Are you lucky to be alive and taking care of your taxes? Toby Mathis and Jeff Webb of Anderson Advisors answer your tax questions. Submit your tax question to taxtuesday@andersonadvisors.
Highlights/Topics:
- If a non-profit (NP) organization opened a trading account and got options income less than $50,000, does the NP file an income tax return (besides a 990-N)? If you have gross receipts less than $50,000, you only need to file a 990-N (e-Postcard)
- Are losses from gambling deductible? If you have gambling losses, they are deductible on Schedule A as long as you have gambling winnings on tax return
- I have a rental property that is owned by my self-directed IRA. Does it need to be in an entity or is it safe in the IRA? Individual owner of an IRA is always personally reliable for the acts of the IRA, so put in an LLC or self-directed IRA
- How do you claim the solar credit on your personal residence? Use Form 5695 – Residential Energy Credits; put in how much you paid for solar and multiply times percentage credit (26%)
- Doing a cost segregation on a condo that was purchased out of my inherited trust to pay off other beneficiaries. Can I take bonus depreciation? Yes, and you can write-it off twice if you inherit it
- Can I include my roof replacement for the solar tax credit? You can write-off roof if for dual usage; roof replacement is not part of the solar installation and labor
- How is the in-home office deduction being treated since most of us have been working from home? Still a red flag for realtors? If you are an employee, there is no home-office deduction; the home office is only for sole proprietors and if you’re being taxed on Schedule C and receive a 1099, then you can deduct reasonable expenses
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Go to iTunes to leave a review of the Tax Tuesday podcast.
Resources:
Infinity Investing: How The Rich Get Richer And How You Can Do The Same by Toby Mathis
IRS – Coronavirus (COVID) Tax Relief
Homeowner’s Guide to the Federal Tax Credit for Solar Photovoltaics
Real Estate Professional Requirements
72t – Substantially Equal Periodic Payments
Setting Every Community Up for Retirement Enhancement (SECURE) Act
Form 5695 – Residential Energy Credits
Anderson Advisors Tax and Asset Protection Workshop
Anderson Advisors Tax-Wise Workshop
Anderson Advisors Infinity Investing
Full Episode Transcript:
Welcome to the Anderson Business Advisors Podcast. The nationally recognized preferred provider for asset protection and tax planning in the nation. This show is for investors and business owners looking to save on taxes and build long term wealth with Toby Mathis, an attorney, author, business owner and a featured instructor at Anderson’s Tax and Asset Protection Event held throughout the country. Enjoy the show.
Toby: All right, we should be live now. Hopefully, you guys can hear us. If you’re out there and you’re alive, let us know just by putting in there, yes, I’m alive. It’s Tuesday. Even a period or an exclamation point would work. That’s what we should be thankful for. We had a friend of ours passed last week and all I can think of is we’re so lucky. Sometimes you take it for granted, bad stuff happens.
Jeff and his hat, I forgot that was sitting up there. It’s got a nice buckle, quite an artist. All right, so there’s some thank you, alive, alive. Fantastic, we got a whole bunch of people popping on. We never know exactly how many people we’re going to get. It’s usually many hundreds. Sometimes, more than 1000. I imagine that probably in about a month, we’re going to see it get crazy.
Look at this, for some reason all my chats say Kayla. I’ve never seen that happen. I’m going to cancel that and then I’m going to go reopen it. There’s no way that Kayla is chatting with us 600 times. Let’s see if I could figure out how to do that. There it is, a little dot. It likes to torment me, this machine.
All right guys, everybody’s name or a bunch of you guys apparently are Kayla today, so it’s weird. Something must’ve come out on that email. We don’t know why the computers are doing what they’re doing, and we’re just going to ignore them. We’re just going to jump straight on. First off, thanks for coming on. My name’s Toby Mathis and this here to my right is Jeff Webb.
Jeff: Yeah, that’s me.
Toby: Jeff is a stud when it comes to taxes. We’re really lucky to have him. He’s on here with me every other Tuesday and has to endure my nonsense. All right, so here we go. The questions that we get, Kayla, you’re all over the country by the way because apparently, you’re in New York and Rhode Island. Let me know what you guys are from by the way. This is always fun to see where everybody’s at.
If you don’t mind just putting in your city, you don’t have to even put your state. We might be able to figure out where you are. I said a city and it’s California, Las Vegas, New Orleans, Raleigh, Ogden, Baltimore, Orlando, Ohio, Baton Rouge, Atlanta, Peoria, New York City, Oak Harbor, Boston, Orange County, Tacoma, Fresno, Houston, Los Angeles, Alexandria, Odessa Porter Ranch. We have a lot of people from all over the place. Honolulu, I am jealous. I’ll just ride on over there.
We’re here to answer your questions and I hope they have a lot of fun and make taxes not miserable for you. By the way, speaking of misery, I was quoted in a newspaper today and I didn’t expect them to do it, but the quote was, “This tax season is a dumpster fire.” The reason it is because it’s a dumpster fire. The IRS is literally telling us, please don’t file amendments after this most recent tax, the COVID Care Act, whatever it’s called.
The most recent tax act that was signed last week changed taxes for 2020 in the middle of the 2020 tax season. How’s that make you feel Jeff?
Jeff: That makes me feel wonderful.
Toby: They’re still opening up their mail from July. If you paper-filed, there’s a very good chance that they cast your check and didn’t put you in their system as having received it. Which gives us all sorts of warm fuzzies because they start sending you collection letters which means then you call us and you say, what the hell did you guys do? We looked it up, we could see the payment and everything but the IRS has not processed any of the mail.
Jeff: They’re talking about extending the deadline again this year, and it’s not to help out all the Americans. That’s primarily because the IRS is such a train wreck right now.
Toby: Rowena, you are absolutely 100% correct it is a fustercluck and I didn’t swear.
Jeff: No.
Toby: But it’s really tough. It’s tough on the agents. It’s tough on everybody. Of course, when we do it, they don’t really cry tears. They just go forward like mindless robots. But when they do it, then we’re at their mercy. Here’s what you do. You take a big breath, what I’m telling everybody which has been consistent for 20 years plus—file an extension. Take yourself out of the madness. Give yourself some time.
Your taxes, as it stands right now, your individual taxes are due on April 15th. But on your tax return, you get an automatic extension to file that until October 15th. Go ahead and pay your estimated tax. If you’re really worried, pay 110% of whatever you paid last year and you don’t have to worry about the penalties and interest, and then breathe and relax. There are probably going to be more changes, and it may impact the 2020 tax season. They’ve shown a willingness to do that now.
They made $10,200 of unemployment nontaxable. If they’re going to do another stimulus act, my guess is that they’re going to focus on helping the lower incomes and a lot of folks that are on unemployment. All right, you guys can ask questions in the question and answer. We have Eliot, we have Piao on. Is Piao out there? I think he is. I don’t see him sitting up here but somebody needs to bring him up.
Jeff: Christos.
Toby: Christos should be up there. I don’t see their names, but they’re supposed to be—I see Piao answering, so something’s going on with Zoom. Our interface doesn’t like us much today.
Jeff: I’m not sure if Tabia is on to help with the bookkeeping questions.
Toby: Maybe. Eliot, are you out there? Are you alive? Maybe you can tell me because I can’t see it.
Eliot: Yes sir. We got Susan, Christos, and I believe Piao is on as well.
Toby: Perfect. We love it. Somebody says, I emailed a question last week. Did they not get it or do I need to ask in chat? We answer them pretty quickly. Somebody says Piao’s here. But you could ask it again. I wouldn’t answer it, ask it in chat. Go into the Q&A area. Chat is where I get an immediate response. I want to make sure that if you have a question, the accountants that are on will I answer it.
We don’t charge for this. People always say, why the heck don’t you charge for it? Because I don’t want to. Do you want to? You do? Jeff likes to charge for things. I like to give it away. All right, opening questions. We’re going to answer all of these and more today.
“If I purchased depreciable business property this year for $200,000, eligible for bonus depreciation, 100% depreciated it 2020. Used it for five years then sell the property for $50,000. Will I have to recapture the $150,000 that was depreciated in year one upon sale? Is there an exemption to this rule where recapture is not warranted?” We’ll answer that.
“If a nonprofit org opened a trading account, got options income plus capital gains of less than $50,000, does a nonprofit file an income tax return?” They said, besides the 990-N? We will answer that.
“Are losses from gambling deductible?” No gambling. We don’t gamble around here. We’re in Las Vegas. We have strict rules against it. We’ll answer that too.
“I want to draw down about $250,000 for my 401(k) this year, possibly to buy 1-3 investment properties. Can I use bonus depreciation from the properties to offset the income taxes from my 401(k) drawdown?” Interesting question.
“I have a rental property that is owned by my self-directed IRA. Does it need to be in an entity or is it safe for the IRA?” We’ll knock that one out too.
“How do you claim the solar credit on your personal residence?” I have a feeling Jeff’s going to like to answer that.
“Doing a cost segregation on a condo that was purchased out of my inherited trust to pay off other beneficiaries, can I take bonus depreciation?” We’ll explain all those pieces. There are a few things to dissect there. I love those types of questions by the way.
“I inherited a property and had been living in it. I then got married and I’m now getting a divorce.” I’m so sorry to hear that. “To avoid paying tax and having to share the profit with my partner. Can I put it in an LLC first before I make any move with the sale and divorce?” We’ll go over that.
“If I control a foreign domiciled company, then what would trigger me personally being personally taxed on the company’s profits?”
“Can you include your roof replacement for the solar tax credit?” I love that question. It’s actually really good.
Then last but not least, “How is the office-in-home deduction being treated since most of us have been working from home? Still a red flag for realtors?” We have a whole bunch of fun.
By the way this is really nice. Right there Roberts says, “Eliot, thank you for answering my question the last time after the webinar ended. I did notice it. Thanks.”
Just for you guys to realize, these accountants are hanging around and we’ll end the webinar, but if you have questions, we’re still going through and answering them. Why do we do it? I don’t know, give, give, give. You have to give. You have to give in this world. When we start losing our giving spirit is when we’re really toast.
All right, hopefully you guys can see this. I can see it. That little bottom part is messing me up. I may look at a new share here if I could actually see. Forget it, this thing is so annoying. I’m going to redo this setup, just so you guys know. I’ll let my tech guys know. The mouse just disappears for whatever reason.
We have a March 27th Tax and AP event absolutely free. It’s live online. You just click there. It’s free on March 27th. We go over everything from land trust, LLCs, corporations, living trust, IRA, 401(k), how to get the most out of tax-wise as well. Feel free to go to the link, aba.link/marchtap, tax and asset protection. It’s creative, I like this link. These guys are thinking really good now, aba.link/marchtap, tax and asset protection.
If you haven’t been to one, join us. If you have been to one, join us. Somebody says who’s the little guy in the middle? Who does that? The little guy. What’s sad is those guys are behemoths. They’re really big. They’re 300 pounders.
Jeff: Huge.
Toby: Huge. “If I purchased depreciable business property this year for $200,000…” They buy $200,000 of equipment, for example, and take 100% bonus depreciation. You can do that under 168(k) or actually, bonus depreciation of 168(k), otherwise, you take the 179 deductions, which nobody’s doing right now because you have 168(k). “…then sell the property later for $50,000. Do you have to recapture?”
Let’s set this table, five years later, let’s say they put it into service in 2020, sell in 2026, and I sell for $50,000, do I have to recapture the depreciation I took? If I do that, are there any exceptions?
Jeff: Let’s talk about recapture here for a minute. There are two types of depreciable property—1245 and 1250. 1245 is your tangible personal property, like you said, the equipment. 1250 is business for real estate that you’re depreciating. They both have different rules for recapture. 1250, the real state has different tax rates. When it comes into play, it’s just a difference between straight lines and accelerated. The 1245 personal tangible property, anytime you sell that at a gain, you’re going to pay recapture on that.
The one rule that’s the same for both is that your recaptures is going to be limited to whatever gain that you have on that property when you sell it. Your recapture is going to be on the $50,000. It could be taxed at ordinary rates. You will not pay recapture on the $150,000.
Toby: Yes, all right. What if they had sold it in the second year?
Jeff: If bonus really doesn’t make a difference, if it’s 179 through an S corporation, then we could have some huge issues. What I’m getting at is with a 179 and the S corporation or partnership, that’s not even calculated within the entity. It comes out to you on your K-1, and then you have to calculate how much tax on your 1040 form.
Toby: What you don’t want to do is have a business car, buy the business car, depreciate the heck out of it, and before its useful life is up, move it back into personal property because you’re going to have ordinary income on that portion plus any amount of money you received for it.
Jeff: Yeah, and that’s going to be true on most tangible property you may have on a business. You can’t just have it in there for a year or two and distribute it out to yourself because there’s going to be tax consequences to that. You’re probably going to have to bring out a fair market value. You may have a gain in the corporation or S corporation. It’s going to have consequences for you. It’s either distribution, dividend, or something like that.
Toby: This one’s good. This example is good. Even if I had it on financing, I get $200,000. Let’s say that this is a big piece of computer equipment, a press, or something being used in industry, and I had a five-year note, I bought it in 2020, I took a $200,000 deduction—very, very nice. Good job. Then I used it for five years. I used it up and I sold it off to somebody for the salvage value at $50,000.
I took a $200,000 deduction then I got $50,000 back. It makes sense I would pay tax on the $50,000 as ordinary income. I got the $200,000 deduction. I wrote off the interest payments. I didn’t write off the payments of principal because I already wrote it off, so I don’t get to write off the same equipment twice. But there’s just this logic that just makes sense.
If a nonprofit org opened a trading account and had options income—so they sold options—chances are they have a trading account with a bunch of dividend stocks or something and they’re selling options to generate income, which is super smart and I totally endorse. Then they have all this income. Maybe it’s $10,000. Does the nonprofit actually file a tax return?
Jeff: If you have gross receipts of under $50,000, then you just file the 990-N.
Toby: Which is an online postcard that takes about three minutes to file, right?
Jeff: Yeah. The way they define gross receipts is it’s investment income, contributions, things like that.
Toby: Everything that you made. Anything that they gave, any money that you made.
Jeff: You’re counting like investment income. You’re not counting what stocks you sold. You’re counting the capital gains like you said.
Toby: Right, the actual income. This is fun. “If I bought a property 30 years ago for $100,000, have fully depreciated it, now I sell for $60,000, how much of a capital loss do I have if any?” It depends on what your basis is.
Jeff: Yeah, if it’s fully depreciated and you sold for $60,000, you don’t have a capital loss. You actually have a capital gain.
Toby: Unless you put a lot of improvements on it. If you bought it for $100,000, you put $100,000 into it, you depreciated the improvement value. Let’s say, the improvement value is $70,000, your basis, you have $30,000 plus $130,000 and you sell it for $60,000, now you’re going to have a little bit of a loss.
Jeff: Yeah, so when you’re depreciating a property, you’re also lowering your basis every time you take depreciation. If you buy at $100,000 in the first year, it could be $97,00, $94,000, until at year 30 it’s going to be worth zero.
Toby: Let’s just stay on this one just because it’s fun. I don’t know, I think these things are fun. Let’s just say that they bought it at $100,000. You can’t appreciate the land, so you take the land value out, so we had $70,000 that we depreciated, but then we put improvements of $100,000, which would really suck. You still have your land, you subtract off your basis. Your basis is going to be about $130,000 without factoring in certain costs, the transaction costs, and you sell it for $60,000. Now, you’re looking at potentially having a little bit of a loss. Your loss is going to be $70,000. Makes sense?
Jeff: Yeah.
Toby: Tax is fun. All right, “I have three homes, my primary residence and two rentals. The three are under my name, the last property I acquired in March of 2020. However, due to the pandemic, I haven’t been able to rent the second property. They’re under my name, have LLCs, how do I handle taxes since I’ve lost a full year of rental income?” You’re going to depreciate the three properties, first off as long as they were available for rent.
Jeff: Were they three rentals or two rentals?
Toby: My primary residence and two rentals. They’re going to depreciate the two, you’re right, sorry. Even though you weren’t able to rent it, as long as it was available for rent, you’re just not going to be able to create a loss, I don’t believe.
Jeff: Yeah, we’re under the assumption that you were trying to rent it out just and just couldn’t find somebody to move into it.
Toby: Great question. “Are losses from gambling deductible?”
Jeff: Not exactly.
Toby: Jeff’s an expert at this.
Jeff: Losses are deductible on Schedule A up to the amount of your gambling winnings.
Toby: I saw Jeff hit on 21. Go ahead, sorry.
Jeff: I don’t know if I can. If you have gambling losses, they are deductible on Schedule A as long as you have gambling winnings reported on the front of your tax return.
Toby: If you have $10,000 of winnings and $12,000 of losses, I guess I would say lose—losers, so winners and losers—can you take the $2000 of losers?
Jeff: You lose the $2000 forever.
Toby: If you lose, unless you’re a professional gambler…
Jeff: Not only have one of those.
Toby: You make your living doing it, but it stinks. You lose it, it’s not even carried for, right?
Jeff: No.
Toby: You just lose it.
Jeff: Fortunately, when they get away with those miscellaneous itemized deductions that stayed on the tax return. Yeah, it’s nice to have.
Toby: Hey guys, by the way, we’re number one in new releases in financial planning. This is Infinity Investing. If you haven’t gone to the course, I would enjoy it if you would. But we’d love it if you go to Amazon and preorder. The book comes out, I think it’s going to be on April 13th. We’re already getting the physical books in and Amazon’s going to be stocked up, but we’d really appreciate it if you did it. If you do, please read it and give us your honest comments.
It’s one of those things I never anticipated writing an investment book because I try not to give people advice or second guesses. But after 20 something years of doing this, and Jeff and I look at the Schedule Es, we’re always chatting about who’s making money, what do they do, and I’ve been staring at stock investors. I know who makes money and who doesn’t. It’s like, all right. Here are the things that work for people over and over and over again. We compared it to the IRS data to see if it was just us, it’s not.
If you do these things in Infinity Investing, you’re going to have success because statistically speaking, you become the casino. As the old adage that if I played slots long enough I’m going to lose every dollar that I put in there because statistically speaking, the law of average is, the way it works is you will. Somebody says is the book on Audible? It’s being recorded as we speak. It’s not up there yet. But by all means, still get yourself a physical version, Kindle version, share it with folks. Invite them to join us—Infinity Investing. The basic membership is absolutely free, absolutely free.
Can we get an autographed copy? Yes, absolutely. What I’ll do is if you show that you purchased one, I’ll probably just send you an autographed one afterward and then you can gift the other one. This is not a moneymaker for us. It’s a life-changer for us. We try to build better clientele so that we can help them with their tax situation when they make money. It’s like the barber giving you hair cream to make your hair grow faster so we can cut it more often.
What do we show? If you just give me a receipt or if you just take a picture of you with the book, I’ll send you an autographed copy when it’s all said and done. That’s just me telling you that. Patty, you’re going to have to make that happen because I suck. They’re going to come in a month and they’re going to say did you ever say this?
Jeff: We love keeping Patty busy. It keeps her happy.
Toby: Maybe, I’ll remember this one now because I’ve triggered my memory. Sometimes I do say things and I’ll be like I probably did, Patty. I probably gave away a bunch of stuff. All right, sorry Patty. She’s not even on right now. Susan, you’re going to have to do it. I was thinking Patty was on and she’s on our […] training, the customer service training.
“I want to draw down about $250,000 for my 401(k) this year, possibly to buy 1-3 investment properties.” Drawing down, I’m assuming it means you want to take it out and pay the tax on it. You want to answer this one and go over the rules?
Jeff: Yeah. You asked, “Can I use bonus depreciation from the properties to offset?” If you pull money out, you buy these properties in your name and you could do cost segregations. As long as you’re a real estate professional, you will be able to use the bonus depreciation to help offset some of your income taxes. However, I kind of disagree with this whole proposal. I think instead, I would probably buy properties within my 401(k).
Toby: Absolutely. I saw this last week, I was having a normal conversation with them online and they said, well I’m a real estate professional. I said that’s the only way I could see it because if they buy enough properties, they could offset the $250,000 of income and they didn’t have other income, or not much.
Toby: I was like, okay, you’re going to pay 10% on it maybe, get it out of there now. But I’m with you. I think I’d rather see them invest inside it. Or if you want, depending on how much money you have in there and whether you have a spouse who’s participating, you might just want to borrow some of it out. Maybe do a combination, borrow $50,000 each, take a little bit out.
Jeff: The problem with pulling this much money out is they’re subject to the 10% penalty too. We know they’re going to pay at least 35% tax on this money.
Toby: Yeah. There’s one other side to this. Under the CARES Act, they opened it up and allowed you to borrow $100,000 per participant for a good portion of 2019. I don’t know if that’s going to come back. It’s one of those things where maybe you write your congressman because I would like to see it. Plus, money, it’s cheap right now. Money is cheap. Buy it. Don’t take it out of your 401(k). Your 401(k) is going to grow faster than the money that you’re borrowing for the most part.
This is one of the few times in my entire life that I would ever say something like that. But depending on your 401(k), whether you have control of it or your employer has control of it, this is the lowest interest rates have been.
Jeff: Yeah. I believe I heard yesterday it was at 1.9% something.
Toby: You’re getting down to the 2% side.
“Then do I have to do an RMD calculation for this?” Here’s where it could work. If you’re over 55 and you take it out, you could avoid the 10%. If you’re going to take out the whole thing or equal portions under 72(t), we could avoid the 10% if you’re over 55.
This is one of those scenarios where we just take a look to see whether there’s most effective. This is when we either actually want to sit down with somebody. The three rules we use if you haven’t heard them before are calculate, calculate, calculate. Or what do they say? The German way—calculate, calculate, calculate. I just did it backward, right? That was Inglourious Basterds. Remember when they were at the beers?
Jeff: Yeah. Another thing you might want to consider if you do want to pull this money out is buy a house this year, pull the money out for that. If you want to buy a second house, wait until after the end of the year, buy a second house. With this crazy real estate market, we’re never sure what’s going to happen.
Toby: I don’t think anybody does. Here’s what we know about the real estate market because you guys know I’m a junkie for going onto the Fed sites and looking around. There are not enough houses. There’s really not enough housing for low income. It’s been dropping for 10 years. That was pretty, pretty scary. I don’t think housing prices—I think that people need housing viciously bad, especially our elders, and of course the […] are really suffering right now.
We’re seeing a lot of people—you saw Warren Buffett—make huge investments. The largest investor in mobile home parks in the United States. You’re seeing people that are serious, starting to focus on certain areas. I can’t see the real estate market growing. There’s just too much.
Jeff: We’re even seeing some of the local builders in Vegas. They’re no longer selling houses or auctioning off their houses because they can make so much more money.
Toby: Yeah. Look at this. So many good questions. “What is the best way to get traditional IRA funds over to a Roth with paying the least amount of taxes if you’re over 55?” If you set it up under 72(t), you could pay tax periodically over a set number of years and move it.
I don’t know if I am, honestly. I’m going to do the number check. IRAs—Roth compared to traditional—are equal if the tax rates stay roughly the same. If your tax rate is higher and you’re going to be lower when you retire, traditional wins out. If it’s the opposite, I’m in the lowest tax rates now and I’m going to be higher. If you’re in the zero, you know you’re going to be higher. Put it in the Roth. Kids and young adults should almost always do Roth. We’ll get into it.
Somebody says, “Are we talking about solar panels today?” There are two questions on there about solar so we’ll get to them here in a second.
Jeff: Can we get Kayla scheduled for a tax consult? Because she’s got a lot of questions.
Toby: This is the meanest thing Zoom’s ever done to us by the way. Kayla is the default name on everything. We’re getting all these messages from Kayla, questions from Kayla. We know it’s not Kayla but I still think it’s funny.
“I have a rental property that is owned by my self-directed IRA. Does it need to be in an entity or is it safe in the IRA?”
Jeff: This is a ‘that depends’ question.
Toby: The individual owner of an IRA is always liable for the acts of the IRA personally. If I set up an IRA and the IRA has a liability, it comes to me personally.
Jeff: This does not depend.
Toby: Yeah. It always is actually pretty straight. That’s the issue. That’s with any retirement plan, the participant’s liable. If you get real estate, that’s why your brokers and stuff are oftentimes saying, no, you can’t invest in real estate. They don’t want to be the one that buys you something, gets you sued, and costs you everything else you own because then, what are you going to do? You’re going to turn around and do what to that person? You’re going to sue the lightning out of them.
Self-directed IRA custodians would do it, have you sign off, and say, this is you. You’re choosing this. The custodian will actually say, are you directing me to do it? You say yes. They’re shifting the responsibility back over to where it should be, which is you if you’re the one who’s in control of it.
What I would do is I would put it in an LLC. More than likely, self-directed IRAs to me aren’t my favorite. I would rather have a 401(k). The reason being is because I’m in charge. I don’t need a custodian if I have a self-directed IRA. I also don’t have unrelated debt-financed income so I can get loans against it and I don’t have to worry about tax.
If it’s a husband and wife or a couple of people thinking they can pool their money, they don’t have to have an IRA on the title or have an LLC that’s owned by two different entities, they can just have one.
Jeff: Going back to a question earlier about the RMDs when you have real estate in it, that’s one reason most custodians hate what we call hard-to-value assets.
Toby: You can distribute partial ownership with that. It gets weird.
Jeff: Right. Otherwise, you end up having to do some type of valuation to come up with your RMD amount.
Toby: I’m going to go back to this. “Is my understanding that if I start Roth IRAs for teen years that I can essentially put up the $6000 in each year tax-free since they are not required to pay tax in this […]. Is this true?” Yes. It’s because you have a standard deduction of $12,000 or $12,800 this year.
Jeff: Yeah. They just have to have their earnings to cover that $6000.
Toby: “Should they file a tax return?” You don’t actually have to because you’re not going to have any taxable income. “Is my income relevant to this?” No. The only thing you might have is a custodial IRA is if they’re too young. If they’re in their teens, you’re going to be doing up until 18. You’re going to be doing a custodial IRA where you may have to sign off on it. Still theirs.
Krista, that’s one of the smartest things you could ever do because one of the misunderstandings about Roth is that it’s taxable when you take it out or that you have to keep it in there for a certain period for it not to be penalized when it comes up. No, I can always take out what I put in it tax-free, meaning that I didn’t get a deduction for it. I don’t have a penalty for taking it out.
The only thing that I have to worry about is the earnings on it. If I put in $15,000 and I make $10,000, I could take the $15,000 out that I put in, no problem. I could always use it as an emergency fund. It’s the $10,000 of gain that has a 5-year waiting period without any penalty. Just to let you know. You’re going to have a tax hit on that one. You get young people into the Roth. Traditional IRA too works great, but the Roth just means they’ll never pay tax about it.
Somebody just asked, “I’m tied about converting from a traditional to Roth and tax implications. Is there any benefit if you want your Roth to go to your spouse who is considerably younger?” Probably not. Maybe if you’re going to stretch it—if you’re going to do a stretch IRA—and then you’re going to pass and you pay the tax now, you might have a longer period of time, but the SECURE Act, I guess for your spouse, that tenure is not going to be applicable.
If you have a considerably younger spouse, let’s say it’s a 20-year difference or something like that. That might be a situation where you take the hit now because you’re like, hey, when he or she needs those funds, in a Roth, you don’t have a required minimum distribution. Let’s just say they’re 80 when they need it, 90 when they need it. There’s no tax during all that time, no tax when they take it out.
“How do I claim the solar credit on your solar on your personal residence?”
Jeff: This is much easier than you think it is. There’s a form called Form 5695. It’s for residential energy credits. You put in how much you pay for the solar, you multiply times the percentage credit, which is 26%.
Toby: They raised it up from 22%, so 26%.
Jeff: And that’s going to be your credit. It’s really simple. If you do it on a tax software—TurboTax or something—it’s going to be extremely easy.
Toby: Yeah. If you’re lower-income—and I don’t mean in a bad sense—you can use a free tax prep tool. If you have real estate or if you have investments, that’s when you use a professional. Realistically, those are probably going to be in a partnership anyway. You just take in your K-1. It’s up to you. Do you care about stuff like that?
Jeff: No, I don’t. I sometimes hate seeing people pay a lot of money to have a tax return prepared that they could’ve done themselves. It costs them a lot of money.
Toby: There’s congressional testimony on it last year because so many people that should’ve been able to do free tax filings were tricked into doing paid-first filings by who was into it in H&R Block. They still awarded them the contract to do it again. No consequences, one of those things.
We’re going to talk about solar credit again. I saw that there was another question about it. I’m going to say this, a lot of accountants get stuck in the idea that solar credit is only a personal credit. There’s also Section 48, which is for business assets. That’s different. They’re completely different.
When there’s guidance issued on the investment property, it doesn’t mean it’s impacting the personal residence. There are some situations where people get caught up, the accountant gets confused, and they’re using the wrong section. Make sure that if you’re doing personal residence, it’s not a rental. I think it’s Section 25 is really straightforward. If you’re doing a rental property, it’s not the same thing. It’s the same percentage, but it’s a little bit different. You’re going to do your credit and you’re going to depreciate it.
“Can I convert my self-directed IRA to a Solo-401(k)?” You can roll a self-directed IRA into a Solo-401(k). You cannot roll a Roth IRA into anything. Possibly, another Roth IRA, but you can’t roll it to the Roth 401(k). You can roll a Roth 401(k) into a Roth IRA. There are funky, little rules. That’s why you talk to folks like us. Just email us or ask us the question.
“Are there restrictions for backdoor Roth IRAs?” Mina, we can get $58,000 a year into a Roth IRA if you want to. We know the mechanism to do it. You’re going to have to make sure that you have a business, that you have a 401(k), that the 401(k) has a Roth component and a profit-share. Profit-share is probably about all you need. You’re going to have to take a pretty sizable salary, but you’ll get that much money in there.
It’s just, again, calculate, calculate, calculate. Make sure it’s worthwhile, but you’re not in a super high tax bracket. In which case, I would probably say don’t do that. But if you’re in a lower tax bracket, you’re able to get the money because you had a real estate professional, you have a whole bunch of losses that you can take, and you can offset that income, then that becomes our friend.
Social media, blatant solicitation, aba.link, and then anything—Facebook, YouTube, LinkedIn, Instagram, Twitter, follow us, please. We like it.
Somebody says, “I don’t necessarily agree with traditional and Roth are similar to each other.” I’m going to read the question, guys, just because it seems like it’s from an accountant or somebody who knows their stuff. “Toby, I don’t necessarily agree with traditional and Roth are similar to each other in regards to tax rates.” Totally. “I expect my Roth IRA was a lot more than my contributions. Therefore, if my growth is 10 times, I only pay tax on 1X at the lower rate. That’s the Roth. The 9X is tax-free in the Roth, on the traditional but they tax in the 10X.”
Yeah, my thought. Robert, I’m not disagreeing. You calculate it. This is why it’s different. Let’s just say that I put in $10,000 into an account and then it grows 10X. My after-tax value if I put it in a Roth, I had to make about $14,000. Let’s just say that it was $10,000, but I had to pay the tax on it so I had to pay, let’s say it’s $3000. But then I have a $7000 and 10X is $70,000.
Let’s just say that it grows 10 times so $70,000 upon retirement and that comes out tax-free, versus I put the whole $10,000 and I 10X. It’s $100,000 but I have to pay the tax coming out. If it’s the same tax form, I’m going to have $7000 after I’ve taken it out over time. Those are the same numbers, $70,000 or $70,000. I’m saying that they’re built to be equal unless you go crazy.
You do the PayPal stuff where the guy makes $6 million in a Roth, you’re a rock star. But what I have a problem with is I see people who were in the high tax brackets going after that Roth. If I could deduct that, I already have a 30% gain and I already know what the tax rates are on average. They’re considerably lower in retirement ages. It’s like single digits.
Jeff: The way I look at it is if I’m contributing $6000 and I’m in that top tax bracket, the Federal Government is actually contributing about $2300 of that $6000 for me. It’s hard to make those returns up with the Roth.
Toby: This is not a good question. Can I […]?
Jeff: Go ahead.
Toby: “If I buy a stock 10 years ago and do not remember the original price, there’s no record of it.” Go back and look at the chart. There has to be a record of it somewhere.
Jeff: Yeah. We run into that occasionally. Hopefully, we’ll figure out when you bought it. Sometimes, it can be buy from […] unless there have been a dozen murders in between.
Toby: I did that, guys. I had a company I bought in 2001 and they got purchased. The company that purchased them changed their name, and then they went public. I had no idea because I thought that they were toast after the merger. I was like, oh, it’s nothing. I never hear about the company anyway. It was because they changed their name.
One of my buddies who was in the company, just completely randomly, we were talking about it. It was in a business group. He talked about what he was doing. I was like, that’s funny. We had some technology once in a company. It was this. He goes, yeah, we acquired that. I’m like, really? What are you guys? He goes, oh, we used to go into this name and we went public. I was like, $14 and my basis was $0.15 or something stupid like that. I had no idea. I was like, oh, crap.
Then, I had to go back and find my proof of payment so I could get my shot, my certificates. It was funny. Then, I donated it.
Somebody says, “If it’s too hard to find the cost basis—” You’re my new best friend because you’re absolutely right. Then, you just take a deduction. It’s 100%. You don’t have to worry about your basis. Donate it. Take a big tax deduction and let the charity do it. I actually did that to my own charity. I gave it to my charity. It’s a 30% limitation of your adjusted gross income, but you can just carry forward any excess amount.
“Doing cost segregation on a condo that was purchased out of my inherited trust to pay off the beneficiaries. Can I take bonus depreciation?” Let’s hear you, Jeff.
Jeff: I’m not sure I understand about the part to pay off the other beneficiaries.
Toby: Inherited trust. Let’s say mom and dad passed away and we’re the two brothers that are left behind. I buy your half. Can I do cost segregation and take bonus depreciation? I bought your half. There’s no gain because it was inherited so there’s a step-up in basis.
Let’s say it’s a $1 million building. Can I depreciate even though I bought it out of the trust? Or, if it’s sitting in the trust, which wouldn’t make any sense because you bought it out. Let’s just say they split it and they said, hey, you take the real estate. Jeff takes all the cash. Yeah, you could absolutely go and depreciate it.
Jeff: Yeah. Especially if you’re buying out the trust to take over the property, that’s a new property to you.
Toby: Yeah, and you get to depreciate it at step-up basis. All right, let’s go through this stuff. You can write it off twice if you inherit it. […] donate it. I literally just looked it up. It said donate it and I just repeated it. It’s a good thing nobody’s swearing because I would have just repeated it. I’m like the guy on Will Ferrell where he repeats everything as the increment. There we go.
Let’s jump on. “I inherited a property that I’ve been living in.” It’s an inheritance. This is really important by the way. Actually, that’s a disposition effect. “I inherited something, I got married, and now you’re going through a divorce. To avoid paying tax and having to share the profit.” I imagine that the worry is that you’re going to have to sell the property.
You shouldn’t, and here’s why. When you inherit something, if you get a gift, or you have pain and suffering awards, things like that, are considered separate property. Those are yours. The gain on that property may be a community in nature during the term of your marriage depending on the state you’re in.
Let’s say I inherited a property. It’s $1 million, got married, it went up to $1.3 million. My spouse would be entitled to ½ of the increase so long as I could accurately track this. It’s very unlikely that you’re going to have to sell that unless you have a whole bunch of other assets and it’s a mess. Chances are you inherited it. You can show that it was on your side.
This is why people do prenups. This is why people do post-nuptials. They want to make sure that they’re classifying this. If you’re in the divorce, you’re going to say, here’s my separate property. Then you have the marital assets, the assets that were acquired or improved during the marriage.
That’s something you’re going to have to go through with your divorce lawyer or dissolution attorney. Putting it in an LLC does not help you in the slightest. In fact, it would probably cause them to give you a little bit of a raised eyebrow like, what are you doing? What are you trying to get over on us?
Jeff: Yeah. I want to say that if it’s a community property state, then this is definitely separate property. I think the income is separate also from the sale.
Toby: I’ve seen separate property like in Washington State where it’s a community. Somebody will have the separate property and they’ll grab the income off of it, and create a distribution to the spouses.
Jeff: What I was going to say, you kind of gave the attorney an answer so I’m going to go a different route. I think this property is entirely yours. However, in divorce negotiations, this may be your most valuable piece. You may have other stuff that your spouse is entitled to that you may not want to give up, so sometimes it’s a bit of negotiating to keep what’s yours and so forth. I mean haven’t you seen that?
Toby: I think all bets are off when you go into a divorce court because it’s fair and equitable. There’s no such thing as fair and equitable. Everybody’s using loosey-goosey, sometimes they have some mathematical formulas, but it’s up to the judge. You just want to say, here are the facts, lay-out the facts really clearly, and make a good case for yourself. But again, you’re better off avoiding court if you can.
Jeff: Ask Jeff Bezos.
Toby: Ask Jeff Bezos. Somebody’s asking me to go over the book. I’m going to go back to the book real quick. Infinity Investing, the book itself, what is it about? Some of you folks are asking. When we look at who’s successful, we can see that they do very consistent things. A lot of times it’s the opposite of what you’re being told out there.
Whatever they’re telling you on TV, they’re lying. It’s not the best, it’s not the fastest. It’s not going to make you look pretty. Everything that they’re constantly putting at you, it’s not going to give you an eight-pack, probably they’re lying, or they’re playing loose with the facts.
What we look at are certain things that people do. One of the things that I’ve noticed is that the people that invest in cash flow assets like dividend, stock, or residential real estate, they forget what they paid for after a while because they don’t really care because it’s producing income.
If I buy Tesla, I care what it’s selling for because that’s the only way I’m making money is if I sell it. If you have Coca-Cola, for example, and your Warren Buffett, you’ve already gotten your money back. It’s been paying you all along. If you buy AT&T right now, its dividend yield is 7%, for example. I’m going to double my value just in the dividend in 10 years. Rule of 72, it’s going to double, it’s going to pay for itself. I’m just basically letting it by itself, and then just give me gravy.
That’s a lot different than growth stocks, and then we show you another way. Somebody says, “Do you cover options?” Yes. If you’re going to be the casino, there’s an old adage thing. If I’m an option buyer, you have to be right about three things: the volatility, the price, and the length of time, like I’m going to have the time value.
If I am the seller I only have to be right about one, which is really kind of, loosely, the price. As long as the stock doesn’t go crazy down, I’m getting that option money. Even if it goes down, I could sell it, but then I’m uncovered. In the option, you could buy it back and sell your stock if that happened. But it’s really hard to lose money doing that, especially if you’re not in a volatile stock.
Infinity is just real simple. All it stands for is when you have enough income from passive sources to cover your expenses, you no longer need to work anymore, and that’s called Infinity. When I do Infinity net worth I say, how many years could you survive without working? Like if I just said, I’m done working. I’m going to retire today. How long would it take me to burn through all my assets?
If you have passive income that exceeds your expenses that answer is infinity. You can literally work forever. I worked with a bunch of really cool people, I think I may have mentioned David […] who just passed away, last week—horrible. Forty years experience. Markay Latimer, Erik Dodds, Raghee Horner, all these people. I just sit there and chirp, Jeff and I go back and forth. That’s all it is. It’s not a get-rich-quick, it’s to get rich really slowly because all we’re trying to do is say you’re the casino, be patient. Be patient, it’ll happen, and that’s it. It works.
Jeff: It’s really about doing things the smart way, not the faster way.
Toby: That’s a good way to put it. You said it and it was great. You can come in and join us for free. We’ll teach you how to trade, we’ll teach you how to do it right, and you can do it. “If we order the Kindle version, do we get hard?” I’ll still do it for you guys. Again, books for us aren’t money makers, they’re information-sharing tools, they’re client makers. The more people read and the more they educate themselves, the more compelling a resource we are.
Jeff, speaking of which, go to our YouTube channel. We have a ton of content up there. We have Coffee with Carl, we have Toni Talks, we have My Story […] sitting there telling you any questions that somebody asks, I like to throw up there. You got Clint who does a fantastic job. We have so many people. Amanda does a fantastic job, she’s up there, Eliot’s up there a bunch of times, on the Toni Talks. We have some really cool people, I guess I should say—Carl Zoellner, and all these guys, Michael Bowman, Clint Coons, lots of cool people.
Are you sitting? You need to do more videos. No, you’re on this all the time.
Jeff: They’re fairly short, they don’t go on for 1 hour and 15 minutes.
Toby: I know, and I promised him that we would be done. I have 4:15 PM today.
Jeff: They’re fairly short and to the point. I just listened to Clint BRRRR.
Toby: Build, rent—I like that one.
Jeff: Build, rent, rehab, refinance, repeat.
Toby: So it’s build, rent, rehab, refinance, repeat on the building side, or you can do the buy, rehab, rent, repeat. Clint did that?
Jeff: Yeah.
Toby: Oh my gosh, teaching him well. I told Jeff that we would be done at 4:30, but I didn’t say AM or PM.
Jeff: Wait, what?
Toby: “If I control a foreign domiciled company, then what would trigger me being personally taxed on that company’s profits?”
Jeff: I’m assuming you mean a foreign corporation
Toby: Or it could be anything. Let’s say it’s an LLC in the United Arab Emirates, it’s flowing back to me, and the company makes money. I’m paying tax on 100% of that.
Jeff: Yeah.
Toby: Now let’s say it’s a corporation—C corporation where the profits are taxed locally—then would that be taxed to me if I’m in control of that organization?
Jeff: No, not unless you’re getting paid dividends or drawing a salary.
Toby: Yeah. Now, what if they paid me on it? What if they paid me a salary while I was overseas?
Jeff: If you were overseas on a pretty much constant basis, your income may be partially excluded in the US.
Toby: It’s about $180,000 that I can earn overseas. As long as I’m being taxed on that other jurisdiction.
Jeff: Well, let’s say you have a company in France who is taxing you personally on your salary, you’re also going to get a credit based on what was paid to that foreign country.
Toby: Unless it’s excluded entirely. If it’s not—let’s say I reside in the United States, I’m getting paid—I would get a credit based on the treaty. This is where it gets kind of muddy. You have to make sure they have a treaty with that country, otherwise, you might get taxed twice. The other fun one is, if I get dividends from a foreign source, it gets a little funky like in the UK, you could find yourself getting a double tax under that circumstance. You’re going to be a little careful. You want to have somebody look at it, make sure that you don’t harm yourself.
The other big thing is the FR regulations don’t require that you get paid anything. If you have control over an account with greater than $10,000, the penalty for not disclosing that is half the account per year, it’s draconian. We had a client about 5years–6years ago—maybe it’s longer than that now—who had a savings account in Canada, didn’t report about $70 of interest in his. He had a big firm, I think it was […] or something like that. I shouldn’t actually say a name.
He had a big firm who disclosed it and put them under saying hey, we’ll just disclose it and ask for mercy. The mercy was a 25% hit of the value of the account, and it costs $37,000 for $70 worth of interest. That doesn’t happen if you stay domestics. If you’re doing foreign activities, be very careful. Make sure you have somebody who knows what they’re doing, make sure you’re disclosing what needs to be disclosed and paying tax on the income that you receive. Don’t do this, I got a debit card and I’m going to buy stuff here, and not pay tax on it.
Jeff: The minimum penalty for not filing a required form is $10,000, so be very careful.
Toby: Here’s a fun one. “Can you include your roof replacement for a solar tax credit?”
Jeff: You like this one? Huh?
Toby: I do. I like it because it’s not straightforward.
Jeff: You cannot. The roof replacement is, are you going to disagree with it? Okay.
Toby: No, no, I’m just teasing you. I’m just teasing you.
Jeff: The roof replacement is not part of the solar installation. Solar credits are only for the solar installation of labor to put it on.
Toby: You’ve ever seen a Tesla roof?
Jeff: How many cars can you put up there?
Toby: Put a couple of roadsters on your roof. No, it’s kind of funky, but you can write it off if it’s dual usage. If I put up a roof, the portion that is the solar and part of the solar array is deductible even if it serves the dual purpose of acting as a roof. The components like the trusses around it would not be because that would be a part of the roof. It gets muddy, this is why I like this one because I was looking at it.
The Tesla’s roofs, if you’re in Texas and everybody else lost their electricity, guess who didn’t. The snow just melted right off it, it was kind of weird. I saw a bunch of pictures of it.
Jeff: Want to charge your phone? $100.
Toby: You want to charge, I’ll give you a charge. But anyway, it’s kind of funky. If you replace your roof, then a portion of it, again pigs get fat, hogs get slaughtered, you’d want to make sure that you’re actually having some allocation of which portions are just only roof and which portions are part of the solar. A panel that does both is 100% solar. If a component only has a function as a roof and doesn’t have any necessity or usefulness on the solar side, then it is not deductible.
Jeff: Most solar companies are going to certify how much is eligible for that credit. I’m going to bring up something else on this. You hear a lot—I know it’s really big in Nevada—leasing versus buying. Any opinion on that. Is there an advantage to one over the other?
Toby: Well, yes, leasing of the roof?
Jeff: Leasing the solar panel?
Toby: If I am buying it as an individual, I’m going to get a 26% tax credit. If I lease I don’t believe I’m going to get the same.
Jeff: No, you’re not gonna get any.
Toby: But the other big one is the depreciation. If I am buying a unit for a rental property, then not only do I get the solar credit, not only do I get the 26%, but I’m going to depreciate 87% of the value. You lose half of the credit against your basis for depreciation. If you bought a roof on there for $20,000, you’re going to get a—shoot, I should use $10,000. If you put a roof on there for $10,000, you’re to get an $8700 reduction plus you’re going to get a $2600 tax credit. The tax credit, dollar per dollar against your tax liability, the depreciation.
If you are a landlord, I was talking about this with the senator’s assistant actually. A client who’s in DC and works with a lot of the Green Power folks, and I was like, would you please just give landlords the incentive? Make it juicy enough and they’ll all slap solar on every property they have if you make it worth their while. It’s the states that like to gank you up with how much they’ll actually pay for your electricity and stuff. If it goes vacant and then you have to deal with all the mess of getting the approvals.
One of those comedians has been waiting over 1000 days to get the permit to put his solar on his house. That type of stuff is going to chill it, but if you give people an incentive to do it they will.
Last question of today, and look at that. “How is the office in-home deduction being treated this year since most of us have been working from home. Is it still a red flag for realtors?”
Jeff: Well, if you’re an employee there is no home office deduction.
Toby: You just ruined everybody’s day.
Jeff: If you’re being taxed as a Schedule C, a lot of real estate agents are being taxed as Schedule C where they’re getting a 1099. Then that is perfectly okay if you have a home office to deduct reasonable expenses.
Toby: I’m just going to put this up here. The home office is only for sole proprietors. There’s no such thing as an employee home office. They might say home office, but the actual tax forms—do you know what form it is? 8869 or what is it?
Jeff: 8889? It’s the home office form you’re talking about though.
Toby: There’s a home office form and you can do the $5/ft2 per year as a safe harbor, but that’s the trigger. It’s not that you’re doing a home office is the trigger, it’s that you’re a sole proprietor that’s the trigger. Because as a sole proprietor, the IRS wins between 94% and 95% of all audits. You’re putting a big mark on your forehead that says, audit me. The sole proprietor gets audited 700% more than S-Corps right now. It’s actually going up over 1000% under the last bit. That’s why you see realtors getting targeted. It’s not because of anything they’re doing, it’s not because they’re a realtor. It’s because if you file as a sole proprietor, your risk of an audit goes up considerably higher than if you were a corporate entity.
Here’s the deal, if I’m an employee I can get reimbursed for what I have at home that I’m making available to the business. Let’s say Jeff says, hey Toby, I have a home office. Technically I could say, hey Jeff, I’ll reimburse you. How much of your home is this? When we are not a home office, when we’re doing a reimbursement for an administrative office being used in the home, I could do net square footage, the number of room methods, I can still do regular square footage, I get to pick which one is best for me.
Let’s say that Jeff is using 20% of his usable square feet in his house for his office. As an employer, I could reimburse him 20% of everything from his property taxes, 20% of any mortgage insurance and mortgage interest. I could reimburse them 20% of the depreciable value of that property. I could reimburse him for utilities. If he has a cleaning lady, cleaning person, or cleaning man comes in, I should be better than that. Whoever it is, I come in and I have a cleaner, I can reimburse 20% of that. You could actually go through and do it. It’s not taxable to Jeff, it is deductible to the company.
But in order to do that, I have to be an employee, and I cannot be an employee of a partnership in which I’m a partner or a sole proprietorship. It has to be an S-corp, C-corp, nonprofit, LLC taxed as an S-corp, LLC taxed as a C-corp. Are you going to reimburse ABA employees? We bought a whole bunch of stuff for everybody. We make sure that we are covering the expense. Employers actually are saying, hey, if you want to work from home it’s on you.
Jeff: ABA is a good example. That’s actually a choice that the employees get to make—do I want to work from the office, do I want to work from home? We don’t prohibit anybody from working in the office.
Toby: We’ll cover the equipment, we’ll give them the computer and the camera.
Jeff: True.
Toby: Here’s what you do. If it’s your company, you’re probably gonna be really generous with yourself. You’re going to reimburse everything. It’s not reported on your tax return, that’s why it’s not a red flag. The reason the home office is known as a red flag is because it’s a separate form and all the IRS has to do is say, oh, you have it. It doesn’t show up on a corporate return. It doesn’t say administrative office for the home for an employee. It just says, lease expense.
Jeff: The problem with that form is a goofy form and it often gets filled out incorrectly.
Toby: They make it really hard to do the home office deduction. All right, so we had way too much fun today. Did you guys have fun today? Except for my employees who are all crying now. All right, come back and listen to some of these, we have fun, we enjoy it, go to our podcast page. We always put our replies in the platinum portal.
If you have questions, please do email them in, we get a lot. We have thousands of people now sending us questions. If it takes us a little bit to get back to you, we’re only human, nobody’s getting paid to do it. We’re just trying to be as open and as transparent as possible. I also pick the questions that we throw up here. I just go through those. They actually distill them down and they give me about 50 questions to choose from, and I was like, this one, this one, this one, this one. And then I give them to Jeff about this morning?
Jeff: This morning, yeah.
Toby: Hey, Jeff, these are what we’re going to talk about. He’s busy all day going to oh […]. Hopefully, he knows all of them, otherwise, he’s toast. All right. Thank you for all these answers. I day-trade every day. It’s an interesting one here, I might pick this one up just because I want to be […].
“I day-trade every day and did for 2020, realized gains about $500,000. Exposure?” Yeah, you’re going to have some tax. “Can’t go back, but what would you do?” I’d put that trading account into an LLC taxed as a partnership, have a corporation probably 20%–, 25%–30% owner of that partnership. That way if you had your $500,000, we’d be able to write up all the expenses associated with it. I think you’re still going to be able to if you day-trade it. Hopefully, you don’t have another W-2 job because they’ll nix you on that one.
A good chunk of it, let’s just say $150,000, would flow over to the corporate account. Instead of being hit at the 30% plus rate, 37%, it would have flown into a 21% flat tax, and you would have it in the corporation.
What I’d probably do is pay it even more than that and maybe do a 401k. You try to get as much money as humanly possible into a tax-deferred account so that you could trade it in there. If you’re making that type of profit because if you do it inside of a 401k, you don’t pay tax until you’re forced to take some money out at 72 ½. But even then, it’s about 4% of its value every year. It’s not a lot. You could stretch that out and really blow that thing up without having to worry about paying tax on it. That’s what I would tell you.
We do have classes coming up that I believe that we’re going to work on traders, cryptocurrency too, forex traders. I know that we’re going to be doing one here where we’re going to really be diving into all the active investment stuff, but that will be fun.
Jeff, we’re early. Thank you guys, really appreciate you coming on, and we will see you in two weeks for the next Tax Tuesday. What I’ll do is I won’t quit out of this. I’ll allow you guys to keep asking questions and for our guys to keep answering questions. I can see we have some open questions, and our guys will knock them out for you so that you don’t have to worry about it. We’ll make sure that we do that. I’m going to stop the video, I’ll stop my share. We’ll see you guys in two weeks. Thanks again.
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