Main Street Business

#569 Tax Lawyer QnA: Strategies The Rich Use to Avoid Paying Taxes

• Mark J Kohler and Mat Sorensen

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In this episode of the Main Street Business Podcast, Mark J. Kohler and Mat Sorensen dive into listener questions about tax and business planning. From maximizing deductions on rental properties to creative financing strategies for commercial real estate and smart ways to restructure an LLC, they address the biggest tax and business concerns entrepreneurs and investors face.

Here are some of the highlights:

  • Mark explains the benefits of short-term rentals, including accelerated depreciation and cash flow.
  • Mark & Mat provide a detailed explanation of how short-term rentals can be grouped under the 469-4 election and the importance of material participation.
  • The importance of understanding the long-term play when dealing with short-term rentals.
  • A breakdown of various creative solutions like subleasing and seller financing to mitigate the financial burden.
  • The potential of seller financing and the benefits of carrying the paper for a premium.
  • The possibility of condominium conversion as a unique solution to increase a property's value.
  • Mark & Mat discuss the potential pitfalls of borrowing against equity and the importance of generating income to pay debt service.
  • The importance of keeping assets that have great cash flow or appreciation and the potential for 1031 exchanges.
Speaker 1:

Welcome to the Main Street Business Podcast with your distinguished hosts, mark J Kohler and Matt Sorenson. Both are best-selling authors and have over 25 years of industry experience, with 10,000 client consultations, making them the leading tax and legal experts in the nation. Together, they'll unpack the most complex tax, legal and financial strategies crucial for saving more, stressing less and building generational wealth. Today they're your personal advisors, ready to break it down for you and make the tax and legal game easier than ever.

Speaker 2:

Here is Mark and Matt. Look at, say, jeff Bezos or even Donald Trump. Well, that's what they do, and everybody knows those guys both live the billionaire lifestyle and have.

Speaker 3:

This is how people make money. I don't care if you have full-time jobs or not, you're retired or not. Do I need?

Speaker 2:

to file an updated BOI. I'm getting inconsistent results when I search for this on the internet. What needs to be done? Nothing. Don't waste your time. Well, we're going to use a Wyoming LLC owned by a revocable living trust as the trustee for the land trust Wow, okay. As the trustee for the land trust Wow, okay. Well, I need a drink. Welcome everyone to the Main Street Business Podcast. This is Matt Sorensen, joined by the incredible Mark J Kohler, and we are excited to be with you today because it is open forum.

Speaker 3:

Yeah, I love open forum. In fact, right before the show started here, I was doing a little research to make sure I had the correct answer and strategy. A lot of times you can have the right answer, but just because you can do it doesn't mean you should. There's strategy involved.

Speaker 2:

Yeah, yeah, right. Many people learn that lesson later on in life. Just because you can doesn't mean you should.

Speaker 3:

Yeah, that's when you're like drinking spicy margaritas, taking bad decisions.

Speaker 2:

Yeah, this is sage advice. Well, and I have to say too, as we've been doing this show over the years, the questions are getting harder. Yeah, yeah. I feel like we've gotten smarter, but the questions are getting harder too, and we've attracted an audience of a lot more sophisticated people and a lot of other professionals. I think when they get stumped, they throw their question into us, and we like some of that.

Speaker 3:

That too, you know it's funny you bring that up because Click and Tack the Car Talk brothers. I forgot the one that passed away a few years ago, god rest his soul. What a great show. But it was funny, it was the opposite for them. They started the Car Talk show for mechanics in the Boston area like hey, we're gonna give you break down your technical answers for these mechanics.

Speaker 3:

And then they were so freaking funny the average person started listening to them. And then the show started ending up with should I buy a car for my 16-year-old, or why does my car veer to the left? And they're like you need to rotate your tires, but of course let's go another direction.

Speaker 2:

Yeah, people calling in what's this clump clump, clump, clump sound? What's this clump clump, clump clump sound, you know like yeah. So and we went from what's an LLC to you know, short-term rental, grouping elections, yeah, and it's tax code citations within questions and million dollar numbers inside of these stuff I mean. So we both got two tricky ones teed up, but but I love them. And I'll say this I think, whether you're someone new starting out or whether you're somewhere experienced down the road, there's a lot of lessons in this and um, and that's the great thing about those people asking the questions. So I'm just going to say that thank you for the people asking the questions.

Speaker 2:

You can get to mainstreetbusinesspodcastcom. You can submit your question there. We've got a lot of listeners that submit their questions there. Mark and I pick through the ones we think of almost helpful for the show and we all get to learn from it. Even Mark and I got to research this stuff and on this one I know Mark's got teed up. I'm going to take some notes because I got something to learn on that one.

Speaker 3:

I couldn't answer that one. It's a good one. And sometimes again, it's just you don't know what you don't know, and so it's fun to listen to the show because you're like, holy crap, I didn't even think to ask that and it's wonderful. So we want to say thank you. We really love what we do and it's a lot of fun. Okay, well, I guess I have it teed up. Should we go? Yeah, let's do it. Okay. So this is from Beasley 11 days ago. Said thank you for your mission to help small business in their American dreams, mark and Matt. So thank you so much for that. So, all right.

Speaker 3:

So he's asking about short-term rentals and this loophole. We can spend a whole hour on that, but there is a loophole. If you buy a short-term rental, you don't have to be a real estate professional to take losses from that short-term rental with accelerated depreciation. That's kind of the goal, and short-term rentals can cash flow better than a long-term rental. But then you also have more seasonal risk and a little more involvement, obviously, with people checking it out. So there's pros and cons. Some people love the short-term rental strategy, some don't. But from a tax perspective you can unlock some great write-offs versus the long-term rental where you need to prove real estate professional you or your spouse, okay.

Speaker 3:

So with that in mind, he says, is the section 469-4, grouping election, allowed for multiple short-term rentals to be considered one activity? Then he says, tongue in cheek, after reading the books, it looks like short-term rentals, properties with average rental days of seven or less, do not qualify for grouping under rental activities. So he's kind of like come on, does this work or not? Because I don't think it does. To overcome this hurdle, it looks like short-term rentals must qualify as a trade or business to be grouped together. There aren't too many places where trade or business is unequivocally defined.

Speaker 3:

And then, going back to the question, do short-term rentals qualify as a trade or business to be eligible for grouping? All right, so this is a very technical question. We could talk about it in length, but let me just answer it directly and say this the 469-9 election is what real estate professionals use to group long-term rentals, qualify for material participation and then take losses against their ordinary income. If you're a real estate professional, that's when you would use the 469-9 election Very common. You group your rentals together, boom ba, bada-bang.

Speaker 3:

With short-term rentals they do not qualify under that grouping election dash nine. Because they're not a rental activity, because you have average stay of less than seven days, which is what you want to qualify for the short-term rental loophole. You keep good records, multiple rentals throughout the year, yada, yada, yada. So an Airbnb example you would very well have less than a seven-day average stay for your guests. Well then you go over to the 469-4 election and yes, you can't. This is one of these. You can, but should you? But you can under the 469-4 election group your short-term rentals because they are qualifying as a trade or business group. They are not rental property under the code, because less than seven-day rental makes them a hotel. It kind of puts them in that classification.

Speaker 3:

I'm doing an Airbnb or a bed and breakfast. That's not a rental In the eyes of the code. Rentals are long-term. So, anyway, you would use 469-4, realize that you're not a rental activity and that you're grouping as a trade or business. Now why would you do this? See, in order to take care of this loophole, you have to show material participation. So you'd put in 100 hours of work throughout a period of time to get this property ready for short-term rental.

Speaker 3:

Now, patty and I did this last year. Matt has a short-term rental, I have a short, we have two or three now. We love these. I like to throw in a tool belt, go get this thing ready to go. That's how I relax in the evening. I put in my hundred hours. Now I qualify for the loophole. Don't have to be a real estate professional. Well, if you group those short-term rentals so let's say you bring three of them online in a given year, now I can put in a hundred hours over three short-term rentals I make the material participation bang. I'm in. So if you don't have the time to put all that time into one short-term rental or it doesn't need that much time that would be the year when you bring it on board to say I'm going to do a twofer, I'm going to bring two short-term rentals on, group them, qualify under the material participation, do the dash four. The problem is you turn it into a long-term rental next year. Okay, now you have to undo the grouping. Now you are a rental activity. These are irrevocable elections. So now you have to get permission from the IRS to unelect the group as a dash four.

Speaker 3:

Not fun and complicated, so understanding. This is why working with the tax advisor is so important because they're going to ask what's your long-term play here. Are you just going to go harvest these write-offs in year one and then turn around and make it a long-term rental, or are you really building a portfolio of short-term rentals and remember, grouping is really so that you could get those losses unlocked? Well, once you harvest all the losses in year one short-term rentals, cash flow that's the whole goal of a short-term rental. Long-term rentals you've got negative loss, you've got write-offs, but break-even cashflow are a little better. Short-term rentals you better be cashflow.

Speaker 3:

So you normally don't want to group the short-term rentals, even though you can. You've got to think what's my long-term play here? So I hope that answers your question, beasley, and opens a whole new world for some of you as well. Make sure you think long and about the long play of when you do a short-term rental. I know that sounds counterintuitive, but play on words. But that's where it's at and I love the long-term strategy and the short-term strategy. They're both could be grouped, but under different code sections for different reasons. Understand why. Awesome.

Speaker 2:

See, that's why you get on this show. You know you learn some of the tricks there, because there's nuance to this and that's why the tax code is what? Tens of thousands of pages and why even Congress itself doesn't even understand what the hell it is. But it also provides value for us as tax lawyers to help you and find the loopholes so you can go right through them. Yeah, exactly, all right. Andrew's got a great question here. He said appreciate your podcast, huge fan of both of you on YouTube and otherwise. I have a commercial office unit in a pass-through LLC that my S-corp rents and since COVID, the office commercial market in my area took a near 50% decline. Fortunately, my other investments have been great, but you can't win them all. All right, I love your outlook.

Speaker 3:

Andrew, but, but he rents it to himself. Yes, rents it to his own escort. Oh, this is Dash 4.

Speaker 2:

Yeah, we're back to Dash 4. He's not even in that lane right now what he's asking?

Speaker 2:

Because he's got an investment question more than anything and kind of like what do I do? He's got some other great tax questions. Here too, he said is there an angle that I can use other than selling for a loss or perhaps a 1031 exchange? Hope and Gold depreciation comes back. He says not likely all the way back. He bought it at $1.6 million, he has a $1 million mortgage and while I pay rent to myself and can afford it, I don't need the office since we are now mostly remote and could unload it at a loss or 1031 exchange. You wouldn't want a 1031 exchange how much did he buy it for?

Speaker 2:

$1.6? $1.6. He's got a $1 million mortgage and he says the value's gone down 50%. So it's 800,000 value.

Speaker 2:

Wow, Okay so he's upside down on it 200K with the mortgage, he says. Just looking for ideas, I could rent it to someone else, but it would be a 4,000 a month deficit If I move out and rent it. I'm doing a cost seg on it to get something out of it but can't think of anything else while I'm operating my business. I'm fine Just renting it from my S corp and holding it, but is there a way to unload it? I would prefer it. I got a I got a great idea Okay.

Speaker 3:

And, by the way, do not do cost seg until you resolve this Cause, if you do cost seg. Now you're going to have to recapture when you do years, mark and I yeah, what to do with the problem? Property, what?

Speaker 2:

to do with the problem property. This could be your single family rental. This could be the property you're renting from yourself.

Speaker 2:

Now it's a little nuance here that your business is renting for it. I think I got a good solution. We'll see. I'll let Mark comment if it sucks or not. Andrew, you decide for yourself. Okay, generally what? When we're looking at a property, it's like does it have equity and is it negative cash flow? If you hit both those buckets where you're upside down on it and it's negative cash flow, we're in the column of maybe you should sell this. Let's get out from under it, because you could be throwing good money at bad. You're throwing money into this and this is your single family rental.

Speaker 3:

Now can I say what everybody Matt's saying here is there's two issues. Sometimes we have clients that are upside down equity but they still break even cashflow. Or some people are negative cashflow but they have equity. Okay, those are different issues. He's this double whammy.

Speaker 2:

Yeah, he's got the double whammy, which it's upside down and it's negative cashflow and that's really the driver is the negative cashflow and that's really the driver is the negative cashflow. Because there's a cost every month Andrew's incurring here of continuing to hold this investment property, this rental property. Now, the nuance here is that he is the tenant, renting too, and when he's paying the rent it's an expense, okay, when his S-corp is paying it, he's expensing the rent from his S-corp. Now he's saying, well, I could leave that as the tenant and get someone else in there. And he's probably paying enough rent right now to cover the mortgage and to break even on the property, right, but that's still costing his business, which could otherwise be profit, right? So let's say you're paying 10K a month, andrew. I don't know what you're paying a month.

Speaker 3:

And if you rent it to someone else it'd be 6K a month. So you're upside down, for if you rent to someone else, your escort pays 10 and you take care of the mortgage. Okay, like it, I'm following On with 10.

Speaker 2:

Now we're like, okay, well, you're expensing 10. All right, you're getting a deduction on that in your company, so maybe you know that's saving you If you just stop paying it and let someone else pay that 4K. Now you're coming out of pocket $6,000, which is not great, and that's going to be a passive loss.

Speaker 3:

I've got two more ideas too. This is good, keep going.

Speaker 2:

Here's what I would do Since your company is already leasing it from your LLC, your S-corp, I would keep that. I would enter into a sublease agreement for the $6,000 a month that you think you can get out of it, let's say, and that other $4,000 deficit, your S-corp still has to pay it because it's responsible on the loan. So now you're breaking even on the property still and you're getting subsidized rent from the subtenant because they're actually going to use the property, because you're like we don't need it, but your S corporation is still on the lease, paying for that 4,000, just like could happen with a lot of tenants right now. We've seen a lot of people that are in and I've seen this with other clients that are in long-term leases and they've gone remote. Well, what do they do? They go sublease it. Well, the sublease tenant isn't going to pay the full rent that they are stuck on their lease for. So but, but it covers some of it, and so they're at least ahead a little bit in getting that covered. So I like that because you're still getting an expense, we get to cover some of that cashflow that you'd otherwise come out of pocket at, I think.

Speaker 2:

I think that's a good option, because the point I want to make here of the goal is, if we look at commercial office right now of the goal is if we look at commercial office right now, it's at a low value point. We don't buy high and sell low. Okay, you already bought high on this property. Let's at least sell high on the property, which means don't sell at the bottom of the market. Commercial office is a disaster right now and that's why you're at 50% decline Now I don't know, is it three years, five years, till that recovers? It's going to recover at some point. And this is you're talking about losing $800,000 to sell now. I think losing 4,000 a month for the next three years might be worth it to come back and not lose all that money.

Speaker 3:

Okay, I got a counter. I take your bet and raise two. Okay, now I'm going to counter and say this too, what Matt said in a sexy way you're still out an extra four grand Bottom line cashflow. It's going to cost you four, but you're getting a write-off for that four directly in your S-corp.

Speaker 3:

So okay, so it kind of eased the pain. But Matt opened the door to a couple of parts. I like subleasing. A lot of people are working from home. They don't need a full building or a full space, but they need some space. Yeah, so you could turn this into more of an office share scenario.

Speaker 3:

Yeah, true, Get creative, like see if you could bifurcate or subdivide the property into subleasing spaces where people are willing to pay more per foot for a smaller space, and maybe you mitigate that $4,000 to 2000,. Just with some more creative leasing ideas. Don't know what the building looks like. Number two you said he's going to lose 800 grand. That's sunk cost. He bought it for 1.6. He's got a million dollar mortgage. If he sold it for 800 now, because that's what he said it's worth, his loss is really 200. He's got to come out of pocket for 200 grand to break the mortgage and then the burden's off his back. No more loss cashflow per month, blah, blah, blah.

Speaker 3:

But seller you hear me out seller financing A lot of times. There might be a buyer out there that can't qualify for even an $800,000 mortgage on a building. They're looking for a deal. Go out and find a seller for a million. A buyer, yeah, go find a buyer at one million and carry the paper. Let them do an assumption where between you and them, put it in a trust. Be careful, the bank may want to call a dude if they figure out what's going on. But do a for sale by owner. Get a million dollars If they default property's back to you. If not, you could ask for a big deposit on that. But find someone that's got a buying problem. They don't have good credit. They're willing to pay a premium for terms. See, it's either price or terms. So now you could give away terms. Yeah, that's a good idea.

Speaker 2:

There might be a buyer out there that you could do seller finance. Leave the existing debt there in place, make them refinance it in five years or something, or three years. It gets them into the property their business could operate. It cover the mortgage. That could be a good option here For me. I'm just thinking of like this is an investment asset for Andrew, you know, and I just think you know, even though that there's sunk costs in what he put down to get the property with the mortgage. I just think and this is you know this, we're not in that this is an investment advice. I don't fricking know, but I'm just saying what is your cost to carry this? If it's 4,000 a month, 48 grand a year to try and get through the next three to five years, for $800,000 to get back to?

Speaker 2:

where you were, so you might be at 200K. I'm just saying that could be worth it. So you got to run the numbers. I don't know. For me that's probably what I would do, but now you might be like Matt. You're crazy. It's going to be 10 years before that gets back to what I bought it for. But even so, are you still ahead? You might be, even if it's 10 years head.

Speaker 3:

You might be, even if it's 10 years.

Speaker 2:

Yeah, I'm going to read it.

Speaker 3:

Okay, I got one more idea. This is super fun. I got one more idea. You'll like this one too. But let me say back on the Matt's point though let's say a property went down 50% in value. That's pretty significant, it's happening in commercial office.

Speaker 2:

Yeah, yeah, it's happening in commercial office.

Speaker 3:

It is happening with commercial across the country. But still, I mean, when a property goes down 20%, okay, four or five years from now I can get back to square one or more, but 50% I mean I'd really like to see what the development plans are in the area, what the city is doing, the county or wherever it's at area, what the city's doing the county or wherever it's at, because you've got to see something big happen, to see if that type of reduction get made up for and some appreciation maybe, I don't know Big deal. Okay, here's my last option. Okay, Condominium ice.

Speaker 2:

How big is this?

Speaker 3:

We don't know the size of the building or the layout. But Matt and I have purchased condominium pieces of a commercial building. Yeah, twice yeah, if you haven't heard about this. So let's say you've got this commercial building and say it's with fees, getting I don't know. Let's say it's 5,000 square feet.

Speaker 3:

Well, throwing in four doors, four more doors, you could carve this up into five 1,000 square foot spaces and now you could with a proper. It'd take you six months or so at least, probably working with the city or county. But now all of a sudden you've got five units you can sell rather than one unit, and all of a sudden you get back to a one or 1.2 million value Because people still need commercial. They just don't need as much. So if you could carve this up into commercial condominium space, I'd talk to a realtor, go find out what's in the market right now for commercial condominium space at a fifth of what you've got, or a fourth or whatever, and start going. Huh, talk to a real estate lawyer and go, how much would it cost me to carve this up? And then what would I get on the sales? I mean, within a half a day of analysis you'd find out if the idea is workable.

Speaker 2:

Yeah, yeah, it's called the condo conversion. It's called the condo conversion. It can go apartment buildings to condominiums, apartment units. Sometimes those are a little more tricky going from apartment to a condominium for individuals, but going office to condominium is a lot easier because it's just commercial office zoned either way, and so you just got to make sure the building is big enough. Maybe you can get 1,000 square foot units and break it up, because you definitely there's a lot more buyers in that small business space for 1,000 square feet than there might be for 10. We don't know how big your space is here. So a couple options to get creative there, but tricky. I know there's a lot of people in this situation. There's definitely distress in the commercial market. The rest of real estate seems to be doing okay, not in the dumpster, but okay. He had a few questions on this. We're going to stick with him, huh.

Speaker 3:

Yeah, yeah. We said yeah, companies are good. Okay, what if?

Speaker 2:

I sold to my self-directed IRA. Is there anything there? No, you can't do that because you can't sell from your called the Prohibited Transaction. By the way, we have our directed IRA podcast, our sister podcast Mark and I both do. Every week we're getting all the rules on how to use your IRA to buy real estate and private assets, private companies, startups, crypto. It's awesome, that's what we do at our company Directed IRA but not a solution here. Andrew, your IRA could buy other real estate, but it can't buy real estate from you. Yeah, and I guess there's some other questions here. But, andrew, you might just need to consult um on some of these other questions. I mean that 1031 on a loss of a property, that's not not even a strategy.

Speaker 3:

Do that for the gains um.

Speaker 2:

He also asked about simple iras. Simple iras are okay, there's not, there's just it's irrelevant to this topic.

Speaker 3:

We can get into that you need to focus on this building issue and I think we gave you three or four options that might mitigate the loss or just help you decide whether you move forward or not. But stay away from the cost seg again unless you're invested to give, like Matt said, another five-year run at this. Then go harvest the cost seg, take the write-off in the S-corp, maybe get some more sub-tenants in there that help you cover more of that foreground. All right, here's a question from Jean 180, jean SH 180.

Speaker 3:

Hey, I wanted to get your take on Mark Kwan's new book. Be Smart, pay Zero Taxes, use the buy borrow die strategy to get rich and stay rich. To get rich and stay rich Okay, I don't know, mark Kwan, I don't want to. I haven't read the book, but this concept of buy borrow die strategy is nothing new. Maybe this guy has a better take on it in some unique way, but we've got some I've got. I take issue with it a little in several ways and maybe Matt, you, you love it, like it, but I'm not sure what you think.

Speaker 3:

Here's my first problem. Look at, the basis of the book is to get rich and stay rich. Okay, when you're going into debt, you're reducing the equity and value of your property. You're literally living on the equity of what you've built. You're not increasing your wealth. You may be not paying taxes, borrowing that money, but to get rich, you want to build equity. You want to build value that creates cashflow. Borrowing from that equity reduces my wealth. Okay, very important point Number two is getting rich. Some people would say, well, it's not about equity market, it's about cashflow. Okay, cashflow.

Speaker 3:

And let's think about this I'm going to go buy a property somehow. Now you make money in real estate when you buy, I get it. So if you get a killer deal, you put down some money, you get a mortgage and it's worth more than the purchase price you got. Totally, you got angle on it. Maybe you put in some sweat equity. Now you have more equity that you can borrow against. Right, because you bought real estate, you put money down or bought it with cash. Now you're going to borrow from yourself. That's really what you're doing, unless you created more equity in that real estate. Okay, cool. So now you're going to borrow against it. That's debt service. So now I got to go generate money to pay the debt service.

Speaker 3:

So you're like well, I'm living tax-free. I borrowed from that equity in my property. I don't pay taxes on that. Knock yourself out. Who's paying that payment? You got a mortgage payment. Now you got a debt payment. You'd got. You took that debt out tax-free, but now I got to go generate income somewhere I think you're going to pay tax on that To make a payment on debt you don't get a write-off for. You don't get a write-off for debt oh well, I get a write-off for the interest. Oh, now you're paying interest to live tax-free. What Bottom line? I think it's a little nonsensical. It's a sexy title. It works technically in the short run, but it's not sustainable and I would stay away.

Speaker 2:

Yeah, I think you know this is something that people look at, say Jeff Bezos or even Donald Trump, and they're like, well, that's what they do. I mean, they go accumulate assets that appreciate in value, whether it's Donald Trump buying real estate or Jeff Bezos with all his Amazon stock, and everybody knows those guys both live the billionaire lifestyle and have, but they have very little income on their tax returns. Right, this is their both their tax returns got disclosed back in what was this? 2020 or something like that 2016.

Speaker 2:

2016. Okay, well, that was the years that were disclosed, but this is like maybe four or five years ago, their returns and a lot of their high net worth people, elon Musk, got disclosed and people are like, well, but Jeff Bezos doesn't sell his stock. Donald Trump doesn't sell his real estate, so how does he get that value out of it? Oh, he gets loans against them, because when he gets a loan against it, he's not selling the asset, getting a capital gain, he's not having income. Same thing with Bezos with his stock. So in those instances, what's happening is they're getting debt against assets that appreciate in value. Obviously, amazon's had a ridiculous growth rate, far better than the interest rate, cost the cost on the debt, and you could say the same thing with Donald Trump on his real estate portfolio. So I think you can look at those as examples, with a lot more zeros behind them than what many of us may do, but you could look at that as one way to do it. As that I'm going to get debt against my assets, use that debt to live on or make other investments that could generate more return than the cost of the debt.

Speaker 2:

Now, this strategy I love this strategy a lot more three or four years ago, when interest rates were four or 5%, that you could strip out equity on a rental property or maybe even a stock portfolio. You could get a loan against that. I shot a video on how to do that, by the way, on my YouTube. But so but now, you know, rates might be 8% for these types of loans now, maybe seven on real estate or six possibly, but so now I've got a lot bigger cost to that which Mark was talking about the interest rate costs, especially if you're just using it for personal expenses. If I'm deploying it to other investments that can beat that interest rate hurdle, you know where I'm getting 10% plus return.

Speaker 2:

Okay, I like it, but I'd be careful I wouldn't do that in speculative stuff like crypto or things that could go. Really they're very volatile in relation to, you know, debt against your real estate or stock portfolio that might otherwise be a little less volatile. So I like it. I just think it's a little dangerous. Remember the cost to the debt, and just because it might work for certain high net worth people doesn't mean it's the best for your strategy, for you and your assets. So just consider those factors. The other thing I'll say is. You know, I think Warren Buffett's partner, charlie Munger, said the biggest, one of the biggest threats that he thought there was out there was the three L's liquor, ladies and leverage. Okay.

Speaker 3:

This is the threats to your life. Okay, this is him you know, and this is the leverage part.

Speaker 2:

Okay, this is getting debt and this is the leverage part. Okay, this is getting debt. Now I get the die part. We get the step up in basis on all these assets and even and they can pay off the debt because the assets have the value the kids don't pay any tax because they got step up in basis and I generally love keeping assets, I'll assets that are have great cashflow or appreciation on them. Let's never sell those, never. It takes so much time to generate assets. Stop selling them, keep them.

Speaker 3:

Well, maybe 1031 them or yeah, but yeah, if there's a better asset.

Speaker 2:

you know if there's a better asset drive greater returns. So I'm not totally against it, I get it. Let's strip out some equity, some value on those and enjoy it without selling it If we think there's still growth ahead in them and the otherwise can cashflow. But you want to take some, you want to enjoy some of that wealth.

Speaker 3:

Yeah, it's going to be a one-off. The stars have to align to make this a lifestyle. I think the book is let's make a lifestyle of get rich, borrow everything, blah, blah, blah. No, but from time to time there may be an opportunity on a particular asset to do this, and I like. So I'm going to say in summary what I took from your comment, matt, was that, hey, mark, yeah that on a sustainable lifestyle basis, great point. But there are going to be those isolated instances where borrowing from an asset where the debt service and the situation allows for some tax-free income, and I like that. Those times can arrive. Okay, man, it's your turn. You got to give us a BOI question. Yeah, I got a BOI one yeah.

Speaker 3:

This will be short order.

Speaker 2:

Yeah, and remember the BOI reporting requirement is no more Okay. This filing you had to send to the federal government saying who owns 25% or more of your LLC or corporation or who's in substantial control. That's gone. The Treasury Department, back on March 2nd 2025, was like you don't need to file this anymore. We're not enforcing it, we're going into rulemaking on it. Try and limit it. So let's get into what's the question about it. They just said yeah. He says. He said I created a corporation last year and filed my BOI report this year. I plan to close the corporation.

Speaker 2:

Do I need to file an updated BOI? I'm getting inconsistent results when I search for this on the internet. I looked at the FinCEN website and I don't see where it includes dissolved companies. Any ideas on what needs to be done? Nothing. That's the good news, ga4cl. Nothing needs to be done Because you don't need to file it to start your entity or to dissolve it. And I won't even get into what you would need to do if BOIs come back into case, because for small business, this is just not going to need to be on your radar.

Speaker 2:

Don't waste your time, Don't stress about it and everyone else setting up new LLCs or corporations. Or you may have done a BOI or you never did the BOI. You're waiting until the last minute. Don't worry about it, it's off the agenda.

Speaker 3:

Stay, brought back from life, somehow resuscitated, but I think that's not likely. Yep, okay S Gooddale, 514. Hey, matt and Mark, long time listener, subscriber, big fan. Thank you Writing because my husband and I have a duplex that we own and thanks to your guidance on the topic, Well, thank you. And she says our kids do the raking and shoveling in order to justify their contributions into Roth IRAs, so they're paying their kids to work in the business. It sounds like they're under age 18. Love it. My husband's a high school teacher. We are hoping to take some time off this summer to visit some national parks. Love it.

Speaker 3:

I understand from listening to your content that we might be able to write off some of this as a family board meeting. However, the rental is not a business as such. We'll come back to that. This is to say, we both have full-time jobs, such that neither is a real estate professional. Okay, interesting comments. My questions are one can we still write off our trip? Two, what percentage for what worth will we? Probably we will spend about 10K. What steps are required to justify this? I assume we need to establish an LLC, put the deed in the property, mortgage in the name of LLC and lest all the family members minors as members are there, must do dah, dah, dah, dah dah. Okay, s Goodale, this is huge and for everybody listening. We've got to again dispel some misunderstandings here and I talk with all loving care for you. First of all, this is a freaking business, people, when you have a rental property, it's a business. I don't care if you have full-time jobs or not, you're retired or not, you have no other full-time job or not, it doesn't. A rental property is a business. Own it as such and that's okay. You can write off home office and any expense related there to cell phones and office supplies and tools and costs of managing the property, blah, blah, blah. Then she says and neither is this a real estate professional, doesn't matter, I don't care. If you're a real estate professional, still treat it as a business and if you have losses, you're going to carry them forward. You're going to use them someday when you sell that property. Some people are like well, I'm not a real estate professional, I can't write everything off. No, you can write it off, it's just going to be delayed gratification. So don't worry about being a real estate professional. I own rental property and I'm not a real estate professional, doesn't mean I don't write off anything and everything I can related to that. Okay, then they say we understand, we can do a board meeting and we want to write off our trip. Then she said we'll come back to that. Then she says the steps. What are the steps to this? Oh my gosh. So bless your heart.

Speaker 3:

She says I assume that we need to establish an LLC and put the deed to the property and the mortgage in the name of the LLC. Okay, we've got a lot more podcasts to listen to ours, but first of all, you need an LLC. Anyway, girl, you've got to have an LLC for this rental property. Heaven forbid. There's a problem with these two tenants in this duplex and they sue you personally, oh my gosh. And your kids are working on the property on occasion with you. Even more risk.

Speaker 3:

Get this thing in a freaking LLC. It has nothing to do with the write-off of a family board or any other write-off. You need an LLC anyway. And, yes, you'll transfer the deed. And no, you're not going to worry about the mortgage. Everyone out there, do not worry about the mortgage company. When you transfer a rental to an LLC. There's no due on sale clause. They do not care. They've already sold your mortgage. Just do it. Get that property into an LLC.

Speaker 3:

In 25 years we've had two clients that had a problem with the bank when they transferred their property into an LLC. In 25 years, we've had two clients that had a problem with the bank where they transferred their property into an LLC, and it's because they went into the bank and asked if they could do it and then the bank had, you know, def CON 3 trying to figure out if they didn't even know what you were talking about. Just do it. It's not a big deal. You need the asset protection.

Speaker 3:

The kids, finally, would never be members of your LLC. Parents, never put your kids as owners of the LLC. They're going to be on the board of advisors. It's going to be in the operating agreement. When you set up an LLC at our office, our team will walk you through it.

Speaker 3:

There's so much to say here. I'm talking fast. I'm sorry, but okay. So get an LLC. Don't make your kids members. Get a board of advisors set up. Now, talking about your trip Okay, a board trip is going to be a one-day experience. I don't see national park travel as a one-day experience.

Speaker 3:

These are young children, from what I can surmise, I would probably stay away from the board deduction at this level. I don't have all the facts, but something smells a little odd. And if the kids get older and they're teenagers and you want to take, you got a second rental property and they're engaged in the conversation and they're old enough to handle it you have a weekend away. You have a real structured board meeting. They're going to be on payroll, which is one of the qualifications. They already are on payroll.

Speaker 3:

They're under age 18, which doesn't mean they need a W-2 either. Under circular 230, they're under age 18, which doesn't mean they need a W-2 either. Under circular 230, they're still employees, so it qualifies that they're employees. It qualifies for a trip. But really is it a board meeting when you're sitting around the campfire with two eight-year-olds? I don't think so. So be careful I don't know all your facts but get an LLC set up and then talk to one of our attorneys when you're setting up the LLC about some of these questions that I brought up and you will love it.

Speaker 2:

Mouthful sorry. Yeah, you went fast and furious on that one.

Speaker 3:

I wanted to get through that I know I got one too.

Speaker 2:

It's got a lot. I want to say Okay.

Speaker 3:

You go fast, talk fast, I'll follow you, all right.

Speaker 2:

Okay, this one's from Ed in Illinois and it's a cash purchase. Now, by the way, this is about a self-directed IRA LLC, but this could be anybody's LLC buying a rental property. Really, the question Ed's getting at here. He said we'd like to take title in the land trust for added anonymity and protections. Can you advise how to do this without causing problems? From our limited understanding, once in the trust, the home becomes the personal property of the beneficiary, the LLC, and only a separate named person entity is recorded as the trustee. Anonymity is created because her LLC won't be recorded anywhere except in the non-filed trust documents. We plan to use a Wyoming LLC created by our revocable living trust as the trustee for the land trust. Is this a disqualified entity? How do we work around it? Wow, well, I need a drink. I know you can see why I picked this one, all right, okay, ed, let me just say this we are not a fan of land trusts. Okay, a land trust is a big nothing burger.

Speaker 3:

There is no protection, maybe an amenity. It's something I'm cracking, but you're gonna you're gonna get that land trust.

Speaker 2:

you're gonna be like where's the beef? Okay, yeah. Where's the burger? Where's the asset protection? You've been listening to someone crazy.

Speaker 2:

Other people we know like to use land trusts. We don't. I would never use it for myself, okay, okay, as a lawyer doing this. If we could sell it to you, we would Trust me. I'd love to sell you these land trusts and add on more costs and everything. It's just a big nothing burger. Okay, all right. Now here's what I would do, ed, if you're, because, let me say this A land trust gives zero asset protection.

Speaker 2:

Stop thinking there's asset protections or other protections. There is anonymity. There's anonymity, but there's a huge flaw to it. The anonymity is we're going to put the trust on the deed to the property. That way, it's not the LLC, so no one will look up who owns the LLC with the state. Some states disclose who's the manager or owner. I'm going to come back to that because I got a better workaround for you, ed. But the issue here is well, the trust has no asset protection, but maybe there's anonymity. Here's the flaw. You have to list someone as the trustee of the trust on the deed. Are you going to be the trustee of the trust In your example.

Speaker 2:

Here you were like well, we're going to use a Wyoming LLC owned by a revocable living trust as the trustee for the land trust. Ed, let me just shorten, make this easier for you. Do the Illinois LLC that's going to own the Illinois property and use a Wyoming LLC that you also own, or that's the manager of the Illinois LLC, and then no one knows who owns it? Someone's looked up that Illinois LLC that's on title to the property. They're going to see a Wyoming LLC as the manager. They're going to go look at Wyoming to see who owns that LLC. And if you set it up properly which you can do in our firm KQS Lawyers we're not going to list you at Wyoming because you don't have to. That way you get the anonymity, you have the asset protection from the LLC. You save yourself the cost and headache and the stupid madness of a land trust. Yeah, which are?

Speaker 3:

sold all over Illinois and Florida. By the way, I got a better one.

Speaker 2:

Illinois is a state that actually does have a land trust statute, but it's still the L. It's like a belt and suspenders. You don't need it. Okay, the LLC? Every state LLC has the whole purpose of it is limited liability company. Something happens on the property, they're stuck at the LLC. They can't sue you anyways. Adding a trust in the mix doesn't give you anything more than you already have.

Speaker 3:

And here's another option and we just were talking about this the other day at dinner, lunch, breakfast, whatever is set up, the Wyoming LLC, register it foreign in Illinois and make it the member manager. So get rid of the whole Illinois LLC and just use the Wyoming as the owner and the manager for some additional.

Speaker 2:

Sometimes on that foreign registration, Illinois might say you know who's the manager, so you might make the Wyoming the manager too. Yeah, that's why I like just doing the Illinois LLC and have your separate Wyoming entity be the manager. Oh, I'm not opposed to that, yeah if you.

Speaker 3:

Okay, sorry for anybody out there, they already have an illinois llc. Yeah, so this is the workaround. Yeah, if you didn't have any llc at all, yeah, you could maybe pull it off with one llc with a foreign registration possibly, yeah, possibly, I don't know.

Speaker 2:

Illinois, where on the foreign registration you need to be listed as manager or not, like a, so which of the case? Then you'd need the wyoming llc for privacy. Just the wyoming llc is the manager also good.

Speaker 3:

So meet with one of our lawyers and get it done right and avoid the land. Trust, damn it.

Speaker 2:

I agree, don't save your money and the headache. And I'll just say this a lot of. There's only a few states that actually have a land trust statute. Illinois happens to be one of them, as does florida, but I've unwound many of them. In arizona, where I've had a client that owns property in a land trust and the title company won't close it. The title company is like we will not issue a title policy on this.

Speaker 2:

What the hell is this? It's a land trust. They're like yeah, what is that? Well, they have them in Illinois and Florida. That's not where you are. And they're like well, so what is it? Well, it's just a regular trust. Then a revocable living trust? No, it's not. It doesn't follow the conventions of it. You can't list a company as a beneficiary on a revocable living trust. It just there's all these flaws in it. I've had to unwind them, had clients pay tens of thousands of dollars because they couldn't even sell the damn property out of a land trust. So just be wary of them. It's kind of an oversold strategy. We just love the LLC. Every state's got it. There's other ways you can get privacy. We like the Wyoming LLC could be the management entity to help get your privacy. Love it.

Speaker 3:

Okay, great comments. Okay, man, we have so many good questions I think we can only take a couple more, but I may do one more. Okay, this is morakimo67. Says I am new to this, just created an LLC and filed for S Corp. So I think what she is saying is that she made an S election on her new LLC, would like to have a consultation on how to structure my business or what to pay attention to, so it could be beneficial at the end of the year for taxation. It's a small business for now.

Speaker 3:

I understand if this is bless her heart. Now I understand if this is something you would not be interested in helping me with, since you probably only take care of big shots. I watched your video and found it interesting. I am willing to pay a fee, since nothing is for free. Thank you, let me know if you can give some advice to someone new and, let's say, has not a lot of knowledge about this, joanna. And thank you, joanna, for being courageous and sometimes throwing yourself out there and asking these questions that seemingly are embarrassing or hard and you don't know what you don't know, and I am so grateful for this message. And now I am not even taking care of big shots, let alone little shots or middle shots. I am trying to take care of our team. We have such a big team and Matt and I do more administration with our group and marketing and education and teaching and training internally and externally. We found that we can create more of us doing that rather than doing one-on-one consultation. So we would love to work with you. But even big shots we're like we're a great first date, you can meet with us and then we're busy. So we'd rather you work with our team members who are going to be there to respond the next day and the day after and the day after, and they all are trained by Matt and I every day, every day of the week. So any of you listening please know that our team of in the tax law arena with our law firm, or, if you need a tax pro in our Main Street Tax Pro Program, or even doing your directed IRA at the trust company, we've got team members that are really better than us in the day-to-day get it done, get it out the door effort. So thank you for that compliment that you'd like to work with us.

Speaker 3:

Now, on this note, any of you out there setting up a new entity and making an S election. You've got to get up to speed on this. So, joanna, I love it. We've got podcasts on the S Corp over and over again. We have over 600 podcasts now, I think, millions of downloads. Matt's got some great YouTube videos on this. I have great YouTube videos on this, a chapter in my book, the Tax and Legal Playbook. Tons of free content and I would challenge you to take the next couple of weeks and just consume.

Speaker 3:

Consume anything you can find that Matt and I have said about S-corporations. And for any of you out there new in this S-corp arena, some of you may need an S-corp. If you're in an LLC making money, you should study this too. Then make that appointment. Have an appointment with one of the tax lawyers to build your trifecta, review your last year's return with one of the taxpayers to build your trifecta, review your last year's return and make a plan. And if we don't save you five times what you pay us to have that console, I'd be shocked. Their goal is to identify savings for you.

Speaker 3:

Create a plan. Talk about the relationship that we're not going anywhere and we want to be here every year to tune it up. We're like the orthodontist tightening the braces. We'll get you with the tax pro that can be there as doing the regular work on the compliance and giving you ongoing tax support, and we're there for the heavy lifting. So please make an appointment. You don't have to work with me or Matt and any of you out there in this new S-Corp arena. There's plenty of free content out on there. You do need to get your payroll dialed in and know the process, but this is more of a practice answer, but I think it's helpful.

Speaker 2:

Yeah, that was great. Well, I mean, this is interesting. We're kind of finished. We started with some tricky ones and we're finishing with some kind of new people here with some kind of entry-level questions.

Speaker 2:

I got the same one here. This one's from Karen. She asked I have an established 10 year old real estate LLC that I don't use anymore. Can I convert that LLC, established to do real estate fix and flips, to a small business that does a different service? I sew quilts and would like to run the sales through a business to be legitimate. All right, Great question, Karen. Yes, we can look at that same LLC. I presume there's no other real estate or anything in it. You say you don't use it anymore, that same LLC. If you've still kept it active with your state and it's still in good standing, we can use that same LLC. I don't know what the name is and if you want to change the name, you could even amend the name to that same LLC to be more around the quilts that you sew. Keep it generic. Yeah, keep it generic. You could be Karen Enterprises, whatever. So, absolutely so we can look at just using that existing LLC, maybe make some amendments.

Speaker 2:

We do something called a cleanup. A lot of clients have LLCs laying around. They're like all right, I haven't used it, or I set it up online and did it myself and I know I jacked it up. Can you guys fix it. For me that's called a cleanup in our law firm, KKO Slyers. We'd love to help you with that. We can clean it up. Use that existing LLC Now. Sometimes we'll look at that and say, ooh, Karen, this is in California. You haven't paid the franchise tax on that LLC for five years. You owe $7,000 with fees and penalties. Let's not use that LLC, let's just start a new one. Walk away.

Speaker 3:

And walk away.

Speaker 2:

Let that LLC and those fees die over there, let's just start fresh. It might be another state, that's 500 bucks and old fees you haven't been paying to the state, I don't know. So we want to probably look that up quick to make a determination there, and you might know that already. So that's the only consideration, because sometimes we'll just say, karen, let's just start over, let's just dissolve that out and start a new, fresh LLC, depending on how much work we got to do. But if otherwise it's in good standing and you're just like let's just amend the name, don't, don't worry about it, even if you put on the purpose of the LLC. You know the purpose of the LLC with the state was to do real estate.

Speaker 2:

When we set up LLCs we usually say the purpose is to do X, which it might be real estate, maybe it's a construction business, you're consulting whatever. And then we say and any other lawful service, so that this catch-all to say I'm doing this, but this LLC can also do whatever the hell I want. And so we want to look at the purpose too. We might amend that if you're changing the name too. So just a few considerations there. But possible to just work with that same LLC, karen.

Speaker 3:

And I want to say a final word about Karen too. Work with that same LLC, karen. And I want to say a final word about Karen too, and maybe open up your vision, all of you out there, if you haven't caught this concept yet. Karen says she's going to do quilt. Okay, some of you might go, oh, she's not going to get rich doing that, or that's okay, that's great. She's going to sell one quilt a month and make $1,000 a month, if the best, or what. I don't know how much her quilts go for, but let's just think of the big picture here.

Speaker 3:

She takes that LLC, she reframes it, cleans it up, and it's not just about making quilts. It could be about selling material to make quilts. It could be selling education online at night of how to make quilts. It could be an affiliate marketer for other quilt companies. She could be giving speeches about quilt making. She could be doing trainings about quilt making live. She could be holding classes live on YouTube on making quilts and everything related. This is how people make money. They take their passion, their product, their idea and find multiple streams of income that they could work with. She's going to partner with other quilt makers. She's going to create an association. She's going to teach, train, do, do, do, do, do, do. And it gets just so so exciting. This new world, this digital world, opens up the door for Karen to really she can have a six figure business by the end of the year. Just doing quotes, she. So I just compliment you, karen, for pursuing your dream. Think big, never think small, and if you only get halfway there, that's okay. Yeah, yeah, good advice there.

Speaker 2:

Well, thanks everyone for all your questions. And if you're sitting there thinking guys, why don't you talk about there? Well, thanks everyone for all your questions. And if you're sitting there thinking guys, why don't you talk about X? Well, you didn't ask that's why, so get over to mainstreetbusinesspodcastcom.

Speaker 2:

Submit your question there. We love hearing what you guys want to hear about, and that's what the Open Forum show is dedicated to. This is your questions. Mark and I want to give you as much information we can. Sometimes we think we know the topics that are relevant and sometimes we don't. That's why we did open forum. It's one of our most listened to shows. So thanks everybody for tuning in today. We'll see you next time. Until then, keep living the American dream. We'll see you then.

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