Pete asks the following question about his car:

Q: If I take a company owned and fully depreciated car and give it to myself personally are there tax consequences when I sell it?

A: Yes, most definitely. When you sell the car, you will have to recognize ordinary income for the full sales price of the car. The concept here is basis. You get basis in an asset when you buy it or add to it. In the case of a car, your basis typically is the full price you paid for it, including sales tax unless you took the sales tax as a separate deduction.

As you depreciate the car, the depreciation reduces your basis. So, if you fully depreciate the car, your basis is zero.

When you sell an asset, gain or loss is determined by the difference between your selling price and your basis. Since your basis is zero, the entire selling price is gain. You don't get to take capital gain on the sale because of the depreciation. This is called "recapture." Any portion of the sale that relates to the depreciation you took before is recaptured as ordinary income and taxed at your ordinary income rates.

For more about how to treat your car and other vehicles, see our course called "Maximizing Deductions of Your Dream Vehicle." You can find it along with our other tax strategy courses at http://www.wealthstrategyuproducts.com/Tax.html.

Warmest regards,

Tom

Last week, President Obama announced that he would work with Congress and the Senate to develop a smaller health care reform bill. Finally, some progress. I'm not opposed to health care reform. There are a lot of people who go without proper health care because they don't have health insurance, either because they can't afford it or just can't qualify for it.

Still, the bills that the Democrats have been trying to shove down the American people's throats are so expensive that it would be better to simply hand everyone without health care a voucher for free insurance than it would to fund these bills. The bills have been full of provisions that don't solve this fundamental challenge.

I, for one, am glad to see the President bending on this and looking for some compromise. The audacity of the Democrats to this point has been galling to the American people. Thank goodness Scott Brown got elected in Massachusetts. Let's hope the President means what he says when he says he is willing to work on a smaller bill and include both sides of the aisle in the measure.

Yesterday, the Senate cleared the way for passage of a "minor" tax bill that will extend certain tax benefits and add additional costs and penalties to small businesses.

The American Workers, State and Business Relief Bill extends several tax benefits that would otherwise have expired, including the increased Section 179 deduction and the research and development tax credit. Those in favor of this bill say that it will stimulate the economy. And it may help. There are a few provisions, however, that add an increased burden to small businesses that you should be aware of.

First, the bill expands and extends unemployment and Cobra benefits. This is a huge cost to small businesses who have had to reduce their work force because of difficult economic times. Let me give you a personal example. Over a year ago, we let an employee go in part to reduce our work force and in part because he wasn't measuring up to our standards. He has not found a job since. So, we continue to pay unemployment on him and continue to pay his Cobra benefits.

I'm not unsympathetic to his circumstances. Still - he can't find any job in a year? Sometimes I wonder if these extended benefits just serve to give people an excuse and means for not working.

Another provision in this bill that hits the small business is an increase in the penalty for not filing correct 1099's from $50 to $100 per 1099. With this increase in penalty, the IRS is sure to start enforcing this penalty in earnest. The issue is that it's very difficult for small businesses to get correct information from many of their vendors. Of course, this emphasizes the need for good bookkeeping and good compliance procedures in every small business. Can you imagine if you had 20 vendors that you couldn't get good information from so now you have a $2,000 potential penalty?

These so-called "little" tax bills can be huge for small businesses, so be sure to watch for them and all of their provisions. Most importantly, make sure your tax advisor is aware of them and informing you of these "little" changes.

Warmest regards,

Tom

Next week the House will vote on its Health Care Reform bill, including a brand new tax provision that will add the 2.9% Medicare tax to investment income, including net rents, royalties, dividends, interest, capital gains and passive income. This tax applies to anyone with income over $250,000. This increases in importance several tax planning strategies that you should already be considering.

Like-kind Exchanges - Under Section 1031 of the Internal Revenue Code, exchanges of like-kind property, including real estate, are not subject to income tax. They should also avoid the new Medicare tax on capital gains.

Cost Segregation - The new Medicare tax is on NET investment income, meaning income after deductions related to the income. This emphasizes the importance of maximizing your depreciation. If you can eliminate your net rental income through depreciation deductions, then the Medicare tax on your rents also go away.

Passive Loss Planning - Many people are not able to use their passive losses. This is simply a result of poor tax and investment planning. With yet another tax on your income, how much more important is it to be able to use all of your losses, including your passive losses?

I will let you know how the voting goes next week. It looks like President Obama just may get his health care reform after all. Just make sure you do the tax planning you need so the increases in your tax bill don't give you a heart attack.

Warmest regards,

Tom

My friend, Mike, from Canada, asks the following question about investing in the U.S.:

Q: Apart from seller financing, are there other sources of financing available to foreign investors?

A: Yes. There are many sources of financing available to those who cannot go straight to a bank for their real estate financing. Let's look at a couple of these.

1. Using Business Credit - The easiest form of financing is to get financing in your business. My friend, Chris Wise, specializes in getting this type of financing. In fact, we just did a webinar about this a few days ago. For more information, go to http://www.creditlinemillionaire.com.

2. Investor Financing - There are many investors who are willing to lend based primarily on property value. You may not get the same level of leverage that a bank would give you or the same rates, but these lenders are plentiful.

3. Raising Capital - Similar to investor financing, there are many people who are looking for a good investment but have no idea where to find it. Anyone can raise capital for a real estate project. The project has to be a really good one and you need to have all of your ducks in a row, including good experience in real estate. If you don't have experience in real estate, I suggest you get experience by investing in your community where you can get bank financing. You also need to learn how to sell. I would recommend my friend, Blair Singer's course, for learning how to sell. You can reach Blair at http://www.salesdogs.com.

4. Partners - There are lots of people who will get the financing for properties if you are willing to do the work of finding the properties and getting them fixed up. The reality is that there are several types of capital. Two of these are financial capital, which you need, and time capital, which you may have.

5. Credit Partners - There are many people with good credit who don't know how to find, fix up and rent properties. They frequently are willing to allow you to use their credit if you do all of the work. This works especially well if you live outside of the country you are investing in and your credit partners live inside the country. Chris Wise can also help with this.

The key to all of this is experience and education. Rich Dad has an excellent course on creative financing. Just go to http://richdad.com.

Warmest regards,

Tom

My friend, Helena, asks the following question that I'm sure many of you are wondering about in these days of strict lending standards from banks.

Q: What's the best way to leverage assets if you don't have a job? For example, if I have a rental property with $50,000 in equity, how do I get access to that equity so that I can purchase another asset? In the current economy, HELOC's are hard to get, and a traditional 2nd Mortgage requires verification of income. What options can I take advantage of (instead of working an 8 to 5 job) so that I can keep investing in real estate?

A: First, I would refer everyone to my blog from yesterday to Mike in Canada about creative financing. This applies to those who don't have a job as well as to those out of the U.S.

Second, I would suggest looking to investors who would be willing to lend you money secured by a second mortgage on your property. Just like banks, you will pay a higher rate than a first mortgage, but that doesn't matter if you have a good use for the money. Investors like this come in many forms, including friends and family, business associates, and former business associates.

The issue most people have raising capital is that they won't ask for it. This is just head trash. If you don't think it's a good enough deal to ask someone for the money, what are you doing making the investment?!! I suggest everyone take Blair Singer's sales training at http://www.salesdogs.com. Blair is a terrific trainer and great salesman.

Of course, if you are married, you can use the income and credit of your spouse. This is the easiest way to get the equity out of your property.

I would also suggest you begin developing a banking relationship, preferably with a smaller, local bank who you can get to know and can give you help getting the financing you need and deserve.

It's critical that you use your money and keep it moving to build your wealth. This is called velocity and is the only way to build wealth quickly and permanently. With velocity, along with leverage and minimizing your taxes, your financial freedom is closer than you think.

Warmest regards,

Tom

Helena asks a really good question. What states are good for LLC's? Her state is Georgia and she wants to know if it's a high tax state and good for using LLC's.

The answer to this question has two parts. The first is how states tax LLC's, or limited liability companies. The second relates to asset protection.

Most states recognize Federal law for LLC's, i.e., they tax the LLC just like the IRS will tax the LLC. Taxation of LLC's primarily depends on how you want the LLC to be taxed, i.e., do you want it to be taxed as a sole proprietorship, a partnership, an S corporation or a C corporation. For investment real estate activities, the general rule is to tax your LLC as a partnership or sole proprietorship. This rule could get more complicated if Congress passes its health care bill that adds rental income to the list of income that is subject to the 2.9% Medicare tax.

Some states have a separate tax on LLC's. Texas, California and Tennessee, among others, have a separate LLC tax and require a separate tax report for LLC's. Georgia does not have this tax or any tax on an LLC unless it is treated as a corporation for Federal income tax purposes.

For the second part of this question, which states are best for asset protection, I will defer to my friend and colleague and fellow Rich Dad Advisor, Garrett Sutton. You can reach Garrett at http://www.sutlaw.com.

Warmest regards,

Tom

One of the most powerful tools you can have in your personal investment toolbox is your personal set of investment criteria. Once you have decided on the type of growth assets you will be using in your personal investment strategy, then the next step is to determine the investment criteria you will use to carry out that strategy.

Investment criteria are simple both in description and application. These are the rules you live by while you invest. Think about a simple real estate investment. You want to buy a single family home. You look at house after house after house. What is it that is going to make you want to buy it?

Of course, your decision will be quite different if you are buying it for your personal residence. In that case, you will look at the design and the neighborhood and the floor plan. You may even look at the school district if you have kids and how close it is to your work.

When you buy an investment property, the criteria will be quite different. You are interested in cash flow and appreciation. That's it. So, you look at how it will rent compared to it's purchase price. And you will look at the expected appreciation in the neighborhood.

Just like everyone has different criteria for purchasing their personal residence, so different investors will have different investment criteria. Some investors want more cash flow, some want more appreciation and others want more leverage. How to choose your investment criteria is the focus of one of our courses in our School of Wealth Strategy entitled, "Your Wealth Strategy." In this course, we teach our students how to develop their own personal set of criteria.

For those of you who purchased our 51 Secrets package at the recent Rich Dad Annual Forum in Orlando, this course came with your purchase. You received an email immediately after returning from the Forum telling you how to access all of the 12 courses included in the 51 Secrets package on line. Last week or the week before, you should have received the hard copy of all of the cd's, dvd's and workbooks that are included in this package. If you didn't receive this, please call our office at 866.467.5809 and ask for Jessie and she will track down your packages for you.

For those of you who did not purchase our 51 Secrets package, you can purchases the individual course, "Your Wealth Vision" online at http://www.wealthstrategyuproducts.com.

We can talk more about your investment criteria in an upcoming telecoaching call. Thanks to Helena for asking this question today. Remember that when you create your personal investment criteria, you will speed up your investing, increase your cash flow and build your wealth faster than you thought possible.

Warmest regards,

Tom

Late last night, the Senate passed the Health Care Reconciliation Bill. One of the most important and egregious provisions of this bill is the 3.8% Medicare tax on unearned income. Egregious? More than egregious. This is rediculous and terrible tax policy. What in the world does unearned income have to do with Medicare? How is this any different, really, than the earlier proposal to simply increase the tax bracket for "wealthy" individuals. (If you still think, after all of the inflation we have had over the past 20 years that $250,000 of income for a married couple qualifies you as wealthy, then you are living in a dreamland.)

So here is how it works. All interest, dividends, net rents, royalties and capital gains (with an odd exception relating to the sale of an S corporation) is subject to the additional 3.8% tax. There is some good news. Distributions from S corporations is not subject to this additional tax. Nor are distributions from IRA's, 401(k)'s, or pension plans. Of course, there is a separate provision to add the Medicare tax to earned income (still not distributions from S corps).

Now, think this doesn't apply to you because you earn less than $250,000 as a couple or $200,000 as an individual? Think again. What do you think inflation will do to your current salary of $100,000? Have you so quickly forgotten what happened to the Alternative Minimum Tax (AMT)? The AMT originally only applied to "wealthy" people too. Then inflation hit and now it applies to more than 50% of the taxpaying population.

So don't believe that the so-called "inflation adjusters" contained in the bill are really going to keep you from paying this tax in the future. The adjusters are based on the government's determination of inflation, which they can, have and will modify to fit whatever they want to say. Within a few years, millions and millions of middle class individuals will be paying this tax.

What's happening to America? This is clearly the socialization of America. I said it when Obama was running for President and it's absolutely coming to pass.

Now, what to do about it? Join me at Robert Kiyosaki's seminar, Gold vs. U.S. Dollar on April 30th in Scottsdale, Arizona. We will be discussing exactly what you can do to avoid taxes, use inflation to your advantage, and build your wealth faster than ever before in the coming years. You can sign up on our home page. Just click on the banner for the seminar. Our home page can be found at http://www.provisionwealth.com.

Warmest regards,

Tom

Children can be great tax benefits. Not only do we get a personal exemption for each one of them, we can involve them in our business. When we get them into our business, we can pay our children and deduct their salary. Frequently, children have a lower tax bracket than their parents, so moving money to their tax brackets is highly desirable.

In this regard, Willy asks the following question:

Q: What are some of the strategies I can use for marketing my kids into my business? How do I make those tax deductible?

A: Let me answer the second question first. Any time we pay someone for performing a service for our business, the payment will be deductible so long as the service and payment meet three tests. They must be ordinary (normal) in your business. They must be necessary (they help us make a profit). And, they must have a business purpose.

There are many ways to get your children involved in your business. They can do bookkeeping for you. I did this for my father’s business throughout high school. They can do cleanup and maintenance on your real estate investment properties. Or, if you have a business that emphasizes families and/or children, you can use them as models for your brochures and website.

All of these ideas and more are contained in our course entitled, “Getting Your Children Into the Game.” You can find it at www.provisionwealth.com/products. Just click on the School of Tax Strategy and you can have this powerful tool for your business.

Warmest regards,

Tom

One of the most common questions I get is what entity to use for a business. There is no one right answer for everyone. That’s why we created a course on the use of entities called, Entity Fundamentals and another one called, Building the Perfect Foundation. You can find these at www.ProVisionWealth.com/products under our School of Tax Strategy.

Nancy asks the specific question about realtors. To wit:

Q: What advantages are there tax wise for a self employed Realtor to be an S corp instead of a sole proprietor?

A: There are at least three advantages that come to mind for being an S corp (or LLC taxed as an S corp) instead of a sole proprietor in this situation.

1. Self Employment tax – This is the big one. You can cut your self employment tax by 50% or more being an S corporation.
2. Audit risk – This is also big. You have 75% less chance of being audited as an S corporation than as a sole proprietor.
3. Reporting – Not often considered, you get much better reporting as an S corporation than as a sole proprietor. The reason is that an S corporation requires a balance sheet. You are much more likely to have accurate reporting when you do a balance sheet along with your income statement. This will not only lower your taxes (you will find more deductions with good bookkeeping), you will be able to make better business decisions.

There is a risk you must consider. If you receive all of your income from your brokerage, so you only receive one 1099, you risk being treated as a personal service corporation by the IRS. This can be devastating. It’s not an issue if you are receiving 1099’s from multiple clients or brokers.

In the end, S corporations, handled properly, can provide great tax benefits. We have an entire course about how to handle your S corporation at www.ProVisionWealth.com/products under our School of Tax Strategy.

Warmest regards,

Tom