Main Street Business

#597 Smart Strategies to Pay Yourself and Save Thousands

• Mark J Kohler and Mat Sorensen

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Are you structuring your business the right way — or making costly mistakes that could be draining your profits? In this episode of the Main Street Business Podcast, Mat Sorensen and Mark J. Kohler team up to answer your questions on taxes, legal structures, and real-world strategies for small business success. Together, they uncover the truth about LLCs, S-Corps, and the $50K rule that determines when to make the switch.

From transferring real estate into an LLC safely to understanding what truly qualifies as business income, this discussion covers the practical steps every entrepreneur should take to protect their assets, reduce taxes, and stay compliant. You’ll also learn how to pay yourself properly, avoid due-on-sale issues, and maximize wealth through smart entity planning.

If you’re serious about building your business the right way and keeping more of what you earn, this is an episode you can’t afford to miss!

You’ll learn:

  • How to decide when it’s time to convert your LLC to an S-Corp — and how the $50K rule really works
  • How to transfer real estate into an LLC without triggering the due-on-sale clause or losing financing options
  • The difference between true business income and passive income (like royalties, rentals, and trading profits)
  • How to pay yourself correctly as a business owner — and avoid IRS red flags with payroll, draws, and distributions
  • Simple bookkeeping and payroll strategies to stay compliant and ready for tax season
  • How to use smart entity structuring to protect your assets and save thousands in self-employment taxes
  • Practical tips for maximizing retirement contributions through Solo 401(k)s and Mega Backdoor Roth strategies

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-link&utm_content=msbp597-smart-strategies-to-pay-yourself&utm_campaign=main-street-business-podcast

SPEAKER_01:

You've got some income now, and now you're talking about paying yourself. Well, keep in mind the first thing we're gonna look at is have you been doing your bookkeeping? Do you know what expenses you have versus this income that's coming in?

SPEAKER_00:

Get your bookkeeping done. Make some money. And when you start taking home more than five grand a month after your expenses, call your mom, tell her she'll be so proud of you, and then call us. And we'll tell you how to go next step, next level.

SPEAKER_01:

Welcome everyone to the Main Street Business Podcast. This is Matt Sornsend, joined by the incredible Mark J. Coleman. We are excited to be with you. Today is open forum for the podcast. We have your questions here, and we're gonna give you some answers on tax, legal, wealth building, everything small business.

SPEAKER_00:

Pretty stoked for it. Yeah, no, this is a fun, this is the people show. This is a fun show. Excited about it, and we're just gonna jump right in. And I'll say it now. If you want to present uh post, present, uh, give us a question, please go to mainstreet businesspodcast.com. Uh, we're anxious to see your questions. We'd love to see them here. And I can I lead off?

SPEAKER_01:

Absolutely.

SPEAKER_00:

Okay, this is a topic you and I have been really talking about a lot lately, and that is a business purchase question. Yeah, I just did a training on that last night. You did one yesterday. Uh, so this is from AB Houston32 that says, My S Corp purchased a business. On which forms do I report the purchase? Uh, the first business will pay rent to the new business. What do I claim as expenses? I remember that that strategy from one of your older videos. Please help. Oh, AB Houstow 32, not Houston, AB Houstow. These questions that you're asking, um, and don't be offended with this response. If you're buying a business and having these questions, I can see that you were probably not assisted in the purchase with some tax and legal counsel because all of these questions and about 50 more exist. And these are the basic questions. There's so, so much more you've got to deal with here. Um, I'm gonna just say, I'm gonna riff for two one minute, but I'm gonna just tell you you have got to make an appointment with one of our attorneys. It'll save you 20 times what you pay them for just an hour because you're these questions are off the chart with things that you should already, these are water under the bridge type questions and should have been addressed before you even bought the business. And I don't mean that rudely. It will serve you. I would talk with either um uh Ashley, Scarlett, um, Max, Ryan, Darren, a lot of the attorney officers are handling these transactions. Yeah, they're handling these transactions every day. Okay, so first thing, your S Corp purchased a business, which forms do I report the purchase on? You're talking about maybe the asset allocation that's form 8594. It's with the IRS. You're gonna sign it, and it has to match the seller's tax return. This is a form you would have signed at closing. So this is a little after the fact. So you've got to get a hold of the seller and go, we need to get on the same page on this 8594. And it would normally be agreed to as an exhibit in your asset purchase agreement. Then you said the first business will pay rent to the new business. Well, apparently you're the new business because you just bought it. So the first business, I'm presuming, is a seller, and so they're paying rent to you, but you're the one that owns it now. So now that means you're the first business, and then there's a new business. I don't know who's paying rent to who. And by the way, that means there's real estate involved, or is there a sublease involved? That's going to be a factor. And if someone's paying rent, it's a rent. Rent is an expense for the person paying it. It is income for the person receiving it. And I don't know who's first, second, or third business in this mix. And so again, a huge topic of, and then the fact that you're asking if that's a write-off or what is, there's about 20 other write-offs you need to be worrying about. And with your S-corp, your payroll strategy, your what do you have employees in this mix? What are the merchant account situations, your ongoing office expenses and marketing and sales and legal, and and um, and then you remember that strategy from your older videos. And maybe you're referring to a self-rental where you own the building, you're renting it to your escort, but that's another business in the mix. So I am just begging of you, please make an appointment with one of our tax lawyers and they will set you straight. They will answer questions you don't even know to ask, and you will love it. So thank you. Appreciate that.

SPEAKER_01:

Yeah, just one thing on the tax forms there. Mark said$85.94, right? That's the allocation of purchase price if you just purchase the assets of the business. And that's what it probably sounds like you did because your S Corp bought a business. We presume you just bought the assets of the business. But let's say you bought someone's LLC or someone's corporation, you acquired it. Well, the seller's gonna report that on Schedule D as a capital gain, uh, assuming they made money on that sell. But then you're gonna need to track the basis of what you paid for that business. All right, so it depends on what you did in that scenario. You want to make sure you get that right. There's a lot more, like Mark said, to get into that. All right, let's go. I'm gonna go over to asset protection here. This is in the asset protection category. This was by C white J. Um says, hi guys, big fan. First time asking a question. My wife and I recently moved to a new primary residence. We want to keep our former primary residence as an investment property.

SPEAKER_00:

Ooh, this is right up your eye. You love this. This is Matt's MO.

SPEAKER_01:

That's why I picked this question. It says, I want to transfer the investment property from our personal names to an LLC for asset protection purposes. But I've heard this could possibly trigger the do-on-sale clause for our mortgage. We have very low interest rates, so understand banks are exercising this clause more often so they can afford offload their low interest rate mortgages. Have you heard that? No. I am not reading. How can we transfer this property to an LLC without triggering the do on sale clause from our mortgage company? Thanks and keep up the great work, Chad. All right, Chad, great question. First of all, love what you're doing here. My point about building wealth, probably one of the number one points, is accumulate assets. So many people think, oh, I'm buying a new house, I'll sell my current house. And I love how you're looking at this, Chad, and saying, hey, we've got a low interest rate on this. I assume that the rent you're gonna get is gonna cash flow the property. You're gonna have the value of the property go up over time. And if you don't need to sell the house to get into the next house, totally great strategy, great way to build wealth. You need to accumulate assets. That's how you get wealthy. Now, as to the do on sale clause question, because this is coming into a rental property here. So when it's your primary residence, we probably just want it in your trust for estate planning purposes. No asset protection risks necessarily here. You live in it. But once you put a tenant in it, we've got some asset protection risks. What happens if the tenant slips and falls? I don't want them suing you and coming after all your assets. So we're gonna have that rental in an LLC. Tenant slips and falls, whatever happens, they can sue the LLC. They can't get into any of your other assets, they get stuck in that LLC. Now, you have a mortgage and your personal name, as you said, and most mortgages have a clause in there that says, when you change ownership of this property, you must pay off the mortgage, and the and the mortgage company has the right to call the loan due. This is the due on sale clause. Now, what happens 99.99999% of the time is you transferred ownership out of your personal name to the LLC and you have the asset protection. You continue to pay the mortgage, the bank doesn't care.

SPEAKER_00:

The underlying ownership did not change. You are still the owner, you're still the guarantor. The bank has a hard time arguing you sold or transferred the property to someone else because you didn't. It's then a pass-through entity called an LLC.

SPEAKER_01:

I mean, I think they could make the argument because ownership did change out of your name to the LLC, but they don't care. I'm just saying, Mark and I have probably had 10,000 plus properties of our clients over the years, tens of thousands, transfer out of their personal name to an LLC. And we've maybe had a few over our entire careers of 20 years as lawyers where the bank has actually done something clause. Yep. It's when they called the freaking bank and asked them. Or they stopped, they missed their payments. Yeah. And the bank's like, oh, we better look into this and what's going on with this property. And is their property taxes due to that they're not paying in? And oh, this isn't even in their name anymore. Okay. So now here's a one piece of like maybe um safety for you, Chad, if that's the right word. I don't know. Let's say the bank does send you a notice of default because you have transferred the property to your LLC and says, hey, we're calling that. We're the one bank out here that's actually gonna do something about this. And because you've got this low interest rate and we want to get it off our books, and we're gonna call the loan new. What do you what do you do? Deed it back in your personal name. It's kind of like what the bank does when you don't make a payment. They have to send you notice, give you an opportunity to cure and pay. They can't just foreclose. So if that happened, you still have the ability to just deed it back in your personal name.

SPEAKER_00:

And banks are not, people. Let me just repeat this. Banks are not across the country trying to uh exercise due on sale clauses for people that transfer to LLCs who are still paying their mortgages. It is not worth two points of interest. Three, four, it's not the cost to foreclose and just exercise a due on sale is astronomical compared to the increased interest they would get. Maybe it's stupid. It is not happening. Whoever is out there saying this on the airwaves, back it up because I am not seeing it at all, and we are helping thousands of clowns, thousands of clients every day with this situation. All right. Okay, this is it's ride in so low. It's ride in so low. Where do people come up with these? I don't have the coolest handle at all. I do not. Okay. So uh what is your handle? Mark. It's pretty creative. Yeah. I put an exclamation point behind it once in a while. Okay. Mark. You know, that's okay. Uh all right. This is in the uh tax strategy uh category. Uh does having mineral rights on your property count as a small business in the trifecta before royalties start? I'm two weeks out from signing a contract that has a one-time payout of 200K. Woo! Boy, Beverly Hill Billy, someone went out with a shovel and hit some oil in their backyard with the possibility of 12 to 20K a month in royalties if they drill on or under my property. I love this. So uh, if you've watched the movie Landman, this is in the last episode, and this is the guy standing by the trunk, and Billy Bob Thornton's uh son is out there schmoozing people, saying, Sign here, I will hook you up. And so this is very, very common for those of you in certain states, i.e. Oklahoma, Texas, maybe South or North Dakota, that have mineral right opportunities. You're in that lane or that fairway. All right, I'll get to the answer. No, it is not a business, it is passive income. And I know what you're trying to do. Try to find a way to write off something against this royalty payment. And it's a it's a it's a uh advanced royalty payment, is what you're receiving. And it's passive income. Count yourself lucky and blessed. It's not subject to self-employment tax, but you cannot take a write-off against it. It's similar to a dividend or interest income because you're making income off your property. Um, you're not going out and working or creating labor to sell sales, uh, services or products. But um, man, exciting.

SPEAKER_01:

Yeah, the nice thing is it's already taxed at a preferential rate in that you're not having to pay self-employment tax on it, but it is still your regular rate of income. So, but it's like that's like rental income, you know, in that sense, um, although you can't take expenses there. Okay, great question there. Um, this one's from CW Clark. Um says, Hi guys, I recently found your videos on YouTube and can't get enough of them. Entertaining and informative. Woo! I'm in the process of starting my own business, originally planning on just going with an LLC. After watching some of your videos, you suggest switching to an S-Corp from the LLC at the 50K mark. I understand the benefits of the S-Corp and I'm considering that right out of the gate. But what is the significance of using 50K at the time to change? I've not seen a good explanation of that reasoning yet. Well, stay tuned, CW Clark, because we're gonna give you that good explanation right now. Um, all right. Now, first off, I like where you're going, starting a new business, gonna go with an LLC. Now you can just do an S-election to that. Keep in mind you don't have to change the LLC to a corporation. You can just elect for S corporation tax treatment with the IRS. Our office does this all the time. It's a filing you simply make to the IRS. But with the state, you're still just Vandalay Industries LLC. Okay, you're you're still just an LLC. You just made the tax election. Now, the reason the 50K mark is important is the strategy of the S corporation is we're gonna take some of the income coming out of the LLC taxes and S Corp or the S-Corp, and we're gonna pay salary, which you pay self-employment tax on. The other portion we're gonna pay out is dividend or net income profit, and that is not subject to self-employment tax, which is where the tax savings is. Now, if you only have 30,000 of income there, the tax savings on that isn't gonna cover the cost of having to do an S-corporation tax return now. It's quarterly payroll. The additional work of the S corporation, which is a separate corporate return. If you're just an LLC, just you, it's just falling onto Schedule C on your personal return. It's not an additional corporate return. You do not necessarily have to do quarterly payroll. But once you elect S-corporation treatment, oh, you got to do payroll now. Oh, you got to issue a W-2 at the end of the year. Oh, we want an 1120 S tax return. So you're gonna need an engaging accountant. Do not do this on your own. You would be a fool to do that. Focus on making more money in your business, unless you are an accountant. But um, I don't know, I had to throw that in there. I love it. There's always an exception here, so I got to be the lawyer. Um, so that's the reasoning here is is the juice worth the squeeze? It's not worth the squeeze until you hit 50k of net income.

SPEAKER_00:

Yep, I'm with you. Well said, my friend. All right, our next question here is from AJ, and I want this out on social media as well because it's so important. He says, I do a fair amount of trading. I'm familiar with trader tax status, so that's day trader status, and certain that I don't want that. Good move. And I probably also don't want to make the market-to-market election. Good move, AJ. So he says, I'd like to write off expenses for home office, data services, trading tools, et cetera. Here's what I'd like to do. Tell me if I'm nuts. Okay, AJ, you asked for it, so you're gonna get it. Option A. I'm gonna set up an LLC and take, make an S election, then open a brokerage account in the name of the LLC and trade in that account and then deduct all my ordinary and necessary expenses. Uh not allowed. You are still trying to write off trading expenses for a trading practice that is not a business. Trading is not a business. And you do not want to make these elections and to have day trader status. You already know that. Setting up an entity and making an S election does not somehow morph you into the ability to write off these expenses. It's not a business, whether it's in an LLC or an S-corp, before or after you set up an entity. And I know someone is trying to sell you this strategy. They are crooks, they are scammers, they're not the ones signing your tax return, and they're wrong. And I'll stand by it every day of the week and on Sunday. You got me? Yep. You're clicking on five, baby. Yeah. But you want to hear, he's got an option B. Oh, option B. I think this will be worse. Okay, okay. Okay, I'll let you riff on this. Two LLCs, a management company and a holding company. One owns the brokerage account, the other is likely a Wyoming LLC. Oh, that's gonna solve it. I didn't know I needed a Wyoming LLC. All you freaking scammers out there selling Wyoming LLCs right and left. I'm so glad you're saving this guy's life tax-wise. You're you're amazing. Thank you so much. I didn't know you could set up a Wyoming LLC and all of a sudden manufacture write-offs for something that's not even a business anyway. But that's his idea. And AJ, you asked for it. Okay. He said 80% owned by me, 20% by the management company. It's also gonna be an LC, but I'm gonna use C Corp status. Oh, if you go from an S-corp to a C Corp, it unlocks all of this. It somehow morphs trading into business. Um, no, I'm sorry. I don't uh I and I don't want to steal your thunder. He goes on and on, and bless your heart, separate accounting, a separate management fee, and a C Corp, and I've got to take a salary and the la la. And here's the sad part. AJ goes, I no longer have a W-2. I pay for my own health insurance, my own medical costs, I've got all these expenses. I want to write them off. I want the HSA, I want all of this, but I'm a trader and you're a successful trader. That's great. AJ, start a business on the side, become a consultant, do something that's a freaking business. Trading will not get you there. But Matt, this option B, you think it works? You know?

SPEAKER_01:

Well, he started with tell me if I'm nuts. And I don't know that you're nuts, but whoever's giving you this advice, and maybe this is chat GPT, maybe this is some ridiculous seminar you went to at a holiday in last night. I don't know what it is, but see, you have to keep in mind what are you doing? What is the income you're creating? It's the same for real estate investors and everybody else. We don't just put it in an entity, and now it changes the nature of it, and I can get different write-offs. The yes corporation has a specific strategy here for self-employment tax savings, but it doesn't change the nature of the income that you're making. So you have to start at the very beginning, which is how you phrased it. Am I a trader or not? Are you taking that status or not? It doesn't matter what entity you set it up in, doesn't matter what state you set it up in, doesn't matter the gymnastics you try to go through, it will not work.

SPEAKER_00:

One last example, because we just had a caller with this question. They found mineral rights were under their land in Oklahoma, and they're gonna pay them royalties. And they would love to take a tax write-off for receiving royalties for oil and gas. Is that a business? No. Oh, well, I'll I'll open an LLC to receive the oil and gas royalties. Now I can write them up. No, it's still royalties for oil and gas. See the point? You have to go look at the heart of what you're really doing. And trading stock is not a business. It's a passive activity. Enjoy your short-term and cap long-term capital gain and go start a consulting business on the side. Where's my pen? I'll just draw it.

SPEAKER_01:

I love that. By the way, that's the creative strategy at the end of the day is start a consulting business on the side. You're good. If you're someone at trading and you're good at it, start writing about it, start talking about it, start consulting other people about it. Maybe do a training or education program. Now all the stuff you're doing to learn about trading and be better at trading now can become an expense because you have a business and ordinary income coming in. Same thing with someone with the royalty income. Maybe you're gonna teach other people how to discover mineral rights under their property and optimize it. Maybe you're gonna create a website that creates income about it. I don't know what you're gonna do. Maybe you're gonna sell cool t-shirts that said I hit oil. You know, I don't know. Let's do something with some ordinary income that's gonna give us a write-off.

SPEAKER_00:

Now you're here's a warning because I know where you're gonna go next. Well, I'll start managing other people's money, and they'll just give me access to their bank account or their wallet or their this or their that and their trading account, and I'll start managing their money because I'm so good at it. Now you're going to jail unless you want to go get licensed under the SEC. So you can't start managing other people's money unless you get licensed to do that. So you're in this weird space where you get to be a consultant, an educator, a trainer, a coach, a great guy, and charge for it. But that's trading's not the business. That's the business. AJ, thank you.

SPEAKER_01:

All right. Next question was from core couchmen. I don't know what these titles describe.

SPEAKER_00:

What could that mean? That's half the equation. You're like, I'm on a couch or I'm a core couch man that at my core. I like being on the couch.

SPEAKER_01:

All right. Well, let's roll with this question. I says, I just started my new small business LLC in Colorado, an advertising agency. Three questions. One person. You sucked his ass. He says about three questions. All right. Thanks for the heads up. When can I file my escort election? The Form 2553 is confusing where it states it will not be considered if submitted before November 8th. Am I reading that correctly? Uh no. All right. So you can have an effective date on the 2553 of when you want an effective, but also you can go back in time with what's called a RevProc, which our team knows how to file, or you can go back in time. Let's say this is January of 2026, and you want to go back in time. You can even elect that as long as your LLC was set up before that time or the entity was set up. We can go back in time to create that. So now maybe this is talking about forward looking. I don't know this instruction where this November 8th date is confusing you, or if this is a state form that goes along on the state side of the 2553, but um don't worry about that. If it's confusing you, that can be effective when you set up the entity from day one, or it can be effective at a future date. Um, or we can go back in time. Uh so that's question one.

SPEAKER_00:

Is there a second question in there?

SPEAKER_01:

That's question one. Second question. I have my first paying client when distributing a fair salary wage to myself versus the dividend distribution. What percentage should be distributed? How to remain in line with taxes and paying the least? Okay. Last question. What are all the things to be aware of? What are all the things to be aware of? How can we have world peace or doing before the end of the year for my small business and looking ahead to next year?

SPEAKER_00:

I'll take the world peace question.

SPEAKER_01:

I'm gonna like the last one for Mark. All right. And um, you know, this this question, I mean, we could, you know, that's we'll get to that one. All right. This is a good question, though. Is you've got some income now, and now you're talking about paying yourself. And what am I gonna distribute to myself? Well, keep in mind the first thing we're gonna look at is have you been doing your bookkeeping? Do you know what expenses you have versus this income that's coming in? Now you've got some income to pay yourself. Um now maybe this is just going into the bank account, I don't know. But you're gonna start taking some payment out of here. Now, wouldn't it be nice if there was like a matrix or something? Have you ever ran across like a matrix that says what you're making and how much salary you pay versus the dividend?

SPEAKER_00:

If only there was a maybe even a Kohler payroll matrix. Oh, if Mark Kohler did one, that would that would be freaking awesome. That would be great.

SPEAKER_01:

Yeah, well, if you get lucky, like like maybe like a CPA and a tax lawyer, like that did one.

SPEAKER_00:

Yeah. So uh that's out there, Core Couchman. Uh, I've created a matrix that'll tell you what to pay yourself on paper to satisfy the tax planning strategy here. But I like what Matt said. Get your bookkeeping done, make some money, take money out. Just call the draw. Just start making money. Get proof of product. You're doing it, you're going. And when you start taking home more than five grand a month after your expenses, call your mom, tell her she'll be so proud of you, and then call us. And we'll tell you how to go next step, next level. Do not make this a selection, my fine sir or woman. Please do not do that. Just start making money.

SPEAKER_01:

Yes, yes. And what I would say too on this question is when you start doing that salary dividend split, whatever we want to call it here, remember you're not like cutting yourself a salary check and then taking a separate check out that's like your dividend or profit out of the business. This is like an after-the-fact payroll where you're looking back at the quarter and you're saying, All right, I took 30 grand out of the business this quarter. I'm gonna say 10,000 of that was salary, and 30,000 of that was dividend or profit out of the business. And then you do a payroll report for 10,000 for the quarter. Okay. So don't think you gotta like write yourself multiple checks here and everything. You're really looking at this quarterly after the fact.

SPEAKER_00:

And your final question is and I and by the way, thank you for submitting a question. We're not trying to shame or demean you in any way. We have been a little feisty today. We've been feisty today, but um, I'm glad you're contacting us about this. And your last question is is there anything else I should know? Yes, a ton. And I would encourage you strongly, please continue to binge on our podcast, binge on my YouTube channel, Matt's YouTube channel. We have our 360 event here in November. You can catch it virtually or come to Phoenix. It's a three-day event with 20 different classes or more. And immerse yourself in this. It will make you money. It will make you better. It is going to save you money. You are on to something here. People, the number one cost in your life is taxes. And when you can get organized and dialed in, the universe will bless you with success. Good bookkeeping, understanding what you're trying to do, and saving on taxes makes you a more successful business owner. And I know that resonates with you. It just feels right. And it's scary, and you're like, I don't know where to start, and I don't know what to do, and I'm not that smart, and it this is hard. It's not that hard. You are smart enough. We our our special sauce, our claim to fame, is that we make tax and legal easy to understand. And yeah, you can dive deep and get technical. And we train accountants and lawyers and all that too when you want to go deep. But really, it's about proof of product, get out and market, collect your money, pay your bills. Let's do the bookkeeping, see where you're at, take it home, and keep learning, keep being here. You are in a safe place. We are not selling you some$20,000 boot camp or a Wyoming LLC to be a part of this plan, to be a part of the American dream. So keep listening and thank you for being here. Amen. All right, Jean Marie says, I for two and a half years, we've owned a vacation rental in Hawaii. Wow, good luck. You got around all the vacation rental law issues. Hawaii has been tenacious with the Airbnb short-term rental rules. Um, last year we purchased a car to alleviate renting a car when we were there working on the condo. I love those keywords. Condo starts to make me a little nervous. You're gonna work on a condo. Boy, that's like saying I have a leased vehicle with repairs. Really? You do? I can work on a house. I got you know, things to do with a house, landscaping, all sorts of good things. A condo? What are you gonna go in and like tighten up the sink and paint the bathroom for the 38th time? Okay, but whatever. So we which we combine with days of vacationing. So we record all meals and food and mileage and travel, and however, we missed the bonus depreciation on the car, a Subaru cross-track. It hurt me with the Subaru. Okay, just the fact you chose a Subaru, no offense. Okay, last year, according to our tax preparer, we should have done bonus. This year we need to buy and install a new window and purchase a new sofa bed, which will take you a half a day at IKEA, but that's okay. Is this the best year to do it? And should we both should we buy both in the same year? We are both retired, no debt, small farm in Illinois. Oh, I love that. Live in California, ouch, move to Illinois. So I would say this, and thanks, Jean. I'm being a little feisty. Um you've got a vacation rental in Hawaii. Love it. It's going on a schedule E as an echo. It's on your tax return, you're writing off your expenses to get there. You're gonna have fix-up days, you're gonna keep a good log of what you're working on. Again, be careful and not too aggressive with the condo. I just don't know how much real work you're gonna be doing there. And then you're gonna write off a vehicle while you're there. By the way, you can only depreciate it if it's used 50% or more in a business. And uh you're you're you gotta have a decent log to show that you're there 50% or more of the time working on this thing. How many days are you spending vacationing there? So it's it it appears. Um I like the strategy. You're gonna take write-offs when you go there. Love it. And you're checking on it and you're working on it. Just I uh tongue in cheek here, how much work is really happening? Be careful not being too aggressive with the write-offs. That's all I'm saying. Um, and the last question we need to buy and install a new window and purchase a new sofa bed. Do it! If it okay, we want to make money with this STR short-term rental. If it needs a new sofa bed, if it needs a new window, do it and write it off. By the way, you can write it all off in the same damn year. A write-off today is better than a write-off a year from now. And an STR with a new sofa bed is better today than a year from now. Make money, make this STR rock. Get in there and do what it takes to make it the best STR in the neighborhood or whatever you're trying to do to optimize it. A little shout out to Daniel Rustin. Airbnb Profit Book is amazing. Go get it on Amazon, everyone. But this is a question about financial decisions, not tax decisions. Do what's best for the property and don't be too aggressive on your write-offs with a condo and probably limited repairs. So man, just go hang out in that farm in Illinois. Just I I dream of that. Okay, thank you.

SPEAKER_01:

Yeah, I was probably the number one pizza advice. Yeah, you're probably double. Get out in California. I know you love the sunshine, uh, but from a tax standpoint, uh I don't know, Illinois is not that great either, but yeah. Yeah, it's true. Um Muggs338. Uh Mugs 338 says, I have a W 2 job in the public sector. I have a 457 plan that I max. Out. My wife is self-employed and has a 401k that she offers to employees. All right, she's got a 401k with employees. What is the max amount of tax deferral for deduction purposes we can do as we are married filing joint? All right, great question, Muggs. This really comes down to both of you individually. Doesn't really matter that you're married filing joint so much. Well, let's break it down here. Now, on a 457, this is like an employer plan government sponsored, similar to a 401k that you might have in the public sector that your wife actually has with her company. So for you, you can do$23,500 as an employee that you can put into the 457 of your money and take a tax deduction. Now you could do Roth and not take a tax deduction, but you said you want deductions. So I'm presuming we're going to do traditional here. Now, the amount of match you're going to get that the employer's going to put in on your 457 depends on the plan. You don't get a dictate that. All right. Now your spouse has a 401k and she owns the business that she offers to herself as she's an employee in the business and to her employees. So she can also do$23,500 in that. She can put is an employee contribution. Now, if you are$50 or older, or your spouse, you can do$7,500 on top of that, which would bring you to$31,000. Okay. And by the way, this is 2025 numbers here. That$31,000 will be deductible dollars. So between the two of you, I know you can at least get in$62,000. Now, for those of you that have a$401 at a job where you work, you may be able to do the mega backdoor Roth and do additional after-tax contributions as an employee to get up to$70,000 a year into it. However, there are a couple categories of people that can't do the mega backdoor Roth where you can get more money in. Now keep in mind, these would be Roth contributions. You're not getting a deduction, but it could be more retirement plan dollars. The reason I note that is it will not work for your spouse because she owns a business with employees. Me, our 401k plan and our law firm, F-Directed IRA, I'm an owner in the business. Mark's not in the business. I can't do the mega backdoor Roth, even though I'd want to. So who can do the mega backdoor Roth? If you have a solo 401k with no employees, you can. Or if you're an employee at a company that you don't own, you can do the mega backdoor Roth. There's an ownership issue rule where it just doesn't work. But I don't know that mattered for you, Muggs, but bottom line, you can do 62K each at a minimum. This is an addition. On top of that, you can have matching from the companies. That's determined based on the plan and what the employer offers. Now your wife could adjust that in the business, but if she's matching more for herself, she's gonna be matching more for her employees. But keep in mind, on top of this, you can do a backdoor Roth IRA. I assume you guys are high income if you're trying to max out retirement accounts here. So I presume you're high income. You can't just do a regular Roth IRA. You actually can't even do a traditional IRA and get deductions because you're high income here and you're contributing to 401k plans, but you can do a backdoor Roth IRA, which can get you another 7,000 in each, which could that's another 14 grand. So now we're up to$76,000 into retirement accounts in the year. And we're not even including the match that could come from the 457 or from the 401k. So there you have it, Muggs. I think that's a lot of money you can get in each year. Uh hopefully that was helpful.

SPEAKER_00:

I love it. Well, I think we'll wrap up the day with one or I'll do my last question. Yeah. Once you finish it. I'd like to transition to the IRA conversation. This is great uh points Matt just made there. This is from uh L. McCoy. My self-directed IRA owns an LLC. Okay, and that LLC is part of a joint venture with another company. So we have an LLC owned by an IRA, 100%. And then it owns part of another LLC with another company that is not a self-directed IRA LLC. So that's kind of like my IRA owns an LLC that partnered with Matt in an LLC, but just Matt. There's no other IRA on the other side. Okay, so that's the facts. Does any property the JV, so that's the partnership LLC, get with a loan still have to be non-recourse or a non-recourse loan? Probably, but I don't have enough facts. It would depend on your ownership percentage in the JV partnership. Now let's just assume you're 50-50. Yes. It would have to be a non-recourse loan if they want you to sign as a guarantor. If you do not sign as a guarantor, but someone on the other side's willing to do it, that's cool. You just cannot sign as a guarantor. So theoretically, it would have to be a non-recourse loan to you, but someone else could sign on it and be just fine. But that's again assuming you're 50-50. If you're just a 10% owner in this deal or 20% owner, and this is where we get the shades of gray, from 50 to 0% ownership, I think you're gonna be better off to stay away from a recourse loan, period. Um, but ownership percentage could play a role. Yeah.

SPEAKER_01:

But usually if in that structure, if you're doing it right, the J there's gonna be a new LLC that's a JV. Are they not doing a J V?

SPEAKER_00:

No, it's her LLC, it's a single member LLC with her IRA with a in a JV LLC. But the other partner is not an IRA.

SPEAKER_01:

But there's a J V LLC, so the partnership LLC will be the borrower on the loan.

SPEAKER_00:

Yeah.

SPEAKER_01:

So what recourse does the bank have? Well, they only have recourse to the LLC. So I don't for me, I'm like, as long as that LLC is the borrower, not you, not your IRA, it can be recourse. But like Mark said, don't be guaranteeing it. That's what's the problem. Most of those banks are going to be like, anybody that's a 20% or more, you know, underlying owner here has to sign a guarantee. So so you want to make sure as long as the loan is done just to the LLC, that is effectively non-recourse. Um your partners could sign a case. Um with a but you need to sign a personal guarantee, that's where you'll get jobs.

SPEAKER_00:

Yeah, but your partners could, is what I'm saying. Exactly. Your partner could. Yeah. Now the second question was can I do some business functions like book work and get a fee? Oof, and but have the fee go to my self-directed IRA LLC. Oh my gosh, where did you go with this, Al McCoy? You were like doing so well. You understood the non-recourse loan and you said, Can I do some business functions like book work? Okay. Oh, you're going you want to get paid. Oh, no, you don't even want to get paid. You want your IRA to get paid. Uh, bless your heart. Um, it's a slippery slope to hell, isn't it? Um, just joking. Okay. Right. So the answer is yes, you could do some basic LLC management of your own IRA LLC as in this state of bookkeeping would be fine and things like that. But you cannot get, okay, and this is again where we need more facts. Percentage of ownership could play a big role here. If you only own 10% with your IRA LLC of this JV partnership where non-family members, non-related parties own 90% of the LLC, and you only own 10%, then you would be allowed to take a fee, but it's got to go to you, not your IRA. Your IRA cannot do human work. So they cannot get paid for your work. So you could work for the JV LLC if your ownership percentage was in a minority position, but it's not going to your IRA.

SPEAKER_01:

So keep in mind, any like bookkeeping, administrative tasks, you can do anyways for the LLC. You just not get getting paid for or compensated for it, nor is your IRA. The IRS wants you to be keeping track of the records and what's going on and the bookkeeping and everything like that. And that's just good management that anybody should have for any of their investments. And so that's okay to be dealing. I'd recommend you do that, but you're not getting any special payment or benefit personally, nor should your IRA.

SPEAKER_00:

Yeah. All right. Well, are we wrapping it up today?

SPEAKER_01:

Yeah, I just want to say thanks everyone for the questions. Despite Mark and I's little angstiness on some of these, we are so grateful for those of you submitted questions. I don't want to discourage you. Yeah. And it's okay if you got to do some, you know, secret screen names like Muggs338, whatever you got to do, you know, to just you know be a little incognito. That's okay. We do like at least a first name and what state you're from.

SPEAKER_00:

Or if you're male or female, just so we can say you, he, she, whatever. But anyway, but thank you, everyone. And we are going to be here every week, and we'd love your questions. And please don't give up on the American dream next week. Well, by the time you hear this, you could be right on top of you. And that is the Alt Asset Summit. Get over to Altassetsummit.com. You can watch virtually, and we are going to be parading all sorts of investment ideas and strategies from third parties that are bringing it to your IRA or 401k. And you get to just watch and listen and learn. I think you would love it. Get to altassetsummit.com. And then in November, we have our tax and legal and finance and business wealth building Main Street 360 event. So get to mainstreet360.com to check that out as well. Thanks, everybody, and we'll see you next week.

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Mark J. Kohler

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