Q: Hi Tom,

My husband Josh and I are students of Robert Kiyosaki's Real Estate Investment coaching program and just finished our Wealth and Tax Coaching program with ProVision. We have found the tax coaching portion quite enlightening and had a few questions for you.

Question 1: We are in the process of setting up our holding LLC with Garrett Sutton's office. Our wealth coach recommended that we set up subsidiary LLCs in the states that we acquire real estate. Do you recommend that we set up the subsidiary LLCs ourselves, use an attorney, or go through any other intermediary? Thanks for your help!

A: I would suggest you use Garrett’s office for everything. That way you make sure that you have all of the details taken care of properly and your LLC’s function legally the way you want them to.

Question 2: We plan to primarily use seller financing to acquire multi-family real estate and transfer the property into a subsidiary LLC under the holding LLC. These acquisitions typically have a balloon payment built into the financing agreement. Would we run into any issues refinancing the property under the LLC with an institutional lender?

A: Yes you would. So the answer is that before you do the refinancing, you retitle the property to your personal name, do the refi, and then transfer the properties back into your LLC’s.

Brian sent in a question asking whether business start up expenses can be deducted. The answer is yes. The question is when. This year, up to $5,000 can be written off in the year you begin business with the remainder amortized (deducted) over the next 15 years. For more on this topic, go to www.wealthstrategyuproducts.com and sign up for our start up expense module under our Tax Products.

Warmest regards,

Tom

Q: Hi Tom, I am about 3/4 of the way through your School of Wealth Strategy course and have developed my wealth vision and determined I would like to invest in real estate. However, I am currently stationed overseas with the US military and do not wish to invest in foreign real estate. It will be about two years before I am back in the US and ready to actively invest. What can I do until then to advance my dream line and make me more prepared before I start actively investing? Should I start creating a wealth team including paying for a wealth coach and legal entity before I have any investment income? What are some typical shortfalls you see in clients who are seeking wealth coaching for the first time?

A: Congratulations on your decision and commitment to building your wealth. I definitely suggest you build your wealth team as soon as possible. The reality is that you don’t have to be in the U.S. to invest here. You just need a good team in place along with the internal controls, agreements and systems you put into place. I strongly recommend speaking to my team at ProVision for a good wealth coach. You can contact them at cs@provisionwealth.com. The biggest mistakes I see with clients are not getting their team in place and thinking that they need to do everything themselves. Wealth building is all about leverage and the most important leverage is using other people’s time and talents.

Warmest regards,

Tom

Q: We are embarking on our Wealth Vision, using your service. Our first call is coming up next week. We are ~40 years old and really don't have any "dreams" for down the road, beyond raising our kids. I think we have been too preoccupied to dream for ourselves. What suggestions do you have for us to get us dreaming?

A: Great question. I come across this quite a bit actually. I had a student at the 3-day seminar Robert K. and I did in Sydney last fall who was 75 years old and had never done any dreaming in his life. I taught him a simple technique for dreaming. Here you go. Close your eyes. Picture that place/location where you would most want to be if time and money were not an issue. Then, think about who you are with when you are there. And what you are doing. Then, open your eyes and write this down. Most people when they do this get a very clear picture of their dream.

Don’t be shy about your dream, Mark. Dreams are meant to be big and “unrealistic” in “adult” terms. Three year olds do the best dreaming. I heard of a mother who asked her daughter what she wanted to be when she grew up. Her daughter answered, “a tiger.” Now that’s dreaming. Unfortunately school and parents have a tendency to beat the dreaming out of us. The pattern for dreaming is simple, though. Start with a wish. Then, make it real in your mind. Put it down on paper. Then, determine what goals need to be achieved in order to reach the dream.

Have fun with your dreams.

Warmest regards,

Tom

Q: Hi Tom,

Can I deduct my $8,000 Provision fee under investment expenses on my tax return?

Thanks,

Richard

A: Yes, you can. However, there might be a better place for you to deduct this. If you have a business or rental real estate, you may get a better deduction by including it as an expense under one of these categories. Your ProVision tax strategist can certainly guide you in the right direction as he/she knows your situation much better than I do.

Q: Speaking of deductions, is visiting our daughter out of state at the college she is attending deductable? Is it deductable as a college expense?

A: No. This is a personal expense. College expenses are not deductible. There are certain credits available, though your travel to visit your daughter would not qualify for this either.

Warmest regards,

Tom

Q: You told Harold (the farmer) that he and his wife should buy houses separately because they would be able to buy more. If they have the same pile of funds to draw upon to purchase the houses, how would they get to buy more if they did it separately and not jointly.

A: Most loans for small properties, such as single family homes and duplexes, are done through Fannie Mae or Freddie Mac. Fannie and Freddie have limits on how many loans can be done through them. Let’s say you can only have 4 loans through Fannie and Freddie. If you purchase the homes as a couple, then you only get 4 loans, as each loan counts against each person. However, if Harold were to purchase properties in his own name and his wife were to purchase them in her name, in total they could get 8 loans.

I was not addressing the amount of cash they have for purchasing homes, only the number of loans they would be able to get through Fannie and Freddie.

Like everyone, I have been paying close attention to the campaign for the Republican nomination. I wanted to share some insights on the tax policy debate. I think everyone is missing the point of the debate over U.S. tax policy for a number of reasons. The candidate who actually understood U.S. policy and the good and bad of current and proposed U.S. policy would have a definite advantage in this campaign. So here goes my little tutorial on U.S. tax policy.

First let’s start with the misunderstanding of Mr. Romney’s tax rate. It is not 15%. It is at least 50%. Here’s why. When a corporation earns income, the corporation pays tax at 35% on all of the income. What’s left over after taxes can then be distributed to shareholders. This is in the form of dividends which are taxed at 15%. This doesn’t count state income tax. So while the shareholder may only be paying 15% directly, he is really paying 15% plus the 35% paid by the corporation.

Now let’s turn to what’s wrong with U.S. tax policy. It’s not the benefits to business owners and investors. That’s all good and works well. The tax law, as I have heard you say before, is a very efficient mechanism for promoting economic policy and even for stimulating the economy.

What’s wrong is the corporate income tax structure. Our corporate tax structure is one of the primary causes of our trade deficit. A U.S. business pays 35%+ tax on all of its income, regardless of where it is earned. So, if it earns the income by shipping products to France, it still pays corporate income tax on the money. In addition, France charges a 20% VAT on imports. In contrast, when a French company exports to the U.S., it is NOT required to pay U.S. income tax AND it receives an exemption from the VAT for the value of the exports. Effectively, the U.S. company is paying a 55% tax rate on its goods exported to France while the French company is only paying the smaller French income tax on its exports to the U.S.

There might be some reason why none of the candidates want to address this. I just think it’s a shame and the candidate that addressed it aggressively and in simple language could get some mileage from it.

Q: Can you address the specifics of using Quickbooks and the setup a chart of accounts that encompasses multiple entities possibly under a holding company or management company. And what about receivables and payables between these companies?

A: There is a lot to discuss in your questions. I would definitely use Classes in Quickbooks to handle the multiple entities under a holding company or multiple properties under a management company. Intercompany receivables and payables need to be well documented and tracked. Not too difficult once you get used to it. For more on this, I suggest you consider working with one of our tax professionals at ProVision. You can reach us at 866.467.5809. Just ask for Siggy.

Warmest regards,

Tom

Q: I have recently purchased a single family home with the intention to live there and rent additional rooms to some friends. What are my options for depreciating the value of this property?

A: You can depreciate the portion of the property that you rent out. You can either do this on a square footage basis or on a number of rooms basis. See our course on Home Office deductions for more details. The concepts are the same. You can find our course at www.wealthstrategyuproducts.com.

Warmest regards,

Tom