Tax & Legal Day 1. Mark Kohler. Rev 08/01/ Renatus, LLC. All rights reserved

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2 DISCLAIMER You have selected this class in the Renatus class offerings using tuition hours or otherwise redeeming your opportunity to attend the classroom instruction. This product publication is a supplement to the classroom instruction and information on this particular topic. It does not include all of the information that will be presented by the instructor. By accepting this textbook, you agree that you will not create, formulate, or contribute to any informational product based on the information contained in this product, and/or on our website and/or from s created by us. Our materials, systems, and techniques cannot be added to or used in any courses, articles, e-zines, printed books, e-books, or any other format now or existing in the future, whether the work is for a charge or for free. The purpose of this product and or related materials is to educate. The author(s) and/or Renatus, LLC. shall have neither liability nor responsibility to any person or entity with respect to any loss or damage caused, or alleged to be caused, directly or indirectly, by the information contained in this product. Every effort has been made to make this product and or related materials as complete and accurate as possible. Nevertheless, there may be mistakes both typographical and in content. Therefore, this product should be used as a general guide and not as a sole or complete authority. The examples presented in this product and or related materials have been chosen solely to demonstrate given points. You should conduct a thorough investigation of their applicability to your individual circumstances. Without personal knowledge of your specific personal, professional or financial background, it is impossible to offer appropriate advice specific to you as an individual. 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3 NOTICE TO ALL RENATUS STUDENTS AND INSTRUCTORS Renatus (hereinafter RENATUS ) is committed to providing only the highest level of real estate investment education by following sound pragmatic, ethical, and legal principles. Due to the complexity of real estate investing, RENATUS emphatically demands that all Instructors strictly adhere to the curriculum which has been created, reviewed, and approved by RENATUS s legal counsel. No extraneous verbal or written materials may be presented to RENATUS students. The following issues should be carefully noted: 1. RENATUS curriculum is not intended as legal advice for any individual or particular transaction. Instructors are not authorized to practice law during course instruction. Nothing said during course instruction or contained in written materials should be relied upon or construed as legal advice. Students are expressly advised to seek the assistance of a competent legal professional as students engage in actual transactions. 2. RENATUS will not teach and does not condone any real estate investment technique or strategy which requires the use of fraud, deceit, false statement, misrepresentation, concealment, conspiracy, breach of contract, tortious act, or violation of local, state, or federal common law, statutory law, or regulatory law. 3. Any real estate investment strategy wherein all or any part of the property or any interest in the property is sold or transferred will likely trigger a clause (found in most mortgages) commonly known as the due on sale clause. This clause does not prohibit the transfer or sale of an interest in property, but rather gives the mortgagee the option to call the note due and payable in full after a 30-day notice. RENATUS will not teach and does not condone any technique or strategy to conceal the triggering of any due on sale clause and encourages transparency and full disclosure of all material facts or information to all parties whenever required by regulation, law, or contract. By participating as a RENATUS Instructor or RENATUS student, said Instructor and/or student hereby acknowledges that he/she has read and understands the foregoing, and hereby agrees to follow the same. Renatus 3

4 Slide 1 Welcome to Tax and Legal DAY 1 with Mark J. Kohler CPA, Lawyer, Best Selling Author, Radio Show Host, Blogger- SCRATCH THAT: Scout Master Renatus 4

5 Slide 2 Mark J. Kohler, JD, CPA, PC Free 15min Interview Thursdays, 4pmPST/ 7pmEST LIVE on BizTalkRadio.com Podcast on itunes Renatus 5

6 Slide 3 This Presentation does not constitute an attorney or CPA-client relationship and it is also in your best interest to consult competent legal and tax professionals when conducting actual transactions. Renatus 6

7 Slide 4 Weekly Newsletter with - Critical Deadlines - Tips - 2 Min Video Tips - Radio Show Topic Text the Word TAX to FREE E-BOOK Renatus 7

8 Slide 5 Help you save taxes Give you more strategies to build wealth Assist in building the support structure for you to better achieve the American Dream Present concepts in Asset Protection to protect your wealth Make this the most informative and beneficial tax and legal class you have ever attended!! and.help you save more taxes. Renatus 8

9 Slide 6 Section 1- Small Business Basics and the Hot Write-offs in 2015 UPDATE!! Section 2- Choice of Entity and Options Section 3- Rental Real Estate and Advance Sale of Property Tax Strategies Section 4- Asset Protection from Business Operations and for our Assets Renatus 9

10 Slide 7 Section 5-Paying Family Members and Funding Retirement Plans Section 6-Health Care Tax and Cost Saving Strategies Section 7- Identity Theft Protection Section 8- Estate Planning and Bringing it all Together Renatus 10

11 Slide 8 Small Business Basics and the HOT Write-Offs in 2015 UPDATE!! Renatus 11

12 Slide 9 TAX GOLDEN RULES Utilized a comprehensive approach The IRS treats different types of transactions and income VERY differently Beware of one-size fits all approaches Align your risk tolerance and the proper tax professional Continue to learn of new tax strategies Renatus 12

13 Slide 10 #1 TAX STRATEGY Starting a Small Business!! Renatus 13

14 Slide 11 Track Your Start-Up Costs First 5k IMMEDIATELY deductible the rest Amortized over 15yr Must have income to show start up Multiple businesses can have separate start-up costs Spread education amongst various start-up businesses Renatus 14

15 Slide 12 Medical Insurance Sub-contractors Employees Family employees Annual meetings/retreats Capital expenses Equipment and furniture Business development Business travel Business board meetings Educational related to job Legal and accounting fees Qualified pension plans Potential Deductions Meals and entertainment Compensation and salaries Office rents-comm. lease Office utilities-comm. lease Office supplies Business gifts Automobile Insurance Property/casualty insurance Advertising and marketing Depreciation of capital assets Taxes-property, payroll taxes Repairs and maintenance Interest on loans Parking fees Postage and shipping Telephones/cell Banking fees Consulting fees Seminars/trade shows Office Expenses Research/Experimentation Professional dues Public service organ. dues Casualty and theft losses Employee discounts at cost Good Records are Critical!!! Not every tax deduction is a viable possibility for every business owner and must be carefully considered and substantiated before being deducted on a tax return. Renatus 15

Slide 13 Dining Receipts Per Diems Type 1 General Dining - With Someone Else - Talking Business - Food, Tips, Drinks, etc Limited by 50% Type 2 General Dining - By Yourself -

16 Slide 13 Dining Receipts Per Diems Type 1 General Dining - With Someone Else - Talking Business - Food, Tips, Drinks, etc Limited by 50% Type 2 General Dining - By Yourself - While Traveling - Food, Tips, Drinks, etc Limited by 50% Type 3 Event Dining - At Work for employees - At Event location NOT restaurant - Food, Tips, Drinks, etc 100% Renatus 16

17 Slide 14 Entertainment Limited by 50% Talking business Hobbies Toys Keep good records Renatus 17

18 Slide 15 Electronics ipads Phones Internet Office Equipment, etc Renatus 18

19 Slide 16 Travel 1. Meet a Vendor 2. Meet a Client 3. Corporate Meeting 4. Visit a Rental 5. Attend a Workshop Cruises- Watch out!! Hotel, air, valet, tips, rental car, rental car gas, tolls, taxis, limos, ferry s, subways, horse and carriage. 100%!!! Deductible Renatus 19

20 Slide 17 Home Office Traditional Method Expenses attributable to the portion of the home or separate structure (a) Exclusive, and (b) Principal Place of Business Simplified Option - $5.00 per square foot (max 300 feet- $1,500 deduction) No depreciation or recapture Renatus 20

21 Slide 18 Automobile Auto Mileage versus Actual *Always keep mileage records if there is personal use Mileage Business cents Medical/Moving cents Charitable cents Personal and Commuting Non- Deductible Actual Next Slide - Don t Forget Business % of Interest on Auto Loan Renatus 21

22 Slide 19 Actual Own -Fuel, repairs, maintenance, auto loan interest, etc.. - Fuel Lease - (Repairs and Maint?) AUTO Depreciation Limits $3,160 NO Bonus in 2015 SUV/TRUCK >6,000 lbs Depreciation Expense $25,000 NEW or USED BIG TRUCK >6,000 lbs +6ft bed Depreciation Expense $25,000 (used to be $500,000) - % of Lease Payments - Small lease add back schedule - Mileage limits & residual value? BONUS only for New Cars NEW or USED - Amortize down payment Renatus 22

Fuel $ 1,500 Insurance, maintenance, etc.

23 Slide 20 SUV or truck with less than 6ft bed Example $25,000 Section 179 Deduction $ 3,060 Standard Depreciation $ 6,000 Fuel $ 1,500 Insurance, maintenance, etc.. $ 3,000 Interest $38,560 Total Deduction Mark J. Kohler, JD, CPA, PC Renatus 23

Slide 21 Nissan Leaf Tesla Model S $27,069 Chevy Volt $72,240 $27,495 - Federal Tax Credit of up to $7,500 - State Tax Credits can be as high as $5,000 Lets assume you drive 15,000 miles: Gas costs

24 Slide 21 Nissan Leaf Tesla Model S $27,069 Chevy Volt $72,240 $27,495 - Federal Tax Credit of up to $7,500 - State Tax Credits can be as high as $5,000 Lets assume you drive 15,000 miles: Gas costs an average of $3.20, Electric Costs are estimated at 75 cents per gallon of gas (Scientific American). Thus, you are saving approximately $2.45 per gallon. At 36 miles to the gallon, driving 15,000 miles you also save $1,020 in gas. With the mileage deduction (assuming 90% business use) that is a $6,750 deduction, in a 30% tax bracket (combined) you save $2,025 in taxes You essentially save upwards of $15,545 Renatus 24

25 Slide 22 BREAK Mark J. Kohler, JD, CPA, PC Renatus 25

26 Slide 23 Choice of Entity and Options Renatus 26

27 Slide 24 Choice based on Various Factors Type of income being created Tax planning Asset protection needs Where you are doing business Partnership considerations Administrative issues Renatus 27

28 Slide 25 Primary Objectives Setup the Correct Entity At the Right Time In the Proper Place Renatus 28

29 Slide 26 Sales & Operations Rentals SOLE PROPRIETORSHIP Schedule C Self-Employment Tax 15.3% Schedule E NO Self-Employment Tax Renatus 29

30 Slide 27 Sales & Operations Rentals C CORPORATION 1120 Tax Return Corporate Tax 15-35% THEN Personal Fed & State Renatus 30

31 Slide 28 Sales & Operations Rentals S CORPORATION 1120S Tax Return NO Corp Tax NO SE Tax NO ObamaCare W-2 Required Salary for participating Owners Renatus 31

32 Slide 29 Kohler Payroll Matrix (a starting point) 50% (20k) 1/3 to 2/3 Net-Income 33% (36k) 25% (96k) Payroll as a percentage of Net-Income 40k 100k 400k Renatus 32

33 Slide 30 S-Corporation Salary (Recent Case) David Watson - CPA - $203k Profit - $24k Salary (12% allocation) - IRS wanted $130k (64%) - Court awarded 91k (45%) 13 other cases lost by taxpayers last year - WHY: zero (0) payroll Renatus 33

34 Slide 31 Sales & Operations Rentals Rentals HOLDING COMPANY Single Member LLC Limited Liability Company (LLC) 100% Schedule E NO Self-Employment Tax Renatus 34

35 Slide 32 Sales & Operations Rentals MULTI-MEMBER HOLDING COMPANY Limited Liability Company (LLC) 1065 Tax Return FAMILY TRUST Renatus 35

36 Slide 33 Sales & Operations Rentals MULTI-MEMBER OPERATIONAL COMPANY Limited Liability Company (LLC) 1065 Tax Return S CORPORATION S CORPORATION Renatus 36

37 Slide 34 SINGLE MEMBER SPECIAL PURPOSE IRA/401k LLC HOLDING COMPANY Sales & Operations Limited Liability Company (LLC) 100% Self Directed Retirement Plan IRA/401k Rentals 1065 Tax Return Renatus 37

38 Slide 35 Sales & Operations Rentals MULTI-MEMBER SPECIAL PURPOSE IRA/401k LLC HOLDING COMPANY??% Self Directed Retirement Plan IRA/401k Limited Liability Company (LLC)??% Self Directed Retirement Plan IRA/401k??% 1065 Tax Return Mortgage Company Renatus 38

39 Slide 36 SERIES LLC XYZ Holdings, LLC Series Limited Liability Rentals #1 Rentals #2 Rentals #3 XYZ Holdings, LLC Sub Series #1 100% XYZ Holdings, LLC Sub Series #2 One(1) Tax Return Save on Administrative Fees FAMILY TRUST Renatus 39

40 Slide 37 Salary $$ Family Limited Partnerships General Partner XYZ Enterprises, Inc. (S-Corp) 1% 100% XYZ Investments, LP (Limited Partnership) Long Term Real Estate Projects 99% Vacation Home & Incoming Producing Assets Dividends $$ Charging Order Protection Capital Gain & Rental Income $$ Tax Losses Renatus 40

41 Slide 38 BREAK Mark J. Kohler, JD, CPA, PC Renatus 41

42 Slide 39 Rental Real Estate and Advance Tax Strategies for Selling Property Renatus 42

43 Slide 40 4 Benefits of Rental Property Appreciation Mortgage Reduction Tax Deductions Cash Flow Renatus 43

44 Slide 41 Passive Investors ANYONE Qualifies, but ONLY deductible against other PASSIVE INCOME Active Investors Just make decisions and you Qualify. However, losses are limited to 25k and phase out at 150 Adjusted Gross Income. Real Estate Professionals Two-part TEST: 1) 750 Hours a year DOING Real Estate, AND 2) Primary Occupation is Real Estate THEN.Must Materially participate under 1 of 7 tests. 3 Types of Real Estate Investors IF YOU QUALIFY ALL RENTAL LOSSES ARE DEDUCTIBLE!! Renatus 44

45 Slide 42 Properties Properties Sole Proprietorship NEWCO, INC (S-Corp) LLC (Limited Liability Company) LLC (Limited Liability Company) 100% 100% Passive Loss Carry Forwards Life Insurance Family Revocable Living Trust Investment Accounts Personal Home Renatus 45

46 Slide 43 To be or not to be.. Dealer/ Professional Benefit Deduct all losses in full Drawback SE Tax on ordinary income No 1031s unless NON Dealer/ Professional No SE Tax More flexibility with 1031s Losses against ordinary income capped at $25K Renatus 46

47 Slide 44 Sale of Property Strategies Capital Gain Rates (Watch out for Dealer Status) Sale of Home Exemption (primary residence) 1031 Exchange Installment Sale Charitable Remainder Trust Watch our for Dealer Status and Short-term Self-Employment Tax Renatus 47

48 Slide 45 Capital Gain Rates Capital Gain rates (12 month holding period): (1) 0% if taxable income falls in the 10% or 15% marginal brackets (2) 15% if taxable income falls in 25%, 28%, 33% or 35% brackets (3) 20% if taxable income falls in the 39.6% marginal bracket (4) 25% on Depreciation Recapture Net investment income tax (Obama Care) at a rate of 3.8% on the lower of net investment income or modified adjusted gross income over the following thresholds: Married Filing Jointly or Qualifying Widow(er): $250,000 Single or Head of Household: $200,000 Married Filing Separately: $125,000 TOTAL TAX COULD BE AS HIGH AS: 23.8% or 25% (recapture) + State Tax Renatus 48

49 Slide 46 Two Part Test: 1. Own 2 out of the previous 5 years 2. Occupy as your personal residence for the same 2 out of previous 5 years Exclude: 250k if your Single 500k if your Married Sale of Home Exemption * Beware of new rules when your home has been both a rental property and your primary residence. Renatus 49

50 Slide Exchange The Transaction Selling a property and buying another at Equal or Greater value Sell 1 and buy 3 OR Sell 3 and buy 1 (or more ) Taxpayer Replacement Property Exchange Property Qualified Intermediary Replacement Property Exchange $$ Seller Buyer Renatus 50

51 Slide 48 Selling a property OVER TIME and receiving PAYMENTS. Spreading out the Gain Dealers don t qualify (no rehabs no contractors ) Actually required if you are receiving payments over time UNLESS you elect out Does not apply if you have a loss Installment Sales In every year there the $$ received it is broken down into the following sections: Return of Basis portion Capital Gain portion Interest on Note Renatus 51

52 Slide 49 The Charitable Remainder Trust The White Board Renatus 52

53 Slide 50 Creative Approach 50 Acre Property Sale of Home Exemption 250k or up to 500k Home $$ Land and Buildings 1031 Exchange Trade for rental properties DEFER THE TAX Land Boot or Cash Outright or Installment Sale with Note Charitable Remainder Trust Asset Protected, Stream of Income NO TAX Mark J. Kohler, JD, CPA, PC Renatus 53

54 Slide 51 BREAK Mark J. Kohler, JD, CPA, PC Renatus 54

55 Slide 52 Asset Protection from our Business Operations and for Our Assets Renatus 55

56 Slide 53 Arizona Idaho LLC (Limited Liability Company) Illinois Arizona LLC (Limited Liability Company) Idaho LLC (Limited Liability Company) Illinois LLC (Limited Liability Company) SERIES LLC LLC (Limited Liability Company) Illinois Single Member LLCs (Limited Liability Company) Single Member LLCs (Limited Liability Company) Single Member LLCs (Limited Liability Company) LLC (Sub-Series) LLC (Sub-Series) LLC (Sub-Series) Utah or Wyoming COPE LLC (Limited Liability Company) PARENT COPE LLC Renatus 56

57 Slide 54 Maintaining the Corporate Veil 1. Separate checking 2. Inform the world 3. Contractual requirements 4. Ownership of property 5. Company maintenance Renatus 57

58 Slide 55 Checklist for Investing with Others 1. Get it in writing and reviewed by an attorney 2. Negotiate for the worst case scenario 3. If they say you don t need an attorney RUN! 4. Do your due diligence on your partner and the project 5. If they say you have to move immediately, watch out! Renatus 58

December 20, 2006 Webinar

December 20, 2006 Webinar Choosing the Right Entity For My Business Mat Sorensen, J.D. 6 Critical Year-End Strategies S. James Park, J.D., LL.M. www.kkolawyers.com 856 South Sage Dr., Suite 2, Cedar City,