- [Toby] All right guys, this is Taxmageddon 2018.
And this is your host, Toby Mathis.
I'm going to be going over all these wonderful changes
in our tax laws, making sure that we're addressing them.
First off, I need to make sure that you guys are here,
and that we can go.
We've got everybody listening, perfect.
And then we're just going to jump right on in.
So the things to pay attention to,
whoops, I see a whole bunch of comments coming in.
Fantastic, we have a good group on tonight.
People are already like, hey here's my question.
I have 10 paragraphs of stuff,
so I'll get to your questions for sure,
but we're going to go over
a whole bunch of fun stuff tonight,
because we're talking about taxes,
everybody's favorite topic.
So we're going to spend lots of time going over the impact,
and you guys will be able to annoy all your friends
by pointing things out that they may not be aware of.
Speaking of things that they might not be aware of,
we're talking specifically about the Tax Cut and Jobs Act
that was passed at the end of 2017.
Some of it was retroactive, effective end of 2017,
for example, the medical deduction threshold
that went from 10% to 7.5, that was retroactive.
Some of the provisions on deductibility under Section 179,
big equipment deductions were going back to September,
that fun stuff.
But as of last night, we had proposed regulations.
If you guys know how the tax laws work,
the IRS sometimes interprets the tax laws
into something called regs.
They have yet to issue the regs
on the Tax Cuts and Jobs Act.
They did some proposed regs under Section 199,
and I've already had three people
ask questions about that stuff,
just in the first two minutes.
We'll get back to it.
We have a ton of questions coming through,
so you might have to ask again.
But we will get to these.
And so, we're still deciphering it.
It was only, I think it was 170 pages
that they issued yesterday.
And they do give some examples.
What they did is shut some loopholes
that tax practitioners were trying to exploit
by using tons of trust and things like that.
They shut that door, which was predictable
but some people made some money in the short term
at the expense of the client.
And so we're going to go through all these things.
Again, Brian, Alexa, I see tons of questions coming in.
You've got very good ones
and we're going to be knocking them.
Tonight, though, what we're going to be focusing on is
what's the good, the bad, and the ugly.
And specifically, why are people so freaked out
by the Tax Cuts and Jobs Act in certain states?
And you'll understand why.
In order to do that,
we're going to have to start at the very basics,
which is what is itemizing and why is it important?
We're going to go over what is the,
and you're going to have to decide for yourself
because I'm going to give you a bunch of lists,
what is the single most devastating law change?
The three things that the top two percent do differently,
and where I can learn more.
Like how can I actually keep apprised
of what the changes are?
Obviously you know that you can always talk to us,
but I'm going to give you some specific places
that you can go, and specific ways that you can learn
so you don't miss anything.
This will have an impact on you, period.
The Tax Cuts and Jobs Act will have an impact on you.
So we're going to start off right on the
what is itemizing, and why is it important?
And in order to understand itemizing
you have to know what it is, which as an individual,
it's applicable to individuals and not to businesses,
you list out what deductions you're entitled to
and compare it to the standard deduction.
That little standard deduction
is what you're going to hear a lot about.
If the itemized deductions are more,
you take them as opposed to the standard deduction.
Technically, you can go back in
and take the standard deduction even if it's less,
but they're going to want to know why.
We're not going to get into all the minutiae.
Somebody doesn't have sound,
the sound is coming through for everybody else,
so you may want to either go onto a phone line,
or try going over, doing the opposite
of whatever you're doing.
So if you're on a phone do computer audio.
If you're doing computer audio do phone.
So let's go into all this fun stuff.
What are the questions you should ask?
So if somebody says,
hey, you get to write certain things off,
then first thing that I'm going to want to know
more than likely, is what is included in the calculation?
In other words, how do I figure out
what my standard deduction is, and what is it comprised of?
And the other thing is, what is my standard deduction?
Or I should have said
what is my standard deduction in the beginning,
is what is my itemized deduction?
How much can I write off?
What things can I write off?
And then the next question is
what is my standard deduction.
So we start with the what is included in the calculation
and then we shoot over to my standard,
and then the real question for you is,
do I receive any benefit?
Like, what is the net for me?
So let's start off with each one of these.
I'm going to go through them check by check,
because this is the way I am.
I like to go through, and we've got to figure out
what's in the calculation.
And the way we're going to do that is
we're going to go to old Schedule A of your 1040.
So when you file a 1040 and by the way,
I'm going to show you the drafts of all these things,
but when you go to your 1040,
you have this thing called a Schedule A.
This is the 2017 up here.
So I'm going to just circle the 2017.
This is the proposed 2018
and as you can see, it says Draft July 10th,
which means the IRS is putting these things out,
they get comments on them,
and eventually they're going to come out
with the actual form we're going to use.
But we can see what they're thinking.
What we know for sure is this old, right here,
that is what was retroactive.
So we know that the medical deduction,
if you ever call the IRS and say,
hey can I write things off for medical and dental,
the answer is going to be yes.
But it has to exceed your adjusted gross income
by that amount.
And so it used to be 10%, and then it went back down to 7.5.
And to be historical, it used to be less,
then it went up, then it went back down.
They're always moving it around, and it's a pain.
But all that means is that if I make $10,000 or $100,000,
the first $7500 of my medical expenses I cannot take.
So if I had $10,000 of medical expenses, I get $2500,
and that goes on my line item here.
So what it means is that it's part of my calculation.
So I'm just going to write down,
let's just say that we have $2500.
I then go to Taxes Paid, and this is a big one, guys.
And I'll go into the specifics on this,
but what you don't see here, this is 2017 versus here,
is you're going to see a little thing,
and I don't expect you to be able to see it,
but I'm going to tell you what it is.
It is a $10,000 cap.
So your state and local taxes, and we call that SALT,
and you're going to see that it is now a $10,000 limit.
And you're going to understand why that's important,
and why people are freaking out.
People are going to be a little bit upset.
Somebody says they can't see my screen
and everybody else can see it,
so it's going to be a computer issue.
You may want to restart.
The interest, this is another one.
This is your mortgage interest.
Oh and by the way,
when you're doing your state and local taxes,
you can see by looking at the little form,
state and local income tax,
state and local real estate,
and state and local property tax.
You add those up, and you're limited to $10,000
as a married couple.
If you're not married, you're single,
then it's $5000, you can see that number right down here.
I will go through these things in greater.
And I'll explain, and I'll answer all your questions.
But this is part of the calculation.
So you would normally have a number that goes here,
and we're going to see why that's important,
especially for you folks,
I think the hardest hit state is New York.
Then we look at interest paid,
and this is for your home mortgage.
And what they did here is they put a limit
from one million to $750,000.
And so you would just add up,
and you'll figure out what your home mortgage is,
and you'd add that line up there.
This is all part of your itemized.
This amount, now they do this calculation,
and there's two things we have to be aware of.
First off, we're now limited to $750,000 of indebtedness,
and it has to be a certain type of indebtedness.
It has to be for the acquisition.
Actually, let me see if I can spell that right.
It's the acquisition or improvements.
It's called acquisition indebtedness.
And what that means is that if you,
like they're actually going to put it right up here,
to buy, build, or improve your home.
In other words, if I pull money out of my house
to pay for my kid's college,
I cannot write the interest off on that anymore.
And again, every time you hear one of these things,
you're going to realize that we have a solution.
That's why you're listening.
We then go to gifts to charity,
and they used to have a limitation of 50%
of your adjusted gross income.
Just picture that, 50%.
It is now 60% of your adjusted gross income.
Which means you can give substantially more.
And by the way, someone just asked,
isn't the mortgage interest on old mortgages
still a write off?
Kind of.
The amount, the one million you're grandfathered in at,
if you had indebtedness prior to December 15, 2017,
or if you were under contract and you closed your loan
before April of 2018.
Excuse me, April 15 of 2018.
So if you were right in the process of refining,
then you're going to be able to go up to the one million.
But it's still the acquisition indebtedness.
I'm not aware of anything written grandfathering in
to not have indebtedness.
But that's why they do regs, and they let us know
how they're going to enforce this thing.
Casualty and theft losses, used to be pretty basic.
If you had it you got to write it off.
But now, it has to be a federal disaster area.
So you folks that have been impacted by the fires,
the hurricanes, all this,
then you're going to be able to write off
the casualty and theft losses.
Someone just asked a question.
And Rogerio, I'm going to butcher your first name.
The answer to yours is yes.
What about pulling money out of your home
as a second mortgage to buy a rental property?
See, you're already getting ahead of us,
and you're genius.
Because that's exactly how I want you to think.
You want to be thinking the way that you're thinking.
Yes you can write it off,
but you'd be writing it off on a different schedule.
You're actually writing it off on Schedule E.
In other words, you're not going to try to write it off
as a home mortgage deduction,
you're going to write it off as an investment expense,
on the interest expense on your Schedule E income,
on your rental income.
Somebody says they got kicked out, will it be archived?
Yes, I'm going to record this,
I'll make this available to you guys all.
And so somebody says we did this in December 2017.
Good, because you're right there.
Other Itemized Deductions, you're going to see this.
See this little thing in 2017,
where it says Other Miscellaneous Deductions?
And you're going to realize
that they changed that little language.
That's because there are no more miscellaneous deductions.
And yes, I said that right, they're gone.
The one good thing they did is they took away the,
if you used to make too much money,
they would have a limit on how much you can take,
and that is gone.
I think that was called a Piece Limitation.
Now that's gone, so there's no more limit.
So you can make a ton of money
and still get your Schedule A deductions,
but what you see is with all these limitations,
it's going to be tough to go over the Schedule A amount.
Just to give you guys an idea
of what the tax returns are going to look like,
this is again a draft, and you can see it's pretty recent,
as of July 31st.
This is a draft of what your 1040's going to look like.
It's going to have a page one and a page two.
So page one, you can see,
it's basically your personal information.
They said we're going to fit this thing on a postcard.
And here's your page two, and on the page two,
you're going to see we have the little standard deduction,
or itemize deductions from Schedule A.
And then you're going to see something else too that's new,
it's this line here, line nine.
And this is called QBI,
and that is a 20% deduction on past due income.
And I'll get into that a little bit,
but that's going to be a big one.
That's the one that they just gave us
the proposed regulations on yesterday.
And it's a lot of fun there.
It's like 170 pages, I think, at the minimum.
I should pull it up and just show you guys how they write.
Make your mind go numb.
All right, so the reason that I wanted to show you that
is just to give you some indication
of what they're trying to accomplish.
And when I say They, it's the Trump Administration,
but you also have the IRS trying to interpret this,
and how they're going to collect their money.
They're trying to simplify it,
and in doing so, it's going to have an effect on you.
Someone just asked, I'll get into all your other questions,
guys, you guys have some fun ones.
We're going to see more and more,
we're going to see more and more impact.
But I want you guys to understand,
when they simplify the things, what's the actual impact.
And the reason that this is relevant for you
is because of what they did to this next section.
So we already looked at our Schedule A,
and we said, all right, now we know
we have charitable gifts,
we have medical expenses that exceed a certain amount,
we have mortgage interest,
we have, what else do we have on there?
We have the interest paid, we have our SALTs,
and if there's any other itemized deductions,
which Miscellaneous Itemized are gone,
but they still have a line,
I don't know what else would be there.
There might be something hiding.
Or Federal Disaster, Casualty Loss.
That's what makes up your Schedule A.
Otherwise, you're going to use the standard deduction,
which is now, for a single person, $12,000.
For married, filing jointly, $24,000.
So they really jumped these up.
I'm going to show you what the numbers look like
here in a second.
So what it looks like is they went from a single filer
getting $6350 to $12,000.
And this is versus Schedule A.
So Schedule A is your itemized deductions.
So you always have to look and say, which one's more?
And I hope you guys are already seeing
that if we have all these things
that are part of Schedule A,
and I don't get any benefit for them,
and that does not include medical expense
if you're paying for the health insurance, think so.
But otherwise, no.
And I'm going to show you, there's always a better way.
I hate going on the Schedule A, and I'll show you why.
The standard deduction is so huge.
And the numbers that we're looking at
is actually going to be pretty significant.
As to whether it's going to affect you at all,
you're going to have to run a calculation.
You're going to have to,
like I can take a look at your last year's Schedule A
and say whether you're going to be affected
just by running it through and saying, hey wait a second,
here's the limitations that we're going to put.
So if you're in a property tax state,
excuse me, in a high property tax, high income tax,
so I think there's actually four states that filed suits
in the last month against the federal government
trying to get rid of that SALT limitation,
of course they're going to lose, but there's a bunch.
I think it was Maryland, New York,
New Jersey and Connecticut.
I know that those are big ones.
But what it means in English is that right now, currently,
we have about 46 million tax payers who itemize.
In other words, they're taking the Schedule A.
And here's the estimates, 13 million.
So you're talking about you may fall into that category
of what is this, 33 million no longer itemized.
And when I say Taxmageddon, you have to understand,
all of these things have an impact.
It's not just, hey I saved some money.
You incentivize certain types of behaviors.
And if nobody, so all of a sudden,
what behaviors did we just remove from incentive?
You ready?
I'm going to go back to it, just because I feel like it,
these behaviors.
What did we just take away from having an incentive?
Being charitable, paying state and local taxes.
In other words, all of a sudden,
I don't get to write off my high property taxes.
Maybe I'm not going to buy as nice a house.
Mortgage interest, all of a sudden I'm capped.
So am I going to buy it?
This is funny.
I submitted to ask our short term trading commissions
written off in Schedule D or Schedule E.
Neither, commissions are usually added to bases.
But anyway, just to answer your question real quick.
So, we have the big difference.
And why is this so huge?
It's going to impact certain people
much more significantly than others.
And I just want you to think for a quick second,
whom is this going to impact?
Think about the people who benefit from the incentivized.
What about student loan interest that's still,
I didn't see it on your Schedule A,
I think it's still deductible up to like the $2500 amount.
They didn't do anything with it that I'm aware of.
Go back to this.
So by now you now know what itemizing is,
and why it's important.
First off, it's because if we itemize,
and there's certain expenses
we have to hit a pretty big threshold, for example,
if you are married, filing jointly,
your Schedule A has to be greater than $24,000
for you to get a dollar of benefit.
If you give to your charity,
let's say that you have some real estate taxes of $5000,
you have mortgage interest of $5000,
and you give $10,000 to charity,
you know what benefit you get out of all of that?
It's $20,000 and you're married, filing jointly,
your net benefit for all of that is zero.
This is why it's significant.
We've just disincentivized
a whole bunch of different behaviors.
So what should we expect?
We should expect people aren't going to be as incentivized
to go out there and buy houses.
We should expect that people aren't as incentivized
to give money to charities.
And you're going to see the numbers.
It's going to freak you out.
Because I know that charities are freaking out.
Is that good? No.
Depends on where you live.
So what they're estimating is that
how many people are going to have their taxes
go up, go down.
For the most part, everybody's going to get a tax reduction
underneath this new act,
unless you live in a high tax state.
And then you're going to see your taxes go up.
So if you're in like, New York, New Jersey, Connecticut,
Maryland, chances are, California,
there's a good chance your taxes are going to go up,
or stay pretty close to the same.
So here we go.
What are big chances?
Somebody's like New York.
Yeah, you're pretty much I'll show you the numbers.
I'll show you how it looks.
I did a little quick comparison for some tax payers.
Big changes you're going to have to choose
on what are the big change.
So what's the single most devastating change
to the tax laws.
Well the reason I'm going to say you have to choose
because there's a bunch of them that have affected
so I'd like to do the going going gone,
miscellaneous itemized deductions are gone
and if you don't know what those are,
that's expenses related to investments
and the production of taxable income
amongst a whole bunch of other stuff.
But this is big.
Anybody here who trades and you have expenses
and you don't qualify as a full-time business
and trading like you don't qualify as a trader
which that's been a moving target for 20-something years,
you no longer get to write off
your investment advisory fees or expenses or clerical help
or expenses for your home office
or the depreciation of your computer,
the fees to collect interest and dividends,
even things like safe-deposit boxes
although I don't think any of you guys
are going to have that.
Will you make the slides available?
Absolutely.
Then we have a whole bunch of other ones.
So things like what are big ones
that are going to impact you?
Tax preparation fees.
Indirect miscellaneous itemized deductions.
Here's where it comes in.
If you have a disregarded LLC for example
and it's paying a C-Corp to manage it,
normally you would take that on your Schedule A,
gone is that.
You can't do that.
You can't write off computers anymore,
not on your Schedule A,
not as a miscellaneous itemized expense.
So this begs the question then,
do you want your expenses blowing on Schedule A?
You should all be saying no.
Then the next question is if you're paying a corporation,
would the expenses we pay the corporation
like if we paid a fee, does that go on to your Schedule A?
If the answer is yes then we need to change that
and it's case-by-case.
If it's real estate, you don't have to worry.
If it's trading like stock trading, you have to worry.
What we need to do is change that to a partnership
and I'll show you how that works.
Don't worry guys, I have the solutions.
We have lots of solutions in our toolbox.
So here's the things we've got to look at.
I like using charts, I like looking at things
that I can summarize and make sense to me.
So in the stock option investing,
your expenses typically go on your Schedule A.
This is what just went away so we don't want to have this
but this is where they would normally go.
This is why we have to be very cognizant
of these types of activities.
Stock and Option.
If you're in trader status, your expenses
go on your Schedule C, but as many of you guys know,
you have about a 700% higher audit rate
than if you do through the corporation.
Forex, same thing.
Expenses if you're doing the 1256
but if you make a 988 election,
if you don't know what that means and you're in Forex,
we need to have a chat because you actually get to choose.
You don't have to do a formal.
I think you just basically make a notation on your return.
You would get your expenses on 988 but again,
I try to avoid this line, this Schedule C
because of this, that 700% more likelihood to get it audited
and then Futures goes on Schedule A.
Crypto goes on Schedule A.
If you're doing Forex and you're doing contracts,
futures, contracts and Forex, then it's 1256
which is a 60/40 split between long term gain
and short term.
Don't try to follow me if you don't know what this stuff is.
It's going to have a minor.
This is really good, we love this.
We want your stuff to flow.
Like if you see it landing on here,
we still want it to.
We just want to avoid these.
So I'll show you how to do that.
We use a corporation to do that and then in real estate
shouldn't affect you at all.
Shouldn't affect you at all
as long as you actually have rental properties,
as long as it is Schedule E
is where you get your K ones from your S-Corporations,
where you get your K ones at a certain states and trust.
Where you get your K1 off of partnerships
and where your rents and royalties flow.
So let's say can you still deduct computers
for a first year business organizational cost?
The answer is not as an organizational cost
but as a startup cost and the answer is yes
but I wouldn't put it there.
I would make it a Section 162
ordinary necessary business expense
and just reimburse yourself.
We will get into that
because that is what the rich folks do.
Before we get into what the rich folks do,
we got to understand what we're going to lose
if we don't do it right.
All of these are no longer on Schedule A.
If you know a teacher or somebody who's paying
out of their pocket for their employment,
they've lost all their deductions
and this is a Schedule A is a 1040.
It is a 1040 Schedule A miscellaneous.
It's your itemized deductions.
So it's not for a corporation.
So you cannot write these off if you're an individual
and you have your expenses going under your Schedule A.
So what should you do?
You should look at last year's tax return
and look at your Schedule A.
Those numbers will tell you what you're going to lose.
If you aren't rich that's where you come in.
I like that.
We will help you.
Rich is different.
It means different things to different people.
Some people it's just the freedom and let's see,
it says Schedule E still apply
if I have to rental properties but no entities.
Yes, so as long as you have them properties, then we're good
and that's what we care about.
If you don't have the properties,
then we have to use a different type of business
and again what really comes down to
is when do you become an active business.
And so sometimes we use a C-Corp.
Alright so options.
You have two choices and you guys already know this
because you've been through our courses
because you've been around us you know.
You can either qualify individually as an active business
which stinks and in order to do this,
if you are an investor that means you have to be a trader
or a dealer.
We don't like either one of those
and the other route is for you to just create
a business structure and that's our preferred route
because when we go to the business structure,
there's other ancillary benefits
and if there's one winner, huge winner in this whole thing
from the Tax Cut and Jobs Act it's going to be
your friend, the corporation
and that is because that corporation
just got its taxes eliminated.
Not completely eliminated but like cut in half.
I'll show you how it works.
So the first one is an investment business.
If you're an investment business,
so this is stocks, bonds, futures, Forex,
anything where you're doing some passive activities,
you want to make sure that it's taxes as a partnership.
This is a form 1065 and the reason that you're doing this
is because you want to be able to pay the corporation
at a profit or out of a guaranteed payment to partner
which just means I paid it and it's a partner
and the reason being is because once that happens,
it comes off the top.
The expense no longer flows under your personal return.
So for example if I make $100,000 in my investments
and I do nothing, that flows on to my 1040 Schedule D.
If I pay $20,000.
Excuse me and that's if I'm 100% owner.
Let's just pretend the corporation is not there
then that would just blow through.
Now let's pretend that the corporation
has a 10% stake in the business.
Then now I would get boom only 90% of that or 90,000
and $10,000 would flow up into the corporation
where it can expense it and do whatever it wants.
Now it can do all the expenses.
If it doesn't have enough money,
then I can pay it a guaranteed payment.
I can say oh you need to get paid $1,000 a month
so let's pay it $12,000 in addition.
What that does is it allows me to deduct the $12,000
off of my 90 which gets me,
what is that?
78 so then I would only have $78,000 flow under my 1040
and now I would have this plus this.
I would have $22,000 in my corporation.
And before you freak out and you say hey,
boy I have $22,000 in my company.
Boy this is going to stink.
I heard my accountant said double tax.
Chill out because the double tax used to be bad.
It used to be bad about what is it,
probably 15 years ago.
What it is now is you pay tax at the corporate rate.
You know what the corporate rate is now?
Here see if anybody knows and somebody could say,
are we talking about a C-Corp for an LLC?
LLC is not taxed and LLC chooses how its taxed.
So an LLC can be taxed as a C-Corp,
an escort for partnership or whatever.
So that investment business this could be an LLC,
taxed as a partnership which means it's filing a 1065.
This could be an LLC taxed as a 1120 as a corporation.
You guys are guessing, lots of people.
It's 15, 21.
What about FICA taxes in a Corp, does not exist
because corporations don't pay Social Security.
They don't retire.
They live forever.
All right, so what we do is we make money in the LLC,
it pays the corporation reasonable manage fees profit.
The corporation pays the expenses but it pays 21%
so those of you who said 21% are right.
It is a flat, whether it makes 10 million or $10,
the tax on the corporation is now 21%, period.
What if it pays it out to you?
What if you lose your mind you say
I'm going to pay out dividends
just because I want to see how that's done?
Then you are taxed when you're the shareholder
and you get dividends, it's called qualified dividends.
Dividends are taxed
at ready, long-term capital gains
and if you know what long-term capital gains are taxed at
it is zero to 20% depending on how much you make.
If you are making less than $70,000 for example,
it's going to be zero.
Doesn't pay anything in tax.
So do you pay FICA if you get paid by the Corp?
Only if you take out a salary.
If you take out dividends, you do not.
If the corporation just makes money, it does not.
If the corporation just gives you fringe benefits
and so the way to look at it is
whenever you have a corporation, it pays compensation.
And compensation includes,
this is where accountants screw it up all the time.
Wages, fringe benefits
and other bonuses and things like that.
So what I care about are the wages
that would be subject to FICA or Social Security,
whatever you want to call it.
Old-age death and survivors and Medicare
or if it pays me fringe benefits, the rule is
unless it's an exception, I have to pay tax on it.
So if a corporation buys me a house,
I have to pay tax on the value of the house.
If the corporation buys me a brand-new BMW,
I have to pay tax on the value of the BMW
but if the corporation reimburses my miles on my BMW,
I do not have to pay tax.
If the corporation provides let's say this is a C-Corp,
put C-Corp and it has a medical reimbursement plan
and it pays $50,000 for my family for all of its medical
and dental and vision expenses for the year.
I have somebody that got sick
and I came out of pocket 50 grand,
my corporation can literally reimburse $50,000
and I pay zero in tax.
If the corporation reimburses
a partial use of my home as a home office, zero.
I don't report it anyway.
The corporation gets to write it off.
That is a fringe benefit.
If it says hey, you need to have a cell phone
because we're doing business all the time,
we're doing real estate deals all over the place,
you got it you're now an employee,
you got to have a cell phone,
it can reimburse your entire cost to your cell phone.
You have zero tax.
So can a sole proprietorship single-member district LLC
still deduct trading commission's on stocks and crypto?
So no.
You cannot but you don't typically deduct the commissions.
I think they're usually as a transactional cost
that are added into the cost basis of the stock again.
We're not going to worry about this stuff,
that's peanuts compared to what we're talking about.
What we're really talking about is the ability
to move our money so that we control where it's taxed
and when it's taxed.
And so if we have a very simple structure,
I can decide how much money I'm going to be pushing up
in a structure so long as I have it documented
and so long as it's reasonable.
And before you freak out about reasonable,
understand that we have people
going in front of Congress all the time saying,
14 million dollars is reasonable compensation.
You're supposed to compare to others in that industry
but just think about what it would cost you
to hire someone to run your business.
It's going to be usually significantly less
than what you're charging it
and you're going to be the nervous Nelly.
This doesn't happen.
Do these numbers apply to an S-Corp as well?
Not on the medical reimbursement but everything else, yes.
And the S-Corporation is taxed to its shareholders
at their level.
So you don't have the 21%.
You do get something else though with an S-Corp
and that is you get a 20% deduction
and that's called the qualified business income deduction
which I'll get into here in a second.
All right another example let's say we do the same thing
we have an investment business but we also have
some real estate.
So remember that investment business
has to be taxed as a partnership.
The corporation needs to be a partner
and it gets ownership.
So if it's a 20% partner, it gets 20% of the profits.
I can pay it a reasonable management fee
and I can jump it up to the corporation
where it's either expenses it out.
If we keep it in the corporation, it pays 21% on profit.
I'm just going to say a C-Corp here
just because that's what I tend to use.
I need to have another tax payer
even if I'm expensing everything out and I get to zero
then it doesn't really matter.
I'm not using an S-Corp in this type of structure.
You'd have to twist my arm.
Then I'm also going to have a real estate holding company
and this one it doesn't matter
whether it's disregarded or a partnership.
It doesn't matter.
What I really care about is that it's real estate
and it can own all of its little sub LLC's.
So if I have a real estate holding entity,
you guys know I'm probably going to put it in Nevada
or Wyoming just to keep it out of harm's way in your state
and then you may have different state LLC.
So for example I may have a Georgia LLC,
I may have a Tennessee LLC and I may have a Texas LLC.
And then this LLC's says Wyoming.
It's cheap and because nobody can take it from me
and I do that.
That's example of how I can run the money.
This guy can pay if I want to,
this guy can pay if I want to
and just remember this is a flat 21% on profit.
If I can expense it out, then I'm going to do that.
Somebody asked if I have a loss in a C-Corp
can I carry it forward?
Yes, up to 20 years.
Do I have to pay myself W2 salary if I own an S-Corp?
It depends on if you make money.
If you make money then yes.
Somebody else said something about
having some large education expenses.
What about training? Yes you can write that off
so long as you have an active business.
The reason that we do this
is so because you can never write off education commission
or excuse me like conferences, seminars and things like that
in an investment business.
You never can.
It has to be at the corporate level
but the investment business can pay a guaranteed payment
and do that.
Now is $1.99 a ethical the trading partnerships
It depends on the income
because it excludes capital gains
and so it depends on how you're trading
and what you're trading but the answer
is probably going to be a big no on that one
but we can always use the other.
So we could pay the management fees.
We can get money into that thing.
Other areas that were affected is the entertainment expense
and I'm going to listen to you guys
all collectively start to cry because by the way
somebody just said can my C-Corp elective
pay fringe benefits instead of wages?
The answer is wages and fringe benefits
are still compensation so you got to put it
under its big heading compensation
and the answer is yes.
I've sat on many a non-profit board where my sole benefit
was fringe benefits from the non-profit.
I get to go do the...
What did we do?
We had a big gala and one of them every year was a big gala.
The other one we did a golf tournament.
Some of them they just fly you around
they come to the meetings and stuff like that.
Yes, so yes you can pay just that.
Entertainment expenses are gone though.
We can no longer write-off entertainment expenses.
Gone, zip, zilch
and if you're doing meals as entertainment, gone.
You're no longer going to do entertaining clients.
Hey I took them out and entertained them.
That's going to go out of your vocabulary.
You're now going to have business meetings with with clients
and that's what you're going to do.
Then you have a 50% deduction
but they really that's painful.
Doesn't that stink?
Entertainment move to marketing research and development.
Orange jumpsuit, Lauren.
Orange jumpsuit.
You got to make sure that these things
are going to pass mustard.
Now if it's a directly related entertainment expense,
so I am in the nightclub business and I go to excess
down at the wherever that is,
I think it's at the Wynn or one of those,
the Encore in Vegas and I am in that business,
then I could write that off
but it has to be related to my business.
Directly related.
Gone is the affiliated entertainment expense.
Somebody just asked in my previous structure,
does all money come from the C-Corp
and can the holding company pay the owner?
I'm not certain I completely understand that
but you could have the expenses all coming out of the C-Corp
and can the holding company pay the owner?
Yes, of course it can.
What if I have a public relations
and production company in Hollywood?
Then Wendy I will leave that to you absolutely
if it's directly related to your business
then you would be able to.
What's the line between entertainment
and promotional activity like buying show tickets
for clients and contests?
Now that's a great one Liam.
And what you can do there
is if I give show tickets to my employees
or if I give them to a prospect,
that is an expense because I am giving them
something of value.
They would have, in theory, a taxable event to them.
So like if I bought Le Cirque tickets to all
(mumbles)
Let's say if you guys know Cirque du Soleil,
they're sometimes $200 tickets.
So I buy $400 worth of tickets for one of my employees.
Technically, that's a taxable event to them.
I cannot just give them stuff.
I would get to write it off 100%.
They would have to recognize it as income.
If I give that stuff to clients,
you're going to write it off as a advertising activity.
They're supposed to recognize it but I doubt anybody will.
What if you have a business meeting
including a meal with possible client?
That would just be a business meal.
Again you have to have an expectation of a profit.
And then someone says, can you give show tickets
to an employee as a benefit for a non-profit?
Again it's not deductible for the nonprofit.
It would be taxable to the employee
unless it's part of the non-profit activity.
So like there is an exception for when you can write off
certain types of things like if your company sponsors
a non-profit charity event like a golf scramble
or things like that, I believe
it can still write those things off.
What if a company incentive trip's a bonus
and how is that taxable?
If you're doing trips then it depends
on what they're doing on the trip.
If you're just giving them a trip to Cancun
for purely personal reasons,
you're going to have a problem.
Chances are they're going to end up paying tax
on the value of the trip.
If you're doing it as a
hey we're going to go to the company meeting
and we're going to have events while we're there
and it's part of working and they go to summer, then yes.
It depends on where it's at but if it's like Cancun,
actually it's North American region,
you're going to get to write that stuff off.
If you start sending them to France, no.
You're going to have a little more of an issue.
Guys, I love tax stuff
and we're going to be talking about this stuff all night.
I think we're going to be going a little long here
so I apologize.
Going, going, gone the SALT limitation,
why is this a big one?
Well this is kind of fun.
New York suit along with everybody else.
There was four states that sued.
This is one of my favorite quotes.
I like just to pull things up because I like to be annoying.
Somebody wrote the lawsuit a pure publicity stunt,
it's so frivolous and unserious
and it may as well have been written and crayon.
I like that.
Even some of the liberals don't like this.
They said this is one of the stupidest lawsuits
in the Trump era and the University Iowa
law professor, Andy Grewal wrote,
"If this lawsuit succeeds,
"I will post a video of myself eating every single page
"of the Internal Revenue Code one by one."
There's over 20,000 pages guys.
He's going to be bloated if he does that.
Hopefully they're not going to win.
It's just one of those things.
States trying to show their constituents
how serious they are and question you're going to say,
is why is this such a big deal?
Well again numbers don't lie.
What we look at is how many people are actually writing off
the state and local taxes and how much.
And so here's the average from the Tax Policy Institute.
New York was the average size of the deduction was 21,000
and 34% of its people were actually claiming it.
The big percentage is like look at Maryland,
45% of its people actually had the deduction.
Then all of these guys are going to be capped at 10,000.
So it may not seem like a huge amount
but just imagine you're having an expense
that you don't get to write off and more importantly,
you're just going to be taking the standard deduction.
It's going like 90% of taxpayers
aren't going to get any benefit for the money
that they're paying to their state.
How long do you think it's going to be
before people figure that one out
and start yelling at their state?
Saying I'm giving you money after tax.
I'm giving you money and I get zero benefit, zero relief
and somebody says $10,000 for property.
It's your individual.
You're hitting the nail on the head Alexa.
This is what's so beautiful.
This is how I want you guys to start thinking
from here on out.
If I have a limitation, my $10,000 limitation
is for me as an individual,
it does not affect business property.
I write that off against the income of the business property
and you want to get really really technical.
If I want to, I can allocate what portion of my house
and don't buy into this.
The IRS is preferred way.
There's like nine different ways
you can write off a home office and they always say,
calculate your square footage
and look at the whole square footage of the house.
No, that's the best for the government.
That's the way they tell you to do it, There's other ways.
You could just say how many rooms are my house.
Let's say you have six rooms and one of it
is dedicated to business, your corporation
could literally reimburse you for the business use.
The exclusive and frequent use of that room
as your administrative office on behalf of that company
and you don't have to declare it as taxable income.
You don't have to worry about depreciation
but you have to write it off
and the calculation does include the depreciation
also includes portion of the mortgage,
portion of the utilities, portion all those things
including the property taxes.
So let's say you're at property taxes
and you're about $12,000,
this is how you manage to get the money into your pockets,
make it deductible.
You might only get to write off 10
but your business may be picking up the other two
and again this is the stuff we teach all the time.
This is what would be called a reimburse.
This is under an accountable plan
and you can do this Becky even if you're renting
because we would take the rent value.
You're still coming out of pocket after tax
to pay for that property.
The way to look at this
is when you have a corporation in the mix.
You are now an employee of that organization
and it's no different than if you worked for Microsoft
and Bill Gates said,
"Becky I want you to work from home sometimes.
"I need you to have a computer,
"I need to have internet,
"I need you to have a cell phone
"so I can call you at 10 o'clock at night
"because it's very important what you're doing.
"You need to do your administrative services at home."
In fact, in many of our businesses,
they're sited in a different state
and so the place that you're doing
all your administrative activities
is going to be in your home.
Maybe you're in Georgia and you say alright,
I have an office area.
This is my dedicated office area.
I'm going to use the computer, I'm going to use the phone,
I'm going to use all these things.
Now the employer doesn't get to use
all those things for free.
He can reimburse you and so the way it works
is you have basically three choices.
Normally people would just say,
"Oh I'm not going to get reimbursed.
"I'm just going to write it off on my personal tax."
So it'll go on your Schedule A.
That's out the door now.
The other route is they say,
"Hey, I'll charge my company or charge my employer rent
"for that portion."
Well now you have a taxable event.
You have to recognize the rent and they're paying it to you
and you're getting to depreciate it.
It's going to be a circle.
If it's your own employer, you're paying yourself money
just as compensation.
It's silly.
Plus you're going to have depreciation recapture
when you sell the house.
Same thing with the home office deduction.
You get a depreciation recapture.
The better way to do this is just to say,
"Hey employer, just reimburse me."
Here's how much my house is
and you can do it two or three different ways.
My favorite way is to use either usable square foot
which means I exclude the bathrooms and the kitchen
and I get rid of things like my garage
and I just look at the usable square footage
and I say how much of that am I using, what portion.
Or I just say how many houses do I have
or how many rooms do I have.
Let's say that I have six rooms and one of it
is being used and I would take one-sixth,
whatever that amount is.
Probably 12 or whatever percentage it is.
That's the amount of all my expenses that I get to write off
plus let's say I paint the room or put a picture up,
I can write that off or if I get it wired specifically
so I have internet, I can do it.
If the sound just gone try the other mechanism,
everybody else can still hear.
Just answering somebody's question.
They're having some issues hearing.
If everybody else can hear.
So try the phone or try your computer again.
And this is true.
Somebody just asked there's no depreciation recapture
with an accountable plan.
Correct.
It does not affect you.
It is tax-free money that goes in your pocket
because the secret has to be a partner for LLC's, no.
If it's a rental real estate, you don't.
Anyway so you get all this fun stuff.
Somebody just said 203 I don't know what that means.
Do you still count the bathrooms
as part of your total rooms? No, you're going to take a look
at the total rooms of the house.
That would usually mean four walls or three walls
with an access point.
So could you use a bathroom?
I don't think you use the bathroom.
I've never used the bathroom but again,
you run which scenario works best for you.
So we'd looked at total square footage
and we calculate how much space you're using
or we use the number of available rooms in the house
or you do usable square feet.
Whatever one is going to get you the highest percentage
and you go that route.
Can I rent personal property my LP?
No, what you have to be as an employee
and in order to be an employee
it has to be a separate taxpayer
that is unfortunately you cannot be an employee
of a partnership in which you're a partner.
So it has to be an S-Corp or C-Corp.
That is just the way the rules go.
All right let's jump off.
So you guys see how the impact is.
Again I'll get lost in tax all day long.
Let's run some scenarios.
This is how much will you owe in 2018
if you make $100,000 in New York?
You're going to be an effective tax rate of 23.95
this is including your state, your local,
your FICA and your federal.
That's your effective tax rate.
They're going to take 23, almost 24% percent of your stuff.
If you were in Las Vegas with me,
we don't have state and local taxes.
Yay.
Then we're just going to be paying 16.
So just look at that difference.
That's a big difference.
The question is, do you get any tax relief for it?
It even gets worse.
This is where you start looking at
your state and local taxes and you start realizing,
I'm capped at $10,000.
Here's New York or making 200 grand and we already know
as a matter of fact without even looking
at any other expenses.
Without looking at any other deduction,
that would be on your Schedule A, you're already capped.
You're already losing over $6,000 of benefit.
Your state local taxes there are over 17,600
you're already losing it and then let's just compare that
to again our friend if you were living out in Nevada.
Look at that.
It's $41,000 versus $59,000.
I'm just going to go back and forth
just because it's fun to do.
It's $59,000 of tax that you're going to pay in New York
versus $41,000.
It's a huge difference.
It's not fair.
It's tinkle is and that's why we call it Taxmageddon.
It's like if you're in one of those states,
you're going to get hit unless you do something about it
and so that's where we're going to come up
with some final solutions here in a second
of what you can do about it and what it really comes down to
is following what other people
that have significant amounts of money do.
Follow what they do when you hear about it,
when you read about it, don't get mad at them.
Say how did they do that instead.
Alright next one we already talked about
the mortgage interest.
The mortgage interest went from the million
down to the 750,000 and the bigger one
is that it's excuse me,
it's only if you are...
It's only acquisition indebtedness.
Now this is a bigger one and the next one
that I'm going to go into
is one that's really near and dear to my heart.
That is charitable giving.
This is where you're giving money only if you need it
are you going to give the money to charitable giving.
A lot of people give their money
at the end of the year.
In fact I think December,
about 20% of charitable bequeathment are made
because people are looking at their tax bill
to get the most bang for their buck.
They're anticipating that the actual giving
in this country is going to decline
by as much as 20 billion.
It's estimated between 13 billion and 20 billion
depending on who you listen to.
The answer or the question that you should be asking
is why are they doing that.
It's because right now the current cost of giving
is about you're getting about for $100
it's really costing you 79
because you're getting a deduction for it.
Hope that makes sense.
If I give $100 to a charity, it really cost me 79
because I'm getting $21 of tax benefit.
That's the average right now.
The estimate in 2018 is 86 which means
if I'm giving 100 bucks it's actually costing me 86
which means I have less money that I can give,
all things being equal.
Really tough.
Really tough kind of stinkolas.
And the charities are very much aware of this going on
because if you're used to giving money
and all of a sudden you're not going to get benefit
for giving the money, you may be less inclined to give it.
So what do we do?
Well my solution is to get lumpy with it.
What that means is you lump up multiple years
and instead of giving $10,000 a year
where I'm not going to get a benefit,
I'm going to give $20,000 every two years
or $30,000 every three years and before you think I'm crazy,
lots of people are starting to look at doing this.
The other route is you give assets, big assets
once in a while like hey instead of giving cash,
I'm going to start giving things that have appreciated.
I'm going to give a house or a piece of land
or I'm going to give piece of art
that's been in my family that's worth a lot.
I'm just going to give those things
because I don't have to pay tax when I sell them.
I'm just going to give that to the charity
and let it sell it.
Somebody just says I have an LP under C-Corp.
Can I rent a commercial property?
I personally own the C-Corp.
Of course Chris.
In fact we encourage that.
They're getting lumpy.
There's another one.
It's a Daffy, a donor advised fund.
You can actually give money to certain brokerage companies.
They have these things set up
where you're giving it in chunks to the brokerage house
but it's not going to the charity until you direct it
but you get the deduction
the day that you put it in the donor-advised fund.
So if you are a prolific giver and you want to keep giving,
I'm just going to say it might be better for you to do
is just you know either really borrow some money
at the end of this year and just give your 2019
a year in advance as long as it's written
before the end of the year, you're good.
Maybe bite the bullet on it so you get some tax benefit
but let's actually run the numbers
and see whether or not you're getting
a good size tax benefit so that
maybe you're right on the threshold,
you're right at 24 with your current charitable giving.
Now every dollar above that it's better to itemizing.
So if I gave another $10,000
I'd get the full $10,000 of benefit
out of my highest bracket.
That type of thing is what we look at.
Sonia just asked, is there a solution for SALT?
Well the states are the states are suing...
What was funny is a bunch of states
started trying to call their income taxes,
the state income taxes charitable giving
because the states are non-profits
and they got shot down.
Their eggs are nailing them
but they're trying to do all this again.
Somebody says can we list them again from the website?
Absolutely.
I know I'm going fast.
It's because I like to pack a lot of stuff in.
I don't like a lot of fluff.
I like to just get it into this
and I could talk about this stuff.
There are so many little areas
that we could just keep digging into.
What it's going to come down to
is making it relevant for you
and in order to make it relevant for you,
we're going to have to really look and see
what things could impact you.
So the three things the two percent do differently
that we're talking about the top two percent in the country.
Somebody just says can corps give to charities
and write off?
C-Corps can give up to 10% of their net profits.
S-Corps flow down to the individual shareholders.
Can a trading business C-Corp reimburse you for home use?
Yes.
I own a property one on a person,
I put one half in an LLC and a trust.
Yes and there's everything else
I think I've already answered.
Where's the calculator Billy?
I don't know which calculator but I have a calculator
that I use its really cool spreadsheet
if you want to shoot me an email or respond.
I'll actually type my email in here guys.
A C-Corp can give to charity, yes.
Let me see what I'm going to do. How am I going to do this?
I'm just going to put this in the chat. Tmemphis@alglaw.com
Feel free to shoot me an email if you want
and I'll get you whatever I can.
If an S-Corp rents personal residence for meetings,
can we still have the Corp reimburse the office used?
Now here's where it gets fun.
Okay I love you but pigs get fat
and hard to get slaughtered.
What we do is we carve off the exclusive use
for the business but then I can still rent
the rest of the house to the company,
to have a corporate meeting once a month too.
Yes, so we like to double-dip but we want to make sure
that we're saying hey, just the kitchen area.
We want to make a little bit restricted
if we don't want to sell again.
Can C-Corp reimburse me for one home office
where my S-Corp reimburse for a second office in the house?
No, you're going to have a tough time with that one
unless it's like really legit.
We do get that popped up when we have
somebody with the second property
that they use only for their business,
then the answer is yes but we want to document
the heck out of that one.
Can you rent the house or part of it
for a meeting to an LLC?
Yes, absolutely and we encourage that.
That's 288 subsection G too
where you can rent your house to your company
up to 14 days a year and it's actually per resident
though we say it's per taxpayer
just because we've never had guidance on that.
We don't get crazy but basically yes
and it doesn't just have to be your house.
It could be your second house, it could be an RV
so long as it has a sleeping quarters and a head.
It could actually be a boat,
so long as it has those two things too.
What about an e-commerce business?
Yes, you can absolutely do that
even if it's taxed as a partnership and not a corp.
Leasing to an LLC.
No, it has to be an S-Corp or a C-Corp
to be a separate taxpayer and the way the IRS looks at it
is in order to be a second taxpayer,
it cannot be you as a partner, you as a sole proprietor.
It has to be you as an employee with the employer
so it has to be an S or C- Corp.
All right now we have to go down and we're going to...
This is the fun stuff.
This is when we start talking about the rich folks
and what they're doing.
Of course everybody is rich in their own way
but we're talking about the people
that are making millions of dollars
and where do we find out what they do?
We go to the IRS data book.
If you guys have seen me speak on taxes,
you see that I use this like crazy
to see who gets audited and who doesn't
and then I make sure that we are the one
that's not getting audited
and we've been very successful at that.
We actually had a seven-year stretch
where we didn't have any audits.
It was weird in the early.
I want to say, that was in the early 2000s
where we thought maybe the notices were getting lost.
Nobody was getting audited.
It was just so few people which is weird
when you think about it.
Now it's like the average is about one percent.
If you're an S-Corp it's a fraction of a percent.
You really have to do something to get audited
and then what I really look at
is if they audit you, do they any money out of you
and what you'll see is that if you were a sole proprietor,
it's about a 94% chance
that you're going to owe money after an audit
and you're going to get audited.
Let's say making $100,000, I think it was 2.2
or 2.6 last year.
So if they audit you, you're going to pay
and if you're an S-Corp, it's a fraction with a percent
then it's about a 50/50 proposition
as to whether you're going to owe money.
So you tell me.
700% more likely to get audited and when they audit you,
it's a 94% certainty you're going to owe more
or do you want to have like almost no audits
and rarely do like maybe 50/50 shot
you're going to owe money.
I'm going to go on the latter of those two.
So we go to the IRS data book and we look and say
what are the two percent doing differently?
One of the things that I've noticed with the top tax payers
is that they structure their income differently
than most people.
In other words they're not just making their money as W2.
In fact, it's 33% to 37%
depending on what year you're looking at.
You are as active income.
Everything else is coming from a passive sources
so investment income from rental,
so it's rent, royalties, dividends, capital gains,
both short term and long term.
That's where they're looking at
and if I didn't say dividends, dividends is a big one.
The other thing you do is if you know somebody
who's been very successful,
it's just sit down and talk to them
and they're usually pretty insightful
when you're sitting there and you're talking to somebody.
I use an example of a client who said,
hey because I always tell people if you're going...
Stock market is not a place that you're going to make
a ton of money.
You don't play in the market unless you really have an eye
towards value stocks and you're buying things
that are going to pay you and she said,
"No, my grandfather's retired off of this portfolio
"and that's what he does,"
and I said, "Well all I can tell you is my experience
"and my experience is that it's really tough
"to be a market timer unless that's what you do."
Like if you do it full time
and that's where you really spend your time I get it
but I said, "My hunch is that that's not the case
"with your grandfather,"
because she said he traveled all the time
and sure enough, she went there
and talked to her grandfather.
The grandfather said yeah, he was he bought value stocks
that were paying and his income was actually
the dividends off the companies that he'd owned
for 20 and 30 years and he was able
to live off of the profits of dividends.
Just the profit paid out of the corporation
and it's funny because I always
if you guys aren't aware there's things called
dividend kings, companies that have been increasing
their dividends for 50 years or more.
Warren Buffett made Coca-Cola famous.
It's not in the sense of the new Coke
or the great flavor of it or anything like that.
He made it famous because he identified it early on
as a great value stock and it's been paying out
increasing dividends for 56 years.
In other words, it pays out its profits consistently
and every year it increases it
and it's been doing those increases for over 50 years.
So it becomes a little different when you look at.
So you just look at wealthy people
and say how are you structuring it?
How are you setting this up to where
you're not having to run around and do so much work?
The other thing you do is you pay attention to the media.
When the media starts railing on somebody for being wealthy
and says look what they did like for example,
right now we have a president that gets hammered
every time I turn on the TV and they say,
look what he did here look how he's benefiting
from these new tax laws.
I'm going to say rather than shoot him down,
I'm going to say what is he doing?
What I know for a fact like for Trump
is he has a foundation and he has a structure of entities
passing through to his personal return
and he's carving off other income into corporations.
He's controlling how much money he's actually going to have
on his tax return I'm sure that's why
he doesn't want to show it to everybody
because he knows most people wouldn't understand.
Hey I'm making 100 million dollars a year.
Well he's only showing probably...
He's probably showing a fraction of that.
People going to say oh you're not as rich as you say.
Well, at the end of the day what I care about
is how much do I actually have to live off of.
The only time I'm really going to care about
the income on my 1040 so I'm trying to qualify for a loan.
Now the next one is someone who advises wealthy people.
If somebody says hi Maggie.
You talk to someone who has a lot of wealthy clients.
That happens to be Anderson.
We got a lot of folks that do very very well.
We have a lot of folks that are in the middle
and we have some folks that are on the low end too.
But what you do is if you use the principles
that the wealthiest people do, you will get similar results
over the long haul.
It's like working out.
When I first start working out,
I don't really notice much of a difference.
For the first two, three weeks I may notice no difference
until somebody walks up and says,
"Have you been working out?"
Then you say wait a second,
I didn't notice any difference
because the changes are so gradual
but if you do what wealthy folks do,
you will get similar results.
That's why I follow and watch them so closely
when it comes to taxes because I just care and I say,
where are they going?
Where are they getting their deductions?
How are they controlling things and then you realize
that there's a bunch of rules that they do tend to follow
and this is what we, buy bitcoin stocks.
I've known people that actually mortgage their house
over my like vehement objection,
they my mortgage their house to buy Bitcoin
when it was at 19,000.
Bitcoin. (mimics explosion)
I have a couple good buddies that actually did the entity.
Dumb ass, yes.
So we don't let donkeys go to school.
But I also have some folks
that did the initial coin offerings.
It's amazing world, amazing world.
They're working inside of clubs,
inside of some of the casinos,
meaning that they have coins that actually give you access
to the clubs inside of the clubs.
It's like private clubs
and people are snapping that stuff up.
It's crazy.
To me though that's not an asset.
That is boom or bust.
All right so what are the wealthiest folks do?
They isolate risk and activities.
What they do is they take whatever they're doing
and they manage to isolate it.
So if they have real estate,
it's not going to be mixed in with their stock investing.
If they have an active business,
it's not going to be tied in and mixed in together
with their investment real estate.
They're going to isolate those things off.
They also have uncountable plan and more importantly,
they have a tax strategy.
Generally speaking, they know
where their money is going to go before they make it
and that's because they actually set something into place
and they said when I make it, where is it going to go?
If you know that you have an accountable plan
and you have lots of reimbursements,
some people get mad at me and they're like,
"Well I have $20,000 of expenses I can reimburse
"but I only have 10,000 that's coming in,"
and I look at them and go, "That's a great problem to have.
"You know where your money is going to go
"before you even make it.
"Now just go out and make some more money."
If somebody looks at you funny,
you say just work a little harder.
If you really want to, there's no reason
why you can't go out and get a second job if you have to.
I'm just teasing.
But like if you have a company for example a corporation,
I've seen this happen so many times.
Sometimes it's the side business that they start
that ends up taking off and I've seen that
more often than I can count where somebody,
say the example I use in some of the events
is the stock trader was a gentleman and his kid
got into the business we didn't want the kid
because he was 18 and a little bit,
he's a little of a partier.
We didn't want him touching the stock account
so he did something else and he built a website
and he ended up selling the website
for close to a million dollars.
I always say like that's the funny one, within a year.
So that so the kid made a million bucks inside the entity
because the dad had a tax appetite
and I always laugh about that
because I didn't think the kid,
like don't let him anywhere near your trading account.
He's scaring me, because again, he was a skater dude.
We've had a bunch of those.
We've had a guy doing golf courses,
we have a great one that was a snowboarder,
he's still out there getting sponsorships
but all these things were brought into the business
just because they had a tax appetite.
They had expenses and they started saying
well where else can I make a few dollars.
That's a good problem to have guys.
If you have a whole bunch of expenses to reimburse,
fantastic.
You're not going to lose it.
In fact even if you don't take it,
I could still show you a way to write it off.
I don't like going into it but it's called a 1244 stock loss
so I've done that too where someone just had lots of losses
and they said well can I just take the tax benefit?
Yes, there's a way to do it but I don't like to do that.
That's like the exception. And then the other thing they do
is they create their own dynasties.
What they do is they create something
that somebody can't destroy.
The example I'm going to use is very recently,
the founder of IKEA passed away.
His kids did not get IKEA.
His kids got two board seats out of seven
but the rest of it went into non-profits.
I like that because non-profits don't die.
Non-profits aren't owned.
It's really tough to kill a non-profit
and they don't pay tax.
So you can actually create a nice family dynasty.
Whenever you see that Clinton Foundation,
you hear about the Trump Foundation,
you hear about all these people and the Gates Foundation
and Warren Buffett giving billions of dollars
and all this stuff, there's a reason they're doing it guys
and you can either sit there and question it
and say that sounds really fishy
or you could say why are they doing it
and how do I do it and it?
Usually it comes down to this point number three.
They want to create something, they have enough money
it's not money that's the issue anymore.
Is they want to create something
that's going to live beyond them that somebody can't destroy
because believe it or not when I talk to the truly wealthy,
one of their biggest fears is giving their kids
something that they're not prepared for
or exacerbating an issue.
Saying like oh my son, well he's married to somebody
and I'm worried that if he gets a whole bunch of money,
that that's going to be the end of their relationship
and so it's like hey, rather than give them money,
give them something to do
and that is one of the things they do.
They create their own dynasty.
Here's quick lessons learned.
This is a basic one.
This is just from years of doing this
and working with people and looking at their tax returns
and seeing who makes money and who doesn't.
Businesses earn money, they spend it
and they pay taxes on what's left,
whereas individuals earn money, pay taxes,
and spend what's left.
It's a subtle difference but it makes
all the difference in the world
when you talk about long term investing.
The best example I can give you
is how businesses are treated under this new tax law
is the corporate tax rate is 21.
Top tax rate is 21% and you get a 20% deduction
on qualified business income.
Anything that passes through to you,
you can qualify for basically writing off
20% of that income right off the top.
There's a bunch of bells and whistles that come with it
but that's the difference between a business
versus individuals you have a 37% top bracket
and you have a limited itemization.
They took away a bunch of stuff from you.
So like if you can't figure that one out,
used to be the highest corporate tax rate was 39%,
now it's 21.
They literally cut it in half and what did they do
to the individual?
They gave you a two percent off the top
and then they took away bunch of your deductions
and they're going to force you to do the standard deduction.
Again 13 million people are going to do the itemized
versus what was it?
30 or 43 million.
They literally just took all your deductions away
and said and everybody thanked them.
Can my S-Corp pay my personal phone bill
or should I pay from personal account reimburse?
I like to see the reimbursement.
So you just want to have a reimbursable plan.
If we did your entities, we already put it in place.
All right so let's do one final example
then I'll show you guys where you can get more information.
This is like the example
of somebody who has some real estate holding,
some investments holdings, see their kids over here.
Where's my little pen, I got to find my little pen
because I like to draw circles around stuff.
There we go.
So we have the kids, here's mom and dad sitting over here.
They have their real estate holding entity here,
they have their let's say this is a C-Corp
and they have their investment business as a 1065.
Let's just walk through this how this looks.
Top bracket on the corporation is 21%
so we already know we have another tax bracket
that we can share with and so if I make
a whole bunch of money, I don't have to have
my personal tax right away.
I might want to just shelter that for a while.
My real estate all these guys are holding up
into that holding company.
So if real estate one makes a bunch of money,
two breaks even and three loses a little,
that's the net that I'm worried about.
I get my depreciation, everything else
but if I have a bunch of extra
and I don't want it to flow under my personal return,
I can pay it up to the corporation a management fee
and guess what?
QBI, I get a 20% deduction so long as I qualify.
You know for sure that you qualify
if your taxable income is below 157,500 as a single person
or if you're married, it's 315,000.
You don't have to worry about anything else.
If your taxable income not your adjusted gross income
but your taxable income
and this is after we get all of our deductions
to our retirement plans everything else.
Even giving money to the charity,
like that we can give money to the charity
to lower my taxable income so I qualify for this,
yes you can people.
Yes, yeah sure you can.
You can actually decide at the end of the year
because I do this and I say,
how much money do I want to pay to the charity?
I have a charity and I give money at the end of the year,
every year as long as I write the check
before the end of the year,
I can just take it right off the top
and then my taxable income is what gets adjusted.
So I can actually...
It seems like the government
is incentivizing creating corporations.
Yes, they have been for a long time.
It's been years that they've been doing that.
It is a completely different world
when you go into corporation.
Here we'll go back into this.
I love stuff like this by the way.
Is when you have a little structure like this
then I get to decide, do I have to give money?
No but they just increase my adjusted gross income.
It went from 50% to 60% guys.
If I make $500,000 of adjusted gross income,
how much can I give to charity?
This could be my own charity.
So if I have 500,000 and I don't qualify for diddly-squat,
I can give 300,000, 60% and now my taxable income is 200,000
and I get to qualify for the QBI
so I even get more deduction on my rental real estate
and everything else,
I'm just running into my corporation if I feel like it.
I'll go back to this so you guys can see it.
What happens if my income is above 315?
It depends on the type of business.
If you are in the professional services,
you're toast, you're done.
You don't get any QBI.
If you are in any other type of business
where it's not on the reputation skill,
accounting, tax or anything like that,
law, medical if it's not in those fields
then they do have tests of the greater 50% of the W2 income
that's being paid out of that entity
or 25% of your W2 plus 2.5% of your assets
put into like it's a calculation.
You don't want to get into this
because somebody says you got a look at crypto.
I know the crypto.
I like crypto and I know how it's taxed.
We need to take a look at that.
We could take a look at it of course.
Will pharmacy fall under medical?
Yes.
They're just giving out us all the proposed regs
but everything looks like it is
and then before you listen to these crazies
that go out there and say hey, you can bifurcate it,
you could have a portion of it that's the pharmacy
but then we'll make another company
that is moving the money out of the pharmacy
and we're going to take your pharmacy business,
we're going to separate it.
No, they're going to aggregate it together
and they're going to treat it as the same.
Qualified Business Income.
QBI means Qualified Business Income.
It is a 20% deduction on flow through
qualified business income.
It sounds like we need to do that class too and we will
and now I'm just going to say how do you learn more?
Well one of the things that we do is Tax Tuesdays.
It's about every other week and by the way guys,
we're probably going to do one in Spanish here coming up.
I'm just being annoying
but I have so many clients from all over the world
and a lot of them speak Spanish and sometimes it's fun.
We have a bunch of Spanish-speaking accountants.
So we'll end up doing that too
so if you're someone who has any trouble
with the technical speak, then that would be fun.
Otherwise I do this about every other week.
For a long time it was Ronnie with Hagar
but I'm doing it now.
We did this last week.
Was a lot of fun, they're fast-moving
if there's any questions you could throw out there
and then we're going to come up
and we're going to post a few questions
that we get from I think it's webinar@andersonadvisors.com
if you can read my handwriting.
webinar@andersonadvisors.
If you send in a tax question,
then we will make sure that we are answering it
and if there's a whole bunch of good ones,
then we will go through those.
Alright so someone says did you see my question?
(mumbles)
I know that.
I get this. I get this all the time
when I'm having conversations with people.
They're like hey Toby, how would you like it?
Let's see, what do I have?
I'm going to try to find your question.
I have hundreds of questions that came in during this event
so if I missed your question, I apologize.
There's quite a few.
I don't think we're going to have time to go over
because we're about 20 minutes over as it is.
We will record this and then we do record
the tax Tuesday as well.
Topic 701, I don't know what that is Crystal.
Give me a give me an idea.
I'm going to go through a few others
where we can just continue to learn more.
There we go.
The Tax-Wise Workshop, I teach a two-day workshop.
You can always come to that. We're going to go over at least
25 different tax strategies, maybe more.
The Tax-Wise Workshops, if you come out to them
most you guys if your platinum you're going to get tickets.
I think you get tickets every quarter
so it should be free for you
as long as you register and actually show up.
If you want continuing education,
a lot of our courses are qualified
both considering legal education
and qualified education for accounting.
You just let us know and the next one,
the other place that you can learn more
if you want to actually go through oops,
here we go.
If you want to do a tax strategy on our website,
you can go to our tax section and you can always fill out
a request to go through a quick consult
where we can start looking at it.
What I want to do though and more likely
is get you into our tax department
and if you're already in our tax department
then just say hey, I need to have a tax review done
and I need to look at whether I'm going to be impacted
by these new tax laws.
We can do some studies.
Now here's the caveat to all of this
is these tax laws they still haven't given us
the guidance on it.
We got guidance last night on a portion of it
but we still don't have the guidance on every section
so some of this stuff is going to be,
hey we're going to have to play a little bit right here.
Our guys are really good and I'm pretty good
about saying hey, this is how I think.
I'm 90% certain we're going to take
the most conservative route but they may do
a little tweaky on us and if you guys know how we are,
we tend to follow the black letter
as opposed to the gray areas.
I want to see the black letter of the law
and then you would keep everybody out of trouble.
Let's see, hope you can do a webinar on platinum again.
Single member trading, stock options,
getting married this year.
So hey I did do a big trading one.
I did it for a group so we can always give you
the recording on that.
I actually did a three-hour webinar live stream on it
just on taxation for you future traders,
Forex, stock traders, option traders and cryptocurrencies.
Is a 501-C3 a corporation?
If so is it a C?
Is a 501-C3 and it can give benefits as well.
In fact this is what's beautiful
is a lot of you guys you have employees
in your other business and everybody tells you,
hey you can actually do your medical reimbursement.
The way around that is actually
to open up your own non-profit
and actually get involved in your community
and start doing cool stuff and then it can actually give you
a medical reimbursement and the reason being
is because nobody owns it.
It's kind of fun, if you guys like that sort of thing.
I like that sort of thing.
Alright so here's our agenda.
What is itemizing?
Why is it important?
We went over that.
What is the single most devastating tax law change?
We said traders but it's for everybody.
Tax law change.
You guys get to decide that and then the three things
that the top two percent do differently,
a lot of you guys are already doing that
and where can I learn more to see what I can do?
You guys now have a whole bunch of it.
Somebody asked a question.
It was about the foundation and a non-profit.
A foundation is a technical term
for someone who doesn't do anything with their non-profit.
In other words it's not doing anything
other than giving money to other non-profits
and it has to give five percent of its assets away
and there's lots of little rules with it.
It has to give five percent to another 501-C3.
A 501-C3 is generally speaking,
it's going to be a corporation.
The way that I do them, they're all corporations
but it could be a trust unlike the Hershey trust
that was started off, owns a big chunk
of the Hershey publicly traded company.
So a 501-C3 is a corporation but is not a C corporation
but it is treated like a business for benefits.
It could actually do the same benefit plans
for its employees but just remember,
a 501-C3 does not pay taxes
and it can receive money from third parties that they deduct
as a charitable donation and then it goes
under that Schedule A.
So now you're starting to see that everything
is like pulling a string.
So everything's affected.
So if I'm going out and I set up a 501-C3
to do let's say affordable housing,
I'm doing how to hide properties.
I'm doing houses for people that are veterans
or single moms, whatever.
I'm doing something that would be considered
a charitable activity, I go to somebody
and say, "Please give me money,"
I have to be cognizant that they may not get any benefit
from giving us that money
if they are using the standard deduction.
You really want them to get a benefit out of it
so you're going to ask them to give you a big chunk of money
maybe give you a house and say,
take a big huge write-off once in a while
and then just give it to me periodically.
Every five years give me something.
That's the type of thing you're going to do
or you fund it yourself but you actually have to be doing
something that's a charitable activity.
Now if you're doing that, a charitable activity
then you are an operating charity.
You're no longer a foundation.
You're considered an operating charity
and you do not have to give your money away.
You can actually hoard the money.
So the example that we like to give
is the Hershey Company since I used it earlier.
Started in what, 1905.
Milton Hershey passed away a few decades later,
no kids, it's worth 12.6 billion dollars now
and educates 2,000 kids a year, owns a hospital,
owns a bunch of stuff in Lancaster County
and just does some amazing things
and it just continues to grow and grow and grow.
There's no retained earnings, there's no tax on that stuff
so that's actually pretty cool.
I don't know how I got off on that one.
I think someone kept asking attached questions.
All right so I have a few more questions,
now we're going to get rolling.
Somebody's asking about crypto.
Crypto is not a currency.
Crypto as a capital asset.
So when you buy and sell crypto,
it is treated like selling stock
and if you buy something with crypto currencies,
it's like selling the stock, turning it to cash
then buying it so we actually have a capital gain event,
you have a taxable event and then you actually have basis
and then you have something taxed
but I have a bunch of stuff on the crypto stuff.
So I appreciate that and then another question,
if we wholesale property in the San Francisco Bay Area
with the new laws how would the income be taxed
if done in our personal name versus C-Corp
versus LLC member versus LLC taxes the Corp?
So if it flows onto your personal return
either as a single member or as a partnership,
it's going to be treated
as active ordinary income at the flip.
You're a dealer.
If it's a C-Corp, it's going to be taxed at 21%
and then you can expense it if you want to do
and if the LLC's tax is a C-Corp, same thing.
LLC's do not exist to the IRS.
The LLC tells the IRS how they should view it
so an LLC could be taxed as a disregarded entity,
it could be taxed as an S-Corp,
it could be taxed as a C-Corp,
it could be taxed as a partnership.
You tell the IRS how to look at it.
How do we re-listen to this?
we will send you out the recording.
I'll be posting it somewhere and I'll make sure
you guys all get copies of it.
Glad to spend some time with you.
I think we said we were going to do this for an hour,
I think we're half an hour over
but I've never been accused of being brief.
Thanks again guys for hanging out with us.
Really appreciate it.
If you have any other questions,
always feel free to shoot us an email
and if you have more questions, actually ask them.
The best thing to do I'm going to put this back up.
I'm not sure if I have the writing on it
but webinar, there we go.
Webinar@andersonadvisors.
Send in your questions.
The harder the better so that we can answer them
during our Tax Tuesday.
I'm going to start trying to post those ahead of time too
so you get to see ahead of time what's coming out
and we'll catch you in the funny papers.
Bye guys.
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