Main Street Business

#593 Open Forum: Lessons on Money, Taxes, and Wealth

• Mark J Kohler and Mat Sorensen

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Are you making money decisions that could be holding you back from real financial freedom? In this episode of the Main Street Business Podcast, Mark J. Kohler flies solo to answer your questions! In the process, he reveals the common mistakes people make with money, taxes, and investments — and how you can avoid them. He shares proven strategies to help you protect your wealth, build long-term security, and take control of your financial future.

From managing taxes to creating passive income, this discussion breaks down the essential steps every entrepreneur, investor, and professional should know. Learn how to maximize deductions, grow your wealth, and safeguard your assets without falling into costly traps.

If you’re serious about building wealth and creating lasting financial stability, this is an episode you can’t afford to miss!

You’ll learn:

  • How transferring a property to an LLC works, the risks of triggering the due-on-sale clause, and what to watch out for with your lender
  • The difference between Schedule E and Schedule C when reporting short-term rental income — and how mixed personal use can change your tax treatment
  • Key rules for deducting business mileage when operating across multiple locations, and how to maximize your write-offs
  • What expenses you can (and can’t) cover in a Roth IRA LLC, including laptops, mining rigs, and other gear for crypto-related activities
  • Why documenting your strategies correctly is essential to avoid IRS issues and maintain tax efficiency
  • Practical, real-world answers to common tax and wealth-building questions that apply to both investors and small-business owners

Get a comprehensive tax consultation with one of our Main Street tax lawyers that can build a tax strategy plan with an affordable consultation that will leave you speechless!! 

Here’s the link - https://kkoslawyers.com/services/comprehensive-bus-tax-consult/?utm_source=buzzsprout&utm_medium=description&utm_campaign=msbp004-open-forum-lessons-on-wealth

Speaker 1:

I've literally sat in hot tubs in hotels across the country, outside banking conferences, talking to banking lawyers trying to get the real inside scoop on this.

Speaker 1:

The reality is banks do not want to call the due on sale clause.

Speaker 1:

It costs them money. It's a headache Nine times out of 10, they've also sold your paper or your mortgage into Wall Street and the bank has no interest in calling this mortgage due. If you go into the bank and go hey, I want to transfer my title to my LLC or trust, can I do that? Remember this is a freaking bank. They can't go to the bathroom without getting three stamps of approval from the hierarchy. Do not go in there and start asking permission to do this.

Speaker 1:

Welcome to the Main Street Business Podcast. My name is Mark Kohler and I'm flying solo. Today. Matt Sorensen's on stage across town speaking to a real estate group and he asked if I would do a little open forum, answer some questions that have been kind of gathering dust, if you will, or in the pipe at our website, mainstreetbusinesspodcastcom, and that's a reminder. If any of you do have a question, please go there and you can log in and submit a question that we will try to answer as quickly as possible. We want to actually have more open forum opportunities, so I'm going to try to give you some. Really I'd love these questions today and so that's why I told Matt I was going to hold the podcast and dive into these questions, because I know the answers and I love these questions. So I'd like to share some insights with you. And thanks for listening, and if you enjoy this podcast or you're on YouTube watching the video version, please give us a thumbs up, five star, high fives, subscribe. Click button icon.

Speaker 1:

All those things, I don't know, what the hell you know all these different platforms, all right, so the question here that's a really good one is about the due on sale clause with a mortgage on a property that a client wants to turn into investment property. So, specifically, chad asked my wife and I recently moved to a new primary residence and we want to keep our former primary residence as an investment property. I want to transfer this investment property from our names into an LLC for asset protection. Good move, chad, but have heard we could possibly trigger the due on sale clause for our mortgage. We have a very low interest rate, so, understanding our concern, I'm sure banks may exercise this clause so that they can change the mortgage and get a higher rate. How can we transfer this property to an LLC without triggering the due on sale clause from our mortgage company? Thanks and keep up the great work, chad, you're awesome, great question.

Speaker 1:

Well, first of all, chad, the short answer is do not worry, do not stress that bank is not going to call the due on sale clause. But there are a few steps you want to follow to ensure that. The first thing is I've met over the years, over and over again, with bank lawyers asking them when do you ever exercise this due on sale clause? Can you and why don't you do more of it? And I mean I've literally sat in hot tubs in hotels across the country, outside banking conferences, talking to banking lawyers trying to get the real inside scoop on this.

Speaker 1:

The reality is banks do not want to call the due on sale clause. It costs them money, it's a headache, and they don't even know if the current owner, resident buyer is going to be able to qualify for a new mortgage. And then this ends up into a whole cascade of events that could be a pain in the butt for the bank. So the moral of the story is as long as you keep paying your mortgage. The bank is not going to care because nine times out of 10, they've also sold your paper or your mortgage into Wall Street and they're just having it serviced as part of a larger Fannie Mae Freddie Mac pool of loans. So the bank has no interest in calling this mortgage due. Number two a lot of mortgages have a provision that says if you are transferring this to your trust or an LLC and the underlying ownership has not changed, we are not going to call it due. Nor can we call it due in a lot of instances because you haven't transferred the property's ownership. You're just putting it into a trust or an entity for an estate planning or an asset protection purpose. So, again, the mortgage itself may protect you from this process.

Speaker 1:

Now, with that said, if you go into the bank and go hey, I want to transfer my title to my LLC or trust, can I do that? Okay, remember this is a freaking bank. They can't go to the bathroom with the guy getting three stamps of approval from the hierarchy. You do not want to go into the bank and start asking these questions because they will freak out as bankers. Do no offense to you bankers out there. It's not your fault, it's your institution. So, anyway, do not go in there and start asking permission to do this.

Speaker 1:

Okay, finally, the process and this is important I want you to use a warranty deed, or a grant deed as it's referred to, and other states have different terms. There's 3,500 counties across the country and you're going to go through that county where the property is located and do the proper deed. I do not want you to use a quit claim deed because I want you to warranty over to your other entity or yourself all of the warranties you can from the title policy and that you already have Now. You would never normally do that to a third party like me if I was buying your property without me or you paying for a title policy to guarantee all those warranties, but you're transferring it to yourself. So just go for it with a warranty deed, just in case. So that makes it allows your LLC or trust to step into your shoes with all the warranties you have as an individual, which, again, you wouldn't do to a third party, but you're doing it to yourself. So it's a smart thing to do and a good thing to do.

Speaker 1:

So, final point, make sure the LLC is set up or registered in the state where your property is. Make sure that the LLC is now on title by doing that transfer. We have paralegals at our law office that does this across the country every day. Get down to KKOS Lawyers. You'll see it down in the description and also make sure it's on the lease agreement the name of the LLC, not your personal name. Make sure you let your insurance company know that it's now a rental property so that you have the proper insurance. You can't just stick around with your same homeowner's insurance and think you're going to be okay.

Speaker 1:

If there's ever a claim, you want to let them know that it's a rental property, but follow the protocol of the LLC. It should have its own bank account. The rent payments should go into the LLC bank account. The rent payments should go into the LLC bank account. Let the LLC pay the mortgage. Again, isn't that weird? You've transferred it to the LLC. Let the LLC pay. The bank doesn't care where the money's coming from, they just want the mortgage paid. So don't worry about that either. But finally, as I mentioned a trust early on, make sure your trust owns the LLC that owns the rental, because if anything happens to you, we don't want probate and we want that property to have asset protection and go into your trust for your estate.

Speaker 1:

Now if some of you hearing this are like, oh my gosh, I don't have any of that organization done, don't beat yourself up. Take time to get these little things done. Put it on your list of tax and legal. You should have an ongoing list. I do, patty and I, my wife. We keep a list of all the little things we need to do to stay organized because, people, when you're organized you make more money, when you're organized you have better write-offs and when you're organized you have better asset protection. So just take baby steps getting there and you'll love it. Chad, good luck with that rental property, all right.

Speaker 1:

So now let's go over to another question here. This is another good one that I'm really excited about, and we're going to stay with the real estate genre, if you will. We're going to talk about a short-term rental type option, uh strategy. So this question is from SOP 78. Don't have much more than that. Now, this is a longer question, so I'm going to kind of truncate it here for everybody. So this is also a couple and again, they are interested in renting out their primary residence, but as a short-term rental.

Speaker 1:

So is, uh, he goes on to talk about how they're going to take their primary residence and maybe downsize it and then, but we want to convert it to a rental when we're not there because we're going to travel around the country and outside of the US, but when we come home we want to be able to stay there. How does this work? And then he says I understand that we would be giving up the expense write-off as a short-term rental because it's partially a primary residence. I'll explain that in a moment. But how do we report this? And do we have to worry about the seven-day rule and substantial services? And do we report it on schedule E or C? Lots of questions on how this would work. So it's a great question SOP. Let's see what we can do here.

Speaker 1:

So the first point I want to make and this is for everybody out there that has a primary residence you can short-term rental your basement, an accessory dwelling unit, you convert the garage into a single, you know, one bedroom, one bath, something like that and you create some extra income. Lots of clients of ours over the years have done this in urban areas where the cost of living is higher, and certainly in Hawaii. A lot of clients have kind of this accessory dwelling unit that they short-term rental out until Hawaii passed a lot of laws on this recently due to the hotel industry. Anyway, that's a side note. So the point here is they want to be able to have this as their primary residence and partially a short-term rental come back and forth, yada, yada, Love it. It's a great income opportunity, because why just leave that home sitting there vacant while you're out of town or out of the country? Make some income on it and you can do some lock-offs. If you're used to the Airbnb or short-term rental world, what you can do is lock off certain rooms, keep your personal stuff there and when you come back unlock them, but until then you rent the rest of the house. It's a beautiful structure for that and you're making income while you're gone.

Speaker 1:

But under the short-term rental strategy for tax strategy planning, or the short-term rental loophole as it's known, it has to be 100% short-term rental. You cannot use it as your primary residence. Now we got the 14-day rule and yada, yada. But the point here is, if you're going to use it as a primary residence for he says maybe 50 days out of the year or more, then it's not going to qualify for that short-term rental depreciation loophole write-off. That's okay. It's not the end of the world. We don't have to have that loophole.

Speaker 1:

What we're interested in everybody let's keep our eye on the ball. They've got a property that's going to be sitting vacant making them nothing. Let's create some cashflow and put it in a short-term rental position where, when they want to come back to town, they can block it off, love it. They may even consider Furnish Finder a midterm rental scenario. So don't worry about the tax write-off, just make some cashflow with it.

Speaker 1:

Their last question is well, how do we report this? You're going to treat it like any other rental property yeah, it's in your primary residence but you are required to report the income. We might do some depreciation. We're going to write off expenses proportionally, based on square footage, use and how many lock-offs and all that. There's a lot of details. I'd like you to meet with one of our tax lawyers and build out your plan as you implement this, and it would be very affordable to do that. Then you're off to the races.

Speaker 1:

But you're going to report the income and the expenses on a Schedule E, as in ECHO rental property. Just because it's short-term doesn't mean it's a Schedule C or ordinary income. Short-term rentals and long-term rentals are both passive, on the right side of the trifecta and would be reported on a Schedule E. So don't overthink it. Don't worry about Schedule C, as in Charlie. This is not a business. It is still a rental property. Don't worry about Schedule C, as in Charlie. This is not a business. It is still a rental property. So get it on a pool, make some extra money, report the income, report the expenses it's going to be.

Speaker 1:

I'm really excited about what you're doing, but unless you convert it entirely to an Airbnb or short-term rental, you're not going to get that loophole right off, which you may not need anyway. So don't focus on that. The moral of the story is don't let the tax tail wag the dog. Make a good decision financially and then let's figure out the best tax strategy to go with the best financial strategy. If the tax rates were 100%, we might let the tax tail wag the dog, but they're not 100%. So we want to make good 100% financial decisions and then deal with the tax issues secondarily. That's the better move. So, like what you're doing, don't worry about it and meet with one of our tax lawyers at KKOS to make your plan. Then we can even find you a tax advisor on our network to give you that ongoing support and advice throughout the process.

Speaker 1:

All right, now the next question is a unique one, but a good one for, I think, all of you listeners, and that is regarding the auto deduction. But the fact pattern is kind of unique. This is from Joe C. He says I am a beekeeper, I have a home office and property where my beehives are located approximately 50 miles away. Now, first of all, that's pretty freaking cool. I'm really interested in this. On our ranch Patty and I are building out, I want to add some bees. Down the road here we have a neighbor with these little white boxes and their bees and they bring honey over and I'm like man, damn, it can't be that hard. And they're like no, it's easy, whatever, we'll see. Okay, I'm one of those guys that'll try anything. They're on the range. So he says.

Speaker 1:

Now his question is when I travel to where my beehives are located, is that considered commuting or is that business mileage? Now, remember he said I have a home office and the property where I do the beekeeping is just 50 miles away. Does it change if I have multiple locations where my hives are located. Ooh, joe, you're onto something. All right, here's.

Speaker 1:

Here's where this gets tricky. All of you out there should know, as a business owner, if you leave your home office to go do business, you should be able to write off your mileage. That's the general rule. Now we're going to go to some caveats. We always start with the general rule. If I'm out doing business away from my primary business location or my home office, visiting customers, clients, business locations, I picking up stuff at Staples, apple Store, whatever I get to write off those miles. That's the general rule. But if I have a business location that I go to every day or repeatedly as a business location, then I can't write those miles off because it's equivalent to commuting. If I'm going there on a repeated basis because it's another business location of mine, even if I have a home office, okay. Next caveat Well, let's say I have multiple business locations. Joe says here hey, I might get multiple beehive locations, okay.

Speaker 1:

Now it's a different story. When I leave the office home office to go to my first beehive location, that's commuting because I have to go there on a regular basis. But from that beehive location and I go to the other ones. That is not commuting. And I have to get to these other locations and then I come home. That's commuting. So a portion of it would be a write-off going in between these Now, where this has happened a lot for my clients over the years. Think of a dentist or a chiropractor or a restaurant owner that has multiple locations. When they go to their primary business location every morning, every day, every day, whatever that's commuting, even though they're a business owner, they are commuting to and from the home office to their primary location. But when they go to the other dental offices, the other restaurants, that is not commuting, they're out there doing business.

Speaker 1:

Think rental properties. Now, rental properties are a little different because you're not going to the same rental property every day. You're going to check on your rental properties. So I'm going to write off your minus from the minute you leave the house because it's not ordinary doing business income like you might have in your S corporation. I'm over on the right side of the trifecta. I'm out checking on my rental properties. Okay, now I can write off all that mileage going in and around, going to Home Depot, lowe's, whatever, and working on my rentals, because I don't go there every day. It's not a place of business, so hopefully those rules, principles, concepts help you.

Speaker 1:

But the bottom line I want to say is the auto deduction is live and well. Don't be afraid to take it. Do your best to estimate your mileage, write it down and have a log if you can. There's apps out there that will help you do it as well. But don't be afraid of it. If you can justify it I'm freaking writing it off and, joe, good luck with those Bs and hopefully you'll add some other locations. But do it economically, because it makes sense to add locations. Don't do it to try to get a tax write-off. It's not worth it. Financial first, tax second All right.

Speaker 1:

Our final question of the day is going to be related to a Roth IRA, llc and crypto. Kind of fun, right. This is from Blake and he says I have a self-directed Roth IRA for crypto investments. Love it. So do I with an LLC. My question is can I use the Roth IRA LLC to purchase a computer for operating my Roth account trading, or would that be considered a taxable event? It's not that it would be considered a taxable event. What you're worried about, would that be a prohibited transaction. Well, blake, this is kind of a tricky one and it's going to depend on the facts and circumstances.

Speaker 1:

Now, for everybody out there, there's really two types of crypto Roth IRAs that we recommend, and we have a directed IRA, our sister company. One is you can just have an app dialed in with your Roth IRA and Roth 401k where you can just trade right on your app on your phone. That's what I have. I don't need an LLC for that, but we use the Gemini platform for that, so I can only buy and sell tokens on the Gemini platform. Now for some hardcore, truest crypto traders out there, they want some DeFi tokens and some other things that may not be available on the Gemini platform. So in order to do that type of trading, they've got to open an LLC owned by their Roth IRA and then their LLC we use. Kraken would go out and open up an account under the LLC and start doing some more creative trading inside those wallets that maybe Gemini wouldn't allow. Okay, so we got two ways to invest with crypto inside an IRA One on the Gemini platform super easy, but limited options or an IRA LLC, more technical, got to know what you're doing, a little more cost to set up, but lots of flexibility. You get to choose.

Speaker 1:

Now, in this example, blake's gone with the LLC. He's like I want to trade all these other things over here. Okay, that's cool. And then he said and in a normal business, that LLC should be able to pay for any expense directly related to that LLC in order to make money. Now here's where the IRS might have some heartburn.

Speaker 1:

Let me get this straight. You need a brand new laptop or computer for that LLC to trade your crypto. Okay, you cannot touch that LLC. I'm sorry, you cannot touch that laptop for anything else, not even to look at an email from your mom. Is that okay with you? You want to spend money in your precious Roth to buy a laptop that can only be touched for trading on that platform for that LLC. Because you have to keep in mind, blake, that's not your LLC, that's not your crypto account, that's your Roth's account and that's going to be Roth equipment.

Speaker 1:

Now, it's not that you. You are allowed to do trading, so I don't want you to get frustrated and you're going to get on your phone or your own personal computer and do those trades. The IRS is okay with that because they know it's de minimis, meaning it's minor, it's small. You're going to get in there and do some trades, la la la. But once you say, well, I want my Roth to buy me a laptop, the artist is going to go whoa, whoa, whoa. We're cool with you using your phone or your laptop to make some trades here and again once in a while. But if you need a whole computer just to manage this crypto Roth now maybe your crypto Roth is worth $3 million, I don't know. Or say it in another way your Roth is worth so much freaking money that it requires so much dedicated laptop time that it needs its own laptop. Then you better be able to back that up, because I don't see it. I don't see that as necessary to just trade a crypto account. Now I have an IRA LLC that does own a computer, a whole CPU with video cards doing mining. So those laptops or computers or CPUs or video cards are specifically dedicated to mining inside that LLC and they're not used for anything else. Okay, the Roth IRA pays for that and that's cool. But be careful buying a computer that. Do you really need it? You better be able to back that up, and then I'd be okay. It's going to be on you. You just got to be careful.

Speaker 1:

Well, everybody, thanks for listening to another episode of the Main Street Business Podcast. Excited to be here with you. I love these topics and questions. We're not going anywhere. We'll be here again soon. We've got a big crypto tax summit that we're going to broadcast through the podcast as well. You'll see that coming up in the next few days on your feed, so be looking out for that. Thanks everyone. Keep living the dream and don't give up.

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