One of the most common questions I get is about education expenses, especially Rich Dad Education expenses. Here is a specific question from Debbie and Jerry:

Q: My name is Debbie. My husband and I have purchased the Rich Dad package in the amount of $66,000. To pay for this my husband who is 60 took the money from his retirement funds. Is there a way to off set the penalties of taking that money to pay for the $66,000?

He also wants to liquidate our entire retirement accounts; I am 54 years old and will have a higher tax problem. Do you have a way to off set that money as well and if so how?

Thank you for your assistance; we are looking forward to the next conference call at the end of the month!!

A: The good news is that your husband will not incur any penalties for taking money from his retirement account. He will just be taxed on the amount he had distributed at your regular tax rates. And, if you are already in business (including real estate rental), you may be able to deduct the full amount of your education expenses. But please sit down with your CPA and discuss this.

Don't be liquidating any of your retirement accounts until you are sure what to do with them. Creating a personal wealth strategy before you liquidate your accounts could save you thousands of dollars and put you on a much faster and safer path to permanent wealth. If you would like a referral to a good wealth strategist, contact our office at cs@provisionwealth.com.

Warmest regards,

Tom

An often overlooked tax is property tax. Most, if not all, states have them and some of them are really high. Kent and Sherry ask the following question about property taxes in California.

Q: We received a notice in the mail from a company called "Property Tax Assessor Records Corp" saying that we are over paying property taxes (personal Res) and that we should ask for an exemption of $5600.00 and after year one, that the exemption will increase to $7000.00. We live in California, Ventura County. Is this true? Should we apply? (tax Code 218)is what they use. Is it worth it?

A: I would have to spend some time looking this up. What I will say is that property taxes can frequently be lowered either through a specific exemption like the one this company is talking about or by protesting your assessed value to the county assessor. I definitely think you should look into this.

I do recommend using professionals whenever possible, especially when it comes to unique tax benefits like the one you refer to here. I don't know the company, so be sure to do your due diligence, both by checking with the Better Business Bureau and by checking into the law itself. You can do a lot of checking into this online.

Warmest regards,

Tom

Dan and Elizabeth and winning when it comes to who asks me the most questions. Come on, everyone, don't let them beat you. Get those tax and wealth questions into me. Today, they are asking about salary in an S corporation. Here they go:

Q: We recently created an LLC in Wyoming and registered it to do business in California. Would like to open a bank account, but need a tax ID number first. We are leaning toward an S-Corp designation. If this LLC is used primarily to purchase and hold real estate, will that S-Corp tax designation require an employee?

A: The answer is - probably. Someone has to do the work and that person probably is an employee. It may be one of you or it may be someone else. The one possible exception to this is if you outsource all of the work to someone else, including bookkeeping and management. In that case, you may just be issuing 1099's. The general rule, though, is that if the owners are personally involved in the S corporation business, there needs to be a reasonable salary. Otherwise, the IRS could reclassify all of your distributions as salary. In that case, you not only pay more in payroll taxes, you may be assessed penalties and interest.

Of course, your CPA can be a big help here. A good tax CPA will ask you all of the questions to determine the amount and frequency of the salary that needs to be paid and can also help you with the payroll tax reports.

Warmest regards,

Tom

Perrilee, one of our most active students in the ProVision School of Tax Strategy and a recent participant in the Rich Dad Education Tax and Asset Protection course in Seattle, asks the following question about paying her son.

Q: My 12 year old son does filing and yard maintainance for my investment business. How am I to keep track of his time and pay so I can file for him with the IRS. Both his paper work and mine. Thanks, Perrilee

A: If he has regular hours and you control his work, he is an employee and you should give him a paycheck and file quarterly payroll tax returns. So long as your business is owned solely by you and it is taxed as a sole proprietorship (which it should be), then you won't have to pay any payroll taxes other than his withholding. Children of business owners under the age of 18 are not subject to payroll taxes.

If he only works odd jobs, you are probably ok just treating him as an independent contractor and then no payroll tax returns are due and you simply have to issue a 1099-misc to him at the end of the year.

Best bet right now for doing the accounting for all of this is to use Quickbooks Pro.

Warmest regards,

Tom

As you probably realize, tax laws change constantly. Most changes come through rulings and court cases, not through Congress. In this year of budget and debt upheaval, one of our students, Charles, has the following question about upcoming changes from Congress.

Q: Have you been hearing anything about possible changes to the tax code that would change the general assumptions under which we have been approaching business--i.e., capital gains tax, depreciation, etc.?

A: No. Nothing major in the normal business and investing tax areas. There has been some additional guidance recently on reporting payments to offshore bank accounts. We have not seen any signs of serious tax legislation, though, since last December's massive changes. I'll keep everyone posted on my blog whenever I hear something coming down the pike.

Warmest regards,

Tom

Many of our clients and students are real estate investors. One of the most basic ideas to reduce the cost of maintenance and repairs on rental properties is to put into place a home warranty and require the tenant to pay the deductible. The result is that the tenants will likely make some of the small repairs themselves and whent here is a repair, the tenants can go directly to the home warranty company and take care of the repair that way without bothering you or the property manager. One of our students, Robert, wants to know if we can recommend any good home warranty companies.

I would like to throw this out to you. Any good recommendations for Robert?

Thanks for your help.

Tom

On our last call, we were talking about roles and responsibilities for team members. Someone asked who should be on their team. While this is somewhat different for everyone, depending on their wealth strategy, one team member is a must for those who are investing in real estate. That is a good real estate agent, or "finder." Charles and Sue ask the following question in this regard:

Q: Not to let you off the hook: can you be more specific about the criteria YOU look for from finders? I recognize that we need to establish our own--as does each investor--but Sue and I are trying to learn from those who are more experienced than we are--in this case, from you.

A: I have a few criteria for my real estate agents. First, they must be investors themselves. Otherwise, they simply will not understand why you want a run down property or a property in a mediocre neighborhood. Second, I want someone who is hungry - who really wants to succeed and is willing to work. I help with this criterion by providing bonus compensation. For more on how I compensate finders, see Chapter 1 of "The Real Book of Real Estate" where I write about "The Business of Real Estate." Most important of all criteria is that the agent is truly interested in being a partner to my success and understands that when he or she is successful for me, they are also successful for themselves.

The only way I have ever been able to accurately assess this trait is by paying close attention to the questions they ask me. I don't want them to merely ask about what type of real estate I'm looking to buy. I want them to ask about my vision for my real estate business, my goals and even my values. When they ask good questions, I'm pretty clear that they are in tune with me and will make a good partner.

Warmest regards,

Tom

Ordinarily, this blog is about me answering questions. Today, however, I'm going to let one of our students, Su Shi, from Australia, do the entire blog. This was her reply a couple of weeks ago following one of our monthly Ask Tom Live calls.

It's Su here from Melbourne, Australia.

As a royal student of your monthly Financial Education Program, I'm so happy to report to you ( because of my distant location to be qualified to make the comment) that your FIRST webinar to replace the previous teleconference was Great Success! It was so close and clear as if I were sitting at the front row of University of Arizona lecture hall, listening to your vivid and passionate lectures :o).

Thank you, Tom and your team to improve the educational tool so much better!

This month's topic was " Establishing Your team's Roles and Responsibilities". I thought I need to know clearly my Personal Role in the team FIRST, then can establish the Team accordingly. So following your Home Study Course instruction, I did Kolbe A Test through your workbook link. The result was answered many questions which I used to ask myself. As you stated in DVD, "I wish I 've done this Test long time ago..."

Through Kolbe Test, we are able to understand ourselves much more, maximize our potential natural energy, WITHOUT PUTTING ANY EXTRA EFFORT to achieve our designed goals faster. As Chinese Proverb saying, " In this world, the most Difficult Person you really understand is yourself. If you can conquer yourself, nothing you can't overcome."

Tapping into our own natural resource, focusing on our wealth strategy, the Financial Freedom is closer than we think, Definitely !

Again, thank you Tom: for your Well organized, Consistent, and now "HIGH TECH" Financial Education program, and I'm awaiting for your next interesting, new subject.

And looking forward to meeting you in the coming event in Australia.

Thanks, Su for this great insight.

Tom

One of the questions that came up in our Ask Tom Live teleconference the other day was from Marisol who just filed her Articles of Organization in California in July. She wants to know the due date for paying the $800 minimum franchise tax.

The California law states that this tax is due by the 15th day of the 4th month of the tax year. When you begin a new company, your tax year begins the day you start business. So, if you start business on July 1, 2011, your franchise tax is due on October 15th. You have plenty of time, Marisol, to get this paid.

Warmest regards,

Tom

Keith had a question that we couldn't quite get to in our last Ask Tom Live Tax Edition. Here it is.

Q: Can expenses (car, cell phone, internet, office rent, etc.) be deducted from wholesaling business LLC (taxed as S-corp)?

A: Absolutely. As long as the expenses have a business purpose, are ordinary (usual) and necessary, they can be deductible in any kind of business, including wholesaling real estate.

Warmest regards,

Tom