Main Street Business

#570 Should I Be Afraid to File a Tax Extension (Listen before April 15)

• 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 show how a tax extension can reduce stress, cut audit risk, and buy you time for smart tax moves. Get the facts on key deadlines, solo 401(k)s, and what to do now if you’re behind.

Here are some of the highlights:

  • Mark emphasizes that filing an extension gives time to prepare better, including looking for additional write-offs.
  • Mat clarifies that the IRS is unlikely to shut down and that savvy individuals are extending their tax returns.
  • How rushing tax returns often leads to missed deductions, which can be avoided by extending the deadline.
  • Mark and Mat discuss the six-month extension available for personal returns, extending the deadline to October 15.
  • Mat mentions the need to file an extension for business returns if they haven't been done by March 15.
  • Filing an extension incurs no penalty and is a simple one-page form.
  • The penalty for failure to pay, which is a half-percent per month, and the larger penalty for failure to file.
  • How filing an extension can reduce the chances of an audit, as the IRS assigns audits based on the order of returns received.

Don't know how much you should pay when filing a tax extension? Find the answer here - https://markjkohler.com/how-much-should-i-send-in-with-my-extension/

Speaker 1:

Privacy is different than asset protection, much like camouflage is different than a bulletproof vest. You want both. I may not be seen, but if I do get seen, I've got something under that camouflage to protect me. Well, the trust is part of this overall plan. We want to have an LLC to help protect you or those assets. That's the number one reason for an LLC. You do it in one sheet of paper. That's not an LLC. You need all the pieces and parts. When you start to design the payroll portion in combination with the 401k, you find a sweet spot. You start building wealth with more tax deductions and less tax. That, my friends, is what the power of the S-Corporation unlocks.

Speaker 1:

I am convinced that every American needs a trust, and I've got four reasons why. I've helped thousands of clients around the country changing their lives with a structure that always involves a trust. Now, what kind of trust am I talking about? A revocable living trust. They are a revocable trust. You're the trustee and you can change them anytime you want. They're also extremely affordable and they will be with you for the rest of your life. And again, whether you're young or old, married or single, these trusts are a powerful tool in your plan. Okay, the number one reason why every American needs a trust is because it brings everything together. It is the foundation of your trifecta and it's going to help you build wealth and your legacy. Now I understand that tax and legal topics are not sexy, no matter how hard I try. So what we've created to make it simple and understandable and exciting for our clients is this visual representation we've called the trifecta, and this trifecta helps our clients really organize their life to save taxes, build wealth and protect it. So it starts again with that foundation being the revocable living trust and the 1040 tax return here as the receptacle of all of our income every year, and we got to file a tax return every year.

Speaker 1:

On the left side, we want to put our operations, which are going to generally create this ordinary income problem the most highly taxed income in our lives is ordinary income. There might be a W-2 off to the side, but then this could generally be some sort of side hustle or something that's involved into a substantial business, llc or S-corporation a substantial business, llc or S corporation. On the right side, we're going to have our assets and this is going to be generating passive income. I'd like to divide this side into two pieces A and B. Here we're going to have our tax-free or tax-deferred buckets, which would generally be IRAs or 401ks or health savings accounts, and then here would be our after-tax money, kind of our LLCs that hold rental property or investments.

Speaker 1:

There is the trifecta. I've got a left side for operations where I'm going to try to maximize my write-offs. On the right side, I've got passive income and losses, possibly with depreciation and all those goodies, but asset protection to protect this wealth I'm trying to grow In the middle is this wall that creates this asset protection. Most of my liability is over here. Well, I want to protect my assets with this barrier and say, nope, you're not getting over on the right side where I'm building this umbrella of assets and who owns all this? Where's it all go? You got it down in your trust and when you see that your trust is an anonymous name of a trust that allows for some privacy planning which we'll come to in one of our four items I really like this trust to create that foundational picture where we can now say, okay, as I build wealth during my life, I want it to all be able to flow into this one area that I can then distribute or allocate, taking care of myself for the rest of my life, creating privacy and also providing some tax planning so I can bring it all together. And when I can see it and I can visualize it, that's when it happens.

Speaker 1:

Number two and that's right, I said it a moment ago privacy. In today's world of technology and everything out there on the web, we have got to be more careful than ever where our name may pop up in the ownership of assets. So a trust, if named properly, can give you some of that privacy. Now, more specifically, privacy is different than asset protection, much like camouflage is different than a bulletproof vest. You want both. If I'm going into a firefight, especially when I play paintball, which is super scary, I want to have camouflage and some sort of protection so that I may not be seen. But if I do get seen, I've got something under that camouflage to protect me.

Speaker 1:

Well, the trust is part of this overall plan. When you name your trust, please do not put your name in it. You might call it the Blue Sky Trust, dated XYZ. Well, whenever I can get away with using the trust name and all the ownership of my assets, my name isn't out there in the public realm. Okay, now a word of warning. Privacy can come at different levels too. The trust is just the starting point. As you embark on this plan, you may want to go a little deeper with some additional layers of privacy, and that's great. But it starts with the trust.

Speaker 1:

Number three avoiding probate. And what the heck is probate? Well, probate is this court process set up all over America. There's probate judges, probate courts, probate attorneys all dealing with people that died either with or without a will and no trust. See, when you pass away, someone's got to decide where all your stuff goes. And a will might be nice. It'll say here's where my stuff goes and here's my executor, but a court has to approve it. Does someone have a gun to their head when they sign that will? Is it really their will? Well, a trust allows you to bypass that entire process of probate. Now, I'm not saying a will is all bad. At least you're putting down who gets what and you're hoping a court will approve it and handle it. But it's going to be expensive. It can take months, if not years, and if you own property in multiple states or businesses, there has to be a probate court of action in every state where you own assets, the trust avoids all of that.

Speaker 1:

Now sounds kind of simple, but we need to be engaged in a process of keeping our trust funded. When we establish a trust for a client, we want to make sure that the trust is funded with at least four key assets. And then, as you grow your business and live your life, you're going to always use the trust to take ownership to these four critical assets. The first one is your home, your primary residence. We want to make sure that your home is deeded to the trust after closing. Don't worry about the loan documents, don't worry about oh, the bank may call the loan due because I transferred to a trust. Every state has exemptions in all the counties around the country that allow a person to transfer their own home to their own trust. As long as you're not selling it, they're not going to care.

Speaker 1:

The second critical asset is all of these financial assets. We want to make sure that IRAs or 401ks and even just simply money in the bank. We want to make sure that the beneficiary or ownership of these accounts all go back to the trust, because when you're gone, we're going to come to this later. Where does this money go? Because when you're gone. We're going to come to this later. Where does this money go? And the trust will distribute it. But we want to make sure, if they're stocks or mutual funds or different investments, if you own them personally and still have that will, a court has got to approve the distribution, which sucks us back into a court.

Speaker 1:

When the trust owns these stocks, like maybe some Apple stock, let's say, the trust says, oh, when I die, take that stock and give it to so-and-so, and the trustee can immediately take care of that sale of stock with the stockbroker. When there's a will involved, the stockbroker is going to go whoa, whoa, whoa. I don't know if this is really a valid will. I don't know if this is really their signature. I don't want to be liable for giving this Apple stock to little Johnny here and getting a lawsuit from his sister, susie. So a judge has to come in and verify. It's all good before the broker sends that money out. That's why probate takes place. But if the trust is the owner of these different assets, then we can avoid that whole process.

Speaker 1:

That is asset number two. Okay, number three is life insurance. Now, that might surprise you, because many of you may know that well with life insurance. If I name the beneficiary, the life insurance company will send it right there. They don't have any questions. They're done. No probate, yeah. But do you really want that 12-year-old of yours, or the son or daughter that's maybe 32 years old but doesn't know how to handle money, receiving a big check from a life insurance company? Have you even updated the beneficiaries of your life insurance?

Speaker 1:

One of the stories that blows my mind. It was in California about 10 years ago. There was a guy, of course, died on the golf course, as many do. I don't know why, maybe because they feel like they're closer to heaven when they're on the golf course. Anyway, this guy dies. His wife's like oh well, get him on the ground. She's sad, the whole nine yards, yada, yada.

Speaker 1:

Takes the life insurance policy a few months later into the company and says hey, can I get my check for a million dollars? My husband died. Here's his death certificate. They're like okay, sounds good. Well, what's your name? You're not the beneficiary.

Speaker 1:

She's like I've been married to him for 30 years. Of course I'm his beneficiary. They go no, it's so-and-so. And it was his first wife from 30 plus years ago where they were married for about two seconds. Well, he had never updated the beneficiary clause in his life insurance. So of course she thought, hey, I'll call this woman up, I'm sure she'll give me that million dollars. It's mine. I've been marrying this guy for 30 years, not a big deal. Well, after going to the Supreme Court of the state of California, who said we don't know what his intention was, maybe he meant the entire time for his first wife to get the money. We don't know. That's where the money goes.

Speaker 1:

So again, in this concept of keeping the courts out of our lives and also bringing everything together, when you implement the trust you're going to go make sure that all of these different assets and the beneficiary designations are organized and set forth clearly so a child under age 18 isn't going to get a big check in the mail and go blow it and ruin their lives or the wrong person get the money. We want to make the trust the primary beneficiary of any life insurance. That way, in the provisions of the trust, the money can go where it's supposed to go. Now, number four I want any business entities, maybe an LLC with rental property, to be owned by the trust and an operational company, llc or S-Corp over here that may even have subsidiaries and other companies. I want any of your businesses owned by your trust. That way, your trustee can step in, collect accounts receivable, sell the rental property and run the business and bring it to closure, maybe even sell the business A lot of times in a trust. I like to see a business continuation plan. We're going to talk about that with our clients when we design a trust. So look at this the trust doesn't own the rental property. The LLC owns the rental property, thereby giving us asset protection. But the trust owns the LLC and that's okay. That's how it should be. And again, when you transfer the LLC to the trust, which we include when we design a trust for a client, we want to make sure these four asset classes are all titled and in the ownership of the trust of which you are the trustee, so you're still in control. There's no tax return required by the revocable trust and these four asset classes are now in the name of the trust. So if you pass away your backup trustee, this is you dying. That's what the X means. Then your backup trustee can come in and take over, collect all the money and go. Okay, now we're going to distribute it. And number four is not about who gets what, it's when and how, it's the rules of distribution.

Speaker 1:

The beauty of designing a trust is that you get to write the law. You can say, oh, I want money to go to these family members in a particular way. Now, if you're married, you're typically going to say to this my spouse, they get everything. And then, upon their passing, it goes this way. But what happens if you have his, hers and ours and now we've got, maybe an ABC type structure where assets are going to go to one side of the family, another side of the family, and then split 50-50 or amongst all the beneficiaries on both sides? It can get really creative and that's okay. That's why you're planning in advance, because you don't want a big lawsuit with everybody suing, everybody else trying to fight for their money.

Speaker 1:

The trust lays it out beautifully. Let's use an example. Would you like a million dollars to go to your teenager? If something were to happen to you and or your spouse, a million dollars, oh my gosh. A million dollars in my hands when I was 16 years old, I wouldn't be here today. It would totally jacked up my life.

Speaker 1:

So with a trust you get to put in all sorts of rules, rules that really help your child, not hold them back. You can put in provisions that say, hey, you want to go to college, I'll pay for that. You want to buy your first home? You want to start a business? Take a business plan to the trustee. Oh and, by the way, when you turn 25, you get a third. When you turn 30, you get the other third. By then they've hopefully figured out life a little bit. And when you turn 35, you get whatever's left. Meanwhile your trustee has been investing it and building and growing it, and you have backup trustees to help with this. See, this trust lives on and really helps make sure that your kids, or whatever their age they are, whoever your beneficiaries are really step on your shoulders and take that hard-earned money that you've built and do good things with it and not hurt themselves but help themselves. When you have a will, you get to say who gets what.

Speaker 1:

But all these creative provisions are out the window when we meet with a client to design their trust and we help clients all over the country we actually have a two-page list of ideas we give them. Every time we have a new client with a great idea, we're like, ooh, that needs to go on the list. Maybe they get a dollar for every dollar they earn. Maybe, if they want to go serve in the Peace Corps, do some sort of missionary work for two years or three years, they can go get money for that. They can have money to fund their retirement account or buy a rental property Anything that you want to help encourage them to do graduate school or who knows what. You can stick a carrot out there and help them get there. There's also and to be honest, provisions you can put into trust to protect your children If they have drug addiction issues, if they are not able to take care of themselves, if they are in an accident or handicapped or disabled. The trust can then morph into what's called a special needs trust, where provisions are there to make sure they get money when they need it but it's not wasted. Well, you get the gist here. Lots of options. They could include charities or other gifts or bequests in the community or your school or church, and include the special provisions for your children. You get to write the law.

Speaker 1:

All right, you heard the four reasons and some of you that don't have kids or you're in your 20s are thinking I don't know, mark. That didn't really make an impression on me that I need to trust. Let's review Privacy, avoiding probate who gets what. But what was my first reason? That's right the foundation, the wealth building, the legacy, People. If you want to be blessed with wealth, if you want to do what wealthy people do, you have to start acting like it. You have to have a structure where you can receive it. You have to sometimes take a leap of faith of I'm going to get organized, I'm going to build a foundation, I'm going to have my trifecta and my structure and my entities. Because you know what, I'm going to go out and work hard. And if I'm disorganized and I don't have a plan, how in the hell am I going to receive this? We've got to have this. We've got to be ready to go Now, from a biblical standpoint and there's a lot of old parables about putting new wine and old wine skins, or new wine and old bottles If you try to put new wine in one of these containers, they fall apart, they break. We have to sometimes reinvent ourselves. We have to really start taking ourselves to the next level before we can be blessed and also have success, because the more organized you are, the more successful you're going to be at receiving, organizing and building it.

Speaker 1:

Every client that I work with, that our team works with, we introduce the concept of the trifecta and it's going to blow your mind. You're going to love this and it's going to help you better understand and how to use these LLCs. Now the trifecta obviously is made up of three parts and these three parts are the foundation of how the ultra wealthy build wealth and keep it. Now the base of this is going to be a trust, a revocable living trust that has nothing to do with an LLC. A trust is built for estate planning and I've got other videos and articles and books on this. But the revocable living trust is that foundation of the trifecta and is also kind of where your 1040 lies. This is where all the money comes down to is your 1040 tax return that you're going to file every year. Every American has to file that.

Speaker 1:

Now on the left side, we're going to put operations. This is where you're making money to pay the bills and live life. These are my operational income and operational expenses. On the right side is where we're going to put our assets or our investments On the right side. Here as well, is where we create passive income. This is coming into play as we talk about these five LLCs On the left side. With operations, we're going to create ordinary income. I can already ask you the question which one do you think is taxed more? That's right, ordinary. So we want to do the best tax planning we can on the left side. When we bring this all together Now, the left side is going to be maybe a day job, a W-2.

Speaker 1:

Maybe you're married, your partner has a W-2. Maybe you have a little side hustle over here. All right, that's cool. But ultimately, as you expand your side hustle, your side gig, you have a main operation. You're going to have an operational entity that's going to be owned by your trust and all the profits of this business are going to come down to your 1040. And I'm going to talk to you about how you pay yourself. How does this work? We're going to get into it.

Speaker 1:

On the right side, you might have an entity, very simply, that owns your investments or your assets. Think of this like a rental property. You might have a LLC a little spoiler alert over here owning a LLC, and, oh, you may have an operational online business. Maybe you do some freelancing or sell a product or service oh, that might be an LLC, but they're different. This is where you're going to create operational income. I'll put ops and over here we're creating this passive income.

Speaker 1:

So this is the trifecta. We have an entity on the left, an entity meaning a business structure, and we have an entity on the right. Now we might have multiple operational pieces of income and we might have multiple rentals, but we still, at this structure level, have just two entities and this builds our trifecta One, two, three. All of this wealth comes down and is potentially taxed at our 1040. And we want to build a structure to save taxes, create asset protection and leave a legacy. This trifecta is magic and it's going to help you better succeed.

Speaker 1:

Now that we have the basic trifecta on the table, let's talk about these five different LLCs and who they're best for and if it's a good idea for you. Sometimes I have clients that are using all five. It just depends. Everybody's different. So let's get our trifecta back on the table. We have ops over here, we have assets over here, we have our estate down here or our 1040, right? So this is it. This is for everybody. Love it.

Speaker 1:

So the number one reason for an LLC, or where they're used primarily the most, is a holding company. This is number one. You're going to have an LLC to hold a rental property or maybe some investments, maybe some Bitcoin, maybe a note, some sort of passive investment where you put money in and your money is doing the work, not you. That's the first place an LLC is going to be used. Now why do we do this? It's to create protection. Either there could be a lawsuit that could arise with that rental property and we don't want them getting at us, or we can design the right type of LLC depending on the situation, where, if you get into a car accident texting and driving and we don't want some creditor to come after you, your or your assets, so if they come I should say if they do come after you they can't get up into the LLC and what it's owned. Now that can get a little complex on the where we set up the LLC, how we maintain it and what it owns, but the concept here is that we want this LLC as a holding company. This LLC is going to help us protect assets or protect us from operations in that holding company Very common and what you would typically do is, once you form the LLC in the proper state and I'll give an example here in a moment you would open a bank account with the EIN, the electronic identification number.

Speaker 1:

The LLC would be on title for the rental property or the one opening up the wallet or the investment account. The LLC is the one holding the money or the asset, not you, and then, as you make money, you can transfer that money down to yourself. It's called a draw or a distribution. But if you respect the LLC, you do an annual meeting, you pay your annual fees to the state, you respect the bank account and it's the LLC doing business, not you. This LLC can become unstoppable and this is what the wealthy do. We might start setting up more LLCs an LLC for two rentals over in Minnesota, another LLC over here in Nevada for an investment of some sort, an LLC in this state or whatever.

Speaker 1:

We can have multiple LLCs, depending on how many assets you have, and it's going to vary and we don't want to overdo it. We want to make sure that we're very, very careful and targeted here and it's important that we don't get sold something we don't need. But if you own a rental property, if you have assets that you're worried about maybe losing in a potential lawsuit, we want to have an LLC to help protect you or those assets. That's the number one reason for an LLC. Now an example I'm a realtor, I live in California and I bought a rental property in Tennessee. Okay, well, a California LLC is not going to help me because I don't have a rental in California, I have a rental in Tennessee. Now we're not talking about operational business yet, but over here I have a rental property and I got a tenant in Tennessee and I don't want that tenant suing me and taking away my assets. And I want to have that LLC maybe provide a little privacy for me. I don't want my name on title, I want the LLC on title. I'm going to have a bank account, a property manager, all those things that come up with a rental property. So what do I do? I set up an LLC in Tennessee for that rental property. That is an example of LLC number one.

Speaker 1:

And if you want to build wealth and protect it and do what the wealthy do, that's when you use LLC number one. Now I did say the word holding company, right? Well, that's just a term of art. A holding company is an LLC. It's nothing different than that. It's just kind of a term that helps you understand that this LLC is not doing business. It's holding something. So that's why I use the word holding company. We're going to talk about operational companies over here in a minute, but this is a holding type entity.

Speaker 1:

Now the cost to set up an LLC can vary depending on your expertise and what you're needing. On the low end, you might go to an online type service and set up an LLC. You could spend four or $500, maybe six. Now I know some of you are going Mark. The filing fee is only 50 bucks. Yeah, you do one sheet of paper. That's not an LLC. You need all the pieces and parts. So if you go to an online service, you need to be checking the boxes for an operating agreement and minutes and membership certificates and EINs, and that a lot of people cut corners and they think they have an LLC and they don't. So don't try to go on the cheap DIY side unless you know what you're doing.

Speaker 1:

Typically using a lawyer and our law firm helps clients all over the country with this you're going to be between $800 to $1,200, depending on how much involvement you want with the attorney. But the beauty of using a lawyer is they're going to do it right and they're going to answer questions about how you're going to maintain this and move forward with it. So I think you should have a budget and you've got a filing fee with the state and all that. But I think you could budget anywhere from a thousand to 13 or $1,400 on the highest end to set up an LLC holding company in this range and you're going to keep it forever. You could use it over and over again. You could put multiple rentals in it. You're going to have those sorts of questions in a conversation with the lawyer that helps you set it up. And the last way I could say it that might be helpful is using the word holding company is kind of letting yourself, your family, your planners know how you're using the LLC.

Speaker 1:

I'm going to use this LLC for holding things, so I'm going to call it a holding company, okay, number two the second most common reason for an LLC and where they're great is for an operational business. So it's an operational company, but it's an LLC, again at its foundation. So let's go to the whiteboard and we'll show this distinction. Over here is our holding company. We talked about just a moment ago. Now we're going to have an operational LLC. This could be doing online sales, it could be doing a service, it could be doing a product, it could be doing a lot of different things and for millions of Americans that have a side hustle or a side gig, this is the beginning of that process, that journey. So I'll put side hustle over here. We're going to have this little LLC over here and we're going to start respecting it and using it for operations Over here. Again, holding Over here ops.

Speaker 1:

There's a reason we're going to keep these separate. First and foremost, I want a wall of protection. This wall is very important in our trifecta. Anything that goes wrong over here, I don't want them getting at your assets. It's a very important concept in asset protection. Also, ordinary income Remember we talked about that a minute ago Is the worst for tax purposes. Now it's not a bad thing. I want you to make money, I want you to create lots of ordinary income, but we got to know that it's going to be taxed differently and we're going to use an operational LLC to protect the tax rate, to protect how much we're paying in taxes, and this LLC is the beginning of that process. So an example over here.

Speaker 1:

Let's go back to our realtor. I said we had a realtor in California that owns a rental property in Tennessee. So we have this little Tennessee LLC over here. Now we're going to have a California LLC for their realtor business. The broker is going to pay them a 1099 for their services as a realtor. They're going to have a separate bank account for this LLC, a separate EIN, a separate name of the LLC. These are two separate companies and we're going to use them for their individual purpose holding or operations.

Speaker 1:

Now, an important point here this LLC does not save taxes. This LLC is the beginning of a process where you're going to start using this LLC for the collecting of the revenue, paying expenses and auto and home office and la, la, la, la la, and whatever we make, we're going to take a draw or a distribution. That's great, but the LLC itself did not save taxes. This is the number two reason for an LLC and we're going to start to show how it can save taxes with the third type of LLC. Now, number three let's go back to our trifecta.

Speaker 1:

Let's clean this up a little bit. It's getting messy right. So over here are our assets and we've got our in our example, we have our little Tennessee LLC and we have a rental property. Okay, number one reason for an LLC it's a holding company holding assets. Over here we have our little LLC for our new business or side hustle. This new realtor that's out in California has this LLC and they're starting to respect it and use it in the bank and build credit and just understand how to operate as a small business. Any profits they take out and they pay for expenses out of that LLC. Over here we're collecting rent, we're paying expenses over here and we're taking profit over here.

Speaker 1:

Two different businesses, two different purposes. We do not want the same LLC doing both, because we want a wall down the middle. We want protection. Now, what's going to happen over here that's a problem is this and I'm going to use the color red here is what's going to happen here is this LLC is going to start making money and the owner, this realtor, is going to pay self-employment tax 15.3% on all the profit. And you're like well, I set up an LLC, I should be saving taxes. No, you're not saving tax with that LLC. That LLC is for holding the business operations but you get all the same write-offs you would even if you didn't have an LLC.

Speaker 1:

So this number two LLC can seem like a problem and you're like well, what's the solution? We're going to convert this LLC into the number three type and that is an LLC taxed as an S-corp. That process is very simple and affordable about $250, maybe $300 at most. That's about what we charge and we keep it very simple and we can backdate this LLC to an S-corp to the beginning of the year when it makes sense. So if I'm going through, say 2024, and I'm starting to make more and more money and I noticed that I'm going to have a huge tax bill, you call your mom mom, I'm making more money and then you call our firm and you go help me out, I got to get this S-Corp thing going. And you and you can, and you call and you we just like okay. And then you say, can you remind me why? Here's why, when you start to make money in this S-Corp, there's no self-employment tax and even though it's a corporation, there's no corporate tax. What Super cool right? Well, there's a catch you do have to take a salary, but we do also create a lot of savings. That's the main reason for this type of LLC is so that we can save on the self-employment tax.

Speaker 1:

Now let's unpack this a little bit. I know that sounded like a lot and it could be a little overwhelming, so let's just do a comparison. Let's compare a regular operational LLC, that number two version, with a LLC taxed as an S-corp, that third version. When a business owner starts to make more and more money, we want to convert them to the S-corp strategy. And again, here's why. Let's say you bring in a hundred grand, you spend $25,000 on expenses and you net $75,000. All right, that's cool. Well, apples to apples.

Speaker 1:

Over in this LLC you make the same hundred grand, you get the same write-offs, $25,000 worth of expenses and you net 75 grand Over here. You're going to pay that 15.3% right out of the gate and that's going to be around $10,000 in self-employment tax. Then you pay state tax if you live in a state with state tax and federal. So you're getting hit in three times. And all of a sudden you realize what the hell this number two type of LLC is not helping me. So we switch over to the S-Corp and here's what we do. We take that same 75 grand in profit. You're taking that money all the time and, by the way, I have other videos on how to use the S-Corporation.

Speaker 1:

We can spend a lot of time on this, but I'm just gonna hit the surface level issues here. So 75 grand in profit, I'm going to take maybe 25 grand in salary and I'm going to pay my fair share of self-employment tax. I'm going to pay my FICA over here, and then the other 50 grand on paper I'm going to call pass-through. Now, it's super easy to pay yourself in both situations. Whenever you want money, just take it, take a draw, take the money out of the bank account, I do not care. But on paper, on a quarterly basis, your account is going to file a 941 with the IRS and you're going to go through kind of a payroll procedure. You'll learn more about this.

Speaker 1:

If you embark on this, you're going to do this $25,000 in salary and this $50,000 in pass-through or K-1 or profit on paper. It's just on paper. It's going to take more work, it's not complex, and once you get through your first couple quarters doing this, you're like, oh my gosh, is that why every realtor, dentist, doctor, lawyer, accountant, landscaper, plumber, electrician use S-Corps? Yeah, that's why we do it, because as soon as you start to make more than $50,000 a year, net, net down here at the net after all your expenses. When you start to make $50,000 or more, that's when you call your mom and then call me, and that's when we want to convert you to LLC number three. At the foundation it's the same name, same EIN, same bank account, but behind the scenes we've changed its type. So now we go from a holding LLC to an operational LLC, to an S-corp LLC, and not everybody needs it. You may stay here in LLC number two for years. Some of you needed LLC number three six months ago. So start to look at your numbers, start to figure out how 2024 is playing out and this is how the wealthy save taxes, because they want to get to that S-corp. That unlocks a lot of other strategies and especially helps you on saving on FICO.

Speaker 1:

As I worked through college building my small business and learning about small business, I really felt like I was on that same path. Many of you are where you're living month to month and it's tough. Sometimes you're putting the next business expense on a credit card to pay employees or whatever the case may be. I've been there, but don't give up. You can do this and if it's helpful. If you'll allow me, I want to share my trifecta today, because it took me 25, 30 years to get where I'm at and it doesn't happen overnight. I love getting rich slow. I don't need to get rich quick, and when we have that mentality we start to not compare ourselves to others. But here's my path and where I'm at now. So my trifecta. Sometimes my family's like really, you're going to share that out there.

Speaker 1:

Well, I'm not going to give you my address or anything, but so I have one S Corp in my life and I teach that to a lot of clients. This is the first company I formed back in 1996 and I've had it ever since. I maintain it. I keep it strong and healthy and this little S Corp partners with any other structure. That's ordinary income. We talked about that. So this could be the law firm, it could be a real estate deal, it could be my Main Street tax pros and then if I make money online or I go to a speaking event or I sell books or anything, I'll put an event here. Anything I'm going to make that's operational. I push into my S-corp, I take a salary and everything else is profit. Same thing you're doing If I'm going to go create an operational entity, I don't use LLC number two anymore.

Speaker 1:

I don't need this little LLC on the side. I let my S-Corp own it and that's how you'll expand. I probably have three or four LLCs owned by my S-Corp. Then, over on my operational side, I've got multiple rentals. I've got a couple Airbnbs. I've got a low-income housing deal in Chicago area. I've got a rental property in Utah and Idaho. I probably have, let's say, two or three LLCs that own rental property and I've got probably two or three partnerships where we own a rental property. I like rental property. It's a cool deal. And what owns all of those LLCs? My trust. It all goes into my trust. Now, what's fun is over in this area? I'm going to expand that. So let's say we expand that section.

Speaker 1:

I have multiple LLCs that are owned by my Roth IRAs or my health savings account. I have a health savings account that owns an LLC that owns a rental property. I have an LLC owned by my Roth and my kid's Roth. That's not Kid Rock Love Kid Rock, but my kid's Roth IRAs and we do crypto mining and it's been super cool to be out there in the crypto space with Roth IRAs. I have another 401k IRA LLC over here is doing I know this sounds funny, but ranching and raw land and investing, and I own some cows in my LLC. At one point I've sold those. We're looking at this next deal for next year.

Speaker 1:

But the fun part here is that these different LLCs encompass this self-directing space, and I learned this from wealthy clients. I was just plugging along buying a rental property here and there and I was building my operational business over here and I had more and more wealthy clients come in and say, mark, I need an LLC because I'm going to go invest in this and this and syndications and crypto and blah, blah, blah. And I'm like, oh my gosh, I got to be doing that too. And that's where these special purpose LLCs come in. Now let's dive into it.

Speaker 1:

What is an S-corporation? An S-corporation is simply a way of doing business. So many people understand the LLC or limited liability company. Well, you can take an LLC and tax it as an S-corporation. You can have an Inc or a corporation taxed as an S-corporation. It's a way of doing business. Now, the way I've been explaining this for years and it just makes so much sense, a picture says a thousand words.

Speaker 1:

Let's look at the trifecta. This is a way I've used to explain a business owner's overall operations. To build wealth and bring it all together On the left we want to put operations, on the right we want to put assets, and down at the bottom is your trust or your 1040 tax return. So when you're doing business or operations, you could be just a plain old sole proprietorship, you could be an LLC or you could be an S corporation and again, the S corp could be an LLC, taxed as an S corp, or it could be an Inc. Now, if I'm going to be over here on the asset side and buy rental properties or invest in crypto or investments, I might have an LLC over here. And this is the trifecta Assets on the right, operations on the left, all flowing downhill. However, we're not worried about the asset side. The S corporation lives over here. This is where we want to talk about the S corporation. It's a way of doing business.

Speaker 1:

So let's use an example here. Let's say that you are a landscaper. Everybody can get their head around that. As a kid, I would mow lawns and sometimes get paid for it. At least I tried to. Now, if I'm a landscaper, I really have three different ways I could operate. I could just start going out and talking to people and say let me mow your lawn. That's called a sole proprietorship. Or I could form an LLC, limited liability company Best landscaper in town, llc, we mow your lawns, llc, whatever. And then over here I could actually be an S-corp and again it could be an LLC taxed as an S-corp. Don't worry about that. Now, if I'm a sole proprietorship, I'm going to file on a Schedule C tax return. If I'm an LLC, I'm going to file on a Schedule C tax return, but an S-corporation files its own corporate tax return. Again, it's a way of doing business.

Speaker 1:

Now let's compare these for a moment. Let's say I'm out there and I bring in 100 grand. I go out and I work my buns off and I bring in $8,000 a month mowing lawns, doing sprinkler systems, and I spend $25,000 in expenses Marketing auto fuel equipment supply, cell phone, and I net $75,000. Okay, that's cool. Well, you're going to pay self-employment tax right out of the gate of 15.3%. Well, if I do an LLC, do I get to save on that tax? Nope, you pay the same tax, 15.3%. I brought in the same 100 grand, I spent 25 in expenses, I net 75, and I'm going to pay 10 grand. 10 grand. I spent $25,000 in expenses. I net $75,000 and I'm going to pay $10,000. $10,000. Then I might pay Fed tax, state tax. So, people, this is an important point, llcs do not save tax. Let me repeat that LLCs do not save tax. So I have my first way of doing business is this sole proprietorship. My second way of business is just doing an LLC, but it really hasn't moved the needle. I'm still a landscaper paying way too much in tax.

Speaker 1:

So what's this S-Corporation all about? Well, let's start to unpack it. And this unleashes strategy number one. Okay, with an S-Corporation, I make the same hundred grand, I have the same 25 grand in expenses and I have the same net income. You can even have the same business account and again, you could be an LLC, but you've made a special election to be an S-corp.

Speaker 1:

By the way, let me just set this concern aside. It is super expensive to become an S-corporation. We charge $250. That was a joke, because I want to let you know how easy it is. It is not that hard to become an S corporation, so all right. So I'm an S corporation. I'm making the same a hundred grand, the same 25 grand in expenses, I net 75. Oh, but check this out no self-employment tax, no corporate tax what? And no Obamacare, which is called ACA, Affordable Cares Act tax. Well, this is pretty cool. So I can avoid all these taxes by becoming an S corporation.

Speaker 1:

Well, for those of you that have already heard about this strategy, there's one catch You've got to take a salary, a reasonable salary, and then everything else flows out the bottom. Now, in this example, I might do a salary of 25 grand and the rest flows out the bottom 50, 50 grand. Now for you accountants out there there are some of you already freaking out. I get it Now. By the way, I'm a CPA, I'm a tax attorney. I teach classes on reasonable comp. I've read every case on reasonable comp. Do not freak out on this.

Speaker 1:

I have a payroll matrix that helps us define what this salary needs to be. This is just an example for a moment, but I'll tell you when I have a client making $50,000 or more, I might be in a 50-50 allocation, and it's not the end of the world. I have never, ever, ever had a client audited for taking too low of salary in the last 25 years ever, and I've even interviewed prior IRS agents on my show working in the S Corporation Chicago office People, this is okay, so get over it and just hear me out Now. Some of you are like man Mark, you kind of unleashed there. Well, that's because I talked to a lot of accountants that get stressed out about this reasonable salary issue and this is how S-Corporations are misunderstood or misused.

Speaker 1:

So what was strategy number one? Strategy number one is that I don't want to pay all of this FICA. This is a big deal because the more money you make, the more you pay of the F word, f word, fica. I hate FICA. I don't want to pay FICA on every dollar. So we convert to an S-corp. I got to tell you every dentist, doctor, engineer, landscaper, restaurant owner, cpa, attorney, independent consultants we're all S corporations. Because once you make $50,000 or more, I want to split this income. I want to call some of it salary and some of it pass-through. This is the strategy. So one of the best ways to unlock your business potential and make more money is to use this form of doing business and create a salary that's reasonable and push out all this profit. And when you start saving this money, we're going to start deploying it in some very powerful ways. That, my friends, is strategy number one.

Speaker 1:

Now let's unpack that a little bit. Some people say well, mark, that sounds super complicated and I can't take a paycheck. My income's up and down. I got it, I got you, don't worry. First of all, it is not that complicated. Let me put your concerns aside. You're going to hire a payroll company to do a payroll report for you quarterly. You're not going to get a paycheck. I'm not going to worry about your cash flow. We're going to look at your income in a rear view mirror. Every three months we're going to look back and go, hey, how much money did you take out? How was your profitability? Let's claim a little bit of salary. Do the report Gone Done At the end of the year? All those reports add up and we've got your savings calculated. It's clean, it's easy.

Speaker 1:

Next, some of you may be fighting an uphill battle with accountants that have already freaked you out on the S-corporation. They're like oh my gosh, the S-corp doesn't work for you because you got to take such a big salary and reasonable comp and blah, blah, blah, blah. Please get a second opinion, I beg of you and I talked to accountants all around the country, teaching that reasonable comp is not the scary evil monster many of you have been taught to believe. It can be very simple. Okay, now let's move to strategy number two Because, as I indicated, when you save on that FICA and that self-employment tax and set up that little salary strategy, you're unlocking more profits.

Speaker 1:

Well, I don't want you to go out and get a better lease on a BMW or a Range Rover. I want to use those profits to build wealth exponentially Super powerful. And when my clients catch the vision of this, it is unbelievable. They're sending me thank you cards and Christmas gifts for years. I'll send you my address later Now. Remember it's easier to save money than make money, trust me.

Speaker 1:

So let's look at our trifecta. Here. We go Over on the left side. We're now going to have an S corporation Good, again, be a little LLC taxed as an S corp. The sales from your business are going to come in, your expenses are going to go out. You're going to take a W-2 and you're going to get what's called a K-1. That's your profit and we're saving taxes.

Speaker 1:

And that profit that you're making and those taxes you're saving, we're going to fund a solo 401k. Do you know you can have a 401k at your day job, your spouse can have a 401k, you can have a 401k, but you can also have a solo 401k in your business. Frankly, I want to tell you, you can have as many 401ks as you want, but we need to fund them. So we're going to set up this solo 401k and start to plow money into it and this year it could be as high as $30,000 that can go deferred and come out of your W-2, saving you more in taxes and fund your solo 401k, and then the company can match that contribution up to a certain amount. So this deferral, in combination with your match, starts to build a bucket of wealth, and this wealth is what entrepreneurs start to build and grow on the side. And notice what you're doing is you're diversifying, you've got wealth, you're building over here with the operations of your business and you're building a bucket of wealth with your 401k and you can invest it in what you know best. You can invest it in crypto, you can invest it in real estate. You can invest it in what you know best. You can invest it in crypto, you can invest it in real estate, you can invest it in notes or even buy your stocks, bonds and mutual funds. So this 401k you get to drive the car, you get to be the trustee of this. And now, in step number two, you've taken the savings that you're generating here and you're plowing it into additional deductions and write-offs and tax deferred growth inside a solo 401k.

Speaker 1:

Now again, some of you may go Mark, that sounds super complicated. Guess what it really isn't. Again, it's understanding that your company can design a retirement account for its owner, its employee, which is you. Our fee at our law firm is a thousand dollars. I say a thousand dollars to meet with a real attorney anywhere in the country for its owner, its employee, which is you, our fee at our law firm is $1,000. That's it $1,000 to meet with a real attorney anywhere in the country and design a 401k tailored to your business. You may have your spouse on the payroll, you might have kids on the payroll, you might be the only one on the payroll. Who knows? We're gonna tailor it to your situation. But when you start to design the payroll portion in combination with the 401k, you find a sweet spot and you start building wealth with more tax deductions and less tax. That synergy is almost uncalculable. It's crazy how it starts to snowball and grow for business owners. That, my friends, is what the power of the S-Corporation unlocks FICA savings and a solo 401k.

Speaker 1:

Now strategy number three, and this is one of my favorites, and it's simple and easy and you're going to love it. People remember business is family and family is business. So let's take our S corporation and do what all the big companies do build a board of directors. We're going to build a board and we're going to put my mom and dad on the board. We're going to put my best friend on the board. We're going to put my spouse on the board, my teenage kids on the board. Whoever I hang out with, whoever I travel with, I want to collaborate with, I want to meet with, I want to talk about the business, I want to explain what I'm doing and grow the business with their advice and support and insights. So, with an S corporation I'll even just diagram it because I love a picture is. Here's my S corporation and I'm going to adopt a board of directors and this board of directors is going to support the operations to increase sales, increase profitability and help me design a system to build wealth. Now, the beauty of the board is that whenever you travel, you get a tax deduction together Whenever you have meals together because you're going to be talking business, you may be providing laptops, you might be providing iPads, you might be providing cell phones, because this board is supporting the operations of your business. The S-corporation unlocks that strategy. It unlocks number three, and that is bringing together the people of your life into your business, and those tax deductions need to be justified.

Speaker 1:

I want to write off your travel, your cell phones, your travel. I mean, I want to create these write-offs. Let me give you a fun example. Every one of my kids now are 18 or older. Every one of them is on my board. Well, we're going to have an annual company retreat. Each one of them has a little duty. They help me out throughout the year. It might be marketing, it might be administrative. Well, guess what I got to be able to get a hold of them. And so if I'm helping them out with a laptop or a computer or a cell phone, I'm going to take a tax deduction for that. I'm going to take a write-off for that. I may even give them a 1099 at the end of the year in their Christmas stocking for some money. I may have helped him out throughout the year. So now I'm generating more write-offs inside my S corporation, legitimately audit protected, to create more profit, to fund more wealth and to save more taxes.

Speaker 1:

It's like an equation, it's like a recipe for success.

Speaker 1:

It's so powerful.

Speaker 1:

Now, is it complicated? No, not really. You can hold a board meeting tomorrow. For those of you that already have an LLC or a corporation, you can say this weekend we're going to go on a weekend retreat and we're going to go to this hotel and we're going to go to this resort. Or we're going to just go somewhere and sit down and talk about the business and you're going to pull out a sheet of paper and go here's the minutes of our meeting and here's what we're doing. And I love you guys and I need you on the board. And oh, by the way, this trip was tax deductible because you're all part of the business now and you slide those minutes into your corporate book because your corporate book is your asset protection. You've maybe heard it in my other videos Asset protection is maintaining that company, doing the minutes, maintaining the records and the structure. This is the beauty of the corporation, is that it unlocks all these other strategies and you know what's interesting. Your chances of an audit with the IRS by using an S-corp go down by 1500%. Statistics every year show that over 15 times less chance of an audit with an S-corporation compared to an LLC. I'm giving you a strategy that saves you more in taxes and it's less chance of getting audited. That's how crazy it is.

Speaker 1:

Unfortunately, most people believe building wealth is reserved solely for the top 1%, implementing complex systems and using expensive advisors. But the reality is the best systems that wealthy use are available to every person in America, and today I'm going to walk you through the very best system there is to save thousands on your taxes, and these are the steps I have personally used to help clients build wealth all over the country. And the system we're talking about today is the trifecta. Now let's dive into it.

Speaker 1:

There's three issues that Americans are worried about and stress about in their pursuit of the American dream. These issues are obviously saving taxes, the number one cost in their lives. How do I save taxes and do it in an organized way? And then, number two how do I build wealth? How do I protect it? How do I grow this wealth so that I can use it in the future? And number three how does it all come together and I'm able to leave a legacy and to use it with privacy and protection. If I can bring those three pieces together, I'm going to maximize the benefits and reduce the exposure. I'm going to get the best result in saving taxes, building wealth and leaving a legacy. The trifecta brings all three of those together.

Speaker 1:

So let's look at it, let's go to the whiteboard and then I'll show you more examples here in a little bit, and you're going to see the power of this and how you can design and build your own trifecta to better live the American dream, save thousands in taxes and build the wealth you've been dreaming of. And you know what's interesting? It's that simple. This is what the wealthy do. They sit down and plan on a regular basis and they want to see it and visualize it so we can build it and enjoy it. Now, as we dive into it as well, I want you to know it's simple, it's elegant, it's because it will grow and expand with you. You may just be starting out with a W-2 and 500 bucks in the bank. Some of you might have 10 rental properties and two businesses and a family of 12. I don't know. The point is, no matter where you're at on your stage of your American dream, the trifecta becomes your framework. It becomes something that's super easy and simple to start with and then expand and build upon. So let's look at it here. This is what the basics are Three parts, as I said, a three-part system.

Speaker 1:

So we're going to start with a foundation of a revocable living trust and I'll explain a little bit more of what that entails and on the left side we're going to have our operations. And then on the right side we're going to put our assets. The operations side creates ordinary income, the type of income that's taxed at the highest rate, and the assets we want to create passive income. We get some different types of tax strategy and money that we can make while we're sleeping. On the operations side, we might have a side hustle, a little LLC, we might have a full-time business, might be an S corporation, we might even have a day job or in a married relationship, or two people with two W-2s. All of this is going to flow down into your trust or your 1040 tax return, just like water flows downhill. That's the left side.

Speaker 1:

So part one is our foundation or our legacy, and part two is our operational income. What are we doing to pay the bills? And then part three is our wealth building. It could be an LLC with some rental property, it could be our IRA, it could be a 401k that we're funding through a day job or a small business, it could be a health savings account. But we're going to start to build wealth in part three. These three parts, when they're all connected, build a tapestry of what the wealthy use to live their American dream, and you can do it too.

Speaker 1:

Now, that was just the beginning. We're going to start to unpack this. Now. Let me kind of show you the end of the movie here and show you the crazy Kohler family trifecta and what it might look like. And let's put this up on the screen. Wow Right, all these little bubbles and boxes. It can seem a little overwhelming. All right, now, before you get overwhelmed, let's come back here. Okay, now, hang tight, we're going to get there and I want to kind of show you how it evolves to that. And there's no rush, don't feel pressure.

Speaker 1:

Some of you are like Mark, I'm just trying to pay my bills right now, or I'm in the middle of my business and expanding and growing. What? Slow down, let's take a breath, because what I want to do is show that this is a process of evolving. It's a journey. The trifecta is not just one picture that works for everybody. It's something that is particular to you. It's special.

Speaker 1:

Start to unpack it and I want to tell you the story of how this trifecta evolved for me. I didn't learn this in law school and you ask any lawyer hey, how was your class on the trifecta? No, there's no story. And you go to accounting school and you take the CPA exam. They don't teach this, but I was.

Speaker 1:

I was passionate to help the small business owner. My dad was a small business owner, my mom was a small business owner. We had a farm and I grew up on main street America. I wanted to be a tax lawyer and I don't even know what that meant at the time, I think. But I felt like I could speak to the small business owner and we all grew up thinking that lawyers were expensive and accountants didn't even speak English and they were too expensive and so many business owners in America are starving for practical advice. So I came out of law school with this dream. I was like I can help the small business owner and I started to talk at the local chamber of commerce meetings and realtor groups would say, hey, come talk to our group, and I get up and I try to explain what I thought would work for them and I just failed at it. It was just so excruciatingly hard to take what I learned in law school and make sense of it for the small business owner. And I don't know, maybe I was like doc and back to the future and I had my flex capacitor moment where this came to me.

Speaker 1:

There was one day when I started to teach a class to a bunch of investors and realtors and brokers and I kind of just threw up a line down the middle of the paper and said you know what, let's keep our operations over here and let's put our assets over here, and like water it all flows downhill. We'll put our tax return down here at the bottom and kind of this trust concept. And at that time I was trying to figure out my own structure too. I don't even know if I had a trust. The first couple of years out of law school I was still trying to make sense of all of it. And you think you're struggling to figure this out. You come out of law school and you're trying to figure this out.

Speaker 1:

And that day I remember, actually, the classroom I was in and I was teaching this concept of the left and right side and bringing it all together and it just came out in this one presentation and maybe I was having fun with it and said the word trifecta, but it stuck with me and I remember so many people coming up to me after that event saying, mark, oh my gosh, it finally clicked. I've been trying to make sense of my legal structure and my tax returns and, oh my gosh, can you meet with me and help me build my trifecta? And I don't know. I think that's when it all started and I started to teach future lawyers in my practice and my employees and my accountants and our team started to grow and this was probably 15 plus years ago and this trifecta was magical for so many people because it allowed us to see where we were going. A picture says a thousand words and, damn it, if you can see it, you can make it happen.

Speaker 1:

And so when I started to draw up trifectas for clients and teach my team how to do it, and I started to figure it out myself better and better and build my own. I started to build wealth. I started to get wealthy. I started to just have these clients come through the door that I idolized and I was like how'd you do that? And we start putting it on a paper and they're like, yeah, yeah, no one had drawn that out for me before. And, oh my gosh, you're putting on paper what I dreamt about or slept and dreamed of doing.

Speaker 1:

And so the trifecta became this passion project for me to help people build their American dream. And you can do it too, and it can be simple. It just starts with one or two bubbles and a trust at the bottom and we can start to build this dream for ourselves and our clients and our families, and make it happen. All right. So let's go to the whiteboard and I'll start to show what I did, because I wanted to live it first. If I was going to teach it, I had to do it for myself first.

Speaker 1:

So if we go to the whiteboard, I think what really started for me was understanding my business structure. Maybe it was small business that I wanted to build, and it was when I started my first law firm, and so I started this entity and this entity was going to be my operational structure. To build wealth, I had to start with something, and so this was, to be honest, a professional corporation that I taxed as an S corporation. And some people use an LLC, some people use an ink, whatever. And when I went to go structure this, to start my practice and start doing tax and legal, I asked myself who's going to own this? Am I going to own it? Is my wife and I going to own it together? What did I really want to do for the long haul? What was the long-term picture? And that's when I started my revocable living trust. The trust was the structure that was going to own the business, because if anything happened to me, I wanted to know where that wealth was going to go. So the trust became the receptacle for that operation. Now I was going to take a W-2 and I was going to take a K-1 and it was all going to flow down to a tax return here and all those goodies. But legally I wanted to make sure that my trust owned my operations.

Speaker 1:

And then I started to make some money and I'm like, ok, where do I put it? Oh, I'm going to come over here on the asset side and I'm going to create an LLC and buy a building, and one of the first investments I made that really made sense is we bought a building to rent back to our operations. The first best renter you can have is yourself, and so many business owners are like paying rent to other people. Why don't we pay rent to ourselves? And that was the beginning of it, and I saw this trifecta start to manifest my future. And then we'd set up other LLCs to come with other rental properties and oh, I was going to start funding an IRA or a Roth or a health savings account and I started to build a structure that would create wealth. And I was going to start saving taxes along the way, right off home office, right off auto, right off travel, right off equipment, right off supplies, and so I could start saving taxes and then taking my profits and building wealth. And everybody's structure is going to look a little different. Every process is going to take on a different timeline, but that's how I did it.

Speaker 1:

I just started to go out and start my entrepreneurial dream and, as I was starting to teach it to others, I was trying to get my own structure and alignment, because I didn't want to be fake, I wanted to be transparent. I wanted to be transparent. I wanted to let people know I'm doing the same thing you're trying to do. I'm trying to build assets to create passive income so I don't have to work my ass off all the time. And so it was like business structure, trust and estate and LLCs or holding companies, and it evolves.

Speaker 1:

Maybe let's look at a couple other pictures or diagrams that are simple to grasp this. First, here would be a basic trifecta, and this is a diagram that we do at our workshops and I build for clients, where we have our day job off on the left side and operations and ordinary income, our assets and passive income. And then we might get to the next level and we start to add in these tax deferred or tax-free strategies like the Roth IRA or the solo 401k, the day job 401k, so we might have a side hustle that evolves into an S corporation. And notice, down here on the right side, we want to have all of our real personal assets be owned by the trust as well. We've got our home, our investment accounts. We want our trust to be the beneficiary of our life insurance, so it goes to the right people at the right times in their lives.

Speaker 1:

And then let's see it again. Right, bam? It can evolve, it can grow, but you shouldn't be daunted by this. You should be excited by this. You can start to bring together a structure that it's perfect for you, and it's not a race, it's a journey. Don't compare yourself to others Now.

Speaker 1:

Another beautiful thing about the trifecta is that you can manage it yourself. With the right professionals. You're the captain of your ship. You shouldn't have to be at the mercy of expensive or complex planners. We build trifectas for clients and a comprehensive consult for around $1,600. That's really quite affordable. You can meet with a real lawyer on Zoom and build your trifecta and build a future and an action plan, and you can start to learn about this on my podcast and in my books and start captaining your ship. You shouldn't feel like that. You're at the mercy again of expensive or complex planners. You can do this, and that's the trifecta. It's simple, it's elegant, it's complex, it's amazing, and when you can see it, you can manifest it and you can do it. Okay, now I want to share some of the biggest wins in my life applying the trifecta.

Speaker 1:

Now, what's interesting here is that I talk about leaving a legacy. Well, I haven't died yet. So I'm hoping I build a trifecta that's going to work perfectly for my kids and my family when I leave. So, after I built my own trifecta, what do you usually do? You share it with your family, you do it for your family. So I built a trifecta for my mom and dad, who have now passed on. So let's go to the whiteboard.

Speaker 1:

Remember the revocable living trust. One of the first main assets you're going to put into it is your home. Well, I went and built a trifecta for my mom and dad. They had to have a trifecta and I put their home into the trust. Well, my dad went on to have Parkinson's and my mom to have Alzheimer's, and when they passed away, I was able to make it simple and easy for the sale of their home and their primary residence just flowed right down into the trust and they could leave their wealth and assets to their children and grandchildren in a structured format. That involved no lawyers, no probate. Do you know? 50% of Americans don't even have a will. They don't even have a structure at all. But with this trust we were able to keep the sale of their home private. We had no legal fees and everything went into the proper way to the next generation. That was a huge win. That was a win that changed the trajectory for our entire family, because we had a plan and we left a legacy to the next generation, with grandchildren involved and everyone.

Speaker 1:

That trust was really, really special. And one of the biggest wins of this situation with my parents was that there was clarity. It was very, very clear where their wealth went. There was no infighting. There was no one bickering and fighting over who gets what, because my parents have laid that all out and when you lay out your trust, you get to decide where your wealth goes, in stages or in pieces and parts, and who gets what. When you don't, it's a nightmare and it's a disaster, and you've heard about these types of stories. So that was a huge win to see the trifecta play out in that process and to see that it kept the family together. It created family unity and it was actually very special and it was all because of the trust.

Speaker 1:

Now let me share another win. Let's go back to that real estate that I talked about. All right, so let's go back and boom, I've got this LLC and I've bought that rental property that I want to lease back to my operational business. Well, when you go out to build a structure like this, there's a lot of question marks who's going to own this building and what happens if there's an accident or a lawsuit? Well, it's kind of funny. This is how the trifecta started to play out for me. It was a wintery day in Southern Utah. Believe it or not, southern Utah is not just red rock, beautiful desert it snows. So I had built my trifecta with an LLC to own the building and I was saving taxes. That's part of the beauty of this. I'm getting a write-off renting the property back to myself. I mean, there's a really subtle tax strategy here. That's beautiful, but it's also built for asset protection.

Speaker 1:

And so there was this situation where HOA had not been salting the driveway and there was ice everywhere, and my building was part of this HOA situation, with my employees coming in and out of the parking lot and coming into the building. Well, one day this employee slipped and fell. Oh, it was so sad. She had really broken her arm and wrist in a terrible way and someone's got to pay for that and we wanted to make sure she was taken care of. And so we start to call our insurance company and the workers' comp and all those goodies. And, of course, questions can be asked and there was maybe going to be some sort of bigger lawsuit. Insurance companies like to blame someone else and go collect money from someone. Well, when they started to peel away the onion, they said oh, there's an LLC here, the LLC owns the building, oh, and Mark's maintaining it and it's protected. And oh, this works Okay. So the insurance paid out, Our employee was taken care of, but there was no big lawsuit, there was no big loss.

Speaker 1:

The structure worked. The structure created asset protection for my building and for my family and for what we were trying to build. And, at the same time, I was getting tax write-offs, paying rent back to myself and getting depreciation, and the system was working. The trifecta proved itself and that was a big win for me. I was like proof of product. All right, this is cool. And so as I went out and continued to teach the trifecta, I knew that I was teaching something that was legitimate, it worked. There was tax savings, asset protection, and I had just seen this experience with my mom and dad, knowing that at the end of the day, it was going to all come together.

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Mark J. Kohler

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