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Who Is Jeff Watson?. Ohio Bar Member for 19 years Full-Time Attorney with an active trial/hearing practice Real Estate Investor since 1993 America’s “Top Short Sale” Lawyer Co-founder of Realeflow LLC, Strategic Real Estate Coach, Inc., and Venture Land Title LLC

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who is jeff watson
Who Is Jeff Watson?
  • Ohio Bar Member for 19 years
  • Full-Time Attorney with an active trial/hearing practice
  • Real Estate Investor since 1993
  • America’s “Top Short Sale” Lawyer
  • Co-founder of Realeflow LLC, Strategic Real Estate Coach, Inc., and Venture Land Title LLC
  • Frequent guest speaker at various RE Investors meetings.
  • Legal Counsel to Nova Star Real Estate Brokerage Ltd, Sharp Concepts Realty LLC & Eagleville Bible Church Inc.

“Lawyer To The Gurus”

to inc or to llc
To Inc. or to LLC

C Corp

Sub “S”

Established precedent

Know Liability Shield

Tight Ownership Rules

Rigid Profit Distribution

More Record Keeping

SM LLC

MM LLC

Newer & Evolving

Uncertain at Times

Flexible Rules

Creative Profit Distribution

Less Record Keep

entity basics
Entity Basics
  • What is an entity? An entity is a business organized according to state law to limit the liability of the owners. Entities can be corporations, limited-liability companies (LLCs) and limited partnerships (LPs). All provide much greater asset protection when compared to a sole proprietorship or general partnership.
slide5

Sole Proprietor

Written

Partnership

Verbal

Partnership

Sub S. Corp

Assets

$$$

C. Corp

Single

Member LLC

Multi

Member

LLC

Limited Partnership

slide6

Creditors Easily Attack

Sole Proprietor

Written

Partnership

Verbal

Partnership

Sub S. Corp

Assets

$$$

C. Corp

Single

Member LLC

Multi

Member

LLC

Limited Partnership

slide7

Sole Proprietor

Written

Partnership

Verbal

Partnership

Sub S. Corp

Assets

$$$

C. Corp

Single

Member LLC

Multi

Member

LLC

Limited Partnership

sub s corp basics
Sub “S” Corp Basics
  • What is an S corporation? An S corporation is a corporation that has elected to be taxed as a flow though entity (similar to an LLC or LP). The “S” also refers to an IRS code section.
sub s corp basics1
Sub “S” Corp Basics
  • The S election allows the shareholders to be taxed only at the individual level instead of at both the corporate and individual level, thus avoiding the double taxation like the C corporation.
sub s corp basics2
Sub “S” Corp Basics
  • The S corporation still provides limited liability protection and is a good entity for many business situations.
c corp basics
“C” Corp Basics
  • What is a C corporation? A C corporation is a corporation that is taxed at two levels. First, the corporation pays corporation taxes on corporate profits. Then, with any money left over, the corporation may distribute profits to the shareholders.
c corp basics1
“C” Corp Basics
  • These profits, or dividends, are taxed to the shareholders. Thus, resulting in “double taxation”. The “C” refers to an IRS code section. Despite the double taxation, C Corporations offer many planning and benefit opportunities.
llc basics
LLC Basics
  • What is a limited-liability company? A limited-liability company (LLC) is also a separate legal entity formed for limited liability and asset protection purposes.
llc basics1
LLC Basics
  • The owners of an LLC are called members and the management is referred to as managers. LLCs are frequently used for holding real estate and other personal assets.
llc basics2
LLC Basics
  • Single member means one owner. Taxed on a flow-through basis usually via Schedule C
  • Potential for higher audit risk.
  • Greater risk of mismanagement due to lack of business formalities.
slide16

Employee or Independent Contractor

Control Equipment

Duties

Location Hourly/Job

Just “Agreeing” may not be enough

Just using “1099” not enough

Can they go Broke or get Rich

Question or Fact

I.R.S. HAS Final Say

slide17

Liability Insurance Basics

Interview several independent Agents

Home based Business Rider A simple & cheap “must do”

Umbrella Liability Policy Affordable Legal Defense

Basic General Liability Business Policy Auto owners insurance

Improve and maintain properties

slide18

Cash Flow is Critical

  • Active Income
  • “Passive” Income
  • Rent
  • Dividend
  • Owner’s Profit
  • Truly Passive Income
  • Money Making Money
  • Ideas Making Money
  • Money & Ideas Making More Money
slide19

Increase Cash Flow by Lowering

  • Expenses
  • Taxes
  • Here ‘s Some Specific Ideas to Help You:
slide20

You can deduct the cost of a business expense

if it meets the criteria of ordinary and necessary

and it is not a capital expense.

slide21

Start-up Cost Deductions

You can deduct up to $5,000 in start-up and $5,000 in organizational costs for the first year of business. These deductions apply to expenses paid or incurred after Oct. 22, 2004. The rules differ if your costs exceed $50,000. Expenses that are not deducted can be amortized over a 180-month period, which begins when you open your business. You can write off or amortize market research, advertising, employee training, business-related travel, legal advising and other costs.

slide22

Entertainment Deductions

The IRS doesn't mind your mixing business with pleasure – within reason. You can deduct up to 50 percent of entertainment expenses for unreimbursed business meetings. The entertainment must be within a "clear business setting" (such as at a conference) or should immediately precede or follow a business meeting. If you are self-employed, the 50 percent deduction limit does not apply.

slide23

Travel Deductions

Travel expenses are tax-deductible. The IRS recommends keeping a log of your expenses and receipts. Transportation, (airfare) lodging and even dry cleaning can be deducted, and half of any business meals. You also can deduct expenses for business associates traveling with you. You can't write off expenses for family members or friends if they accompany you, unless they are employees and are professionally involved in the business end of the trip.

slide25

What is H.I.N.T.?

High

       Income

         No

               Taxes

slide26

Self-Directed Account

Many People hear about it

Some know about it

Few actually do it

Wall Street Keeps it Secret

Few Custodians allow it

Complex Rules

U.S.C. 4975

some of what your s d ira can do
Some of What Your S.D. IRA Can Do

Flip Houses

  • REO’s
  • ShortSales
  • Probates
  • Rehabs

Lend Money

  • Secured
  • Unsecured

Borrow Money

  • Non Recourse
  • U.B.T.I.

Own/Lease

  • Houses
  • Mobile Homes
  • Land
  • Oil Wells
  • Equipment
  • Businesses

LLC’s

Partnerships

C Corp’s

  • Notes

New

Defaulted

slide28

Roth Magic

If you left a Roth IRA with just $30,000 in an account earning 10% annually to an eight year old child, the distributions over the child’s lifetime would total over 5.5 million

Completely Tax Free

slide29

ROTH Magic

The owner of a 500k Roth IRA dies leaving a 20 yr. old as beneficiary. If the account only earns 8% yearly and the beneficiary chooses to take distributions over her lifetime, based on IRS tables the distribution would total over

14,000,000.00 Tax Free

slide30

I Pity Trust Fund Babies

  • Lawyer’s in Control
  • Taxes at High Rates
slide31

Trust Fund Babies

Drool

Roth “Bennies”

Rule

slide32

More ROTH Magic

Greg, Jeff, Tracy & Lorri meet each other at an event

Each has 15,000 in Roth IRA

Each needs Working Capital

Each Loans from IRA 5,000 to other 3

Each loan/note at 21% annual interest

And contains 8% Profit participation

Clause

1 year maturity/option to renew

Aware of “Step” Transaction Rule

slide33

After 1 Year

Greg’s LLC Earns/net 150,000

Jeff’s LLC Earns/net -0-

Tracy’s LLC Earns/net 75,000

Lorri’s LLC Earns/net 60,000

After 1 Year

slide34

Jeff’s get cancelled

Greg look for better deal

Lorri & Tracy renew 1 more year

R.O.I.’s 93% to 173% TAX FREE

short sale deal
Short Sale Deal
  • Marty Buys at $178K
  • Marty Sells at $200K
  • No Realtor
  • $22K Profit…Right?

WRONG!!

short sale deal1
Short Sale Deal
  • $22K Profit – WRONG!
  • Marty has partners!
    • FED
    • STATE
    • LOCAL

$22K becomes $11K

slide37

Same Short Sale Deal

Smarty Buys at 178,000

Smarty Sells at 200,000

No Realtor

Held House 21+ Days

slide38

22,000 Profit

All Tax Free

Did Deal

Inside Roth IRA

slide42

Chapter 1 - Tax Deferred Account

    • Traditional IRA
      • Structural Rules
      • Code Section
    • HSA's
      • Structural Rules
      • Code Section
    • 401k's
      • Structural Rules
      • Code Section
    • SEP's
      • Structural Rules
      • Code Section
    • SIMPLE's
      • Structural Rules
      • Code Section
slide43

Chapter 2 - Tax Free Accounts

    • Roth IRA
      • Structural Rules
      • Code Section
    • Roth 401k
      • Structural Rules
      • Code Section
  • Chapter 3 - Custodian Selection
    • A Few Choices
    • Selection Criteria
      • Reputation
      • Experience
      • Location/Time Zone
      • Website functionality
      • Phone service quality
    • Fee vs. Service
      • Which matters more?
slide44

Chapter 4 - Setting Up Self Directed Accounts

    • Opening the account with the selected custodian
    • New accounts
      • Conversions
      • Qualified plans
      • Re-characterization
      • Re-convert
    • Rollovers
    • Transfers
slide46

Chapter 1 - Eligibility and Contributions

    • Traditional IRA's
    • Roth IRA's
    • 401k's
    • Regular Roth 401K
    • HSA's
  • Chapter 2 - Account Conversions
    • Qualified Plans to Traditional IRA
    • Traditional Converting to Roth
    • All, Some, or None
slide47

Chapter 3 - The Rules for Self-Directed Accounts

    • Prohibited Investments
    • Disqualified Persons
    • Prohibited Transactions
    • Distributions
  • Chapter 4 - IRA-Owned Entities
slide49

Chapter 1 - Gifting From Existing Accounts

  • Annual Exemption
  • Unified Credit
slide50

Chapter 2 - Inherited Accounts

  • Qualification Rules
    • 5 Years
    • 59 1/2
    • Required minimum distributions
slide51

Chapter 3 - Purchased Beneficial Interest

  • Delicate Details
    • Locating accounts
    • Phrasing
      • Most powerful words you will ever say - Win-Win Opportunity
    • Documenting the purchase
    • Paying for the beneficial interest
  • Terms and Conditions
  • Protections
  • 5 Years
  • 59 ½
  • Required Minimum Distributions
slide53

Chapter 1 - Direction of Investments

    • Completion
    • Processing
    • Handling
  • Chapter 2 - Contribution Forms
    • One Time
    • Systematic
  • Chapter 3 - Distribution Forms
    • Funding Deals
    • Cash to Others
      • Consideration
      • Deal expenses
    • Cash to You
slide54

Chapter 4 - Contractual Components

    • PSA's
    • Contract Addendum
    • Notes
    • Mortgages
    • Options
    • Contracts
    • Deeds
    • HUDs
    • Opinion Letters
  • Chapter 5 - Who Signs What
slide56

Chapter 1 - Real Estate

    • Rehabs
      • FSBO
      • REO
    • Flips
      • Short Sale
      • REO
      • FSBO
    • Rentals
      • Residential
      • Commercial
      • Buildings
      • Mobile Home Parks
    • Other
      • Rent-to-Own deals
      • Lease Options, etc
slide58

Chapter 1 - Paper

    • Tax Liens
    • Tax Deeds
    • Notes
      • Discounted
      • New
      • Defaulted
  • Chapter 2 - Personal Property
    • Deals on Wheels
    • Internet Assets
  • Chapter 3 - Necessary Paperwork
    • Contracts
    • Titles
    • Notes