This question comes from Sue and is a question I hear a lot.

Q: I will be receiving an inheritance from my mother, some time this year or maybe next year. I don't really know the amount but probably aroud 100,000. My mom died in Vermont and I live in California. Will I end up paying CA taxes on the amount? if so are other states better? Her estate at death was probably around 1,000,000 but my really dysfunctional sister is the excecutor, so I don't know. Thank you. Sue D.

A: Good news, Sue. There is no income tax on an inheritance. And based on the size of your mother's estate, there shouldn't be any estate tax either. So the $100,000 (when you get it) will be free and clear from the IRS or the State.

Warmest regards,

Tom

In case you weren't on our School of Tax Strategy call last night, here is the answer I gave to Roy's question below.

Q: We are in the process of setting up our entities. We are setting up 3 LLC's. One will be taxed as an S corp and the others to be determined. My wife is the sole managing member of all three LLC's. Would it be smarter to have an LLC be the managing member rather than my wife? What would the tax consequences be either way?

A: First of all, good for you for setting up your LLC's even when you are not sure how they should be taxed. You can always make that change later. As for the manager, this is quite a good question. It really depends on whether the manager will be taking a fee from the entity. Since you presumeably are the sole owners of the LLC, so long as you don't have a charging order against you, it really shouldn't matter. There's no real reason for you to take a management fee.

Suppose, however, that you are sued and a charging order against one or all of the LLC's ensues. In that case, you may want a way to get money out of the LLC other than through a distribution. The likely candidate is a management fee to the manager (especially if you are accruing it as you go so it builds up over time). When that management fee is paid, if it's to your wife, then she will treat it as self-employment income and pay SE tax on the full amount. In addition, she may have a garnishment against her income as a result of the same lawsuit that resulted in the charging order.

An alternative would be to have an LLC taxed as a corporation ("C" or "S" depending on your tax strategy) as the manager. The result of this should be to avoid the garnishment and the self-employment taxes.

The downside to this strategy is additional complication whenever the manager has to sign anything on behalf of the LLC. The signatures get a little combersome. You could have both your wife and an LLC as managers and have your wife as manager sign documents.

You can see that frequently there is a choice between tax savings and simplicity. Most people will opt for the simplicity since the likelihood of the charging order is pretty slim for most situations.

This is why a personalized tax strategy is so important. You have to look at your preferences, your business, your investments, even your age, your family situation and your health. For more information about tax strategies, visit our free website at http://www.ProVisionWealth.com or call us at 866.467.5809.

Remember that tax strategies and asset protection strategies are all about freedom. And isn't that what we are celebrating this weekend? Are you free from worries about lawsuits? Are you free from overtaxation? If not, join our movement for tax and financial freedom. Because when you learn the rules, your financial freedom is closer than you think.

Warmest regards,

Tom

Home office deductions are one of the most misunderstood deductions. Many accountants still feel that taking a home office deduction is a big red flag to the IRS, that you cannot have both a home office and another office, and that there isn't a great benefit to the home office deduction since you get the real estate tax and home mortgage interest deduction on Schedule A even without a home office deduction. These ideas are all false.

Home office deductions are great. They are specifically allowed in the Internal Revenue Code and can provide significant benefits to the business owner. They can be confusing. One of our clients, Melissa, asks the following question about Home Office deductions:

Q: I’ve had to cover some business expenses on personal credit cards other than my appointed business credit card, and I’m doing routine expense reimbursements in order to properly care and feed my LLC. So ? – You and I talked about my carrying 20 percent of home/office expenses for my home office deduction. Do I ALSO reimburse myself for the 20 percent of those expenses? Or are they ONLY designated for the deduction come tax time?

A: Let me make sure I understand the question and perhaps there are two questions here. The first is related to reimbursement by the business for personal funds used to pay for business expenses. Any time you use personal funds for your business, this should be treated as a loan to your business. I recommend you have a line of credit between you and the business that includes regular interest payments and eventual principal payments.

The second is whether you reimburse yourself for home office expenses. My recommendation is that you do reimburse for home office expenses. If your LLC is a single member LLC and you are reporting the income on Schedule C of your personal return, there really is no need to reimburse yourself. You can take care of this all at tax time.

If you are treating your LLC either as a partnership (filing a Form 1065 partnership return) or as an S corporation (filing form 1120S), then I suggest you reimburse yourself for the home office expenses. In fact, the IRS say you MUST reimburse yourself if your company is an S corporation. If you company is a partnership, it depends on the partnership/operating agreement. To be safe, I suggest even in a partnership that you reimburse yourself before the end of the year.

Thanks for this question, Melissa. A lot of people get this rule wrong only to find their home office expenses nondeductible at tax time. For more about how to best handle your home office deductions, see our course on Home Office Deductions at http://www.wealthstrategyuproducts.com/Tax.html

Warmest regards,

Tom

I have never seen anybody be put out of business by the IRS over nonpayment of income taxes. There are two other types of taxes that can put you out of business. The first is payroll tax. Employers have a fiduciary responsibility to pay over employment taxes to the government. For some reason, this still trips up some business owners. They don't seem to understand that when they withhold taxes from their employees' wages, that money MUST be paid over to the government. If not, the IRS will come knocking and it can get nasty.

Of course, most employers understand that they have to pay over payroll taxes. And payroll taxes really are not difficult to compute. The only time employers really get in trouble with payroll taxes is when they are struggling financially and look at the payroll taxes as an opportunity for a short-term loan from the government. Not a good idea.

The other tax that can put you out of business is sales tax. This one is not so simple. Yes, if you collect the tax, you have a fiduciary responsibility to pay it over to the government. From this standpoint, it is similar to payroll taxes. The similarity stops there.

Sales tax can be complex. Most businesses really do not have a handle on when they have to collect sales tax. That's a challenge, since if you collect sales tax from your customers, your customers pay the tax. If you don't collect the tax from your customers and the State comes knocking on your door, you could owe the tax and never get to collect it from your customers. Really, now, how many of you think you can go back to a customer three years after a sale and collect sales tax from them?

Remember that it's not just the public that has been hit hard by the Recession. The states have also been hit hard. They built up all of their social programs during the boom times and now they want to continue funding these programs even though the taxes have plummeted. So what do they do? They look for more opportunities to collect tax.

The best tax for States to go after is sales tax. Why? Because the rules are complex enough and the law vague enough that the States can be aggressive in their collection activities. Recently, the Wall Street Journal ran an article on the front page of its Marketplace section entitled, "States Plot New Paths to Tax Online Retailers." One of my friends who puts on seminars told me that he was recently audited by the State and ended up paying a boatload of back taxes on sales that his presenters had made at his events.

While I may not agree with the States' position on what they can and cannot tax, the reality is that they are going after retailers, especially those who sell over the Internet. And isn't that just about everybody?

I have spent 14 years teaching multistate sales and income tax at Arizona State University. I can tell you that the laws are vague. Yes, the U.S. Supreme Court has held that a retailer must have a physical presence in a state in order for the state to require the retailer to pay sales tax. The question is - what constitutes physical presence? How much presence is enough? What if one of your employees visits the state for a couple of days of training? What if you have an affiliate in the state? Does the affiliate's presence count as physical presence for you?

My recommendation? All Internet and Seminar retailers should have a thorough sales tax review performed by a qualified sales tax professional. The challenge is finding such a professional, since most CPA's don't know any more about sales tax than you do. If you would like a referral to a qualified sales tax professional to help with your situation, please contact us at 866.467.5809 and we will get you to a good sales tax expert who knows the laws in multiple states. Or send us an email at cs@provisionwealth.com.

Don't let sales tax put you out of business!!! Learn the rules and avoid this tax burden altogether. Remember, that if you know when to charge sales tax, you often can pass this burden on to your customers.

Warmest regards,

Tom

Last night I finished completing our teleseminar series, "5 Secrets to Massive Tax Savings." This series focused on the structure and general principals of tax law. It was applicable to any person living in any developed country. Why? Because the principals of tax law cross boundaries and are adopted by all nations.

Our final discussion last night centered on how to avoid an IRS or other tax audit. We discussed the impact your tax return preparer can have on the likelihood of an audit as well as some other things you can do to reduce the chances of an audit. Of course, we also discussed how to handle an audit.

Just prior to the seminar, one of our participants, Roy, sent in the following question:

Q: I have paid the AMT for the last 7 years. Does this affect the likelihood of an IRS audit?

A: The fact of paying AMT does not, in itself, increase the chances of an audit. However, what put you in the AMT may. For example, if you are in the AMT because you have large miscellaneous itemized deductions, I think it's fair to say you have a better chance of being audited than someone without the large miscellaneous itemized deductions. On the other hand, if you are in the AMT because you live in California and pay outrageous income taxes that are not deductible for AMT purposes, you don't have any greater chance of being audited than anyone else.

What I can tell you is that there are many ways to reduce or completely eliminate the Alternative Minimum Tax. We are developing a course right now to address these issues. Look for it soon at http://www.wealthstrategyuproducts.com/tax.html.

Warmest regards,

Tom

Yesterday at Robert Kiyosaki's staff meeting, we were talking about change. With the economy in the shape it's in, what are people going to do to change? How are we individually going to deal with the drastic changes in the economy that are coming when the Baby Boomers retire and start using Medicare? What causes people to want to change?

I was so enamoured with our discussion, that I took it to my staff and we discussed it in our weekly ProVision staff meeting. Another great discussion. At the conclusion, one of my partners, Rondi Habern, gave me the following that helps explain change and growth.

All change and growth involves three steps:
1. DISSATISFACTION: Because of outer events or inner feelings, you decide your current situation no longer works for you.
2. CONFUSION: Normally, a period of confusion follows in which you challenge your old beliefs. You begin to fantasize how things could be different or what you would like to take place. This transitional period could last a day, a month, a year, or more ... until something happens.
3. ACTION: Someone helps you to make a decision, or an opportunity presents itself, or you manage to attain clarity. Once this happens, you take action and, ideally, manifest a more satisfying life.

A lot of people are in the Dissatisfaction first stage of change right now because of the Economy. And many are in the second stage, Confusion, not knowing what to do since they have never been taught anything about Finance except what they hear from mutual funds on TV (which is a load of crap!). The key for companies like Rich Dad and ProVision is to help people take action. That's what we both do. Rich Dad helps you take action through education about the fundamentals of Finance. ProVision helps you take action through implementing those fundamentals in your LIFE.

So, don't let this period of confusion you are in last for a long time. Visit Rich Dad at http://www.richdad.com and contact ProVision at 866.467.5809 or email us at cs@provisionwealth.com. When you begin to take action, you will take control of your life, your confusion will go away and Your Financial Freedom will be Closer Than You Think.

Warmest regards,

Tom

At the Rich Dad staff meeting yesterday, we were talking about Leadership. The question posed was what are the qualities of a great leader. The one that immediately came to mind is Consistency. Let me explain.

A great leader is consistent between his/her personal actions and his actions in front of a group. Great leaders are also consistent in their actions and language regardless of the circumstance.

I know several individuals who are great guys in a social setting. They're funny. They're kind. They give much of themselves and their time. These same people are completely different in a business setting. In business, they have a reputation for not paying their bills, for cheating associates wherever they can and for not fulfilling their promises. I think they have compartmentalized their lives to the degree that they are almost schizophrenic. They see themselves completely different in the two settings. Somehow they have justified this to themselves for so long that it is acceptable to them.

Great leaders aren't like this at all. They are good all the time. They are fair and honest all the time. They give of themselves all the time. They may waffle on decisions from time to time. They may change their mind frequently (this will happen particularly if they are QuickStarts per the Kolbe assessment). Still, they are consistent in that they are the same person in any setting.

I know several people in this latter category as well. I admire them greatly. These are the people I want to associate with.

What does this have to do with wealth? Long-term wealth requires Consistency. Great business leaders, those who build tremendous fortunes and lead happy lives, are Consistent. They may not be kind or even nice. Still, they are consistent.

And true wealth is much more than having a lot of money. It's having good health, great friends, and a wonderful family who loves and supports you. One of my favorite movies is Meet Joe Black about a man who is about to die and is literally visited by death (in the form of Brad Pitt - who'd of thought?). It's clear by the end of the move that not only is this man wealthy and a great leader, he is consistent in all he does. He is beloved by all who know him, especially is children.

Just a thought for building wealth in these troubled time. Those who stay consistent will be okay. They will make through these times and come out well.

Warmest regards,

Tom

About 2 years ago, I received a call from Robert Kiyosaki, author of the bestselling book, Rich Dad Poor Dad. Robert asked if I would contribute to a book he was writing about real estate. Of course, I jumped at this offer. The result of my two chapters plus those of 21 other authors, including Donald Trump, Robert and Kim Kiyosaki and Wayne Palmer, is the recently published book, "The Real Book of Real Estate."

Donald Trump recently listed The Real Book of Real Estate as the number one book on investing to read this summer. And it's my great privilege to have written the very first chapter of the book, "The Business of Real Estate."

I remember when we first got together as a group of authors 18 months ago. Kathy Heasley, editor extraordinaire, asked each of us about topics we would like to see in the Book. Of course, I suggested the Business of Real Estate. Why? Because in my 30+ years of experience as a consultant to entrepreneurs and investors, I have found that the most successful people are business owners.

Business owners understand how to use other people's time and money to their advantage; how to work smarter, not harder. So why not treat your investments like a business?!! This is especially true when it comes to real estate investing. As many have discovered over the past year or two, real estate investing is not easy. It takes time, education, and hard work. So why not treat it as a business?

You tell me. What do you think about the idea of treating your real estate investing as a business? I would love to hear you thoughts on this idea and I'm sure our other readers would like to hear your thoughts as well. So don't be shy - share your thoughts with us.

Warmest regards,

Tom

P.S. - You can purchase a copy of The Real Book of Real Estate at any major book store or online at http://www.amazon.com/s/ref=nb_ss_gw_0_14?url=search-alias%3Dstripbooks&field-keywords=the+real+book+of+real+estate&sprefix=The+Real+Book+