toby: What you’re pointing out is that during COVID, they had the five-year look back, where you could take it back all the way to 2015. If you amend your 2020, in theory, you could go back and carry it all the way back and start offsetting 2015. Then you don’t have to worry about a statute because you’re carrying back a loss and as long as you incurred that loss. There, a glimmer of hope. This is why you use guys like Jeff, who’s really smart. He’s been a CPA for about 78 years give or take.
Jeff: Give or take.
Toby: Jeff has been a CPA for a long time. I’m just a tax lawyer. I’m just dumb. I don’t do returns. How do we hire you right now? You can’t because we’re completely tied up. What you do is put yourself on our list because after the tax season, after October 15, we’re going to rebat, open, and pick up new clients on tax. Otherwise, it sounds weird because you don’t hear many companies do this, but we’re in capacity for this tax year. We’re not going to bring anybody in because it would do a disservice to those people that we have currently in our hopper because we are at max capacity. Our guys are working their pushes off 24/7.
Jeff: If you’re in a situation where you need these returns, go find a local CPA to take care of this for you. It’s worth paying the fees.
Toby: You could still come in. We still answer tax questions as part of our platinum service. You could still do that, but we’re not going to prepare the return. We just can’t. We already took our obligation. We can look and give you a reach out. We will take care of you and make sure that we put you in the right direction. There are some folks that we do work with. We have other associates around the country that we can point you to if we’re not able to do it.
All right. “I started a roofing business in 2020 and I only did one roof,” It’s quite the business, “but I paid the roofers.” What you did is you were the middleman and you got a little bit of money. You made $300. “I was told that if I made under $100,000, you would not have to file.” Is there a statute?
Jeff: I wish there was.
Toby: That does not exist unless it’s you individually. What they’re thinking of is hey, if you make less than $12,000, you probably get wiped out with the standard exclusion. What is it? $12,000.
Jeff: $12,800?
Toby: Yeah, something like that. I should look at my little cheat sheets. It’s almost $13,000, as an individual, that you can make and not pay any tax. That might be what you’re thinking of. Whether there are late fees, it’s an LLC so it depends on how it’s taxed. Let’s just assume this is just you and it’s a disregarded LLC, meaning that the IRS ignores it. They do this, oh, it’s just you. We’ll look at your return. They don’t look at the LLC. If that’s the case, are there any penalties?
Jeff: No. Do you think he filed his return for 2020?
Toby: It sounds like they didn’t file anything.
Jeff: Yeah, I would just file the return. You’re not going to pay any self-employment tax on $300. You’re not going to have any tax, but I would file this return. Primarily because it’s the business income of $7800 and that’s really what they’re looking at.
Toby: You need to take your expenses. If you don’t take your expense and they come back later and assess, you could be paying tax on the $7800.
Jeff: Correct.
Toby: Because they could say you missed your chance.
Jeff: Then you would pay self-employment tax on that full $7800 and you don’t want that.
Toby: That’s 15.3% so that could be painful. If you have a tax liability, there could be penalties and interest. The penalties are capped at 25% and the interest would be about 6% a year. You could still owe some money. It would be annoying. File your return, even if it’s late. People do this all the time.
Hey, I didn’t file any returns. What should I do? File them. Get a power of attorney. Let’s look and see what income has been reported to you. Let’s reconstruct as best we can and file your returns. Chances are they’re not going to bug you. They’re going to be very pleased. When I say they, the Treasury, is going to be very pleased that you’re filing your taxes, that they didn’t have to prosecute or chase after you.
Jeff: We mentioned the statute of limitations earlier. When will the statute of limitations start if I don’t file my return?
Toby: It never starts to run. They can go back and hammer you decades later so don’t do it. Besides, you don’t have to, you’re probably not going to pay any tax.
Jeff: Yes, you’re not going to have to pay any tax.
Toby: You’re going to be out the cost of the return, which isn’t going to be that much, or learn to do tax returns yourself. Spend some time on it. It’s a small amount. You have the cost of goods sold. You paid somebody else to do it. That’s actually not the cost of goods sold, that’s technically you paid somebody else to do it so you have that plus your materials.
You’re going to have like $300 netted plus you probably had some other expenses, traveling around. Maybe you bought a tack hammer or something. I don’t know. Just do it. Worst case scenario, you spend some time on it, and you can’t have any sleep at night.
“Currently trading options in normal non-tax advantage brokerage accounts. Currently paying $1500–$3,000 a month on trading commissions and fees,” which means this is a very active trader. “I’ve tried no fee platforms, but their fills are horrible and potentially in […] positions equal more costly than paying commissions for faster fills.” This sounds like what I would term a preferred professional trader. This is somebody whose speed matters because to Jeff and I don’t think it matters. We’re like, he didn’t get filled immediately. Most investors, they’re not too worried about it.
Jeff: He’s working with the price fluctuation.
Toby: Yes, they’re playing and I don’t do that. I’m an investor and there’s a big difference. I buy things to hold them forever, I buy them for their income, and I’m not too concerned about it. I’ll usually sell puts to get into a position, but that’s a topic for another day, and then I’ll get called out on that eventually and forced to buy it. That’s great or I just get to keep the money from the put and then I don’t have to do anything with it. I will do it again next month.
Some people are trading these fluctuations in the market—very tough to do. If that’s you, you’re in a different category than everybody else and we’ll go over that in a second. “Question one, like to be able to write off these fees to offset income.” How are commissions and fees generally treated?
Jeff: Generally, commissions you’re probably already deducting because they should be included in your cost basis and proceeds.
Toby: 100%. Are the fees included in that, too?
Jeff: The fees are not. The fees are usually listed separately. They are not deductible to you in any way, shape, or form in your current format.
Toby: Basically what Jeff is saying is there are two sides to this. There’s hey, I’m paying a commission where I could avoid all fees like on Robin Hood. I could just buy things, but then you’re going to get hose periodically. Here I might be paying $500 or $5 a trade or whatever that gets added to your basis.
If you create a loss as a result, now we have something to worry about because that loss would be considered investment loss and it would be considered a capital loss, which would be limited on how much I could actually deduct. You can deduct up to 100% of it against your capital gains. If you lose money in the market and then you have all these fees and you have a loss, you can use up to $3000 against your other income, including your wages, and then you carry the rest forward.
That’s why people that lose money in the stock market like right now, this market is causing people to bail, those losses, chances are they’re never going to get to take. They’re just going to carry them forward until they ever get back in the market and make money. Here’s a hint. When the market is doing this, lose your account password and go on a vacation.
Jeff: Don’t log in.
Toby: Yeah because all they’re trying to do is make you do something, fear […] blah, blah, blah. The best thing you can generally do is what Warren Buffett said before. You take the right hand and stick it underneath that right butt cheek. You take your left hand, and stick it underneath Jeff’s left butt cheek. No, under yours. Don’t touch Jeff’s butt cheek.
Just sit on your hands’ guys. If you have good income-producing stocks. If you don’t have good income-producing stocks, then I’m going to show you how you can learn how to pick the right stocks. I’m going to show you how to join Infinity Investing.
Jeff: I did something a little different. The market was down about 600 points early today and so I went in and bought some more dividend-paying stock.
Toby: The yields are great, but here’s what I would say. Nobody knows where the bottom is. It can be 50% lower.
Jeff: I could lose that money.
Toby: The best advice that was ever given to me by really wealthy folks was when the market is going up crazy or going down crazy, don’t open up your statements. You’re buying it for the income stream. When you buy dividend-producing stocks, you’re buying it for that dividend and because you can sell options against it. This is a great market for doing that because it’s so volatile. You can actually make some good money on it.
If I have rental properties and I have 100 rental properties, I don’t care what I paid for them. It literally matters nothing to me. How much did you pay for that? Hey, it’s gone up. Hey, it’s way down. All I care about is how much are they paying me in rent? That’s the way that we look at the stock market. Again, way smarter people than me talk about this stuff and I’m just saying that the people that are consistently successful, especially in our client base.
We do over 10,000 returns a year there. The people that are successful do the same thing and they don’t sit here and play this jump in the market, jump out of the market. If you do it as a professional, which leads us to question number two, “How to make this trading active?” You need to bring a corporation into the mix.
What I would suggest is that you have a trading account sitting in an LLC. You’re paying the fees anyway, who cares if you do this through a corporate corporation? The corporation owned 20%, 30%, you literally can just run all the money, all the profit up into that corporation and then if it pays it out to you, if that’s what you want to do, you can dump it all into a 401(k). You can use it as an active ordinary income. It’s no longer going to be investment income.
Jeff: Yeah. I mentioned earlier that you cannot deduct these fees. However, your corporation can because it’s managing the LLC for you—the trading partnership.
Toby: Yes. What I would say to you guys is go to the YouTube channel and there are videos on how to set up an active trader business. Some of you guys are already saying there’s something called trader status. Now, trader status, you can write things off, but you must do two things.
Number one, you have to qualify as a trader, which means I’m making money on a regular continuous basis. It is substantial. It’s really the way the courts have interpreted this. It’s more than 750 trades a year and it’s how you make your living. If you take more than two to three weeks off a year for vacation or you miss out, I think that one court was saying essentially 75% of the trading days you need to be trading. You don’t do that, you’re not going to be a trader.
Number one, that allows you to write off your expenses as business expenses. As to whether losses will be allowed, you must make a mark-to-market election and you would have had to have done that last year before April 15. You can’t make a mark-to-market election retroactively or for this current year. We can’t even make an election for 2022. You’re going to have to wait actually for 2023.
Jeff: If you make it by April 15 of 2023, it’s actually good for 2023.
Toby: For 2023, but not for 2022?
Jeff: 2022 is not.
Toby: 2022, you cannot do this. You’d have to be a trader and a mark-to-market election.
Jeff: Something else people don’t realize is when you’re a trader, what the courts are saying is you have to be looking to make a profit from the daily fluctuations of prices. Meaning if I’m holding a bunch of stock long and I’m holding this over here very shortly, I don’t get to merge all that together. I have investments and I have my short-term.
Toby: It’s weird, isn’t it? Just because it doesn’t exist in the code. It was something somebody conjured up and pulled out of their […] and they went to the court saying hey, it’s not fair. I’m a business, I meet the level of a trader business, and here is how I do it, and the courts created this thing.
Jeff: If you have a W-2, you’re going to fail.
Toby: Yeah. If you do anything else substantial, you’re going to fail.
Jeff: If you look it up online, there’s a number of websites that tell you all the different ways this can go wrong.
Toby: You can just go to our YouTube channel. I’ve written on it and I’ve done a ton of videos on it. You’ll find I think we’ve had about 1400 videos and I would wager that there are probably 20 or 30 down there that dive into the subject and you could realize we’re not big fans of trader status. Even though you might qualify here, I’d have to look at it and see if you’re making money. If you’re making money, you might be fine. We might say yeah, you can be a trader. We’re not worried about the mark-to-market because you don’t have a loss. We could do it.
You may as well just put a bull’s eye on yourself and say, I’d like to be audited because it’s facts and circumstances. There’s no statute that says you do this, you qualify. Therefore, you get to go in front of the court to see whether you qualify, which means you’re probably going to get audited and they’re probably going to make you go to a tax judge to determine whether your facts and circumstances meet the requirements.
Jeff: If you’re trading and you’re making money, for me, it doesn’t make sense to do the trader status unless you have substantial other expenses you wanted to deduct to.
Toby: The only people that it makes money are people that are not very good traders and they lose money a lot.
Jeff: We could probably make them more money by suggesting that they stopped trading.
Toby: Here’s how you make more money. Come here. This Saturday, Aaron Adams and I and Nicole DiBraccio are probably going to be going over mostly real estate, but Infinity has two components to it. It’s both the stock and the real estate. Now here’s the good news. Everything is free to get in and to also be a basic member to get most of the methodologies on the stock market. You don’t have to be what we call 360 members to get access to that.
If you want to learn how to trade in a very systematic, boring way, you’re going to get rich over a long period of time because statistically, it’s almost inevitable if you do this. We narrow the market down to maybe 60 companies that are going to meet the criteria at any given time. Of those 60 you’re probably looking at five a week that are going to hit it that would be something you invest in. We keep it simple.
This week we’re also going over real estate. We want about a third of your portfolio to be in real estate, not 100%. You notice that about a third of it is going to be an income-producing stock and about a third of it is managed investments of some kind, be it real estate or securities, and then 10% in cash or cash equivalent. We have a pretty simple methodology, but it works.
Some people say it’s boring, good. Boring is good sometimes. Find the good things. Good income-producing properties, we find them all over the country. You’re going to know, if you go Saturday, you’ll figure out that everybody that you’re talking to is an avid investor, myself included. We’ll be going over that. It’s 9–4, Pacific Standard Time. We never really go to five, but we will go over the whole how it works, our philosophy, it’s absolutely free.
If you have a young person or somebody that’s experimenting with debt, we will cure them of that, send them on over. If you have one of those knuckle-headed nieces, or nephews, or kids that you’re like dang it, will someone talk some sense into them? We’ll show them the charts. It’s pretty straightforward.
You want to come to that. It’s absolutely free. Patty will probably share a link to it and you come on out. Somebody says why do lawyers do that? Because we get tired of watching all these people getting people to lose money. We don’t want you to lose money. We want you to stay a client. In order to be a client, you need to be making money because tax issues are usually the realm of those who are making a lot of money.
I need to make sure that you guys make a lot of money. You lose money, you don’t need us. Then Jeff and I are sitting around twiddling our thumbs, going where did all the clients go? They all lost everything they had. I don’t have to do a return for them anymore. We need you guys to be making money.
A few years back, really one of those things that bit us in the katush and said, we better do this, wrote a book called Infinity Investing and we’ve been teaching it ever since. It’s absolutely basic. We’ll get you where you need to go. It’s absolutely free, guys.
It used to be behind a paywall and we said as soon as we can’t stop doing that, we’ll do that and we do very, very well just with our business. We help you guys make money. It is very helpful for asset protection and tax firms to have somebody teaching them how to make funds.
“I started a business last year setting it up as a C-Corp. I invested approximately $180,000 as franchise fees, equity injection,” It sounds like they probably got a quiz nose or something. “What are the different ways to get the tax benefits while reimbursing myself? Should I leverage the 1202?” This is only applicable when you sell a business and it is small business stock. We’re not going to worry about that so we can’t do that. “Can I still reimburse myself for the equity?” What do you think?
Jeff: First off, we would need to know how you invested your $180,000.
Toby: Two ways, right?
Jeff: Yeah. You could have bought stock or you could have loaned the money to the corporation or actually a combination of the two, but those are the two primary ways. I would hope most of this $180,000 was in the form of a loan. You can repay that to yourself anytime you want.
Toby: You could still give yourself equity. If somebody goofed up and said, hey, I’m going to put in $180,000 in exchange for shares, that’s your basis. You could always redeem those and give yourself back the $180,000. I’d rather do what Jeff said, which is just loan it. Find the company with $10 and then loan it the operating capital. You might need it and then it can always give you that money back absolutely free.
Jeff: One thing he mentions is the tax benefit. You’re not going to see a personal tax benefit because this money belongs to the corporate world. The expenses belong to the corporation.
Toby: Now, it’s a C-Corp so there are losses in that company and those are going to be trapped inside that C-Corp. You should know that. If you dissolve the C-Corp, you can take up to $100,000 of it as a personal loss.
Jeff: Yes. If you’re married.
Toby: Right. If you bust at $180,000, it’s not like you lose $180,000. You’d get a $100,000 loss plus you’d lose the value, the capital loss on the stock, which is another $80,000. If you put this in as equity, I paid $180,000 for my shares, you’re going to get some tax relief on it.
If you did this as a loan, then you really are in it for zero. The company may have a $180,000 loss, but it has nothing to do with you. You don’t get a benefit from that, but you can get your $180,000 back and it should be paying you interest. If it’s over $10,000, it’s got to pay you Federal AFR rates at a minimum. As an insider, probably around 3% right now. I don’t know what they are.
Jeff: I think they’ve dropped quite a bit.
Toby: They’re back up now.
Jeff: Well, I think it was down to like 0.25% last year.
Toby: They were really low, but the long-term was closer to 2%.
Jeff: It’s been all over the place. I was frankly surprised.
Toby: How do you do this as a loan? The recording went out briefly. You just loan it. You just actually do a note. Here’s $180,000. You’re going to pay me back 3% interest plus the principal. Here’s a demand note. I’ll tell you when to pay it and then it should pay you the interest. If they can’t pay you the interest, then it’s an I owe you. Hey, you owe me the money.
Jeff: If this is a true C-Corporation you want to go to put some money towards […] and stock, but not the whole $180,000.
Toby: All right, here we go. “I bought a rental property on December 8th of 2021. The renter signed the lease on December 24, 2021, but the lease started on January 1 of 2022.” You leased it on January 1st of 2022. “No rent was paid until January 2022.” Here’s the big question. “When is the property considered placed in the service?” Jeff, you’ll have to explain why that’s important, “And when do I start depreciation? I didn’t have any income for 2021 so would the depreciation carry forward?” Jeffrey?
Jeff: Property is placed in service when it’s available for business use. That is you put it up sometime in December for advertising it to be rented out. You did find a renter, so technically it was placed in service sometime in December. However, and I hope you agree with this, I’m going to say it wasn’t placed in service until January 1 of 2022.
Toby: I would say that it was placed in service. It was available for rent the day that he bought it.
Jeff: It’s going to depend on what my other deductions are on my Schedule E.
Toby: But you would have a very small sliver of 2021.
Jeff: Yeah, it would be very tiny.
Toby: I would take it in 2021.
Jeff: Even though he doesn’t have any income or he’s not going to be able to use it?
Toby: If it was vacant, then you can’t take it as a loss anyway. You just carry it forward. He might get that extra month.
Jeff: And it’s a half month.
Toby: It’s a small amount, but if he doesn’t do that, how are they going to treat it if it was put into service on January 1st? Is he going to get the full year or are they going to do a half-year convention?
Jeff: They’ll do a half-month convention. If you say it’s placed in service on January 1, he’ll get eleven and a half months appreciated.
Toby: This way we get an extra month of depreciation.
Jeff: I see what you’re saying.
Toby: Technically, it’s placed into service when it’s available to be rented. You don’t even have to rent it technically to get depreciation.
Jeff: The depreciation may not even be your biggest expense. There may be some other expenses, real estate taxes that you may have paid, and interest that you paid if there’s a loan on it. We don’t know. You don’t want to lose those expenses. You want to go ahead and report those.
Toby: Now, here’s the big one. If I didn’t have any income in 2021, can I carry that depreciation forward? I think you’re required to, actually. I don’t think you can take the loss because there wasn’t anybody in the unit. I think you’re sitting in a situation where, unless I’m wrong.
Jeff: No, you can still take the loss, but if you’re making more than $150,000 a year, you’re not going to be able to take the loss.
Toby: If you have a vacant unit, aren’t you limited?
Jeff: No, because it was available.
Toby: If it was available, then you’d be able to use that against your other passive income unless you’re a real estate professional, in which case, if you’re a real estate professional or if this is a short-term rental—it sounds like it’s a year-long rental—the only thing would be are you a real estate professional? That’s not coming up in this fact pattern so we’re going to say no. You would use it to offset some of the rents. Otherwise, you just carry it forward. You don’t lose it. Good questions—always get interesting.
“Can you talk about writing off a new truck purchase for use exclusively for my business and what are the tax benefits of having real estate professional status?” Let’s do number one. Can you talk about writing off a new truck purchase for use exclusively for my business?
Jeff: I got to combine this with a second part of the question because they say real estate professional status. If I’m buying a new truck, and also I am a real estate professional, I doubt that I’m going to have 100% business use for this vehicle.
Toby: Let’s just say this is construction. This isn’t an investor. Let’s say it’s construction, real estate agent, fill in the blank. If you’re out there and you wrote this question, maybe put in the chat what you do and it’s used exclusively, which means 100%. If that’s the case, then you’re going to be underneath the personal luxury vehicles?
Jeff: Yes.
Toby: The question is can I write off my entire truck in year one? It depends on the size of that truck or whether it’s the type of truck, big open back, I think the bed matters, and things like that whether it’s going to qualify as equipment. If it qualifies as equipment, you can write off 100% of it. It’s just like any other equipment you purchase. Whether you put it in service for one day, one month, or the whole year, you can write it all off. You can use bonus depreciation. You could actually use Section 179. The big issue is once you do, that needs to be used exclusively for that business.
Jeff: Correct.
Toby: It can’t come over to you personally and you can’t really just get rid of it.
Jeff: It makes more sense as a real estate professional if you have an apartment complex and you’re buying a maintenance truck or something like that. It makes more sense to put it inside the company, inside the business. If you just have a couple of rental properties that you’re towing around.
Toby: You’re not going to make it. Jeff and I get on here all the time and we’re usually telling people, don’t put your car in your business because you have to use it more than 50% or there are adverse tax consequences. If your company owns your truck and you start using it personally, it’s a taxable event to you. It’s the same as giving you wages.
When I see a fact pattern where it says exclusive, then I’m like okay, you’re going to have commercial insurance on it and it’s going to be for the business. It’s probably going to stay at the business and hopefully it is a type of business that requires a big truck or something like that. If that’s the case, you can write it right off now.
Real estate professional status, if you are in a profession short-term rentals, Airbnb, Vrbo, construction, development, real estate agent, if you manage properties, even your properties, and you meet the requirements under 469, it’s a section of the code where you do more than 750 hours in one of those businesses. One spouse has to qualify. It’s 750 hours or more than 50% of their personal services for the year.
If you have another job and you do that other job for 1000 hours, you need to do 1001 hours in your real estate active businesses and you have to materially participate in your investment properties. If you do those two things, your losses are no longer passive for real estate. They become active, ordinary losses. If that’s the case, you can do a lot of good by offsetting your other income. A W-2 job of a spouse, if you have another W-2 job, if you have another business that’s kicking out income, you can offset it.
That truck, let’s say it’s a $60,000 truck, something like that, probably not enough. Let’s just say $60,000 and it creates a loss of $60,000. If you’re a real estate professional, you can take that $60,000 loss and use it to offset your W-2 income or your spouse’s W-2 income. That’s the benefit of real estate professional status and you could take your depreciation and create losses.
Same scenarios before we had the person who put the property in the service, you’re depreciating that. You have a bunch of properties, you can depreciate those and take those against your W-2 income, your spouse’s W-2 income, and your other income.
Jeff: I know we have a question coming up on this, but also, if you’re a real estate professional, cost segregation becomes a much bigger tool than if you’re not.
Toby: I think we have a question on cost seg and we’ll get into it there. Cost seg is a fancy way of saying I’m not going to go with the wrong way that they have us do real estate. I’m going to do it the right way and I’m going to write off all the components of that building that are not long-term assets that are really equipment, things like carpeting. That’s not part of the structure. Why am I writing that off over 39 years or 27 ½ years? That’s silly. The carpet doesn’t last that long. If you listen to most accountants, including us, they’re always going to go with the default, which is 27 and a half years and that’s actually the wrong way to do it. They just allow you to do it.
The right way is to break all these components down, but it’s complicated, and you’re going to need an engineer to do the study. People don’t want to pay that. If you do it, it could be a huge win for you, a huge win. We’ve had properties that people bought for $1.3 million, I’m thinking of an RV park, and we had a million dollars deduction in year one, and they financed it. They were in it for maybe $100,000. You could end up with literally getting more taxes back than it costs you to buy the property if you do the cost seg right and if you’re a real estate professional.
Somebody did ask a question going back a couple and it said hey, why would it make sense from a tax perspective, to do a small amount of equity and then a loan versus doing it all as equity? From a tax standpoint, it’s not a huge difference. In fact, in both cases, you could get the money back. It’s just so much easier if you have a loan because if you put in equity, then what I’m doing is the company is redeeming my shares and then it’s giving me back the money and it’s the same amount of money that I spent for the shares. In theory, there’s zero tax on it.
What you’re really doing is you’re funding the company. When you put the money in, if you need the money back out, you’re not really funding them, you’re not buying the shares. If I bought Microsoft shares, I don’t expect Microsoft to give me my money back and then lower my basis.
If I loaned money to Microsoft, like I buy some shares and I say, hey, regardless of that, I know you need some money and I loan you money, then it can pay me back. It can give me back whatever I loan it tax-free and then some interest. It sounds to me like the reality of the situation was that you wanted the money back, you were just funding it, but you needed the money back. I would say it’s more appropriate to treat that as a loan. The tax standpoint doesn’t make that big of a difference.
Alright. “When my Wyoming Holding LLC owns another domestic LLC of mine that has active income,” It sounds like the Wyoming is a single member to the individual and the other LLC is owned by the Wyoming LLC so it’s a single owner by Wyoming, “And one of these is a licensed insurance agent,” which I’m kind of surprised that they would do as a subsidiary or as a single-member LLC, but as long as they’re happy that it’s you, then you’re good. “Do both LLCs have to file a tax return?”
Jeff: Neither LLC has to file a tax return unless you’re in certain states. You may have a state filing.
Toby: That’s exactly 100% correct. It’s disregarded for tax purposes when it’s a single member. It doesn’t file unless your state says single member LLCs have to file for income in our state. Then if so, it doesn’t have to, but will one flow into the holding one, and then flow into your personal. That’s going to happen regardless.
Jeff: Yeah. Look at it this way, I’m an insurance agent. I was reporting on Schedule C. Somebody, Toby, comes in and says well, you need to put this on a holding company and I do exactly this. I put it in a holding company that owns another LLC. My tax reporting hasn’t changed at all. I’m still reporting it on Schedule C, the way I was before I had all these LLCs because the IRS doesn’t even consider these LLCs.
Toby: Yes. Technically, the term is disregarded LLC and it’s disregarded for tax purposes to the federal government. They ignore the holding company and then you’re telling it to ignore the other company. The IRS says okay, we’re going to ignore them both. Whose return is all this income or loss going to be reported on? You tell me. It goes from one to the other. The second goes to the first and the first says, I’m going to report everything on your return. All the IRS is doing is saying, forget these two, where are you? And that’s it. It’s actually really simple.
The bigger question is, why would somebody have a holding entity in Wyoming? It’s for asset protection purposes 99.9% of the time because nobody can take away that Wyoming entity. If you have value, let’s say that you are an insurance agent, you have tails coming into your insurance company, and you don’t want anybody ever takes it away whether you get into a car accident, whether you get into some sort of legal jeopardy, and you end up with exposure, or somebody comes after you, a neighbor hates you and sues you, they can’t take your LLC away in a state like Wyoming. They can’t. The best thing they could do is lean it if they’re successful in winning their lawsuit against you. That’s why people use Wyoming LLCs.
All right, we have a few more, and then we will be done. “I have heard […] about,” that’s me. That’s actually my middle name, by the way. He actually got it right, “benefits of cost segregation. I try to read more about it. How do you do a cost segregation analysis? On the IRS website they talk about construction blueprints, construction engineers, and construction budget. If it is part of the construction project for a new building, how do you get the analysis done if you purchased pre-owned property? Do you hire a firm?”
Jeff: Yes, you do need to hire a firm. There’s actually two different cost segregations. There’s one for residential property, which is fairly straightforward, but you still need to have somebody else do it for you. Then there’s one for commercial property, which is way more in-depth, where you start talking about engineering plans and so forth. What does the make-up […]
Toby: It sounds like that’s what they’re doing and it’s so much easier if you have the plans, because of the cost segregation company, we work with one. We work with Eric Oliver over the Cost Segregation Authority. We could share this information with anybody that wants it, but that’s all they do. They have a CPA for that.
All they do is cost seg and they do some energy credits, but they’re very niche because it’s a very niche topic. Because they do them all the time, and that’s all they do, they’re very accurate when they look up a property. They’ve probably done something in that neighborhood around the country and they could say to their network of engineers, what do you think? They know who built it. They know all the contractors on it. They’re probably familiar with the property itself.
Believe it or not. It’s a very small world. All these builders tend to kind of know each other’s stuff, so they’ll be like okay, here. If you’re building it, it makes it really simple because then they can say oh, here’s all the materials that are tangible personal property that should be treated differently than the structure. That’s how you get all your tax benefits.
Jeff: We had one that was, and this is why it’s important for commercial property, a distribution center warehouse for frozen food products and they ended up writing off somewhere close to 90% of it because of the specialty items.
Toby: It wasn’t all structural. It’s the same thing that happens when you’re doing mobile home parks and RVs. A lot of it isn’t the structures, because structures really aren’t any, it’s really the pad. It’s all the personal property that’s going into it. You write those things off right away. Patty, Donna is probably looking for Eric Oliver because I mentioned Eric Oliver over at Cost Segregation Authority. Donna, we’ll make sure we get that to you. A super nice guy, by the way. A really great guy. Let’s keep going.
“I operate my business out of my home and want to rent the home to my entity so I can write off the mortgage and rental expenses as a business expense and use a primary residential loan to purchase a new home. Can I achieve this by writing a lease to my business? How can I go about this?”
Jeff: I wouldn’t. If he is converting his main home into a business property,
Toby: It becomes an investment property. I would never rent to your corporation. I would never rent your house out to a business. What I would do is have the business reimburse me and allow it to come in and use. If it’s me, I can have an administrative office in my home and the company can reimburse me 100% of that value.
The way you figure it out is you’re going to look at the net square footage, that usable square footage. I’m going to do it that way. I’m going to do the room methodology. In either case, I’m going to get between 20% and 30% of the house, and all the expenses associated with it as a reimbursement. If I do this correctly, if that business is an S-Corp, a C-Corp, an LLC taxed an S-Corp, or an LLC taxed as a C-Corp, I do not have to pay tax on a nickel of that money.
Jeff: He does mention purchasing a new home if that’s the case, and he’s not using the old home for any personal use whatsoever.
Toby: I think he’s talking about how I operate my business out of my home and want to rent the home to my entity so I can write off the mortgage and rental expenses. What you’re looking at is if you have your house and you’re using it for business, the business can reimburse you for the use if it’s truly a business. The problem that we see is a lot of people set up as sole proprietors, in which case you are limited in how much—even if a bunch of the house is being used—of that expense you can actually write off. It’s like $5 square foot per year is the safe harbor.
Otherwise, you need to show exclusive use of that particular area, and it’s based on the gross square footage, not the usable net, the gross square footage of the property so you end up getting a much smaller amount when you’re doing a home office, as a sole proprietor, as a partnership.
If you’re using the home and you’re getting reimbursed as an employee of a company and the company is reimbursing you for the use of your home, you can actually factor in the depreciation. You could factor in the property taxes. You can factor in even things like utilities and cleaners. You can add it all up.
If it’s an indirect expense, you can write off a portion of it. If it’s a direct expense like, hey, because I’m in this business in my home, I have to paint it a certain way, and I have to put in shelves, and I need equipment, and I need a computer and a desk and all that stuff, the company can write off 100% of that and it just reimburses you.
Jeff: Let’s say we don’t go to the reimbursement route and I’m charging my corporation rent. If I live in that property for more than 14 days, my deductions from that property are going to be limited to the income I received from my corporation.
Toby: Absolutely.
Jeff: I’m not going to get any benefit from it.
Toby: It’s actually income because I’m renting it and it’s paying me. I have to pay tax on those dollars that I’m receiving.
Jeff: Correct.
Toby: I would never do it.
Jeff: I wouldn’t either.
Toby: Yeah. The only time I do it is if I owned a separate property that I was leasing, in which case I’m going to group those two businesses together and treat them as one anyway. You could do that with real estate, in case anybody didn’t know that, if you sell rent to your active business. What percentage of accounts do you think are unaware that you could group that?
Jeff: Oh, wow. At least half, if not more.
Toby: Yeah. The vast majority, in my experience of accountants, are unfamiliar with a grouping of a piece of investment property with an active business. You can actually do it and then you don’t have to worry about the passive activity, loss rules, or anything like that. You just get to write it off, but it has to be a substantial portion of that building. It’s a part of that business.
All right. If you like this type of information, we do have upcoming Tax and Asset Protection workshops. We have one on July 16th and one on July 30th. Clint and I tend to do these where we are teaching everything from what’s an LLC, corporations, land trusts, and different ways. I go over cost segregation. I go over to appreciation. I go over typical business expenses. I go over 280A which is a way to get more money out of a company by using your personal home and things like that. There are ways to get money from a company that’s tax-free and then report it. That’s really great.
You can absolutely join that. It’s no cost. It’s July 16th or July 30th. Patty will share the link. The next one coming up is obviously July 16th. You’re going to say, Toby, you guys do workshops all the time? Correct. We are a teaching firm. We teach constantly. It’s one of the ways we get clients, but also the more we teach it, the better we understand it and so we are constantly going out there and making sure our people are involved.
Speaking of our people, I do want to say thank you to the folks that are answering questions, Jeff, primarily because he has to sit here and deal with my shenanigans, but Patty, Matthew, Eliot, Dana, Piao, Ian, and Troy were on. I don’t know if I saw Christos. He’s usually on, too. There’s Christos, all these guys, CPAs, bookkeepers, and accountants, they answer your questions. They don’t get paid a nickel for it. They’re doing it because it helps you and helps us.
A lot of people are on these Tax Tuesdays, they’re not part of our firm. We just do it because we think it’s important to go out there and share information and taxes are complicated and there’s a lot of really bunk information out there. We try to demystify it and make it a little more approachable so you enjoy it. By the way, if you have questions in between the Tax Tuesday, send it in, taxtuesdays@andersonadvisors. We do not charge for this, guys.
If it gets too crazy and you’re asking a lot of specific things and there’s work that has to be done, we’ll invite you to become a client. Usually platinum is sufficient and we’ll get you over the threshold. Platinum is only $35 a month. You can ask unlimited tax and ask that protection questions. It’s going to go through our lawyers. It’s going to go to our CPAs. We’re going to answer it again.
Again, we are a teaching firm first and foremost and that’s how we approach it. All of us have been bitten by the high cost of professional services and these retainers that people charge. We try to make sure that that’s not something we’re doing to you. We want to make sure that we answer your question.
If you’re not even a client, by all means, go to Tax Tuesday Anderson Advisors to test us out. See if what I’m saying is accurate. This is exactly where we pulled the questions from that Jeff loves to answer.
Jeff: Right.
Toby: When I’m not around, it’s Jeff and Eliot doing a great job. From my understanding, you guys are kicking it. A couple of people said Toby, don’t even bother coming back. Eliot and Jeff do such a great job. We don’t have to listen to your craziness.
Jeff: And we get done by four.
Toby: It’s almost four. It is 4, it’s just 4:15. All right. Anyway, I just want to say thank you guys. It’s so much fun teaching these and it’s fun to be back in the saddle. Jeff, thank you, sir.
Jeff: Thank you. Glad to have you back.
Toby: Alright, until next Tuesday.
