How To Structure Your Side Business | Tax Tuesday #183
Hey, guys, this is Toby Mathis, and you're watching Tax Tuesday. This tax Tuesday is going to be a little bit different since it's the holidays. A lot of my staff is out, but what I wanted to do is put together a recording because I'm out too and make sure that you get something for the year end. And we're just going to do Rapidfire. We did this kind of last year or two or I just did a rapid fire Q&A off of questions that have come in.
You can still ask questions. You can still ask questions via the Q&A feature and chat, and we will have limited staff handling it. But you can also send in your questions to tax Tuesday. So let's jump in. First up, yes, I am teaching tax day to day and Clint the cat, we'll see where he ran after. He'd probably making a mess somewhere because he is pretty good at making messes anyway.
So we are your pilots today. We're going to jump in. Typical rules is you could ask questions via the Q&A feature. Again, I have limited staff due to the holidays and I'm not sure how many people are going to be on for you, but you could still ask and I would say email and your questions of tax Tuesday to Andersen Advisors.
If you need a detailed response, you're going to need to be client. And what does that mean, by the way? Some people ask that and I'll just give you an answer. You say something like, Hey, if I have a business, can I reimburse myself for business? Miles? We'll respond back whether your client or not. Yes, you can you can reimburse at the at the at the mileage rate the diary prescribes.
Right now, it's 62 and a half cents mile. And you have to track your miles. You're you're responsible for keeping track of both your business and personal usage on a vehicle. If you write and say, hey, I have three cars and I use two of them in one business and another one in both businesses. And I pay the gas at a business. One and I want to reimburse certain expenses at a business 2 to 4 for the third vehicle.
But the business, the car one and two really is being is is being used equally between two businesses. And I don't really if it starts going down that path, you need to be a client. Here we go. It's supposed to be fast and fun. An educational hopefully we're going to give you the best and fun and educational all in one pack. So let's go through this.
All right. Last year was the first time I wasn't able to take investment real estate depreciation or deduction due to AG over one £50. It's hard to believe. I would think that many real estate investors go over that. As such, I've limited myself this year and wondering almost too late if I should go down. My gains. Were tax losses hard for me to do?
I don't have too many necessary losses or even losses that I don't know or don't think will get back up. But it seems a way to reduce my AGI. How do I help them? Multiple unit landlords do it. I'm thinking five houses without stock could get you up over the limit. So what's being described here is actually for 69, which is passive loss activity rules. And there are whenever you have rental properties, it's generally going to be passive income.
Businesses in which you don't materially participate are passive in the rule is passive losses offset passive income only and then they're carried forward until you either get rid of the business that get rid of the investment or you have capital a passive income to offset that you can use those losses against. So this person is running up against something called active participation. So there's really two exceptions to the rental rental passive loss, and that's active participation where you're managing the manager and it has an AGI phase out between 100,000, 150,000.
The second one is real estate professional status, which we've talked about. It does on tax Tuesdays in which you can go to my YouTube channel and read all about, but it's a much higher threshold. Lot of people hit that active participation, but then they phase out. And you're absolutely right, it phases out for a reason because once you have a bunch of houses, the IRS is trying to keep you from using your real estate losses, from offsetting your other income and depriving them in their minds of income or Congress. Who broke the law? Who says, hey, we need our money, right? So this is where you get into that phase. Out in the phase out really? 100000 to 150000.
So you've probably been phasing out and you just didn't realize it and maybe your loss was small enough you didn't notice it because it's up to 25,000. So maybe you got a $5,000 loss and you did it. You made $125,000.
So you could write off up to 12,500 because you're halfway through the phase out of 25,000 and you didn't even notice. So now you notice in that AGI becomes important and so you could do certain things to lower your AGI and harvesting capital losses is one of them. Also, HSA is depending on whether you have a family or just you, it could be 30 $600 if you have a high deductible health insurance plan. IRAs are another methodology for lowering AGI. If you have a side business and you have self-employment taxes, those could be used for certain educational expenses.
If you're an educator, there's some other expenses, there's some little things, little quirks out there that lower your age. But those are the big ones. And yes, you've got to be cognizant of it. That's why you do some tax planning. But it's a really good question and congratulations on your success. And I think that what's going to end up happening is if you have five houses, eventually you're going to start seeing those rents become a little bit annoying and you're not going to have to pay tax on the rents because you're going to have these carry forward losses.
So there's going to be years where all of a sudden you start having more and more money coming in, you're not paying tax on it. Otherwise you can write off the loss up to that phase out of 100, 250,000. So once you hit 250,000, you're right. You've lost your ability to take passive losses against your wages or your other income.
You still you don't lose them. They carry forward. So, you know, if nothing else, at least keep that in mind. Number two, my husband and I have full time corporate jobs, but also have small side businesses, fantastic remodeling, party rentals and online sales.
It's really diverse. What are the different that are in different categories? How is it best to structure everything for easy accounting and tracking of finance from all of these? Thank you. So whenever you know the general rule is you want to isolate any business that's doing business with some with somebody else, and you probably want to isolate them from each other unless you don't really care about it. Even if it's all your effort and there's no value in those businesses, then you could actually put it in one business, mix it up depends on what the revenue is, as to what type of structure.
If you have losses, for example, and you just kick it down and it's offsetting your other income, you might want to be an LLC and you could even be disregarded as long as you're not making a lot of money. I'm not too worried about people being sole proprietors, so providers pay a lot more in tax on their net profit. So if they're profitable, it's pretty they can get it, it can get bad, and their audit rate is significantly higher when they make money, especially if they're making up 200,000 bucks. Your audit rate literally goes like 800% higher than something like an escort. So what I would say to keep your structure simple and have one set of books is to have one business.
And I would have it is more than likely as an LLC and either ignore it if it's if it's going to create losses or set it up as an S corp, if sometimes it's losses, sometimes you have good years and until one of those businesses matures is you can operate that way. If one of those businesses starts to take off, that we just spit it out and set up another business, another structure for it. And you could even have a parent structure, then you'd have multiple.
But anyway, I'm not going to get into too much detail. This is one of those things where, hey, if it's like a three or $4,000 side business and each one of those is two or 3000 bucks, and really what it's doing is breaking even and creating some losses. Then I'm probably going to lump it together, disregarded.
If it's making money, I may be lumping it together. And in making an S corporate C Corp, depending on what your situation is or whether you have whether we could possibly get a lot of tax free reimbursements out of a C Corp, there are some play that you look at and then eventually look at isolating them. Once they mature because we don't want to contaminate them from each other. But what's the most important thing and this is just the asset protection attorney sitting in B is isolated from you. Make sure that, hey, I do a party rental, somebody the chair breaks and somebody has a spinal injury that you're not looking at it something that's going to impact you for the rest of your life as somebody comes after you with judgments or things like that.
Or if you do an online sale and somebody has product liability of some sort or something that you created and they say You got I'm sick or whatever, you know, just fill in your blank remodeling, you know, hey, you know, I was working and I forgot to put some glue on a pipe and it flooded out the whole house. I have actually seen that and the damage is over one and a half million. And, you know, you got $300,000 policy. You're looking at some serious liability and it's personal. So we want to isolate that for sure, put it in its own box, keep it separate. All right.
The difference between investor and developer products protects purposes, protects. I really don't know what that mean. I love questions like this because it's not a question.
It was just stupid. But I saw it and I was like, Wow, this will give us a chance to talk about the difference between what an investor is and a developer is. Because for at least purposes of the passive activity loss rules in real estate professional status, an investor is a passive activity and a developer is a trade or business. So if you are a developer and you are doing things to develop properties personally, that can be that is a trade or business and that means that it's ordinary income. You could be looking at self-employment tax, but more importantly, you could qualify as a real estate professional and unlock all of your passive activity losses to offset all your other income. Like it could wipe out a good chunk or W-2.
It could wipe out other income that you have coming in from another business. It can really do great things for you. So I wanted to point that out that when you say what's the difference between an investor and a developer, well, okay, there are two.
I would still isolate them for asset protection purposes. You know, even from each other, because the developer sounds like you're doing something on property before you sell it or you work with third parties. An investor is somebody who's buying things for kind of the long haul.
Generally, an investor in real estate is somebody who's selecting the property and somebody else is managing it. Those are two very different activities. You isolate them so that they don't contaminate each other.
Even on the investor side, the real estate, you know, as we're going to say the same thing over and over again here to understand which is isolate at risk assets. And if you're just starting out, isolate each one because the loss of one or the loss of the three properties, the loss of two of the three or three of the three could be absolutely devastating. If you have 30 properties, you could be isolating it in groups of five for all I care ten. Because if you lose ten, you still got 20. You're not going to care like it's going to be hurtful, but it's not going to be catastrophic. Whereas you're just getting started and you put all your properties to an LLC for example, if you lose them all, that's pretty devastating.
Next one Do I have to open a41k by the end of the year to make contributions so the answer really good question and I'm going to put a question mark on it just because that's going to bug the heck out of me. If I don't see it, that's a good question. Here's the thing. It used to be that you had to now you have to have a41k open if you're going to make employee deferral contributions.
So like if you're going to defer your salary, you have to have that salary run before the end of the year. But the employer contributions to 25% contributions, for example, of a solo for one K, you could actually set up the 41k after the end of the year and you could make those contributions all the way up until the business filed its taxes, which could be September of next year, if it's like an escort. So do I have to open it for one K by the end of the year to make contributions? If it's your deferral, the answer is yes. If it's the employer that wants to make a match towards 25% of your wages, up to the $67,000, 62,000, it's then no, you can actually do that after the year after the year starts. My CPA has suggested I take late election of A. S corp. C Corp was formed and of June of 22, I've had so this is interesting.
I've had plenty of expenses building the foundation of wholesaling business, but no deals yet. So it sounds like there's a business that was incorporated in June. So here we are six months later and they're saying, hey, we should take this as an escort, but no deals yet with tax filing. I still I do a late election if it asks corp will my taxes be filed as an escort, as a C Corp? And how does that impact the business staff expenses I've had since March of 2022? So there's a couple of big questions here. Whenever we look at a flow through entity, they always kind of look at you.
So if you make the the late pass election, which which generally speaking, you can I know that some people are, hey, what is this thing? It's I did not make an S election and there's a revenue procedure where you can file it as corp return and say, hey, I do excusable neglect or something along those lines that I did not make the election in time. And but I've treated it as an as corporate environment, my taxes as an escort. And I assume that they're doing that. The CPA is doing that because they they want to take losses, because they want to take these expenses that. So the trade or business that you set up, but you haven't had any deals yet, the IRS could take a position that you're not in business yet. They've done it in the past.
There's actually a court case on where somebody was not entitled to their expenses until they actually did a deal. And once they did the deal, then they could write off the expenses and they had written off the expenses in a tax year. Let's just pretend like it's that it was, you know, 2021, but they didn't do any deals until 2022 in the in the IRS said, hey, your taxes in that year, we're not going to allow you to take those losses. It was the Woodward case. But anyway, so you could do that and you're still entitled under either case. You have these startup expenses.
Generally speaking, my suggestion is that C Corp saw a trade or business today, that they're started in year. It's a lot less of, Hey, I'm messing around with this thing than I had my first deal. And you're not trying to take the loss, right? The loss is staying in the C Corp. The IRS is much more forgiving of that than, hey, I took it. I wiped out some of my W-2 income, especially if you're in a higher tax bracket. So just food for thought is the business started.
If you have done no deals, there's a good argument that you have because wholesaling, you're probably doing a bunch of mailing out and everything else you get to say, hey, the day that I started doing that is the day that I started this business, in which case that if you had losses, you could absolutely take it. Otherwise, which I think is a great argument. I don't know how the IRS would would form on it. Otherwise. It's grabbing the C Corp and you still grab all those expenses of startup expenses or as as as business losses. Because if you haven't made any income and you've been occurring expenses, you're going to have losses.
Either way, I think you're going to be probably in a similar situation. So I don't know if it really matters, but you have a good CPA. They're looking at it and they are aware of the ability to make a late election and they're probably thinking on your behalf. And I don't get in between people and they're good CPAs.
I'd just say, Listen to the CPA. You may just want to say, Hey, is there any issue that they could think about when they started that business? They probably say, no, it's the date you had shareholders and it's the date you started your business in a corporation. That's generally the case.
And you could say, well, you know, just kind of do the math and say, is this something that I need to take right now? Or, Hey, maybe we just wait till next year, or maybe we wait until after the first tax year and then we make an election another year. It all depends on what you're doing. My experience with wholesaling is that if you put the energy into it, it'll start to pay off pretty quick and you're going to use up those losses anyway. Okay, how could I make sure our Utah based kids pay minimal tax on the sale of our property in California? When we die, we know it will be stepped up in value. When I sold my own dad's property in California when he died recently, we paid a big tax on it to California's non residents.
Should we sell it and do a ten nine or a 1099 exchange rate? Probably think of a 1031 exchange before that I lived in a condo for nine years and bought a house last year with 5% down payment. The condo was rented out. If I sell it now, we'll have to hold out for sale. This is probably looks like it's two, two separate questions that are mixed into one. So let's let's answer the first one.
So I'm just going to put a line through this guy and somebody is asking a couple of questions. Right? Here's the deal. I'm not certain about Utah, but I am certain that it's really odd because California doesn't have an inheritance tax period.
And they haven't had one since the eighties. So I'm trying to think of how they taxed you. When your dad passed, there was a step up in value. So I'm trying to think of what you paid on the big tax ID.
Mike My thought is you must have been in a state that has an estate tax and I know there's 12 and I'm I know most of them. Maybe you lived in a state that had an estate tax. And because you live there, the state and Kurt charged you the estate tax because California sure as heck, wouldn't it? So I'm trying to figure out where the tax came from. It's very curious. But the premise here is, wow, I mean, like, I just don't see it that easy. And I'll tell you something that actually did occur where somebody came up actually to me today and told me about this, they claimed a property the parents did to the kids because they were concerned about taxes when they passed away.
And what they did is they ensured that their kids would pay a tax when they passed away, because if they had done nothing, there would have been no tax because you have a step up basis and they were well below the federal exclusion of the state exclusions of federal estate taxes, which are over great. Now it's $12 million plus per individual, over 24 million as a married couple. And then there's states like Oregon and Massachusetts. I think their their state tax exclusion is down Oregon's million.
I think that I think they're the only ones along with Massachusetts. I think Massachusetts pretty low, too. But most states, the vast majority, like as in like almost 40 of the states follow the federal.
So like there would be no tax. So again, I'm trying to figure this out. The 1031 exchange, I think what they're saying, it's a 1099 is maybe we could sell it, not have any tax and keep the basis low. Maybe you could sell it to the kids. Maybe that's what you're thinking. But again, you're recognizing tax that you wouldn't otherwise have to.
So I'm a little bit confused. I don't understand where you got hit. I would love to see it. If you're out there, send that in to tax Tuesday at Interested Advisors commentary. I'll do a follow up on it because it doesn't make much sense to me unless there was I can't think of anything. What what would cause somebody who passed away for you to have a tax hit when you sold the property because you had to step step up basis.
Just there's just something that's weird there. Unless your state has an estate tax, in which case you got hit with that, which means if, you know, just your kid shouldn't live in a state that has an estate tax, if they're concerned about this, here's one. And then the second question is, I lived in a condo for nine years and bought a house last year with the tenant or 5% down payment. The condo was rented out. If I sell it now, we'll have to pay capital gains tax. If so, how can I avoid paying capital gains tax? So this is actually a really good question and pretty straightforward.
So you live in a condo for nine years and then you move out the the the rule that exists that allows you to avoid capital gains on the sale of a primary residence is section 121. So it's 26 U.S.C. 121. And it says that if you lived in a property as your primary residence for two of the last five years, if you're single, you get a $250,000 capital gain exclusion.
If you are married, you get a $500,000 capital gain exclusion. So in here you moved out of a property and it sounds like last year, so you would just sell it within three years. So three years of moving out.
So once you left, now you have a you have a five year lookback. All right. In the last five years, did I live in that property for at least 24 months? The answer is going to be yes, all the way until you get to month 37 of where you're renting it out. So just make sure you sell it before it's three years gone and you don't have any you don't have to worry about it.
You would have no capital gains or the capital gains would be offset with the 121 exclusion, which is pretty potent stuff. So if that if you're single, you're going to avoid 250,000. Now let's assume just because I'm being annoying that the that the gain is actually more than 250,000 and you're single and you still don't want to pay tax. And you're like, Gosh darn it, Toby, how do I do this? You could actually put a 121 exclusion together with a 1031 exchange. So what would happen is, let's say that your house went up a million bucks and you have a $250,000 exchange. You want to avoid it.
Once you rent it out, it becomes investment property. So let's say that you sell it and you do a 1031 exchange and buy more real estate. You would get the 121 exclusion to its full extent and then you would 1031 the rest. And what it does is it adjusts your basis up from not only your sales price or the purchase price when you bought it, but then you add the 250 exclusion on top of it. If you're married, it's 500,000, and then you're avoiding tax and depreciation recapture because you've been renting it out, you're going to have recapture the depreciation, whether you took it or not. Believe it or not, you're required to if you could have taken depreciation.
So and that is not part of 121 exclusion at 121 exclusion, avoid capital gains and capital gains only. So a 1031 exchange avoids capital gains and recapture just moves the basis on over to another property. So what does that mean for you? In English? It means if you have lots and lots of gain and you're exceeding the 121 exclusion, the way you're doing it right now is I made it into a rental. Great. Sell it under a 1031 exchange and get both the advantage under 121 and get to avoid capital gains and recapture. Right.
Looking for the best ways to protect not profits. I've seen 41k contributions, IRA contributions investment in materials equipment owner distributions which will not protect you, net profit bonus, etc. Bonus squared. We're uncertain of future events or I'd like to keep what we've learned without paying at all to the government. So it sounds like it's some sort of either a business or you're incurring some sort of capital gains. Maybe you're selling stock or whatnot, maybe it's real estate.
So what first off is to determine exactly what the taxable event is. If it's net profit from the business, then and you're saying, boy, I'm getting hit with it. Yeah, you use all the business expenses. You may also want to look at.
Are there ways to get money back out to myself in a tax free manner? So you're looking at reimbursing the heck with an accountable plan out of anything that you're incurring personally that is benefiting that business. So the administrative office for the home the to it here your cell phone your data a good chunk of the expenses of your home depending on whether you have a home office or an administrative office in the home owner distributions aren't going to do it. It's going to be salaries and you're going to pay tax on that less you deferred in your 41k.
If you don't deferred in year four and K, you could even theoretically, if you have a41k like we set up and it allows in service distributions, you can actually get that into a Roth, but you're much happier paying the tax if you know you're never going to pay tax ever again. Other things you could do is take advantage of all the deductions that are nailed down. So you might be looking at and say the which is always great a defined benefit plan.
If you have profits and have owner distributions, a defined benefit plan is a fancy way of saying, let's figure out how much you're making and make sure you get your you're receiving that from your your retirement plan. So we have folks putting hundreds of thousands of dollars into there and deferring it. You can also take advantage of things like real estate. You're already sitting equipment, but maybe you're looking at real estate, self rental or real estate. So you have to worry whether you can group that with your business and you can take large amounts of depreciation, accelerated depreciation, avoid tax on your business. Yes, you can group the business and a passive activity together and treat it as it makes the makes.
Basically non passive are treated as one economic unit. Other things you could do is look at getting charitable with your own charity. You can do conservation easements, you can do a lot of different things. You can even do captive insurance. If you say, Hey, you know what? I want to make sure that I'm getting huge deductions now and I'm capping how much I'm going to pay tax on it. You can cap it at long term capital gains in the future.
There's just so many things out there that you could be doing, so I'm just throwing a few out at you and it really just depends on what type of business you have, whether you're trying to show profit for either angel investors, bank purposes or whatever. And we're just we're because sometimes you just make the business to see corporate pay a flat 21%, take out bonuses and salaries when you need it, pay tax on those. And if you have a whole bunch of profit left over, make sure you have a reason for it. And if you don't, make sure you're giving yourself a dividend and dividends are taxed as long term capital gains, this type of situation. So depending on what your income is, it could be 0% that you're paying on those 15% that you paid on those.
I doubt I'd ever issue a dividend if I was paying 20%, but I think I threw some ideas out there for you. If I'm using a private lender to buy a property, I borrow $10,000 more than my purchase price. Is the additional $10,000 taxed as income? The answer's no. You can always borrow money and it's not taxable to you. You just have to be at risk for it.
So you're not in syndication where you have nothing to do with the loan and you know, it's excessive basis. So this is just you borrowing money from somebody? Yeah. No, I just all you all you're doing when you're borrowing money is, hey, I owe money to somebody, and it's secured with something that I own. Sometimes it's real estate.
Sometimes if it's equipment, it could even be shares. It could be income streams, it could be artwork, it could be a sponge, it could be your car. Anything like that. But that's besides the point. Loan proceeds aren't taxable. So if you're using a private lender and you borrow more money because probably going to rehab it or something or they just think it's a great property and maybe bought it.
Right. I wouldn't worry about it. It's not taxable. All right. Let's get into this.
This year we made a little more money. I wanted to know if your service will help us offset anything with my somewhat new business before the end of the year. So we're currently having massage.
That's the Titian business that I opened in October 2018, and the pandemic hit in March of 2019, at which my state licensing demanded we stop all services, or we'd get our license taken away, causing me to go in the red for 2019, 20, 20, 20, 21. So it sounds like the pandemic caused you to lose money. Hopefully you're using the employee retention credit. Hopefully there's some payroll there or something there that you can get some money back. Maybe maybe you got some of that that money there moving forward. My business has been slowly coming back. They're still struggling.
During the pandemic, we went back to school getting certified to work in the holistic health care setting, and I'm in the process of adding that business to my existing. So I wanted to get advice on the best way to set things up. If I had multiple businesses. So first and foremost, let me just get this.
So I have a massage as the tissue. And the question is if you are making that business better by going to school on the holistic health care and so did were they was it a whole new other business in which case like education, expenses and costs and things like that are not deductible? Or was it bettering the existing business? Is that why you're going there? That's a question I cannot answer for you. It's a question that you would probably you know, you could obviously make arguments that are the IRS would look at it. They may take the position, hey, this is a whole other line of business.
If that's the case, a lot of those expenses been there. It's not going to be something you're going to be able to grab unless you could grab it as a as a startup expense. But again, it sounds like you were getting certified for a new line of business which case it would be deductible. It doesn't mean that there aren't expenses there that could be a startup expense that you might be able to take advantage of if you combine these two businesses.
I remember my first question today was really about whether when when we bring businesses together and how we bring them together. You could absolutely have two lines of business in one business. I would make sure that they're isolated away from you. It sounds like there's been some losses.
So that makes me think that we want a flow through structure, either disregarded or but depending on licensing, you may even have requirements as to what type of entity you could be. Maybe it's an S, maybe it's maybe maybe it's not. Maybe it's just an LLC and it's disregarded to you and you want to take those losses. If you're going to be making money and you know you're making good money at this, then you probably want to be looking at an escort.
The numbers usually really start to turn around $25,000 a year of net profit. At that number, you're probably around 1500 dollars net savings. If you go to an ask for up, there's a little bit of cost maybe depending on who the account is because the numbers are pretty much identical. But maybe they're doing an extra tax return in their mind instead of just a schedule C for a 1040. So maybe there's a little extra cost there, but the bookkeeping is going to be the same and you might have a salary requirement which might cost you doing payroll once a year for a couple hundred bucks.
So when it's all said and done, you're going to come out pretty well ahead or pretty darn close, right around $25,000. So You know, it really depends on that business as to how big it is. But I would really would look at your licensing to make sure that they allow this in the first place, because there may be requirements depending on who your board is to say that you can't have two types of businesses combined, or you can't be in this type of business.
In this type of business, there might be rules that prevent that. So you want to make sure that you're not doing something that would offend a local rule that depending on your state, possibly your county. But from a structuring standpoint, I would say, hey, the two businesses, something bad happens in a massage or doing a holistic health care and somebody Susie let's just say it's hey I had a contract you two sides that really they were an employee and you discriminate against him and they wrongfully discharged them and they sue you for $500,000. Both businesses get brought in unless you keep them separate.
And when you by keeping them separate and separate entities, that's generally the way you do it. So I have enough to be dangerous off of this, but I would say it's worth a further exploration. My husband and I are wanting to take advantage of the equity in our home and would like to invest into some rental properties to start to dabble in real estate.
Investing in Airbnb. So I also wanted to know if your company will be there for us on any financial advising and legal advising and our planning of this new venture. And this is exactly what we do. So for example, you say real estate investing in a Airbnb, so there's rental properties and there's Airbnb and sometimes you want to those to be treated similarly because Airbnb almost always is a trade or business, it's not a rental activity.
And sometimes you need to have those properties as a rental activity if you're going for something like real estate professional status. Otherwise sometimes you want the Airbnb to be isolated on and so on because you want to create big fat losses that can offset your W-2 income. Because Airbnb is trade or business, you want to make sure that that you're not poisoning that well and that you're able to take all those losses. So yeah, there's absolutely issues that that come here and it's all real estate, which means property, a property effects property. See, we probably want to isolate A, B and C from each other and we want a structure that allows us to get the maximum tax benefits in isolating that liability.
And if A and B are rental activities and C is Airbnb, then the question is, do we want to add D to be the Airbnb and let's see the rental because we need A, B and C to qualify for a real estate professional or can see just be its own activity as a trade or business. And we don't isolate out the real estate in it. And you meet the material participation test and you can create some pretty fantastic losses.
All those are things that get explored in in a consultation and I would encourage you to actually take advantage of the consultation. All right. We are dabbling in is tomorrow so something that sounds like they're dabbling in tour guides. I usually just grab these and try it out and I'm not one for sitting here, mess around with it. It's like Airbnb for your personal car.
So I'm familiar with Turo. So far it's been doing well and we're interested in expanding it with more cars. To add in, however, we now would like any new cars we added to be purchased under the business day.
And most likely you're going to have to anyway. You should be letting your insurance know because insurance won't cover Turo. So Turo has separate insurance, but you could find yourself in a situation where your insurance is says sayonara.
So you want to make sure that they know what you're doing. It's really easy if you start using them just solely for business and you buy them in the business name. Now, depending on the type of car it could be a deductible in one year, it could be deductible five years, and there might be limitations on how much per year you can actually deduct. So like most passenger vehicles, it's around $19,000.
And then that's kind of problematic, right? Because if it's an expensive car, you're like, I really would like to write off more, but you might be limited. So yes, you can absolutely isolate them and you're going to want someone to get a pad of paper and pencil and kind of figure this thing out. If you if you're using them for your business and in something like a corporation, I would much prefer that because if you're doing this in your name, you're exposed.
You have a ton of exposure. I mean, just imagine somebody comes into town and they say, hey, you denied them access to your vehicle. And they allege it was some insidious reason it was race based or something like that, or because they had a name you didn't like or disability or something or they were too old or whatever. You start just filling in certain blanks and seeing whether you open yourself up to any potential exposure.
You want to make sure that we're isolating these activities out there because you don't want to you want to minimize that coming into your personal miles as much as humanly possible. So we want to have a business name on it. Plus, if you start doing this in mass, a bunch of people like me driving your cars and the more people that are driving your car is the more likely that your cars can be involved in something. So you want to make sure your name is not in that. You want to just keep it separate. Here's the business.
This is the vehicle provider. This is the I don't know what they call it, like a Turo host. And I know that again, Turo has its insurance. Make sure you have yours. Make sure they know it's commercial so you can get commercial insurance and then make sure you get an umbrella.
So we just knocked out a whole bunch and there's end of year stuff to that out there. Throw out there, make sure you're looking at your realized capital gains and looking at your unrealized capital gains and using maybe it's time to harvest some of those unrealized losses to avoid tax on the capital gains. Also, look at things like crypto that have had a really bad year and with crypto you can take the loss, you could sell it and take the loss and then immediately buy it. Back then you don't lose the loss even in it's called the watch sale rule that that affects securities. Even in securities there's a there's a workaround with buying an option immediately after selling to cover that what what the rule covers which is is to attach the next purchase and and add the loss into that basis. So you could do that with adoption and then buy that buy the shares.
Secondarily, again and then sell the option and grab a much bigger loss. And it's still capital loss. So if you wanted to harvest some of that, you certainly could do it. There's other things that are really important, like if you have Advanced Corp taking a salary for the end of the year, if you have expenses, just know that there's no such thing as miscellaneous itemized expenses since the Tax Cut Jobs Act.
So make sure you're reimbursing if you have a41k, make sure you're doing that. The employee contributions. If you're going to use a DB plan, make sure it's in service before the end of the year. If you're going to make charitable donations, make sure that those are written. If it's a check by December 31st, that contribution has to be made before the end of the year.
There's like little things like that. Just be aware of a lot of stuff you can punt on, like IRA and the employer side of the 401k the employer contributions and a DB doing a car sag on a property can wait until next year. You can actually do it all the way up until you file the tax return to make a change of accounting and take advantage of a car.
SAG on a property. A lot of things that are not times critical, but the big ones are salaries, reimbursements, charitable giving. If you have some bills or some some things that you can prepay because you need to wipe off some of like you've had a really good year and you have some money or say a $10,000 falling into the highest tax bracket. You have a lot of incentive to to look at equipment purchases that may be coming up and doing them. Now, you may you may have incentive to to pay some bills that are going to be in the near future and and cover them now. So that's lowering it.
Maybe you're making two or three years of charitable giving and this year and then you take a couple of years off so you can offset more income. There's lots of things like that. At the end of the year that are worth it.
Speaking of end of the year, there's the link if you want to come to my YouTube page, I wish if I could make that thing flash. I look at Flash. Yeah, we are coming towards the end of the year and there's other tax strategies. I put them up in the YouTube channel. I think I did it when I was 14 year end strategies, things like that.
Also, if you're a client and especially if you have the tax toolbox, you did the Business Essentials package, I encourage you. I did I did 45 tax strategies in one day and we recorded it. It was the Tax Rise Workshop. And it should be sitting in there right right now, freshly uploaded, sitting there in your tax toolbox to make sure you take advantage of that, too, and that you are looking at that information to get as much tax knowledge. I go everything from cost segregation to conservation easements.
120 1168 1031 tons of different types of deductions, income shifting, hiring your kids, paying those kids before the end of the year by things that, you know, for example, make sure that that stuff's done. But there's a ton in there along with, you know, a lot of the philosophy that we see from our having worked with so many clients, what actually works for wealth building. So feel free to go to the YouTube channel. It's absolutely free and there's lots of good ideas and subscribe.
And by the way, if you like this type of information, if you get something out of these tax Tuesdays, please share it with others we love. The more the merrier. It's like an easy saying, but we actually love working with people. We love the emails. Speaking of the emails, emails and tax Tuesday at Andersen Advisors dot com any questions you got to shoot them on over that are tax related right now wanna hear but your other weird stuff sometimes people are there and they'll just pontificate political stuff please don't send it to me right we want we want tax questions and visit us today interested advisors. If you haven't been to our tax and asset protection workshop, make sure you do.
It's free. We do it at least once a month and it's it's a hoot. You're going to learn about Land Trust Living Trust LLC, whose corporations S and C and A real estate investing and real estate taxation and a bunch of the nuances. By all means, please join us. We do them again at least once a month, and they're pretty educational. There are a lot of fun.
And there's there's always a bunch of attorneys on there answering questions and accountants and other people that we bring a lot of staff in there because we we usually have, you know, somewhere in the thousand range watching live. And it's a pretty good sized group in there that it's lively. So it keeps us moving along. So by all means jump into that a new threw a lot at yeah in this one of those things I tell this when I teach at advanced classes you really looking for three things when you're doing some of the more advanced courses don't try to remember everything. Just try to pick three things that you can apply now, you know, and just say like when I say now the next 90 days.
So with all things, as you get to the end of the year, you start to think about next year and you start thinking about the first quarter. Think, What three things could I use that that are going to make me a more effective business owner, a more effective tax planner? How can I positively impact my situation? Maybe I'm deferring taxes longer, maybe I'm getting more deductions. So I'm keeping more of the money that I make.
Whatever the case, just look for three things and then do it again. So like every every quarter, maybe just make that your goal. Hey, I want to learn three things that I can actually implement and apply to that quarterly and after two years can be pretty potent. All right, guys, I hope that this was a little bit enlightening and that you got something out of it.
And again, hopefully, if you had questions, somebody was able to answer them. If not, email us the tax Tuesday and advisors and we'll get to it as quickly as we can. Have a very merry Christmas and a wonderful new year with the ones that you care about. Whatever you may be celebrating, have a wonderful holiday season. And if you're not celebrating much or it's been a rough one, just know that 2023 is right around the corner in that hope and pray that you have a fantastic new year and that if you have had a tough 2022, just remember you're going to kick butt in 2023. Keep telling yourself that guys have a great one.
2022-12-26 23:16
