Articles, Blog

How To LEGALLY Save BIG On Taxes! (Year End Tax Planning 2018 SPECIAL OFFER!)

November 30, 2019


– Alright, let’s see if I
can center myself on the A. Alright, my name’s Toby Mathis. I’m going to be your speaker
today on year-end tax planning. So, first off, welcome. I’m going to test some levels, make sure that you can hear me well, and also make sure that you guys are able to respond on the chat. So, Patty is in the room with me. She’s going to be your chat master. Everything good on that side? Fantastic. Then we’re just going to dive
in ’cause we’re going to be really pressed for time on this, given that we have about 90 minutes to cover well over 20 deductions and ideas on ways to save money. And to put this into perspective, I, myself, managed to reduce my tax bill by about $80,000 last
year in the last week. A lot of my clients were
in the similar situation where once we get a really good idea of where you’re going
to end up for the year, we can make some major
changes to the tax bill right on up until the end of the year and then even after the year-end, if we put things in place
that allow us to fund. So, there are certain types of plans that we can actually put money into going up until September of next year that’ll lower our 2018 taxes. And so, you’re going
to learn these concepts and a bunch more today. So, let’s just kind of go over
what you’re going to learn. First off, we’re going to be
talking about tax strategies to save you on your 2018 taxes. We’re not going back to your 2017, 2016, we’re talking about stuff
that’s for this year. You know, when I say this year, it’s because there was
some huge tax law changes that took place a little bit less than a year ago, right about… I guess it would be 11 months right now that these tax law changes were passed in the Tax Cut and Jobs Act and had a very major impact
on the tax landscape, though many folks are still
unaware of all those changes. So, we’re going to talk about how to use the new tax law changes to your advantage, in other words, don’t get
taken advantage by them, but use them and reduce
your tax bill as a result, just ’cause a little bit of
knowledge goes a long way here. The next thing we’re
going to be talking about is how to implement. Knowledge without action
is just kind of a, to me, is a little bit of a waste. You have to actually
put things into place, and so, we’re going to go
over some concrete next steps that you can take and put ’em into place. Now, if you know Anderson, we’re big fans of teaching. We want our clients to
actually know why we’re doing, why we’re putting things in place, we want the clients to
be able to participate in the planning process
and know how to run it. And so, we have lots of classes, and there’s five categories,
or five levels of classes, that we have throughout the year to help people become better tax planners, business owners, estate
planners, you name it. But the number one class that we offer is the Tax & Asset Protection Workshop. And I would suggest that if
you have not attended that, that you put that on
your wishlist for 2019, like that’s one of the
first things you should do, is go to that to get a
really good understanding of the legal landscape and what you can and cannot do, and simple things that you can do that can have a major impact. Another number one event is the
Infinity Investing Workshop, which is fantastic if you want to learn how to build up passive cash flow and retire without having to work. In other words, having the assets pay you, rather than you pay for so called assets. And we go over and show you
some very simple definitions and then we teach how to become, not just a real estate landlord, but a stock market landlord, how you can generate
passive sources of income. The number two event,
which I would recommend to anybody who puts an
entity structure in place, is the Structure Implementation Workshop. That is a fantastic two day event. Tax & Asset Protection, by
the way, is a three day event, and Infinity Investing is
either a one or two day event, depending on what type of event it is. Tax-Wise, that number three, this is where the tax… This is where we spend two days on nothing but tax strategies. This is where anybody who wants to lower, like has tax pain, you know,
“I’m paying too much in taxes!” This is where you go,
is Tax-Wise Workshop. And if you watch all the way to the end, I’m going to give you
some pretty big incentives to participate in that one. Number four, our level four class, is the Start and Run a Non-Profit. Anybody who actually sets up a 501c3, we want you to go to this class. If you’re considering
getting into philanthropy or if you want to run your own non-profit, then this is the class
that you should go to. And then the level five
is by invitation only, and that’s the Executive Retreat, and that’s for real estate investors. That’s where we get together and we horse trade a little bit. And we work together on sharing our experiences in real estate. I, myself, am a avid real estate investor and we get similar people,
and we share our ideas. Alright, today we’re going
to talk about taxes, though. And in order to talk about taxes, we all need to be on the same page. And to be on the same page, we
have to use common language. And so, definitions is where
we’re going to start off. And this is going to make
sense as we go through these. But when I use these
terms, they have meaning, and I want you to understand
what the meaning is. So, a lot of what I’m going to be doing is talking about different types of income and different types of tax payers, and how that income is treated. And it can actually be treated
differently per tax payer. So, for example, if your IRA
makes $5000 during a year, that’s treated differently than if you, as an individual, make $5000. And so, we want to be
able to use these terms and for you to understand what they are. And I just threw one out there, an IRA, but I’ll go over and I’ll
define all these things for you. So, the first one is active income, and this is whatever your brow income. And the reason this is so important, and I teach this in Tax-Wise, it’s because there really
are two tax systems. An active income is one of
those things that gets hit hard, boom, from the second you start making it. And I learned this the hard way working for McDonald’s when I was 16. And I expect to see, I think I was making four bucks an hour, and you work 40 hours during the week, and you expect to see a
check for $160, and it’s not. It’s far less, and the reason being is because this type of income, not only has federal
income tax hitting it, not only has state income tax hitting it, but has something called
Old Age Death and Survivor’s and Medicare hitting it,
which is social security. Social security, by itself, when you add those two
things up, is 15.3%. That’s before we get into
federal unemployment, state unemployment, workman’s comp, all these other things, L and I, all these other things that
they take out of a paycheck, but just from a federal standpoint, we have this social security tax at 15.3% right out the gate. Then we get our federal income tax, and they tend to talk about
the federal income tax as though that’s only
federal tax there is. That’s not the case, a
big one is going to be that self-employment tax, and it’s on every dollar. And so, here’s how I liken it. When I was, a lot of you
guys have heard this, so apologize if you heard
me tell this story before, but I happen to have gone
to a Catholic school. And in Catholic school, you have the Sisters and the
Brothers, you have the nuns, and if you did something bad, I’m just going to go over here and say that I’m goofin’ around, you got erasers, you got the ruler, wap! You got put back into place, like, “Hey, quit goofin’ around!” And then, we call that a
little bit of a punishment. On the other side, if you’re really good, you’re over here, and they’re telling you, “Great job, good,” like if you’re helping the old lady cross the street or you’re going and you’re
visiting your elders and you’re treating them properly and you’re treating your
classmates with respects, then they’re giving you the noogie, they’re, “Good job, good job.” So, you’re over here,
you’re gettin’ whacked. Over here, you’re gettin’ the noogie. And the tax system is no different. Active income is over here. You’re getting hit every time, which should be a message to you, “Maybe I want to control what
type of income that I make.” Over here is passive
income, and specifically, if you’re making capital
gains in real estate, we can avoid tax on that
forever, and actually, never pay tax on it when
we give it to our heirs. There’s ways to literally
make millions of dollars in real estate, never pay a nickel in tax, income tax wise, capital gains wise. We can defer it all, we can avoid it. And then, when you pass,
you step up in basis, which means the value of the property is whatever its fair market is, is its new basis, and
you pay zero tax on it if your heirs sell it. So, you could literally
go your entire life building up millions of dollars over here, and you get the noogie, good job, and you get zero tax. So, the reason this is important
is because active income is squarely over on the side
where it’s getting punished, and passive income is
over here on this side. And so, we kind of want
to direct ourselves to where, if we can, we minimize the tax bill on the active and move as much as we
can over into passive, and that’s a tax secret. If you do that, there’s a good chance that you’re going to cut your tax bill by 75-80%, if not, practically avoid it. Now, you’re always going to
want to have some active income, that’s your… If anybody ever says, “Quit your job “and invest in real estate,” don’t, keep the job so you
can invest in real estate. The job’s over here,
but there’s still ways to offset this income. What we do is we look at it and say, “This is the worst treated, is over here, “this is the one that we want to affect, “is this active income.” The passive income is the
stuff that we want to allow to grow and grow and grow, and there’s ways to defer that too, but we want to allow that to grow. So, now that we get that out of the way, we have active, we have passive. Passive is when you’re not
actually working for something, but the asset is working for you. So, if you don’t materially
participate in a business, for example, I’m an investor in my cousin’s S-Corp, and he’s just paying
me as a passive owner. I’m not going to pay
self-employment tax on it. Or if I’m receiving
distributions out of an S-Corp, passive, I’m not paying
self-employment tax on it. If I’m receiving rents, royalties, dividends, capital gains, all that sits over there in the passive. And I am not going to pay
self-employment tax on it. Then we step down and we
look at actual capital gains. You know, kind of check
these off as we go, so that you guys can follow from home. So, we talked about passive and active. Capital gains is when
you dispose of an asset held for investment. Now, here’s something that’s
really, really critical. In this last year, we’ve all
been hearing about Bitcoin, and Ethereal, and all these
different cryptocurrencies, those are capital assets. If you changed it, and you used Bitcoin to buy something, that was a taxable event, you sold the Bitcoin, you
have capital gains on it, and then you reinvested
it into something else, or you used the proceeds
to buy something else. It’s no different then you sold a house, took the proceeds, and bought
some services or goods. So, when you sold the house,
you have capital gains. And capital gains fall
into two categories. Gains on assets that you held over a year, which are long term, and gains on assets that you
held for less than a year, which would be considered ordinary income, which would be taxed at
your ordinary tax bracket. When I say ordinary tax bracket, it means your tax bracket. So, long term, this is the fun one, could be 0%, 15%, or 20%, depending on your personal tax bracket. So, here’s a hint. If I can control my personal tax bracket, I can make sure that I
always fall on the 0% or 15%. And so, if I can have a
certain degree of control over how much taxable
income I end up having, then I could actually start controlling how much capital gains tax I pay. But it’s getting ahead of ourselves. The most important thing
to remember is that if you held it for less than
a year, you’re short term, if you held it for longer
than a year, it’s long term. There’s an exception to that, and that is if I am in a business of selling an asset, so it’s inventory, or if I’m doing a futures
contract, a 1256 Contract, which case, 60% is long term capital gains and 40% is short term,
no matter long I held it. But those are the exceptions. The big thing to remember is
if I buy and sell an asset, real estate, cryptocurrency, stocks, bonds, whatever, if I’m selling those, and
I held them over a year, I’m going to be long term capital gains, which is great tax treatment, I could get that done to
zero in many circumstances. Now, there’s something else that falls into that long term capital gains rate, and that is if I get a dividend
from a qualified company, a C-Corp that’s paying me out profits, and then I can also be treated
as long term capital gains. That’s really important
when we do our planning. And that brings us into the next list. A corporation, now this is just an artificial
person or legal entity created under the authorities
of some state or nation. In other words, I go to a state and underneath their statute, I create this artificial
person called a corporation, ABC Inc. We love corporations. Now, they are also taxed differently. There’s two types that really fall into, it falls into two broad categories. Your C-Corps and your S-Corps, that’s on the for profit realm. There’s an even broader category, which is if you go into a non-profit, which is this 501c3 where
it’s not taxed at all. And it’s 501 is actually the level, it’s 501c, and there’s about 30
different exempt entities, but they don’t pay tax at all. But for our purposes, we’re
going to think of a corporation, when I say a corporation, it’s either going to be it pays
its own taxes, it’s a C-Corp, or it passes the taxes down
to you, it’s an S-Corp. And we’re going to use
those today for sure because if it has its own tax bracket, that may be something we want to use. Now, something else that’s
popped up since the 70s is something called a
limited liability company. Don’t call it a limited
liability corporation, or we make fun of you. It’s a limited liability company, and it’s, again, it’s
set up under the state and basically, it mirrors the
inside liability protection. In other words, things that
happen inside the business stay inside the business. It’s called inside liability, it mirrors that of a corporation. Those things stay inside there, but it also has
protections on the outside. But it does not exist to the IRS. So, to the federal government, there’s no such thing as an LLC. You have to tell the federal government how it’s going to be taxed, and so, it’s probably going to be
either as a corporation, a partnership, or
ignored for tax purposes, which means if it’s just
you, you’re sole proprietor, meaning that you filed
on your personal taxes. This comes up to be very important because if somebody ever
says, “I have an LLC.” The next question out
of your mouth should be, “How is it taxed?” And usually people say, “As an LLC.” And there’s no such thing as LLC taxation. The LLC does not exist to the IRS. You tell the IRS how its treated. Now, the tax payer, we’ll go to this, well actually, let me go to 501c3. I love 501c3s, by the way. Not just because they’re charitable and they do really cool things, but anything that is for scientific, educational, religious purposes, which could be providing Veteran homes, it could be helping in
transitional housing, it could be a church, it could be providing
assistance to the needy, it could be providing health services, dental services, you name it, it could be all these things, and it could fall underneath this category of not paying tax. And the reason this is important is because not only does
the entity not pay tax, but you get a tax deduction
called a charitable deduction if you give it money or assets. We’re going to cover that today in detail because it’s such a powerful deduction. There’s a couple areas
where this gets triggered. Things that you may not have expected actually fall underneath this category, especially for tax strategies. A tax payer is the person who, or entity, so remember, it’s an artificial person when you set an entity,
an LLC or a corporation, it’s going to be treated
as an artificial person. So, when I say the tax payer
is the person who pays the tax, I’m talking about any entity. So, when I use, say, “Hey, “we have different tax payers here,” we may have different tax brackets. And then, we can control which tax bracket these things fall into sometimes. So, that’s what we want. An IRA is a tax qualified
account for savings. So, you could put money for retirement in an individual retirement account, and those rules are very
specific to the individuals, and they have lots of restrictions. And that’s a form of a
defined contribution plan, it says, “Here’s how much I can put in.” So, like, maybe I can
put in $5500, says here, into an IRA, and then there’s
different flavors of IRAs. There’s, hey, I get a
tax deduction for it, that’s your traditional IRA, there’s a Roth, where I
don’t get a tax deduction, but I never pay tax again. And there’s SEP, Simples, there’s all these different things, but at the end of the day, there’s really two categories of IRAs. I either get a deduction
for putting the money in, and I defer that tax until I take it out, or I get no deduction for putting it, and I pay no tax when I take it out, I get all that tax-free growth. Those are our two big categories. Next one is a qualified
plan called a 401k. And this one requires an employer. And employer gets to make
contributions on your behalf and you get to make an employee deferral. Meaning, I, instead, of taking payment in the form of a salary, I can say, “Put it in my 401k instead.” And this year’s limits,
right now, is $18,500, and that’s set to go
up next year, as well. These are indexed, the IRS comes out and changes the limits every year, but it’s $18,500 for 2018, which means you can defer the
first $18,500 of your salary. In addition, the employer can match up to 25% of your salary, it can deduct and put more money in. So, these are amazing tools if you have a business, this is where it gets really important. So, this just gets lots and lots of fun. If we’re going to go and we’re
going to talk about tax planning, the idea is to use different people’s tax brackets, different entities tax
brackets to your advantage. So, for example, if I’m making $80,000, and I know that in my tax bracket, I’m going to be at a certain percentage, I’m going to be at a certain level, depending on if I’m single, or married filing jointly, et cetera, it’s going to determine what
percentage I pay on that money. But I could take $5500 of it, for example, and put it right into an IRA, and I lowered my tax bill, or lowered my income by $5500. And now, that IRA doesn’t pay any tax. I got a deduction and it doesn’t pay tax. So, that’s how these things work, it’s called income shifting, and it’s a tax avoidance technique. And before you go, “Oh my
God, he said tax avoidance!” Just know that according
to our Supreme Court, there’s nothing wrong with a strategy to avoid the payment of taxes. It’s tax evasion, not
paying a tax that you owe, that’s what gets you in trouble. Tax avoidance is 100% legal. And this is why it’s going
to be really important. It’s because this year, our
standard deduction went up. And what it really means is that right now, in 2017, 46 million tax payers itemize, they used that Schedule A, and they wrote off expenses, and that includes your mortgage interest, charitable donations, your local taxes, your medical expenses, all those things, 46 million tax payers exceeded the standard deduction. Now, this year, they’re estimating that it’s going to be 13 million. In other words, more than 60%, actually, what is that percentage-wise? That’s about a third. Less than a third, so we’re talking about a 70% decrease in the number of people
that are going to itemize. And what means is what
the heck did they do?! It’s no longer going to
benefit you to itemize, which means all of those
things that I just mentioned are no use to you, personally. And so, how do we get benefit out of them? How do we still get a benefit out of them even if they took it away? And what they really did is they doubled the standard deduction, they took away all exclusions, by the way, and exemptions, so your
exemptions are gone. They doubled your standard
deduction, essentially, so that if you’re married filing jointly, it’s this $24,000, you have to exceed that before
you get a dollar of benefit. Now, they did us a curve ball, and they took away miscellaneous
itemized deductions. So, I’m just going to write this on top. Miscellaneous are gone. Ooh, guys, that a punishment right there. Miscellaneous itemized
deductions are gone, that’s going to be painful. Now, before you think, “Oh, shoot, “that really wasn’t a big deal,” go to your Schedule A
and actually look at it, and see if you itemize. If you itemize, if you did a Schedule A, there’s a good chance
you won’t be itemized, and there’s about a 70%
chance you won’t be, how about that? And that’s going to have
a pretty dramatic impact. You’re going to lose the
benefit of all those expenses. In other words, why have them personally? And then the question is, where else could I push them? And that’s what we’re going to
be talking about a lot today. You’re going to realize
that some of these things are pretty darn common sense, you didn’t know you could do ’em. But I’m going to show you
what you’re able to do. So, before we get there, we’re going to talk about the three types of actual tax relief that
we’re going to cover today. Number one is deferring taxes, which means we will pay
tax on it eventually. So, for example, if I’m a 21 year old… I’ll go back to 16 year
old working at McDonald’s. And let’s say that I was
working at McDonald’s, and I took my net $100 a week, and I made $5000 during the year, and I took that money,
and I put it into an IRA. I pay zero tax, I’d
probably pay zero tax anyway because I’d make so little, and my standard deduction
would wipe it out. But let’s say I put that in a Roth, and I never pay tax again. Then I would literally have 70 years of growth, tax-free, and then I could take it out,
I wouldn’t pay tax on it, but if it was deferred, like let’s say, I’ll use a better example. You’re 21, you’re making $50,000 a year, you put $5000 into an IRA. You now have, you have 50 years, I’m 21, I have about 50 years. So, it’s 49 and a half before
I have to take any money out. I don’t pay tax on any of that money until I hit that 70 and a half, and then I’m forced to
take some money out. And when I take it out,
that’s when I pay tax, at my rate at that point. So, if you’re in a high tax break, then we want to look at
deferring things until we’re not. So, for example, if I’m in
the prime of my working, I’m 40 years old, and I’m cookin’. And I’m just rockin’ it,
I’m makin’ a ton of money, deferral is your friend
because chances are, when you’re 80, you’re
going to be making less. At least, taxable income will make less. And that means that you’re going to pay a much lower tax rate. The next level is one of my
favorites, is deductions. Write things off, so I
never have to pay it. And there’s two ways
to do this, by the way. There’s the, “Look at
me taking deductions,” and then there’s the no
paper trail deduction, that’s called an accountable
plan getting reimbursed, and I don’t have to show it on my personal tax return anywhere. That’s when we never pay tax again. Patty, you have a quick question? – [Patty] Yeah, Bruce C., hoping to hear a little bit on a significant issue, a 15% shave off if our LPs that
holds a (muffled muffling). What do we have to do to make this work? – Alright, we’ll talk a little bit about that, Bruce, in a bit. That’s actually one of the strategies. And that comes up, it’s well-timed because this is dividing. And what we’re doing is
we’re splitting income between different tax payers. In other words, we’re
taking an artificial person, we’re taking a real, natural person, or maybe another real, natural person, and maybe another exempt account, all these things that are
listed here, different parties, and we’re moving the
income in between them, that’s called income shifting, 100% legal. And it works like this. Hey, if I make this money individually, it ends up on my 1040, and the benefit of it is really simple, but I’m going to pay a
really high tax bracket. Now, let’s say I have
family, like I have kids. Maybe my kids have a
lower tax bracket than me, then how do I get money
from my tax bracket to them? Well, I could tell you, it’s
going to be really tough to do that as an individual, but you can usually do that in conjunction with one of these
businesses where it starts to pay them differently. Or let’s say that, hey,
I have a really high tax bill this year, what am I going to do? Maybe I make a big
contribution to a non-profit, and I write that off, it’s
going to be big chunk. Or maybe I’m putting it
into a deferred account, or maybe I’m putting it into a Roth or a non-qualified account. This one’s not going to
get me the deduction, but these guys absolutely
give me big, fat deductions. That’s what income shifting is, is deciding where the
money’s going to land at the end of the tax year. And then, in some of these plans, we can continue to use them next year to our lower our tax bill this year. It’s going to sound weird, but
I’ll go over a few of those. So, this is where we start. I hear sleigh bells coming, and here comes old Saint Nick, right? And he’s bringing his big bag of nothing but awesome
2018 tax strategies. And so, we’re going to dive
into a whole bunch of these. There’s more than 20. I gave you 20 just because
I said at a minimum, and we’re going to
start jumping into this. So, the first thing that
old Saint Nick gave us, is he brought us 20% of tax free income under the New Tax Act. What, you get 20% of tax free income? Yes, and what it is, is it’s, basically, it’s called this 20% deduction on QBI. And QBI just means
qualified business income. In order to get this, it just has to be a flow-through entity, so it’s any business that’s making money that flows on to your personal tax return. This could even be a sole proprietorship. You get a 20% deduction. Now, there are exceptions. But let’s just say that I made $100,000 of QBI, and it flows
through onto my return, I’m only going to have
to pay tax on $80,000. 100 ended up in my
pocket, I pay tax on 80. So, I had a $20,000
gift from old Saint Nick sitting under my tree, and
I guess it should be… It’s not, it’s Congress,
so they’re the elves. But they gave you this
nice little deduction. Now, how do you lose it? If you’re on the naughty
list, you lose it. And here’s how you get
on the naughty list. A, C-Corporations don’t
get the 199 A deduction. They don’t get that 20%. You do not get the 20% on capital gains, interests, royalties, or dividends. So, if it’s a passive income
stream, you don’t get that 20%, with the exception of real estate. We like real estate. Now, there’s one exception
to the real estate, which is, technically, if
you have triple net leases in commercial, you’re
probably not going to get it, but they haven’t decided it 100% yet. We’re still waiting on some
regs, we have propose regs, but we don’t have the
final regs from the IRS. Now, if you make too much
money, you get phased out. And then, if you are what’s
called a specified business, you can be excluded from
this beautiful 20% deduction. In other words, that’s
coal in your stocking, and specified business means doctors, lawyers, certain architects, engineers. If you are using your personal service as the primary thing of the business, recording artists, other
artists, all that stuff, you are what’s called
a specified business. Now, you don’t lose it, you just get to go under this crazy tumble
that we run you through, and it says, basically, “Hey,
are you a specified business?” Then, “Is your income below these levels?” If the answer’s yes, then
you’re doing that 20%. If it’s no, “Hey, I make too much,” then you might be phased out, and then if you make too
much and you phase out, you get no deduction. So, our trick then is to how do we make sure that we get this? In a nutshell, is to
make sure that you limit your personal income, and you can do this with retirement plans. You can use defined benefit
and defined contribution. If you don’t know what
a defined benefit is, you will learn before today is out. You can move money into a C-Corp. You can even use a 501c3, where we’re dumping money into something to lower our taxable income, so that our taxable income
falls below these thresholds. This is why it’s so important
to work with a tax planner because if you follow the rules, we will make sure that you can qualify. So, even if somebody would
automatically phase out, and you’re in an area
where you’re going to lose that 20% big, fat deduction, if you work with somebody knowledgeable, like our tax staff, they’d be like, “Here’s where we need to push the money “so that you still qualify for it. “We want that 20%.” And we can show which ones will
hit it and which ones don’t. Now, there’s a couple of other tests if you make too much money,
even if it’s non-specified, like if you’re just an ordinary business, or it’s rental, and stuff like that, if you make too much money, there’s still ways to make it qualify. It gets a little complicated,
but those are tests that we run it though. It’s this 50% of W2 and 25% of W2 plus 2.5% of assets put into place. There’s all these little tests, but all we’re doing is we’re running it to see what’s going to make
sure that you get that 20% because it’s such a big gift,
we don’t want to lose it. And so, that’s a big one. Next one is the ultimate tax
break you may be missing, and here’s the deal. This is, if you’re not using one of these, and you’re in business, you’re crazy. It is a retirement plan. And there’s two types that
I’m going to be talking about. Defined benefit and defined contribution. What’s so important here
is that defined benefit is when I’m defining
how much I’m taking out. And I average out my last
three years of income, I think they can actually
look at three to five, and say, in order for you
to get that back out of it, you need to have X number of dollars sitting in your retirement plan. Well, if you’re used to making $150,000, you’re going to have to millions
of dollars in that tax plan, I mean, you’re going to have to have it in that defined benefit plan. So, I’ll give you some numbers. We’ve had clients put $500, $600,000 plus in these plans, tax-deferred. So, they’re deductible this year, and you’re not going to pay tax until you start taking that money out over the rest of your life,
after you hit 70 and a half. That’s when you’re required to, you could actually start
doing it as early as 55. But you’re able to put so much more money in
under defined benefit. The next one is a defined contribution. And the reason these
things are really important is it just says, like, “Hey, I can defer “my employee income.” So, I can defer $18,500 for myself, if my wife is also
working for the company, she can do $18,500. I have to do that during
the tax year in 2018. So, I have to have these plans
set up during the tax year. I only have to do the
employee deferral part during this tax year. The rest of it, get this, I can wait. So, the employer match can be done in 2019 for this year. So, I could be making a payment next July for $25,000 or whatever it is, whatever the numbers hacked up to be, into my defined contribution plan, like my 401k is a defined
contribution plan. So, I could be making
a $25,000 contribution by my employer by the business, and I get to write it off
against my 2018 tax bill. So, you don’t have to fund these, so this why it’s so important. You can just put these in
place before the year end, and you don’t have to fund them. The only thing that we have to fund is on the defined contribution plan, it’s your employee deferral. It has to be run through
payroll this year. And again, there’s a tremendous amount. And by the way, if you’re over 50, you could put an extra $6000 into that, so you can actually put $24,500. So, these are extremely potent. You just have to be an employee. Here’s the way to lose it. If you’re, how do you
get on the naughty list, is you don’t have it signed in
2018, you don’t have a plan. If you don’t make your employee
deferral, it’s too late. If you don’t make it
in 2018, it’s too late, but you can still do the employer match. You just have to make sure
you’ve paid yourself a salary. The employer match,
for example, in a 401k, is 25% of your salary. So, if you paid yourself
$20,000 of salary, it could put $5000. If you paid yourself $100,000
of salary, it can pay $25,000. So, you’re going to want to have an idea of how much salary you pay yourself. And again, this is why you
talk to our accountants. They can run the numbers and tell ya, “Here’s the optimal amount, “based off of what we have going on here. “Let’s take this much money out in salary, “so you can put this much in next year.” Like, you could start, literally, just putting it in monthly to offset your tax this
year, it’s pretty amazing. What you have to do to
make sure you get it, is create a plan now, all you got to do is sign
it before the year end. And then, know much you can
put into the plan in 2019, like know how much match
I can actually put in. We want to calculate that number, but it’s a very effective tool. And again, if you have questions on these, that’s what I have a whole tax staff on, there’s over 200 of us here. So, we want to make sure that we’re able to give you all the
benefit it possibly can. Alright, next strategy
is double your deduction with no extra money, and
you’re going to say, “What?! “How do I double my deduction “without having any extra money?” Now, here’s how it works. Remember, I said we could
put money into a plan, we could actually fund the plan next year, what if, and by the way, when can you put an IRA in place? You could actually put an IRA in place next year for 2018, so
long as you qualify. But let’s just say that we have a 401k, sitting there and we are in 2019. And there’s $50,000 in it. You know what we can do? We can borrow money, we could actually borrow
up to half of that. $25,000. And we could use some of it to put into an IRA. And we just got a tax deduction. How much tax did we pay
on borrowing the money? Zero, and we just found ourselves another 2018 tax deduction. You could do that for yourself,
do that for your wife. You each do that in a nice little IRA. That leaves us with another $15,000. And your employer says,
“Hey, I would love to match “more money on your salary,
but I don’t have any money.” So, you take that $15,000, and you go and contribute it to your corp, or whoever sponsoring that plan, usually it’s going to
be an S-Corp or C-Corp. And you contribute that $15,000, and then that corporation does what? You got it, it dumps
it back into your 401k. And you just got another
$15,000 deduction. So, we ended up with a $25,000 deduction. And again, our accountants
are good at this, and we also go over this in detail in Tax-Wise. These are really great things to learn. You just get an idea, “Wait a second, “there’s stuff on the table here “that I could still be moving.” And so, we just took $25,000 that we didn’t even pay tax on, and got a tax deduction on. So, that’s why I call it
doubling your deduction with no extra money, you didn’t have to come out of pocket anything, but you were able to
double up a deduction. You were able to get a whole
bunch more, maybe even triple. Alright, next strategy
is using the gift of kids to get even bigger tax breaks. And what does that really mean? Well, I always use college
kids as an example. So, let’s say that Johnny and
Sally are going to college, and their college is $30,000 a year. And before you say, “What
kind of tuition is that?” This isn’t just tuition, this is living expenses,
this is everything that Sally and Bobby are running. What if you paid them? What if you paid them out of your company? They don’t have to be
a full-time employee, let’s just say that you
paid them out of a corp, you paid them a salary,
and you got them money. They would have to actually
do something to earn it, but a $30,000 salary, especially in tech, if they’re good with social
media and things like that, have them make videos for your business, have them do research,
have them do web stuff, all that stuff, $30,000 is
cheap for that nowadays. We pay a heck of a lot more than that for just a simple website. But let’s say you pay them that $30,000. If you paid the $30,000, how much would you have to make? Now, a lot of you guys,
’cause I have you as clients, and I see what your tax bills are between the state and federal taxes, you would have to make more than $60,000. How much do Johnny and Sally have to make? Well, we already know they
have a standard deduction. They have a $12,000 standard deduction, and then they’re practically
in the 10% tax bracket. So, they’re paying next
to nothing in taxes, they’re going to pay significantly less. But whatever the case, you’re going to save
yourself, just on those, about $20 to $25,000 a year by paying the kids. Now, here’s how you lose this. You end up on the naughty list if there’s no work done, if
they’re not doing anything, you’re just paying them money. Or the kids are too young for the type of work you’re having them do. So, if you’re having them do construction, and they’re nine, it’s not going to work. Alright, now there are cases where nine year olds were paid what are called SAG rates,
Screen Actors Guild rates, for being used in acting
and in commercials and in advertisements and on images. Though, next thing to worry about is some people get really smart and they start doing this passive income. They go and they read Trump, his dad giving him passive
assets, like apartment buildings, and he’s making $200,000 a year. That used to work, now that
gets added into your taxes until they’re 24 if you’re
still helping them with college. 18 otherwise. But there’s a kiddie tax issue,
just know it’s out there. So you want to make sure
that they’re working and getting paid. You actually have to
have them do the work, so if I want to get this, I want to make sure
they’re doing the work. They can be young, but it
just has to be legitimate. So, make sure that it’s
commiserate with their skill level. So, if you have real estate,
and you have a 12 year old, have them push the broom and
paint things and fix things. And you actually must pay them, you can’t just say, “Oh,
I think I paid them.” No, you actually have to pay them. And then make sure that
you keep good records. The best thing to do if you
have kids working for you is to have invoicing system or an hourly tracking system. And they just say, “Hey,
I spent this much time.” Again, the one that I find
easiest with kids these days is having them go online,
surf the net for you, have them check out your company, have them check out your competition, have them look at the records to see how busy these sites are, and do research, they can
spend hours doing that stuff. And they’d probably like it, and then you would learn a
lot about your competition. Alright, next one is
the number one strategy of using a corporation for more deduction. Now, what this really breaks down to is when you have different
types of companies, so like a S-Corp is awesome because it has a flat tax rate at 21%. That’s fantastic, in other words, if you’re in a higher tax bracket, just getting the money into the C-Corp is a fantastic way to lower the tax bill. But C-Corps also get many other deductions that you and I don’t. In fact, any business is
going to have something called an accountable plan
that it can provide for you that’s going to give
you massive deductions that you cannot get as
an individual, period. If anybody ever says, “Oh,
these are the same things,” you move onto another accountant because they don’t know
what they’re talking about. You have to be an employee of a company to run an accountable plan, which means it’s only available
to S-Corps and C-Corps. You cannot do this with
a sole proprietorship, you cannot do this with a partnership. So, the idea is to actually
move money into a C-Corp, so the C-Corp can use its deductions. And if you have a C-Corp
here, I could have an LLC, what I like to see is
statutory language that says, “The manager is entitled
to compensation, period.” And then I don’t have to worry about it. Hey, I have a statute that
says you could pay this, I have an agreement that
says you could pay this, I know I can pay this
corporation and move money. The other way is I could
have this be a partnership and have the corporation get a percentage. All of those things work in getting the money
out of your tax bracket and into the C-Corp,
and letting the C-Corp write things off. This is one of the most
effective techniques. We love it here at Anderson, this is where we cut our teeth, was working with
investors and showing them how they could actually move
money into a corporation and get a myriad of advantages that were not available to them otherwise. In fact, certain things that the IRS literally had rules
against as an individual that they promote and allow
you to do as a corporation, and those are awesome. How do you get up on the
naughty list and lose these? Well, no written agreement. You got to make sure that you
have these things in writing. If you have entities prepared by Anderson, we already put these things in place. No substance, you got to make sure that you’re doing something,
that that corporation, if it’s acting as the management entity, that you have your meetings,
at least once a year, where you’re talking about the oversight of all these other businesses. And then the other bad
one is payments not made. We are cash basis tax
payers, for the most part, which means the money has
to be paid during 2018. So, if you want to get the money… Now, there is an exception, and that is if it has a
percentage of a partnership. Otherwise, if you’re paying
under a management fee, you actually have to pay it. we’re not an accrual tax payer,
so we have to pay the money. Yeah, Patty? – [Patty] James asked (muffled mumbling). – So, James asked a great question. So, is that just for a C-Corp, or could it be an LLC taxed as C-Corp? It could be either, so remember, the LLC does not exist to the feds. So, when I say corporation, that means a regular C-Corporation, an LLC taxed as a C-Corporation. If I say S-Corp, it could be an S-Corp or it could be an LLC taxed as an S-Corp. But for tax purposes, we ignore that LLC, we just
pretend that it doesn’t exist. It’s going to be either, that LLC is either going
to be a corporation, a partnership, or a disregarded
entity to a single owner. All those things come into play. Fun stuff, though, good question. Alright, how do I make sure
that I get this deduction? We love these deductions, as
you document the relationship. You pay the money, and make sure that there
is substance to this. Management agreements work, guys. There’s one case out there that a bunch of practitioners said, “Oh, management agreements
are in trouble!” It was a 14 million dollar
management agreement where they disallowed
about a million of it because they were doing some
crazy stuff with entertainment. They were using boats
and all this funky stuff, and they didn’t document it. So, they were like, “Oh, you’re
not going to get the full.” But you’re going to get
like 90% of it, alright? And then you use statutes
to your advantage. If I have a statute that says, “LLC could be manager managed. “And that manager can be compensated.” Then I put a corporation
as the manager, guess what? I have now, by state
statute, created a scenario where now I can pay that party. Alright, best moves to pay yourself thousands of dollars by the year end. We love stuff like this, and this is a big one for those of you who have made a little bit of a mistake when you were setting up your business. Here’s how it works. Let’s say that I’m a realtor, and my broker will only
pay me as an individual. They say, “Hey, we’re
only going to pay you.” I’ll actually put you out here. And so, they pay you, and so, your money actually came to the sole proprietorship,
is what you are technically. Even if you set up an S-Corp, so let’s say I set up an S-Corp
for my real estate business, or Bruce, an LLC taxed as an S-Corp. Let’s say that I put that in place. Here’s rule number one,
I can’t assign my income over to that S-Corp,
there’s no such thing. I can’t just say, “Oh, it’s the S-Corp.” What I can do though, is
as a sole proprietorship, pay 100% of my money to that S-Corp. Now, there’s some rules
that fall around this, and those rules, there’s a two prong test that came out of the tax
court that we have to follow. And it’s actually pretty simple,
we go over it in Tax-Wise. But it involves two agreements
that we put in place and what this will do
is it’ll literally take, let’s say, you made $100,000, your self-employment tax alone will be $14,100 and some odd dollars, it’s like $!4,133. By just doing this, this one strategy, you will cut that by about $9000. And that’s per year. So, this one little strategy will literally save you
about, it could be nine, 10%. So, it’s pretty powerful. How do you lose this? How do you end up on the
naughty list and not get it? You don’t have an S-Corp, ’cause
you got to have the S-Corp. You do not meet the test, and we’ll give you the test in Tax-Wise. There’s no payment actually made, you got to make the payment. So, how do I make sure I get it? Well, it’s pretty obvious. You meet the test, you make the payment. And there’s no such thing
as assigning income. Don’t play that game, “Oh,
I assigned all my income. “So, even though the money came to me, “I just deposited it into the S-Corp “and I pretend it wasn’t paid to me,” you’ll lose on an audit. You may be able to get
by with it a few times, just because the IRS
may not pick up on it, but if they 1099 you, which they more likely than not will, you will cause your return
to get kicked out for inquiry because it’s not going
to show that income. So, what I want to see is that that it’s actually being reported and it’s just being zeroed out. Now, let’s talk about the most effective stock trader maneuver. And this is huge for 2018. The rules changed, guys, so this is big. In the tax law changes in the Tax Cut and Jobs Act of 2017, which took place and was enacted, and took place in 2018, they removed miscellaneous
itemized deductions on your Schedule A. That is where you used
to pay management fees, so if you have a managed a stock account, if you have a managed portfolio, you will no longer be able
to write off those fees. If you hadn’t heard that, I hate to be the bearer of bad news, you’re not going to get to write it off. Now, if you’re trading
in your own account, so let’s say that it’s Joe the Trader. And Joe spends $200 a
month on a trading group, where he goes in every day
and he trades with the group. Then he goes and he buys, he goes to either a workshop or a trader’s expo, or whatever, and he spends $3000 on a convention, and about $2000 in travel, maybe he goes to seminar and
spends an additional $5000 ’cause if you’re going to
trade, it’s labor intensive, and you better know how to do this. Of all these expenses, you know what Joe’s going
to get to write off? Zero. And that’s because he doesn’t
get to write those things off, he’s actually specifically excluded because he’ll be treated as an investor. Now, there is one exception and that is if you want to roll the dice with trader status, which
doesn’t exist in the code, but people like to
write it on their return and they take off a
whole bunch of deductions on your Schedule C with no income. ‘Cause income’s on your Schedule D. If I just blew you away, don’t worry. The IRS likes to audit you. Or the better route is you make sure that this ends up in a corp, and the way it ends up in a corp is you have to have either an LP or an LLC that is taxed as a partnership
with the corporation as a partner. It is now a partner, and
you have to do it that way. So, you have to make sure that
you’re hitting these things. I’ll go back to that,
just so you can see it. It can now pay what’s called a
guaranteed payment to partner and it comes off the top. We’re no longer writing
them off as a deduction, you just don’t pay tax on it. Sounds weird, but you don’t pay tax on it because it reduces your net
income from your trading. Those expenses are now in the corporation where they’re being zeroed out. The corporation’s just
paying for all these things because it’s the manager. So, it’s going to end
up with a zero tax bill, so you manage to write all those out. That’s a little Houdini act, right? Very simple, very effective, and I would guesstimate that about 10% of the trader’s that
I meet actually do it. The reason this is important, you end up on the naughty list, is if you’re trying to write things off on your Schedule A like you
used to, you don’t get to. There’s no partnership. This only works if the
corporation is a partner. And it only works if you
don’t have trader status. I mean, you could try to
get the trader status, my recommendation is I
try not to tempt the IRS ’cause they tend to audit. There’s lots of court cases
over the last 10 years that have come out of trader status, and so, I kind of look at it saying, “Hey, if you like the IRS
and you like being audited, “file as a trader. “If you don’t, don’t.” Alright, so how do I make sure I get it? Make sure the brokerage
is in the correct entity, that should either be an LLC or an LP taxed as a partnership. You want the corporation
to be the partner, and you want to move the
money under a valid agreement. You want to make sure that you’re paying and actually moving the
money into the corporation. If you want to learn more on this stuff, you really do need to come to some of the courses that we offer. Most specifically, we go
over this in Tax-Wise. Alright, return of the S-Corp. The S-Corp is still a super powerful tool, as we talked about earlier
and I showed you a little bit. But running an S-Corp as your business and getting your customers
to pay the S-Corp, rather than you, and you have to pay yourself
a reasonable salary. Good luck on that one. It’s a reasonable salary, there’s a bunch of tests that the IRS use. At the end of the day, just have an accountant
determine it for you because you can rely on the accountant. You pay yourself a salary, rule of thumb is about
a third of the profit. And if you pay yourself a salary, make sure that you are funding a 401k. Some sort of a retirement plan. If you just do this, you will increase your net profit, in your pocket, in your next cash, by about 10%. I’ve run the numbers over
and over and over again. At about $45,000, it’s 10%. At $75,000, it’s 10%. At $100,000, it’s about 9.9%. You’re right around that 10% mark just on the savings because
it avoids self-employment tax. If you add that $14,000, or that 401k, excuse me, if you have the 401k where
I’m deferring income, it’s going to be $!5,000
plus because I can do both the employee deferral, where I’m avoiding payment
on a certain amount of my salary by deferring
it directly into the 401k. And I can do the employer match. Now, if this went right over your head, again, we spend two days
of this stuff in Tax-Wise. Make sure that you get
yourself to a class. Now, how do you lose this? How will you get up on the naughty list? Is payments are not
made to the corporation, so the payments are made directly to you, and not your corporation, so remember, we talked about shifting
from the sole proprietor to the S-Corp, there’s a way to do it. The other way that you
get yourself in trouble is you don’t take a salary. Now, if you’re a tax geek
out there, technically, you don’t have to take a
salary out of an S-Corp if you take no distributions. But if you take money out of an S-Corp, you got to pay yourself
a reasonable salary. And then other thing that they trip up on is they don’t have the 401k in place. And they think, “Okay, I’m
going to run this last payroll. “It’s the last week of the year.” They’re like, “Great,
I’m going to do this, “and I’m going to save
myself a bunch of money!” And then they go, “Where’s the 401k?” And they go, “401, what?” We got to make sure that’s in place. Next tax strategy, and we’re
busting through these, guys, is using the biggest losers. And what this means is under Section 183, a lot of you guys know this
is the hobby loss rules. You can’t take losses on a business if it’s for a hobby. And the rule is three out of five years. But it only applies to
individuals and S-Corps. And individuals can be
partnerships, so it’s basically, if it ends up on an S-Corp
return and your return, you have to worry about 183. So, the entity that does not is a C-Corp. So, what we want to do is take things that tend to lose money, even though we want them as a business, so my photo business,
we’ve had a ton of them, my golf course evaluation business, which is a legitimate business. They got picked up and they
still run it to this day. But more likely than not, it’s going to be things like MLMs, where the first two
years might be painful, I might be a big loss. Well, I’m going to stick ’em into a C-Corp ’cause I don’t want to trigger an audit, but also, because I can
pay money into that C-Corp, and I just use it, the
money that I pay it, I can use it to offset. So, for example, if I have an MLM, and I’m buying a bunch of
stuff and I’m flying around and I’m learning my business, and I lose $20,000, I could put that into a C-Corp and just have my MLM business
run through my C-Corp. And if my C-Corp makes $20,000, then I have a $20,000 loss, how much tax do I pay? Zero, that’s how it works. So, I stick my losers in a C-Corp. And before you say, “Well,
the same rules apply “to a C-Corp as an
individual,” no, they don’t. That’s why we have Amazon. They lost money, for
what, 10 years in a row. Now, there are cases, by the way, of tax payers who have survived audit losing money 27 years in a row. Because that 183 is just a presumption. You can still rebut it by showing that you’re operating in
a businesslike manner. Now, how do we get ourselves into trouble and lose this ability
to have these losing, these losses offset our other income. Well, payments aren’t
made to the corporation, it’s still paid to you. The business is not titled properly. In other words, we want to
make sure the MLM is actually, or whatever the business is, is in the name of the corporation. If you’re running under
a specific trade name, make sure that the corporation
uses that trade name or registers it as a
DBA, doing business as. Or there’s just no C-Corporation. Hey, we just don’t even
have the entity popped up. Now, you have to file each one of those on a separate Schedule C, and
you’re going to have losses. And if you want to get
audited, by the way, a sole proprietorship is 700% more likely to be audited than a corp, and that’s low. It’s more than 700%, but it’s about 700%. And when the sole proprietor is audited, they lose 94% of the time. So, the IRS wins 94% of the time. So, we do not want to have these things stuck in a sole proprietor. The opposite is true of corporations. The audit rate is a fraction of a percent. And when they’re audited,
you’re odds of winning are in the 50-50 range because you have so many other things that you could be writing off. So, what do we do, we try
to avoid being audited, less than a 1/7th of a chance and it’s not overly likely that they’re going to
assess additional tax. So, how do I make sure
that I get all these? Make sure you have the entity operated and opened up correctly,
Anderson can help you with that if you don’t know how to do that or if you want to have
your documents reviewed, we can certainly do that for you. You must move your business
into the corporation and you use it to
offset, no losses to you. In other words, you’re not
taking personal losses. Your personal return
looks very, very clean. There’s no Schedule C on it. It’s just you. So, your chances of getting
audited go down significantly. Now, let’s talking about
doubling down deductions to keep your taxes lean. What’s this one? When we talk about doubling down, we’re talking about a specific rule change that, we talked a little
bit about it earlier, but it was that standard deduction. So, married filling jointly, the standard deduction was $24,000, or is $24,000 in 2018. So, let me use an example. Client A married, they tithe, they give $20,000, every year, to their church. How much of that are they going to get? Well, in order to answer that, we have to look at
their entire Schedule A. So, this is charitable. They have, let’s say that they have state and local taxes of $5000, so they have some income taxes or they have some property taxes, whatever, we call it SALT. Whenever you see SALT, that
means state and local taxes. And they have mortgage interest, let’s just say that’s $5000. And mortgage interest did
get lowered down to $750,000, and it’s only for
acquisition indebtedness, so buying the house or
improving the house. But without getting into all that. So, we’re at $30,000. So, we get the difference between the standard
deduction and that amount is what we’re looking
at in order to itemize. And if it’s a large amount,
then we take the 30. Well, obviously, 30 is more than 24. So, we got a total benefit
on our charitable deductions, that $20,000, we got
total benefit of $6000. And for those of you, by
the way, that are in states that have large local taxes, sales tax, property tax, you’re capped, as a married couple, at $10,000. So, even if your property
taxes are $20,000 bucks and you pay $20,000 of state tax, you’re capped at $10,000. So, it can be a little bit
of a painful experience. I’ll show you some ways
to get around that. Instead of doing this, what
if we lumped two years? And that’s I why I call it doubling down, you could do two or three years. And this is where it’s really important. You’re going to want to
listen to me very carefully. When we give money to charities, there’s a few rules that
we want to be cognizant of. Number one, I can reduce
my adjusted gross income by as much as 60% for charitable donations. Certain types of asset
classes are limited to 30%, like long term capital gain assets. So, if I give a house, I might be limited to 30%
of my adjusted gross income, but I give cash, it’s 60% of my adjusted gross income. What if I give appreciated stock? That’s a long term capital
gain asset, that’s 30%. So, I could give things other than cash. But what I care about
is getting this $20,000 to $40,000. So, let’s just say we double,
we don’t even triple it, but we just double this. Now, and I do this every other year, so I’m tithing the exact same amount, but let’s say I save up a
year and then put it in, or I pre-pay next year, knowing that I’m going to
be paying about the same. Now, what’s my deduction this year? It’s $60,000. And how much benefit am
I getting for all this? I have a $24,000 standard deduction, I’m still getting way more. Now I’m getting way more,
I was at number $36,000. Now I’m getting a benefit of $36,000. And then the following year, I just take the standard deduction ’cause I’m not going
to have any charitable, the next year will look like this. It’ll show $10,000, and I’ll take the 24. So, I’ll end up with 24 in one year and 60 in the other, which will get me to a cool $84,000 of deduction over that two year period, verus if I did it this other way, I’m getting a total of $60,000. So, 84 versus 60. And I hope that’s making sense. If it’s too much, that’s
what we have Tax-Wise for. So, what we just did is gave ourself an extra $24,000 deduction
just by doubling it up. Now, I’m going to show you a way that you can do this with securities that’s not going to be painful. So, I’ll show you some ways. So, first ways that we lose it, how do we end up on the
naughty list on this one? Is you don’t actually
transfer the money in 2018, there’s no valid charity, and hey, we don’t use a Daffy. Now, a Daffy, what’s
important about a Daffy, is it’s called a donor advised fund, so if I put money into a
specific type of account, I can double it up, even though the money
is still in my account. I can put it in there, and then I dictate who gets it and when. So, before you think, “Well, I just gave “$40,000 to my church.” You don’t have to. You could still give
your $20,000 this year, and then transfer a bunch
of securities into a Daffy, and give it over the next year, as long as it equals that amount, whatever the amount that you want to, but whatever the fair market
value of those securities when you transfer it into that Daffy, that’s what you’re getting. So, you’re getting a nice, nice deduction. So, how can I make sure I get it? Make the transfer in one tax year. And so, it’s late 2018, so chances are you’re
going to double up in 2018. Make sure that the 501c3 is valid. Now, you could actually
have your own 501c3 that you’re doing this with, so you could actually
have your own charity that you put the money into. Use a Daffy if needed, in other words, that’s a donor advised fund, most major brokerage houses have it. And run the numbers, make
sure that you’re getting enough benefit to justify this. In other words, hey, if
two years is doing alright, maybe I need to try to do three, maybe I need to borrow
some money to do that, or maybe I want to take an
asset like a house or something that’s appreciated in value
and just transfer that. Now remember, if I transfer
something that’s appreciated, and I’ve held it over a year, it’s the fair market
value of that property that I get as the deduction. So, it’s not what I paid for
it, it’s what it’s worth. Alright, next one. The easiest strategy for
real estate investors to save $1000s, and I’m going
to say 10s of $1000s, in 2018. This is huge, and this is so cool. This is using something called cost seg. And what you’re doing
is you’re taking a asset that is a straight line
asset, meaning real estate, for example, the improvement
on my real estate on a single family residence
is 27 and a half years. I get depreciation after
27 and a half years. If it’s commercial, it’s 39 years. Now, before you get all crazy, what we’re doing is that’s the basic. If I want to take out portions of that, it’s the difference between called 1250 and 1245 assets, one’s the improvement of the property, and then I’m pulling out tangible assets that are part of the structure, but I can write off over
a shorter period of time. All you have to know is
that it’s going to give me about a 20% boost in
year one of my deduction. And when I say 20%, I mean 20% of the value
of the improvement. So, if I buy a property for $500,000, then I have to break it into two pieces. The improvement is the actual structure, so let’s say that’s $400,000,
so the house itself. The land might be $100,000. My cost segregation is on this, and it’s going to get me
an extra $70 to $80,0000 of extra deduction, it could
give me an extra, easy, at least, that will
probably be about the amount Depending on the numbers here, your chances are you’re
going to give yourself an extra deduction somewhere in that $40 to $50,000 range, at a minimum. Now, why is this important? Because if you are in real estate, and especially if you’re a
real estate professional, you get to write off your
other W2 income with that. And before you think I’m crazy, I have a very good
friend who’s an attorney who offset $3,000,000 out of his law firm through using this exact strategy. Did not have to pay tax on it. Lowered his tax bill, saved himself well over a million bucks. So, this is an extremely
potent tax return. The problem that people have, and where you’ll get on the naughty list, is you don’t make an election
to use the cost segregation, and you’re not a real estate professional. So, if you don’t qualify as real estate, you’re not getting the full benefit, but you still might offset all your rents, and there’s no valid
cost segregation study. How do I make sure I get it? You do a test, the cost seg test, in 2018. You document your real
estate hours that you spend, and you have to use a tax pro, a tax pro who understands real estate. Do not use, you know, your run of the mill chain preparer or your cousin,
Ed, who’s an accountant. Use somebody that deals with
real estate day in and day out. This is not something you play with, that’s such a powerful tool, it can literally save you $30
or $40,000 a year in taxes. Net in your pocket taxes, which allows you to grow a lot faster. Now, speaking of that real
estate professional status, this is one of the few areas where you really can do some potent work. Now, here’s the deal, real estate is considered
passive, just per se. Real estate is passive. There’s a few different
ways to make it active, which is to hold inventory for resale, so you’re a flipper or
you’re a wholesaler, or and again, you buy
a property to sell it. Otherwise, if you’re buying
it for a long term hold and you’re renting it, it’s passive with one exception. And that is if you are a
real estate professional. Come to Tax-Wise, we go over the test, 750 hours, it has to be
the first use of your time. But we go over all those tests to make sure that you can qualify. Now, a single spouse could
actually qualify, by the way. How do you end up on the naughty list and you don’t get to take it? The correct election is not made, you actually have to
make a specific election on a tax return, you have to
aggregate your properties, and make sure that you’re
doing it correctly. That’s why I say, you have to use someone who knows real estate,
knows to do these things, because if you don’t, you lose it. Your time log is insufficient, you actually have to track your time. And by the way, one of
these little buggers, a little smartphone works like a charm. And then it’s not your
number one use of activity, it’s like if you have a full time job, the chances of you becoming
a real estate professional, unless your full time
job is in real estate, is slim and none. In other words, if I’m doing other work, I’m working for UPS, and I’m spending, I’m a full time employee,
I’m not going to be a real estate professional
more than likely. How do you make sure that you get it? You document your real estate hours, and I use the example of
my buddy, the attorney, who made $3,000,000 and offset it, his spouse qualified as the
real estate professional. Only one spouse has to qualify, woops. And you got to know how to
use a tax pro, use a tax pro. Use us if you need to. If you don’t have a really
good real estate accountant, just use Anderson, this is
what we do day in and day out. Alright, meals and
entertainment reinvented. Now, this is a big one
because in the new tax law, they took away some things. And the first thing they took away was entertainment expenses. Gone. And where they caught ya is if you’re doing meals as entertainment. So, you have to make sure, so meals cannot equal entertainment. You have to make sure that
it’s actually a business meal. And the way you make
sure it’s a business meal is you’re discussing future business. You’re not entertaining clients anymore. They always say you wine ’em
and dine ’em and 1099 ’em. No, you’re just, once you’re… You’re taking ’em out and
actually discussing business. And so, if I’m taking out a client, it’s to discuss business, it’s not to entertain ’em anymore ’cause that’s gone, I
don’t get to write it off. So, you have to make sure
that you’re documenting it. And some of the entertainment
is 50% deductible, some of the meals are 50%, some of the meals are 100%. None of it’s entertainment, so this is all business. If you get those new box seats
to the stadium down the road, sorry, unless you happen
to own part of that team, chances of you getting a
deduction are slim and none. Alright, so entertainment is gone. It’s on the naughty list. Look how mad Santa is, he’s like, “I can’t even go and go golfing anymore “and write it off,” you’re right. Unless you evaluate golf
courses or something like that or you happen to make golf clubs, but otherwise, for the rest
of us, for normal people, well, actually, Santa might
make golf clubs, but gone. Meals as entertainment are gone, and failure to document is fatal. So, in other words, you have to make sure you’re documenting your meals as being business related. “I met Clint to talk about taxes. “I did not entertain Clint. “I met him to talk about business.” You have to know the rules, and it’s all in the way you document, and you got to classify
your expenses accordingly, or correctly. Something that a lot of
practitioners were talking about is entertainment is advertising
and things like that. There’s all sorts of cutesy,
fartsy ways to do these things. At the end of the day, make sure you’re having
somebody look at it that is a tax professional and making sure that you’re
doing these correctly. Now, there are a few cool benefits, and I’ll go over one of those here in a second, ’cause we’re
going to be talking about something that they
left you under the tree. Your uncle, your Uncle Sam,
left you a nice present, and we’ll talk about that in a second. Before we get there,
we’re going to talk about the number one epic fail of new businesses and how to avoid it. And the number one epic fail that we see is missing out on start-up expense. The reason this is so important is ’cause you have to document start-up expenses in the first year. And that includes anything that you use to investigate your business. Travel, meals, education, all these things come in
as a start-up expense. And a lot of folks will say
rule of thumb is 12 months or they’ll just say you
can’t go beyond 12 months, yes, you can. The actual rule is investigation expenses, and they’ve gone back years in some cases. As long as it can show
that this was the business that you were entering into. And they’ll miss out on this, and the reason this is important is ’cause you either write it off or it’s added into the
basis of your stock. So, this is really important,
this is for corporations. When you set up a company, this is not for your sole proprietorship, this is for your corporation, S or C. Now, how do you miss it? You just don’t even
write down the deduction, you just missed ’em. You don’t even know how to ask about ’em. “Hey, these were things
that I did before.” Most accountants say, “Oh,
you can’t write those off.” Yes, you can, or they just completely miss it. They miss the deadline, “I
didn’t put it on my first return, “now it’s lumped in with
my basis in my stock.” So, how do you make sure that you get it? Know what you spent before
you set up your company, document those things, and remember, time is of the essence. It has to go on your first year return. You miss that on that first
year return, it’s done. It’s being added into your basis. Now, how do I audit
proof my travel expenses? Travel expenses can be extremely powerful. Number one is knowing what a travel day is and making sure that, which is basically four hours, one minute, that is a travel day. Excuse me, that’s a
business day when on travel. So, if I fly to Hawaii, for example, and I spend a day, four
hours and one minute, meeting with a bunch of clients, that is a business day. Now, my travel to and from
are also business days, so I’d have a total of
three business days. So, you just have to know about the rules. Now, if I have a Friday as a business day and a Monday, then the days in between become travel days as well. So, my Saturday and Sunday
could be travel days. If I’m on a holiday, Monday’s a holiday, then I could actually have
Saturday, Sunday, Monday, and then my Tuesday, but let’s just use Friday and Monday. We bookend our time, that
would give me four travel days, plus the travel to, plus the travel again, so you see how this works. As long as 50% or more
of my trip is travel, I can write off the
airfare and all the travel, hotel and lodgings for my travel days. I would have six travel days,
which means I could stay an extra, you got it, five days and still write off my trip. It’s important to understand
that there are different rules for North America versus
if you’re going to Europe, or something like that. If you go Europe, you can
actually get an entire trip as a travel with one day, depending on the time of the trip. And we go over that stuff in Tax-Wise. Way that you lose this, that
you end up on the naughty list, is you don’t know the rules, you fail to meet the test, and you don’t have documentation. So, we got to make sure that
we’re documenting this stuff. So, spend some time learning the rules and learn to document. I’ll give you a great case, there was a gentleman who went to Europe, he was there for six days, he had one business day, all he did is he went to Craigslist, he was a realtor, and he
said, “Hey, I’ll meet you “for one hour each,” and
he had four meetings. Well, he met in bar with some locals, actually, I think three
showed up, one didn’t show up, but it doesn’t matter
because his intent wins out, so he had these four meetings. So, he met one business day, the whole trip was a deductible trip ’cause he was outside the country. Alright, knockout reimbursements
you might be missing. These are some big ones
that I’m going to hit. So, the first one is
making sure that you have an accountable plan. And you can write off things like cell, computers, all those things, you can just go ahead and reimburse. You don’t even have to buy
them through the company, you can just reimbursement ’em, as long as you have an S or a C-Corp. So, this requires a corp. How do you lose it? Well, you don’t have the right entity, you have a partnership
or a sole proprietorship. And you have no reimbursement plan, the accountable plan is actually
a written accountable plan. But Anderson did your
documents, you already have one. And no double dipping. If you have one employer
reimbursing you for a cell phone, you can’t go back and reimburse it again. You can only cover your out of pocket. So, how do you make sure you get it? You use Anderson, and know what it means to benefit the employer. In other words, I could
say, “I need you to have “a cell phone for my benefit. “It’s at my convenience.” Now, home sweet deduction. Oh boy, there’s some big ones here. Here’s the most important
thing about the home office. If you have an S or C-Corp and an accountable plan, I can increase my deduction, because I know how to do it
and we teach this in Tax-Wise, we teach you, there’s
about nine different ways you could actually reimburse
on an administrative office or an office used in your house, and by the way, this is not a home office. This is using an office in your house at the convenience of your employer. You can triple and quadruple your deduction. So, things that you
would ordinarily be used to getting $100 bucks
a month or something, we could pop that up to
three, four five, $600. On average, it’s about $7000 a year. And it’s non-reportable,
I’ll show you how to do that. Ways that you lose it is
you don’t have an area that’s set aside that
exclusive for business, you don’t have the accountable plan, and you have the wrong entity, again, if you’re using a sole
proprietor or partnership, you’re not gettin’ the
benefit of these things. So, how can I do it? Know the rules, document your plan, and make sure you’re
documenting the space, and know what it means to
benefit the employer, again. Now, here’s a big one that Uncle
Sam left ya under the tree. Hey, we love our little gifts, and that is called 280A. And 280A just means that my corporation, again, I need an S or a C,
are you guys noticing this? We need to have one these entities, can pay you for the use
of your home once a month, even if it has an administrative
office in there already, as long as you’re actually
using it for something else, like a meeting of the Board of Directors and things like that, it can get you, and I would say, on
average, we see, again, an additional $7500 to $10,000 a year, tax free, non-reported on your return. This is really important
but you got to understand that’s a specific
section, we go over that. How do you lose it? No documentation, wrong entity, again. That’s how you lose it. So, how do I make sure I get it? Well, you go to the Tax-Wise Workshop, you document the agreement,
and you get comps. Get a lot of benefits here. Alright, how about the tax
bonus you can give yourself. This is a huge one. And when I say bonus, I’m
talking about bonus depreciation. If you have property that
would be depreciated, if you don’t what depreciation is, you need to come to Tax-Wise for sure and get used to this language, but bonus depreciation is at 100%. Plus we have Section 179 deductions is now at a million, which means that computer that you bought for $3000, if your company reimburses you, it’s gets a 100% write off, even if you bought it on a credit card. Haven’t even paid for it yet. I paid for it on a credit card, but I haven’t paid the credit card. Your computer’s going to get
a deduction for that $3000. If you did not get that deduction, that $3000 dollar
computer’s actually closer to a $4000 computer
because you’re paying taxes before you spend it. The way that you lose this one is you don’t know how to
elect bonus depreciation, or 179, and that just comes
from a lack of knowledge. How can you make sure you get it? You have to make sure
you have an accountant that knows what it is
and knows what qualifies. Next one is driving for deductions. I know that this year I get 54.5 cents per mile, reimbursed to my car. How do I make sure that I get it and I get to write it off? I track it, the easiest way to track it, and we go over this, is there
are apps that you can get that will use GPS and track
it, and this is free money. And if you’re using an
administrative office, it means that so much of
your travel is business, it’s crazy. And these people miss out on this, you can get free money! Again, the way you lose this,
is you just fail to track. That’s the only way people lose it because you’re automatically
entitled to it. How do I make sure that I get it? Track your miles and document
all of your expenses. Now, how do I make medical
expenses pay me back? Are you guys seeing
there’s a ton of these? Santa really stuffed his bag this year. Under this one, it’s a 105
medical reimbursement plan. And it’s available to a C-Corp, tax free to the recipient. It’s all medical, dental, vision. In Tax-Wise, we go into great detail showing you how to write this stuff off. Huge! Because I can write off anything that comes out of my pocket, including copays, deductibles, anything that came out of my pocket, something that’s not covered. And the way that you lose it
is you just don’t have a plan. Well, if you used
Anderson, you have a plan. Wrong entity, you didn’t
use the right entity, and you did not comply with the ACA. So, that’s what we do for you. We make sure these things are done. So, you need to have the
actual plan document, you need to document the procedure for the reimbursement, and know the rules. That’s why you always use somebody else. Now, here’s a massive one. This is a massive safety net for gains. Hey, I already incurred the gain, and I’m going to pay tax on it this year. Or am I? And what this is, it’s
an 180 day safety net to transfer the money into something called a qualified opportunity fund that you can actually create. What this means is let’s say I had Bitcoin and I sold some Bitcoin at $200,000, and I had $200,000 of gain, I would pay tax between
$40 and $100,000 of it. This is not like a 1031 exchange. I can actually make this election later. And for those of you
who are in partnerships where you get that surprise
big chunk of money, the 180 days doesn’t start until you get notified
of it by the partnership. So, at minimum, it’s
going to be January 1st, so you’d have until the end
of June to actually do this. If you invest this 180
into the specified zones, in certain types of property, and there’s a whole of ’em
throughout the country, it’s called a qualified opportunity fund in the qualified opportunity zone, then you can defer the gain for a minimum of seven years, and you’ll pay zero tax
on any of the appreciation and any of the gain on
the actual investment. So, there’s huge, these are huge, but again, you got to make sure that
you’re learning this stuff. And this could be millions of dollars. It’s not like a 1031 exchange where it has to be real estate, this could be, “I sold a bunch of stock,” or, “I’m being forced to
recognize a bunch of stock, “and I have a million dollars of gain “that I don’t know what to do with.” Here’s where you can park it. The thing is, is you have 180
days, it’s a limited time. The other thing is a
qualified opportunity fund is a specific type of entity that you have to make the designation on. We know how to do, but
you got to make sure that you’re doing it right. And you fail to comply with the testing. There is an annual test
that takes place on these to make sure that it’s
complying with the rules. And if you don’t know what it is, or you don’t know how to comply with it, or you don’t work with
somebody that knows it, you could fall out of it. So, this is where it’s important. You need to make sure
that you use the correct form of entity, that you
know how to document, and that you use an expert. Make sure that you’re using our tax group. If this is something where
you have some large tax gain that we can show it. Now, here’s an expert defying
tax break for serious savings. And this is the one, it’s
called conservation easements. It’s what Donald Trump used on Mar-a-Lago and all of his golf courses, where he gives a
conservation easement saying, “I’m not going to build on these, “I’m going to restrict the use of my land, “and I’m going to get
a big, fat deduction, “even though I spent no money.” And we’re talking, in that case, I think it was either six to $9,000,000 for doing nothing that he got. Now, how do you lose on
a conservation easement? You have to do it before the year is out. How do you screw it up? Is you use the wrong
promoter, in other words, these conservation
easements are usually funds. The way it works is if
I put $100,000 into it, I’ll probably get a $450,000 deduction. If you go above that, you’re
probably being too aggressive. There’s funds out there that’ll give you an 11 to one return. That’s probably too aggressive. The average right now is one to nine. I’m comfortable in the one to four to one to five range. And so, you have to know how this works. It’s so powerful, a
little goes a long way, but you have to use an expert, and you have to know what
documentation is necessary. So, we just went through a ton of these. We just stuffed our bag and
poor Santa is getting tired. So, here’s what we’re going to do. We’re going to reward you for
spending the time with us. And the first thing we’re going to do is what we’ve been talking about all day, is I’m going to get you
to the Tax-Wise Workshop. Now, the retail price on that, if you just came in off
the street, was $1995. The last one we had was a few weeks ago, at the end of October, and it was awesome because I went over 29 different tax saving strategies, over two days of strategies. So, our first bonus to you because you stuck with us til the end was a recording of the last
2018 Tax-Wise Workshop, which is great for 2018! In fact, I’d recommend that
you watch it immediately ’cause we go into all these
things in great detail. Bonus number two, though, is the first livestream of 2019, which is on January 25th and 26th. Now, the beautiful part about this is we’re going to through
all of the new tax laws that took effect, or are
going to take effect, in 2019. So, we’re going to get out ahead of it. But I know that tax laws
change, Congress is changing, there’s regs being thrown
out there all the time, so I want you to have access to all of the Tax-Wise Workshops in 2019. In fact, you can watch
all of the livestreams, they’re two days each, and we’re going to go into all
sorts of really cool strategies. But I know your time is valuable, and you may not want to spend two days after you’ve already
watched one, you may say, “Hey, I don’t want to watch ’em all, “I just want to go to the ones
that I really care about.” And this is how we do it,
is we’re going to give you a recording of all the
2019 Tax-Wise Workshops, that’s every single one. Right now, we have three on the schedule. We usually do more. But you get recordings of all of them. In addition, you’re going to get a year-end planning session
with a tax pro for this year. Now, here’s the deal, I have about 50 spots left. Now, we had over 2500 people
register for this event, so this is going to be a little
bit of a time critical thing. There’s only so many tax pros that can do these planning sessions, and there’s only so many days
before the end of the year, so we have to make sure that we’re putting this stuff in place. So, I’m going to have to limit it, and the first 50 are guaranteed
a spot with a tax pro. And here’s how it works, you’re going to get the
2018 Tax-Wise recording, the 2019 livestream, the
first event of the year, you’re going to get
livestreams to all of ’em, and then you’re going to get recordings to all of the 2019 Tax-Wise. This is, I don’t even
know what the value is, probably over $8000 worth of value, and then, your tax year-end meeting with the Anderson tax pro is priceless. I’m using my red pen
because it’s Chistmassy. Alright, and what we’re going to do, is we’re going to make this really simple. If you are a non-Anderson tax client, it’s $995, but if you are an Anderson tax client, you already work with our tax department, guess what, it’s only $495 bucks. I would jump quickly, and
the way you do that is go to AndersonAdvisors.com/2018YearEnd. If you are new to Anderson,
you are not a tax client, you can go to that same link, and there’s an offer there to allow you to become a tax client. And you can still get that $495 special if you do that today. Now, we are going to extend this offer until the end of the week,
until Friday, and that is it. The 50 spots, though, are going
to be first come, first serve, so you got to make sure you jump in there if you want to meet
with tax professionals, and what we do is we usually
get together as a group and we start mustering over our heads to see what type of strategies
might be applicable, based off of a set of facts. This stuff’s like a
Rubik’s Cube, it’s like, “What’s the best benefit we can get?” It’s a little bit of a puzzle. So, that’s what we’re going to do. I’ll go back to this real quick. If you are not an Anderson client, and you’re not a tax client, it’s a flat $995, and you’re
going to get the 2018 recording, the 2019 first Tax-Wise of the year, which is going to be awesome ’cause we’re going to make
sure that we’re getting every deduction that we
possibly can get our hands on. You’re going to get recordings
of all 2019 Tax-Wise, in fact, you can attend all of the 2019 Tax-Wise on the livestream. And then you’re going to have
a year-end tax planning meeting this year, in 2018, if
you act fast enough, you’ll still be able to slip in there. And that’s a flat $995,
there’s no other hidden fees or anything like that,
that’s not how we go. If you’re an Anderson
tax client, it’s $495. So, there you go. Go to AndersonAdvisors.com/2018YearEnd, and you’ll see there’s a spot to sign up very easily and quickly, I’d
recommend that you do it. Hopefully you learned, now, tax strategies to save on your 2018 taxes, how to use the 2018 tax law
changes to your advantage, and the next steps. Sometimes that next
step is to run scenarios on your own taxes, use a tax advisor, make sure that you have somebody that knows what they’re doing. If you’re using us, then I know that we know what we’re doing. And the more complex, the
more it’ll be escalated up into the partners, so
that we’re making sure that we’re giving you the
best shake for your dollars. I can tell ya that if we don’t save you a multitude of more than what you paid, we didn’t do our job. And I would just, in fact,
give you your money back if you didn’t get a benefit out of it. But I’ve never had to do that in 20 years because taxes always save you money when you learn how to properly structure. In fact, it’s quite easy
once you learn the rules. So, go to
AndersonAdvisors.com/2018YearEnd. Thank you for joining me. I hope you got a lot
of benefit out of this, tons of fun on my part. It’s always great to save
people in taxes, thank you. (uplifting music)

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5 Comments

  • Reply Bami Fun November 30, 2018 at 5:26 pm

    Sound is bad

  • Reply Jermone Carter November 30, 2018 at 6:53 pm

    Can't hear you at all…

  • Reply KWIK REI November 30, 2018 at 11:47 pm

    I you put earn income in a whole life, dividend paying, participating policy; from a mutual insurance company; do you get to deducted from your income?
    AKA as the infinite banking concept.

  • Reply Alex Martinez December 14, 2018 at 11:38 pm

    I have a 529 plan for my son. Would my 529 plan work to offset taxes similar to a 401k plan?

  • Reply UltraRun November 19, 2019 at 1:34 am

    so where on the 1120-S would you list the "Accountable Plan" lump sum figure for cell, supplies, computer, trade show entrance tickets, biz travel and biz meals etc? How about on Line 19 along with the "federal supporting statements" on the last page of the return?

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