In this episode of Anderson Business Advisors, Toby Mathis speaks with attorney Brent Nelson, partner at Rimon Law in San Franciso. Brent helps his clients understand, improve, and protect family structures that include trusts, business entities, private investments, charitable giving, and family governance. He is an established and respected thought leader in his field, and hosts the popular Wealth and Law Podcast.

You’ll hear Toby and Brent discuss a wide variety of scenarios and situations surrounding trusts – who should have them, how they can benefit you, and all the things they can’t do.  People out there will try to tell you that you can avoid paying taxes by utilizing a trust, but as Brent and Toby explain, the IRS and the courts will usually always win, and they will eventually get what you owe.  In fact you may even be paying more taxes than necessary with some trusts.  In the end, you won’t get out of paying the taxes you owe, and you may just complicate your life by stashing your money in certain kinds of trusts, especially those promoted by less-than-scrupulous individuals.

Highlights/Topics:

Trusts are not a way to avoid paying taxes - grantor trust rules

Only certain trusts can own S-corp stock

A “three-trust mechanism” – is it valid?

When you should use a trust and its benefits?

Promissory notes for stocks in trust

Making sure trusts allow the client to live the lifestyle they are used to

Non-US citizens/non-residents cap has been $60,000 since the 1930s

If you have a green card, you can be taxed and fall under the $12M cap

Canada’s exit tax

Setting up a simple living or revocable trust is advisable no matter how little money you have

Fund-promoted trusts in foreign jurisdictions – be very suspicious - you don’t save taxes, it’s just more complicated

Resources:

Brent Nelson LinkedIn

https://www.linkedin.com/in/brent-nelson-0a485ba/

Wealth and Law Podcast

https://wealthandlaw.com/category/podcast/

Wealth and Law Twitter

https://twitter.com/wealthandlaw?lang=en

Wealth and Law Facebook

https://www.facebook.com/wealthandlaw/

Rimon Law Website

https://www.rimonlaw.com/

Anderson Advisors

https://andersonadvisors.com/

Anderson Advisors on YouTube

https://www.youtube.com/channel/UCaL-wApuVYi2Va5dWzyTYVw

Today’s Tax Tuesday episode answers several listener questions on S-Corps vs. LLCs. Eliot Thomas hosts with special guest Jeff Webb, CFO of Anderson Business Advisors.  Online we have some of the staff from Anderson – Dana, Dutch, Ian, Piao, and Troy here answering live chat questions.

In this episode, you’ll hear our advice on several scenarios regarding potentially switching from an LLC to an S-Corp and the likely tax benefits, along with several questions about purchasing property for your children to live in while they are attending school or just getting on their feet. Submit your tax question to taxtuesday@andersonadvisors.

Highlights/Topics:

“I have an LLC now for a small business, and I'm wondering what the benefits are of switching to an S-Corp and what the tax deduction benefits might be?”--- If it’s an LLC, it's got liability protection. If it's not making a lot of money, (under $50K) – probably don't go the S-Corp route.

“Can cost segregation depreciation be done on a property purchased one or two years earlier? If so, is it state-specific? Would it be a great option if that was a possibility with REP status?” You can go back in time and do the cost segregation. Let's say you bought the property in 2020. It's now 2022. You could do cost segregation. That depreciation from the cost segregation would appear on your 2022 return. If you do not have REP status or can't get REP status, normally cost segregation is not a great idea.

“Is there a way to convert from a 401(k) to an IUL (Indexed Universal Life) or Roth without having to pay the high tax burden, or at least minimize the tax hit?” The problem is you are going to get a tax hit if you take 401(k) money and put it in an IUL. Anything you take out the 401(k), money's going to be taxed at ordinary rates. And if you're not 59½, you could be hit with a 10% penalty on top of it.

“I'm a member of WREIN. I purchased a house and a condo in the past few months that two of my children currently live in. There is a mortgage and my soon-to-be daughter-in-law is on that with me. I pay the mortgage on the living costs, including tuition. Should I claim this home as a rental?” You can't just write a check or gift it and say, now I'm going to have them pay me rent back. The IRS has seen through that. That's a gift. It doesn't sound like they're paying anything so I see no rental here.

“My son is 26 and in his second year of post-secondary education. The condo doesn't have a mortgage. I purchased it with funds from a private money lender in April that I have paid off with a HELOC from my primary residence. What would be the most advantageous way for me to claim this home, rent, and the best strategy? We've created a problem with our second home because we now have more than two private residences. Once again, I would probably deduct the HELOC as investment interest. Whichever one has the higher mortgage should be your second home. The next one would just be investment interest on an investment you own (the condo). And again, you can deduct the taxes on as many properties as you own. But again, you still have that $10,000 cap for state and local taxes.

“Due to having two W-2s, I cannot qualify for real estate professional status nor can my partner. What is the best solution to minimize the tax bill coming at the end of the year? By the way, with both W-2s, I will be moving to a higher tax bracket that neither W-2 knows about. I will owe more taxes than they take out at the end of the year, unless I find some way to get my passive losses from depreciation available to lower my W-2 bill.” If you make $50,000 in each job, you’re going to have a whole lot more taxes and probably going to be under-withheld because it's based on $50,000 on each job. REP status doesn't work. You could do a short-term rental. Be sure to adjust your W4s for two jobs/withholding.

“I just moved to Arkansas and sold and purchased properties here in Arkansas through a 1031. How do we get taxed on th

In this episode, Toby Mathis of Anderson Business Advisors welcomes John Anderson, an attorney from Anderson Advisors.  

John and Toby discuss the need for a living trust – and why you don’t have to have an enormous “estate” to have a trust. Trusts provide protection from going through probate court, which is expensive and time-consuming, possibly taking 2-4 years to get through.  Your living trust can also have a third-party trustee such as a bank or attorney that will look out for your interests and wishes once you pass away.  This protects your descendants from having to deal with probate, and even prevents them from fighting amongst each other (or fighting with another sibling that is acting as trustee) for your estate.

Highlights/Topics:

John Anderson’s background and early years

A few interesting stories from John’s experience

Probate - challenges and specifics

Living trusts to avoid probate court

Dynasty trusts for multiple generations

Trusts and the court system

Advice: Give your younger kids and grandkids some inheritance, let them play around with it

Resources:

Email John Anderson

Anderson Advisors

https://andersonadvisors.com/

Anderson Advisors on YouTube

https://www.youtube.com/channel/UCaL-wApuVYi2Va5dWzyTYVw

Today’s Tax Tuesday episode covers a variety of questions about short-term and long-term rentals, the IRS rules around those entities, and lots of tips and stories about how to report and document your time so as not to trigger an IRS audit. Toby Mathis hosts, with special guest Eliot Thomas from Anderson Advisors, and some of the staff from Anderson including Dana, Patty, Ander, Matthew, Dutch, Cindy, Trisha, Cristos, Piao - are all online today to help answer your questions.  If you have a tax-related question for us, submit it to taxtuesday@andersonadvisors.

Highlights/Topics:

"For a 1031, does acquiring the beneficial interest of a land trust holding title to real estate qualify as replacement property? Same question, but an installment sale for the beneficial interest of a land trust." First question: When you look at the 26 USC 1031 and I want to say a to e, I believe, are the list of all of the exceptions, you'll see that the acquisition of a beneficial interest in a trust is one of the exceptions to being able to qualify for a 1031 exchange. Second question: What you can't do is go ‘no debt’ to ‘debt’.

"How can the IRS prove we as owners used our short-term rental for more than 14 days or 10% of rental rented days?" How can they prove it, dang it?" The reality is they probably can't unless they somehow got the ability to go out there, research, find out, bring it into court, and documents were produced, et cetera. The reality is they probably can't. But I would suggest that you'd be very honest.

"My wife is the property manager of our small real estate portfolio. What is the best way to document the hours she spends on our business as we are claiming she is a full-time real estate professional to unlock the potential extra tax benefits."We hire professionals for plumbing, AC repair, and she handles items like semi-annual home inspections, painting AC filter, deliveries, all advertising, bookkeeping, et cetera. Thank you." Put the date, what the activity was, the amount of time you spent. I'm assuming this is a local property, kind of in your town area, put down the time you drove there, the time it took to drive back, the time on the phone calling, et cetera. Any of that, just document it in an Excel spreadsheet. Use MileIQ if you're tracking mileage, for example. It'll GPS you. It'll also tell you the times and everything along those lines if you want to track everything.

"I have a Fidelity brokerage taxable mutual fund account. It is not a retirement account. The taxable account has two mutual funds inside. One is a diversified growth and the other is a more balanced 60-40," probably bonds. "I started investing in these accounts in 1992 and directed all dividends and capital gains to be reinvested in the same funds." So a drip. "On a positive note, the account has grown dramatically, but the bad news is that both funds have high costs associated with them, i.e., actively traded, high turnover, which drives up costs. I would like to somehow move the money to a more tax-efficient index stocks such as XLY, the Dividend Kings, Dow Diamonds, QQQ, S&P 500, VOO, et cetera. Will I be able to do so with no tax or minimal tax implications?" I think you'd have to sell and that is a taxable event. Now you're going to have to move it over. We might be able to do things to mitigate that around it—some lost positions or something like that—to offset that gain. But I don't know personally how you would be able to get that transferred over. So is there a way to avoid the tax on the capital gain? It's really hard. You could sell other assets that have capital losses and harvest some losses like maybe you have crypto.

"After using accelerated depreciation on a new Airbnb this year, can I avoid future recapture in the case of a sale through a 1031 exchange? Can I exclude some nights when I stayed overnight on the Airbnb property for the purpose of improvement, say installation of the gutter guards by a company the next day?

In this episode of Anderson Business Advisors, Toby Mathis speaks with Aaron Adams, CEO of Alpine Capital Solutions. Aaron has been a full-time real estate investor since leaving his job teaching high school Spanish in the early 2000s. He has purchased thousands of properties in California, Indiana, Missouri, Texas, Florida, Idaho, Nevada, North Carolina, and Illinois. His focus is on single-family homes in blue collar and middle-class neighborhoods.

In this episode, you’ll hear why this environment is NOT like the crash of 2008, and in fact, even though this country is short 4 million homes, there are fantastic short-term rental and other opportunities for anyone interested in getting into real estate investment. From mobile homes to accessory dwelling units (ADUs), this country is in desperate need of affordable housing, and Aaron believes that the Airbnb/short-term rental space is where it’s at for investors right now.

Highlights/Topics:

From high school Spanish teacher to flipping homes in Riverside County CA

Cap rate explained- net income on a property after all expenses

Inventory is about 4 million short on homes right now - the environment is terrible for new builders

The “Silver Tsunami” - will those 55 and older be selling? Millenials and younger don’t want the boomer-style McMansion homes- they want metro area, tiny home styles

ADUs, short-term rentals, and the homelessness crisis

The Fed, interest rates, and “core inflation”

This is NOT the same situation as the crash of 2008

Get educated about real estate investing with Alpine and Infinity

Resources:

Email Aaron

Alpine Capital Solutions

http://alpinecs.com/

Infinity Investing

http://infinityinvesting.com/

Anderson Advisors

https://andersonadvisors.com/

Anderson Advisors on YouTube

https://www.youtube.com/channel/UCaL-wApuVYi2Va5dWzyTYVw

In this episode, Clint Coons of Anderson Business Advisors welcomes Brian Bradley, Director/Partner at Bradley Legal Corp. He's also the director of the Asset Protection Council.

Brian explains what offshore trusts can and can’t protect you from (not divorce!), who is the right candidate for offshore trusts, and why he recommends the Cook Islands and hybrid trusts. Brian tells us why and when you might need to “break the bridge” that ties you to your money in case of a doomsday lawsuit that will literally take your entire legacy from you. In most cases, when someone comes after you and discovers your money is offshore, particularly in the Cook Islands, 9 times out of 10 they settle or back off, because of the high likelihood of losing against this scenario. 

Do your research, vet the organizations setting up your trust, and do all this before getting into any trouble, because coming to set up a trust after any litigation has begun is like getting insurance after a car accident.  Plan ahead!

Highlights/Topics:

Who is the right candidate for an offshore trust? High unprotected income (over $1M), doctor/surgeon, rental real estate in multiple states, at high risk from doomsday lawsuits

The Cook Islands - benefits for tax-neutral trusts

Hybrid trusts and your position

Swiss bank accounts - they can be overkill and burdensome

Protecting your assets from doomsday lawsuits

Only about 20 states recognize asset protection trusts - so hybrids are better

Questions you should ask when vetting

Hybrid trusts and the IRS

Asset protection trusts do not protect you in divorce court!

Resources:

BTB Legal Website

http://www.btblegal.com/

Email Brian

Asset Protection Council Website

https://www.assetprotectioncouncil.com/

Anderson Advisors

https://andersonadvisors.com/

Anderson Advisors on YouTube

https://www.youtube.com/channel/UCaL-wApuVYi2Va5dWzyTYVw

Today’s Tax Tuesday episode is focused on bookkeeping. Toby Mathis hosts with special guest Troy Butler, Executive Manager of our bookkeeping department at Anderson Advisors, and some of the bookkeeping staff from Anderson including Patty, Ander, Matthew, Eliot, Dana, Trisha, Blanca, Landsey, Kiera, and Cindy, are all online today to help answer your questions.  You’ll hear our advice on things like what bookkeeping software to use, expense reimbursement and mileage, grouping your businesses using “classes,” and even some detailed information on how you can become an Anderson Advisors client and the services you’ll have access to. Submit your tax question to taxtuesday@andersonadvisors.

Highlights/Topics:

If I request an EIN so I can open up a bank account for my disregarded single member LLC, do I have to file a tax return or can I somehow inform the IRS the EIN is for a disregarded entity? – Any EIN should be on “a” tax return, but doesn’t have to have it’s own return.

If I paid for something on behalf of my C-corp and it didn’t have enough funds to reimburse me, how do I account for it? – First of all, if you paid for something on behalf of your corporation, I would make sure that I'm submitting a reimbursement sheet. I would do that monthly where I'm putting together everything I paid for personally, putting it on a sheet, and submitting that to my company for reimbursement. Step 1 - Do it monthly or quarterly. Step 2 - You can have a revolving line of credit.If it's an IOU, it's a loan. It's a liability of the company. It would be an asset to you as the shareholder.

What is the best way to record, handle reimbursement for business expenses that were charged on the owner's personal credit card to avoid giving the IRS concerns about the legitimacy of the business?" – Again, you would want to submit those charges that were business related on a reimbursement sheet. What you don't want to do is you don't want to put that credit card that's in my personal name on your company's books. That can be looked at as co-mingling. It's a business expense that you’re getting reimbursed for.

Can I deduct other courses I take that are general business-type classes, not specific to real estate investing, and if they are for the purpose of helping me build my business? – General business if it's you're improving your current lines of business. I don't see an issue with that.

What is the smartest tax advantage way to pay the kids for helping the S-corp? Can I reimburse myself for the payments I have made to them from my personal account? – There are a couple of options here. I am a believer in payroll. The reason for that is if they're on payroll, if they make less than the standard deduction as employees, they're not required to file a tax return. You can also pay them by putting money in their Roth - they’ll never pay tax, or do a 1099.

How do I not pay taxes at the end of the year?- This is what everyone wants to know!! My reply is, either don’t make any money, live on borrowed money, have someone else make the money, or buy real estate as a real estate professional which unlocks passive losses.

I have a three-member LLC taxed as a partnership. The members want to take a distribution each of $100,000. How is that taxed and how is it recorded in the books? – That's not a taxable event. It's a distribution. That's an equity transaction. The $100,000 is not a taxable event. The taxable event is the numbers that come on that K-1 and say, you made profit of “X” or you made loss of “X”.

How does the Anderson bookkeeping service integrate with the accounting service, et cetera? – We work very closely between teams! …we have full service monthly, or quarterly “virtual” service that uses QuickBooks. Virtual bookkeeping is $995 for a year for the first set of books and then $495 for each additional set of books.

Can you please discuss some big-picture strategies to help with bookkeeping automation, AI, we should be considering? Botkeepe

If you’re an investor and you’re worried about interest rates, and don’t have a ton of cash, what products are out there for financing your purchase? 

On today’s episode, Clint Coons of Anderson Business Advisors talks to Rick Floyd, Executive Vice President of Homebridge Financial Services. Rick explains some of the basics that you’ll find in the agency space, such as the typical Fannie/Freddie guidelines, but there are also options out there for investors such as the non-qualified mortgage that has very different requirements and doesn’t carry some of the limits and restrictions you may find in the Fannie/Freddie underwriting.

Highlights/Topics:

Background on Homebridge Financial

The traditional Fannie and Freddie guidelines

Avoid common mistakes investors make - talk with your advisor, make sure they are looking at your ‘big picture’

How important is ‘seasoning’ of cash - it should be able to be sourced

Portfolio loans use Fannie and Freddie guidelines

Non-qualified mortgages - qualifying, terms, cap limits, rates and other details

HELOCs- only on primary residences, not on investment properties

What does the next year look like for investors? Lack of inventory is the biggest problem

One last question -nonQM property transfers- it’s not an issue

Resources:

Rick Floyd LinkedIn

https://www.linkedin.com/in/rickfloydremn/

Homebridge Financial

https://www.homebridge.com/

Clint Coons

https://andersonadvisors.com/clint-coons/

Anderson Advisors

https://andersonadvisors.com/

Anderson Advisors on YouTube

https://www.youtube.com/channel/UCaL-wApuVYi2Va5dWzyTYVw

Several of today’s tax questions address bonus depreciation and when you can take it on single and multiple property groupings, including on short term rentals. Toby Mathis and Elliot Thomas, tax attorney, of Anderson Advisors, discuss the detailed specifics relating to several different tax scenarios involving bonus depreciation. They also discuss cost segregation and frontloading depreciation deductions for real estate assets into the early years of ownership. Submit your tax question to taxtuesday@andersonadvisors.

Highlights/Topics:

Taking the 5,7, or 15-year depreciation - You can only choose one, but you can spread them out over different years and different properties.

Bonus depreciation - equipment leasing company rents to a) a construction company and b) another company with no employees. Should they add a third? - No, adding would have the opposite effect. If you wanted to group a and b together, you probably could. This is active income and if you want to avoid self-employment tax, pay yourself a small salary.

A listener rents a single family property on flat lot that gets a lot of rain/water damage, can they deduct rain barrels/hardware? Yes, you can do it all in the first year, bonus depreciation, as it is not an “improvement” and it’s under $2500 per line item.

Can I group short term rental activities if one property has an out-of-state property manager? This falls under passive activity loss rules - a STR can be passive if you’re not participating. Each rental is a business, like a pizza parlor. This is a trader business. Make a statement for aggregation on your return.

Can I amend my 2021 taxes to do cost segregation? Yes you can, the deadline is Oct. 17th- send us how much you saved!

A US citizen gets gift of property in another country. Do I need to report to IRS? Typically no, and you pay no tax, but fill out a form if property value is over $100K and foreign. You have to list it on Form 3520.

Bonus depreciation on rental, if taken in first year of service, can I use any of depreciation for next year? It’s only the first year that you break out that property.

If a CPA does your taxes, and you get revised/audited, it’s ultimately only your responsibility at the end of the day.

Shout out to the staff for helping to answer questions in the middle of tax season

Resources:

Email us at Tax Tuesday

Tax and Asset Protection Events

https://andersonadvisors.com/real-estate-asset-protection-workshop-training/

Anderson Advisors

https://andersonadvisors.com/

Anderson Advisors on YouTube

https://www.youtube.com/channel/UCaL-wApuVYi2Va5dWzyTYVw

In this episode of Anderson Business Advisors, Toby Mathis speaks with Jeff Mason and Chris Hammond about cash balance pension plans for business owners.  This is not a 401(k), it’s not an IRA, it’s a way to defer and even reduce a portion of the taxes you might need to pay and set yourself up with an annual income when you retire - if you are a business owner.

This is for all business entities. True pass-throughs, S Corps, sole proprietorships, and partnerships work best in this savings scenario.  Many people that have even heard of defined benefit plans, or cash balance plans, might think you can’t start contributing until later in life, and that used to be true, but now people like Chris and Jeff are designing plans for people in their 30s. 

Jeff and Chris will go over what the benefits, timelines, and rules are regarding these plans, give you some sample scenarios with actual clients they have helped, and also answer some specific questions that Toby has about their validity, value and future potential for participants.

Highlights/Topics:

The basics - How business owners can set up an income for themselves at retirement, the requirements to contribute, how much you can put in, how much you can take out and the tax implications

Some examples of Jeff’s clients and the actual numbers they are working with

Deadlines and potential increases in contribution limits from the IRS

Are Jeff and Chris going to try to “sell you” stuff if you go to them for help? No- the retirement community is very small, everyone would know if you were operating in an unethical way. We want more referrals, not less, so everything is highly ethical and we don’t take advantage of people

Get in touch with Jeff and Chris - there’s no cost for your initial consultation and even developing a sample plan - they just want to see if their services can help you!

Resources:

Email Jeff Mason

Call Jeff Mason 815-516-0560

Anderson Advisors

https://andersonadvisors.com/

Anderson Advisors on YouTube

https://www.youtube.com/channel/UCaL-wApuVYi2Va5dWzyTYVw