Main Street Business

#625 Open Forum: My Accountant Says an S-Corp Won’t Save Me Money… Is He Wrong?

• Mark J Kohler and Mat Sorensen

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Mark and Mat answer your questions on this week's episode of the Main Street Business Podcast. Submit your questions to be answered live at https://www.mainstreetbusinesspodcast.com/

Accountants Hate Being Wrong

SPEAKER_00

Accountants do not like to feel they're wrong because then they've got to look you in the eye and go, well, we could have done it differently last year, I guess. And they hate that. My accountant guided me that the S election saved us approximately only two to three thousand dollars. The bottom line is you're gonna save well over ten thousand dollars in taxes. Now I know an accountant that's listening to this is already blowing a gasket. Do not let your accountant push you around that Matt and I are too aggressive.

Open Forum Kickoff And Ground Rules

SPEAKER_01

Welcome everyone to the Main Street Business Podcast. This is Matt Sornson, joined by the absolutely incredible Mark J. Kohler, and we are here on the Open Forum Podcast. It's been a while since we've done one, Mark. This is where we answer your questions: tax, legal, business, wealth, World Cup winners. What do you want to know?

SPEAKER_00

Yeah. Well, we'll we'll look it up for you. We've got several AI platforms right here at the ready. Now, just joking. We're gonna come uh organic, uncut, unfiltered, from our 25 years of experience as tax lawyers, 10,000 plus consultations, and business owners ourselves, real estate investors. We hope to wow you today. We've got a lot of questions. Let's get into

S Corp Savings Above Social Security Cap

SPEAKER_00

it. Um, this is from Muggs338, and I love this question. Um, he says, once again, I visit you guys for another tax and small business question. And I've just been like with my calculator furiously doing some math here on this question. I just love it. He said, My wife's LLC generates net revenue, okay, we're gonna call that profit, a little bit above the Social Security limit. Okay, now for everybody, we got to explain what that means. That's the Social Security limit for what so uh self-employment tax applies to this year is $184,000 in change. Um, that's what you'll pay the full FICA amount of about 15.3% on $184,000. After that, it's Medicare only, about 3%. And I'm just rounding here. So you get the biggest bang for your buck doing an S-corp strategy, minimizing how much self-employment tax you're paying if you're under that so in that security limit. So he says, My wife's making just a little bit above that. So, everybody, what does that mean? She probably is bringing in, let's say 250 grand. She has maybe 60 grand in expenses, and she's taking home $190,000. Wow. Congratulations, God bless you, that's amazing. But then he says, I know Mark's S-election guidance starts at about 50 grand. Duh. You should already be an S-corp. Sorry, Muggs. My question is about the accounting. My accountant, albeit conservative, conservative, guiding me that the S-election after everything is said and done would save us approximately only two to three thousand dollars. And because the QBI doesn't really make sense due to the tax return cost, extra accounting work and documentation, record keeping, all for just two to three grand, we shouldn't do it. I get it that any savings is savings, but realistically, what can you explain more clearer for me to make my case to my accountant? Plus, is there anything I may be missing? Well, I'm gonna be a little incredulous and maybe a little snippety. So I'll try to rein that in. And I think the best thing to do would be to share this podcast with your accountant if he or she is willing to listen. Because this would require them to say they're wrong, and they will not like to say that. Accountants do not like to feel they're wrong because then they've got to look you in the eye and go, Well, we could have done it differently last year, I guess. And they hate that. They will argue I am far too aggressive, they will argue uh the costs and all these little smoke and mirrors issues, because the reality is if I'm right, they're wrong, and that's not fun. I get it. So for any of you listening, when your accountant says don't do this, Mark and Matt said we should, but they say no because of some argument, realize that that argument could be valid. We're not perfect, but a lot of times that's an argument to protect their interest. So let's break it down. If she has over 184,000 of net revenue, I would argue day and night her payroll should not be any more than 60 grand, 70 grand. Now I know an accountant that's listening to this is already blowing a gasket. They are saying that is far too aggressive. Oh my gosh, they're gonna get audited. The unbelievable. Let me just say a few things. I take every continuing education course on the planet every year on Reasonable Comp. I teach CE to lawyers and accountants around the country on reasonable comp. I have done over thousands of S-corporation tax returns, not just over a thousand, thousands of S corporation tax returns. I have interviewed prior IRS agents because they won't do it if they're sitting employees of the IRS, prior IRS agents that audited S-corporations outside of the Chicago office on my podcast. I have written prolifically on this. Can I just say I have never, ever, ever had a client audited for taking too low of reasonable comp and be assessed additional FICA, which is all that would happen anyway. They're not going to go to jail for crying out loud. So if you out there as an accountant are already bristling, going, oh my gosh, you're too aggressive on this, show me the case where a one-third allocation in this would be a problem. I have never even had an accountant. I train be audited for that. And what's the biggest risk? They pay a little bit more FICA. So I am sorry, Matt. I'm just I've got lit up. I apologize. So that brings us to mugs. Muggs, I'm gonna answer it quickly. Take $60,000 in payroll. You would save over $18,000 in FICA cost. And then you say, well, if you do that, then your QBI deduction goes down because QBI is only on the K1. Well, your K1 would be approximately $120,000, which is a deduction, mind you, a deduction, not tax savings, of a 20% of whatever the K1 is. Well, $20 of $120,000 K1 would be a $24,000 deduction. And if you're in a 30% bracket, that means you would save $7,000 in taxes. But what you do miss is the QBI on the $60,000. Okay, I'm gonna miss out on three grand in write-offs, but I save $18 in self-employment tax? Okay, well, Mark, your deduction for self-employment tax is gonna go down through the K1 flow through. I get it, it'll go down a little. The bottom line is, Muggs, you're gonna save well over $10,000 in taxes. And then their argument is, yeah, but there's additional accounting. To save for what? You're gonna be doing the books on your LLC anyway. You're gonna be filing a schedule C. Now you're filing $1120, which is not rocket science, a couple grand there, and you're doing payroll for $1,000 to $1,500 a year. The savings is incredible, Muggs. And your accountant, after listening to this, if you're this pissed off about what I said, please go read my best-selling book, The Tax and Legal Playbook. Go listen to my podcasts on this. Please go do additional training through my Main Street Tax Pro certification, where I help clients around the country accountants learn street smart tax strategies. You may have been taught a far too aggressive strategy. And Muggs and any of our other listeners, do not let your accountant push you around that Matt and I are too aggressive. We are trying to be cautiously conservative and aggressive and find that balance to help you save taxes on your American dream. Pendrop. Sorry, Matt, I just had to go loose on that.

SPEAKER_01

I didn't, I know I didn't even want to chime in there, didn't want to disturb that process. Um, but I will just add, and your audit risk on that S-Corp tax return is like 10 times less risky that you will have an audit issue. I would be more worried of your

Reasonable Comp Fight And Audit Reality

SPEAKER_01

audit risk filing as a sole prop as you're doing right now. Agree with that than actually the current than doing the strategy with the S election.

SPEAKER_00

I love this question. Why is Mark Kohler so cool? Well, I appreciate that. You know, that's really that's a real question posted May 13th. I want to just point that out. No, okay. Yeah, here's the same day posted May 13th. Um this was Patty. Was that from Patty? Well, yeah, maybe I've got Patty in my who asked that question. Okay, why would I use a Wyoming LLC? That was the question. Well, we have entire podcast episodes dedicated to that, but this is our open forum, and we want to give everything we can to a brief answer, if it so be it. So a Wyoming LLC could be used in a privacy strategy or an asset protection strategy. They are not for everybody. Just because you have a rental property in Tennessee, or a small business as a landscaper in Minnesota, or you're a realtor in Southern California, does not mean that you need a Wyoming LLC. I would probably say, no, you do not need that. However, you've got these BS influencers out there trying to make money on you buying a Wyoming LLC from some prep service. And even if it's crypto, you need a special crypto LLC out of Wyoming for better protection. And no one knows better about this than me as an influencer. So go here and spend four grand and get the right LLC. Uh, generally bull trap, in my opinion. So I apologize. I'm being direct because I care about my viewers and listeners, and I don't want you to get ripped off. So, when do you want to use one? When you are looking to protect a specific asset that has significant equity, I would say $500,000 or more. And you're in a state where if you were to get in a car accident, they could go through that LLC to liquidate your rental property or asset and take that asset to pay off the judgment. What Wyoming LLCs can do, if structured properly, not with a click, click, click and a mouse online, but with a comprehensive integrated structure, this Wyoming LLC could be a holding company of sorts. It's called a COPE, charge and order protection entity, that would hold the LLC or the property itself, depending on what state you're in, and give an extra layer of protection from an outside liability. That would be one reason. Now, again, we could go in more depth. Um, and number two, you might use a Wyoming LLC if you're looking for more privacy. So let's say you have a rental property in New Jersey and you don't like your name out there as the manager, even though they don't see who the owner is. And so you want to make a Wyoming LLC as the manager of your New Jersey LLC, and then they go to Wyoming to try to find out who owns it and manages it, and they hit a dead end. It can provide a layer of privacy protection. Now, if someone with enough, deep enough pockets and pissed off enough will ultimately find out who owns it, especially if a lawsuit's filed, but it can prevent some initial scamming and potential identity theft issues. So a Wyoming LLC could be helpful for privacy, it could be helpful for some additional protection. Here's the big reveal, and I actually don't mind saying this. With me, Mark Kohler, 25 years of experience in the tax and legal industry with a law firm and paralegals and attorneys, gratefully at my beck and call if I need them. I don't even have a Wyoming LLC. I do not think it would serve me. I don't want the extra headache. I don't think it is worth it in my structure. And by the way, I own rental property in multiple states, I own businesses in multiple states, and my net worth's pretty good. I'm pretty happy with it. So if you think you've been sold this and you're driving a Honda Accord from you know 2014 and someone told you you need a Wyoming LLC, please think twice. There's my answer, Matt. Anything you want to add to on that? Yeah, I'll just say who is it for?

SPEAKER_01

Maybe you're someone where you have worry of liability personally, the car accident, maybe you're a general contractor, you get sued in your personal name, plastic surgeon, whatever. You're someone where you think you're gonna have personal liability, but you have a lot of business or investment assets, and you want to prevent a creditor from going after your assets because they get a judgment against you personally. So that's what the Wyoming LLC is unique for in this cope, is it stops a creditor from getting into the LLC and the assets in the LLC when they have a judgment against you personally. Now, usually we're trying to protect the opposite. We're using an LLC to protect your assets personally from risks of the business. So if something happens on the rental property, something happens in the business that I own, they have to sue that company and they're stuck there. They can't come into me personally or my other assets. So a little unique there, and also the privacy angle. I think I we probably use it for the privacy angle a little bit more because people want to be more and more private. Uh so uh, but it could also be that asset protection angle as well. All right, this is a question in here from Muggs338. Gentlemen, this is a two-part question. I am less than two years away from retirement. Well, I'll receive a comfortable pension, and I've grown a nice and respectable 457B. We plan on moving to Florida, though keeping our New Jersey business. I'll make trips to be in office here, I presume that's New Jersey, and there to check on things at the mental health practice. My wife can do most of what she does remotely. My question is: do I become a W-2 employee, pay the taxes, or just draw as money as needed or wanted? Second question. My wife has her mental health license in Florida now, and we plan on starting a PLLC in Florida as her license dictates that is the kind of business formation she needs. What options are there if she hires someone, Florida therapist? We two, our two companies are trading on the same name. Any guidance on tax planning for Florida's business in connection with what we already have? Primary business gross is just at the seven-figure mark in 2025. Okay, great question here. Uh couple things to think about. Um is you're going down to Florida and you're doing the PLLC in Florida. I like that. Probably want to do an S election on it, because this is gonna be ordinary income, you're providing services, this mental health practice, you can have an S election on the PLLC. That's a professional limited liability company. And we're gonna save self-employment taxes there, other uh podcasts on that. The first thing I want to be be clear about is when you're saying you're going back to New Jersey to do stuff a couple days a week, you're gonna be paying New Jersey state income tax on that. So just keep in mind you going back there, even though you're you've now moved to Florida, you're s what you're doing in New Jersey is gonna have New Jersey state income tax. So just be careful there and realize that maybe that's not the best thing. Maybe you want to be in Florida a little bit more. And maybe this is a transitionary period of you going back and forth to New Jersey. Maybe you sell that practice. There's think of a few things there. As to your so so on the business formation tax, I like the PLLC. I would probably do an S selection on it. I assume you're netting more than 50K a year. Hire the employees right out of that entity. Um and I I think that's a great setup. I mean, there's a lot we can add into that, but that's your basic formational structure. I don't understand your two companies trading on the same name, DBA. I don't know if you have your own entity and your spouse has their own entity. I don't I'm I'm not sure there. Um I presume you could if you're both therapists, but I don't know that you're you could be operating out of the same entity, possibly as as partners, anyways. So I don't know. That's where to get started. I like the PLLC, makes sense, do it in Florida. That's where you're gonna be primarily and what you're trying to get to. Watch out for Nerd User State Income Tax, do the S Corporation, and you're probably gonna be a W 2 in the PLLC. If you're working in that business, you will have a W-2 as an employee, and then you're doing the draws as well. That's part of the S-Corp strategy. Other podcast videos we've got on that, on how to execute that, or call our law firm at KKOSLERS and we'll get this structured and get it set up specific for you.

SPEAKER_00

Well, I love it. Great comments, Matt. I will just say ditto.

Wyoming LLC Privacy And Asset Protection

SPEAKER_00

So very good. This question is from Garland and says, I keep hearing conflicting information on when the IRS taxes vested crypto. I purchased several thousand outlook coins in March of 2024 during a founder's round to raise funds for a blockchain project. Purchased with post-tax funds, not in an IRA. Very well stated, uh Garland. I'm glad that you recognize that difference. The tokens have an 18-month cliff and a 12-month vesting period, which starts this August, with the first 8.5% of the total becoming available to me to sell and trade. My question is am I taxed on the value of the tokens at the time of release, whether I sell them or not? Meaning, kind of they're vested. So he kind of has full control. He's asking, are they taxed then? Or when I sell and trade them. Also, does my short-term gain, long-term gain start on the original purchase date or on the release date uh each month? Please set the record straight. Now, what he's saying by release is kind of this concept in the corporate world of vested stock options, where you were given an option as part of compensation or something, and then you can then trade that stock at some date in the future. Well, the crypto world, of course, has their way of saying things to just sound cooler or sexy, but the concepts are all the same. So, Garland, I am gonna set the record straight. And Matt, I'm anxious to see if you concur with me. The first point here is everybody, Garland bought crypto. Atlicoins, Bitcoin, Solana, XRP. Don't care. You bought tokens, you bought coins. Now, are you allowed to sell them yet? No. There's a restriction on them. You've got it, they wanted to raise capital, or for whatever reason, there's a 12-month, an 18-month, or whatever, and then they're gonna start to be available for you to sell or trade at some point in the future. Okay, so when you bought them, that's when your holding period started. That's the first point. So you bought them, that's your holding period. Then at some point in the future, you were allowed to sell or trade them. And you could use the word they vested or they were released or whatever the hell. But at some point, you were able to now sell them. Now, the date that you were available uh allowed to start selling them, are you taxed? No, you didn't sell them, you didn't trade them. You could, but just the fact that they made them available for you to sell or trade doesn't make them taxable to you. You did not earn them, you bought them. So you bought them, you're sitting on them, you're waiting. They're now available for sell or trade. Okay, nothing taxable has happened yet. Your basis is what you paid for them. Oh, but now you want to sell or trade some of those. That's when you are taxed. Well, I'm just gonna trade them for USD. Sell them for USD. I'm gonna sell them or trade them for Bitcoin. I'm not gonna put them in my own wallet. I'm not gonna go home and buy groceries with the money. I'm just gonna put it in a different coin. Does not matter. The minute you convert them to a different coin, a different token, you've sold them, transferred them, traded them, that is a transaction. And you will be taxed on the difference between what you bought them for and the current US dollar equivalent, the value. So if you bought them for $2 a token and now they're a coin and now they're worth $4 a token or coin, I don't care if you trade them for Solana, Bitcoin, or Cash, USD, I don't care if you put them in your own wallet, someone else's wallet, give them to your mom, does not matter. The minute you sell or trade them, you're taxed on the difference between your basis and that value of the token or coin that day. If you don't sell all of them, you're only taxed on the ones you do sell or trade. That's how it works. Matt, anything you'd add to that?

SPEAKER_01

Do you agree? No, totally agree. I think the important critical part here is you actually did purchase these back in March of 2024. Even though it was an early round of acquiring these as an early stake and they might have more value now. You actually purchased. So, like Mark mentioned, for any of you that might have like a stock option or something. Something like that, that has to deal with besting. And so if you're given stock options basically that have value that you didn't pay for, there's different ways they can grant those. When you receive those options, you have to take it into income that year. Hopefully the lower valuation. Or there's different ways where options are structured where you're actually buying in. You're buying the shares at this lower value, and you get to set basis at that point for this lower value that you're buying at. So sometimes stock options, or let's say you were getting this crypto for free because you were part of a founder or you did some consulting services. If you're getting them in exchange for services, that is technically you have to take into income. Now, the fair market value of them might have been a penny. You know, like it might be totally worthless at that time. Um, but technically you should be picking it up as income. So uh so be careful on getting stock crypto in exchange for services. Just realize the fair market value of that when you receive it is ordinary income to you. Um, and that sets your basis that what was that fair market value when you then sell it later? But here, I like it, you purchased, and that's uh whoever structured this, that was actually a smarter way to do it.

SPEAKER_00

Yeah. And I'll say you have long-term capital gain because your your holding period started back in March of 2024. Is that what it was? So yeah, you got you're good. So all long-term capital gain. All right. Thanks, Garland.

SPEAKER_01

All right, we had a question in here from Richard.

Due On Sale Clauses Trusts And LLCs

SPEAKER_01

Richard asked about exempt exemptions from a due on sale clause. Would you discuss the Garn St. Germain Act? Now, Mark and I actually talked about this on a the estate planning podcast we did last week, how we want to transfer your home and your property out of your personal name into your trust for estate planning purposes. And but you could this could be the same question of I'm transferring my rental property out of my personal name into an LLC. I have a mortgage on that property, and most mortgages have a clause in it that says if you change title of the property, if title changes out of your name, we the mortgage company have the right to call the loan due and accelerate the total amount, and you owe us this total amount. Now there is an exemption in federal law called the Garn St. Germain Act that said, hey, if someone transfers title out of their personal name from a mortgage, where there's a mortgage, and title now goes into the name of their trust for estate planning purposes,

Moving To Florida While Keeping NJ Business

SPEAKER_01

then this the banks cannot use the do on sale clause. That clause in the mortgage is totally invalid. So you have free reign to transfer property out of your personal name to a trust where you remain the sole beneficiary, or you and a spouse. Now, when it gets to LLCs, the Garn St. Germain Act doesn't apply. This is it's specific to trust, and a lot of people are like, oh, Garn St. Germain Act applies.

SPEAKER_00

You know, I always think of the guy in Taken when I hear this Garn St. Germain's Act. I'm always like, is this the guy that was trafficking, you know, Liam Neeson's daughter in Taken? Because it sounds like that, but I I don't know. This is actually not that guy. That guy?

unknown

Yeah.

SPEAKER_00

Good luck. Good luck.

SPEAKER_01

I will find you. What was the whole of Liam Neeson? I have a very special set of skills that I've learned over a long career.

SPEAKER_00

I will find you and kill you. Good luck. And then he's like, and it will lead me to the Garn St. Germain's act with the red door. That's what I'm thinking. I think it was that guy.

SPEAKER_01

No, and we talked about this because I uh, you know, I kind of dunked on you last time on the podcast that Senator Jake Garn from the state of Utah. Man, he was my home state. You know, he was one of the authors of this amazing, you know, federal statute. Anyways, the guy went to the moon, he was an astronaut. Uh okay, so but let me get back to the point because this is another common question that happens on this do on sale clause and this Garn St. Germain Act. If you're a real estate investor, this this question comes up quite a bit. When you're transferring properties to your LLC, the Garn St. Germain Act doesn't apply. So the bank could call the loan due, but they never do. They never do. I've transferred properties out of my personal name or I have a mortgage with the bank into an LLC. What did the bank do? Absolutely nothing. Why? They don't care. They're not worried about you. If you're paying the mortgage and the loan's getting paid, they do not care. Now, can I call up and say, hey bank, I want you to, I want, can I do this? I need to transfer the property to my LLC. They're gonna say no. Why? Because they don't want to do paperwork. It's a paperwork problem for me. Yes. Why would they say yes? They're just gonna tell you no. So what 99.999% of real estate investors do where they buy a property and they might have a loan in their personal name, is they just transfer it to the LLC. They don't stress about it. In the 10,000 plus properties we've had our clients transfer out of their personal name to LLCs, it's never been a problem. The only ones are the ones who call the bank and say they did it and then ask for forgiveness, or they stop paying the mortgage, which they're gonna go, you know, you're gonna have a problem anyways. So don't stress about this. We want to get the property out of your personal name into the LLC for asset protection purposes, for your rentals, and for your home, your personal residence. We want to get it into your trust for estate planning purposes, and that's where this Garn St. Germain Act applies. So hopefully that's helpful in any way, transferring properties out of their name, whether you got a mortgage, into your trust or your LLC.

SPEAKER_00

Well, love it. Great, great comments. Um all right. Well, this uh message was from Amanda, and I appreciate

Paying Kids Without Payroll Plus Roth IRA

SPEAKER_00

her comment. She said, love listening to you both. I find myself cracking up with you guys. Um, love your show. So very nice of her. She says, My question um is pertain to paying my children employees. She says, My S-corp pays my family management company, SolProp LLC, which then pays my children. Okay, so everybody, if you're new to this, that means Amanda has kids that are under age 18. Because if they were 18 or older, she'd either just 1099 them out of the S-Corp or put them on a W-2 out of the S-Corp. Because if they're 18 or older, running it through a SolProp is not going to help her at all. So she must have minor children. So she says, number one, does my S-Corp need to give my LLC a 1099 for the services that the SOLPROP provides with its little team of workers, aka my employ uh kids who are employees, that I would then report that income on my Schedule C. Do I need to issue the Schedule C of 1099? Technically, you could or should. The rule is you need a 1099, any person or entity, unless it's a corporation, that you pay over $600, you need to issue them a 1099. Now, the odd thing here is because it's a sole proprietorship, even if it's an LLC, it's going to be taxed as a sole proprietorship. And the rules for the 1099 uh would tell you that you're going to 1099 the social security number of the sole proprietorship. This is weird because now you have an S-corp and you're sending a 1099 to your own social. Not a good thing, because that you can't, you're not supposed to be able to do that. But you're saying, well, but it's to a company that I own 100% as a sole prop. Doesn't matter. It could it could get a weird generate a weird letter from the IRS. So in this situation, Amanda, if you're married, I want a 1099 your husband's social security number as the owner of the sole proprietorship that's hiring the kids. Now, if you're single, single mom, and you can't 1099 your husband here, then I would not do a 1099. I have never 1099 my own sole prop in 15 plus years that I paid my kids as minors. I've never had a client get audited for not 1099 in themselves, and the penalty for that 1099 is a few hundred bucks. I would not worry about it. If you want to be totally, you know, anal about it, 1099 your husband social. Number two, does my family management company, SolProp, need to put my children on actual payroll to generate a W-2 and do quarterly reports and all this crap so that I can then transfer them to LLC to my kids' bank accounts? The answer is, and this is a technical term, hell no. Okay, just remember that. That's under code section uh I don't give a shit. You do not need to issue a W-2. In fact, it will cost you because then you're gonna be withholding and all this other crap. Do not, and and you might do withholding. You shouldn't, because there's no withholding required for a minor child for pseudo food of FICA or Workers Comp. So do not issue a W-2. Just call it outside labor, page two, schedule C outside labor. Do not put it on payroll on page one. But they're payroll, Mark. No, they're not. Just call them outside labor. It makes your life easy. And definitely do not issue them at 1099. Which brings us to number three. Matt's gonna love this question. Well, can I open up a custodial Roth IRA for my kids if I don't have a W 2? How do I do that? Well, the CEO of Directed IRA, who's on the show with me, trusts you, Amanda. He does not need to see a W-2. There's he's created a little box on the open account opening for a person that says, if this is a minor, do they have earned income? Yes or no? And Matt trusts you that you're going to check the box. They have earned income. We do not ask for your W-2. We do not ask for a 1099. And it is not called a custodial Roth, is it, Matt? It's just a regular Roth.

SPEAKER_01

It's just you happen to be I mean, we call it a kid's Roth IRA. Technically, it's custodial, but all accounts are in anyways. I don't want to get too technical, but yes. So uh we call it the kids Roth IRA. And what you'll see with some broker dealers is they're gonna say, oh, this is someone under age 18. In order for them to contribute, we must see a W-2, a 1099, a tax return from the kid to show that they had earned income. No, that's we ain't we're not doing that. Like a lot of our small business owners aren't gonna have that, even though the kid has earned income. And they can maybe making money and not even have to file a 1040 tax return because they're under standard deduction. So we don't require that. Um, but they do need to have earned income, so it's on your you and to say that they legitimately had earned income as that money is coming in. So uh hopefully that's helpful, but I love that strategy because what what you're working through there is getting your kids involved in your business, because they legitimately have to be working. I love that first and foremost. My kids worked in the business, they cleaned the office for multiple years every weekend. I'd go in and work, they'd clean the office, I paid them, and I put money into Roth IRA using this family management strategy, taking a tax deduction, getting my kids involved, seeing what's happened, working with them, and throwing money into a Roth IRA with them. That's like for like teaching kids about financial literacy, that's like the triple threat.

SPEAKER_00

Oh like so good. And those contributions for the Roth can come out penalty-free, tax-free for college, and the growth is

Crypto Vesting When Taxes Actually Hit

SPEAKER_00

there to help kick start a kid's earning uh uh retirement and earnings. And then if you put on top of that a Trump account and convert it into that Roth account when they turn 18, it even gets better. So there's so many cool things you can do with this strategy. Amanda, love it.

SPEAKER_01

All right, Matt. Alrighty. Next question is from Wooden

Series LLC Estate Sale Planning

SPEAKER_01

Shoe. Um says, Always appreciate the perspectives you two throw down. Thank you for an enlightening half an hour. Here is my quandary. I have 11 rental properties. They each have been titled into a separate land trust. Each land trust is owned by a child of the child series LLC. We'll break this down here, guys. The child series LLC is owned by a holding company LLC, which is owned by our living trust. Hopefully they'll all follow that. I'm gonna break this down. We have three adult children who will inherit our assets. Question, we do not intend to make our children rental landlords. None of them have an interest in it. Once the fair market of the values have been ascertained, what's the process to sell these assets? Would they first be required to be removed from the child series LLC and placed in the name of the living trust in order to sell? Does the living trust distribute the assets to our children and let them deal with titling assets into their own name to sell? What are some of the options we should consider when selling assets that now belong to the living trust? Okay, great question here. What I would say would ensue is you have a quite complicated structure we typically would not set up. I like the series LLC. We love the series LLC, and we do that for clients that have multiple rental properties. You've got 11, you've built a great rental portfolio. Hopefully you've got some equity in these, and there's these are cash flowing. Um, but if you have 11 properties and you have a regular LLC, something happens on property number three, where there's a tenant slips and falls, they can sue the LLC and they can get at the equity at all 11 properties in that one LLC. So one way to fix that, just everybody's understanding on the same page here with what his structure is, is well, I could just do a separate property in every LLC. Well, that can become expensive too. If there's not a lot of equity in the properties, that doesn't make sense to have a separate property for every LLC when they're mortgaged to the Hilt. So what Wooden Shoe has done here, that's all I got, is they've set up a series LLC, which is available in about 20 plus states, where you have one LLC at the at the state level, where you have something called basically the parent LLC or the master LLC. There's different words for this. And that master LLC is filed with the state, but then you have a separate subseries or child series, as he's calling them here, that is series one of ABC investments, LLC, series two of ABC. And each of those series is treated like its own LLC. So it each owns its own property. So if something happens now on property number four, tenant slips and falls, they can only sue that little series and get at the property owned in that series. All other 10 properties would be protected in the series LLC. So we love the series LLC, great asset protection strategy. When you have multiple rental properties and you're in and the properties are in states where you can do a series LLC, Texas, Oklahoma, Nevada, Utah, Chicago, uh, Illinois. Um, those are some of the states, uh, Tennessee, that have these series LLC. There's there's more. Now you've got some other layers here. You've got these land trusts that own the property. I don't, I'm not into those. We don't think there's much value in that. Maybe that for privacy purposes, I don't know. I think there's other ways to do that. You've got um a holding company here. We already talked about that with the Wyoming holding company. Maybe that makes sense in your situation, um, but not going to be a big benefit for most people. But at the end here, your living trust is the owner of the holding company which owns the series LLC. The series LLCs have child series, which are owned by the land trust. You've got quite a complicated structure. But your question is when you die and you want to get rid of these properties, what's the process? Well, your trustee of the living trust will likely go appoint themselves. This is what you should do, and this is what I'd recommend. And you should talk to your surviving trustee when both you and your spouse pass away. Your trustee will just go in and make themselves the manager of the series LLC. But now you've got these land trusts too, who are probably on title to the property, and that's who's going to be the seller of each of these properties, are these land trusts. So now they're going to need to be the the appoint themselves as successor trustee there as well, which can be a problem, I'll be honest. These land trust structures, most states and title companies are like, what the hell is this? I've ran into multiple problems with clients using land trusts, so so be careful. But in a in general, like say it's just a regular LLC that owns the property, the trust the your trustee is gonna appoint themselves the manager, the LLC will sell the property, the money goes back to the LLC, and then it's dispersed to your three kids. And so we're not moving title around, it's gonna stay how it is, and then your trustee is gonna go take action to get an agent to sell the properties, the money will go back into the LLC, which they'll have authority on the bank account, and they'll be dispersing it to your kids. So I think you're good. Oh, okay. Go ahead. Sorry. I'll just say the last thing I say the problem is your structure is very complicated with this land trust, the series LLC I love, but then the holding company, and finally the living trust. We would typically, like if you came to us, I don't know your full situation, but we probably would have just done a living trust that owns the series LLC. Done.

SPEAKER_00

Yeah, I I wouldn't be using a land trust probably in that equation. It's again overkill.

SPEAKER_01

Thank you everybody

Where To Submit Questions Next

SPEAKER_01

for tuning in and thanks for the questions. By the way, get to mainstreetbusinesspodcast.com. We have our new site up. You can ask your questions there. Like all the people today that were so um helpful in making the show happen by asking their questions. We appreciate you for getting your questions in. Uh, please, for the next open form podcast, get over, get your questions in. We will be trying to reach them. We never can get to them all, but we do try to get as many as we can on this open form podcast. And Mark and I love open form. We're planning to do more of these, so please make sure you're tuning in and get over to the website to get uh your questions put in. Thanks everyone for listening. We'll see you next time.

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Mark J. Kohler

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Mat Sorensen

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