New Tax Laws For 2018 Real Estate and Small Business (TAXMAGEDDON-Webinar REPLAY)
We're, talking, specifically, about the tax cut and Jobs Act that was passed at, the end of 2017. Some of it was retroactively. Effective. In, 2017. For example the medical, deduction. Threshold. 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 to, September, that. Fun stuff but as of last. Night, we. Had proposed. Regulations. If you guys know the tax how the tax laws work the. IRS sometimes, interprets, the tax. Laws and something called regs they have yet to issue the regs on 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, as. We've just in the first two minutes again. Well 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 a hundred and I think was 170, pages that they issued yesterday. And. They do give some examples, what they did is shut, some loopholes, that some tax. Practitioners, were trying to exploit by using tons of trusts and things like that they shut that door which, was very predictable, but some people made some money and though in the short term at, the expense of their clients. And. So we're going to go through all these things I, can again Brian elects, I can see tons of questions coming in you have very good ones and worker being a knocking. Them tonight. Though what we're going to be focusing, on is. Kind. Of what's. The good the bad the ugly and specifically. Why are people so freaked out by the. Tax cut 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 a itemizing. And why is it important. We're. Going to go over what is the you're, going to have to you're, gonna have to decide for yourself because I'm going to give you a bunch but what is the single, most devastating, law change, the.
Three Things that the top 2% do differently and where I can, learn more like, can I actually keep, a prize to 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 that. The, tax cut 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, step, to know what it is which is an individual. These. Are its app called individuals, so not to businesses, you list out what deductions, you're entitled to and compared 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 could go back in and, take. The. Standard deduction even, if it's less but they're going to want to know why but. We're not going to get involved in minutiae. Somebody. Doesn't have sound they sound just coming through for everybody else so you may want to either, go onto a phone line or try, going, over it we do the opposite whatever you're doing it's either going to be 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 and the first thing that I'm going to want to know more, likely, is what is included in the calculation. And. Their words how do I figure out what my standard, deduction, is and. What. Is it comprised of the, other thing is what, is my standard deduction, I shouldn't say what is my standard deduction the beginning is what is what, is my itemized, deductions, 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 what, is the net for me so let's kind of start off what with each one of these I'm going to go through them check. By check because that's just the way I like, to go through and we. Got to figure out what's in the in. The calculation, and the way you're going to do that is we're going to go to old schedule. A of your 1040 so, when you file a 1040. By the way I'm going to show you they're the drafts of all these things but when you go to your 10-4 you, had this thing called a Schedule A this, is the 2017. Up here so, I'm going to kind of just circle, the 2017. This, is the proposed, 2018. And as you can see it says draft, it's. July 10th which means the IRS is putting these things out they get comment, on them and eventually. They're going to come up with the actual form, we're going to use but we can kind of see what they're thinking what. We, know for sure is, this this old. Right. Here. That. Is what was retroactive. So we know that the medical deduction. If you ever call up the IRS and say hey can I write things off for. Medical, and dental the answer is gonna be ye 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 it you, know to be historical. It used to be less, and it went up and it went back down I always, moving it around and. It's a pain but. All that means is that if I make ten thousand, or a hundred thousand, dollars, the. First 75 hundred dollars of my medical expenses I cannot take so, if I have ten thousand, dollars of medical expenses I get. Twenty, five hundred 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 twenty-five hundred I then. Go to taxes, paid and this is a big one guys and I'll go into specifics. On this but.
What You don't see here this is twenty seventeen 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 ten thousand, dollar cap. So. Your, state and local taxes, is we call that salt and you're. Going to see that it is now a ten, thousand. Dollar limit. And you're going to stand why that's important, why people are freaked it out. People. Are going to be a little. Bit upset somebody, says they can't see my screen 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 the state local taxes, you, can see by. Looking at the little form state. And local in, tax. State. And local real estate and. State. And local personal. Property, tax and, you add those up and you're. Limited, to ten thousand, dollars as a married, couple if. You're not, married you're single then it's five, thousand, you can see that number right down here I will, go through these things and greater. You. Know explain, how I answer all your questions but this, is part of the calculation, so, you would normally have a number that goes here and we're gonna 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 home mortgage. And, what they did here is they put a limit, from. 1 million to. 750,000. And. So you would just add up and you'd figure out what your home mortgages, and you'd add it and you add that line up there this, is all part of your itemized. This, amount, now, they do this calculation. And there's two things that 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. I'm see if I could spell that right it's, the acquisition. Or improvement. It's. Called acquisition, indebtedness and, what, that means is, that if. You, did. Like a 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 kids college I, cannot write that the interest off on that anymore I mean. Again every time you hear one of these things you're going to realize that we. Have a solution that's, why your that's why your listen we. Then go to gifts to charity and they used to have a limitation, of 50%. Of your adjusted gross income. Put. Your that 50%. It. Is, now 60, percent 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 full write-off, kind. Of the amount. The 1 million you're grandfathered in at if, you. Had. Indebtedness, prior, to, December. 15th, 2017. Or, if, you were under contract, and you closed your, loan. Before. April. Of 2018. Sued me April 15th of 2018. So if you were right in the process, of refine.
Then. You're going to have you're. Going to be able to go up to the 1 million. But. It's still the acquisition, indebtedness I'm, not aware of any 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. Then. You're, going to be able to write the. Casualty. And theft losses. Someone. Just asked a question and row. Harry oh I'm gonna, put 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 so. You're already getting ahead of us and your, genius because that's exactly how I want you to think, you. Want to be thinking. The way they you're, thinking yes. You can write it up 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, on. Your Schedule, E income on your rental income. Somebody. Says I got kicked out will it be archived yes I'm going to record this and make this available to you guys all. And. So somebody said 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 realize that they changed that little language that's because there are no, more. Miscellaneous. Deductions. And, yes I said that right there 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's gone I think that was called a peas 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 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 a again. A draft, and you can see it's pretty recent, as of. July, 31st this, is a draft of what your what your 1040. Is going to look like it's. Going to have a page one and a page two so. A page one you can see it's basically your personal, information. They. Said we're going to spit 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, and. Or. Atomize deductions, from Schedule, A and then, you're going to see something else to it that's new it's this line here line nine and, this is called QB. I and, that, is a, 20%. Deduction on, pass-through, 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 they're gonna like. 170. Pages I think that 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 I wanted to show you that is just to give you some indication of what they're trying to accomplish so. It well you know and I say they it's this, the Trump administration but. You also have the IRS trying, to interpret, this and the 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 ass I'll get into all your other questions guys you guys have some fun ones. You. 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 when they simplify, things what's, what's the actual, impact. And. The reason that this. Is relevant for you is because 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 salt. And. If. There's any other. Itemized. Deductions, which, miscellaneous, itemized you're 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've really jumped, these up and 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 file or getting two. 6350. To, 12,000, and what. This is versus. Schedule. A. So. Schedule a is your itemized deduction 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 a, medical, expense if you're paying for the health insurance. Thinks. So but otherwise, no and I'm going to show you there's there's always a better way I hate going on this schedule 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 gonna 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 so here's the limitations, that we're going to put so, if you're in a if you're in a property, tax state, where. Excuse me a high property tax and a high income tax so. I think the there's, actually four states that filed suit of this, last in. The last month against. The federal government trying to get rid of that salt limitation, which 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 taxpayers. Who, itemize, in other words they're taking the schedule a and, here's. The estimate. Thirteen. Million so, you're talking about. You. May fall into that category of what is this 33, million. No. Longer. Itemize. And. When I say tax, taxmageddon. You. Have to understand, all of these things have an impact it's, not just hey I saved some money but you incentivize. Certain, types of behaviors, and if nobody. So, all of a sudden what behaviors to be just removed. From incentive, you ready I'm going to go back to it this 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 and I'm capped so. Am I going to buy. This, is funny some, of this asks our short-term Trading Commission's written off and scheduled day or schedule II neither Commission's, are usually added to basis. But. Anyway. Just answer your question real quick all right so we. Have the big, difference. And why is this, so, huge, it's going to impact certain people much, more significantly. The mothers, just, think of and I just want you to think for a quick second, who is this going to impact, think. About the, people who, benefit, from the incentivize, what about student loan interest that's still I didn't, see it on your schedule I think it's still deductible, up to like the twenty, five hundred dollar amount they. Didn't do anything with it that I'm aware of. Go. Back do this, so. By. Now you now, know what itemizing. Is and why it's important, first off is because, if. We itemize, and there's certain expenses we have to hit a pretty big threshold, for example, if you are mailing married.
Filing Jointly, your. Schedule, a has, to be greater than twenty. Four thousand, four you get a dollar benefit. If you give to your charity let's say that you have, some. Real, estate taxes, and $5,000. You have mortgage, interest of, $5,000. 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 because. That could know so. Yeah. Depends of where you live so what they're estimating, is that how. Many people are going to have their taxes, go up go down I mean for the most part everybody is going to get a tax deduction, underneath. This new Act unless you live in a high tax state and then you're going to see a chunk, of your 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 or, stay pretty, close to the same so. Here, we go what are the big chances, yes somebody's like New York yet you're pretty much I'll show you the numbers I'll show you how it looks I did, a quick comparison for, some tax payers, big. Chain which, is you're going to have to choose on what, are the big change 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, are that have affected, so I 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, in the production of taxable income amongst, a whole bunch of other stuff but, this is big anybody. Here who trades, when. 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, even. Things like safe-deposit box, although I don't think many, 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. You. Know 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 out computers anymore not. On your schedule a not as a miscellaneous. Itemized expense, so. This begs the question, then do you want your expenses, flowing on Schedule A that. You should all be saying, no. Then. The next question is if you're if you're paying a. Corporation. Would. The expenses. We pay the corporation. Like if we pay it a fee does, that go on to your schedule a if, the answer is yes and we need to change that and, it's. Kind of a 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 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 in, our toolbox so, here's kind of the things we 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 see, but. As many of you guys know you have about a seven hundred percent, 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 for X we, need to have a chat because you actually get to choose you, don't have to do a form 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 sound run percent 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, in for X 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, like 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 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, below so. And. Let's. Say can you still do that 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 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, 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 does it is a, 1040. Schedule. A Mifflin 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 onto your schedule a so, what should you do you should look at last year's tax return look at your schedule a those. Numbers, will tell you what you're going to lose. If. We aren't rich that's where you come in I like that we will help you enrich is different. 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 by you know 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 around is or we, just create a business structure and that's our preferred route because, when we go to those because, we go 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 it it's it's, taxes, eliminated. Or. Not completely. Eliminated but like cut in half I'll. Show you how 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 tax is 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 a hundred percent owner, let's just pretend the corporations, 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 percent of that or ninety thousand, and ten, thousand, dollars 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 a thousand, dollars a month so let's pay it twelve thousand, dollars in addition, what, that does is, it allows me to deduct the twelve thousand, dollars off, of my ninety which. Gets me what is that. Seventy. Eight so. Then I would only have seventy eight thousand, dollars below. Under my 1040, and now. I would have this Plus this I would have twenty-two thousand, dollars in my. Corporation, before, you freak out and you said hey. Boy. You I. Have. Twenty I have I have twenty-two thousand, dollars in my company, but this is going to stink I heard my accountant, said double tax right. Chill, out because. The double tax used, to be bad it used to be bad about, what. Is it probably fifteen years ago what, 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, a an, LLC can be taxed as a c-corp, an S corp a partnership or whatever so that. Investment, business this could be an LLC. There's a partnership. Which. Means it's filing a 1065. This could be an LLC text. As a, 1120. As a corporation, all, right you guys are guessing lots, of people it's 15 21 that. 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 yeah, so what we do is we we make money in the LLC it pays the corporation, reasonable manage P is profit, the. Corporation, pays the expenses but, it pays twenty, one percent so those of you who said 21 percent are right it is a flat whether it makes 10 million or ten dollars the. Tax on the corporation. Is now 21 percent, 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. Capital. Gains. And. If you know what long-term capital gains are taxed at, it. Is zero to. 20 percent depending, on your 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. Whenever. You have a corporation, it pays. Compensation. In, compensation. Includes. This, is where countin 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 thousand dollars from 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 thousand, dollars 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, wants to if it says hey you, need to have a cell phone so, that 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 our LLC still, deduct Trading Commission's on stocks and crypto so. No you, cannot but you don't typically deduct the Commission's I think they're usually as a transactional. Cost that are added into the cost basis, of the stock, but again. We're. Not going to worry about this stuff that's peanuts compared to what we're talking about the. 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. Fourteen million dollars is reasonable compensation are you supposed to compare it to others in that industry but just think about what you 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 still you're going to be the nervous Nellie just 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 twenty one percent you do get something else though with an S corp and that, is you get a twenty percent 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 that. Corporation. Can use to be a partner, and it gets ownership, so if it's if it's a 20 percent partner gets 20% of the, it. Gets 20 percent of the profits. I can 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 twenty one percent 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 taxpayer, 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 this little sub LLC's, so if I have a real estate holding, entity you guys know we're 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 George. LLC. I may have a Tennessee, LLC. I may have a Texas, LLC. And. Then this LLC's, just 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 percent, 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. Like. 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 than 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 edge but the investment business can pay a guaranteed. Payment and and. Do that now, is $1.99, a ethical the trading partnerships, Harmeet, 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 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. In. In by the way some of the sides 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 nonprofit I get to go do the the. What. Do 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 they just fly you around to 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 bit 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. And. That stink entered entertainment. Move to marketing research and development. Uses, orange, jumpsuit, Lauren orange jumpsuit, right, you got to make sure that these things are going to pass muster 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 can have the expenses, are all coming out of the C Corp and can. The holding company pay the owner yes of course again. 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 plan 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 lesser. Tickets, to all you. Know being, Prada let's. Say if you guys know Cirque du Soleil you know sometimes. 200 all our tickets rather buy $400, or the tickets for for. One, of my employees technically. That's taxable, event to them I cannot just give them stuff I would. Get to write it off on a percent they would have to recognize that his 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 your doubt, anybody will. What. Is you, have a business meeting including, a meal with possible client. That would this be a business, meal again you have to have a expect. Expectation. Of. A. Profit. And some it says can, you give show tickets to an employee as a benefit for a non-profit. Again. It's, not deductible, the nonprofit. It. Would be taxable to the employee, unless. It's part of the nonprofit activity. 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 incentives, trips. Is 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 the. Chances, are they're going to end up paying tax on the value of the 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 a kind of working, and. They go to seminar, then yes it, depends on where it's at but if it's like Cancun actually, its North American. Region. You're going to get to write that stuff off if you start sending them to France no you're. Gonna have a little more of an issue. Guys. I love tax, stuff we're gonna be talking about this stuff all night I think, I'm think we're gonna be going a little long here so I apologize, going, going on the salt limitation, why is this a big one well this is kind of fun, New York suit along with everybody else, there were supporter states that sued this.
Has Come 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 is so frivolous, and unserious. And may as well 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 of 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 kind of he's going to be bloated if he does that. Hopefully. Hopefully, they they're, not going to win it's, just one of those things states trying, to show their to ins how how, serious, they are and question. You're gonna say is why is this such a big deal, well, again, numbers, don't lie what, we look at is is 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. Twenty one thousand, and thirty four percent of his people were actually claiming it the. Big percentage, is like look at Maryland, forty five percent of its people actually. Had the deduction, then all of these guys are gonna be capped at ten thousand, 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, you're, just going to be taking the standard deduction it's coming like ninety percent of taxpayers I'm 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 ten thousand dollars 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 it if I have a limitation, my ten thousand dollar 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, you I can allocate, what portion, of my house and don't don't buy into this the. IRS, is preferred. Way there's like nine different ways you can write off the home office and they, always say Oh 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 if they 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, also, includes portion. Of the mortgage portion, of the utilities, portion, of all those things. Including. The, property, taxes, so let's say you're at property, taxes, and you're about twelve thousand dollars this is how you managed to get the money into your pockets, make it deductible, you, might only get to write off ten 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 you. Hang in 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.
Cited, In a different state and so the place that you're doing all your ministry of activities is going to be in your home, maybe you're in Georgia and you. Say alright I have it 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 mean use all these things now. The employer. Doesn't get to use all those things for free it 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 it will 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. In their pin 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. Recaptures the better way to do this is just to say hey employer. Just reimburse. Me, here's. How big here's here's how much my house is you can do it to two or three different ways my favorite way is to use either usable, square foot which means I exclude, the bathrooms, in the kitchen, and and. I get rid of 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 its being used and I would take one-sixth, whatever that amount is like probably twelfth 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 that, 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. Yep. Everybody else can hear so it's, a try the phone or try your. Computer again and, this, is true somebody has 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. Does, 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 has said 203 I don't what that means are. You still account the bathrooms as part of your total rooms I know, you're going to take a look at the total rooms of the house that would usually mean. For. Our walls or three walls with, with it with an access point so, could. You use a bathroom I don't think you use the bathroom I 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's going to get you the higher is, percentage. And. You, go that route can I rent personal property to 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 court.
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 twenty. Eight three point nine five this is including your state your. Local. Your FICA and your federal you're going to be that's your that's your effective, tax rate they're going to take twenty, three almost twenty four 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 gonna be paying sixteen, 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 ten thousand, dollars 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. Six thousand, dollars a benefit, your state local taxes there are, over seventeen, thousand. Six hundred 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 forty-one thousand, versus fifty nine thousand, I'm just going to kind of go back and forth just because it's fun to do it's, fifty nine thousand, dollars of tax. That you're gonna pay in, New. York versus, forty one thousand, it's a huge difference it's not 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 gonna 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. Mortgage. Interest went from the, seminar. From the million. Down, to the seven hundred fifty thousand, and the, bigger one is that it's uh excuse. Me it's, only if you, are it's. Only acquisition, indebtedness now. This is a bigger one, in 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 a few only, only, if you need it are you going to give the money to charitable giving a lot of people give their money in. The. At. The end of the year in fact I think December, about 20 percent of charitable bequeathment, Saar made because people are looking at their tax bill to get the most bang for their buck, they're.
Anticipating, That, the, actual, giving. Is 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. Four, hundred dollars it's, really costing you 79 because you're getting a deduction, for it hope, that makes sense if I give a. Hundred. Dollars to a charity it, really, cost me 79, because I'm getting twenty-one, dollars of tax benefit, that's the average right now the. Estimate, in 2018, is 86 which. Means if. I'm giving a hundred bucks it's actually costs me eighty six which means I have less money that I can give all things being equal. Really. Tough. Really, tough kind of sting colas, 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 get 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 I'm going to 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 gonna 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. That says I have an LP under C Corp can I rent a commercial property personally, own to the C Corp of course Tracy 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 you know what it might be better for you to do is just you.
Know Either. Really. You know borrow, some money at the end of this year, and just and just give your 20 20, 19, 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 sized tax benefit, so, that you know maybe you're right on the threshold you're, right at 24, with. Your current, charitable, giving now, every dollar above that you get you, get it's better to itemizing. So if I gave another $10,000. I'd get the full ten thousand dollars a benefit, out of my highest bracket. You. Know that, type of thing is what we look at sony has is there a solution for salt well the states are the, states are suing the what. Was funny is a bunch of states start trying to call their their. Income, taxes, the state income tax is charitable, giving. Because. The states are nonprofits. It's and they got shot down the regs are nailing them but. They're trying to do all this again some, of the says can we listen again from the website absolutely I know, I'm going fast is 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 the stuff like 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 2% do differently, that we're, talking about the top to. The. Top 2% in, the country. Somebody. Just says can Corpse give to charities and write off, see. Curbs can give up to 10% of their net, profits, s corpse flow down to the individual. Shareholders. Can. A trading business C Corp reimburse, you for home use yes I, want. A property one on a person and I put one half and 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 I'm, going to do this I'm just going to put this in the chat t-man. 'this at a og law calm, feel, free to shoot me an email if you want and I'll get you whatever I can. If, an escort rents personal residence, for meetings can we still have the Corp reimburse the office used to here's how it gets fun okay I love, you but. Pigs. Get fat and hard to get slaughtered what we do is we carve off the 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 to yes.
So We like to double-dip but we want to make sure that we're saying hey, just, the kitchen area. With you know we want to make a little bit restrict if we don't want to sell, again I can see court brandished me for one home office where my ass Corp reimburse for a second office in the house no, you're gonna 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 to 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 you basically, yes. And it doesn't just have to be your house it be your second house it could be in RV so long as it has the sleeping quarters and ahead it. Could actually be a boat so long as it has those two things too but, about an e-commerce business yes you can absolutely do that even, if it's taxed as a partnership and, not a corp, reading. To an LLC no you has to be an S corp or AC. Core, back 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, has, to be you as an employee with the employer so it has to be an S or C court 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 folk 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 who's the that. That's not getting. Audited and. We've been very successful at, that we actually had a seven year stretch we didn't have any on it was weird in the early want.
To Say what Clinton was that was in the early 2000s. Where we thought maybe the, notices, were getting lost, we. Just 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 1%, if. You're an S corp it's a fraction, of a percent you really have to get do something to get audited and then what I really look at is. If they are you do they get any money out of you and what, you'll see is that if you were a sole proprietor it's about a 94%. Chance there you're going to owe money after or not it and. You're going to get audited let's, say making a hundred thousand 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 7 percent more likely to get audited and, when they audit you it's almost it's, a 94 percent certainty, you're going to owe more or, do you want to have like almost no audits and rarely, do you like you know maybe maybe a 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 percent 33. To 37, percent depending. On what year you're looking at. You. Are, is, active. Income everything, else is coming from a passive. Sources, so investment, income from rental, so. It's wrench 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 kind of sit down and talk to them they're usually pretty. Pretty. Insightful, when you're sitting there and you're talking to somebody like I use. An example of a client who said. Hey. Because, I always tell people if, you're going to you, know stock markets, not a place that you're going to make a ton of money, you. Know playing the market unless 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 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 was you know 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. Not not in the sense of the new. Coke or the or, the great, flavor, of it or anything like that it's, it's he, made it famous because he could be identified it early on is 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 kind of look at wealthy, people 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 gonna say rather, than shoot him down I'm gonna say what is he