In this episode of the Main Street Business Podcast, hosts Mark J Kohler and Mat Sorensen discuss various topics related to business, taxes, and legal structures. They answer questions from listeners about tax benefits for small businesses, the benefits of S corporations, and strategies for real estate investing.
Here's what you can look forward to:
This episode is a must-listen for small business owners, side hustlers, and anyone interested in understanding the complexities of tax law, the potential benefits of different legal structures, and strategies for protecting assets and diversifying investments.
In this episode of the Main Street Business Podcast, hosts Mark J Kohler and Mat Sorensen discuss various topics related to business, taxes, and legal structures. They answer questions from listeners about tax benefits for small businesses, the benefits of S corporations, and strategies for real estate investing.
Here's what you can look forward to:
This episode is a must-listen for small business owners, side hustlers, and anyone interested in understanding the complexities of tax law, the potential benefits of different legal structures, and strategies for protecting assets and diversifying investments.
You.
Mark J Kohler:We're hoping to help many of you that are small business owners, side hustles, big hustles, whatever you're hustling, we're going to help you save money on taxes and protect it from criminals out there trying to steal it. Can I write off an EV vehicle in which I also receive the EV credit for my vehicle? The answer is yes. My new CPA recently filed a paperwork for my pLlC to be an S corp in 24. So the old CPA got fired because James probably realized he should have been an S corp for four years and it cost him tens of thousands of dollars. People, this is very common. James saw the light, got with the right account, and they're off to the races. Welcome, everybody, to another episode of the Main Street Business podcast. I'm one of your co hosts today. My name is Mark Kohler. I'm here with the illustrious Matt Sorensen, author of the book the self directed Ira handbook. I hear a third edition is on the way.
Mat Sorensen:Third edition's on the way. I got two other books in the work. Mark has four books.
Mark J Kohler:I'm taking a break, so I got to catch up.
Mat Sorensen:Yeah, let me catch up for a second. But we're just two cool dudes, business and tax guys, running our businesses, helping clients across the country build their wealth, save on taxes, protect their assets. So we have got your questions today. This is the open forum podcast. These are our listeners questions, and Mark and I've got some answers for you on them. I don't know if they'll be any good.
Mark J Kohler:Oh, come on.
Mat Sorensen:I'm always trying. They're going to be freaking awesome.
Mark J Kohler:We're trying to be humble.
Mat Sorensen:Yeah, I'm trying to be humble. Set the expectations low so we can blow you away here. But make sure you always get over to mainstreambusinesspodcast.com. You can submit your questions there. And those are the questions we're going to be fielding. I've also got some from social that have came in, but before we get started, we had a comment on YouTube. This is from the talking board, who said who's who? I kind of like the pothead versus cokehead chemistry. You guys have excellent topics as well.
Mark J Kohler:Thank you. So, yeah, who's the cokehead and who's the pothead?
Mat Sorensen:I think I'm the pothead and you're the who. I don't know which one I want to be.
Mark J Kohler:So what you're saying is, whatever.
Mat Sorensen:We got chemistry. All right. That's just. Thank you at the talking board.
Mark J Kohler:Yeah, I mean, I've seen two pie heads together. Cheech and Chong.
Mat Sorensen:Yes.
Mark J Kohler:We've got the who could Wayne's world.
Mat Sorensen:Wayne's World.
Mark J Kohler:Yeah, but you've never see a pie and a cokehead hangout. They just don't gel.
Mat Sorensen:Yeah, usually kind of two different vibes.
Mark J Kohler:They are two different vibes.
Mat Sorensen:Okay.
Mark J Kohler:All right, so we're going to jump into our questions today. Excited to be with you. We're going to try and keep this light as well. We have an incredible team behind us of Main street tax pros around the country in our network and tax lawyers, again in the estate asset protection, wealth building tax planning realm. That's where we're at. We're lovers, not fighters. Okay, first question. I'm just going to hit this r1 quick EV vehicles. This is from an says, can I write off an EV vehicle in which I also receive the EV credit for my vehicle? The answer is yes. The credit is not taxable. It's a tax credit against your taxable income if you qualify and you can still either write off mileage or actual. Write off tends to be a little bit better with actual when you come to an electric vehicle, but that's good news. I don't know. Lots of options, like rules of the.
Mat Sorensen:Table, like when you're at a restaurant, double dipping is usually not cool.
Mark J Kohler:That's true.
Mat Sorensen:Sometimes you can get away with it.
Mark J Kohler:You can flip around.
Mat Sorensen:You flip to the untouched portion of the breadstick.
Mark J Kohler:Most people are like, okay, we'll allow that once.
Mat Sorensen:Yeah, there's kind of like, depends on the part of the country you're in where that's acceptable. But that's good news. Double dipping. I'm pretty sure you could, but I wasn't sure.
Mark J Kohler:Yeah, so we're good to go there. And it's hard. I've got an article on my site, markjohler.com. Every January I publish it on multiple ways to write off your auto vehicle for the year. So I've got a 2024 updated article, seven different options on ways you might want to write off your vehicle. So check that out. But the EV credit is cool.
Mat Sorensen:All right, next question was from veteran Bidness says, I'm a new listener and appreciate all you're doing to inform. Maxing, tax and wealth planning and making it fun and informative is a special gift.
Mark J Kohler:I like it when they always butter us up before the question.
Mat Sorensen:Yeah, that's how you get your question. That's how we're going to read it. Let us feel good. Says my spouse is an author with a sole proprietorship for self publishing, marketing her books through online platforms. I buy and sell antiques and collectibles both online and locally at a rented antique booth. I get a w two for my day job and also military retirement. Recreated a member managed LLC. Yes, I know mistake. Should be manager managed, but that's okay. We can always fix it in December. And we're both 50 owners. And this is where all the businesses come into this same LLC. What his wife's doing, what he's doing when forming the LLC. I did not elect scorp. All right, we'll come back to that. Might not matter. Although both companies sold inventory last year, no profit was made. Am I still on the hook for self employment tax? So right now what's happening? Veteran business is husband and wife. This is going to flow onto schedule c on your tax return. I presume when you set up the LLC or got your tax id, you said you're a sole proprietorship. Sometimes you could have done partnership because it is husband and wife and you are 50. That's possible, but I'm presuming you did sole proprietorship. It's flowing onto your schedule c now. All that income coming through from your antique business stuff, your wife's book, an author business flowing on to your schedule C against all the expenses. And at the end of the day, you got a zero or a net or a loss. There's no self employment tax to pay. Self employment tax on. Schedule C is only on your net income. That's why we recommend once your net income is 40,000, 50,000 or more, once you're in that little range of 40 to, after all the expenses, we want to set up an s corp because that's when you have self employment tax 15%, the self employment tax is hitting on that 40 to 50k. By doing an s corp, you get to minimize that and the tax savings pay off. But if you're at a loss or at zero here, you're not paying self employment tax on anything. So no reason to use the s corporation, the tax savings aren't going to matter. So a lot of people that have a side hustle and maybe you're making ten, twenty k a year, you got your main job or other source of income or spouse and it's just ten, twenty k a year. Just do it out of the LLC. No reason to add an s selection to it. Add all the additional paperwork and tax filings you got to do. Keep it simple. But if you're at 40 to 50k or more net income. The scorp lets you save taxes on that self employment tax. So just pay attention to that veteran business. As your business grows, hopefully you're going to start making profit in it. And once you're at that 40, give us a call. We can help, and we just add the s selection to this LLC when you need it.
Mark J Kohler:All right, great answer, Matt. Love it. This is GI doc. I was thinking of Kramer in Seinfeld with his doctor that had the personalized plate.
Mat Sorensen:Ass man.
Mark J Kohler:This kind of doctor are you? I'm an ass man anyway. Good proctologist. Oh my gosh. So question here from GI Doc. I elected Scorp taxation status in early 2023 and did not realize that the IRS would subsequently send me a new Ein for the S corp. It's very od GI doc as well, but rather I thought I would continue to operate my business under the same Ein that I had been using for my sole prop LLC. That's correct. I began to pay quarterly estimated taxes and made monthly federal tax deposits under my initial en. Good job. But then realized this could be a problem once the IRS ultimately sent me a new ein for the s corp. Trying to determine how to figure this out, as it seems I may have paid taxes on behalf of the old wrong ein. I've written to the IRS asking them for them to allow me to use my original ein from S Corp and not the new one they sent me, but I have not heard back. Don't hold your breath on that letter, GI doc. Okay, GI Doc, I am glad you called and I'm glad you're taking the bull by the horns and you're trying to handle this yourself. But let me just give a little example here. I'm working on a little Airbnb and literally, as of right this moment, trying to solve a plumbing problem with a sink that I tried to deal with.
Mat Sorensen:GI Doc, I thought, I can do this.
Mark J Kohler:I can go to Home Depot and Lowe's. I'm a Lowe's pro. I have a bumper stricter at Lowe's pro.
Mat Sorensen:Congratulations to find out.
Mark J Kohler:They just give those out to anybody.
Mat Sorensen:Did you know that? Any idiot who spends 100, no qualifications necessary.
Mark J Kohler:So I'm trying to figure out the sink problem and thought, I need to turn to a plumber. And so, GI Doc, I'm glad you've reached out because you're trying to play accountant and lawyer and you would hope that the IRS tax code would allow a normal taxpayer to deal with it. But GI doc, you've got to get some help. So first of all, if you're a client of mine, we would ask for power of attorney and in two minutes call the IRS on a practitioner hotline, which I was on hold with the IRS for a total of 60 seconds last time I called. Got a great IRS agent, solved my client's problem within a half hour, and everybody was off to the races. Sending the IRS letters, people, is not your best use of your time and getting results. There's a practitioner hotline. Use a tax pro that can call the IRS on your behalf. You can get one on my website, marchingcohler.com. We have a network of hundreds of tax pros certified under our training strategies. Or your tax lawyer, one of our tax lawyers could do that. So, first and foremost, this is not a letter writing campaign. Next, do not use the new ein. You should use the ein. In fact, I'm going to just say this. You got to go to your 25 53, which is your s election that apparently you say you elected and you got an S election acceptance letter, I'm hoping. See those match up. You got an application on the 25 53, you've got an acceptance letter. The ein on the 25 53 should match the ein on the acceptance letter. I've never seen the IRS kick out a new tax id number unless you filled out a form. Maybe you shouldn't have filled out. Also, you should have filled out the 88 32 and mailed that off with the 25 53. So, GI doc, I appreciate you trying to do this on your own, but stick to being a doctor. Let the tax lawyers and tax accountants do their job. And you got to get someone in here to call the IRS and just get this resolved. You should stick with the original ein. Confirm you got the status when you thought you got it under the right ein by simply calling the practitioner hotline through a professional. I hate to say it that way, but that's going to be your easiest go.
Mat Sorensen:Yeah. I mean, one of the nice greatest pieces of wisdom one can learn is when to diy something and when to have a professional do it.
Mark J Kohler:Yeah, it's a lifelong lesson for me.
Mat Sorensen:And I think that the older and older I get and the more and more wise I get, the less and less diy I do. All right, Karen's got a great question here. Says, hi, guys. Love you both.
Mark J Kohler:Oh, thank you.
Mat Sorensen:Thank you. We're a package deal. Karen, who thought you could have fun while binging tax videos and podcasts? My husband and his friends are creators of a podcast. They've been releasing episodes since May of 2023. They have over 50 episodes and are approaching 4000 downloads. That's awesome.
Mark J Kohler:Great. Good job.
Mat Sorensen:This isn't one of those businesses that you're always telling us you've got to sell lemonade to qualify as a business. They aren't sponsored or monetized or have any affiliate programs.
Mark J Kohler:Oh, should they have a hobby?
Mat Sorensen:Okay, keep going. That's where this is going. We saw this one coming down like a freight train on the track. I know where your question is going, Karen. We estimate it may take a couple more years before that happens. In the meantime, they do have expenses for hosting fees, equipment, and travel. And they'd love to travel to locations and record and have a commuting.
Mark J Kohler:Is this a wife complaining about her husband's hobby expenses?
Mat Sorensen:Exactly.
Mark J Kohler:That's where we're going.
Mat Sorensen:Okay. My husband's like, don't worry, babe, it's a write off. She's like, I don't think so.
Mark J Kohler:I'm calling Margaret, man.
Mat Sorensen:Speaking of podcasts, I listen to one and they're like, at what point can you take to the tax guy and say, this is a side hustle and add this to schedule c or wherever it should be reported. Thanks for all you do. Okay, Karen, great question.
Mark J Kohler:Who's going to be good cop? Who's going to be bad cop?
Mat Sorensen:I'm just going to hit it to you straight. I'll be bad cop.
Mark J Kohler:Okay.
Mat Sorensen:I'm going to hit it to you straight, Karen.
Mark J Kohler:I'll give you some love here after.
Mat Sorensen:That'S done with Karen, by the way, in the office, I traditionally am bad cop and Mark is a good cop.
Mark J Kohler:Okay, fair enough.
Mat Sorensen:I'll give you that.
Mark J Kohler:Most of the time, I'm still a bad cop when I need to.
Mat Sorensen:I mean, I'm just going to cut to the chase. These expenses are not deductible. You are not going to take these anywhere. Okay. And Mark's got some good cop coming.
Mark J Kohler:Don't worry.
Mat Sorensen:I'm going to leave that because you have not made any income. This is a hobby. They're having fun. They're doing podcasts. They might have a future expectation of making money. And you're going to get some revenue, you're going to get some sponsors, you're going to get some affiliate income. But that hasn't happened. And so these are not deductible expenses?
Mark J Kohler:No. Karen, here's an important question. At any point in the filming of this podcast, were they sitting on a bass fishing boat? I have a feeling these guys, this is cover for a different hobby.
Mat Sorensen:We're not recording the podcast, babe. But she can check. Was there something actually uploaded?
Mark J Kohler:Yeah. Where were you? I hear a train in the background. Okay. Anyway. Okay, so, Karen, I want to give you the good news. This is a great opportunity to help. Using this term loosely, I don't know where you're at in your relationship there, but coach and train and help these guys catch the vision that their little project needs to be monetized. Make them watch the show social network, where Zuckerberg in the show, had to come to a realization that his little dream of Facebook being a fun little get popular app had to actually make money. And so these guys have to figure out how to monetize, and podcasts can get monetized. Usually the podcast is a loss leader for the service or product they're providing as they talk about it on the podcast. So maybe talk to them about their funnel, what's their overall goals? What business do they want to make? But it's not a business until they bring in money.
Mat Sorensen:Yeah, and it's not a business in and of itself. And most podcasts aren't. I mean, maybe like Joe Rogan is, or like some of these big ones where they have a lot of sponsors and stuff, but a lot of podcasts. Like, even I would say ours is. The business is like, we have a law firm. This is an expense in that we have all these other companies that help support this, and all the expenses and costs we incur for that are part of it. So the podcast itself doesn't have to have sponsorship or something it's selling. But some of them needs to have a business where it makes sense as a marketing funnel and lead gen for the business. They could be into fishing. I don't know what podcast it is. It could be a podcast about fishing and they happen to have an outfitter or they do fishing tours and stuff. That's a business, all right. And the podcast isn't writing it off. You're writing this expense off in the fishing business or whatever you're selling, and it's an expense over there for marketing. So that might just be another tip there. I'm trying to throw some good cop.
Mark J Kohler:In myself, and I want to give everybody one last reality check because it is so exciting to see all these different influencers, podcasters making big money with ad revenue on TikTok, to Instagram, to Facebook. Please know that is very rare. For every 10,000 people posting on Facebook, one might be making money. It's very challenging to hit the thresholds of views, watch time subscribers on all these different platforms, and help them monetize. It's so important to have a funnel where you could make money, but it's leading to a greater product or cause. For example, Matt and I, last year, were ranked in the top 5% of all podcasts.
Mat Sorensen:Top 1% for business podcasts.
Mark J Kohler:Yeah, top one. And how much money would we make off our podcast?
Mat Sorensen:Dozens of dollars. Now, we could monitor people that want to advertise and stuff, but we're working on it.
Mark J Kohler:I mean, we are trying to work a deal with Viagra and Rockstar. We thought it would be very appropriate. Tax free growth and deductible energy drinks. Okay.
Mat Sorensen:All right.
Mark J Kohler:So, next question. This is from LNS eleven, 111 24. Hey, Mark and Matt, on January 1, 2024, I rolled 5000 of my 11,000 rollover Ira into a Roth. Okay, now, let's correct some of the verbiage here.
Mat Sorensen:A lot of people say rollover.
Mark J Kohler:Yeah, a rollover for everybody out there is a traditional IRA, meaning Lauren had an old four hundred and one k, and she rolled it into a traditional IRA. So in her minds, it's a rollover Ira. Better yet, from now on, Lauren call that the traditional, which you come to later in your comments. Then she said, everybody, I rolled 5000 of my eleven into a roth. Not the right term, because you want these terms, people, because when you start talking to professionals, they can get twisted around and give you bad advice if you use the wrong terms. So you didn't roll your 5000, you converted. So you had an old rollover, traditional IRA, and you converted 5000 to Roth. So there's the right way to say that everybody practice that. This is money that has been there for years, some after tax and some pretax from a previous employer. So what she's saying there is of that, 11,006 of it was still needed to be. No, six of it was Roth to begin with or after tax, and five of it was pretax. So she kind of had the math there, see? 5000 of the eleven had to get converted. Do I need to worry about this on my taxes for this year, or can I pay it next year? You actually are not going to pay the tax on that conversion until the spring of 2025 because you did the conversion in 24. The tax is not due for another twelve or 13 months. Lauren, good stuff. Quick other question or two, and I'm going to just summarize these. Per the pro rata rule, it was my understanding if I were to add money in 2023 for the purpose of rolling into a Roth on day two, I would have to pay a portion of tax on this money and split it.
Mat Sorensen:La, she's getting into the backdoor Roth.
Mark J Kohler:Yeah, she's talking about the backdoor Roth, where some of you may contribute to a traditional and then turn around and convert to Roth. When you do that, Lauren, there's no tax because you never got a deduction for it. So if you put money in a traditional and to convert to Roth on day two in 2023, there's no extra tax or penalty or anything. It's just you're taking money you already have in the bank that you've already paid tax on. But everybody, her old money that was sitting there that she had got a deduction for or on a w two, that's what she needed to pay tax on. So they're two different situations. Last thing is, she says it sounds like the smartest goal is to keep the smallest balance in my traditional and grow my Roth. And that is correct, Lauren. The more you can convert, convert, contribute backdoor Roth. Contribute Backdoor Roth, the sooner you'll be living tax free for the rest of your life.
Mat Sorensen:Yes. What I would say, lauren, in your situation, because you have this little bit of traditional dollars, you have a little bit of Roth dollars. Just convert the whole rest of those traditional IRA dollars to Roth. Then every year when you do the backdoor Roth Ira, which you can do 7000 a year now, a non deductible contribution, you don't take a deduction, then you convert it to Roth. That's the backdoor Roth Ira. We've got entire podcast episodes on. I got videos on it, lots of resources. At directed ira.com. We have a backdoor Roth IRA account specific for this and a team that understands it. But the pro rata rule is something that only matters if you have traditional dollars. Now, if someone had like 400 grand of that, this matters. But you got like six. Just convert the whole rest of it to Roth. Yes, there's a little bit of tax on the six, but it's not a lot. You don't have to worry about the pro rata rule. Okay.
Mark J Kohler:I got a question for you, Matt. I'll pose it to you. Yeah, this is a good one. I don't know. The 403 B is always throw me off. So Tamika says, I have a 403 B and vanguard from my former employer. I would like to retain the money in retirement account and build real estate. Is there a way to use this money that is just sitting in order to purchase properties? Oh, I do own a home, which I want to rent out and paying on three land plots. I want to pass this estate to my children. I do own a home. I do have an estate plan trust, LLC. What will cover me for tax planning? So her question, all this other stuff does not matter to the 403 B and 401K question. But Tamika, good job. You sound very organized. So Matt, how do you put 403 B and 401K from a former employer all in an IRA and buy real estate? Is that hard to do?
Mat Sorensen:Not hard to do if you're using directed IRA. So that's our company, directed IRA, where we help clients use their old 401K or 403 B dollars to roll to a self directed IRA to invest in real estate. And so the 403 B is kind of like a government or sometimes a nonprofit 401K. But it's traditional dollars typically, and it's just like a traditional 401K. So you can roll both of those buckets of money, the 403 B and the traditional IRA. It directed IRA, which can be self directed. And then that self directed IRA can go and start an LLC that can go buy real estate. That's the IRA LLC. Or it could buy real estate directly from the IRA. But now you could go buy the rental property or flip it or buy land or whatever real estate investment you want to do now, your existing real estate you own or land you already own, that's not going to get in the mix. You can own that and still have that personally, but you're not selling that real estate to your IRA. Just want to make sure you get that right. So absolutely, you can use that retirement account dollars. There's no tax, there's no penalty to roll it to an IRA. It's still a qualified retirement account. It's just in an IRA now, not a 401K or 403 B, but that IRA can own real estate. You can invest and start growing the account through real estate investing as opposed to mutual funds or stocks or etfs or whatever you might be doing at vanguard right now. But I would say Timica is get a call with the law firm, get to kqslawyers.com, book a call. We can help advise you on this. We can help with the account at directed IrA. Sounds like you need an LLC, an estate plan, some tax strategy. That's all what we're doing every day. You are the perfect client for us because we are exactly in your lane of all the stuff you're trying to do. We are doing this every day, helping clients across the country love it.
Mark J Kohler:Okay, question from ICOP on dining. So of course, I'm going to go straight to IHOP.
Mat Sorensen:Okay?
Mark J Kohler:Because I like IHOP. They're waffles. They're fantastic. To take the 50% dining expense, do I have to pay for the other individual's meal, or can I just pay for myself and deduct it? Also, can I take 50% when my spouse and I go out and talk business over a meal or even with my business partner? Can I write that off?
Mat Sorensen:I cop. If you ask me to a business meal, you make me pay.
Mark J Kohler:That's right. Oh, my gosh.
Mat Sorensen:Yeah. I'm going to go selling who at this meeting?
Mark J Kohler:Who's paying for what? So if you go Dutch, some of you may know that term, that's an older term of art, that if you go out to dinner with someone, you say, let's go Dutch. So everybody pays for their own meal. ICOP, you still get the write off because you're paying for your meal at a business meeting. Whether you pay for your person with you or not doesn't matter. So any food that you pay for in that business discussion. Now, keep in mind, everybody, that traveling, if ICOP is on the road traveling for business, Icop can write off the food by himself, 50% of it, for traveling on business trips. That's in my article on travel, which is a new article just in the last month on my blog. So get over and check that out. I update that one every year for travel and dining. Then can I take 50% when my spouse and I go out to dinner? Yes, but you want to be careful. What I've done is when I go out to a nice meal, like steak dinner, kind of a nicer meal. Of course we're going to talk business. That's the meal I write off. I'm not going to say write off little caesars on the way home and just abuse the fact, oh, we talked business at dinner. Well, we watched Monday night Football. Okay? Now, pigs get fat, hogs get slaughtered. So don't be too greedy.
Mat Sorensen:I love little caesars. That's a throwback.
Mark J Kohler:You don't like little caesars? I do like little caesars. The crazy bread.
Mat Sorensen:The crazy bread and the crazy song.
Mark J Kohler:Now we're crazy. Now we're talking. Okay, so you're good, everybody.
Mat Sorensen:All right. Jody's got a great question. Says, does the cost basis of real estate ever change upon death when held in a trust? I've always heard defer, defer, die when it comes to passing real estate onto your children, wondering how having it in a revocable trust changes that? Great news for you, Jody. It does not change anything. That step up in basis that your family gets your heirs, let's say your kids, and you pass on this real estate, you bought it for 100 grand, and it's worth a million. Now, that $900,000 of gain, when your kids get the property, evaporates, they get basis at a million dollars, even if the property is owned in your trust. So now they can sell it next month after you pass for a million bucks. Zero tax. That is called step up in basis. It is not affected by having a revocable living trust. It's a great tax strategy. Dying and passing on real estate to your loved ones. We don't get a lot of takers on it, but that is a great strategy, honestly, of the wealthy own real estate, build the portfolio, maybe pull out debt on it if you need it in retirement, but don't sell the property. Then when you do pass away, your heirs get all that appreciation tax free. They can sell it, no tax. Love it.
Mark J Kohler:James asks Mark and Matt, love your content. I have had a PLC for about five years that I use for providing independent contractor anesthesia Services, a PLLC. Everybody is a professional limited liability company. I have a professional corp. You can have pllcs, plcs, blah, blah. But the point is, it's a professional designation. No big deal, everybody.
Mat Sorensen:Okay.
Mark J Kohler:My new CPA recently filed the paperwork for my PLLC to file as an S corp for 2024. Now, notice some keywords in here. First of all, anesthesiologist that's had an S corp for five years, they better be making more than 50 grand a year, or you really failed in medical school. And he noticed the next thing. My new CPA recently filed a paperwork for my PLLC to be an s corp in 24. So the old CPA got fired because James probably realized he should have been an s corp for four years, and it cost him tens of thousands of dollars. People, this is very common. James saw the light, got with the right accountant, and they're off to the races. Now, his question is, does this mean that I now have an s corp with its own ein that I can use to start or own other llcs, or does the situation mean that only my LlC is to file as an s corp now? Would love to have your feedback. Okay, kind of unique question here. No offense, James. Does this mean that I now have an s corp with its own ein? Yes, you have an LLC with an ein. That has not changed. But you're now an s corp. So, yes, the way it's phrased I just want you to know your ein has not changed. And, yes, you're now taxed as an s corp. Next, he says that I can use to start or own other llcs. Yes, you could, but only operational deals. So, like, say you're going to take your s corp and partner in a operation at a surgery center. Perfect. Or you're going to go on a speaking circuit, set up an LLC for speaking or a book, but you're not going to form llcs for rental properties or investments with that s corp. So just keep that in mind. That s corp of yours can, yes, own subsidiaries, llcs, but make sure they're operational. And then the last thing, does this mean that only my LLC is able to file as an s corp now? Well, anything you own 100% of is going to be considered as part of a consolidated s corp. And you wouldn't want to have more than one s corp in your life, but to say it's your only LLC, that would be an s corp. I mean, you could add other s corps down the road, but stick with one for now and build upon it in an operation. I would really recommend you make sure you got a trifecta design and you're working with your accountant and your tax or legal lawyer that's doing asset protection. You could work with one of our lawyers, do a review, get a trifecta, have your accountant join the call. Make sure you're all on the same page, because you want that three legged stool. You want your financial plan, your law plan, and your accountant all on the same page. And we're trying to teach that in our tax pro network, so you're headed in the right direction, James.
Mat Sorensen:Yeah, and Mark and I only have one s corporation ourselves. They own different entities. We own some stuff together, they own stuff separately, and it's one s corporation, but it can be doing multiple things and it can own businesses all consolidated onto one return. So keep it simple. No matter how much you got going on, still have one s corp at the end of the day. All right. Happy for life asks, can I transfer my government thrift savings plan account into a solo k? My thrift savings account is tax deferred, but I do have a small amount of Roth within the TSP. I'm very interested in this also. The solo k. It is for only real estate business, or can this work for other businesses? Thank you. Okay. Happy for life. So you got two questions in there. We just did a lot of solo ks here at the end of the year for clients. We're setting up still a lot of them at KQS lawyers and at directed where we custody the accounts. But we can help you. This is very common. You can have a thrift savings plan that has some traditional dollars in roth dollars. When you set up the solo 401K, you're going to have a traditional account in the solo K that gets the tax deferred dollars. And you're going to get the Roth account in the solo K that has the after tax dollars or the Roth dollars. And so there's kind of different names and wording for it in a TSP. But a TSP is basically, think of it like a 401K has Roth and traditional dollars that go over into the solo 401K, into the Roth and traditional buckets. So if you want to move both of those pieces of funds into the solo k, you'll have a traditional account and a Roth account in the solo. Four hundred and one k. Now, as to your question, is this only for real estate businesses? No. You can have any business. You can be drive an Uber. You could be like, have an eBay store. You can be a consultant, you could be a real estate broker, you could be a GI doctor. You could be. What was the other one? You could be selling antiques. I mean, all these people to talk about. It doesn't matter. The business. We have a lot of real estate clients. Those come up in a lot of the questions. But whatever operational business you have, where you're receiving income for goods and services you provide, that business can create. Create a 401k for you, the employee. Remember, 401 ks are created by a business for the benefit of its employees. Just like the Dunder Mifflin 401K, or the McDonald's 401K, or the Apple four hundred and one k. The company creates the 401K plan and the employees that work in it have an account. In this, you're the same thing. You are the business, but you're also the employee. But it's still a plan the creates and you have accounts within it.
Mark J Kohler:Okay, question from Joseph, another s corporation. Question mark and Matt love the show. I'm trying to understand these concepts. So as a hypothetical, let's say you currently have an LLC and are looking to change it to an S corp. Okay, so LLC looking to change to S Corp. First, in order to make an S election, does the entity have to have been set up all year? Can you set up an LLC in February and later that year make the s election retroactive to the start of the year? The way you ask this, the answer is no because you can only retroactively elect your s corp status back to when you formed the LLC. So if you formed the LLC on February 1, then you can backdate it to February 1. You said to the start of the year, I think you meant February 1, but I just want to say, so you set up the LLC. Now you have all year to turn around and elect it to be an S corp. When you're ready. I call this scorp insurance because any of you out there that are starting a business, you're like, I don't know if I need to be an s corp yet. Haven't had a big year, but I'm hoping to always start as an LLC. Get your bank account going, build your business, branding, blah, blah. The 100 things you need to do to try and be successful, then make that s selection later. Second question, also, let's say you have an LLC already taxed as an s corp. Okay, hold the phone. All right. So now I already have an LLC as an s corp. Profits are good, and you want to open a second business, ultimately having both of your businesses owned by an s corp holding company. You want to keep the name of the first business as is. What are the mechanics to accomplish this? Do you revoke the s selection on the original LLC and set up a new s corp to own it? Do you keep the first LLC now as the S Corp holding company and just change the name of the LLC? Well, I'm going to say this, that, Joseph, is, it's been a little bit of a theme here. First, if you're a tax professional, and I have many tax advisors follow myself and Matt, you've got to look at the tax pro network. These are type of topics that we break down with certificate training, ongoing trainings every week. Very affordable. And we give you a designation as a certified tax advisor. Now, Joseph, if you're just a regular business owner and you're asking what are the mechanics to do this again, you're doing a DIY project on an island Home depot that you shouldn't be near. I would think welding. I think welding is welding.
Mat Sorensen:That's where it crosses the line.
Mark J Kohler:That's where you cross. If you're in the Home Depot, there's.
Mat Sorensen:Like light bulbs, maybe changing your air filter, putting together some shelves. Yes, shelves. And then there's welding. Stop here requires a blowtorch and a.
Mark J Kohler:Mask and a tank of gas. That's not where you should be playing around. So, Joseph, this is one of these areas. Please get a consult with one of our tax lawyers. They'll build this out now, I will try to answer this still. Do you revoke the S election on the original LLC? I wouldn't. I'd keep the S Corp the way you have it. I know you don't want to change the name of the S Corp. LLC taxes and S Corp, so just leave it alone. Set up a subsidiary with a new name, new URL, new brand, whatever. No one needs to know that your current llcs. Corp owns it. You don't have to change the name of your parent company. You can just do a consolidated return. Now, I don't know your exit strategy. I don't know the long term play here. I don't know if there's partners. I don't know your revenue. I don't know where you're located. I mean, there's a lot of factors here that could change my answer quite quickly if you did a consult with one of my tax lawyers. You already know you need a new entity. We have a comprehensive entity setup package where you get a trifecta with a game plan for the year and a new LLC right where you're supposed to get it. And you have a full hour or more with the tax lawyer in that comprehensive consult. So please schedule that. It'll save you a ton of heartache and pain and save you thousands, and you'll be off to the races with your plan. But don't revoke and set up. Now you're having three entities. I don't want you to have three. I think you could pull this off with two.
Mat Sorensen:All right, maybe I'll hit my last question. You want to grab your last one?
Mark J Kohler:Okay. All right. I'll work on it.
Mat Sorensen:All right. This one is from Martin. Gianna. Love to show and support for small business owners poring over the tax and legal playbook. That's Mark's book. Everybody should be doing that. Says, this is from Martin. We're based in Texas and sold operating businesses recently and looking to diversify into some real estate, specifically short term rentals in different states. Florida, Montana, Colorado, New Mexico, Tennessee, places we love to visit. So let's try to have some landing spots that pay for themselves and some more. Great idea. That's the dream. Do we need to, or is there some benefit to setting up llcs in each state where we will buy property or just do it from our home base of Texas? Separately, for our operating businesses, we use separate llcs, taxes, and s corp for each store. But for real estate thinking, we may not need a separate one for each property, depending on the equity. This is from your book don't want the complexity of multiple states for ownership, but don't know the tax benefit and makes worthwhile. Okay, Martin, great question. When you're buying rental properties, whether these are short term or long term rentals in multiple states, we are going to look at doing an LLC, at least in the different state, and we might do, let's say a Montana LLC that you also register into Colorado and it's a Montana LLC, but it's registered to do business in Colorado and it could own two properties. It's the same LLC. It's just registered in multiple states. Now, the issue we're going to look at is really not how many states you're in. It's really the equity between the properties of each LLC. Whether that LLC is in one state or whether it's an LLC in Montana that's also registered in Florida, Colorado, New Mexico, Tennessee. It could be one LLC registered in all five of those states. What we're going to look at is how much equity you have between the property. And this is for everybody. This is the same analysis. No matter what type of rental real estate you're doing, short term or long term, if you have more than 250,000 of equity, and it sounds like you sold some businesses, Martin, you guys might be putting a lot of cash into these deals. I don't know. But if you've got more than two hundred and fifty k of equity, that's when we're going to set up a separate LLC. Now you might start off and be like, well, Montana and Colorado. We're going to have one hundred k of equity between each of those two properties. We got one in Montana, one in Colorado. It's a Montana LLC registered in Colorado. Cool. Well, the next one you buy in Florida, let's set up a new Florida LLC. I don't want to register that Montana LLC into Florida. You're already 200k out of equity. You're going to start adding more equity. We're going to separate out a new LLC. This is purely for asset protection purposes because what we do not want is one LLC that you've got registered in five states with five properties that's got a million dollars of equity. Something goes wrong on property number one in New Mexico. You rented it to a school teacher, so you thought that was selling meth. You get a liability that happens in a lawsuit. And now all the equity amongst all the properties is at risk because they can still sue the LLC and get at the equity between all five properties. So I would look at the equity we can also help with a tax consult or, sorry, an asset protection consult in the law firm, help you get these llcs set up. But the last thing I'll say is don't worry about Texas. If you're not buying Texas properties, do not do a Texas LLC. Texas llcs have like a $300 plus state filing fee. It's not cheap. You got to do annual filing to Texas. We love Texas. If you're buying Texas real estate, but skip that. Just go to the states where you're buying the property.
Mark J Kohler:Now I need to fact check your example. You said meth school teacher that was cooking meth rented the house. Now I think it was season four. They actually set up a fake extermination business so they would go into the home, set up their extermination tent and then cook for a week. I don't think they were renting the home.
Mat Sorensen:Those could have been short term rentals.
Mark J Kohler:It's true.
Mat Sorensen:Could have been some short term rentals.
Mark J Kohler:Yeah.
Mat Sorensen:And they talked about doing short term rentals.
Mark J Kohler:Yeah.
Mat Sorensen:Okay.
Mark J Kohler:All right.
Mat Sorensen:I'll give you example checks out.
Mark J Kohler:Example checks out. Okay, we got a fact check there. Breaking Bad season four. Okay, so I own an S corporation and this is DB 2027, last question of the day. So I own an S corp. Lots of S Corp questions today. And I have about seven hundred and fifty k that will be used on capital improvements next year. So you're sitting on 750 grand inside your scorp. Not something I'd like you to do. We want to pull it out of the S Corp and protect it in an LLC somewhere and invest it, which he's coming to here. So DB says, I have been looking for high yield savings account Hysa for the amount that has been reserved as the money market accounts just don't give much yield. Well, I'm seeing some great money market accounts and hysas have their own baggage because they're adjustable. Well, money market rates are too. Sometimes you have to commit to a longer hold like a CD. So just be careful. A lot of the hysas are for personal and not business accounts where I would incur the income from the interest on a personal hysa. Is it possible to apply the interest income from the personal YSA to the business rather than me receiving the 1099 int? If not, do you have any recommendations for a business YSA to move and collect the interest? All right, DB, I'll just be blunt and don't be offended by this. You're making a big to do about nothing because here's the deal. You have an S corp. It's a flow through entity anyway. Whether the S Corp earns the interest or you earn the interest, you're still going to pay tax on 1099 income? Doesn't matter. I mean, if the corporation gets the interest, they may not issue a 1099 to the corporation, but you're still going to claim the interest and pay the tax vice versa. So don't worry about getting the 1099 personally or in the business. It's not going to save you tax at all. From an asset protection standpoint, I'd actually like you to get it out of the S Corp. Whatever your scorp business is, appears to be successful. You're sitting on 750 grand in there. Do you have employees, vendors, customers, contractors? Clients? I don't know. I'd rather see you peel that 750 out, park it in an LLC, invest it for the next three months, six months, nine months, year, whatever you're going to do, and then deploy the money back into the S corp when you're ready for the capital improvements. Any interest income you earn, you claim personally. No big deal. It's not going to save you tax either way and you actually get better asset protection. Just my take. And I wouldn't say that to every client to have an LLC for your liquid investments, but when you're pushing close to a mill, you're getting into that category. I don't know what state you're in. I might recommend a cope entity. That's a charging order protection entity, maybe some privacy. So it's kind of funny. We had, years ago I had this NHL hockey player, I think you've heard me tell you, he came to me, he had played in New York and was now living in Texas and he had a couple million in the bank. He was successful as an NHL player, but he was chasing fast women, driving fast cars still and living that life. And he knew he needed to get that cash in an LLC where it was protected. Well, an LLC in Texas and in New York was not the place to set up an LLC to hold liquid investments. So we chose a different state at that time that worked for him. So when it comes to holding investment accounts, we can choose a state that you may not live in and get a little more creative and get better protection. When Matt was talking about rental properties, you're going to set up the LLC in the state where the rental is located first. Then we talk about additional protection down the road. So it depends on the type of.
Mat Sorensen:Yeah, yeah. If you're a high net worth person. We might be looking to those different states, Wyoming, possibly, to get protection of the assets from your personal liability. We have several podcasts on that. It's called charging order protection entities. Mark's got a chapter in his book on it, too. All right, well, we had a lot of awesome questions and some awesome answers, I thought, too.
Mark J Kohler:Yeah. And for anybody that's enjoyed the show, some awesome assets, you may say so yourself.
Mat Sorensen:I mean, for a cokehead and a pothead, we did pretty good today.
Mark J Kohler:Certainly. Yeah, were loaded. Locked and loaded. Ready to go. Okay. I'll meet you back in the kitchen. You bring your stash, I'll bring mine. Now, please, if you enjoyed the show, give us a five star rating to help others find the same thing. We're hoping to help many of you that are small business owners, side hustles, big hustle, whatever you're hustling, we're going to help you launder that money. Did I just say that out loud? We're going to help you save money on taxes and protect it from criminals out there trying to steal it. Please continue to listen. We appreciate you subscribe, like, post yada, and we'll see you next week for another episode of the Main Street Business podcast.
Mat Sorensen:See you then.