Tax Tuesday with Toby Mathis Ep. 108 – Bookkeeping, Accounting & TAX SAVINGS (NEW!)

Tax Tuesday with Toby Mathis Ep. 108 – Bookkeeping, Accounting & TAX SAVINGS (NEW!)


(upbeat music) – [Toby] Hey guys, you’re
listening to Toby Mathis here, with Jeff Webb, you can say hi, Jeff. – [Jeff] Hey, how’s everybody doing? – [Toby] And special guest, Troy Butler. – [Troy] I feel very special,
thanks for having me. – [Toby] Hey, I see you sharing. I know that I was late. We were playing with, aloha, too. Hey, thanks, Jeffer. Hey we were playing with the audio, making sure that it was coming across. We were having some interesting, we’re having some
interesting feedback issues. So I just, if you have any issues, we have three different audio sources, and we can turn them on and off at will, but every says, sounds clear, so, we’re hoping that it was all internal. There we go, we were just making fun of ourselves for no reason. People are asking questions already. Hey, today we’re gonna really
focus in on bookkeeping. So today, is going to be a special of… but I’ll still answer your, but we have the head of
our bookkeeping here. Troy, and he’s a, this is your first time doing… Tuesday? I did, – [Troy] Very excited,
very happy to be here. – [Toby] You’re very static, hello from Alaska. Hey, Jerry. Almost there, my buddy from Alaska. We have a whole bunch of people, so we’re gonna just jump in, and somebody says, hey,
it’s breaking up a lot now, we are having some audio, so we’re gonna keep an eye on that. Yeah, now people are saying. So I think that we have a
little bit of a computer issue with the internet connection, and people are saying choppy audio, which is never good, so I may switch this thing over. What I’ll have to do, is
switch it over to a phone. I’ll see if it gets any
better, but we will dive in, and losing you, choppy
audio, that’s just great. So what I’m gonna do is
switch this thing over. So guys, I’m just gonna switch over to a different audio
server, so you’re just gonna have to bear with me for a second. Hang tight, you’re gonna
hear me in just a second, actually I’m gonna see if something else. Switched over to a different audio source. Is that any better? You guys let me know if there’s any, if it’s choppy, or if it’s
still coming through all right. Better, better, better, you guys are gonna just have to stop, very loudly, you’re off, all right. So, that’s good, so
we’ll do switch on over, it’s just so, maybe it’s
a better, better, better, lot’s of betters. All right, so we will
answer your questions as they come in, it’s
over, thank you guys. We’ll answer questions before the end of the webinar, best we can. If you have questions,
that we can’t get to, because this is, gonna be get, we about a, well over 20 questions to answer on, in a short period of time to do it. Then, just send them
on in to Tax Tuesdays, Anderson Advisors. We’ll make a little highlighter thingy, let me see if I can do my
laser pointer, right here. Go to… Tax Tuesday, at Anderson Advisors. If you need to be told
response or something specific to your needs, you need
a written response, you gotta be platinum or tax client, hey, this is fast, fun, and educational, we wanna give back and help educate. Speaking of giving back,
we do have a little bit of an issue in this country right now. We wanna raise awareness this year, and make a dedicated
effort to see if we can’t change some of these numbers, but we have a real issue with
suicide amongst our veterans. I’m just throwing you some of the numbers, and there’s a veteran’s crisis line there to help people actually get help. A lot of these folks in our armed services do not seek help. We wanna make sure that we do what we can, and I work with an organization, one of the veteran’s foundations I care about them, because
they actually do something that works, somebody’s
saying that they can’t even see a PowerPoint, so I’m just gonna, I’m sure that there is PowerPoint showing. Yup, thank you, yup, yeah, people can see. All right, so I can see
that that’s probably working for us, right. All right, so the one veteran foundation, great guy, David Rafis,
that I’ve worked with, and what they do is, they
train service animals to work with veterans,
and it’s virtually… And it’s the issue with the suicide. So, the reason that we
want to call that number. 20 days is far too much. So you can go to One Veteran Foundation, great group, feel free to go visit them. If you wanna hear about what they do, I’ve done a podcast
with Dave and his group, and does a fantastic job, I’m just gonna tell you guys, you can go to our podcast page, Anderson Advisors podcast,
and you can find it, I think it’s page three, but they are able to
train service dogs now, at about 25 hundred dollars per dog, hard cost, ’cause they have
so many people that donate, and if you don’t know how much it costs, it’s about 50 thousand dollars a dog, or going to this, in the private market. So, these guys do a really great job. So, I just can’t recommend them enough, but if you want to go, please visit them, but if nothing else, become aware, and at least thank our veterans, ’cause God knows they
went through hell for us, a lot of ’em, and they carry those scars. Onto bookkeeping. Let’s go through a little history. How bookkeeping began, and you can go way back to… To a little, let’s go medieval time, because it’s been around for a long time. We’ll say I had a sword, but I wanted to eat. And I didn’t wanna get what
I was killing with my sword, I might trade my sword for a chicken, or a bunch of chickens. So maybe I’m trading my sword
for a bunch of chickens, whatever you do, don’t
give your chicken a sword, that’s just bad. But maybe I’m trading
my sword for chickens, and then I would keep track
of it in a detailed record, and I would say, hey, I bought
five chickens with one sword. I sold one sword and five chickens, the only problem is that, we
started dealing with currency. So now we had to track all this stuff, we’re with dollars. And so here’s how it ends up working. It’s country bookkeeping, thank you to whoever came up with that, you’re evil, and you’ve made a lot of
people’s life’s worse, I’m just kidding. And so they would say, hey, Tuesday, on the 21st of January,
I bought five chickens, I’m debiting my inventory, by the value of those
chickens of 10 dollars. I bought the five chickens for cash, so I have to credit my cash, but I sold a sword, in that
sense to buy the chickens, so I have to, debit my cash by 10 dollars, I have to credit my inventory. The accountants are all,
giddy at this point, ’cause they’re just excited that everybody gets to see exactly what they do. And somebody’s saying yes. They were in existence with the Romans, but I think the Romans had sword they had to trade for chickens, too. Right, no, it’s been around forever, and I always point that out. And the reason I point that out, it’s because everybody thinks that you have to have Quickbooks. It used to be that you
would actually just note this stuff down, maybe you had an abacus, you had a little ledger. If you were in the mob, you had two. Get it? – [Jeff] Yup, right, right. – [Toby] That was funny. But you always had like
some little ledger, now we… Computers, and you’re doing is tracking money in, and money out,
and people freak out. I’m not allowed to have
any humor any more. (group laughing) All right, here’s the questions we’re gonna get into tonight. Because it’s all bookkeeping, and Troy, thanks again for being here, because this is all he
does all day, right? – [Troy] Right, that’s what I do. – [Toby] You just, and you love it? – [Troy] Love it, my favorite thing. – [Toby] You can’t tell,
he sounds really excited. When accountants get excited, they usually don’t show it. All right, so questions
that we’re gonna ask, somebody said audio fine,
is there video too, yeah, you should be able to
see this is a PowerPoint, you should be able to see it. If you’re having issues,
it’s, I don’t know what to do. – [Troy] Reboot? – [Toby] Yeah, reboot, maybe
our rep people can help you. All right, should I hire a
bookkeeper for my business, or do it myself? These are the questions
we’re gonna answer tonight. We have several companies, what is the best way to pay and track expenses for each one? What’s the best way to set reminders of accounting things I should be doing? I’m pretty new at
bookkeeping for our business. How do you keep track of
your reimbursable expenses before your corporation makes profit? I have a business degree, so I’m starting my first
real estate business, I would like to know what the
current best practices are with software, Quickbooks,
versus spreadsheets, versus other, and what are some tips to get good bookkeeping results with the least amount of effort? We’re gonna answer all those, plus, I’m starting an Airbnb business, and and eCommerce store,
because you must be bored, and you said, I’m gonna do
two things at once, right? What bookkeeping do I use
to integrate with Airbnb, and the same question for the Shopify API? We’ll answer that. What is the official name
when we transfer money from a company, a C-corp or
LLC to our holding company, how do we handle these
transfers in our bookkeeping? When we take money out
of the holding company, to use for personal expenses, how do we handle that for bookkeeping? Is it legal to put personal funds directly into our own company? And now we document that for bookkeeping. Got such, some good questions. There was a lot of questions, by the way, you guys did a really great job. What is the proper way to
account for expenditures made to improve a warehouse building? Should expenses above a certain amount be capitalized versus expense? Does it depend on the
nature of the expense? Like HVAC, flooring, lighting, etc. Here’s somebody, it’s
a really good question, by the way, but you said
something in this question that freaked me out, which I’ll point to. I’m trying very hard to build stock and stock option business to retire. I would love to learn and
master the bookkeeping, accounting, because I’m having a hard time finding the right answers
for creating a trade log type spreadsheet where I can keep track of buy/sell, credit and premium received, debiting of expenses,
broken regulatory commission taking out of my account by brokerage, and knowing a balance of what’s available if I leverage account as collateral. I.e., selling naked put, stop that, I watch so many people blow themselves up with naked put. It’s fast money, oh yay,
25% held back, kind of, guarantee how the tax
is calculated, all that. If you guys don’t know
what a naked put is, it’s really exciting. What are the best accounts
in the chart of accounts you recommend to set up in Quickbooks to make the end of your filing easiest to transfer expenses to an IRS form? So, I’m sure that they’re asking like what category is. I am currently a wholesaler, and not sure how to input
my income into Quickbooks. I feel like I set it up incorrectly. I don’t know if that’s a question, but– – [Troy] We’ll help him. – [Toby] We’ll still help him. And guess who got an LLC write-off round card charges incurred while conducting business for the LLC? And I’ll keep chiming in, how does a business owner
reduce the bookkeepers, I really rate on book,
and improve on recording. How do you reduce the
book hourly rate of time, that’s just mean, no, I
think what they’re saying is how do we reduce the amount of time that it takes for them to do your books. How does a business owner insure
documentation of receipts? How does a business owner
insure the bookkeeper’s understanding of the big
picture of the company? How does the bookkeeper,
tax repair, and CPA work together to help reduce
taxes for the business owner. Does a business owner need to work with their business accounting person on a monthly basis? We are getting close to
the end of the questions. Like I told you guys, we had a lot. I have a ranching business organized as an S-corp, and just bought a new truck in the name of the business, I use it primarily for personal use. Similarly, we are currently
building a garage shop that can be used partially
for business storage use, and partially for person use. Does paying for your items, which have mixed use,
with your business account jeopardize your corporate veil? How should these transactions be reflected in Quickbooks? Can you explain what
practices for bookkeeping and accounting are
suggested when setting up an S or C-corp for long term real estate, hold on land, or future
development of small hotels? We’ll get into all that fun stuff. And last, but not least, we have two, I think we have two more, yup. Does a holding LLC require books also? And, C-corp was incorporated in mid-2019, can management fees be charged
retroactive to January? I’m assuming it’s January 2019, to an entity that the C-corp is managing. Can we go back a couple
years to capture expenses? So we will go over all of that fun stuff. You guys have, a tight
future, what is a naked put? Jennifer. A naked put is when the sell the right for someone to force you to buy something that you don’t own. – [Troy] Correct. – [Toby] And it’s free money, so long as the item
doesn’t become worth less than the amount that
they can force you pay. The problem is every now and again, it does, and you don’t own it. So then you have to go out a buy it. And so if a stock tanks, it’s a good way to lose
everything you own. A great example would be, let’s see, what was a good
one that just killed people? Emulex, emulex was like at 125 bucks. This would’ve been almost 20 years ago, and you could sell, naked puts at $35, and still make a pretty good premium, because somebody knew
that it was gonna tank. And so people were selling lots and lots of, and somebody’s
queing this, is it naked, no, it’s not a naked,
you guys are horrible, I’m getting the worse
comments as a distraction. Long short is that I could force, like I could sell somebody… I could say, hey, Jeff, give me a buck, and you can make me bet $35. For the next, anytime in the next year, or whatever period of time we negotiate. I get the dollar, no matter what. And I think this is great, ’cause I knew X is at 135,
or 125, whatever it is. What if it goes down to 20 bucks? Now I have to go buy
Emulex, and sell it to Jeff, I could buy it for 20 bucks, I’m selling it to Jeff for 35, like I’m having to buy it, excuse me, not sell it to Jeff. I’m buying it from Jeff at 35. So I’m actually like, I’m gonna be way
underwater on this shortly. This is stick, pay 35 bucks for however many contracts I give in, it’s
just a really bad situation. So, anyway, I’ll make sure that the, we cover that, all right. Here’s a question, and
Troy, since you’re the man of the hour, are you ready for this? – [Troy] I’m ready. – [Toby] All right,
should I hire a bookkeeper for my business, or do it myself? – [Troy] It depends, so did I do good? – [Toby] Yeah, you sound like a lawyer. (chuckles) – [Troy] So it depends on the level of transactions you guys have. If you have two transactions a month, I maybe wouldn’t worry about, just getting a bookkeeper
to handle your books, I would handle with.. That’s all. If you starting getting a
hundred transactions a month, that’s when I would recommend
you hire a bookkeeper. – [Toby] Mm-hm, now here’s the thing, what’s the legal
requirements for bookkeeping? What do all businesses have to do? – [Jeff] All businesses have
to have books and records, so. – [Toby] They all have to
have books and records. – [Jeff] They have to
file their tax return. But the IRS really doesn’t define what those books and records are. So it could be spreadsheets,
it could be Quickbooks, – [Toby] It could be
a little ledger, guys. It could be cocktail
napkins that have your– So a lot of people
immediately start thinking, oh my God, I have to
have all these beautiful Peachtree, Quickbooks, after
they buy all these programs. – [Jeff] Right up. – [Toby] I’m with Troy, if
it’s a few transactions, document it somewhere, a
spreadsheet’s just fine. If you need and P and L, profit and loss, or balance sheet, then you can pay someone to put in their Quickbooks,
or whatever it is, and print a, and create a, P and L, or a balance sheet for you, if needed. But if you’re doing a small business as, very few transactions, you’re
probably not gonna need that level of detail,
it’s just tracking it. – [Jeff] Yeah, open up
the do-it-myself part. You really gotta look two things, ’cause your confidence,
and my notebook keeping, your ability to do the bookkeeping, and the other part is, I sometimes seen, where people doing business, have, or do so much on the administrative, that they’re actually enter feedback, the work that they’re trying to do. – [Toby] That’s it, you’re not, you didn’t go to school to
become a bookkeeper, right? So, if you’re doing,
whatever you may be doing, maybe you’re running a restaurant, guess what you’re not getting paid to do? Your books, and so you gotta figure out what’s the best value of your time. And whether you wanna
have somebody else do it. And then, what’s the
fastest way from A to B. So many people create
separate sets of books, for each side of their business, and they make huge, short of accounts. These big, huge Christmas tree
looking things, is better. Unless you need that level of granularity, and like it’s serving you a purpose, you need to go to charts and accounts and they’re doing two hundred
thousand dollars a year, and I’m like what the heck’s wrong? I don’t know about you, but
I’d rather not be doing that. Hey guys, I’m gonna answer
a couple of questions that came in right at the very beginning. The first one was, if I
have a 501C3 in a C-corp, do I have to file a 1099? If you’re being paid, no. Like if somebody does not
have to give you a 1099 if you’re a corporation. But if you are paying
somebody for services over six hundred bucks,
you gotta give them a 1099, and it has to be done. That’s due at the end of January, correct? – [Troy] Correct. – [Toby] At then end of January. Somebody says, when I
get donation on profit of more than five hundred bucks, what form do I need to
fill out with the IRS? If it’s cash, and it’s
over five hundred dollars, it’s what, 8383, something like that? – [Jeff] If it’s cash,
it’s just Schedule A. – [Toby] Schedule A? – [Jeff] You don’t have to do, 8283 is only for non-cash contribution. – [Toby] Non-cash, so like
if somebody gives you, if you get, somebody gives
you a bunch of clothes or something, and plus
you’re supposed to be giving them a receipt,
and what the value of it. – [Jeff] Yeah, from the
charity point of view, you almost never have to
deal with any kind of form. The one exception is like car donations, there’s a form for that. – [Toby] And somebody says, by the way, if you go over
four or five thousand dollars, like you’re giving an
item that has a value of more than five thousand,
you’re either getting an appraisal, or it has to have a readily attainable market value like stock, easy to find out, if
you’re giving real estate, you’re gonna want an appraisal, unless you just bought it,
and do it within a year. Which case you use it’s basis. All right, somebody says, does
interest reported on a 1099 get offset for taxes if there’s a K-1, with negative, that’s
negative from depreciation. And I did say, it sounds
like they have a K-1 that has a real estate that’s passive law, and so the question is… Can they offset in– – [Jeff] Yeah, they
would be able to do that, assuming that it’s ordinary
income, or something like that. Those K-1’s typically have
about 20 different kinds of income or deductions on them. – [Toby] If you have passive
real estate loss, though, so you’re gonna be, either looking at, real estate active participation, or real estate professional
to offset, though, right? Yeah, because interest, it’s still, it’s portfolio income, but it’s
not passive interest per se. – [Jeff] Correct. – [Toby] We purchased
a house in April 2019, and lived there for three months. After moving out in July, the house was available to rent. We decided then to take
a major renovation, without writing it out at all, this needed added to the bases. Can we do a cost segregation
for 2019 to push down. The house will be back on
the rental market in April. So sounds like they made it available, the did a cost seg, it’s a vacant house, my understanding is that,
you can do the cost seg, but you can’t create a loss
if it’s a vacant house. Am I missing something? – [Jeff] No, that does should about right. Yeah, there’s always that issue that you’re creating losses, and you have no income from the property. – [Toby] Which, you’re allowed
to grab all the expenses, like here’s the deal, yes,
you could add it to bases, yes, you can cost seg it. The problem with a vacant house, is that you can’t create a loss. You can get yourself… But you don’t have any
income coming in anyway. So all you do, is you
carry forward that loss into the next year, so you don’t lose it, you’re just gonna use it in 2020, when you start making money. Or if you liquidate it, you’ll
get to release that loss, and offset ordinary income,
isn’t that exciting? You guys are asking really good questions. All right, what is the
best way to use funds received from the sale of a business? I’m just gonna tell ‘ya,
me, you just give it to me, that is the best use of it. No, if you made money on a business, chances are, it’s capital gains, if you sold the business. If you sold it, and the
income is the businesses’ so there’s not right or wrong
way to how to use those funds. You gotta figure what funds they are, what type of gain it has. If it has a gain, if it has a loss, and whether there’s anything
you can use to offset it. So, there’s not, it’s not magic. It’s not magic dollars, you
just have to figure out, what is it for. So like I could sell a business, I’m selling the shares of my company, that’s long-term capital gains, if I owned it over a year, if I owned it for less than a year, at short-term, but I could also just sell all the assets in my business, which case, it’s income to the business, and now it really depends on
what type of business that is. I love getting the
business stuff, by the way. When you’re selling a business, there are ways to do it, that’s tax free. All right, well there’s a
bunch of other questions, but we’re gonna keep jumping on ’cause I think Troy’s
tired of me hobarting, he’s giving me the look, he’s looking at me like the heck, is the way that I answer this one? He’s looking at me, I already lost. All right, we have several companies. Congratulations. What is the best way to pay and track expenses for each of them? What say you Troy? – [Troy] So, again, it depends. On if there’s several
companies that aren’t related, they each need to have
their own set of books. They need to be tracked separately, not combined into one giant set of books. However, if one of the entities, or a companies is
disregarded to another one, we can combine those sets.. Books into one, but we gotta make sure we’re claimed by plenty,
or a business activity. – [Toby] You just said a magic word, and I think that Jeff, you like this word, you like using classes. – [Jeff] Yup. – [Toby] And when you use classes, and like go in a program like Quickbooks, it means you’re not setting
up a whole other set of books. You’re literally creating a
sub-set under major setting. In rental real estate, this
is your secret weapon, guys. A lot of accountants will set up separate set of books for each property, and they’re tricking you into like, they’re gonna say, oh this
is how you have to do it, or this is best practices, or what-not, and they’re gonna charge you for each set. And you’re gonna have to get a license, like Quickbooks online
for each set of books. Don’t do that, use classes, and enter your properties underneath it. Is that fair? – [Troy] That’s 100% fair,
we just gotta make sure that all those rental properties are going to the same tax return, that’s the best way to think about it. – [Toby] Love it, all right. What’s the best way to set
reminders of accounting? Things I should be doing. I’m pretty new at
bookkeeping in our business. – [Troy] So what you don’t want to do, is you don’t want to let it build up for an entire year, and then
have to do it all at once. So it’s gonna be hard to remember what the sixpence from Home Depot from six months ago for $42 was for. You wanna do it monthly. What I recommend is setting
up, if you use a calendar, put it on your calendar
to do it once a month, every two weeks, something like that. – [Toby] I would say that, and Jeff, do you have anything you
wanna add on that one? – [Jeff] No, I mean,
on my own set of books, I do mine about every two weeks, I could easily get away
with doing it monthly. But like Troy said, sometimes you see these expenses on your
credit card statement, or something… No idea where. You may have lost the receipt,
and hopefully you have it. Understand about these things as you go. – [Toby] Absolutely, and just
reminds $75, and it’s a meal, you don’t actually have to have a receipt. Just some backup on it,
to use credit cards, if you have to, or a debit card, just so you have a track of it, and then also most banks now, will just load into a spreadsheet, and then just, get used
to using a spreadsheet. Everybody’s gonna tell
you to use Quickbooks and all that stuff, great if
you need to have a P and L on a balance sheet, it doesn’t
bloat you up, if you don’t, my recommendation for most people is track it on a spreadsheet, and give that to a
bookkeeper, or accountant, and then create your P
and L, maybe quarterly, maybe twice a year, maybe once a year. Whatever works for you. And it will help make the transactions. So you have a transaction
month, that’s not gonna work, you need to do it more often. If you have a hundred transactions a year, and I’m probably doing that quarterly. – [Troy] Yup, and the more
complex your business gets, the more complex your
accounting needs to be. – [Jeff] And this is a little off, but how often would you suggest they either back-up their Quickbooks, or make backup copies
of their spreadsheets, or do that monthly? – [Troy] I would do that every time you use it, honestly. – [Toby] Every time you use it? – [Troy] Yup, yup. – [Toby] Have it automatically. And more stuff that you
can do that’s automatic, the better. So if you have expenses
that are on a monthly basis, put them on auto-pay. Put them on auto-pay, and just you know, set it, forget it. I shouldn’t say forget it. Just make it to where you can’t forget it. So a lot of people are like, hey, what kind of things should I be doing, and put, use a calendar,
Google Calendar, it’s free, and just set yourself
reminders on doing stuff, hey did I pay this, or
you know, don’t forget, reimburse myself expenses,
and run a payroll once in awhile, if you’re an
S-corp, or something like that. Hey a few questions, one is the difference between a P and L, and a balance sheet. Do either one of you guys
want to take that one? – [Troy] Sure, I’ll take it. A balance sheet lists your assets, liabilities, and equity for the company. So your cash is an asset,
buildings is an asset. Liabilities would be
something like credit cards, or mortgage, equity is how
much money you put into the business essentially,
or your retained earnings, the lifetime earnings of the company. A profit and loss,
shows your profitability for the whatever period we’re looking at. So a year, you can do
profit and loss by year, month, quarter, week, day, usually when we’re looking at tax returns, we’re looking at it on a yearly basis. – [Toby] Nailed it, Jeff, you wanna through something else in there? Now the sheet is in my bank account, what I owe other people. – [Jeff] It’s like the bell sheet, it’s like a snapshot scan
at any one point in time. – [Toby] Yeah, and it’s
that point in time. So I could have a balance sheet that shows I have a million
bucks sitting in it, but I owe three hundred thousand dollars in credit card bill, so
that tells me my equity, I just subtract that one off the other. Or my P and L may be showing that I’m just having a
really horrible year. They don’t really relate to each other. Like in order to get the cash, we either getting contributions, loans, or I’m making money, but you know, that’s still on my balance sheet. A few things that people asked, that I’m just gonna knock these out. Somebody asked about Airbnb, where did that go? It keeps getting pushed down. You guys are really active today. All right, tax obligations of being the owner of a short-term
rental business like Airbnb. All right, so, if you have
an average daily rental of a seven days or less,
it’s an active business, you’re gonna be charged
self-employment tax, you are a hotel for
all extent of purposes. You still get depreciation, it doesn’t blow you out
of the water for that, but you are an active participant. If you want to keep that passive, and make that income passive, what you do, is you put the real estate in an LLC, and you lease it to the host, so that would be a corporation. Nine times out of ten, or a LLC venture, and you would do the short-term business through the corporation, so it’s what’s listing under the BNB, it’s host, you’re renting long, so I’m renting on a monthly
basis to my corporation. So the income that the corporation pays me is passive, it’s gonna be rental income that I take the depreciation against. The corporation on the other hand now, is gonna be receiving that money, and that income gonna
be on the corporation where it’s possible to be offset through other expenses, or it can sit on it, if it’s C-corp, it’s 21%,
than if it’s an S-corp, after a small salary, then at least I’m not subject to the
self-employment tax. But, get that.. We received over the
texting, that’s correct. Somebody says.. (garbled audio drowns out dialogue) Be aware right now,
that that would probably be tested, just because of 199A, right, they have to show an actual reason as to why you’re changing
that relationship on the 20% deduction? – [Jeff] Right, are we talking like a C-corp to an S-corp? – [Toby] She’s asking what
which would be better? And so, generally speaking
if you need the money, you’re gonna be an S-corp. You just said basically it’s
241 thousand dollars a year. I can tell you already you’re gonna… Wanna be that. Somebody said I found this. I’m an independent contractor overseas. Do we still need to send them a 1099? – [Jeff] If they’re
doing all of their work overseas, they are not
doing any work within the United States, and
they are not U.S. citizens, then you do not have to
issue a 1099 to them. – [Toby] No, 1099, non-U.S. citizen. Yeah, somebody just said the same thing, they asked that same question,
so there’s two of them. So, if it’s foreign, and they’re all, and all the business being done
overseas, you don’t have to. I’m managing, someone else and
then dispersing to the owner, do I need to… – [Jeff] So you’re acting
as a property manager. Yeah, technically you do, you’re going to issue a
1099 for the amount of rent that you collected on their behalf. – [Toby] Let’s see, if I’m in
an audit for a specific year, and they want my Quickbooks for this year, can I restrict them to only
see the year in question? Yeah, you’re only giving
them the information that they’re requesting. They can open most audits
to three years, though. – [Jeff] Yeah, I would
provide them with reports. I would not provide them
with your Quickbooks. – [Toby] Yeah, in fact, that’s
actually a really good one. Nor, do you talk… Again, keep it that way. What else? What is cost basis? That’s how much you paid for something, plus any improvements, or things
that adjust the cost basis. Is there anything else? – [Jeff] No, depreciation
reduces your cost basis. – [Toby] Depreciation, yeah. Anything else on it that you can think of? – [Jeff] No. – [Toby] Cost basis, like in stock, that’s what you paid for it, plus the commission that you paid. Sometimes you’re gonna
add things to basis, when you’re dealing with options. Somebody asked about futures, and what’s the best way to hold that. You can’t write off
expenses as an individual, when you’re in investment,
unless your activities rise to level, listing traders, which I would never suggest you try to do. I would always say operate
through a traditional business, or use a partnership, with
corporationist, you know. Deduct, or net attorney’s fees against attorney’s fees awarded
from a foreclosure proceed. That’s a weird one. Because attorney’s fees you cannot deduct, but if you’re an investor,
then you would deduct them against the income
that you’re received. – [Jeff] Yeah, I’ve seen that, and I’m not sure that are
the circuits agree on this. Some circuits will allow you that, if, it’s netted before you get your money. The attorney’s fees have
already been pulled out, then you only have to
report those proceeds. But yeah, typically both
those circuits, I believe, will, once you report all the proceeds regardless of how much
was paid to the attorneys. Somebody’s yelling about her audio still, I’m sure it’s our internet
just being frosty. All right, well, there’s
a few other questions, I’m just gonna jump on them. And jump up, let’s go and
get Mr. Troy back in this. Let’s see, all right. How do you keep track of
your reimbursable expenses before your corporation makes a profit? – [Troy] So even though
you may not be profitable, you still need to track your
expenses and your income. Again, you could do that in a spreadsheet. But we need to make sure
that we’re providing something to the corporation that shows what those expenses were,
and what they were for. – [Toby] And just know that when you’re, when you’re corporation is,
even before it’s operating, you can still go back in and grab things as a start-up expense. – [Troy] Right. – [Toby] That’s gonna be something that we also hit up here. What you end up doing is, when you have a corporation, the investigation period before it’s… As you’re investing the line
of business to get into, and you’re incurring these expenses, the IRS follows the rule,
which Congress laid down, which is, I can write up
to five thousand dollars in year one, amortize
the rest over 15 years. If I spent too much, or 50 grand, then I’m gonna be amortizing the whole kit and kaboodle over 15 years. So, like, if you didn’t
get to write it off, you may have to spread it out. Let’s keep jumping on. I have a business degree from decades ago, and started my first real estate business. I would like to know what
the current best practices are with software, Quickbooks
versus spreadsheets, versus other, and what
are some tips to get good bookkeeping results
with the least effort? – [Troy] Okay, so kind of go back to what we were talking about. It doesn’t have to be Quickbooks,
or Peachtree, or whatever. It could be just be a spreadsheet. You can use accounting
paper, if you wanted to. But, Quickbooks is probably
the most user-friendly of the options, I’d say. – [Toby] Quickbooks? – [Troy] Quickbooks. – [Toby] Do you like Quickbooks? – [Troy] I love Quickbooks. – [Toby] Quickbooks update. – [Troy] Right. So, if you come to us for
your bookkeeping needs, or if you go, take your taxes to anyone, they’re probably gonna
be using Quickbooks… The same, so that’s
probably the most universal. – [Toby] Somebody says
that the use Zoho books. – [Troy] I’m not familiar with Zoho. – [Toby] I never heard of it, either. – [Troy] Yeah, there’s thousands of accounting softwares out there. So, Quickbooks is the most prevalent. And then tips for, to get
good bookkeeping results with the least amount of effort. What you can do with most
of the accounting softwares, Quickbooks included,
is you can tie in your bank accounts and credit cards to have them automatically get recorded. – [Toby] Yup, pull it right on in. – [Troy] Right, so that makes all easy.. You don’t have to, cuts
down on for everybody. – [Toby] You know what? Again, I think it comes back
to the very earlier side, that Quickbooks is universally accepted as probably the, could be, maybe not sweet for
bigger companies, right? But if you are not a huge company, and what would you say
is not a huge company? Less than a million bucks? – [Troy] Yeah. – [Toby] And then, you may wanna just try to use spreadsheets,
and somebody just said, what about the categories? That’s called your chart of accounts. And that’s more narrow, you can
keep your chart of accounts. And the more succinct, like it doesn’t mean like you have three. But, it means you don’t have to have pages and pages of charts of accounts. I’ve seen people do that
on small businesses, and they’re literally,
like they’re mis-class of buying stuff all the time, because one month
they’re doing it one way, and another month
they’re doing it another, and they’re just all over the place. You wanna, like what’s a
typical chart of account? How many categories? – [Troy] Probably 35, I’d say. – [Toby] Yeah, tops, tops. So that you know where to put things. I don’t like keeping my data
on the Quickbooks cloud… It’s hackable now-a-days. What version of Quickbooks
do you guys like? – [Troy] We have Quickbooks online, it makes it so you can
see what we’re working on, at any time, you don’t have to request access or copy from us. Plus we can get you a discount
on the Quickbooks on line. Through Anderson. – [Toby] Yup, say, the
version of Quickbooks most people using Quickbooks online. If you don’t like to, you
can use hardcopy or desktop. The problem with the desktop version, is when you given an accountant’s copy, like if somebody’s making
changes, it locks your Quickbooks. Because you don’t wanna be making changes, right after you just gave
your accountant the book. The online’s a little bit easier, and I understand what
somebody’s saying about security, but you’re
email is gonna get hacked before your Quickbooks
is gonna get hacked. Doesn’t mean like everybody gets hacked. I went to a symposium. Pretty much everybody, like every huge server
farm has been hacked, it’s just whether they
had to tell, is all. So, just about every. Assume that you’ve been hacked. And leave it at that. Let’s see, what about Quickbox to share Quick B-Pro Desktop? – [Troy] Okay, I think
what they’re saying there, I could be wrong, is
that they have services where you can store a
Quickbooks Desktop on a cloud, and that let’s us log in, and then they can also log in. So that works, it’s just
a couple of extra steps. Quickbooks on line, or QBL is
usually a smart convenience, and it has most of the same functionality as Quickbooks Desktop. – [Toby] And I’m still a
believer in spreadsheets, ’cause, I’m trying to tell ‘ya, like Quickbooks takes a while to learn. Bookkeepers love it, but
they also use it every, every, like every day. I used to go.. On a daily basis, many years I did that, and I realized much flipping
time I was spending. I would rather just see
the summary of my data.. In a Google document. – [Troy] And just so we’re clear, I would rather have a good spreadsheet, then a messed up Quickbooks
any day of the week. And so, if you’re comfortable
doing a spreadsheet, do a spreadsheet. And every time I see a big mess, it was usually an error,
because of the software. – [Troy] Right. – [Toby] Like they didn’t,
user error with the software. Al right, I’m starting an Airbnb business, and an eCommerce store,
what bookkeeping do I use to integrate with Airbnb? And the same question for Spotify? – [Troy] Okay, so, Airbnb,
they should be sending you monthly statements that
show your monthly income, and any Airbnb expenses you may have. Management fees, that kind
of stuff that Airbnb charges. I’ve used their platform. But, as far as I know, they don’t directly integrate with Quickbooks. Shopify, on the other hand, does directly integrate with Quickbooks, so it will automatically pull
your income and expenses, and automatically put that on there. Also, gotta be sure that,
with the Airbnb stuff, that you’re recording all your expenses, not just the ones that
are coming from Airbnb. – [Toby] Like everything
that’s associated with… So it depends, if I’m Airbnb’ing, and I’m doing it two weeks at a pop, and it’s a passive
rental, and I’m not doing, like I think there’s criteria for like are you providing more services then would be typically to a renter? Like cleaning and stuff like that. – [Troy] Yeah, laundry, cleaning. – [Toby] If you’re just,
hey, you’re coming in, people are grabbing it for a month, and it’s completely passive, then that’s different
than the Airbnb business where it’s, it’s almost like a hotel. – [Jeff] Seven days or less. – [Toby] Seven days or
less, is you are a hotel. Individual bookings, so I
would say how many guests, primary guests that I had. So if I had 90 days of rents, and I had 10 guests, and I
had nine days, that’s passive. If I had 90 days, and I had 20 renters, then I had 4.5, then I’m a hotel. And that’s active income. And yeah, just different animals. Speaking of different animals, if you need bookkeeping, I’m just gonna show you
guys a link real quick, that aba.link/bk, maybe
Susan can throw it up there. For you guys, if you
wanna look at bookkeeping, we do offer a virtual bookkeeping service. This is brand new. For those of you guys that been around us for a lot of years, you know how we kind of operate. We do the same things
that you guys are doing. And so we’re constantly
trying to find things that would be a better
service to our clients. The virtual bookkeeping
service is real simple. It’s a setup of a books, you’re doing, you’re using spreadsheets that we set up, we set
up the chart of accounts, we say here’s what you put in, you put in, if there’s areas that you need to re-classify, you flag
them as an as by account, and then we go through
them on a quarterly basis, and we take that and put it in Quickbooks, give you a balance sheet on base. The cost is 1495 for
the first set of books, if you are not a platinum member. If you are an Anderson Advisors Platinum, which you all should be, it’s 995, and I’m gonna give you
a little coupon code to take another 200 bucks off of that. You go here, and let’s just see, you’re gonna fill this little
bugger out while online. The price break, number
one is you get 995, the price break number
two, is $200 dollars off, Susan will undoubtedly
send you the coupon code, I have it somewhere, I have to go find it. Little things that you can say, real estate bookkeepers you can trust, we’ve been doing this for a long time. There’s the Forbes, and
all that good stuff, we’re a member of the Forbes Council, and again, I’ll make sure we get that, that we get out the, you see that little, I think that I put it up there, but I will make certain that I get it. How do we get the discount at Quickbooks? If you go through us, Troy, what do they have
to do to get the discount? Quickbooks? – [Troy] So, you just
need to have a bookkeeping consult, and you should
be able to tell anyone here at Anderson, hey I
need a bookkeeping consult, and we’ll get you pointed
in the right direction. – [Toby] And what do they get? What do they get for the discount? – [Troy] So it’s usually
like $20 off a month, for the, it depends on the levels, there’s a lot of different
levels of Quickbooks, so that’s why we have to have a consult to determine what you need. But, yeah, you get a
little discount from us. – [Toby] Yup, all right, so your discount? How much is the discount? It’s like 15 bucks, what it is? – [Troy] It depends on the level, so I don’t wanna tell
’em an amount, you know. – [Toby] You’re just
being such an accountant. – [Troy] Yes. – [Toby] All right, I’m
gonna right the discount code for you guys, Susan sent it, but, it is BOOKTAX, and it’s
gonna save you, $200 off. Now here’s how it works, if you become a bookkeeping, yeah, we can do the books for
a non-profit, as well.. In fact, we love… 35 hundred. You can do that, I’ll
show you where to put it. It’s in that little coupon code. You just zip it right on down here, I thought I had it written in. And you put your little
BOOKTAX right there. The other good thing about this, is if you have multiple businesses, they’re $500 thereafter. So we’re just trying to get you to have a set amount of expense, you don’t have to worry about hourlies, and a bunch of other fun stuff. This is just where we work with you, we work you to make sure
that you are able to have a good set of books, and you’re not paying like a
gillion of dollars to do it. And yeah, you can do it for a
realistic, two guys are out. Yeah what it does, it saves you from having
to get Quickbooks. So, just Quickbooks online
is 50 bucks a month. You got two sets, that’s a 100 bucks, that’s 12 hundred dollars, basically for the cost
of Quickbooks online, we can do your books for the entire year. That’s what we try to do. – [Troy] Right, and I don’t
know if Toby mentioned this, but we do, we will be
doing quarterly calls with everyone to make
sure that we’re capturing all the expenses we can,
everything gets recorded correctly. – [Toby] Yup, we want to make sure that you’re getting the best. So, I have one disregard, an
LLC is a disregard entity, and several rentals under that… Is that yes? It’s just 995, it’s not
995 for each rental, we would have one set of books, we’re gonna try to make
classes, so it is one. Yes, it is ridiculously inexpensive, and that’s the way we operate. All right let’s keep
going on the questions, I know you got, I’m showing that is this better than Quickbooks online? – [Troy] It’s different. – [Toby] Different, and it’s cheaper. And it’s gonna be easier for you, that’s what I, again,
I use me as an example. And I have dug deep into Quickbooks. And I love the reporting capabilities, but I can do, as long
as I have the end data, I can do whatever reporting
capabilities I need. I usually build my own spreadsheets. And I spent way more
time…that I do in Quicks, and so my guess for, like
I don’t think I’m alone. I think that for the most part, everybody’s kind of the same way. Let’s get the information into Quickbooks, but let somebody who does it
day in and day out, do it. I don’t need to be spending
all my time doing it, nor do I wanna spend all my time doing it, nor do I wanna spend 200
bucks a month, constantly, having somebody input a few categories, which is like, even into it. Their base price is not just
the cost of the software, but 200 bucks, I’m
already 250 out of pocket, and I haven’t even
entered a transaction yet. So, I’m just trying to make
this easy for you guys. And we work with anybody. So we’ll make sure that everything works. And Pierre says, how is
this different, it’s not. Pierre, If you’re already working with us, we’re gonna find out the
best solution for you. If you’re already… working with us, and there’s
already a set transaction fee, then, you know, I
wouldn’t keep telling you, switch, it’s gonna be better, it’s gonna be more economical and better. But, I like to make sure
everybody has a good set of books, and you shouldn’t have to
feel like you can’t afford it. So, we made something that’s
perfect for the entry level. What is the official name
when we transfer money from a company, C-corp or
LLC, to our holding company? That we handle these
transfers on our bookkeeping>- [Troy] So, I’m assuming
that this is like a loan from corp to the holding company, but– – [Toby] Usually you’re
transferring money, to a holding company, you’re
either transferring the money that came in as rents
into the holding company. Or, maybe the holding company is transferring money
to the C-corp to pay, or the C-corp owns the holding company. – [Troy] Right. – [Toby] And so realistically, you know, all of those categories
are a little bit different. – [Troy] Right. So a couple of different ways. So, if your corp is transferring
money to the holding company for income,
rental income minus the… This expense, that would be rental income. To be LLC… Okay? If it was a loan from corp to– – [Toby] Ten thousand bucks. – [Troy] More than ten thousand bucks, that’s got it, that has
to get recorded as a loan. It would be a due to, we
usually classify them as due to, slash, due from, and then
the name of the corporation. That’s how we usually do it. – [Toby] Somebody just,
okay, a couple of questions. When they said about the disregarded LLC, apparently I was breaking up. You only have to pay for
that one set of books. So you can have ten rentals
underneath the one set of books, and it’s just 995, with the
discount it will be 795. You guys get a $200 discount. Just because you’re on this call. So, it’s a thank you
for hanging out with us. When we are transferring money, so let’s just say I’m
transferring money from the LLC to the C-corp, as a management fee, then it’s income into the C-corp, it’s a management expense to the LLC. When I’m putting money
from a holding entity or from a sub-entity into the holding, I am only, I am literally
doing that on a class. I am just recording it
as income to that… Entity, and it’s automatically
flowing under the parent. I am not gonna set up two sets of books for the holding company. – [Troy] Correct. – [Toby] I’m gonna set up one set of books and if it’s income, if it’s an expense its flowing under the expense. But at the end of the day,
I am going to be keeping one main set of books, but remember, books, everybody thinks of it as like separate P and L’s and balance sheets. No, it’s recording transactions. So can I tell what that sub-LLC made? Yeah, absolutely. Am I able to drill down into
those expenses if I need to? Absolutely, but it all
flows under one P and L, and one balance sheet,
makes life a lot easier, and a lot less expensive. Other fun questions. When we take money out
of a holding company, for use, for personal expenses, how do we handle that in bookkeeping? – [Troy] So let’s go to
that, is a holding company, or that holding company is an LLC, that would just be a distribution, which you’re allowed to take. So you would record that as a equity item, member’s draw, something like that. – [Toby] Makes life easy. – [Troy] Yep. – [Toby] Yeah, it’s easy. So, whenever you take a money out, and it’s like, again,
whenever I take money out of a holding company,
and it’s my holding company, that’s a safe, all I’m doing is saying did I take money out of the
safe, or did I put money in? That’s it. – [Troy] Yup. – [Toby] It’s not actually
something that implodes. So I had people actually
get worried about this, like they wouldn’t take money out, because they were concerned that somehow it would affect the veil
of the holding company. That’s not the case. The one area that you gotta
be a little careful of, is if your holding company is paying you a thousand dollars a week, every week, and you’re living off of that, and you just constantly doing that, and if somebody ever
really put their ears back and went after you, and then
you stop paying yourself the day that you got the judgment, they would say, hey, you’re
withholding the money for no other reason than… Me, I don’t know if they’d be successful, but they’d make that argument. That’s it, so I just tend to be sporadic. If I need it, I take it out. And then you’re just, it’s lowering the, that’s it, less cash, that’s it. It’s not gonna affect your profit at all. The only time it does affect your profit, is when you pay yourself as an employee, and you’re taking out payroll, which case, will lower
the tax flow amount, and it will make your tax flow to you. If you’re just doing a balance sheet item, cash out of the business to the owner, it’s literally zero tax implication, too. Is it legal to put personal
funds directly into our holding company,
and how do we document that at our bookkeeping? – [Troy] I think you
go to jail immediately, if you do that, right? – [Jeff] Do not pass go. – [Troy] No, you’re totally fine… A personal fund into your holding company. It’s kind of the reverse of
what we just talking about. You’re able to put your
money into your company. But it’s your money, so you can take it back later, if needed. – [Toby] Yup, absolutely, it’s your money, you put it in, and it’s just like a safe. You’re just saying
here, I put in the safe, then I took it out of the safe. We should be able to
tell what’s in the safe without opening it up, that’s all. What is the proper way to
account for expenditures you made to improve a warehouse building? Should expenses above a
certain amount be capitalized, versus expense? Does it depend on the
nature of the expense, like HVAC, flooring, lighting, etc.? – [Troy] So, I’m gonna have
Jeff jump in here with me. But, if it’s over 25 hundred dollars, it needs to be capitalized. – [Jeff] Correct. – [Troy] Meaning it’s an improvement. It needs to go on your balance sheet, you don’t immediately– – [Toby] I’m gonna complain with you guys. – [Jeff] Well, we’re going
also by it says “to improve”. – [Troy] Right. – [Toby] Well, okay, right. So you guys are doing the, yeah, right. So it always comes down to, if I making the building more valuable, or am I fixing a defect, right? – [Troy] Correct. – [Toby] So, is it a
repair, or is it betterment? – [Jeff] So a repair is really to restore to it’s previous use. You had a forklift driver,
drive through a wall or something like that,
that’s gonna be a repair. Even if it might be an expensive repair. – [Toby] And just so you guys understand, like I’ll use a roof as an example. If I had a hole in the roof, and, a repair I get to right
off, I get to deduct. The entire amount. If I improve the roof, let’s say I put a new roof
on of 10 thousand dollars, and I already depreciated the old roof, then I don’t get to write
off the 10 thousand. I spread it out over it’s useful life. Which, if it’s residential,
its 27 and a half years. – [Jeff] Well but, tax cut and job fact made a change to that. – [Toby] What did they make it, 15 years? – [Jeff] Made it 15
years along with the HVAC for tax years beginning after– – [Toby] I’m using it as–
– [Jeff] 1118. – [Toby] One’s improvement,
and one is a roof repairs, and immediately deductible. The improvement gets fun, because even if we have
to call it improvement, it’s still maybe something
we can right off. And so, I’ll give you three examples. Number one, if you spend
25 hundred dollars or less, you can immediately call that a repair, and they can’t rebut it. If anything that I do is
25 hundred dollars or less, I can immediately call that a repair. Option number two is, I
do something like a HVAC, and it qualifies under Section 1-7… And I can write it off immediately. Option number three is, I have an item that’s 20 years or less, and I choose to accelerate
the depreciation by using bonus depreciation under 168, and I write that off up to, in one year. All of the.. Don’t realize that they
have that many options. – [Jeff] And roof is a really good example of the improvement versus repairs, because the overage rules
used to be so ludicrous about how much you’re doing to the roof. Are you just tearing tiles off? Or are you replacing plywood,
and things of that nature? It was really kind of
crazy how they determine whether it was a repair,
or an improvement. – [Toby] Yup, and somebody says, are you writing off the
materials and the labor? Yup. – [Jeff] Yup. – [Toby] The answer’s
yes, you’re doing both. And yeah, somebody’s saying, oh, there’s a whole bunch of stuff out here. I’m just trying to seeing, what is, I’m not gonna answer some of these. (laughing) No, like there’s some good questions, but they’re all… so I’m gonna answer the ones
that are relevant to this, and then we’ll go back
and answer them, right? I am trying very hard to
build a stock and stock.. Just to retire. I would love to learn and master
the bookkeeping accounting because I’m having a hard
time finding the right answers for creating a trade log, where I keep track of
my buy/sell, crediting, premium received, debiting expenses. Everything taken out of
the account, for example, knowing the balance, what’s available if I leverage the account. And this is the person who
likes to sell naked puts. How are the taxes calculated? You wanna jump on this? – [Jeff] I’m going to go to
the bookkeeping side first. Because I kind of feel
like your best sources of information is coming
from your brokerage accounts. – [Toby] They actually report
most of this stuff now, guys. It used to be they didn’t. – [Jeff] No, they really
forced the brokerage companies to report many things– – [Toby] They want you
to even report your basis in an option. – [Jeff] Correct. – [Toby] What was that three years ago? – [Jeff] They weren’t
reporting options at all. Not that long ago. – [Troy] So we do need to do bookkeeping for your ordinary expenses, but the actual trading side of it, should be taken care of with your monthly statements. – [Toby] Somebody says we
use trade log software. There’s other, there’s trade, there’s a bunch of different ones. – [Jeff] No, I think where
this becomes important that you keep track of this, is that you’re one of those people decide that you are a trader, doing substantial and continuous trading, and you’re making that
mark a market, election. You’re bookkeeping suddenly
becomes a lot more complicated. Somebody just said that
they use MyTradingDiary.com, it’s about $129, imports
from your trading platform. Here’s the deal, if you
are trading in stocks and securities, it’s
gonna be passive income. Even if you’re doing it short-term. It’s still passive. In other words, it’s not
subject to self-employment tax. The problem that we have, is that whenever you have an activity, that’s investment
activity, portfolio income, whatever you wanna call it, you’re not sweating your brow to make it. It’s selling securities. And you’re not doing it for a third party. Then… Look at that and class
it investment activity, and you don’t get to write
off things like seminars, or travel, expenses, ordinary expenses, like meals and things like that. You do not get to write it off against it. To make insult to injury worse, you can’t write off even management fees, for somebody managing
your portfolio anymore. They did away with miscellaneous
itemized deductions. – [Jeff] And we’re talking broker fees, not what you’re paying to
your management company. – [Toby] We’re talking about everything. – [Jeff] Right. – [Toby] So, you can have somebody that you’re paying, that’s
basically getting an over-ride… They’re managing your account at 1%, and they’re making a
hundred thousand dollars, you can’t write it off. There’s one way to do it, and that is, it has to be a
guaranteed payment to partner, and you have to have a partnership. So generally speaking,
we’re gonna have you setup, either as a limited partnership, or as LLC taxed the partnership, with a corporation as a member,
or as a general partner. And you’re gonna have to pay
them a guaranteed payment, or they’re gonna have to
have enough of an interest to where they’re covering the expenses, and they have enough
income coming to them, to reimburse themselves. That’s basically it. I know a lot of you guys say, hey, I’m a trader, I’m a trader. The courts are literally
littered with people trying to become traders. There is no code provision on it. There’s no hard and fast rule. Nobody can cite me one. There are cases with people
making 15 million dollars a year that they said was passive. You have people who did
hundreds of trades a year, five hundred trades, six hundred trades, but they didn’t trade all year. They vacationed for two or three months, and they said, wasn’t
regular or continuous enough. As a matter of course, I would say at a minimum, round trip is
probably seven hundred trades. And even then, I just wouldn’t… Self on it, because
you’re taking schedules, see expenses, against schedule D, income, and it’s just basically
sticking your nose out and making sure that you get harassed by the Internal Revenue Service, as opposed to a partnership
has a audit rate of .02%, less than like, it’s a
fractional percent, just do that. – [Jeff] And I believe the
way the audit technique guide reads for this says, “Is
the investor or the trader “looking to make a profit
on the daily changes?” – [Toby] And literally,
like, it’s a court rule. And then the took the court rule and put it in a publication. – [Jeff] Because you can be a trader. You can be a legitimate trader, but that does not make all
your investments, trades. Some of them are still… Investments. – [Toby] Definitely pay it. So for example, if you
are a sole proprietor, and you make a hundred
thousand dollars a year. I know your audit rate is 2.4%, and you’re gonna lose 94% of the time. On the same token, if
you’re a partnership, and you make a hundred
thousand dollars a year, your audit rate is .02%, that’s right, you have a 12 hundred more
likely to being audited, as that sole proprietor, which what you’d be as a trader, and your success rate, I
mean, it’s not even close, it’s you’re still like,
they win about 60%, 60s, but it’s not even close. I just don’t want you
guys getting audited. So I go to where they don’t audit, and we just don’t see audits. If you wanna be audited as a partnership, there are ways to make
sure you get audited, and those are the guys
that make up the .02. Or as an S-corp, which also
shares the same audit rate, that .02, just don’t pay a salary, and pay out lots of distributions. Those are the people, it’s
like, we just don’t see it. Jeff used to see the audits, do we even have… Last year? – [Jeff] No. – [Toby] We didn’t even have a dozen, with five thousand returns. So just start doing the math. It’s almost never. – [Jeff] A couple more
questions on this slide. Using the leverage accounts collateral. If you have a margin
account, the interest is, gonna be deductible. – [Toby] Always, against
the income that’s generated. – [Jeff] Right. And the other thing, how is it going, how are taxes calculated? – [Toby] You know when
it’s not deductible? When you lose your
butt, and that’s the guy that made the 15 mil, and he had, he had 15 million dollars in transactions, and he had interest,
and he bought on margin, and he had loses, and
they would not allow it to take the loses
against his other income. – [Jeff] How are the taxes calculated? Well if you are trading, and nudist puts. – [Troy] Nudist puts, I like that. – [Jeff] There almost always gonna be short-term capital gains. – [Toby] It’s when the option
expires, or is liquidated. – [Jeff] Correct. Unless you’re investing
in something like links, they’re almost always gonna be short-term. – [Toby] So if somebody
says what deductions can you get, at LLC as a partnership? It’s not the partnership
that’s taking the expense. It’s the corporation
that’s a general partner. – [Jeff] Right. – [Toby] And what you’re doing is, you’re paying it a guaranteed payment, which comes off the top. So then anything you.. Corporation as a guaranteed payment, and the corporation is
a management company, and it writes off any expenses it incurs basically trading that partnership asset. Works like a charm guys, I’ve been doing it for 22, 23 years. – [Jeff] I have a question for you, Toby. So I have this corporation
who is the general partner, we’re paying them, they’re managing the trading partnership. If they were incurring a management fee, an advisor fee– – [Toby] Could they run it
through the corporation? – [Jeff] Could they bill that
directly to the corporation? – [Toby] Absolutely. If I’m gonna charge them an advisor fee, I’m gonna say the corporation’s
responsible for it. I’d probably do like a
20/80 split, and have the.. 20% of the income flowing
to the corporation, you have to make sure to absence the item. And you say, all right,
the corporation’s gonna incur all of the expenses. And the partnership is gonna
pay it, X number of dollars, and it’s gonna be entitled
to 20% of the profit. And that would just make… Enough there, so that
the corporation’s getting fed enough to cover it’s expenses. If you get more, a
guaranteed payment means regardless, whether
it’s profitable or not. So I like to have a larger number, so I’d probably say, hey,
I’m gonna pay the corporation a reasonable amount, maybe
50 thousand dollars a year, and I don’t think I have to worry about covering all the expenses any more. It comes off the top, so I
wouldn’t have to pay tax on it. Again, we’re trying to do the least, the path of least resistance,
something that works, we’ve won every audit
that every came up on it, although there’s very few, but when they do come up, it’s pretty easy to attract, because you have a
statute in a state saying, general partner or the manager is into reasonable compensation. It’s hard for the IRS to
say, hey, that’s not fair. When the statute says you’re entitled to
reasonable compensation. What are the best accounts
in the chart of accounts you recommend to set up in Quickbooks to make the end of the tax filing easiest to transfer expenses to
an IRS tax write off? I don’t really understand
what the question is. – [Troy] I think they just wanna know what the chart of
accounts should look like. We do have some sample chart of accounts on the platinum portal, for all you platinum members out there. And the bookkeeping department does also do chart of accounts setup to kind of customize to your business. That’s it, it’s the most
important part of Quickbooks, is getting it set up the right way. That’s the most important
piece to all of this. – [Toby] Depending on
the type of business, so if you’re a real estate business, then go to the platinum portal, and look at what a
typical chart of account will look like for real estate business. It’s actually pretty small. – [Troy] Yeah… Not very– – [Toby] No, here’s the expenses. The other thing you do,
is look at tax forms. Look what they’re asking for, and you’ll be able to get
some pretty broad categories. And you may have, you
know, sub-categories. Like meals, you may have 50% deductible, 100% deductible, but it
all goes under meals. At the end of the day,
that’s what you’re doing. It’s you’re just trying to
keep it as simple as possible. You don’t say, meals with
Toby, meals with Jeff, meals with Troy, you have meals. – [Jeff] Now let me bring
up a pet peeve from my past with dealing with clients who are doing their own bookkeeping. Clients that, this month
they’ll put the expense in this account, and
next month, same expense, and they’ll put it somewhere else. – [Toby] That’s because there’s too many chart of accounts. – [Jeff] Right, so yeah,
even if you’re putting them all in the wrong accounts to start. Do you agree with that? – [Troy] 100%, consistency is key. Yeah, it’s really easy
to do a journal entry to move it from one account to another. What you don’t wanna have to do, is go through every single
general ledger account to see, you know, oh, this
needs to get moved here. – [Toby] This is why we recommend that people use spreadsheets. I don’t want you to mess it up. Where it’s gonna say,
here’s where we always classify these at, this is always what we classify these at. If you have to decide
what account it goes into, depending on how many you have, because we again, we have clients that have Christmas trees,
and they always tell me, look at my chart of accounts, it’s three, like look at this beautiful thing. I’m like, I wouldn’t even
know where to put stuff. Sorry, you have a lot of categories. I got income from this, I
have this one, I have… Come from this category, I
have income from over here, and I’m just like, it’s all income, you’re killing me, you’re
killing me, smoltz. – [Jeff] You have more accounts than MGM. (chuckles) – [Toby] Oh yeah, there’s a million, yeah. Hey, I’m currently a wholesaler, which means that you’re helping
other people find properties I’m not sure how to input
my income in Quickbooks. I feel like I set it up incorrectly. – [Troy] Now we’re going
back to the last question. Getting it setup correctly is the most important part of Quickbooks. It kind of takes care of itself once you get it setup the right way. We can help with that. Like I said, we do chart of account setup. We can also do reviews, quarterly reviews, we can do a Q and A session after the chart of account setup. So definitely something, use
us, we know what we’re doing. – [Toby] Somebody has a good question. My minor children own their own IRAs, which is possible, if
you have a custodian. Can I have a self-directed IRA? That’s gonna depend on the custodian. I believe they have to be over 18. So you may have to help them. After that, can use that account to open up partnership entity? You don’t need to. You would… Use the trading directly,
and not worry about expenses. You’d want to have a separate account. So they’re making it an IRA, they’re not paying tax anyway. So there’s no reason to even pretend like you’re taking expenses. Let’s see what else we have. Can a disregarded LLC write
off rental car charges incurred while conducting
business for that LLC? You guys wanna get that? – [Troy] Oh sure, as long
as it’s for a business use. The rental car, you can
absolutely deduct it. The only thing that I could think of that might be an issue,
is this disregarded LLC is like holding a house,
or something like that, that’s not business use? – [Toby] The idea I
look at, so we say this, just about every time we do a Tax Tuesday, LLCs are not… Tax designation. So, if it’s disregarded,
then we care about who that, that owner’s tax return. So for example, if I have
a LLC that’s disregarded to a corporation, yeah,
the rental car charges are going on the corporation. Just going right onto those books. Like we literally ignore the LLC. If it’s a disregarded entity,
going up to a holding company, then we have to take a
look at any more type of business is it, do we wanna
write off the rental charges in an LLC that holds real estate? Or would it be better to have
that in a management entity? I’m gonna say the management entity. So, why you could do it,
I probably wouldn’t do it. I’d be reimbursing the LLC, saying hey, I’ll take that
expense, thank you very much. I am the manager, I will
handle all the expenses, and you’re acting on my behalf, when you’re driving
around in a rental car. So yes, he can write it off, but obviously, if you
guys are not catching on, these things, it depends quite a bit on how you set it up, and that, somebody says, there was another one. There’s a few good ones. Ah, see, about, somebody says, I went to the platinum portal and asked about a guaranteed payment, they sent me a template
for a management agreement. Is this the same thing? Yes, ’cause the management
agreement has a set amount that they’re gonna, they
can just write it in. You can make sure you have agreement. There’s a few other questions,
that oh, keep holding. Here we go. How does a business owner
reduce the bookkeeper’s hourly rate of time in your books, and improve on reporting? Troy, before you go over this, I could just tell you from my experience. Bookkeepers tend to be able to do about, I would say about three
transactions an hour, or thereabouts, like I’m looking, there were 20 transactions, excuse me, about every three minutes
you can enter a transaction. And Jeff is going, what are
you typing with one hand? No, excuse me, it’s, it is in three minutes per transaction is about right for somebody. So if you have a lot of transactions, then you have to decide do I
need them all individually, or should I summarize them? And instead of my bookkeeper entering in one hundred transactions, can
I give them the total sales and just have them enter one transaction, knowing that I have the data to back it up in another system? And that is probably the one thing that is the biggest time saver, is realizing when you want your bookkeeper to enter something, and whether you want, and when you want, just
give them a summary. And then I was like, you
guys answer it from a– – [Jeff] And I’m gonna jump in on this, because you make a good point. This pertains not only to
bookkeeping, but to tax. The clearer your information
is that you’re providing and the more that you
summarize it yourself, the less it’s gonna cost
you for your bookkeeping, I’m assuming then tax returns also. – [Troy] Yup, that’s exactly right, Jeff. As long as we know what
the transaction is, if it’s summarized, and
we have the information, that’s kind of a pet peeve of ours, not getting the information
until way later, it’s hard for us to stay on top of it. – [Toby] Somebody says,
how many transactions per minute does a bookkeeper typical take? I got, I think it’s about one transaction every three minutes. So it’s 20 a hour. If you have a HUD, it takes
about an hour per HUD. Is that about right? – [Troy] Yep. – [Toby] So, you know, she can use some, you can use some rules of thumb. It doesn’t mean that
you always should say, hey, I’m not gonna have a bookkeeper, it just means that the more summary you can
give ’em, the better. And the more you guys, oops, and the more you guys can be
on the same page, the better. So if they know, if you
know what they need, and they know what you’re doing, then you guys can agree to a methodology to communicate that
information over to ’em. Somebody says, if you
have a summary total, that is more difficult
to reconcile against the bank statements, the
bank statements are itemized. Correct, Frank, but you
don’t necessarily need to enter in to every transaction. You may go through and reconcile, looking at your account, or giving somebody a bank statement, saying, hey, can you
reconcile these transactions? Is that a fair assessment? – [Jeff] Yes, and that also goes back to what Troy was talking about earlier. That many of these credit
cards and bank accounts, you can import into, like Quickbooks. So they’re not entering
every transaction in. – [Toby] Right, now the
bookkeeper is literally just going through the transactions, verifying against the sum. And if you don’t have somebody
reconciling your books, that’s how you get ripped off, by the way. Is don’t, have somebody
independent reconciling your books. Just about every time I see somebody who takes a big loss from employee theft, it’s because somebody’s
putting the snow over, putting the wool over their eyes, and leaking it out, and
then they don’t realize that the accounts been drawn down. Let’s see. How does a business owner insure
documentation of receipts? – [Troy] So, like Toby was saying earlier, you wanna use a debit card, a credit card, something like that. So, it’s recorded on the bank statement, credit card statement. That helps out a lot. What a bookkeeper doesn’t want is a box of receipts to enter. So the only time we’re ever
gonna ask for a receipt, is if you paid cash for it. And who uses cash now-a-days, right? So, if you do wanna keep
copies of your receipts, not saying you shouldn’t, I would do it digitally. I wouldn’t keep it all as paper receipts. I would upload them to a computer, make ’em PDFs, put it drop
box or something like that. – [Jeff] And another good
reason for doing that, is if you’ve every noticed,
some of these receipts, they badly, quickly. – [Toby] Just take a snapshot, most now-a-days, they
just have a thing that links to your phone, trade
buttons, and these others. Or just use the old, I
took a picture of it, and I told my accountant what it was, and it’s still sitting in my cloud if I ever need backup, which
hopefully I’ll never need. Somebody said, hey using the 288 kit. And they’re paying themselves
for the corporation using their house, and they said, is this a reimbursement? No, Julius, it’s not a reimbursement, you’re actually being paid for it, but it is non-reported, income, so long as you don’t rent your house more than 14 days a year, so it’s actually 14 days
or less, or less than 15. If you look at the code, so as long as it’s 14 days or less, you just don’t have to report it. So, if it was to be
reported, it would be income. But it’s excluded from income, just as reimbursements
from a company to you are excluded as well. There’s exclusions to when
you have to show income, and that’s one of the good ones. All right, how does a business owner insure the bookkeeper’s understanding of the big picture of the company? – [Troy] So, during
their on-boarding policy, we should be going through every single entity that you have. And seeing what that entity does, how it’s taxed, and making
sure that we understand what’s going on, what you’re doing with each one of those entities. That should be happening
with every onboarding call. – [Toby] And the big picture just means, you’re spending time. So it, here’s with it, if
you have a larger company, if you’re going over five million, for example, you need
an in-house bookkeeper. Unless it’s like two transactions. Like again, it’s accommodation
of not just the income, but the complexity and the
number of transactions. If you have a lot of transactions, you probably wanna have
an in-house bookkeeper and they need to understand your business. Otherwise, you’re gonna
find journal entries, and this is like, I have a pet
peeve against show entries. That’s where they put
things that they don’t know where to put, and so they
make these journal entries, and you end up with messes, because it’s usually six months after they started doing the journal entry that they look back, and now
they’re going back in time, trying to remember something. If they don’t know it, you
need to be able to get to it very quickly and make
sure that they understand what it is that you’re doing. Otherwise, you’re gonna have a mess. And messes are usually expensive
for the business owner. – [Troy] So even if you do
have an in-house bookkeeper, I recommend getting them
reviewed by a professional, maybe once a quarter. – [Toby] Absolutely.
– [Troy] Twice a year. – [Toby] You wanna have
an other set of eyes. – [Troy] Yep. – [Toby] So, and by the
way, we won’t do your books if you get over a certain size, it just doesn’t make sense, we’re gonna ask you to have somebody, and then we’ll still look at them, and again, the reason you’re doing it, is, and there’s so many. But the big ones are, you wanna make sure that you don’t get too far off base. If you start going off-track, it’s usually because there’s
an assumption being made by somebody, and hopefully we can call it and bring it back in. And the other thing is, where a lot of people get ripped off, is because somebody who, you
never let the bean counter have control of the checkbook. And what will happen is, a bookkeeper, it’s really tempting to
let them write checks, and they have control of the account, and they’re reconciling everything, and so while they’re
writing checks to their Uncle Sue, or you know, what did I say, a boy named Sue? To Uncle Ned’s, you know, pretend company, and then they’re documenting it, and they’re calling it an expense, and then the next thing you know, two years has gone by,
and half a million dollars is missing, and then you finally realize something’s amiss, and it’s usually when a check is bouncing, and then they, and then by the time you go back in, you’re like holy smoly, I
can’t even tell what happened. And you actually have to go
get copies of the checks. And the only reason I say that, is that I’ve done that dozens and dozens of times with businesses. I’ve not run across a business yet where they handed the
keys to somebody else, that that did not happen. You gotta have another
set of eyes looking at it, and reconciling things. – [Jeff] And I think it’s also important that you as the owner, if
you do have a bookkeeper, you don’t need to know
how to use Quickbooks, but you do need to learn how
to read those financials. You need to be able to
go into your bookkeeper, and say hey, print me out
a monthly balance sheet, and a P and L, and just
be able to look at them, and say, oh, something
don’t make sense here, or we’re doing really well. – [Toby] You can usually
tell, that’s the thing. Most people can usually tell. And what they should be expecting. So if I know that my profit should be a hundred thousand dollars, and my bookkeeper walks up and hands me, in three months in, 20
thousand dollars of losses, I’m looking at ’em, going
what’s going on here? It’s usually a mis-characterization, mis-classification issue. ‘Cause you’re like, hey, I’m profitable. Why am I looking? And if you’re not profitable
and you think you should be, something’s horribly wrong, and you wanna make sure
that you’re taking action. All right, how does the
bookkeeper, tax preparer, and CPA work together to help reduce
taxes for the business owner? – [Jeff] We don’t even talk to each other. – [Troy] No, I don’t, were you? (chuckles) In reality, we’re working
with your bookkeeper and your tax preparer, we’re
working together quite a bit. When your books are completed, if your tax preparer has any questions, they’ll come down, bookkeeper, and we’ll go through the books, go through the general ledger, make sure everything’s simpatico. Your bookkeeper can do some kind of basic, very basic tax planning. Your tax preparer and CPA will
be the more high-end stuff. – [Toby] Your bookkeeper
is giving them the tools of like, here’s the picture. If you don’t have good numbers, it’s really tough to do tax planning. The preparer is usually just
preparing what the books say. Like if I had a good set of books, a corporate return is less than an hour. It’s really easy to prepare. It all comes down to
having a good set of books. And that CPA is gonna know,
okay, here’s our options for classification, do we wanna
accelerate certain things, or certain things even
eligible for, you know, again, I kind of mentioned it before. You could have a safe harbor, you could have a 179, you could
have a bonus depreciation, you could treat it at five or seven year, depending how it’s classified. That CPA should be able to say, here’s your options. Option number one, you know, do I wanna create a big loss? No, it doesn’t do me any good. All right, option number two, is we’re getting closer to break even, and we’re gonna have a consistent
break even for many years. Maybe I do that, or
maybe I take a huge loss and carry it over for the next five years. And you’re able to say,
hey, that’s gonna be, this is how that’s gonna
impact my tax situation. I met people who had met with, you know, they had their accountant, they had a big ‘ole fat loss carry board, they don’t even remember when they had it, and then they run out, and they been using it for so long, that they get to the idea that they don’t have to pay income tax on any of their income. Now, like for example, their stock income, when we had people doing that. And then when all a sudden, they are. Sometimes it catches them by surprise. So used to, hey I’m making
a hundred off of this, but I don’t have to pay any tax on it. You gotta be meeting with
the accountant to say hey, what’s our projection for next year? – [Jeff] In kind a way, this marks, as you may have a bookkeeper
who’s doing their books, and doing a little planning, but their work is also gonna
be reviewed by a supervisor. – [Toby] Correct. – [Jeff] Who may have further suggestions as go to go to tax preparer who will make, may make adjustments or have other ideas, or additional ideas, I should say. And they also have a supervisor, who’s also reviewing that return. So, a lot of eyes, get look at your books, from the time you start till the time you get your tax return. – [Toby] Somebody says, hey our losses, will able to use for five years? No. Right, I was just using
that as an example. I just gave somebody a heart attack. Yeah, you can carry them
forward indefinitely. Yeah, I was going forever,
so yeah, don’t worry. I think I just gave, put,
I’m not gonna mention. I think I just gave
somebody a heart attack. Does a business owner need to work with their business accounting
person on a monthly basis? It depends on their level of complexity, and what type of business, but, for the most part, if you’re an investor, I would say on a
quarterly basis, check in. – [Jeff] Yeah, ’cause your
bookkeeper can point out things, that you’re selling this
product for this much, but you’re costing your
product, is this much. So you’re not even making
the money out of the gate. – [Troy] That will be sight, so you need to look at your
financials once a month. – [Toby] Yep, look at
yours, get a good idea, but as far as talking with
your accounting person, I’d say quarterly. Really looking at doing tax
planning on a quarterly basis. And if you’re doing, if
it’s just not yielding a positive result, for
you, like it’s not making a difference, then you can scale it back, but I would say, all right,
especially in the first year, you wanna know, you don’t
wanna get blind sighted with either a tax liability
or big losses on the table. Here’s a fun one. Somebody says, well this is a weird one. Someone has asked a question online, I filed my 2015 tax return in 2016. Is it too late to amend? It would be two years
from the date of filing. – [Jeff] That ship has sailed. – [Toby] Yeah, that ship, I’m sorry. I have a ranching business organized as an LLC as an S-corp. I just bought a new truck
in the name of the business. I use it primarily for business use. Let me, let me get real Quickbooks, guys. First up, if you have personal
use of a business vehicle, when the IRS has a, they
give you a scale every year, depending on the value of that asset, as to what needs to be
included for your income. So if I have a truck that’s
the business’s truck, and I’m using it 90% personal, then the IRS publishes the lease value that I include in my income, and that truck, let’s say, it’s
a 40 thousand dollar truck, then I’m gonna go to that, and I’m gonna include
90% of that as income. It doesn’t kill your veil
or anything like that, it just means I have to pay, like, I’m using somebody else’s vehicle. So if I go rent a car from Avis, I’m using their vehicle,
I’m agreeing to a price. If the business doesn’t charge you, because you are, you own the business, it still has to be added. Similarly, we are currently
building a garage shop that will be used partially
for business storage, and partially for personal use. Does paying for the items, should have mix use with your business? Or does paying for it with the business jeopardize your corporate veil? – [Jeff] My feeling is on this, that I would rather have
the, especially the garage, and the truck owned by
one person, one entity, and is renting it out to, the people who are using it. Or the entities that are using it. (upbeat music)

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