Here’s the Video Transcript:
– [Toby] All right guys,
this is Taxmageddon 2018. And this is your host, Toby Mathis. I'm going to be going over
all these wonderful changes in our tax laws, making sure
that we're addressing them. First off, I need to make
sure that you guys are here, and that we can go. We've got everybody listening, perfect. And then we're just going
to jump right on in. So the things to pay attention to, whoops, I see a whole bunch
of comments coming in.
Fantastic, we have a
good group on tonight. People are already like,
hey here's my question. I have 10 paragraphs of stuff, so I'll get to your questions for sure, but we're going to go over a whole bunch of fun stuff tonight, because we're talking about taxes, everybody's favorite topic. So we're going to spend lots
of time going over the impact, and you guys will be able
to annoy all your friends by pointing things out that
they may not be aware of. Speaking of things that
they might not be aware of, we're talking specifically
about the Tax Cut and Jobs Act that was passed at the end of 2017. Some of it was retroactive,
effective end of 2017, for example, the medical
deduction threshold that went from 10% to
7.5, that was retroactive.
Some of the provisions on
deductibility under Section 179, big equipment deductions
were going back to September, that fun stuff. But as of last night, we
had proposed regulations. If you guys know how the tax laws work, the IRS sometimes interprets the tax laws into something called regs. They have yet to issue the regs on the Tax Cuts and Jobs Act. They did some proposed
regs under Section 199, and I've already had three people ask questions about that stuff, just in the first two minutes.
We'll get back to it. We have a ton of questions coming through, so you might have to ask again. But we will get to these. And so, we're still deciphering it. It was only, I think it was 170 pages that they issued yesterday. And they do give some examples. What they did is shut some loopholes that tax practitioners
were trying to exploit by using tons of trust
and things like that. They shut that door, which was predictable but some people made some
money in the short term at the expense of the client. And so we're going to go
through all these things. Again, Brian, Alexa, I see
tons of questions coming in. You've got very good ones and we're going to be knocking them. Tonight, though, what we're
going to be focusing on is what's the good, the bad, and the ugly.
And specifically, why
are people so freaked out by the Tax Cuts and Jobs
Act in certain states? And you'll understand why. In order to do that, we're going to have to
start at the very basics, which is what is itemizing
and why is it important? We're going to go over what is the, and you're going to have
to decide for yourself because I'm going to give
you a bunch of lists, what is the single most
devastating law change? The three things that the top
two percent do differently, and where I can learn more.
Like how can I actually keep apprised of what the changes are? Obviously you know that
you can always talk to us, but I'm going to give
you some specific places that you can go, and specific
ways that you can learn so you don't miss anything. This will have an impact on you, period. The Tax Cuts and Jobs Act
will have an impact on you.
So we're going to start off right on the what is itemizing, and
why is it important? And in order to understand itemizing you have to know what it
is, which as an individual, it's applicable to individuals
and not to businesses, you list out what deductions
you're entitled to and compare it to the standard deduction. That little standard deduction is what you're going to hear a lot about. If the itemized deductions are more, you take them as opposed
to the standard deduction. Technically, you can go back in and take the standard
deduction even if it's less, but they're going to want to know why.
We're not going to get
into all the minutiae. Somebody doesn't have sound, the sound is coming
through for everybody else, so you may want to either
go onto a phone line, or try going over, doing the opposite of whatever you're doing. So if you're on a phone do computer audio. If you're doing computer audio do phone. So let's go into all this fun stuff. What are the questions you should ask? So if somebody says, hey, you get to write certain things off, then first thing that
I'm going to want to know more than likely, is what is
included in the calculation? In other words, how do I figure out what my standard deduction is,
and what is it comprised of? And the other thing is, what
is my standard deduction? Or I should have said what is my standard
deduction in the beginning, is what is my itemized deduction? How much can I write off? What things can I write off? And then the next question is what is my standard deduction.
So we start with the what is
included in the calculation and then we shoot over to my standard, and then the real question for you is, do I receive any benefit? Like, what is the net for me? So let's start off with each one of these. I'm going to go through
them check by check, because this is the way I am. I like to go through, and
we've got to figure out what's in the calculation. And the way we're going to do that is we're going to go to old
Schedule A of your 1040. So when you file a 1040 and by the way, I'm going to show you the
drafts of all these things, but when you go to your 1040, you have this thing called a Schedule A.
This is the 2017 up here. So I'm going to just circle the 2017. This is the proposed 2018 and as you can see, it
says Draft July 10th, which means the IRS is
putting these things out, they get comments on them, and eventually they're going to come out with the actual form we're going to use. But we can see what they're thinking. What we know for sure
is this old, right here, that is what was retroactive. So we know that the medical deduction, if you ever call the IRS and say, hey can I write things off
for medical and dental, the answer is going to be yes. But it has to exceed your
adjusted gross income by that amount. And so it used to be 10%, and
then it went back down to 7.5. And to be historical, it used to be less, then it went up, then it went back down. They're always moving it
around, and it's a pain. But all that means is that if
I make $10,000 or $100,000, the first $7500 of my medical
expenses I cannot take.
So if I had $10,000 of
medical expenses, I get $2500, and that goes on my line item here. So what it means is that
it's part of my calculation. So I'm just going to write down, let's just say that we have $2500. I then go to Taxes Paid,
and this is a big one, guys. And I'll go into the specifics on this, but what you don't see here,
this is 2017 versus here, is you're going to see a little thing, and I don't expect you
to be able to see it, but I'm going to tell you what it is. It is a $10,000 cap. So your state and local
taxes, and we call that SALT, and you're going to see that
it is now a $10,000 limit.
And you're going to understand
why that's important, and why people are freaking out. People are going to be a little bit upset. Somebody says they can't see my screen and everybody else can see it, so it's going to be a computer issue. You may want to restart. The interest, this is another one. This is your mortgage interest. Oh and by the way, when you're doing your
state and local taxes, you can see by looking at the little form, state and local income tax, state and local real estate, and state and local property tax. You add those up, and
you're limited to $10,000 as a married couple.
If you're not married, you're single, then it's $5000, you can see
that number right down here. I will go through these things in greater. And I'll explain, and I'll
answer all your questions. But this is part of the calculation. So you would normally have
a number that goes here, and we're going to see
why that's important, especially for you folks, I think the hardest hit state is New York.
Then we look at interest paid, and this is for your home mortgage. And what they did here is they put a limit from one million to $750,000. And so you would just add up, and you'll figure out what
your home mortgage is, and you'd add that line up there. This is all part of your itemized. This amount, now they do this calculation, and there's two things
we have to be aware of. First off, we're now limited
to $750,000 of indebtedness, and it has to be a certain
type of indebtedness. It has to be for the acquisition. Actually, let me see if
I can spell that right. It's the acquisition or improvements. It's called acquisition indebtedness. And what that means is that if you, like they're actually going
to put it right up here, to buy, build, or improve your home. In other words, if I pull
money out of my house to pay for my kid's college, I cannot write the interest
off on that anymore.
And again, every time you
hear one of these things, you're going to realize
that we have a solution. That's why you're listening. We then go to gifts to charity, and they used to have a limitation of 50% of your adjusted gross income. Just picture that, 50%. It is now 60% of your
adjusted gross income. Which means you can
give substantially more. And by the way, someone just asked, isn't the mortgage
interest on old mortgages still a write off? Kind of. The amount, the one million
you're grandfathered in at, if you had indebtedness
prior to December 15, 2017, or if you were under contract
and you closed your loan before April of 2018. Excuse me, April 15 of 2018. So if you were right in
the process of refining, then you're going to be able
to go up to the one million. But it's still the
acquisition indebtedness. I'm not aware of anything
written grandfathering in to not have indebtedness.
But that's why they do
regs, and they let us know how they're going to enforce this thing. Casualty and theft losses,
used to be pretty basic. If you had it you got to write it off. But now, it has to be a
federal disaster area. So you folks that have
been impacted by the fires, the hurricanes, all this, then you're going to be able to write off the casualty and theft losses. Someone just asked a question. And Rogerio, I'm going to
butcher your first name. The answer to yours is yes. What about pulling money out of your home as a second mortgage to
buy a rental property? See, you're already getting ahead of us, and you're genius. Because that's exactly
how I want you to think.
You want to be thinking the
way that you're thinking. Yes you can write it off, but you'd be writing it off
on a different schedule. You're actually writing
it off on Schedule E. In other words, you're not
going to try to write it off as a home mortgage deduction, you're going to write it off
as an investment expense, on the interest expense
on your Schedule E income, on your rental income. Somebody says they got kicked
out, will it be archived? Yes, I'm going to record this, I'll make this available to you guys all. And so somebody says we
did this in December 2017.
Good, because you're right there. Other Itemized Deductions,
you're going to see this. See this little thing in 2017, where it says Other
Miscellaneous Deductions? And you're going to realize that they changed that little language. That's because there are no
more miscellaneous deductions. And yes, I said that right, they're gone. The one good thing they
did is they took away the, if you used to make too much money, they would have a limit
on how much you can take, and that is gone.
I think that was called
a Piece Limitation. Now that's gone, so there's no more limit. So you can make a ton of money and still get your Schedule A deductions, but what you see is with
all these limitations, it's going to be tough to go
over the Schedule A amount. Just to give you guys an idea of what the tax returns
are going to look like, this is again a draft, and you
can see it's pretty recent, as of July 31st. This is a draft of what your
1040's going to look like.
It's going to have a
page one and a page two. So page one, you can see, it's basically your personal information. They said we're going to fit
this thing on a postcard. And here's your page
two, and on the page two, you're going to see we have
the little standard deduction, or itemize deductions from Schedule A. And then you're going to see
something else too that's new, it's this line here, line nine. And this is called QBI, and that is a 20% deduction
on past due income. And I'll get into that a little bit, but that's going to be a big one. That's the one that they just gave us the proposed regulations on yesterday. And it's a lot of fun there.
It's like 170 pages, I
think, at the minimum. I should pull it up and just
show you guys how they write. Make your mind go numb. All right, so the reason that
I wanted to show you that is just to give you some indication of what they're trying to accomplish. And when I say They, it's
the Trump Administration, but you also have the IRS
trying to interpret this, and how they're going
to collect their money. They're trying to simplify it, and in doing so, it's going
to have an effect on you. Someone just asked, I'll get
into all your other questions, guys, you guys have some fun ones. We're going to see more and more, we're going to see more and more impact.
But I want you guys to understand, when they simplify the things,
what's the actual impact. And the reason that
this is relevant for you is because of what they
did to this next section. So we already looked at our Schedule A, and we said, all right, now we know we have charitable gifts, we have medical expenses
that exceed a certain amount, we have mortgage interest, we have, what else do we have on there? We have the interest
paid, we have our SALTs, and if there's any other
itemized deductions, which Miscellaneous Itemized are gone, but they still have a line, I don't know what else would be there.
There might be something hiding. Or Federal Disaster, Casualty Loss. That's what makes up your Schedule A. Otherwise, you're going to
use the standard deduction, which is now, for a
single person, $12,000. For married, filing jointly, $24,000. So they really jumped these up. I'm going to show you
what the numbers look like here in a second. So what it looks like is
they went from a single filer getting $6350 to $12,000. And this is versus Schedule A.
So Schedule A is your itemized deductions. So you always have to look
and say, which one's more? And I hope you guys are already seeing that if we have all these things that are part of Schedule A, and I don't get any benefit for them, and that does not include medical expense if you're paying for the
health insurance, think so. But otherwise, no. And I'm going to show you,
there's always a better way. I hate going on the Schedule
A, and I'll show you why. The standard deduction is so huge. And the numbers that we're looking at is actually going to
be pretty significant. As to whether it's going
to affect you at all, you're going to have to run a calculation. You're going to have to, like I can take a look at
your last year's Schedule A and say whether you're
going to be affected just by running it through
and saying, hey wait a second, here's the limitations
that we're going to put.
So if you're in a property tax state, excuse me, in a high property
tax, high income tax, so I think there's actually
four states that filed suits in the last month against
the federal government trying to get rid of that SALT limitation, of course they're going to
lose, but there's a bunch. I think it was Maryland, New York, New Jersey and Connecticut. I know that those are big ones. But what it means in English
is that right now, currently, we have about 46 million
tax payers who itemize. In other words, they're
taking the Schedule A. And here's the estimates, 13 million. So you're talking about you
may fall into that category of what is this, 33
million no longer itemized. And when I say Taxmageddon,
you have to understand, all of these things have an impact. It's not just, hey I saved some money. You incentivize certain
types of behaviors. And if nobody, so all of a sudden, what behaviors did we just
remove from incentive? You ready? I'm going to go back to it,
just because I feel like it, these behaviors.
What did we just take away
from having an incentive? Being charitable, paying
state and local taxes. In other words, all of a sudden, I don't get to write off
my high property taxes. Maybe I'm not going to
buy as nice a house. Mortgage interest, all
of a sudden I'm capped. So am I going to buy it? This is funny. I submitted to ask our short
term trading commissions written off in Schedule D or Schedule E. Neither, commissions are
usually added to bases. But anyway, just to answer
your question real quick. So, we have the big difference. And why is this so huge? It's going to impact certain people much more significantly than others.
And I just want you to
think for a quick second, whom is this going to impact? Think about the people who
benefit from the incentivized. What about student loan
interest that's still, I didn't see it on your Schedule A, I think it's still deductible
up to like the $2500 amount. They didn't do anything
with it that I'm aware of. Go back to this. So by now you now know what itemizing is, and why it's important. First off, it's because if we itemize, and there's certain expenses we have to hit a pretty
big threshold, for example, if you are married, filing jointly, your Schedule A has to
be greater than $24,000 for you to get a dollar of benefit.
If you give to your charity, let's say that you have some
real estate taxes of $5000, you have mortgage interest of $5000, and you give $10,000 to charity, you know what benefit you
get out of all of that? It's $20,000 and you're
married, filing jointly, your net benefit for all of that is zero. This is why it's significant. We've just disincentivized a whole bunch of different behaviors. So what should we expect? We should expect people aren't
going to be as incentivized to go out there and buy houses. We should expect that people
aren't as incentivized to give money to charities. And you're going to see the numbers. It's going to freak you out. Because I know that
charities are freaking out. Is that good?
No. Depends on where you live. So what they're estimating is that how many people are
going to have their taxes go up, go down. For the most part, everybody's
going to get a tax reduction underneath this new act, unless you live in a high tax state.
And then you're going
to see your taxes go up. So if you're in like, New
York, New Jersey, Connecticut, Maryland, chances are, California, there's a good chance your
taxes are going to go up, or stay pretty close to the same. So here we go. What are big chances? Somebody's like New York. Yeah, you're pretty much
I'll show you the numbers. I'll show you how it looks. I did a little quick
comparison for some tax payers. Big changes you're going to have to choose on what are the big change. So what's the single
most devastating change to the tax laws. Well the reason I'm going
to say you have to choose because there's a bunch
of them that have affected so I'd like to do the going going gone, miscellaneous itemized deductions are gone and if you don't know what those are, that's expenses related to investments and the production of taxable income amongst a whole bunch of other stuff.
But this is big. Anybody here who trades
and you have expenses and you don't qualify
as a full-time business and trading like you
don't qualify as a trader which that's been a moving
target for 20-something years, you no longer get to write off your investment advisory fees
or expenses or clerical help or expenses for your home office or the depreciation of your computer, the fees to collect
interest and dividends, even things like safe-deposit boxes although I don't think any of you guys are going to have that. Will you make the slides available? Absolutely. Then we have a whole bunch of other ones. So things like what are big ones that are going to impact you? Tax preparation fees. Indirect miscellaneous
itemized deductions. Here's where it comes in. If you have a disregarded LLC for example and it's paying a C-Corp to manage it, normally you would take
that on your Schedule A, gone is that. You can't do that.
You can't write off computers anymore, not on your Schedule A, not as a miscellaneous itemized expense. So this begs the question then, do you want your expenses
blowing on Schedule A? You should all be saying no. Then the next question is if
you're paying a corporation, would the expenses we pay the corporation like if we paid a fee, does
that go on to your Schedule A? If the answer is yes then
we need to change that and it's case-by-case. If it's real estate,
you don't have to worry. If it's trading like stock
trading, you have to worry. What we need to do is
change that to a partnership and I'll show you how that works. Don't worry guys, I have the solutions. We have lots of solutions in our toolbox. So here's the things we've got to look at.
I like using charts, I
like looking at things that I can summarize and make sense to me. So in the stock option investing, your expenses typically
go on your Schedule A. This is what just went away
so we don't want to have this but this is where they would normally go. This is why we have to be very cognizant of these types of activities. Stock and Option. If you're in trader status, your expenses go on your Schedule C, but
as many of you guys know, you have about a 700% higher audit rate than if you do through the corporation. Forex, same thing. Expenses if you're doing the 1256 but if you make a 988 election, if you don't know what that
means and you're in Forex, we need to have a chat because
you actually get to choose. You don't have to do a formal.
I think you just basically
make a notation on your return. You would get your
expenses on 988 but again, I try to avoid this line, this Schedule C because of this, that 700% more
likelihood to get it audited and then Futures goes on Schedule A. Crypto goes on Schedule A. If you're doing Forex and
you're doing contracts, futures, contracts and
Forex, then it's 1256 which is a 60/40 split
between long term gain and short term. Don't try to follow me if you
don't know what this stuff is.
It's going to have a minor. This is really good, we love this. We want your stuff to flow. Like if you see it landing on here, we still want it to. We just want to avoid these. So I'll show you how to do that. We use a corporation to do
that and then in real estate shouldn't affect you at all. Shouldn't affect you at all as long as you actually
have rental properties, as long as it is Schedule E is where you get your K ones
from your S-Corporations, where you get your K ones at
a certain states and trust. Where you get your K1 off of partnerships and where your rents and royalties flow. So let's say can you
still deduct computers for a first year business
organizational cost? The answer is not as
an organizational cost but as a startup cost
and the answer is yes but I wouldn't put it there.
I would make it a Section 162 ordinary necessary business expense and just reimburse yourself. We will get into that because that is what the rich folks do. Before we get into what the rich folks do, we got to understand
what we're going to lose if we don't do it right. All of these are no longer on Schedule A. If you know a teacher
or somebody who's paying out of their pocket for their employment, they've lost all their deductions and this is a Schedule A is a 1040. It is a 1040 Schedule A miscellaneous.
It's your itemized deductions. So it's not for a corporation. So you cannot write these
off if you're an individual and you have your expenses
going under your Schedule A. So what should you do? You should look at last year's tax return and look at your Schedule A. Those numbers will tell you
what you're going to lose. If you aren't rich
that's where you come in. I like that. We will help you. Rich is different. It means different things
to different people. Some people it's just the
freedom and let's see, it says Schedule E still apply if I have to rental
properties but no entities. Yes, so as long as you have
them properties, then we're good and that's what we care about.
If you don't have the properties, then we have to use a
different type of business and again what really comes down to is when do you become an active business. And so sometimes we use a C-Corp. Alright so options. You have two choices and
you guys already know this because you've been through our courses because you've been around us you know. You can either qualify
individually as an active business which stinks and in order to do this, if you are an investor that
means you have to be a trader or a dealer. We don't like either one of those and the other route is
for you to just create a business structure and
that's our preferred route because when we go to
the business structure, there's other ancillary benefits and if there's one winner,
huge winner in this whole thing from the Tax Cut and
Jobs Act it's going to be your friend, the corporation and that is because that corporation just got its taxes eliminated.
Not completely eliminated
but like cut in half. I'll show you how it works. So the first one is an
investment business. If you're an investment business, so this is stocks, bonds, futures, Forex, anything where you're doing
some passive activities, you want to make sure that
it's taxes as a partnership. This is a form 1065 and the
reason that you're doing this is because you want to be
able to pay the corporation at a profit or out of a
guaranteed payment to partner which just means I paid
it and it's a partner and the reason being is
because once that happens, it comes off the top. The expense no longer flows
under your personal return. So for example if I make
$100,000 in my investments and I do nothing, that flows
on to my 1040 Schedule D.
If I pay $20,000. Excuse me and that's if I'm 100% owner. Let's just pretend the
corporation is not there then that would just blow through. Now let's pretend that the corporation has a 10% stake in the business. Then now I would get boom
only 90% of that or 90,000 and $10,000 would flow
up into the corporation where it can expense it
and do whatever it wants. Now it can do all the expenses. If it doesn't have enough money, then I can pay it a guaranteed payment. I can say oh you need to
get paid $1,000 a month so let's pay it $12,000 in addition. What that does is it allows
me to deduct the $12,000 off of my 90 which gets me, what is that? 78 so then I would only have
$78,000 flow under my 1040 and now I would have this plus this. I would have $22,000 in my corporation.
And before you freak out and you say hey, boy I have $22,000 in my company. Boy this is going to stink. I heard my accountant said double tax. Chill out because the
double tax used to be bad. It used to be bad about what is it, probably 15 years ago. What it is now is you pay
tax at the corporate rate. You know what the corporate rate is now? Here see if anybody knows
and somebody could say, are we talking about a C-Corp for an LLC? LLC is not taxed and LLC
chooses how its taxed.
So an LLC can be taxed as a C-Corp, an escort for partnership or whatever. So that investment business
this could be an LLC, taxed as a partnership which
means it's filing a 1065. This could be an LLC taxed
as a 1120 as a corporation. You guys are guessing, lots of people. It's 15, 21. What about FICA taxes in
a Corp, does not exist because corporations
don't pay Social Security. They don't retire. They live forever. All right, so what we do is
we make money in the LLC, it pays the corporation
reasonable manage fees profit. The corporation pays the
expenses but it pays 21% so those of you who said 21% are right. It is a flat, whether it
makes 10 million or $10, the tax on the corporation
is now 21%, period.
What if it pays it out to you? What if you lose your mind you say I'm going to pay out dividends just because I want to
see how that's done? Then you are taxed when
you're the shareholder and you get dividends, it's
called qualified dividends. Dividends are taxed at ready, long-term capital gains and if you know what long-term
capital gains are taxed at it is zero to 20% depending
on how much you make.
If you are making less
than $70,000 for example, it's going to be zero. Doesn't pay anything in tax. So do you pay FICA if
you get paid by the Corp? Only if you take out a salary. If you take out dividends, you do not. If the corporation just
makes money, it does not. If the corporation just
gives you fringe benefits and so the way to look at it is whenever you have a corporation,
it pays compensation. And compensation includes, this is where accountants
screw it up all the time. Wages, fringe benefits and other bonuses and things like that. So what I care about are the wages that would be subject to
FICA or Social Security, whatever you want to call it.
Old-age death and survivors and Medicare or if it pays me fringe
benefits, the rule is unless it's an exception,
I have to pay tax on it. So if a corporation buys me a house, I have to pay tax on
the value of the house. If the corporation buys
me a brand-new BMW, I have to pay tax on the value of the BMW but if the corporation
reimburses my miles on my BMW, I do not have to pay tax. If the corporation provides
let's say this is a C-Corp, put C-Corp and it has a
medical reimbursement plan and it pays $50,000 for my
family for all of its medical and dental and vision
expenses for the year. I have somebody that got sick and I came out of pocket 50 grand, my corporation can
literally reimburse $50,000 and I pay zero in tax.
If the corporation reimburses a partial use of my home
as a home office, zero. I don't report it anyway. The corporation gets to write it off. That is a fringe benefit. If it says hey, you need
to have a cell phone because we're doing business all the time, we're doing real estate
deals all over the place, you got it you're now an employee, you got to have a cell phone, it can reimburse your entire
cost to your cell phone. You have zero tax. So can a sole proprietorship
single-member district LLC still deduct trading commission's
on stocks and crypto? So no. You cannot but you don't
typically deduct the commissions. I think they're usually
as a transactional cost that are added into the cost
basis of the stock again. We're not going to worry about this stuff, that's peanuts compared to
what we're talking about.
What we're really talking
about is the ability to move our money so that
we control where it's taxed and when it's taxed. And so if we have a very simple structure, I can decide how much money
I'm going to be pushing up in a structure so long
as I have it documented and so long as it's reasonable. And before you freak out about reasonable, understand that we have people going in front of Congress
all the time saying, 14 million dollars is
You're supposed to compare
to others in that industry but just think about
what it would cost you to hire someone to run your business. It's going to be usually
significantly less than what you're charging it and you're going to be the nervous Nelly. This doesn't happen. Do these numbers apply
to an S-Corp as well? Not on the medical reimbursement
but everything else, yes.
And the S-Corporation is
taxed to its shareholders at their level. So you don't have the 21%. You do get something else
though with an S-Corp and that is you get a 20% deduction and that's called the qualified
business income deduction which I'll get into here in a second. All right another example
let's say we do the same thing we have an investment
business but we also have some real estate.
So remember that investment business has to be taxed as a partnership. The corporation needs to be a partner and it gets ownership. So if it's a 20% partner,
it gets 20% of the profits. I can pay it a reasonable management fee and I can jump it up to the corporation where it's either expenses it out. If we keep it in the corporation,
it pays 21% on profit. I'm just going to say a C-Corp here just because that's what I tend to use.
I need to have another tax payer even if I'm expensing
everything out and I get to zero then it doesn't really matter. I'm not using an S-Corp
in this type of structure. You'd have to twist my arm. Then I'm also going to have
a real estate holding company and this one it doesn't matter whether it's disregarded or a partnership. It doesn't matter. What I really care about
is that it's real estate and it can own all of
its little sub LLC's. So if I have a real estate holding entity, you guys know I'm probably
going to put it in Nevada or Wyoming just to keep it out
of harm's way in your state and then you may have different state LLC.
So for example I may have a Georgia LLC, I may have a Tennessee LLC
and I may have a Texas LLC. And then this LLC's says Wyoming. It's cheap and because
nobody can take it from me and I do that. That's example of how I can run the money. This guy can pay if I want to, this guy can pay if I want to and just remember this
is a flat 21% on profit. If I can expense it out,
then I'm going to do that. Somebody asked if I
have a loss in a C-Corp can I carry it forward? Yes, up to 20 years. Do I have to pay myself W2
salary if I own an S-Corp? It depends on if you make money. If you make money then yes.
Somebody else said something about having some large education expenses. What about training? Yes
you can write that off so long as you have an active business. The reason that we do this is so because you can never
write off education commission or excuse me like conferences,
seminars and things like that in an investment business. You never can. It has to be at the corporate level but the investment business
can pay a guaranteed payment and do that. Now is $1.99 a ethical
the trading partnerships It depends on the income because it excludes capital gains and so it depends on how you're trading and what you're trading but the answer is probably going to
be a big no on that one but we can always use the other. So we could pay the management fees. We can get money into that thing. Other areas that were affected
is the entertainment expense and I'm going to listen to you guys all collectively start
to cry because by the way somebody just said can my C-Corp elective pay fringe benefits instead of wages? The answer is wages and fringe benefits are still compensation
so you got to put it under its big heading compensation and the answer is yes.
I've sat on many a non-profit
board where my sole benefit was fringe benefits from the non-profit. I get to go do the… What did we do? We had a big gala and one of
them every year was a big gala. The other one we did a golf tournament. Some of them they just fly you around they come to the meetings
and stuff like that. Yes, so yes you can pay just that. Entertainment expenses are gone though. We can no longer write-off
entertainment expenses. Gone, zip, zilch and if you're doing meals
as entertainment, gone. You're no longer going to
do entertaining clients.
Hey I took them out and entertained them. That's going to go out of your vocabulary. You're now going to have business
meetings with with clients and that's what you're going to do. Then you have a 50% deduction but they really that's painful. Doesn't that stink? Entertainment move to marketing
research and development. Orange jumpsuit, Lauren. Orange jumpsuit. You got to make sure that these things are going to pass mustard. Now if it's a directly
related entertainment expense, so I am in the nightclub
business and I go to excess down at the wherever that is, I think it's at the Wynn or one of those, the Encore in Vegas and
I am in that business, then I could write that off but it has to be related to my business. Directly related. Gone is the affiliated
entertainment expense. Somebody just asked in
my previous structure, does all money come from the C-Corp and can the holding company pay the owner? I'm not certain I
completely understand that but you could have the expenses
all coming out of the C-Corp and can the holding company pay the owner? Yes, of course it can.
What if I have a public relations and production company in Hollywood? Then Wendy I will leave
that to you absolutely if it's directly related to your business then you would be able to. What's the line between entertainment and promotional activity
like buying show tickets for clients and contests? Now that's a great one Liam. And what you can do there is if I give show tickets to my employees or if I give them to a prospect, that is an expense
because I am giving them something of value. They would have, in theory,
a taxable event to them. So like if I bought Le
Cirque tickets to all (mumbles) Let's say if you guys
know Cirque du Soleil, they're sometimes $200 tickets.
So I buy $400 worth of tickets
for one of my employees. Technically, that's a
taxable event to them. I cannot just give them stuff. I would get to write it off 100%. They would have to recognize it as income. If I give that stuff to clients, you're going to write it off
as a advertising activity. They're supposed to recognize
it but I doubt anybody will.
What if you have a business meeting including a meal with possible client? That would just be a business meal. Again you have to have an
expectation of a profit. And then someone says,
can you give show tickets to an employee as a
benefit for a non-profit? Again it's not deductible
for the nonprofit. It would be taxable to the employee unless it's part of the
So like there is an exception
for when you can write off certain types of things like
if your company sponsors a non-profit charity
event like a golf scramble or things like that, I believe it can still write those things off. What if a company incentive trip's a bonus and how is that taxable? If you're doing trips then it depends on what they're doing on the trip. If you're just giving
them a trip to Cancun for purely personal reasons, you're going to have a problem. Chances are they're going
to end up paying tax on the value of the trip. If you're doing it as a hey we're going to go
to the company meeting and we're going to have
events while we're there and it's part of working and
they go to summer, then yes. It depends on where it's
at but if it's like Cancun, actually it's North American region, you're going to get to
write that stuff off.
If you start sending them to France, no. You're going to have a
little more of an issue. Guys, I love tax stuff and we're going to be talking
about this stuff all night. I think we're going to be
going a little long here so I apologize. Going, going, gone the SALT limitation, why is this a big one? Well this is kind of fun. New York suit along with everybody else. There was four states that sued. This is one of my favorite quotes. I like just to pull things up
because I like to be annoying. Somebody wrote the lawsuit
a pure publicity stunt, it's so frivolous and unserious and it may as well have
been written and crayon. I like that. Even some of the liberals don't like this. They said this is one of
the stupidest lawsuits in the Trump era and the University Iowa law professor, Andy Grewal wrote, "If this lawsuit succeeds, "I will post a video of myself
eating every single page "of the Internal Revenue Code one by one." There's over 20,000 pages guys.
He's going to be bloated if he does that. Hopefully they're not going to win. It's just one of those things. States trying to show their constituents how serious they are and
question you're going to say, is why is this such a big deal? Well again numbers don't lie. What we look at is how many
people are actually writing off the state and local taxes and how much. And so here's the average
from the Tax Policy Institute. New York was the average size
of the deduction was 21,000 and 34% of its people
were actually claiming it. The big percentage is
like look at Maryland, 45% of its people actually
had the deduction. Then all of these guys are
going to be capped at 10,000. So it may not seem like a huge amount but just imagine you're having an expense that you don't get to write
off and more importantly, you're just going to be
taking the standard deduction.
It's going like 90% of taxpayers aren't going to get any
benefit for the money that they're paying to their state. How long do you think it's going to be before people figure that one out and start yelling at their state? Saying I'm giving you money after tax. I'm giving you money and I
get zero benefit, zero relief and somebody says $10,000 for property. It's your individual. You're hitting the nail on the head Alexa. This is what's so beautiful. This is how I want you
guys to start thinking from here on out. If I have a limitation,
my $10,000 limitation is for me as an individual, it does not affect business property. I write that off against the
income of the business property and you want to get
really really technical.
If I want to, I can allocate
what portion of my house and don't buy into this. The IRS is preferred way. There's like nine different ways you can write off a home
office and they always say, calculate your square footage and look at the whole
square footage of the house. No, that's the best for the government. That's the way they tell you
to do it, There's other ways. You could just say how
many rooms are my house. Let's say you have six rooms and one of it is dedicated to business, your corporation could literally reimburse
you for the business use. The exclusive and
frequent use of that room as your administrative office
on behalf of that company and you don't have to
declare it as taxable income.
You don't have to worry about depreciation but you have to write it off and the calculation does
include the depreciation also includes portion of the mortgage, portion of the utilities,
portion all those things including the property taxes. So let's say you're at property taxes and you're about $12,000, this is how you manage to get
the money into your pockets, make it deductible. You might only get to write off 10 but your business may be
picking up the other two and again this is the stuff
we teach all the time.
This is what would be called a reimburse. This is under an accountable plan and you can do this Becky
even if you're renting because we would take the rent value. You're still coming
out of pocket after tax to pay for that property. The way to look at this is when you have a corporation in the mix. You are now an employee
of that organization and it's no different than
if you worked for Microsoft and Bill Gates said, "Becky I want you to
work from home sometimes. "I need you to have a computer, "I need to have internet, "I need you to have a cell phone "so I can call you at 10 o'clock at night "because it's very
important what you're doing. "You need to do your
administrative services at home." In fact, in many of our businesses, they're sited in a different state and so the place that you're doing all your administrative activities is going to be in your home.
Maybe you're in Georgia
and you say alright, I have an office area. This is my dedicated office area. I'm going to use the computer,
I'm going to use the phone, I'm going to use all these things. Now the employer doesn't get to use all those things for free. He can reimburse you
and so the way it works is you have basically three choices. Normally people would just say, "Oh I'm not going to get reimbursed.
"I'm just going to write
it off on my personal tax." So it'll go on your Schedule A. That's out the door now. The other route is they say, "Hey, I'll charge my company
or charge my employer rent "for that portion." Well now you have a taxable event. You have to recognize the rent
and they're paying it to you and you're getting to depreciate it. It's going to be a circle. If it's your own employer,
you're paying yourself money just as compensation. It's silly. Plus you're going to have
depreciation recapture when you sell the house. Same thing with the home office deduction.
You get a depreciation recapture. The better way to do this is just to say, "Hey employer, just reimburse me." Here's how much my house is and you can do it two
or three different ways. My favorite way is to use
either usable square foot which means I exclude the
bathrooms and the kitchen and I get rid of things like my garage and I just look at the
usable square footage and I say how much of that
am I using, what portion. Or I just say how many houses do I have or how many rooms do I have.
Let's say that I have
six rooms and one of it is being used and I would take one-sixth, whatever that amount is. Probably 12 or whatever percentage it is. That's the amount of all my
expenses that I get to write off plus let's say I paint the
room or put a picture up, I can write that off or if
I get it wired specifically so I have internet, I can do it. If the sound just gone
try the other mechanism, everybody else can still hear. Just answering somebody's question. They're having some issues hearing. If everybody else can hear. So try the phone or try
your computer again. And this is true. Somebody just asked there's
no depreciation recapture with an accountable plan. Correct. It does not affect you. It is tax-free money
that goes in your pocket because the secret has to
be a partner for LLC's, no. If it's a rental real estate, you don't. Anyway so you get all this fun stuff. Somebody just said 203 I
don't know what that means. Do you still count the bathrooms as part of your total rooms?
No, you're going to take a look at the total rooms of the house.
That would usually mean
four walls or three walls with an access point. So could you use a bathroom? I don't think you use the bathroom. I've never used the bathroom but again, you run which scenario works best for you. So we'd looked at total square footage and we calculate how
much space you're using or we use the number of
available rooms in the house or you do usable square feet. Whatever one is going to get
you the highest percentage and you go that route. Can I rent personal property my LP? No, what you have to be as an employee and in order to be an employee it has to be a separate taxpayer that is unfortunately
you cannot be an employee of a partnership in
which you're a partner. So it has to be an S-Corp or C-Corp. That is just the way the rules go. All right let's jump off. So you guys see how the impact is. Again I'll get lost in tax all day long. Let's run some scenarios. This is how much will you owe in 2018 if you make $100,000 in New York? You're going to be an
effective tax rate of 23.95 this is including your state, your local, your FICA and your federal.
That's your effective tax rate. They're going to take 23, almost
24% percent of your stuff. If you were in Las Vegas with me, we don't have state and local taxes. Yay. Then we're just going to be paying 16. So just look at that difference. That's a big difference. The question is, do you
get any tax relief for it? It even gets worse. This is where you start looking at your state and local taxes
and you start realizing, I'm capped at $10,000. Here's New York or making
200 grand and we already know as a matter of fact without even looking at any other expenses. Without looking at any other deduction, that would be on your Schedule
A, you're already capped. You're already losing
over $6,000 of benefit. Your state local taxes
there are over 17,600 you're already losing it and
then let's just compare that to again our friend if you
were living out in Nevada. Look at that. It's $41,000 versus $59,000. I'm just going to go back and forth just because it's fun to do.
It's $59,000 of tax that
you're going to pay in New York versus $41,000. It's a huge difference. It's not fair. It's tinkle is and that's
why we call it Taxmageddon. It's like if you're in
one of those states, you're going to get hit unless
you do something about it and so that's where we're going to come up with some final solutions here in a second of what you can do about it and
what it really comes down to is following what other people that have significant amounts of money do.
Follow what they do
when you hear about it, when you read about it,
don't get mad at them. Say how did they do that instead. Alright next one we already talked about the mortgage interest. The mortgage interest
went from the million down to the 750,000 and the bigger one is that it's excuse me, it's only if you are… It's only acquisition indebtedness. Now this is a bigger one and the next one that I'm going to go into is one that's really near
and dear to my heart. That is charitable giving. This is where you're giving
money only if you need it are you going to give the
money to charitable giving.
A lot of people give their money at the end of the year. In fact I think December, about 20% of charitable
bequeathment are made because people are
looking at their tax bill to get the most bang for their buck. They're anticipating
that the actual giving in this country is going to decline by as much as 20 billion. It's estimated between
13 billion and 20 billion depending on who you listen to. The answer or the question
that you should be asking is why are they doing that. It's because right now
the current cost of giving is about you're getting about for $100 it's really costing you 79 because you're getting a deduction for it. Hope that makes sense. If I give $100 to a charity,
it really cost me 79 because I'm getting $21 of tax benefit. That's the average right now. The estimate in 2018 is 86 which means if I'm giving 100 bucks
it's actually costing me 86 which means I have less
money that I can give, all things being equal. Really tough. Really tough kind of stinkolas. And the charities are very
much aware of this going on because if you're used to giving money and all of a sudden you're
not going to get benefit for giving the money, you may
be less inclined to give it.
So what do we do? Well my solution is to get lumpy with it. What that means is you
lump up multiple years and instead of giving $10,000 a year where I'm not going to get a benefit, I'm going to give $20,000 every two years or $30,000 every three years
and before you think I'm crazy, lots of people are starting
to look at doing this. The other route is you
give assets, big assets once in a while like hey
instead of giving cash, I'm going to start giving
things that have appreciated. I'm going to give a
house or a piece of land or I'm going to give piece of art that's been in my family
that's worth a lot. I'm just going to give those things because I don't have to
pay tax when I sell them.
I'm just going to give that to the charity and let it sell it. Somebody just says I
have an LP under C-Corp. Can I rent a commercial property? I personally own the C-Corp. Of course Chris. In fact we encourage that. They're getting lumpy. There's another one. It's a Daffy, a donor advised fund. You can actually give money to
certain brokerage companies. They have these things set up where you're giving it in
chunks to the brokerage house but it's not going to the
charity until you direct it but you get the deduction the day that you put it
in the donor-advised fund. So if you are a prolific giver
and you want to keep giving, I'm just going to say it
might be better for you to do is just you know either
really borrow some money at the end of this year
and just give your 2019 a year in advance as long as it's written before the end of the year, you're good. Maybe bite the bullet on it
so you get some tax benefit but let's actually run the numbers and see whether or not you're getting a good size tax benefit so that maybe you're right on the threshold, you're right at 24 with your
current charitable giving.
Now every dollar above that
it's better to itemizing. So if I gave another $10,000 I'd get the full $10,000 of benefit out of my highest bracket. That type of thing is what we look at. Sonia just asked, is
there a solution for SALT? Well the states are
the states are suing… What was funny is a bunch of states started trying to call their income taxes, the state income taxes charitable giving because the states are non-profits and they got shot down. Their eggs are nailing them but they're trying to do all this again. Somebody says can we list
them again from the website? Absolutely. I know I'm going fast. It's because I like to
pack a lot of stuff in. I don't like a lot of fluff. I like to just get it into this and I could talk about this stuff.
There are so many little areas that we could just keep digging into. What it's going to come down to is making it relevant for you and in order to make it relevant for you, we're going to have to really look and see what things could impact you. So the three things the
two percent do differently that we're talking about the
top two percent in the country. Somebody just says can
corps give to charities and write off? C-Corps can give up to
10% of their net profits. S-Corps flow down to the
individual shareholders. Can a trading business C-Corp
reimburse you for home use? Yes. I own a property one on a person, I put one half in an LLC and a trust. Yes and there's everything else I think I've already answered. Where's the calculator Billy? I don't know which calculator
but I have a calculator that I use its really cool spreadsheet if you want to shoot
me an email or respond.
I'll actually type my email in here guys. A C-Corp can give to charity, yes. Let me see what I'm going to
do. How am I going to do this? I'm just going to put this in
the chat. Tmemphis@alglaw.com Feel free to shoot me an email if you want and I'll get you whatever I can. If an S-Corp rents personal
residence for meetings, can we still have the Corp
reimburse the office used? Now here's where it gets fun. Okay I love you but pigs get fat and hard to get slaughtered. What we do is we carve
off the exclusive use for the business but then I can still rent the rest of the house to the company, to have a corporate
meeting once a month too. Yes, so we like to double-dip
but we want to make sure that we're saying hey,
just the kitchen area. We want to make a little bit restricted if we don't want to sell again. Can C-Corp reimburse
me for one home office where my S-Corp reimburse for
a second office in the house? No, you're going to have
a tough time with that one unless it's like really legit.
We do get that popped up when we have somebody with the second property that they use only for their business, then the answer is yes
but we want to document the heck out of that one. Can you rent the house or part of it for a meeting to an LLC? Yes, absolutely and we encourage that. That's 288 subsection G too where you can rent your
house to your company up to 14 days a year and
it's actually per resident though we say it's per taxpayer just because we've never
had guidance on that. We don't get crazy but basically yes and it doesn't just have to be your house. It could be your second
house, it could be an RV so long as it has a sleeping
quarters and a head. It could actually be a boat, so long as it has those two things too.
What about an e-commerce business? Yes, you can absolutely do that even if it's taxed as a
partnership and not a corp. Leasing to an LLC. No, it has to be an S-Corp or a C-Corp to be a separate taxpayer and
the way the IRS looks at it is in order to be a second taxpayer, it cannot be you as a partner,
you as a sole proprietor. It has to be you as an
employee with the employer so it has to be an S or C- Corp. All right now we have to go
down and we're going to… This is the fun stuff. This is when we start
talking about the rich folks and what they're doing. Of course everybody is
rich in their own way but we're talking about the people that are making millions of dollars and where do we find out what they do? We go to the IRS data book. If you guys have seen me speak on taxes, you see that I use this like crazy to see who gets audited and who doesn't and then I make sure that we are the one that's not getting audited and we've been very successful at that.
We actually had a seven-year stretch where we didn't have any audits. It was weird in the early. I want to say, that was in the early 2000s where we thought maybe the
notices were getting lost. Nobody was getting audited. It was just so few people which is weird when you think about it. Now it's like the average
is about one percent. If you're an S-Corp it's
a fraction of a percent. You really have to do
something to get audited and then what I really look at is if they audit you, do
they any money out of you and what you'll see is that
if you were a sole proprietor, it's about a 94% chance that you're going to
owe money after an audit and you're going to get audited.
Let's say making $100,000,
I think it was 2.2 or 2.6 last year. So if they audit you, you're going to pay and if you're an S-Corp, it's
a fraction with a percent then it's about a 50/50 proposition as to whether you're going to owe money. So you tell me. 700% more likely to get audited
and when they audit you, it's a 94% certainty
you're going to owe more or do you want to have
like almost no audits and rarely do like maybe 50/50 shot you're going to owe money.
I'm going to go on the
latter of those two. So we go to the IRS data
book and we look and say what are the two percent
doing differently? One of the things that I've
noticed with the top tax payers is that they structure
their income differently than most people. In other words they're not
just making their money as W2. In fact, it's 33% to 37% depending on what year you're looking at. You are as active income. Everything else is coming
from a passive sources so investment income from rental, so it's rent, royalties,
dividends, capital gains, both short term and long term. That's where they're looking at and if I didn't say dividends,
dividends is a big one.
The other thing you do
is if you know somebody who's been very successful, it's just sit down and talk to them and they're usually pretty insightful when you're sitting there and
you're talking to somebody. I use an example of a client who said, hey because I always tell
people if you're going… Stock market is not a place
that you're going to make a ton of money. You don't play in the market
unless you really have an eye towards value stocks
and you're buying things that are going to pay you and she said, "No, my grandfather's
retired off of this portfolio "and that's what he does," and I said, "Well all I can
tell you is my experience "and my experience is
that it's really tough "to be a market timer
unless that's what you do." Like if you do it full time and that's where you really
spend your time I get it but I said, "My hunch is
that that's not the case "with your grandfather," because she said he traveled all the time and sure enough, she went there and talked to her grandfather.
The grandfather said yeah,
he was he bought value stocks that were paying and
his income was actually the dividends off the
companies that he'd owned for 20 and 30 years and he was able to live off of the profits of dividends. Just the profit paid
out of the corporation and it's funny because I always if you guys aren't aware
there's things called dividend kings, companies
that have been increasing their dividends for 50 years or more. Warren Buffett made Coca-Cola famous. It's not in the sense of the new Coke or the great flavor of
it or anything like that. He made it famous because
he identified it early on as a great value stock
and it's been paying out increasing dividends for 56 years. In other words, it pays out
its profits consistently and every year it increases it and it's been doing those
increases for over 50 years. So it becomes a little
different when you look at. So you just look at wealthy people and say how are you structuring it? How are you setting this up to where you're not having to run
around and do so much work? The other thing you do is you
pay attention to the media.
When the media starts railing
on somebody for being wealthy and says look what they
did like for example, right now we have a
president that gets hammered every time I turn on the TV and they say, look what he did here
look how he's benefiting from these new tax laws. I'm going to say rather
than shoot him down, I'm going to say what is he doing? What I know for a fact like for Trump is he has a foundation and he
has a structure of entities passing through to his personal return and he's carving off other
income into corporations. He's controlling how much money
he's actually going to have on his tax return I'm sure that's why he doesn't want to show it to everybody because he knows most
people wouldn't understand. Hey I'm making 100 million dollars a year. Well he's only showing probably… He's probably showing a fraction of that.
People going to say oh you're
not as rich as you say. Well, at the end of the
day what I care about is how much do I actually
have to live off of. The only time I'm really
going to care about the income on my 1040 so I'm
trying to qualify for a loan. Now the next one is someone
who advises wealthy people. If somebody says hi Maggie. You talk to someone who has
a lot of wealthy clients. That happens to be Anderson. We got a lot of folks
that do very very well. We have a lot of folks
that are in the middle and we have some folks that
are on the low end too. But what you do is if
you use the principles that the wealthiest people do,
you will get similar results over the long haul.
It's like working out. When I first start working out, I don't really notice
much of a difference. For the first two, three weeks
I may notice no difference until somebody walks up and says, "Have you been working out?" Then you say wait a second, I didn't notice any difference because the changes are so gradual but if you do what wealthy folks do, you will get similar results. That's why I follow and
watch them so closely when it comes to taxes
because I just care and I say, where are they going? Where are they getting their deductions? How are they controlling
things and then you realize that there's a bunch of rules
that they do tend to follow and this is what we, buy bitcoin stocks. I've known people that
actually mortgage their house over my like vehement objection, they my mortgage their
house to buy Bitcoin when it was at 19,000. Bitcoin.
(mimics explosion) I have a couple good buddies
that actually did the entity. Dumb ass, yes. So we don't let donkeys go to school.
But I also have some folks that did the initial coin offerings. It's amazing world, amazing world. They're working inside of clubs, inside of some of the casinos, meaning that they have coins
that actually give you access to the clubs inside of the clubs. It's like private clubs and people are snapping that stuff up. It's crazy. To me though that's not an asset. That is boom or bust. All right so what are
the wealthiest folks do? They isolate risk and activities. What they do is they take
whatever they're doing and they manage to isolate it. So if they have real estate, it's not going to be mixed in
with their stock investing. If they have an active business, it's not going to be tied
in and mixed in together with their investment real estate.
They're going to isolate those things off. They also have uncountable
plan and more importantly, they have a tax strategy. Generally speaking, they know where their money is going
to go before they make it and that's because they actually
set something into place and they said when I make
it, where is it going to go? If you know that you
have an accountable plan and you have lots of reimbursements, some people get mad at
me and they're like, "Well I have $20,000 of
expenses I can reimburse "but I only have 10,000 that's coming in," and I look at them and go,
"That's a great problem to have.
"You know where your money is going to go "before you even make it. "Now just go out and
make some more money." If somebody looks at you funny, you say just work a little harder. If you really want to, there's no reason why you can't go out and get
a second job if you have to. I'm just teasing. But like if you have a company
for example a corporation, I've seen this happen so many times. Sometimes it's the side
business that they start that ends up taking off and I've seen that more often than I can
count where somebody, say the example I use
in some of the events is the stock trader was
a gentleman and his kid got into the business
we didn't want the kid because he was 18 and a little bit, he's a little of a partier.
We didn't want him
touching the stock account so he did something else
and he built a website and he ended up selling the website for close to a million dollars. I always say like that's the
funny one, within a year. So that so the kid made a
million bucks inside the entity because the dad had a tax appetite and I always laugh about that because I didn't think the kid, like don't let him anywhere
near your trading account.
He's scaring me, because
again, he was a skater dude. We've had a bunch of those. We've had a guy doing golf courses, we have a great one
that was a snowboarder, he's still out there getting sponsorships but all these things were
brought into the business just because they had a tax appetite. They had expenses and they started saying well where else can I make a few dollars. That's a good problem to have guys. If you have a whole bunch
of expenses to reimburse, fantastic. You're not going to lose it. In fact even if you don't take it, I could still show you
a way to write it off. I don't like going into it but
it's called a 1244 stock loss so I've done that too where
someone just had lots of losses and they said well can I
just take the tax benefit? Yes, there's a way to do it
but I don't like to do that. That's like the exception. And
then the other thing they do is they create their own dynasties.
What they do is they create something that somebody can't destroy. The example I'm going
to use is very recently, the founder of IKEA passed away. His kids did not get IKEA. His kids got two board seats out of seven but the rest of it went into non-profits. I like that because non-profits don't die. Non-profits aren't owned. It's really tough to kill a non-profit and they don't pay tax. So you can actually create
a nice family dynasty. Whenever you see that Clinton Foundation, you hear about the Trump Foundation, you hear about all these
people and the Gates Foundation and Warren Buffett giving
billions of dollars and all this stuff, there's a
reason they're doing it guys and you can either sit
there and question it and say that sounds really fishy or you could say why are they doing it and how do I do it and it? Usually it comes down to
this point number three.
They want to create something,
they have enough money it's not money that's the issue anymore. Is they want to create something that's going to live beyond
them that somebody can't destroy because believe it or not when
I talk to the truly wealthy, one of their biggest
fears is giving their kids something that they're not prepared for or exacerbating an issue. Saying like oh my son, well
he's married to somebody and I'm worried that if he
gets a whole bunch of money, that that's going to be the
end of their relationship and so it's like hey,
rather than give them money, give them something to do and that is one of the things they do. They create their own dynasty. Here's quick lessons learned. This is a basic one. This is just from years of doing this and working with people and
looking at their tax returns and seeing who makes
money and who doesn't. Businesses earn money, they spend it and they pay taxes on what's left, whereas individuals earn money, pay taxes, and spend what's left.
It's a subtle difference but it makes all the difference in the world when you talk about long term investing. The best example I can give you is how businesses are treated
under this new tax law is the corporate tax rate is 21. Top tax rate is 21% and
you get a 20% deduction on qualified business income. Anything that passes through to you, you can qualify for basically writing off 20% of that income right off the top.
There's a bunch of bells and
whistles that come with it but that's the difference
between a business versus individuals you
have a 37% top bracket and you have a limited itemization. They took away a bunch of stuff from you. So like if you can't figure that one out, used to be the highest
corporate tax rate was 39%, now it's 21. They literally cut it in
half and what did they do to the individual? They gave you a two percent off the top and then they took away
bunch of your deductions and they're going to force you
to do the standard deduction. Again 13 million people are
going to do the itemized versus what was it? 30 or 43 million. They literally just took
all your deductions away and said and everybody thanked them. Can my S-Corp pay my personal phone bill or should I pay from
personal account reimburse? I like to see the reimbursement. So you just want to have
a reimbursable plan. If we did your entities,
we already put it in place. All right so let's do one final example then I'll show you guys where
you can get more information.
This is like the example of somebody who has some
real estate holding, some investments holdings,
see their kids over here. Where's my little pen, I
got to find my little pen because I like to draw
circles around stuff. There we go. So we have the kids, here's
mom and dad sitting over here. They have their real
estate holding entity here, they have their let's say this is a C-Corp and they have their
investment business as a 1065.
Let's just walk through
this how this looks. Top bracket on the corporation is 21% so we already know we
have another tax bracket that we can share with and so if I make a whole bunch of money,
I don't have to have my personal tax right away. I might want to just
shelter that for a while. My real estate all these
guys are holding up into that holding company. So if real estate one
makes a bunch of money, two breaks even and three loses a little, that's the net that I'm worried about. I get my depreciation, everything else but if I have a bunch of extra and I don't want it to flow
under my personal return, I can pay it up to the
corporation a management fee and guess what? QBI, I get a 20% deduction
so long as I qualify. You know for sure that you qualify if your taxable income is below
157,500 as a single person or if you're married, it's 315,000. You don't have to worry
about anything else. If your taxable income not
your adjusted gross income but your taxable income and this is after we get
all of our deductions to our retirement plans everything else.
Even giving money to the charity, like that we can give money to the charity to lower my taxable income
so I qualify for this, yes you can people. Yes, yeah sure you can. You can actually decide
at the end of the year because I do this and I say, how much money do I want
to pay to the charity? I have a charity and I give
money at the end of the year, every year as long as I write the check before the end of the year, I can just take it right off the top and then my taxable income
is what gets adjusted. So I can actually… It seems like the government is incentivizing creating corporations. Yes, they have been for a long time. It's been years that
they've been doing that. It is a completely different world when you go into corporation. Here we'll go back into this. I love stuff like this by the way. Is when you have a little
structure like this then I get to decide,
do I have to give money? No but they just increase
my adjusted gross income.
It went from 50% to 60% guys. If I make $500,000 of
adjusted gross income, how much can I give to charity? This could be my own charity. So if I have 500,000 and I
don't qualify for diddly-squat, I can give 300,000, 60% and now
my taxable income is 200,000 and I get to qualify for the QBI so I even get more deduction
on my rental real estate and everything else, I'm just running into my
corporation if I feel like it.
I'll go back to this
so you guys can see it. What happens if my income is above 315? It depends on the type of business. If you are in the professional services, you're toast, you're done. You don't get any QBI. If you are in any other type of business where it's not on the reputation skill, accounting, tax or anything like that, law, medical if it's not in those fields then they do have tests of the
greater 50% of the W2 income that's being paid out of that entity or 25% of your W2 plus 2.5% of your assets put into like it's a calculation. You don't want to get into this because somebody says
you got a look at crypto. I know the crypto. I like crypto and I know how it's taxed. We need to take a look at that. We could take a look at it of course. Will pharmacy fall under medical? Yes. They're just giving out
us all the proposed regs but everything looks like it is and then before you
listen to these crazies that go out there and say
hey, you can bifurcate it, you could have a portion
of it that's the pharmacy but then we'll make another company that is moving the money
out of the pharmacy and we're going to take
your pharmacy business, we're going to separate it.
No, they're going to aggregate it together and they're going to treat it as the same. Qualified Business Income. QBI means Qualified Business Income. It is a 20% deduction on flow through qualified business income. It sounds like we need to do
that class too and we will and now I'm just going to
say how do you learn more? Well one of the things
that we do is Tax Tuesdays. It's about every other
week and by the way guys, we're probably going to do
one in Spanish here coming up. I'm just being annoying but I have so many clients
from all over the world and a lot of them speak
Spanish and sometimes it's fun.
We have a bunch of
Spanish-speaking accountants. So we'll end up doing that too so if you're someone who has any trouble with the technical speak,
then that would be fun. Otherwise I do this
about every other week. For a long time it was Ronnie with Hagar but I'm doing it now. We did this last week. Was a lot of fun, they're fast-moving if there's any questions
you could throw out there and then we're going to come up and we're going to post a few questions that we get from I think it's
email@example.com if you can read my handwriting. webinar@andersonadvisors. If you send in a tax question, then we will make sure
that we are answering it and if there's a whole bunch of good ones, then we will go through those. Alright so someone says
did you see my question? (mumbles) I know that. I get this. I get this all the time when I'm having conversations with people. They're like hey Toby,
how would you like it? Let's see, what do I have? I'm going to try to find your question.
I have hundreds of questions
that came in during this event so if I missed your question, I apologize. There's quite a few. I don't think we're going
to have time to go over because we're about 20
minutes over as it is. We will record this and then we do record the tax Tuesday as well. Topic 701, I don't know
what that is Crystal. Give me a give me an idea. I'm going to go through a few others where we can just continue to learn more. There we go. The Tax-Wise Workshop, I
teach a two-day workshop. You can always come to that.
We're going to go over at least 25 different tax strategies, maybe more. The Tax-Wise Workshops,
if you come out to them most you guys if your platinum
you're going to get tickets.
I think you get tickets every quarter so it should be free for you as long as you register
and actually show up. If you want continuing education, a lot of our courses are qualified both considering legal education and qualified education for accounting. You just let us know and the next one, the other place that you can learn more if you want to actually go through oops, here we go. If you want to do a tax
strategy on our website, you can go to our tax section
and you can always fill out a request to go through a quick consult where we can start looking at it.
What I want to do though and more likely is get you into our tax department and if you're already
in our tax department then just say hey, I need
to have a tax review done and I need to look at whether
I'm going to be impacted by these new tax laws. We can do some studies. Now here's the caveat to all of this is these tax laws they
still haven't given us the guidance on it. We got guidance last
night on a portion of it but we still don't have the
guidance on every section so some of this stuff is going to be, hey we're going to have to
play a little bit right here. Our guys are really
good and I'm pretty good about saying hey, this is how I think.
I'm 90% certain we're going to take the most conservative
route but they may do a little tweaky on us and
if you guys know how we are, we tend to follow the black letter as opposed to the gray areas. I want to see the black letter of the law and then you would keep
everybody out of trouble. Let's see, hope you can do
a webinar on platinum again. Single member trading, stock options, getting married this year.
So hey I did do a big trading one. I did it for a group so
we can always give you the recording on that. I actually did a three-hour
webinar live stream on it just on taxation for you future traders, Forex, stock traders, option
traders and cryptocurrencies. Is a 501-C3 a corporation? If so is it a C? Is a 501-C3 and it can
give benefits as well.
In fact this is what's beautiful is a lot of you guys you have employees in your other business
and everybody tells you, hey you can actually do
your medical reimbursement. The way around that is actually to open up your own non-profit and actually get involved
in your community and start doing cool stuff and
then it can actually give you a medical reimbursement
and the reason being is because nobody owns it.
It's kind of fun, if you
guys like that sort of thing. I like that sort of thing. Alright so here's our agenda. What is itemizing? Why is it important? We went over that. What is the single most
devastating tax law change? We said traders but it's for everybody. Tax law change. You guys get to decide that
and then the three things that the top two percent do differently, a lot of you guys are already doing that and where can I learn
more to see what I can do? You guys now have a whole bunch of it. Somebody asked a question. It was about the foundation
and a non-profit. A foundation is a technical term for someone who doesn't do
anything with their non-profit. In other words it's not doing anything other than giving money
to other non-profits and it has to give five
percent of its assets away and there's lots of little rules with it. It has to give five
percent to another 501-C3. A 501-C3 is generally speaking, it's going to be a corporation.
The way that I do them,
they're all corporations but it could be a trust
unlike the Hershey trust that was started off, owns a big chunk of the Hershey publicly traded company. So a 501-C3 is a corporation
but is not a C corporation but it is treated like
a business for benefits. It could actually do
the same benefit plans for its employees but just remember, a 501-C3 does not pay taxes and it can receive money from
third parties that they deduct as a charitable donation and then it goes under that Schedule A.
So now you're starting
to see that everything is like pulling a string. So everything's affected. So if I'm going out and I set up a 501-C3 to do let's say affordable housing, I'm doing how to hide properties. I'm doing houses for
people that are veterans or single moms, whatever. I'm doing something
that would be considered a charitable activity, I go to somebody and say, "Please give me money," I have to be cognizant that
they may not get any benefit from giving us that money if they are using the standard deduction.
You really want them to
get a benefit out of it so you're going to ask them to
give you a big chunk of money maybe give you a house and say, take a big huge write-off once in a while and then just give it to me periodically. Every five years give me something. That's the type of
thing you're going to do or you fund it yourself but
you actually have to be doing something that's a charitable activity. Now if you're doing that,
a charitable activity then you are an operating charity.
You're no longer a foundation. You're considered an operating charity and you do not have to
give your money away. You can actually hoard the money. So the example that we like to give is the Hershey Company
since I used it earlier. Started in what, 1905. Milton Hershey passed
away a few decades later, no kids, it's worth
12.6 billion dollars now and educates 2,000 kids
a year, owns a hospital, owns a bunch of stuff in Lancaster County and just does some amazing things and it just continues to
grow and grow and grow. There's no retained earnings,
there's no tax on that stuff so that's actually pretty cool. I don't know how I got off on that one. I think someone kept
asking attached questions. All right so I have a few more questions, now we're going to get rolling. Somebody's asking about crypto. Crypto is not a currency. Crypto as a capital asset.
So when you buy and sell crypto, it is treated like selling stock and if you buy something
with crypto currencies, it's like selling the
stock, turning it to cash then buying it so we actually
have a capital gain event, you have a taxable event and
then you actually have basis and then you have something taxed but I have a bunch of
stuff on the crypto stuff.
So I appreciate that and
then another question, if we wholesale property in
the San Francisco Bay Area with the new laws how
would the income be taxed if done in our personal name versus C-Corp versus LLC member versus
LLC taxes the Corp? So if it flows onto your personal return either as a single member
or as a partnership, it's going to be treated as active ordinary income at the flip. You're a dealer. If it's a C-Corp, it's
going to be taxed at 21% and then you can expense
it if you want to do and if the LLC's tax is
a C-Corp, same thing. LLC's do not exist to the IRS. The LLC tells the IRS
how they should view it so an LLC could be taxed
as a disregarded entity, it could be taxed as an S-Corp, it could be taxed as a C-Corp, it could be taxed as a partnership. You tell the IRS how to look at it. How do we re-listen to this? we will send you out the recording. I'll be posting it
somewhere and I'll make sure you guys all get copies of it.
Glad to spend some time with you. I think we said we were
going to do this for an hour, I think we're half an hour over but I've never been
accused of being brief. Thanks again guys for hanging out with us. Really appreciate it. If you have any other questions, always feel free to shoot us an email and if you have more
questions, actually ask them. The best thing to do I'm
going to put this back up. I'm not sure if I have the writing on it but webinar, there we go.
Webinar@andersonadvisors. Send in your questions. The harder the better so
that we can answer them during our Tax Tuesday. I'm going to start trying to
post those ahead of time too so you get to see ahead
of time what's coming out and we'll catch you in the funny papers. Bye guys..