Tax Tuesday with Toby Mathis Ep. 107 – Roth IRAs, Contributions & Distributions

(light music) – [Toby] Hey guys, this is Toby Mathis. – [Jeff] Jeff Webb. – [Toby] And you’re
listening to Tax Tuesdays. The first Tax Tuesday of 2020. – [Jeff] Happy New Year. – [Toby] Happy New Year to you. And somebody says, welcome back, all right we’re already
getting some questions, which is always good. You can tell I’m like a dog, when it sees a shiny toy
as soon as I see questions, I start reading them. Happy New Year, happy New Year. We already have a few questions coming in. That’s nice. We have a pretty action-packed episode. We have a lot of questions. What’s interesting is I didn’t see a lot of Secure Act questions so we did have legislation that passed right at the, hey, Jennifer, from Hawaii. What is it? (mumbles) I always forget. – [Jeff] Oh, I can’t remember. – [Toby] Anyway so, we had a
whole bunch of stuff to pass at the end of the Secure
Act that’s supposed to help people save for their retirement. I didn’t get a lot of questions on that and I’m sure we will make it on a few of those items, it’s not anything Earth shattering. But it’s certainly gonna
change the dynamic, We don’t have stretch IRAs anymore and we don’t have limits on, age limits on construing diaries anymore. So (speaks in foreign language). I don’t know why I forgot how to say that. Anyway, let’s just jump in. Toby’s losing his mind already
and we haven’t even started. Alright, Tax Tuesday Rules ask live and we’ll answer before
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to have you as a client. It’s not expensive, it’s very easy. Hey Pat. This is fast, fun and educational. We want to get back and help educate, the whole idea here is we’re gonna answer all your questions, no holds barred. We’re not gonna sit there
and send you a love letter with a bunch of numbers on it. Also known as a bill, for asking your question, then you can always listen
to these on our podcasts and go through the podcast is actually pretty lively right now, people are definitely coming
in and watching these. Just before here, just on
this particular episode we had over 6000 registrations, to watch and listen, and so a lot of those
folks go grab it later. Let’s jump into the questions that we’re gonna answer today. So there’s a lot of them, so I’m just gonna go through them, and Jeff and I will knock
them out of the park and then we’ll be answering
your other questions as well. I have a single member
LLC in the state of Texas. I want to change to a multi member. How easy is that to change? Number two, I will answer that. I’m trying to qualify my wife for real estate professional status and she will go part time next year. She is a physician, in order to keep her below 750 hours, do I count the hours she’s on call? She sometimes work 12 hours and sometimes all 24 hours
when she is on a call. How will the IRS treat
her on call duty hours? We’ll go over that. There’s actually some law on that. I have significant startup
costs for training prior to the establishment of my Texas LLC. which is taxed as a C Corp. If you been listening to us, you know that LLCs are not a tax status, they don’t exist to the IRS. We have to tell the IRS what they are in terms of what
kind of taxable entity it is. Disregarded C Corp, S Corp, partnership. What is it? So this Texas LLC is taxed as a C Corp. – Are there alternatives to recapturing the startup
costs in a shorter period of time other than 15 years? So that’s a startup expense. We’ll go over that. I have management company
that manages another LLC. Can I hire my kids to
help me with documentation and back office administrative work? Can I have them on the company’s payroll? And can the company contribute
towards their Roth IRA? How old do the children have
to be hired by the company? How do they have to be when they’re hired by the company I think. We’ll answer that, I opened a new backdoor Roth this week at Vanguard and funded it
with $3,000 transferred from an old non-deductible
Vanguard traditional IRA open 10 years ago with after tax dollars. We’ll go over what all
that means by the way. My max allowed contribution
for 2019 is $7,000. Does that mean I can only
contribute 4000 more new funds or may I still contribute $7,000 more? Since all these funds came
from my checking account after tax dollars, what is the basis or will I be tax again? This is gonna be fun Jeff ’cause you get to have
your account (mumbles). I’m interested in providing a wellness plan for my employees. Our company has multiple
employees working in five states. How do we how do we structure the plan so that the benefit does not become taxable income to the employee? Items we had in mind are gym membership, athletic classes, yoga
classes, meditation training, nutrition, consultations, etc. I have owned a rental
townhouse since 1990. In 2017, we moved in to make repairs but stayed there until now. I know I can’t claim it as
a rental for 2017 to 2019, but I have almost $40,000
in deferred losses that I don’t want to lose. I’m planning on moving back to my primary residence in 2020 and returning the townhouse to a rental. What are of my options? We’ll go over that, that’s interesting. My friend and I bought a
single family house together, that’s what SFH stands for, five years ago and sold it this year. We split the profits from the sale without regard to federal taxes. We bought the property in
a family trust in her name with me as trustee. Am I liable for her
portion of unpaid taxes from the sale this property? We’ll answer that. If I claim 50% bonus
depreciation on rental property on my federal income tax return, do I need to add that back
against regular depreciation on an Illinois’ State return? We’ll go over that. If you rented out your primary residence and took the tax
depreciation for two years, but later sold it as a primary residence because you had live there for two of the last five years, is the capital gains based on the difference
between the sales price and the original purchase price or is it the sales price less the depreciated value? So this is a 121 exclusion question and whether or not that
depreciation is part. So we’ll go over that. Is gap lending income
passive or active for a 401k? Does the term less than a year or more than a year
affect taxes for a C Corp? So I think we have two questions
kind of buried in there. We’ll unpack that one. As you can see, we have
a lot of questions. – We have a lot of questions. – My business is an LLC
that files as an S-Corp. No employees, just me. At the end of 2018 I signed up for an HSA approved health insurance plan which went into effect as of 1/1/2019. My deductible is high $6,000
but I’m fairly healthy, So my analysis at this time concluded that it’ll be better to pay
the lower month premium, and pull all my qualified
healthcare expenses, doctor visits from the HSA funds, Health Savings Account funds, which should be tax free. I still have not funded
an HSA $3500 for 2019, ’cause I’ve gotten mixed messages from two different great
accountants, what is the rule? We’ll go over that one and based off of what you just wrote, there’s gonna be a, I could see why they’re probably confused, but we’ll unpack that one. If I currently hold a rental
property in my individual name, what are my options to transfer title out of my name to an alternative entity to reduce legal exposure? So you’re talking about how
do I keep from getting sued? Is there a way to avoid
being non compliant with covenants that
prohibit transfer title? Probably talking about the lender? So we’re gonna go over all those. Somebody just said, here’s an easy one. Can you please provide an update on the change in age for required minimum distributions to 72, that is effective 2020? Does this mean that you
have to take the RMD when you turn 72? Or does it allow you to
take it in the 12 months after you turn 72. Does it include all retirement plans, and IRA specifically,
does it include 401k? So the question out there
is under the Secure Act, they changed the required
minimum distribution age to 72. For people that are
hitting that age after, I believe it’s January 1st, 2020. Have you taken a look at that? – [Jeff] I have not looked at that. – [Toby] So, I believe it’s gonna be for anyone turning that age after. And it’s gonna be during the tax year that you have to take the
required minimum distribution. So I hope that answers the question. So it’s when you hit 72, then you’re required to start taking RMDs, when you hit 70 and a
half, is the old rule. Then you would have to take
required minimum distributions for that six months. – [Jeff] Yeah, you always had
the option on the old rules to defer until the next year, but then you have to take
two RMDs in the next year. I would think under this new law, if it’s starting January 1st, it’s probably that year, and there’s not gonna be that deferral. – [Toby] Yeah, but we’ll take a look. There’s a lot of questions that
have already popped up here. So we’ll take a look at those. What I’m gonna do is just start
hitting out these questions, then we’ll probably start
answering the live questions after we get through these. Last year we used to just
answer them as we went along and then people start yelling at me, so I’m just gonna, they get really feisty Move this slide is what they always said. All right, I have a single
member LLC in the state of Texas. I wanna change to a multi member. How easy, is that to change? So whenever you have an entity, and especially an LLC, remember that LLC is
not a tax designation. So we have state and federal that we’re gonna worry about. So because the LLC is not a
particular taxable entity, we don’t have to do anything with the LLC except perhaps update
the operating agreement, and say we’re bringing in a member, make sure that you comport
with the operating agreement. Most operating agreements, say that when you bring in a new member, that the existing members have to agree. So you’re gonna want to make sure that you document the paperwork
to bring in a new member, and you’re documenting
their capital account, which is how much money
they’re putting in. Once it becomes a partnership, now we’re dealing with the feds. So when you’re a single member LLC, you have the option of treating
it as a disregarded entity, which means really you have no choice. You’re either using your
social security number or if you set up an LLC and you get a tax
identification number for it, it’s gonna be ignored and
go to your tax return. You’re gonna need to a new tax ID, when you go from a disregarded
entity to a partnership. According to the IRS and
according under the SS4 rules, you would want to apply for and receive a brand new EIN and start filing a partnership tax return. It’s actually really easy to do. You have to go in and just get the new EIN and update your bank account information and then start filing it, you wouldn’t have a partnership tax return for the year 2020 until 2021, so you’re not gonna be worried about that until March, yeah, it’s March 15th of– – [Jeff] March 15th 2021 – [Toby] 2021 So it’s very easy to do, you just want to make sure that you’re covering your backside with a little bit of paperwork. – [Jeff] And you become that partnership, the moment you add that new member. – [Toby] Yep. – [Jeff] And there’s
also the option you may, for some reason may want to become an S Corporation or C Corporation, where you might have to files a little additional paperwork with IRS but otherwise it’s fairly simple to become that multi member LLC. – [Toby] Mm-hm, well good. – [Jeff] Thanks. – [Toby] That’s a very
straightforward answer. – [Jeff] Fine accountant? – [Toby] Yeah. – [Jeff] No, you didn’t say that – [Toby] For anybody. Let’s see if I can make
this thing advance. Where’s my clicker? There it is. And so I’m trying to qualify my wife for real estate professional status. That sentence just cracks me up. I’m trying to qualify
my wife for real estate, she needs to be the one, right. And she will go part time next year. She’s a physician. So she already works her butt off and so she wants to be a
real estate professionals. And the big issue is
the hour requirements, ’cause it’s not just 750 hours, it’s 750 hours plus it
has to be more than 50% of your personal service time. So for a physician, this might be interesting. So he’s obviously
assuming that this is a he he’s probably looking at it saying, “Hey, how do I make sure
that we’re tracking the hours so that basically the rules go like this?” If one spouse qualifies as
a real estate professional, then the entire jointly
filed return qualifies. So one spouse qualifies for the 750 hours and more than 50% time, both spouses times get added up on the material participation. So we’re just gonna go straight to the 750 hours, with 50% or more. So if you spend 12 hours
in a part time job, then you have to do 12,000 or
one or excuse me, 1000 hours, you’d have to do 1000 hours plus one hour, so 1001 hours on your
real estate or 1001 minute I guess whatever it is, you’re gonna wanna make
sure that it’s more than 50% of your time is spent on real estate. And obviously the fear
here is she’s on call. Do I count all those times? – [Jeff] I’ve gone both ways with this, because if she is on call, she may still be available to do her real estate activities so I don’t know if I count
those times that she’s on call or those times that she’s
actually actively participating in this on call time. – [Toby] So there is an opinion on this, and it’s the reverse. They looked at the time
that they were on call with real estate saying they wanted to add the hours that you’re on call, that every day I’m on call for my tenants, I have to be here and they
could call me at any moment. So I have to be available because I’m fixing their
toilets, everything else. And the IRS said you do not count on call hours as personal service hours. So I would argue very, I’d say that’s pretty clear that the IRS says you don’t count, the time that you’re available to work. You only count the hours
that you’re actually working. – [Jeff] I agree with that. If you’re on call for 24 hours, you’re obviously not
working that entire time. – [Toby] Yep – [Jeff] Unless you’re a medical intern. – [Toby] Yep. And so that would be it. So I would not count her on call hours. And I think that we have some authority to back that up because they
can’t have it both ways. Let’s see, I have significant, oh, somebody asked, “Do I lose the seasoning of
the LLC, when you switched?” We’ll go back to that first question. So here’s just relating
to this question here. I have a single member LLC. No, you do not lose the
seasoning in any way. Become a state standpoint, that LLC started the day that you filed it from a federal tax standpoint, which doesn’t make a difference
on the asset protection, unless you’re in a state where they don’t give asset protection to single members like
Florida, for example. The homestead case, or you have Colorado some of these states where they have weak asset protection for single members then it
helps to have that partnership. But it does not affect the
seasoning of that entity. All right. Jump on to another one. I have significant startup costs for training prior to the
establishment of my Texas LLC. Are there alternatives to
recapturing the startup costs in a shorter period of time other than 15 years? Let’s say you, Jeff, – [Jeff] Unless it’s
something very specific, I honestly don’t see a way of going shorter than the 15 years. For startup cost. – [Toby] Yeah, so startup costs,
there is one little niche, which is you get a $5,000 startup cost, if you want to take it in year one. So if it’s $5,000 or less, you can write the whole thing off, you don’t have to worry about 15 years. If it’s more than $5,000 and
less than I think it’s 50,000. – [Jeff] Less than 50,000. – [Toby] Then you can take the five and then you take the
rest of it over 15 years. And then the other little niche is if I haven’t used what I bought. So startup expenses and expense that would have been deductible. And I established the entity already, and it would, but I did it reverse. I did all the costs, my travel and setup and everything else, my investigation into that business, you know everything. And I created this business and had the business plan in existence, it could have written it off. Now, I’m just gonna grab it, and I’m gonna write it
off over a period of time. – [Jeff] And I think a good example of that is travel you that you may pay for in advance of incorporating. But the travel actually takes
place after incorporation, and it’s a business expense. – [Toby] Yeah, and that’s a good example. So if the date that you incorporated, is the date that that
expense becomes an ordinary necessary expense this year. If it was something that you incurred and did prior to the
date of incorporation, like you paid for
something and got it’s use before you were set up, it’s a startup expense. So an example would be like if I bought a computer
and it was new in a box. Before I set up the corp,
if I set up the corp, and it was only used for the corp, then my argument would be, hey, I would just reimburse you for that, I would write it off as a current expense, I wouldn’t use that as a startup expense. So, it sounds like they
already did the training, they did everything ahead of time. Realistically, you’re gonna
have that $5,000 rule, and then you gonna take
the rest over 15 years, if it’s more than 50 grand, you’re taking the whole
thing over 15 years, but I don’t know another way around that. – [Jeff] But you bring
up another good example. So any equipment that
you may have purchased before the corporation existed, but wasn’t used until you incorporated could still be depreciated and are probably a much
shorter life than the 15 years? – [Toby] Yeah. So there’s certain items that have all their
value given to the entity I’m gonna treat that as ordinary. So the other one is
some people buy training and they incorporate
right in the middle of it, so like their real estate and they’re honing their skills. And maybe they’re doing
flipping and stuff like that. And they set up the corporation in the middle of all these things and they did half the classes before, half the classes after, there’s a good chance,
I’m just gonna say hey, half the classes is a startup expense. The other half is an
ordinary necessary expense. And I’m just gonna to treat it as a capitalization to the company or as a loan to the company
within with a payback. But again, this is why
you have an accountant is because they’re able to
help you dig through these, but you have a few options. And yeah, there’s a little tricks here and there that you might be able to deploy that go along. Somebody asked a question
that still relates back to that LLC question. So if we go all the way
back to the very beginning. If you want to create a disregarded LLC, does it have to be a single member LLC or can I add my spouse? And the answer to that is
it depends on your state. If you’re in a community property state you can have your spouse, if
it’s a separate property state, then it’s a partnership. So don’t you love that answer? So single member spouse is
considered a single member if you’re in a community property state, so like Nevada, Washington and
California and a few others. If you’re in a separate
property state like Illinois or whatever you’re you’re
gonna be Pennsylvania, New York, all these states
that are separate property, then you’re considered a partnership. I have a management company
that manages another LLC. Can I hire my kids to help me with documentation back
office administrative work? The answer is yes. Can I add them on the company’s payroll, and can their company contribute
towards their Roth IRA? And then how old do the kids have to be? You want to walk this one? – [Jeff] I agree with your first answer. The only exception is the company doesn’t
contribute towards a Roth IRA. The kids contribute to the
Roth IRA from the pay they earn from the company from the payroll. – [Toby] Yeah, the only way that the company would be contributing towards anything that says
Roth is if you had a Roth 401k. But in the Roth IRA is an
individual retirement account, so the kid would be taking their money. And if you guys have heard my story, I did this with my daughter, and we contributed to
IRAs while she was working while she was still in her teens. As far as how old do
the children have to be? It depends on what they’re able to do. So we have cases where
kids are doing things when they’re in the single digits. There’s a there’s case
law of a child at nine who got SAG rates for doing basically doing all the advertising being in all the advertising
pictures and things like that. And they were given Screen
Actors Guild rates it had to be. So as a reasonable amount, so yes, you can absolutely
put your kids on the payroll. when you do them on
payroll, S Corp, C Corp, then they’re gonna have withholding if you are paying them and
you are a sole proprietor or a single owner LLC that is disregarded, then you do not have to do withholding. So there is a little bit of a
nuance that it’s much easier if you’re a sole proprietorship
to pay your kids. But there’s always bad
things that come along with a sole proprietorship. What I have seen, and it depends on how
complicated you want to get. If you have company number one, and spouse number one
is running that company, maybe it’s an S Corp. And then you have company number two with spouse number two
that’s doing part time to almost no time work. And it’s that entity that hires the child. And so when the kids working
on behalf of the company, they’re actually working on
behalf of company number two, and company number one
pays company number two, which basically goes to the child. Now you don’t have the
withholding it just depends on how complicated you wanna be and how cheap it is to
have an LLC in your state, for example, I wouldn’t
do that in California because it’s 800 bucks
a year to have an LLC. I would do that in Indiana
where it’s like 50 bucks. And so it all comes down to it. – [Jeff] And as far as labor law goes, most of the states and the federal government
are very liberal on family hiring of children. – [Toby] Hm-hm (mumbles), I guess it depends on where you live. If you live in Georgia or Utah maybe. – [Jeff] And the children
usually exempt from workers comp. Premiums are usually
exempt from unemployment. So you do save a little
bit by hiring your kids. – [Toby] I’d rather that we get, I did my situation a
little bit differently. I actually had my daughter when she hit 18 you just said there somebody said, “What if the child’s 36 years old?” Then you could pay them through payroll. Or you pay them through a separate entity I would have them set up their own company be their own sole proprietorship. Somebody said, “I pay my
kid from the single member “and I pay less than 12,000. “Should the single
member LLC issue a W-2?” Well, if it’s a single member LLC, then you’re doing a W-2, you just don’t have any withholdings. But you’re still doing a
W-2, absolutely Patricia. – [Jeff] Yeah, single member
LLC can pay other people. They just can’t pay the owner. – [Toby] Yeah, and somebody just says, “Could you explain a disregarded entity?” I throw that phrase around, disregarded means the IRS ignores it, and so who the owner is is
who they look for their tax. So if I have a single owner LLC, and it’s me, then they’re
looking at my tax return, it’s gonna be on my Schedule C. If I have a single owner LLC, and it’s owned by a corporation, then they’re looking at the corporation’s tax
return for the reporting. So that’s all it is. In other words, you’re just
telling the IRS to ignore it and give it giving it a
different tax ID of somebody else or something else to report the taxes. Oh, right. I opened a new backdoor Roth and I’ll have to explain what that is for those guys who are not familiar with them. This week at Vanguard and
funded it with a $3,000 transfer from an old non-deductible
Vanguard traditional IRA opened 10 years ago
with after tax dollars. Let me hit on that real quick so you guys understand what this is. First off a backdoor Roth
is a fancy way of saying, I put money into a traditional IRA that I could not deduct. So I have another retirement
plan through my employer, I make too much money. I put money in and I may not be able to put money into a Roth IRA
because I make too much money. So instead, I put money into
an IRA that I can’t deduct, and then I convert it to a Roth. So I just put money into a Roth and I exceed the the income limit, but I managed to get it in there anyway, I didn’t write anything off. The IRS can’t stop you. That’s called a backdoor Roth. So that’s a fancy way of saying, Hey, I wasn’t able to
contribute directly to the Roth. So I did a traditional IRA and then converted it to
a Roth and I can do that. That’s called a backdoor IRA. Really, kind of cool funky names. It’s not a legal name. It’s just because he’s
going through the backdoor. I funded it with a $3,000
transfer from an old. So it sounds like you moved
the money into the Roth. So it sounds like you converted an old non-deductible
Vanguard traditional IRA from 10 years ago. The problem that I have is not the $3,000. You always get that 3000 tax free. It’s the growth on the 3000 that probably occurred over 10 years that you gotta be worried about. So, can you do that? Absolutely. Does it affect your allowable contribution for 2019 at all? No. So you can put another $7,000. – [Jeff] Yeah, the $3,000
is actually a rollover, not a contribution. You’re rolling over that $3,000. It’s got basis, say approximately $3,000, you may have a little
tax that you have to pay, usually when you do a Roth conversion you’re doing going from a
traditional IRA with no basis. And it’s gonna get taxed
when you do the conversion. In this case, he’s rolling over something
that he has basis in so he’s gonna pay probably a little tax, but not a tremendous amount. – [Toby] Yeah, we have
a bunch of questions coming up for this. And I’m gonna answer, somebody says, “How is that different than a
non deductible IRA, the Roth?” So in a non deductible IRA. If I put let’s use the example of $3,000 into a non deductible IRA and it grows to 5000, when I take out my minimum, my required minimum distributions, three fifths of that income
is gonna be tax free. But a portion of it’s gonna be taxable. If I put that same $3,000
and roll it into a Roth and it grows to 5000. None of it’s taxable. – [Jeff] Correct. – [Toby] So that’s the difference. And by the way, somebody says, “Hey, I hear people
recommending Roth versus IRA.” All things being equal, they’re identical. (Jeff laughs) When you actually run the numbers, what it really makes sense is when you are in a low tax bracket, you’re better off putting
money into a Roth, because you’re paying such a low amount. But if you expect that your tax bracket when you retire is going to be less than the amount
that you’re doing now, then you should do a traditional because traditional
you’re gonna be better off letting it grow all that time and paying a lower tax amount, and taking the tax write off right now, versus if I put money into
a Roth and I’m in 39%, or 37% tax bracket. I really didn’t do myself any favors. That Roth may be tax free, but I didn’t get any benefit for it. I’d be much better off, I’m getting a 37% return the day that I put it into a
traditional retirement plan, if I’m getting a tax deduction, but if I’m in the zero
percent tax bracket, by all means please put it into a Roth because now you never pay tax. So your your total tax bracket’s zero, but if you actually do the math, I’ve done this and you do
it over a 30 year period or 20 year period or whatever. It’s identical. If your tax bracket is 25% now and 25% when you retire,
there’s no difference. Zero, Zilch. – [Jeff] And I think
one of the other issues here is depends on what you
believe the market is gonna do. If the market’s gonna be flat for the next 10 years than the traditional is definitely a better deal. But if the market’s gonna soar, then the Roth is the better deal, but unless you have a crystal ball, you’d have no idea
where it’s gonna happen. – [Toby] Here’s a good
question for you, Jeff. Do you have to pay state
income tax on a Roth? – [Jeff] No, I don’t think
any of the states tax the Roth – [Toby] They’re tax-free guys. They’re pretty cool, but again, think of it like this. If a dollar I’m putting into a Roth cost me 37 cents to put in, so my net that’s actually going in ’cause I had to pay tax on that. So even though I got a dollar in I had to pay 37 cents to the Feds. And that grows to $2
over a period of time, and then I start taking it out, don’t pay tax, I still paid 37 cents. So I have $2 and I still paid 37 cents, I divide that in two and say all right, $2 you paid 37 cents, my aggregate tax bracket is
whatever that is, what is that? Not 20% it’s like – 22?
– 18.5%. Versus, if I’m in a
really low tax bracket, and I paid 20% to put it in,
I never had to pay tax out, then I’m gonna be much better off, but if I put money into a traditional IRA, I would actually have $1.37 so if I got the 37 cent deduction then I actually have $1.37 and if that grows a dollar let’s just say that we’re
not being completely fair. So now I have to 2.40
or whatever it is left, then I have to look at
what that tax bracket is. If when I retire, I’m
in a 12% tax bracket. I’m much better off having
done the traditional IRA. That’s why I just throw that in, I probably shouldn’t
keep talking about that. I like math. I’m interested in providing a wellness plan for my employees. Our company has multiple
employees working in five states. How do we structure plants so the benefit does not become taxable
income for the employee? Items that we had in mind are gym membership, athletic
classes, yoga classes, meditation training,
nutrition, consultations, etc. – [Jeff] Well, I have
good news and bad news. The good news is IRS is happy to let you reimburse employees for their wellness plans and program. The bad news is, is none of this is
deductible to your company. It’s a benefit that you’re
giving to your employees. And that’s about it. – [Toby] That would be called
a non deductible benefit to employees that’s non taxable to them? – Correct.
– Right. So this is where it’s
helpful if you have a C Corp or something where you’re
in a 21% tax bracket, maybe if it was a nonprofit or something like that,
there might be some benefit. But this is probably not
something that’s gonna be of great benefit to you if
you’re a for-profit entity. Now that said if you’re
doing like a 105 plan or you’re doing a medical reimbursement you’re doing HSAs, or a
Health Reimbursement Plan, an HRP, which are now pretty beneficial. And there’s some new rules that came out under the new tax laws too. I think that there’s under 50 employees it’s gonna be a little
different than if you’re over 50 you may be able to put money aside for health reimbursements, and then you get a deduction, but the employee would not
be able to get reimbursed for a gym membership unless
the doctor prescribed it. Right, so then it actually
has to be a medical expense. So if you don’t know the difference, it’s kind of weird but like a gym membership,
or membership to clubs or things like that are never deductible unless there’s a different
reason other than you want to go to the club, it has
to be medical necessity. So the doctor prescribes
it for an actual diagnoses. You have hypertension so
they’re prescribing you to go to your athletic club and do yoga and then go sit in the
hot tub or something, then it’s now it’s a medical expense. – [Jeff] So, why would you wanna do this if you can’t deduct it? Well, you may find that this is something you can do for your employees that helps retain those employees. Because replacing employees
can be very expensive, so little things you do like
this can be very helpful for employee retention. – [Toby] Yeah, that’s why you’re doing it and there’s a lot of reasons you do things that are non tax related. You’re able to get more
money to your employees and maybe at a lower tax rate depending on the type of structure you have. If you’re an S Corp and
you’re in a high tax bracket, you’re probably not so pleased about this. But if you’re in a C Corp and you know you don’t really care, great, or if you have paper losses, great. Somebody says, putting money in the Roth. This is on the last question. They said a Roth grows tax free but just remember John, you
have less effective money. So if I get a tax deduction that’s worth, I put a dollar in a traditional
and I get a 37% tax benefit. Then my actual benefit to me is $1.37 if I put, or just call it a dollar, if I put money that’s
after tax into a Roth and I had 37% tax than the actual net that I can actually put in because I had to pay the
tax would be what is that? 63 cents. So I’d have 63. So I’d have a dollar growing versus 63. And yes, the 63, the
growth on it is tax free, but I’m gonna have more
money in the traditional. At the end of the day, you have to add that into the calculation. Let’s keep jumping through these I’m making good time, this isn’t too bad. Usually we’re, I was gonna
say shipwreck by this time. I have owned a rental townhouse since 1990 In 2017 we moved in to make repairs, but stayed there until now so they lived in this house, to do the repairs, Would that be considered
personal use, Jeff? – [Jeff] Yes. – [Toby] So you move into
it to make the repairs as opposed to just fixing it up and it’s not rented. But it was available, right? You’re right you’re doing
repairs it’s still available, but if you lived in it, let’s just call it personal use. I know I can’t claim it as
a rental for 2017 to 2019. But I have almost $40,000
in deferred losses that I don’t want to lose. So the question really becomes, was the deferred loss from the rental use? Or is this $40,000 in improvements that you made in the last two years? I’m planning on moving back to
my primary residence in 2020. And returning my townhouse to
a rental, what are my options? – [Jeff] So we’ll answer both ways. If the $40,000 was from
previously being rented out, you have $40,000 from rental losses, those losses stay with the house until you either have passive income or you sell the property. Now, let’s say the $40,000
came from the repairs, you had to do extensive renovations– – [Toby] To your personal residence – [Jeff] Correct. So you would actually add those back to the basis of the property. – [Toby] Can you depreciate it? – [Jeff] I think I probably
would as improvements. – [Toby] Or just say, hey, I
just converted something to, how that works when you go from a personal property to a rental, they always look at its fair market value not what you paid for it. So we’re gonna look at
the fair market value. – Yeah, so it’s a fair market– – [Toby] It has to be less. – [Jeff] If the fair market value is– – Less
– Less than your costs, then you have to go
with fair market value. – [Toby] In this case, that’s not going to be the situation they’ve
owned it for a long time, I would think that you’d
start re-depreciating the 45. – [Jeff] I’m thinking you’d
replaced the kitchens, the bathrooms, things of that nature, and maybe around a $40,000 bill, I would probably depreciate those once the property is back in service. – [Toby] Once you put it back in service, and then it’ll be back. It wouldn’t be like immediate, you’d put it over the
timeline that it’s on and knowing you might
want to know a good tax person who understands
what cost segregation is. – [Jeff] I was just gonna mention that. – [Toby] If I just break that down and be able to write
it all off in year one. – [Jeff] Yes especially when you’re doing kitchens and bathrooms. A lot of that’s gonna be
short term depreciation, not 27 year depreciation. – [Toby] Absolutely, absolutely. I’m saying that tongue in cheek ’cause I think you’ll
be to get the 40,000. So you don’t want to lose it, I get it, you’re gonna get it. And it depends on whether
you’d actually be able to write it off or you have
other rental properties, you can offset some of those rents. Otherwise, you’re just carrying it forward until you either have passive income or you sell that property, in which case then you
get to take that loss. – [Jeff] Right. – [Toby] Take all your deferred losses against your active income if you want to. A lot of people don’t realize that. That’s why you sell passive
assets, if they’re buried, they have lots of losses
and deferred losses. “My friend and I bought a
single family home together “five years ago and sold it this year, “we split the profits.” Alright, so this is where it gets weird. “We split the profits from the sale “without regard to the federal taxes.” So if you bought this thing together, and you’re both on title, then you’re a partnership or your tenants in common, one of the two. But then it gets weird. “We bought the property in
a family trust in her name.” Which is weird because
there is no such thing as a family trust in her
name with you as the trustee is the trustee’s name period. With her as the beneficiary
is what I’m assuming. “Am I liable for her portion “of unpaid taxes from the
sale of this property?” This is where it gets weird. It sounds like the
property was in the trust with a beneficiary being one person. They’re the illegal owner of it. The legal owner, excuse
me, is the trustee, but the beneficial
owner is that individual so from a tax perspective, unless this was an irrevocable trust, the responsible party
is actually your friend. Which means how do you allocating
the profit to yourself, that would probably be ordinary income. They just paid you something. – [Jeff] And I even wonder, it says, “My friend and I bought a
single family home together.” Did they both contribute to it equally? – [Toby] There’s a lot
of unanswered questions and then did they live in it, because if they lived in it, there’s a good chance two
of the last five years, then you may have a 121 exclusion, but then in to qualify for the 121, which is this 250 or $500,000 exclusion that’s available to people. If it’s $500,000, you’d
have to be married, you have to both be on title and live in it with a few
exclusions if you are married, but it sounds like you’re not married, then it would be this individual, the her, she would have a $250,000
exclusion from capital gains. So there’s a few questions
that we have floating around out there on this one. – [Jeff] One other thing
I would caution on is it said that this person was a trustee. And you have to be very
careful about dealings with a trust for which you have
fiduciary responsibilities. Because your job to be trustee, to have fiduciary responsibility trumps any profit motive you have
in dealing with that trust. So it would almost be, I think we talked about this earlier that it might have been better to do a partnership between
the one and the other, to buy this partner, or tenants in common. – [Toby] So on title they’d
have to be tenants in common? – [Jeff] Right. – [Toby] He’d have to be on title that she or both she’s or whatever they are. We have one she and we have one unknown. So whoever it is, they would both have to be on title, otherwise I’m with you. I’d probably file it as a partnership. But the problem you
have with a partnership is it started five years ago and the penalties would
be absolutely enormous. Or you just say hey,
she sold it and paid me. And I would deduct the
payment to that individual and that individual would
probably have ordinary income would you be liable for the taxes? Most likely no, she’s the beneficiary. She’s the one responsible for the taxes on the sale no matter what. And then somebody says as the friend, how could they be trustee? You can have anybody as
a trustee on this thing. Whether they’re friend or not. If I claim 50% bonus
depreciation on rental property on my federal income tax return, do I need to add that back
against regular depreciation on an Illinois State return? And the answer is no, because Illinois accepts and
follows the federal rule. There are plenty of states that do not and that you’d have to
add it back like Hawaii, California and lots of others, there’s a whole bunch of states. So you would have to look at
it and say for state taxes can I take the bonus depreciation, but in Illinois, you’re here in the clear. – [Jeff] Ohio has a
really weird calculation for adding back bonus and– – [Toby] They have some funky stuff. The states are kind of annoying. Look at that bunch of questions. I’ll get to the questions
here in a little bit. You guys are inundating me with questions. If you rented out your primary residence and took the tax
depreciation for two years but later sold it as a primary residence because you’ve lived there
for two of the last five years is the capital gains
based on the difference between the sales price and
the original purchase price or is it the sales price
less the depreciated value? – [Jeff] So the capital gain is, well your total gain is the sales price less the depreciated value. – [Toby] Adjusted basis based
off of all the improvements you did on the property
and all that fun stuff. Then you get to this gain. – [Jeff] However, your
capital gain is the difference between your total gain and
any depreciation recapture. – [Toby] You got it, so
then you take let’s say that I bought it, let’s
just use easy math, I bought it for 100 sold it for 300. And I depreciated a
portion of that hundred and I took a total of
$10,000 depreciation. So what do we sell it for? – 300
– 300. So I have 200,000 of gain minus $10,000 of depreciation, so I’ve $190,000 again, I don’t want to pay tax on, I have $10,000 of depreciation recapture which is taxed at my ordinary
bracket maxed at 25%. Don’t you guys love taxes? So that’s actually the rule. I just kind of espoused it out there. But what the deal is and for those of you guys
who are confused about this, how can you do that you can rent it and you can still get your 121 exclusion. So the 121 exclusion, again is this rule that says I don’t have to pay tax on capital gains only. Not depreciation recapture but capital gains only on my residence, primary residence that I lived in two of the last five years. Not the last two years,
but two of the last five. So I could live in it two
years rent it for three, sell it and still get this
huge capital gains exclusion. But that depreciation that I
took over those three years or two years in this case, I have to pay a little bit of tax on that, but it’s not too bad. And especially if you know how
to control your tax bracket. So if you’re in a low tax bracket that year hint, hint, that you sell it. This is when you want to take
your accelerated depreciation or other things to lower your taxes. You’re gonna use all
the deferral techniques you can maximize all your retirement plans and do all that fun stuff. This is when we do that. This is the year we do that
because it’s gonna keep, if we can get our taxes down to zero. That’s the year that we don’t have to pay any tax on the sale. Somebody says does a
1031 exchange exclude tax on depreciation recapture? Yes, it is– – [Jeff] It defers– – [Toby] It defers it into
the next property, right. Keep going on, we got to be getting close to the end of these questions and we have a whole bunch
of questions to answer. Is gap lending income
passive or active for a 401k? Let’s just answer that first, because– – [Jeff] Yeah, that one threw me at first and it’s really not the right question. – [Toby] No, so gap lending is lending. And the income that you
make is considered passive, its interest income, so it is not an active activity in a 401k. The reason this is important is because if you have
unrelated business income, from like running a
McDonald’s in your 401k, that would be taxable. But this does not rise to the
level of an active business. This is not a 401k doing things that an active business does. This is a 401k lending,
which is absolutely fine. Does the term less than a year more than a year effect taxes for C Corp? Let’s say the C Corp is the lender? The answer is no, because
it’s just income to a C Corp. So a C Corp doesn’t care. It just says, hey, it’s
income or it’s not. It’s still interest. So if it was you, and
you made interest income, it’s passive, which means it doesn’t have to pay Social Security tax, old age death or survivors
Medicare, any of those things. The C Corp, it doesn’t care. It just pays 21%. So if you have income, its income. And the Corp says, great, I have income. So sorry, I just high barred that. – [Jeff] No, that’s all right. Yeah, I was just gonna say that C Corps. And it’s funny that you
have to report long term versus short term capital
gains on the C Corp, but it doesn’t care. It mushes it all together. – [Toby] Yeah, and then this
isn’t even capital gains because its interest income, It’s just ordinary, even to you. It’s ordinary, it’s just passive. My business is an LLC
that files as an S Corp. So all of you guys are
starting to figure this out, LLC’s are features of state law. And then from a federal tax standpoint, we get to choose what it is. So this is an LLC, and it
says I am a corporation taxes, making an S election has no employees just me, well, you’re an employee. At the end of 2018, I signed up for an HSA
approved health insurance plan. So this is a health insurance plan, and it’s an HSA approved, which means it’s a high deductible plan. That’s all you did. It’s an insurance plan. My deductible is high,
but I’m fairly healthy. So my analysis at the time
concluded to be better to pay the lower monthly premium and pull all my qualified
healthcare expenses from my HSA funds, which should be tax free. So what you have here is two things, you have insurance and you
have a health savings account. I want to make sure that we’re keeping those two things separately. Because they’re treated
differently in in an S Corp. I still have not funded the HSA. So there’s no deduction for the HSA for 2018 or 2019, period. Although for 2019 you actually could, you could do an HSA up until– – [Jeff] April 15th. – [Toby] April 15th. So you still haven’t funded it. So you’re 218’s out the door, but it went into effect on 1.1.2019. So you still have a little
bit of time on the HSA. But I’ve gotten mixed messages from two different great accountants, what’s the rule? So there was the two questions actually and one accountant said
that it was insurance and that you had to include it as taxable. And the other one said something about the HSA not being taxable. So let’s just, they’re both right. The insurance, from an S Corp to you is
added back into your wages, but then you write it off on your 1040 as self employed insurance. – [Jeff] Right. – [Toby] And is it called
an above the line deduction? – [Jeff] It is an above
the line deduction, – [Toby] Which means it’s just a deduction against your income it comes right off the top. You don’t have to mess around
with adjusted gross income and all these other things. – [Jeff] Correct. – [Toby] So it’s deductible. Your HSA when you contribute to it is deductible to you. – [Jeff] That’s also an
above the line deduction. – [Toby] Yep. And so in so if it’s reimbursing you you don’t have to, again, it’s the HSA is the deduction and you don’t have to pay
tax on the reimbursements. – [Jeff] A couple things with these HSAs, to contribute to an HSA, you have to have a high
deductible health plan. – [Toby] Yep. And so they said this is qualified. – [Jeff] But they said they
were thinking about switching to pulling switching to
a lower monthly premium. – [Toby] At the time I
concluded it’d be better to pay the lower monthly premium ’cause it’s a high deductible plan, so high deductible plans are cheaper. – [Jeff] Okay, I got you. – [Toby] So, this is perfect. Somebody asked, “They said what, one said you can deduct a
premium on an individual return.” Right, so when you are an S Corporation, you get to deduct only
the cost of your insurance that the company provides you when you own the S Corp. So if you’re greater than 2% shareholder, you have to include the
insurance in your wages. But then you get to write it
off on your personal return. – [Jeff] Yeah, here’s what’s
really confusing about it. Because on the S Corporation side, you’re including it and the owners wages. But you’re also deducting
that on the S Corporation. So the income coming from that S Corporation has a zero effect. But then you turn around and deduct it again on your 1040 as self-employed health insurance, and that’s where you get the deduction. Because it sometimes seems like
wait, wait, what am I doing? I’m take money out one pocket
and putting it in the other. – [Toby] Yep, so the corporation
gets a $10,000 deduction, but you have to add the 10,000. But then if it was $10,000 of insurance, you get to write that off
in your personal return. So at the end of the day,
you got to write it off. And then somebody says
what if the the S Corp pays the HSA contribution? That just flows down to you,
it’s the exact same scenario, except now you’re writing
it off as a contribution. – [Jeff] Correct. – [Toby] So you get to run it off. That’s the good news. So both accountants were right. But they just they needed to separate their brains. (laughs) So they’re great accountants. They actually got it and nailed it. It’s still taxable because
you have the health insurance and then you have the HSA which would also be probably a taxable
benefit with a deduction to you. So whether you do it through the plan, or you do your own HSA, I
don’t think it really matters, in fact, I never really understood why people do the HSA
through the employer. Usually it’s not a, that’s a complete aside. I’d have to look at that. I remember there was a
reason why some people do it. But for the most part, I couldn’t understand why anybody would do the HSA through the employer. Seems like just let the employee do it. – [Jeff] I mean, I’ve
seen it where the employer is making contributions
from multiple people. – [Toby] Somebody says, what
if I pay the premiums directly instead of the S Corp paying? Do I get a deduction on my 1040? So I assume that they’re
saying that the premiums to avoid the FICA, I guess, well, if it’s just S Corp it’s not gonna matter. Or maybe the payment too for the employee? I guess that’s what they’re
saying is maybe you’re going to avoid the self employment tax, or the FICA on an employee? – [Jeff] Well, I don’t think
there’s any FICA on the– – [Toby] So I think what they’re saying is if I put money into
an HSA for an employee, – [Jeff] Or are they talking about the health insurance premiums? – [Toby] Let’s just say the HSA, ’cause I was waxing philosophical. What why would anybody do it? I guess it’s because it’s,
it may be a taxable benefit. But it may not be included
in Social Security. So it’s a benefit that I’m, it’s like an executive compensation plan where I’m giving them
something without having to get hit with FICA. – [Jeff] Yeah, usually when
an employer is making the HSA, it’s already pre tax. So there’s there’s no
benefit on the employee side. There’s no deductibility, – [Toby] No deduction. And then the other person said, “What if I’m paying the
premiums individually?” You’d have to get
reimbursed to the S Corp. – [Jeff] Yeah, the problem is, is the S Corporation has to pay. – [Toby] Yeah, so the question is, what if I am buying the insurance? Can I still write it off? Then the S Corp actually has to reimburse you include it and then you
write it off individually? – [Jeff] Same thing for your Medicare. If you have Medicare and
you have an S Corporation, make sure your S
Corporation’s reimbursing you for Medicare payments. – [Toby] And so the question,
so two people asked this now, If I paid for the
premiums as an individual, just make sure you’re being
reimbursed by the S Corp. It used to be that it actually
had to be in the S Corp name. They changed that. In order for you to write it off as self employed insurance, the employer has to
actually be reimbursing you. – [Jeff] Yeah, you just need
to be prepared to document that when it comes up. – [Toby] Yep. All right. No, I didn’t already do this. Oops, I just did something weird. Let me fix what I just did. Alright, we didn’t go. If I currently hold a rental property, my individual name, what are my options to transfer title out of my
name to an alternative entity, to reduce legal exposure. Is there a way to avoid
being non compliant with covenants that
prohibit transfer title? So I think what you’re talking
about is can I move money, a rental property from my individual name into something else? And the answer is yes. The question then becomes
what should I move it into? And that’s where you get into this, covenants that prohibit transfer title that’s usually due on
sale clause in a mortgage and what we suggest
that you do at our firm is that if you have one
where you’re concerned, you use a trust to hold title. And the reason being is that the mortgage companies
are used to seeing trusts. And there’s even something called the Garn-St Germain Act that says, hey, if you transferred
into a living trust or grantor trust, they can’t call the due on sale, if it’s your personal
residence is the deal. But the mortgage companies just get used to seeing trust, and they’re
like, Oh, it’s trust, they don’t have a problem. You put it in directly into an LLC. Then I’ve only seen it once in 27 years. They may do a due on sale. Most of them are pretty cool. Usually you just don’t tell them and you just keep paying it. You ask them and then they get then they get lawyers involved and the lawyers never
understand this stuff. And they always like, Oh, don’t do anything
we want it in your name or you’re an easy target. They usually don’t want to see an entity unless you’re dealing
with a commercial lender. So here’s the deal. I still want the protection of the LLC. So I put it in a land trust. And then like our question earlier be about those two individuals
where one was the trustee but the but the other
partner was the beneficiary of the trust. We make the LLC, the
beneficiary of the trust, they’re the ones with
all the rights to occupy, with the rights to rents
and everything else. And that way, it’s not you. So if anybody ever sues, the way they would have to go after it, is they’d have to go after the trust and they’d be going after the beneficiary, not the trustee, so they could have to sue
the trustee in name only to try to get to the beneficiary. It’s a nightmare for people to
try to go after these things. When you see a land trust. When you see an LLC around
around a rental property. Most people look at it, most attorneys are gonna
look at it and say, limited recovery. If I see an individual’s
name on a property, I’m thinking, great. I have a whole bunch of stuff that I could start looking at including their ability to make money
over time, which is garnishment. So could the trustee be in my name? It can, or you can use an
entity or somebody else. Most states have these laws that say, hey, you’re not supposed to use an entity. But the right is for the beneficiary to argue not for anybody
else so we do it just to annoy the heck out of them. What kind of deed do I use so I don’t lose my title insurance? You use a warranty deed. Yeah, you don’t do a quick
claim to a land trust, use a warranty deed to a land trust keeps your title insurance
all all safe and sound. So anyway, that’s that for
the prepared questions. Now we have all these chat questions and we do have a ton of them. So we’re gonna start to pack in. We formed a new C Corp
at the end of the year so it looked like it was November, embodied franchise with a ROBs transaction for those of you guys don’t know what a ROBs transaction, it’s rollover as a business startup, it means you partnered
with your 401k or IRA. It’s one of the few ways if you did this, right, hopefully you did. Then the money is safe and
you can actually run a C Corp. This sounds like you’re
doing things correct. The company will not be open for business until we complete our franchise
training on 1.17.2020. How do we get credit
for the startup expenses if we had no income in 2019 to offset? FYI, the fiscal year for the
company ended 12.31.2019. Well you could change the fiscal year. So even though you set it up on 11 of 2019 I might make my year end
September 30th, 2020. – [Jeff] I know you filled
the SS-4 for your EIN and you filled this. Your first year in is not determined until you file that first tax return. And that’s what determines your year end. – [Toby] So David, you could actually pick a different year end. Or if you felt like it, you would just capture
your startup expenses on that one month return
for that one month that you were open in 2019. You just carry it forward. So you don’t lose it. So the good news is, you’re good. The bad news is don’t
use your 12.31 year end, use a different year. Okay, is it okay to invest
in different asset types using a single LLC and my checkbook IRA? Someone mentioned, you
shouldn’t mix asset classes with a checkbook IRA. So depends on the type of
like, if you’re doing risk or non risk, that’s what I would say. So I don’t want to put a
bunch of stock in companies and publicly traded companies in with a bunch of real estate. I wouldn’t do that with the checkbook IRA, which is basically an IRA
that owns a single member LLC, and so you don’t want your
risk assets being mixed in with non risk assets,
I’m not gonna be sued because I own some stock. I might get sued if I
own a rental property. And I don’t want that
tenant that sues me for mold to be in there with a whole bunch of Microsoft stock, for example. So I would not put those together. But you can have multiple
properties in a LLC. Again, it depends on how
much separation you want, but if I own a couple of small
rentals that are cheapies, I may not be too worried about it, my entire exposure is
whatever is in that LLC. Let’s see, could you provide an, I already did that. – This is an interesting one. What kinds of expenses
can I write off on my LLC that is taxed as disregarded, aside from meeting meals
and accounting costs, I do not have any LLC income this year. So it depends on what the LLC is doing if it’s doing an active business, then all business
expenses can be deducted. – [Jeff] And what the tax code says busy, expensive, ordinary and necessary. – [Toby] Section 162. So you can write off everything. The big difference is
that when you have an LLC if it’s taxed as an S Corp. The reason people do that is because the profits are not subject to self employment tax,
or you are a single LLC. Every dollar that you make that’s profit is gonna to be taxed as old age death and survivors of Medicare which adds up to 15.3%, part of it’s deductible, so it’s actually 14.1% the math, so use an S Corp because they’ll save you about $10,000 a year if you’re making somewhere in the $125,000 range, so it ends up saving a bunch of money. The audit rates are also a lot lower when you’re at the hundred
thousand dollar mark for S Corps versus sole proprietors, they’re literally 1000%, 1200%. – [Jeff] They love
auditing them schedule C’s, – [Toby] So you save money with an S and you don’t get audited as much. But that’s only if you’re making money. If you’re losing money, then you’re okay, for a couple of years don’t go more than two or three years. Because the hobby loss rules section 183. If you’re gonna lose money for a while, you got to be make sure
you have an accountant that’s backing you up
saying you’re operating in a business-like fashion because you may have to defend that. How does an HSA plan work and how does it save me money on taxes? – [Jeff] So the HSA assuming you have a high deductible health plan, you’re eligible for this HSA plan. You put money into what’s
basically a bank account that’s your HSA fund and
depending on how it’s set up, you may use a charge card or just get reimbursed by that HSA, for any of your medical expenses. – [Toby] Rolls forward like– – [Jeff] Yeah, the contributing, you have to have that high
deductible health plan. However, if you get rid of your
high deductible health plan, and you have $10,000 saved up in that HSA, you can continue to use that
for your medical expenses. And it doesn’t mean that you
have to use it right now. Correct, unlike the
flexible spending account, the FSA, it’s not lose it or
use it, use it or lose it. – [Toby] All right, Happy New Year. Thank you for taking listener questions. I’d like your advice
on how to fill an LLC, my siblings and I
inherited a few properties. About 12, which include rental
properties and some land. The properties are not worth very much 40 to 65 each, that’s a guess, they’ll be held in a trust and we plan to sell most
of them at some point, starting with the ones that
don’t generate much income. These properties are a small
desert town in California. How would you suggest the LLCs be filed? So you’re in California. So this is where it
gets really interesting. LLCs are really expensive in California. So I’d probably structure
this a little differently. I probably be looking at
Wyoming just to be cheap, and I’ll be using Land
Trust for the properties. I may, it’s up to you. If there’s not really worth that much and you’re worried about losing them, then the most conservative advice I would give you is to have
each property in its own LLC. So you’d use a land trust
to hold the property, the beneficiary being an LLC. And you’d have one entity that you and your siblings own as a partnership that would file in California. Meaning that it would pay the
franchise tax minimum of $800. The least conservative
advice would be to put it into one LLC, and you could
probably just have one LLC and under those circumstances, I may just set it up in California. If that’s where the properties are held. So it really comes down to you have the full gamut, depends on what your risk tolerance is, but if it’s not making much and you’re not really
worried about losing them. And you say, hey, I’m
willing to lose them. I’ll put them all in one. What you don’t want is to
have them in your names as you and your siblings to where if one thing happens on one property, and somebody sues the
lightning out of you, that you guys have to
worry about all being on the hook for that liability, which is exactly what would happen. So and believe me, I’ve seen the $7 million recoveries on mildew cases out of California, and there’s a lot of them
that are in the seven figures, but there’s some big ones. So I don’t want to put
myself in the crosshairs and one of those lawyers that
makes their living going in and convincing juries that
that you’re the boogeyman, and they should hand over
all your money to these to that poor tenant. – [Jeff] And one thing I’d look at and how many LLCs I need
is how much am I willing to lose in one bite? – [Toby] 50%, then use two. 20% is fine. What’s the difference in transacting short term real estate deals in a C Corp. And an LLC with a C Corp election? There is no difference there so basically, if you have an LLC taxed as a C Corp versus a C
Corp, what’s the difference? If you lose money in a traditional C Corp and you make a 1244 election, you can take that loss as an active loss. If it’s an LLC taxed as a C Corp, you lose a bunch of money in it, it’s go be capital loss. That’s the difference. What’s the difference in transacting short term
real estates in a C Corp? And we asked the same thing. For short term, I think they’re all the same question just three different ways. Short term, short term, short term, I’m just gonna move on. Benefit of a limited
partnership over an LLC. If you’re a limited partnership, you can have partners that don’t
have any management rights. You can do the same thing in an LLC. Really what a limited partnership does is you have passive partners period. So if you’re doing an active business, it’s better to be a
limited partner in that. So you don’t have self
employment tax on it. Otherwise, we always use an LLC. In fact, almost always it’s an LLC. Who would yell at Toby, that’s so wrong. Appreciate that. That’s from earlier. So that’s aimed at you,
Jeff, you’re not supposed– – [Jeff] I know, I’m sorry. – [Toby] Can de minimis safe harbor be applied retroactively? If so, you have items under 2500. They begin to depreciate can
you expense the remainder and disregard them as captured gain? – [Jeff] You can but that’s going to be considered a change
of accounting method. There’s a special form for that. – [Toby] You could do that
within three years though, right? – [Jeff] Oh yeah, within
three years you could go back. – [Toby] So the de minimis safe harbor is whenever you have an
expense that’s less than 2500, your safe harbor is I can treat that as a expense that is deductible now, otherwise I’m depreciating it over the useful life of that asset. It’s a repair versus an improvement. It’s a repair if it’s less than 2500, and you elect to treat it that way. So usually you do that in the
year that you incurred it. And you want that $2500
deduction, otherwise, you’re spreading that $2500
over the useful life, which is– – [Jeff] Five or seven years. – [Toby] Well, if it’s
residential real estate, and you don’t do a cost seg it’s 27 and a half years, if it’s commercial it’s 39 years, right? – [Jeff] Yep. – [Toby] So you’re spreading
that out over a long time. If a nonprofit reimburses the executive director for medical, dental, 401k and disability do all these costs get
added to his W-2 wages? John? The answer is no you
wouldn’t reimburse for 401k but the medical, dental,
vision, disability, those types of things, assuming that there’s a 105 plan in place, so medical reimbursement plan, then no, it wouldn’t be added
into their wages at all. It’s tax free 401k you wouldn’t have a 401k in a nonprofit you’d have what, a 457? – [Jeff] Yeah, or is that a 403? – [Toby] I think it’s 403-B. – [Jeff] I think it’s 450. So it’s one of those numbers
that start with four. – [Toby] 403-B is government, 457, I forget what it is. – [Jeff] But just keep in mind if you have more than
just that one employee, then you have to treat
everybody the same way. – [Toby] You can’t discriminate. Yeah, I personally paid expenses in 2019 for properties in my QRP. – [Jeff] No. – [Toby] Can the QRB
directly reimburse me? – [Jeff] No. – [Toby] Yeah, I don’t think. – [Jeff] That’s actually
a contribution to the QRP. – [Toby] Yeah, you’re gonna
want to contact us on that one. That is something where you
did a little bit of a no, no. You’re much better off putting the money into the QRP and letting it do its thing. – [Jeff] Anytime you buy a
property with a QRP you have to make sure there’s money to maintain that property and all its bills within the QRP. – [Toby] Supposed to, or the company if it’s a company plan, then the company could incur the expense. But on an improved property, no. Even then I think you have an issue. So I think you have this is weird because the individual
can’t contribute to the 401k it has to go through the company. So what you really should be doing is having the company you may hate to say it but this sounds like a prohibited transaction. – [Jeff] I kinda think so too. – [Toby] So that amount may be a problem that may be a taxable amount. We got to take a look. That’s why I say contact us. In April 2019 I bought a rental
rehab in my active entity ’cause I did not have a
passive entity at the time. The rehab was completed in December. The plan was to refinance it into my passive entity once completed, but that has not yet happened. What happens to the
depreciation that’s allowed to be recaptured in the first year since the property is
still my active entity? So you bought it, you crossed over a tax year. And what it really depends is whether that property
is available for rent. And whether it’s actually ’cause even though you’re in a Corp, the Corp doesn’t really know whether you’re active or passive. The Corp just has income. The problem that you have is if you have if the property is now worth more, you don’t want to
distribute it to yourself. And I had to see whether
what type of Corp was this. We have only what they said. The active entity, I
don’t know how it’s taxed. So, this is another one where
you’re gonna wanna email us, in fact, Susan probably note that or Patty note that because this is one where depending on how it’s taxed. – [Jeff] Is gonna be the answer. I want to create a disregarded LLC, does it have to be single member LLC, or can I add my spouse
depends on your state. So Susan, depends on where you live. ‘Cause if it’s community property, then you both can be if it’s
just a separate property it’s just you then I
would just make it you. Does a specific rental property need to be in service at the end of the year for the rental income to qualify as qualified business income, or can it still qualify if
it’s sold during the year? Is it specific to each rental property or can an individual entity qualify? If continuously owning rental properties it sounds like they’re talking
about the 199A deduction and it’s really weird rules on 199A, you have commercial, you have residential,
rental, doesn’t matter. It’s like even the same entity if you’re gonna have both classifications and then you have this triple
net leases in commercial. – [Jeff] Which I don’t
see as often as I used to. – [Toby] I see it periodically but yeah, not not all that, especially
not in single family. And the rental property does
not have to be in services. What we care about is when
the income is actually earned. So you still and what it is, is that’s that 20% deduction on right to buy business
income so you still qualify. There’s a hour limit and I forget what the
hour is, like 250 hours. – [Jeff] 250 I believe, yeah. – [Toby] Yeah, for rental
property that you have to meet for it to trigger that
qualified business income. See my kid’s in college and helped my disregard LLC for software is it okay to pay them using a 1099 miscellaneous as a contractor? Yeah, I don’t see why
not, they’re in college, they’re assuming that they’re, that’s active income regardless, – [Jeff] If the year wasn’t already over, I would consider putting them
on wages instead of 1099. But 1099’s fine. – [Toby] If you just did a software task and you didn’t control them and the hours that they
worked all that stuff then I have no problem. But if they’re working
for you continuously, then you’re probably gonna
have a bit of an issue. These are a bunch of questions
that were going on before. On a single member LLC with S selection, what is the best way to decide on the proportion of wage
versus shareholder distribution? So the question is, hey,
if I have an S Corp, how much do I have to
pay myself in salary? The rule of thumb generally is a third but that’s just because the tax cases, they usually find around the third, but it’s actually whatever
you’d pay a third party, arm’s length transaction
is technically what it is. But there’s no math. So most practitioners
would just say a third. – [Jeff] If you’re S Corp
didn’t make any money, there’s no reason to
pay yourself a salary. – [Toby] Somebody says,
is there tax consequences or a corporate bail consequences
for taking money out of your Wyoming holding
company and using that money for personal reasons? No, it’s your money. So assuming that that’s
an LLC that’s either taxed as a partnership or disregarded, it’s a safe you can take the money in and out as long as you’re
keeping track of it. If it’s a corporation,
a little bit different. You want to make sure you’re
not just taking money out but you’re bringing it through payroll or distributing it to yourself, depending on what how it’s taxed, but if it’s your typical run
of the mill, holding entity, you can put take money
in and out all you want. When itemizing and deducting
investment interest expense, is it only interest deductible, or can the cost of obtaining
the loans also be deducted? – [Jeff] For investment interest expenses, only the interest you pay on investment. And the other side of that is you have to have investment income to offset that. – [Toby] Yeah, that’s investment interest. So if you got a loan
that sounds like that’s that they’re trading on margin,
that’s what you’re thinking? – [Jeff] Hm-hm. – [Toby] But that may not
be what they’re thinking, this might be real estate too. Maybe they can clarify that. If it’s real estate, then you get to write off
the whole gamut, right? – [Jeff] Yep. – [Toby] So if it’s investment expense, like I am borrowing money to buy stock, then no, it’s only the interest and it’s only against the investment. – [Jeff] Interest dividends. – [Toby] Yes, the money I’m making. Let’s see, I will be
70 1/2 in five months. I loaned my daughter 40K
to cover a foreclosure, sounds like a prohibited transaction. So this is what we have, we have a daughter would
be a disqualified person. So unless you did it individually, I used Laura to set up
payments over a 10 year period. How do I set up the distribution
for the remainder IRA? Wow, that’s really interesting. What they probably did is had you borrow the money out of that, it can’t even be an IRA. – [Jeff] Yeah, if it’s an IRA it would have been a distribution. – [Toby] Yeah, this is gonna
be a really bad answer. But you probably just if it’s an IRA, the entire IRA was disqualified. If it’s a 401k, you can
borrow up to $50,000. And then if you want to
loan that to your daughter I suppose you can, I wouldn’t tie those two together. – [Jeff] Yeah, if the
money went to the daughter and she’s not on the account, that will never be a distribution to her it will always be a distribution to– – [Toby] You. – [Jeff] To you. – [Toby] Yeah, and I think
that’s a disqualified person. So I think that you, that’s not good. This is another one, hey Chris, or please let us know, email us in because you’re gonna want
to have actual question. Does a Nevada disregard LLC need to be registered in the state
it does business as well? It depends on the type
of business but yeah, all entities have to be registered in a state where they’re doing business and the statutory definition
of doing business. If it’s owning real estate, for example, that’s generating rents then it’s supposed to be registered there. Yeah, absolutely. But if it owns an entity
that’s doing business in that state, then no, just owning an entity does not. I started an LLC, but haven’t
generated any income lag yet. When can I start up a solo 401k? You don’t have to make
money to do a solo 401k, In fact, a lot of 401k’s are just, they’re just funded through rollovers. So you can do that. Sorry to Hobart all these but– – [Jeff] No, you’re doing fine. – [Toby] I’m sitting here looking at them. How many months per year must a rental be actively rented to
get renovation write off? It just has to be available to rent. So technically, it
doesn’t have to be rented. Though it certainly helps. And it’s when you do a
renovation expense depends on whether it was already
in service beforehand. – [Jeff] And you also have to determine whether it’s a repair or an improvement. As to how you expense it. – [Toby] This is funny, I bought a condo for $325,000 15 years ago and held it as a primary
residence for 15 years. If I sell this condo
as a primary residence, then I can’t take a loss
to my personal return, so my question is if I rented this property for a time being and then sell it, would I
be able to deduct the loss? – [Jeff] This goes back
to what we were talking about earlier that if
he places it in service, and it’s worth less than he paid for it, – [Toby] It’s gonna be the lower amount. – [Jeff] It’s gonna be placed in service at the lower amount. – [Toby] So I would still do that. I would still do that, but– – [Jeff] And this is the very
reason why that rule exists. – [Toby] And it’s gone down
in value about 50 grand. We purchased rental property and had to do expensive
rehab before renting it. Are we able to deduct the
expenses or depreciate? Well, if you rehabbed it, then chances are you’re
depreciating a portion. If you’re fixing things, then you write them off as an expense. Right, so yeah, so the whole deal is does it improve the value of the property? Is it structural, things like that, versus do I fix the problems. Like the classic examples, I have a hole in the
roof, if I fix the hole, that’s a repair, if I replace the roof, that gets added into basis. Although I take a deduction on any portion of that roof that I haven’t
depreciated at the time. And you have the safe harbor of the $2500 on a invoice on a particular. We had a whole bunch of these
are about medical expenses. I think we’re gonna have to
wrap up here in five minutes. I’m just gonna zip through and see if I see any
really cool questions. If you don’t get your question answered, then just shoot us an email and we’ll make sure that we get an answer. I have an LLC in real estate, should I change to a C or S Corp? I can’t remember which and why. It depends on if you’re inactive, so I would not change anything unless you talk to somebody and they say hey, here’s the good, the bad and the ugly on it. If you’re a realtor then
I’d more than likely want it to be an S Corp from a tax status. If it’s rental real estate then I don’t want it to be a corporation, I want it to be disregarded
or a partnership. I just started a
religious Corp in Arizona. I have a lot of literature books to sell and expect to make some
of what is a profit. How should I file my federal taxes? Well, a religious Corp. That’s interesting. – [Jeff] First thing I
thought of was do we want to make this a nonprofit? – [Toby] There’s no such thing, it really is a religious Corp. It’s a corporation that’s
engaged in religious activities. And that’s a nonprofit. If you want to make a 501(c)(3), then you don’t have to pay taxes. You don’t have to file a tax return and technically you don’t even have to obtain the exemption
letter though we recommend it. So how shall I file my federal taxes? If you’re a religious
organization, you don’t have to. – [Jeff] I would only
say if you’re in it for the sole purpose of profiting from it. That may cause issues
with being a nonprofit. – [Toby] Being a religious organization. So it has to be a setup for
the purpose of religion. And if it is, you don’t have to get a, this is one of those weird things that churches are the outlier. So I would just make sure
that you are a minister or something and that you, and that if you’re just selling books, then you’re a bookseller, then you’re gonna have a
little bit of an issue. But if you’re out preaching and doing religious activities, then there’s a good chance
that you wouldn’t have to file a tax return. And then somebody says
is there there’s no need to file 1128 this is
the this is going back to the question about
the individual who filed in November and then had
a one month year end, and we said, hey, you
don’t have to change, you just file your tax return. You don’t have to change
the file on the 11th– – [Jeff] Right that LM-28
doesn’t have to be filed unless you’ve already established by filing another return. – [Toby] So you don’t have
to do it, David, your good. Deed in hand heading to
Arizona transfer titles of single member Arizona LLC member managed by a Wyoming C Corp. That’s interesting. For the first 14 days,
can I take a 288 exclusion while managing and marketing
the short term rental? In an opportunity zone,
Spence, you’re killing me. No, you know, so you’re either
renting it or you’re not. If you rent it to somebody, meaning like yourself, that’s not the reason you’re
renting it to clean it, manage it, market it, you’d rent it because you’re gonna use it and it has to be a residence to qualify. So I think we’re mixing two things. Can you write off all
the expenses associated? Yeah, absolutely. The bigger question is what are you gonna do with that property? ‘Cause it sounds like
you might be renting it. And is it a short term rental? That sounds like maybe they’re doing an
Airbnb or something? – [Jeff] Possibly. – [Toby] Yeah, and so what
I would actually be doing is I would be renting it. I’d have your Arizona LLC be you and I would rent it to
your Wyoming C Corp. And let the Wyoming C Corp do the Airbnb, there’s a bunch of stuff on our website if you want to look at Airbnb. Just because short term rentals
is considered active income. And so the way around having
your rental real estate, treated as an active rental, or active activity like a hotel, which is if your average rent rental is seven days or less, it’s a hotel. What you do is you rent
it long to your C Corp, or your C Corp rents it short. So you rent it on an
annual basis to your C Corp and your C Corp’s the one that posts it and that way you’re a single member LLC, you get passive treatment and you get your
depreciation everything else, and your corporation’s paying rent. So you really shouldn’t
have almost no income and then the corporation
generates its profit. And then if you can’t expand to that, then we’re doing something wrong. We’ll find a way to get it back out. Are meeting meals deductible? Yes. The question is whether it’s 50% or 100%. open to the public. Yes, if it’s a meeting meal, just be while you’re having a meeting. No, unless it’s included in
the cost of the facility. So if I pay 500 bucks to a hotel and they bring me food
as part of that deal. Then it’s included. Then I get to write it off 100%. Can you define an active LLC? I have an LLC with several rentals in it. I don’t flip, is that
considered an active LLC? No, that’s a passive LLC. An active LLC is something that’s engaged in active trader business. So that’s like running a business. If I’m using real estate, a builder would be an active LLC. A renting would be considered passive. – [Jeff] My accounting
firm is an active LLC. – [Toby] Yep, if I do short term rentals, Airbnb for four days active, you know rents all the
time I average rental then that’s an active. If I rent it on a monthly
basis that’s passive, so it’s kind of weird. I paid to my ex 46% of our joint residence
market value in 2007 and then the title was transferred to me, do I get a step up in basis
from the date of transfer when I sell the property
today it’d be over $800,000 increase from the original price? No, you do not get a step up in basis for paying off
your spouse on there, you didn’t buy it from me just paid them on a property settlement. So unfortunately you don’t get a step up in basis, I’m sorry. What qualities should one
seek when hiring a CPA, also should the CPA handle both business and personal financials? So Pamela, I always say they should
be doing what you’re doing. And then that’s it. I really only care about
what CPA, sorry Joe. – [Jeff] I was gonna
say maybe somebody older with a goatee and losing his hair, maybe a little overweight. – [Toby] Whose name is Jeff. It’s better if his last name’s Webb. Normally I say whenever you’re
hiring any professional make sure they’re doing what
you do because the only way to learn to do something
is to actually do it. And all these people they
say I’m a real estate CPA but unless they own real estate,
they don’t really get it. Somebody says Jeff
would never yell at you. You don’t know Jeff then. Am I an LLC when I put all
properties in an umbrella policy is you never rely on
insurance umbrella policies have exceptions and they also run out and the world is full of wonderful people that thought that something
was covered by insurance only to find out that it wasn’t. My favorite example is a company that’s doing over $100 million a year and the policy was written screwy. And they ended up going
bankrupt over an earthquake and a disputed policy on a
business that got flooded. So every time somebody says insurance and I had one of my first
come to God moments. It was 1998 I believe it was, but it was a gal, she was in her 70s she was going back through
trying to build up her portfolio because she lost all of her properties because of window washers on one commercial property that
they caused an electrocution, some of you guys have heard this story. And her insurance denied the claim because the guys who had their licensing and their bonding they
had let the bonding lapse, so they said it was a
noncompliant contractor working on the building
and they refused to pay, but it was such a huge claim anyway, it exceeded the umbrella. So you use both, use an umbrella policy and then make sure that you
don’t have to worry about it. – [Jeff] Yeah, you never know
what the juries are gonna do. And they may come up with some outlandish. – [Toby] Yeah, you just don’t want the one that takes everything away,
there’s no reason for it. And what you find is that, like our clients tend never to get sued. We also almost never see audits. And that’s because you’re
operating in the right way. If an attorney is going after people and they see a bunch of
properties in your name, they’re not gonna be very sympathetic. They’re gonna go after you. If they see the property is an LLC, they’re gonna go after the insurance. – [Jeff] They call that low hanging fruit. – [Toby] Yep. All right. You can’t have a one owner
limited partnership, no. Somebody says that it
has to be a partnership. And I think we’re well over so I’m just gonna look and see if there’s anything hanging out there. Can I rent outside management company to get the passive income? I have a short term rental can I rent to an outside
management company? Yes. What is the rule of thumb for
capitalizing renovation repair expense on a warehouse piece of property? If you capitalize you
want to break it like if you have a warehouse, you’re gonna wanna do a cost seg anyway. But if you’re just fixing things up, use the $2500 safe harbor, make sure that whoever is your contractor. S Corp trading in the stock
market, active or passive, it’s passive, it’s still passive activity, but you’re an active trade, you’re still able to get your write offs. But the capital gains flow through you. How can you withdraw
money from a 501(c)(3)? You take yourself,
either reimburse yourself regular expenses or you
pay yourself a salary. And yeah, you can do that. Or you just leave it in there. receive my EIN number and
have not made any money, may not expect to make money this year, do I have to file a tax return
for my business in 2019? So if you got your EIN, but
you didn’t do any business, then you don’t have to file a tax return. If you got your EIN and you did anything, then I would always say at a minimum you’re gonna grab
all your startup expenses. – [Jeff] Well, yeah, if
you’re a C Corp or an S Corp, you have to file for every
year you’re in existence. – [Toby] I have a new California S Corp. In its advertising phase,
my real estate business, you do flips in wholesale. And you have a holding LLC, should the Corp be paying the holding LLC? Usually the holding
LLC is paying the Corp. So I’ll make that really easy. I think we are well beyond
so what I’m gonna do is if there’s questions
that I didn’t get answered, I apologize. There’s a lot of questions in here. Make sure what’s that, if you have to make an election of de minimis safe harbor
I’ll answer that last – [Jeff] There is one
election that’s made. – [Toby] Any you say
here’s what these are. – [Jeff] And you have
to make it every year. – [Toby] If no step in basis,
what’s the best strategy to avoid the capital gains
taxes on the $800,000 gain? If you sold it, and it’s
a personal residence, you would have a $250,000 exclusion, you can 1031 exchange that if you want, you’d make it into a rental
right before you sell it. I recommend six months of rent, but it’s not, technically
you can rent it for one month and then sell it as a 1031 exchange. You could still take a 121 and your 1031. So you can you could defer a portion, you could step up your basis
on 250 and avoid the tax. If you’ve already sold it, you can still do a
qualified opportunity zone if you really want to. And you still if you lived in it two of the last five years, you’d still get the $250,000 exclusion. If you got remarried and you
lived in it for two years with your new spouse, you’d
get a $500,000 exclusion. This stuff. I’m gonna say, Oh, I know what I forgot to do. You guys, please go in and
subscribe to our podcast channel and you can always listen to these. It’s what a lot of our listeners do is is they go in and they say subscribe, and then they just go listen to the podcasts while they’re working out, go to iTunes or Google Play. Lots of fun stuff. Go on to our social media. We have a really active Facebook group and our YouTube where
we have quite literally a lot of your questions are answered in some of these videos on our YouTube, we have well over 100 videos. I was just looking at Coffee with Carl, which has over 30 videos up there. A lot of these questions are
answered right on those videos. If you like, want to watch replays, you’ll always have access to
like the last month or two. But if you’re in the platinum, you can go back we have
over 100 of these so you can always go back and listen to the previous Tax Tuesdays and
then if you have questions, please send them in via
[email protected], we pick out of that the questions that we put on these put on
the actual Tax Tuesday when we’re actually
going to them in the live with those ones that are on the slides, those come from
[email protected] those are the email ones, we don’t actually make these up. We pull them from the clients. Sometimes we clean up the
language a little bit, (both laugh) Some of them are also really long. But for the most part, you’re seeing a lot of unedited questions or slightly edited questions, the gist if it’s always the same. When will we get the book, we pre ordered the, I’ll send you out, I could send you out the PDF right now. We’re gonna be sending those out. And then you also get the hardbound book it’s been sent to the printer. So hopefully they’re all good and dandy. We had a few last second changes just ’cause Congress was still
active at the end of the year, and nothing that that
caused us to make any edits. So we’re going ahead going to print so you’ll get those pretty quick. Again, we’ll get you the PDF right away. that’s already been approved, so we’ll get you the e-version. I’m thinking we’re gonna
do the audio version too, and for those of you guys who pre order they’ll probably give you guys a whole bunch of stuff. All right, hopefully. Hopefully that was good to go
first Tax Tuesday of the year. How do you feel Jeff? – [Jeff] I’m gonna have to yell at you about going long so– – [Toby] Oh, did I go long? We’re right on time. Till next time guys. – [Jeff] See you next time. – [Toby] All right guys. (upbeat music)

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