I have been coaching business owners for many, many years. One of the first items on the agenda for any coaching client is to create a clear, comprehensive business strategy. There are five areas of a business that require a clear strategy: Marketing, Sales, Production, Fulfillment, and Administration.

Most business owners have a pretty clear idea on their Production and Fulfillment strategies. However, business does not work like that famous line from the movie, Field of Dreams, "If you build it, they will come." It's not enough to have a terrific product or service. I know. ProVision has amazing services, but unless we get the word out, we cannot perform these services for even a fraction of the people who need them. (And virtually no business owner has even given a thought to a strategy for the administrative side of the business. More on that in a later entry.)

All businesses need a clear marketing and sales strategy. There are 4 key team members you need to leverage your marketing and sales. First is someone to help you with your branding. Second is a marketing professional. Third is a public relations professional. And fourth is a sales professional.

A little while back I met a terrific PR professional. Her name is Jill Lublin. She is a published author and PR coach. You can find her at http://www.jilllublin.com. In fact, she is doing a free teleseminar today that I would encourage all to join. You can sign up at http://www.promisingpromotion.com/teleconference.html.

Taking time to learn about this powerful area of marketing can have a huge impact on your business. Anyway, I wanted to pass this along to you as I have found most PR professionals to be extremely expensive for the results. Jill's focus is much more in line with ProVision's as she teaches you how to do PR and she is very affordable.

Warmest regards,

Tom

The answer, of course, is a resounding YES! Everyone can improve their sales. The question is not whether, but how? There are many books providing a vast array of techniques for improving sales. But my experience is that improving sales has much more to do with our mindset than it has to do with technique.

You may be wondering why a CPA is talking about sales. Believe it or not, even CPA's need to learn how to sell. I started ProVision out of a home office 12 years ago. I had two clients when I started. The only way you go from two clients to thousands of clients is to learn how to sell. I quickly learned that while I needed some good sales techniques, what I really needed was a change in mindset about sales.

For most of us, sales is a bad word. The very image conjures up sleazy used-car salesmen. Or we think of that pushy neighbor who tried to sell us life insurance. Or we may simply have a tremendous fear of rejection. Or, we may have been told by our parents that it is improper or impolite to talk about money. All of these thoughts amount to a lot of head trash.

So, what to do about that head trash? We need to reprogram ourselves if we are going to be successful in business. Because the number one skill of any entrepreneur is SALES!

The person who does the best job at reprogramming people about sales that I know is my good friend and client, Blair Singer. Many of you know Blair because of his close affiliation with Rich Dad. Blair has a 2-day seminar coming up in November http://www.salesdogs.com/authentic/provision.html that I have attended (and spoken at) several times. It is an excellent opportunity for any of our readers to learn how to improve their mindset about sales.

On Monday, October 22nd, Blair and I are giving a free teleseminar that is a preview of this excellent seminar. You can register at http://www.provisionwealth.com/seminars/Details.asp?Seminar_ID=8
Join Blair and me for an excellent discussion about improving your personal sales abilities and those of your sales team.

Warmest regards,

Tom

What do you do when you have an emergency in your business? How do your people react? Will they pull together or fall apart? Will they support the business or do they care more about themselves? These questions were all answered at ProVision this year in a most positive manner.

At 5:00p.m. on February 1st of this year, my partner who was running our Irvine office and all of the employees of that office decided to leave the firm. We were caught totally unawares by this action. Of course, we had to move quickly. We needed to assure our clients that we could take care of them from our Arizona office.

Since most of our clients are not local, taking care of the Irvine clients from Arizona did not really present a difficult challenge. What did present a challenge was introducing the clients to their new CPA and tax coach and reassuring them that nothing would be lost in the transition. To complicate matters, we were in the middle of tax season, our busiest time of the year.

I was curious as to how our professionals and staff would react when I informed them of the previous evening's activity in Irvine. We would be asking them to call our clients and to take on additional responsibility in the middle of busy season.

To my great delight, they responded with enthusiasm to take on this challenge. They were totally willing to work the extra hours and give the extra effort to make sure our Irvine clients were well taken care of. This really shouldn't have surprised me at all. We have a terrific staff and they care so much about our clients. Still, as a business owner and creator of ProVision, I was moved by their care for the business and for our clients.

My Arizona partners and I decided we needed to do something for our employees to reward them for their efforts. We told them we would set aside the profits from the Irvine clients for the following few months and use it for a team activity. Then, we let them choose the activity. There was enough money to take everyone on a cruise, including some spending money for them. Last weekend, we took the cruise. Look for my blog tomorrow to learn about the cruise and its impact on our team.

Warmest regards,

Tom

Yesterday, I told you about how our team at ProVision pulled together when my Irvine partner decided to leave the firm. Our team pulled together so well, that we decided to send everyone on a cruise. That cruise happened last weekend. Today, I want to tell you about the cruise and the effect on our team.

It wasn't a big cruise; just a short, 3-day cruise from Los Angeles to Mexico and back. All but a few of our staff were able to join us on the cruise. Some brought their spouses, but most did not. I wondered how the team would react to spending 3 days together on a boat. This proved to be somewhat of a litmus test for our team and how well they would get along.

The result was truly amazing. During the three days, the group spent almost all of its time together. Everyone spent a little time on their own, I'm sure, but for the most part they spent time with each other. Whether it was at a show, at Bingo or in the casino, they wanted to be with each other. Even at port, people stayed together and went into town together in groups of 4-10 people.

While we were rarely all together at the same time (with the exception of dinner and one specific team building event), the groups formed and changed and everyone was included. In three days, I never heard a single complaint from anyone about anybody else. There were no harsh words and many kind words. I saw a lot of caring and concern for each other and a lot of comraderie.

What I didn't expect was how good this would be for the team. I had heard that the producers of the hit show, Friends, had sent the actors all to Las Vegas before they began filming the first show in order to get them to know each other and be able to work together. I didn't realize how successful it could be for a group of business associates.

This wasn't the typical gathering of employees where everyone is polite and barely wants to speak to each other. It was the complete opposite. Everyone made a significant effort to make sure all were included and all were having a good time. A lot of friendships were made or solidified on this trip.

I have been asked by some of my co-workers since the cruise if I would go on another cruise. To be honest, the cruise itself was nothing special. But the people were special and I would go anywhere with any or all of them. They were great and I feel it a great privilege to be part of this ProVision team.

Thank you again, ProVision team members, for all you do for the business, for our clients, for each other and for me. I have never before worked with a group of people like this. Thank You! Thank You! Thank You!

I hope you can generate the spirit in your business that we have here at ProVision. It makes life so much more enjoyable when you have a great team.

Warmest regards,

Tom

One of my favorite activities is to attend the Rich Dad http://www.richdad.com staff meeting. I really appreciate Robert allowing me to come. He has a way of opening my mind to new ideas that I cannot really describe. He is definitely on the cutting edge of whatever he does and constantly is thinking of new ideas.

One of the ideas Robert presented yesterday was about how important it is that we feel productive. This idea may not be cutting edge in the traditional sense of the term, but it a very important concept for business owners and investors like myself to think about. Everyone in the organization needs to be and feel productive.

Productivity does not just mean you are busy. It means that you are busy doing something that you are good at and you are being successful at what you do. The first question I asked myself on my drive back to the office was whether each of my employees was productive. This is a fairly challenging question that all business owners should ask themselves every day.

People who are not productive simply are not happy. They don't feel like their life is fulfilling or that they are contributing to the organization. And, in fact, they probably are not contributing to the level that the should and could.

Some of the business owners reading this may feel like I used to, i.e., how can anyone not be or feel productive? Can't they generate their own productivity? After all, entrepreneurs by definition are idea generators and never lack for productive work. Sometimes, however, we feel like everyone else should be just like us.

In my experience, there are relatively few people are idea generators. And most of these people own their own business and/or are working diligently to create their own wealth. As employers, we have to help our employees see our vision and give them direction so that they can be productive all of the time. Not an easy task.

Productivity is also a question that every investor should ask him/her self. Is your investment strategy productive? Do you feel productive with your investment strategy? Are you making the progress you want to make? Is your chosen asset type (paper, business, real estate) something you are good at? If you are not good at it, is it at least something you enjoy doing and are you doing something to get better at it? Finally, do you have someone helping you evaluate your investment strategies whose sole interest is in your success (i.e., they have no personal/financial interest in what investments you choose)?

Just a few thoughts provoked by the master mind of Robert Kiyosaki.

Warmest regards,

Tom

Last week I had the privilege of visiting one of my premier clients, Jeff People at Window Book, Inc. in Cambridge, Massaschusetts. Window Book, http://www.windowbook.com is a wonderful company that provides a remarkable service for any business that uses the United States Post Office (USPS) to any substantial degree. Window Book's software can save a business thousands of dollars in postage, save time in getting postal bundles ready, and then actually track the location of the package, even using first class.

The reason I went out there was to help evaluate the business. The result should be increased sales volume and decreased costs. As I was writing up my report, I started to wonder how many businesses take the time to really evaluate where they are and where they are going with a view to understand what it will take to reach their goals?

As business owners, we think about our businesses constantly. Most of the time, we are focused on specific issues or opportunities and we tend to get caught up in the day-to-day routine of the business. Even if we take time to personally evaluate our business, we often don't have the perspective to see opportunities that someone else might see.

I have to hand it to Jeff People, the CEO of Window Book. He knows that he cannot see everything there is to see in his company and values the assistance from his business coach coming in to review the business and find additional opportunities for success.

It took less than two days and the result will be an immediate impact on profit and a long-term increase in sales. I encourage all of you to take advantage of your Business Coach to perform an evaluation of your company.

What are some of the areas to be evaluated? At ProVision, we break down a company into five distinct areas: Marketing, Sales, Production, Fulfillment and Administration. Each of these areas should have a complete strategy and each should have systems set up to maximize the productivity of every dollar that is spent.

Take time to have your Business Coach evaluate your company at least once a year. You will find amazing results. If you don't have a Business Coach or want to find a new coach, contact us at info@ProVisionWealth.com or call us toll free at 1-800-467-5809.

Warmest regards,

Tom

Friday morning, as usual, I got up and weighed myself first thing. The scale read 171 lbs. Good news, right? This meant I was 4 lbs closer to my target of 165. I had a pretty good weekend (eating wise) and Monday morning was anxious to weigh myself so I could report to all of you how much weight I had lost. The scale showed 175lbs. So, either I gained 4 lbs over the weekend (possible, but not likely, even if I were retaining fluids) or the scale was wrong on Friday, Monday or both. Today's weight was 174lbs.

What can we learn from this? The obvious thing to learn is that I might want to try another scale to check the reliability of my scale. (Of course, I might also be retaining water.) So, I'm going to begin weighing myself at the gym and at home a couple of times a week to see if my scale is reliable.

I find the same thing happens in business and investing. We may think we are making progress, but it could be that we simply have a scale that is giving us incorrect information. This is why good accounting and good reporting is so important.

Tonight at 7:00p.m. I am speaking in San Diego at The Learning Annex (http://www.thelearningannex.com. The topic is Wealth Strategies and how to get your wealth on the fast track to financial freedom. The event is free to the public. It's not too late, so come join us if you are in the area. I am also speaking in Los Angeles on the same topic on Thursday evening.

One of the most important things I will be talking about is getting a handle on where you are and where you are going. You must have an accurate picture of where you want to go, both in terms of your dream as well as in terms of what it will take to reach your dream (i.e., net worth and passive income). Equally important is knowing where you are now. That's why our website has a tool for analyzing your wealth goals, http://www.ProVisionWealth.com/wealth_evaluator.asp and we offer software in our home study course, Financial Freedom Now! that allows you to create a current income statement and balance sheet. (Go to http://www.ProVisionWealth.com/products.

How good are your metrics? Are you sure you are using the right scale? If not, check out our Wealth Evaluator and Financial Freedom Now! course to find out if you are on the right track.

Warmest regards,

Tom

Last week I was pleased to host a teleseminar about the new online world of blogs and social networks, otherwise known as “Web 2.0”. It was presented by my friends James Burgin and Jon Ward of Brandwithin. What struck me most about the presentation was the extraordinary marketing potential of these new online phenomena. Once you know some basics about the new Internet, you can quickly build brand recognition and drive tons of qualified traffic to your web site. I discovered how important it is just how you position yourself in the “worldwide conversation” and I also picked up some great technical hints on how to drive more traffic quickly. We recorded the presentation by James and Jon, so you can still hear it – and follow the accompanying notes – at the ProVision web site (http://www.provisionwealth.com/seminars/Details.asp?Seminar_ID=16). Be sure to listen soon, as the recording will only be available until February 22nd. If you have any product or service to market, you definitely will want to tune into this new information. It’s a real revelation.

Warmest regards,

Tom

As a CPA and wealth strategist, I'm often asked by new business owners and investors about the best way to handle their bookkeeping. Should they do it themselves or hire a bookkeeper to handle it for them?

This is a more difficult question than you might think. On the one hand, many of you have heard me say that the most expensive words in the English language are, "Do It Yourself." And bookkeeping is not exactly a difficult task. There are lots of bookkeepers out there who charge anywhere from $15 to $40 per hour. I'm sure you could find them on e-lance or other outsource networks.

The difficulty comes from the communication of information from you to the bookkeeper. It's one thing if the bookkeeper is "in-house," that is, they pay your bills and handle a lot of your transactions. In this case, they will have most of the information they need from the source documents and they should have a pretty good understanding of your investing and/or business situation, i.e., what the bills are for (so where to classify the payments). Of course, if you take this option, you will want to have good internal controls in place so the bookkeeper cannot misappropriate (i.e., embezzle) your money.

However, if they are not in-house, but are instead just recording the information after the fact, it gets a little more difficult. I have been wondering for years why this is so challenging for a bookkeeper. We had so much difficulty finding a bookkeeper that could do a good job for clients, that a few years ago, we created our own bookkeeping company. Even with our own company, though, we could not always get the bookkeepers to produce accurate information. We ended up disbanding our bookkeeping service. It wasn't profitable for us and our bookkeepers were not doing a good enough job for our clients.

I finally came to a conclusion that the reason accurate bookkeeping is so difficult is that it is a matter of communication between you and the bookkeeper. You know what the bills are for, but this may not be evident just from the documents you provide. So the bookkeeper asks you questions about what every bill is for and where it should be categorized in your books. Then you start wondering why you are paying them if you have to tell them how to do their job.

The reality is that bookkeepers tend to have difficulty making judgment calls about where to classify a payment. And clients tend to get upset when payments are misclassified. This can be a no-win situation for both parties.

My conclusion is that for most investors, it's probably easier and less time consuming to do your own bookkeeping. You can pay your bills on line; most of them you can even have the bank pay automatically. Then, you can set up Quickbooks to automatically classify recurring payments to the right account. I spend about 30 minutes a week paying bills and doing my bookkeeping. And I have three companies. So I really take about 10 minutes per company per week.

Of course, I have been doing accounting for many years and I understand it very well. And, I have set up the accounting properly. The good news is that you, too, can learn how to do this and it doesn't take much time. At ProVision, we are in the process of creating two learning modules for bookkeeping and accounting. Look for them to come out in the early Fall on our Products page at http://www.ProVisionWealth.com/products. And don't be afraid to call our office at 866.467.5809 for help with your accounting set up.

Whether you do your own bookkeeping or hire someone, be sure to learn the basics so you can know that you have accurate records. You need these records to be accurate so you can get good information from them for your investing and business needs, as well as for the IRS and the bank.

Please let me know your bookkeeping experiences and whether you have had more success doing it yourself or outsourcing it. I would be very interested.

Warmest regards,

Tom

Aloha again from Hawaii!!! Wish you were here. Seriously, I wish everyone could have the opportunity that blesses my life every year of taking a 2-week vacation in Hawaii, Paris, the Carribean, or the mountains of Utah. If you haven't every tried a 2-week vacation, I would strongly encourage you to plan to do so soon. If done right, it can have a huge, positive impact on your business and wealth. Let me explain.

I'm guessing that most of you take your vacations 1 week at a time. This is a big mistake. The goal of a vacation should be a renewal of your energy so you can be more effective and more efficient the rest of the year. In most cases, a one-week vacation cannot accomplish this. Why not? Well, if you work hard all year and need a vacation to relax you, then the first 2-3 days of your vacation will be spent coming down off of your stress level. The last 2-3 days, of course, you are thinking about what you need to do when you get back home. So you really only have 1-2 days of true relaxation. That's just not enough.

Now add 7 days to your vacation. This is an additional 7 days of pure relaxation and for most people 8-10 days of total relaxation is enough to reinvigorate you for the next 12 months. And while you are on vacation, BE ON VACATION! If you have to answer emails (which I don't recommend), then answer them early in the morning and preferably only 1-2 times a week. If you have properly set up your business/investments then you will have no problem avoiding emails completely for 2 weeks. See our ProVision business and/or wealth coaching for more on how to set things up so you don't have to deal with your business while you are on vacation (go to http://www.provisionwealth.com).

I know, some of you are noting that I am writing this while I am on vacation. Yes, but not because I have to. Because I want to. I want to share this experience with you while it is fresh with me. Let me share a few of the relaxing activities of this past week.

My partner and his wife joined my wife and me this year. (Think about the potential tax benefits from doing this!) Early on in the trip, we took a fishing boat out of Kona. About 20 minutes into the trip, I caught a 160-pound Marlin. We tagged it and released it as there was no way we were going to eat 160 pounds of fish over here.

Later in the week, we did a couple of scuba dives. The last one we did was a night-time dive to watch the Manta Rays. This was truly an amazing experience, as four giant rays did what I can best describe as a ballet for us while we were sitting on the ocean floor about 30 feet under the water. If you ever get the chance to do this dive, don't pass it up. It is truly spectacular.

Then the next day, we took a trip down to the southernmost part of the island to see the green sand beach. Yes, it is really green sand. Amazing!

Today, I took a serious bike ride from Waikoloa to Waimea, something I have tried before but the wind knocked me off my bike. I fought my way through it this time and made it to the top (about 10 miles on a steep incline with serious wind). The reward at the top was my favorite Hawaiian diner, the Hawaiian Style Cafe, where I had a pancake as my reward (yes, just a single pancake and I didn't even finish it - their pancakes are 9" in diameter) before heading back down. This is the only ride I have ever done where the downhill portion was tougher than going uphill. The crosswinds twice blew my bike a foot sideways and I barely hung on until reaching the bottom.

Hope I didn't bore you too much with my travelogue. And I really hope you take the opportunity to take a 2-week vacation soon. It's the best. If you are worried about the cost of such a vacation, check into our ProVision Strategic Wealth Coaching. Anyone can become financially free with the right education and the right coach.

Well, that's all from Hawaii. I'll write again next week when I'm back in Phoenix.

Warmest regards,

Tom

Debbie from our School of Wealth Strategy asks the following question:

Q: Tom, what do you mean when you say we should build a business around our investing?

A: This is the question of all questions and gets to the core of ProVision and what we are all about. Let's start with a little background.

Historically, all great fortunes have been built in business. Whether it was Andrew Carnegie, John D. Rockefeller, Bill Gates or Warren Buffett, all great fortunes have business as their foundation. You really don't hear about great fortunes being made by investors. Ever wonder why? It's because business done right provides the most leverage, greatest velocity, and least amount of risk of any money-making activity.

I come from a long line of entrepreneurs. My father owned a printing company, his father owned an insurance agency. I learned early on in my life what it was like to run a business. But my father, while a great printer and a wonderful person, was not a great businessman. So I have spent my life learning what makes the difference between a great business and an average business. Why do some businesses grow and grow while others seem to hit a ceiling past which they can't grow?

The answer to this question lies in the foundation of the business. Small businesses stay small when the owner spends his or her time running the business. Effectively, these people own their job. They have no time to work on the business because they are always working in the business. The key is how to get the owner out of the business operations and focused on the business growth. The answer is for the business to create a strategy and a set of systems that implement that strategy. Then, and only then, will the business owner have time to grow the business. When the strategy and systems are in place, the owner only has to manage the systems, not the people. The owner isn't doing the work, the employees and other team members are doing the work.

In case you think this is a fantasy, let me explain that I have done this with my accounting firm. My partner, Ann, is a systems genius. My expertise is in strategy. So once I created the strategy for the firm, Ann created the systems. The result is that Ann doesn't spend any time at all on the accounting firm and I spend about 3 hours a week. If it can be done with a professional services firm, it can be done with any business.

So, back to Debbie's question. What does this have to do with investing? I have discovered that the business principles of strategy and systems can be applied to investing. Investors who create a business of investing, by developing a strategy and implementing systems, can enjoy the same results enjoyed by a successful business owner, i.e., higher profits, more growth, less time spent on investing, total control over their investing and less risk.

These are the principles I teach on T. Harv Eker's stage, Chris Howard's stage and Robert Kiyosaki's stage. These are the principles I have followed to create an accounting firm where I only spend 3 hours a week managing the firm. And these are the principles I follow in my real estate investing.

The good news is that Ann and I have decided to share all of our strategies and systems with you. And we have made it as inexpensive as possible. How? Through our School of Wealth Strategy and our School of Tax Strategy; two inexpensive subscriptions that each include hours of training materials and a monthly coaching call with me. To sign up, simply go to http://www.provisionwealth.com/products. It's fast and it's easy.

We want to share more of our strategies and systems, so we are continually adding more sessions to our Schools. The response from our current members has been fantastic.

Thanks to Debbie for asking this question.

Warmest regards,

Tom

I woke up this morning and realized that it's April 16th and by anybody's standards, as the CEO of a CPA firm specializing in tax services, I should be exhausted. I'm NOT! Why not? Because I have an amazing team and systems in place. I can honestly say that I have not done or reviewed a single tax return this year, other than my own.

This great team along with the systems my partners and I created and maintain allow me to focus on the parts of the business that I do best and that I enjoy the most. In the past three months, I have been on stage speaking to audiences ranging from 40 - 1,800 participants. I have been on radio and television. And I have continued our monthly coaching calls in both our School of Tax Strategy and our School of Wealth Strategy.

I want to take this opportunity to thank my partners at the CPA firm - Rob Deines, our managing partner, Scott Snow, our partner in charge of international tax matters, and Rondi Habern, our partner in charge of estate and trust planning. And all of our other CPA's and staff who have made this Tax Season a success.

You, too, can build a team that allows you to do the parts of your business and/or investing you enjoy the most. Join us in our School of Wealth Strategy to learn how at http://www.wealthstrategyuproducts.com.

Remember that when you have the right team and systems in place, your financial freedom is closer than you think.

Tom

Sam asks the following question:

Q: I live in Ohio and would like to know whether I should set up an LLC or an S Corporation. I am beginning to take courses sponsored by Robert Kiyosaki's Rich Dad in real estate. My first courses will be Wholesale Buying in real estate and Lease Options. Later, I would like to take courses in Short Sales and Creative Financing. It appears that an LLC would be better for me than an S Corporation for better asset protection and might be better for other reasons. Since I am an Ohio resident, would you recommend that I incorporate with an LLC? Thanks.

A: I need a little more information before I can answer this question. What are you going to do with the real estate when you buy it? Are you going to resell it or hold it for investment? If you are going to hold it for investment, you definitely DO NOT want to use an S corporation. If, as I suspect, you are going to immediately resell the property, then you want to be formed as an LLC TAXED as an S corporation.

LLC’s have the asset protection advantage of a charging order. For more on charging orders and asset protection, go to our ProVision products page at www.provisionwealth/products, click on Tax Strategy Products, and go to our product entitled, “What You Really Need to Know About Asset Protection.”

You have a choice how to tax your LLC. You can tax it as a sole proprietorship, a partnership (if there are two or more owners) or a corporation. So, you can elect to tax your LLC as an S corporation. Make this election by filing form 2553 with the IRS. S corporations are particularly good for operating companies that only have a few owners. For more about what company to use in your business, go to www.provisionwealth/products, click on Tax Strategy Prodcuts, and go to our product entitled, “Entity Fundamentals.”

Warmest regards,

Tom

In yesterday’s blog, I answered Sam’s question about whether to use an LLC or an S corporation for his operating company. Sam has a couple of more questions about setting up his company. The answers could prove useful to many of our readers.

Q: I am beginning training in Robert Kiyosaki's Rich Dad courses in Wholesale Buying in real estate, Lease Options, and Short Sales. What would be the purpose I should put onto the Corporation Application? Would the purpose be simply "To Conduct Real Estate Services for Profit"?

A: The purpose you are suggesting is fine. Or, you might simply say, “Real Estate.” The state asks for the purpose of the business because they will publish that purpose to the world. What do you want the world to think? You want it to be broad enough to cover whatever you might do or you might want to narrow it if your LLC is only going to be used for a very specific purpose.

Q: What do you charge for performing the paperwork for my application for an LLC or an S Corporation? I am a resident of Ohio.

A: While we are happy to do the paperwork to make your S corporation election (the form 2553), I suggest you use an attorney for the LLC or go to www.llc.com. This is a great website with terrific customer service. If you have more than one owner, I strongly suggest you use an attorney to create an operating agreement for your LLC.

Q: Is there a website where I can check to determine whether a particular corporation name is available?

A: Your state website is the logical choice for finding out whether the name you have chosen is available. I would also suggest you go to www.godaddy.com or another URL reservation website to make sure the URL is available if you are planning to have a website for your business.

You can call our office toll free at 866.467.5809 if you would like more information about the price and extent of our services.

Warmest regards,

Tom

Tanya asks a really good question about using multiple companies:

Q: I "own" an S corp but also own a business providing bookkeeping, etc. to other businesses. Would having the support company provide the services I would normally provide to the S corp be beneficial in any way?

A: Definitely – in the right circumstance. Remember that all tax planning depends on the facts and circumstances (i.e., what’s going on). Let’s say that your net income from your S corporation is substantial so that you are in a 35% tax bracket. Let’s say your net income from your bookkeeping service is only about $25,000. You could put your bookkeeping service into a C corporation and get some serious tax benefits.

C corporations normally are taxed at 15% on the first $50,000 of net income. So in this case, you would save $10,000 by using a C corporation for your bookkeeping business if you could get $50,000 of income into the company. Since you only have $25,000 of outside income, charging your S corporation for bookkeeping services would increase the tax savings in your C corporation.

One little caveat. Personal service corporations don’t get a 15% tax bracket. Personal service includes accounting. It’s an interesting question whether bookkeeping and accounting are the same thing. If you don’t want to take this risk, you might look at some other services that you could provide to your S corporation to take advantage of the 15% bracket in your C corporation.

For more on how to use C corporations, go to www.provisionwealth.com/products and click on our Tax Strategy Products box. Then, go to our product called, “Making the Most of Your C Corporation.”

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

How do I get my 401(k) money out to start a business without being taxed on it? I must get this question at least twice a week, so it’s about time I answer it here on my blog. There are two possible ways to do this. The first is to borrow out whatever you are allowed by your company. Normally this is 50% of the value of the account. This is my preferred solution to this question.

Helena asks about the other possible solution.

Q: Can I set up a pension plan in a new C corporation, then roll my 401(k) into that C corporation and have the pension plan buy stock in the C corporation?

A: Potentially, yes. I say potentially because the IRS recently has been attacking this transaction. There are several companies who will set this up for you. Technically, it should work. The IRS is attacking it under their broad powers of collapsing transactions that only have a tax purpose. The new health care bill signed last week by President Obama includes a provision that may make this attack even easier for the IRS.

In that bill, the “economic substance” doctrine, which has been around for eons of time in the courts, was added to the Internal Revenue Code. The essence of this law is that if you cannot show a substantial non-tax purpose for the transaction, then the IRS can ignore the transaction. The fines they can impose are enormous – 40% of unpaid tax with no relief possible unless you can win your economic substance argument.

I am not a big fan of this transaction for many reasons. First, the obvious potential for the IRS to reverse it and assess penalties. Second, you now own your company through your pension plan, so when you eventually sell your company, all of the distributions will be taxed at ordinary income rates.

Third, the company is subject to tax on all of its earnings currently at corporate tax rates that reach as high as 35%.

So, I would suggest you either borrow out the money or pay the tax now on the distribution.

Warmest regards,

Tom

The most important thing we get from a business is cash flow. The temptation, of course, is to spend this cash flow on boats, vacations and other lifestyle items that don't add to our wealth. One of our School of Wealth Strategy students, however, wants to use his business cash flow to build his wealth in other investments outside his business. David asks the following question:

Q: Hi Tom! I have a business related question. Is it possible to use reinvest the positive cash flow from my business into another asset class so that my surplus funds are not just sitting in a bank account? My business is an education consulting and coaching business, and I want to use the surplus funds or profits to invest into paper assets and create cashflow through options in order to develop more cashflow. I was curious about how the taxing for this type of situation would occur, and what the cashflow from the investing would be categorized as in the book keeping. Thank you Tom!

A: Absolute yes to your first question, David. Not only is is possible, it is highly recommended. This is the way to build wealth. Here is how you do it. First, treat your business separately from your investments in your accounting. To do so, open a separate bank account in a new entity for your investing. For type of entity, speak to one of our Tax Strategists at 866.467.5809. Your new entity will have its own set of books. You will distribute out the funds from your business entity to you individually and then contribute them to your investment entity as a capital contribution. Then, you can go ahead and invest through your investment entity.

When you use the proper entity structure for your business and investing, not only do you get the best asset protection, you also reduce your taxes and maintain good records.

Everyone should follow this formula for building wealth. Use your excess cash flow for wealth building activities. Be sure you are using the right entity and maintain good bookkeeping so those entities are respected by the IRS and the Courts.

Financial freedom comes from cash flow, tax reduction and solid wealth building principles.

Warmest regards,

Tom

It seems like it’s family week on my blog. Another question about doing business with family members. This one is from Helena:

Q: If my parents want to invest their money with me (instead of buying a CD at a bank) and I agree to pay them 7.5% interest, how do we structure the agreement, how & when do I pay them interest, and how do I keep track of it legally from a tax perspective? They also want to know if they can simply "write me a check" in order to purchase (if you will) the CD from me. In this example let's use $40,000... can you help me to do this the right way?

A: You are asking good questions, Helena. You need to treat this just like you would a loan from someone totally unrelated to you. You need to draft a simple note that includes all of the terms, including the interest rate, the length of the note, whether it is payable upon demand or at a specific date, when the interest will be paid (needs to be at least annually) and what happens if it is paid late.

This is a great opportunity for you and your parents to help each other. Every seasoned real estate investor knows that the more capital they have, the more money they can make due to the effects of leverage. People without the knowledge or desire to invest in real estate or a business would do well to put this money with someone who can do more with it than if they just put it into the bank.

Warmest regards,

Tom

One of the most common questions I get from real estate investors is whether they can qualify for real estate professional status under the tax law. By doing so, all of their real estate investment losses can be deducted currently. Rosemarie is the most recent student to ask this question:

Q: How do I qualify as a real estate professional? My husband works for an employer and I am taking on the real estate investing with his help. I do not earn an income from any source. Our concern is that his income is relatively high now and we are going to lose the business and personal deductions because we started mid-year and are building the foundation to the business.

A: Real estate professional status is a fairly straightforward test. First, you must spend more than 750 hours during the year involved in real estate. Second, you must spend more time in your real estate business than all of your other businesses combined. The good news for you, Rosemarie, is that if you qualify, then your husband doesn’t need to qualify.

The other good news is that even if you don’t qualify, you don’t really “lose” your deductions. They simply get postponed until you have passive income, either from real estate or some other passive business activity. It would be a good idea for you to sit down with a qualified real estate tax specialist to go through the passive activity and real estate professional rules. We are happy to help you find someone if you don’t already have a good CPA to go to. Just contact us at cs@provisionwealth.com

Warmest regards,

Tom

I’m a little late answering this question, though it is a moot point, since you can never shift income by lending money from your S corp to yourself. Income shifting is a bit dicey in any case. You have to have a legitimate purpose for shifting the income. C corps are probably the best way to shift income providing you can come up with a real business purpose for doing so.

I suggest you sit down with a Tax Strategist so you can permanently reduce your taxes instead of playing games each year through income shifting.

Warmest regards,

Tom

Interesting question that came in from Perrilee:

Q: Is there a tax advantage to opening a business bank account over a personal account? I keep hearing to open a business account, WHY? Thanks Tom

A: You only need a business bank account if you have a business. Any business entity MUST have its own bank account. All income earned by that entity should be deposited to the entity’s bank account and all expenses of the business should be paid out of the entity’s bank account. If you have a sole proprietorship (no entity), then you still should have a bank account set up solely for the business. This makes things much easier for the tax return and also for an IRS audit to prove that you really have a business.

Of course, the real question is whether you should have a business. The answer is “YES!” Businesses get lots of tax benefits and can provide tremendous cash flow. If you want to learn how to run a business and how to become an entrepreneur, look for the new Global Entrepreneurs Organization (GEO) coming out of Rich Dad later this spring. I am heading up this new initiative and is will be outstanding. Finally, hands-on training for entrepreneurs. And, you can make money while you train.

Warmest regards,

Tom

Sudhir asks the following question about LLC’s:

Q: I am starting a new entity with a non-related business partner to buy and hold rental real estate. Should this new entitiy (LLC as partnership) should be member managed or manager managed? I do have about 10 rental real estate portfolio outside of this partnership under different LLC's and i am in the process of forming a holding company and working with Rob as Tax strategy client. This partnership LLC is to be set up soon as we have closing date for our first property soon. thank you

A: Rob has probably already answered this question for Sudhir. Still, this is a common question and I am happy to respond to it here on my blog. I am a big fan of manager-managed LLC’s. This designation gives you more control over who can handle LLC affairs. It could be one or more of the members. Or, it could be that you hire an outside manager. My attorney friends also tell me that there is some asset protection benefit to a manager-managed LLC, though I suggest you ask them to be sure. For more on asset protection, join Garrett Sutton (Rich Dad legal advisor) and me at our Tax and Asset Protection course. We hold this course every month in a different location. Go to www.RichDadEducation.com for more information.

Warmest regards,

Tom

California has a nasty tax on LLC’s of $800 per year plus a fee if the LLC’s income exceeds $250,000. Bryan wants to know if Louisiana has similar taxes and fees on LLC’s.

A: Louisiana does not appear to have any special taxes on LLC’s, but rather treats them the same as they are treated for Federal tax purposes. So, if you elect S status for Federal purposes, you should be treated as an S corporation for Louisiana state purposes as well. It doesn’t appear that Louisiana charges LLC’s any special fees or other taxes.

Warmest regards,

Tom

This question come from Joe, one of our ProVision clients:

Q: I recently went over my tax strategy with Cindi and we concluded that my best option is to set up my trading account within an LLC for asset protection since I would not qualify as a trader at this point. I do plan to quit my job and become a full time trader at some point. Should I start to build business credit now for future purposes?

A: You can never start too early building business credit. Since debt and taxes are what make you wealthy, gaining access to more debt is essential to building your wealth. It’s great that you already are setting up an LLC and yes, you can start building business credit immediately. If you need help, I suggest Garrett Sutton’s training course on building business credit. You can find it at www.sutlaw.com.

Warmest regards,

Tom

One of our most active students, Perrilee, asks the following question:

Q: Tom, When I charge business expenses when do I get to claim them on my taxes, date of purchase or date of paying them on the credit cards. Payments on credit cards can go over the end of the year or even 2 years. Thanks Perrilee

A: This is a great question. You get them as of the date of the charge. So, even if you don’t pay them off until the next year, you get them in the year you made the purchase. This is an exception to the general rule that you don’t get to take an expense until you pay for it. The reason is that you have borrowed from one party (the credit card company) and paid the vendor (the company you bought it from). If you had purchased the item from the vendor on an account with the vendor, then you would not receive the deduction until you paid the vendor (unless you are on the accrual base of accounting).

Warmest regards,

Tom

This is a very common question, the answer to which can make a big difference in your tax liability and your cost of doing business, as well as your asset protection. Our student, Mindy, asks it this way:

Q: Hi there, We are just starting out...we live in California but own property in Nevada. We want to invest in and eventually hold real estate. What would be the best place state to start our business... and S corp or LLC state? Thank you.

A: You should definitely form your LLC in Nevada for your real estate that you own in Nevada. I would also suggest you form your LLC for your business in Wyoming or Nevada if you are ever planning to leave California. This way, you can take your entity with you when you leave California and stop paying California’s $800 minimum tax.

You should speak to my friend and fellow Rich Dad Advisor, Garrett Sutton, about whether to form an S corp for your business or an LLC taxed as an S Corp while you are doing business in California. Garrett is an asset protection attorney and can best advise your regarding the challenges of LLC’s in California. You can contact him at www.sutlaw.com.

Warmest regards,

Tom

Lot’s of people get into business with family members. Joe, one of our students, is among them. His question is about the right entity to use when you do this.

Q: I have a family member that is running a repair service business, I was thinking of approaching him to buy in to the business. Im sure he is not set up within an entity. I would like to help set up a good foundation with an entity to help reduce taxes but Im not sure on how I would be paid since I would not be doing much of the work within the business. What entity would be best for this situation? How would we pay ourselves individually within the business?

A: Treat a family business just like you would any other business. Set up an entity that will protect you from your partners, from the IRS and from potential lawsuits. In most states, the best entity for this is an LLC. Here is what you do:

Form an LLC with your partner (family member). Then, form a second LLC that only you (or you and your spouse) own. This LLC will own your interest in the LLC you have with your partner. The first LLC should be taxed as a partnership. The second LLC should be taxed as an S corporation. Your S corporation will receive distributions from the partnership. That’s how you get your share of the profits from the business.

We go through this structure in great detail in our course, “Building Your Perfect Foundation” in our School of Wealth Strategy. You should also take a look at our course, “Making the Most of Your S Corporation” for how to deal with your S corporation. You can find them both at www.provisionwealth.com/products.

The S corporation will significantly reduce your taxes. One other way you can do this is to simply be a limited partner. If you don’t want any say in the business and just want to invest, you could form a limited partnership, where your family member is the general partner and you are the limited partner. In this case, you would not need a separate S corporation. However, remember that you cannot have any control over the business if you are a limited partner and the minute you do (such as have check writing privileges) then you automatically become a general partner, subject to much higher taxes and losing your asset protection from being a limited partner.

This is why getting fully educated about taxes is so important. Taxes are totally dependent on your facts and circumstances.

Warmest regards,

Tom

For some reason, new investors seem to be concerned about opening a separate bank account for each of their entities. Remember that each entity is a separate business. So, to get the benefits of asset and tax protection through your entities, you must have a separate bank account for each entity. Here is a question about this from one of our students:

Q: Tom, What are the advantages of having a business banking account for my real estate investments? What I have done is have a separate personal account for each LLC, keeping the bookkeeping simple and each bank statement only for that lLLC. Is there a benefit to business over personal account? Thanks, Perrilee

A: You don’t have to have a separate bank account for each of your real estate investments. You just have to have a separate bank account for each entity, e.g., each LLC. You can keep the bookkeeping simple by using a holding company structure like the one we talk about in our course, Building Your Perfect Foundation. A separate bank account for each entity tells the courts and the IRS that you are willing to treat each LLC as a separate and distinct entity and follow appropriate business practices for those entities. Without the separate bank accounts, both the IRS and the Courts and claim that you really don’t have separate entities and in fact all of your investments should be treated as being owned by you individually. It’s as if you never formed the entities in the first place.

Warmest regards,

Tom

Like all other expenses, whether travel is deductible depends on the facts and circumstances of the travel. All travel can be deductible if your facts are right. One of our School of Tax Strategy students asks the following question about deducting international travel.

Q: Hello Tom, I was just on your travel, meals, and entertainment call and was not able to ask my question as time really flew by. So, my husband and I are going to Mexico in March for vacation for a week and I was wondering if there is ANYWAY we can make the trip or at least part of the trip be deductible? If so, what do we need to do and how do we document it? (We did purchase our two first rental properties in December 2010 that have been bringing in rent from day one). Also, as I am from Sweden I tend to want to fly home every so often... is there something I can do to make those travels deductible? Thank you for teaching what you know! /Helena from Philly PA

A: In order for your trip to Mexico to be deductible (or your trips to Sweden), you must be traveling for business. You could be traveling to hold a business meeting, such as an annual shareholders meeting, or you could be traveling to research and purchase real estate (your business). You must be able to show a true business purpose for the travel and that the travel is ordinary and necessary. In our course, Travel, Meals and Entertainment, we go through in detail how to determine whether your travel is ordinary and necessary.

One other thing for international travel. You don’t have to spend all of your time, or even most of your time on business to get a portion of it deductible. Whatever portion of the time you spend on business is the portion you will get to deduct. This is different than domestic travel, where it’s all or nothing.

Warmest regards,

Tom

In this economy, a lot of people are starting to take control of their own investing and financial endeavors. Many of our readers have never owned a business or managed their own investments. There are, of course, serious tax consequences to active business and investing to go along with all of the wonderful tax advantages of active business and investing. Karie asks the following question about her new investing career.

Q: I am a new investor, setup an LLC like Robert suggested and now don't know where to start. All our money is in our names not sure how to roll it over to the company. We purchased our first home in September, rehabbed it and have renters in the home with a cashflow of about $250. All money that was out of pocket came from our current account. I was looking into getting Quickbooks which I feel will benefit us. I have been keeping all receipts for our expenses and now we have revenue. How do we get started to make sure our first year taxes go smoothly.

A: First and foremost you must keep good records. Quickbooks is always a good idea. Second, you must find a tax advisor/tax preparer who understands your business as well as understanding how to reduce your taxes. Real estate is a complex area of the tax law and requires a specialist. I suggest you find a firm that specializes in real estate investors. If you don’t have someone like this already, feel free to call our office at 866.467.5809 to find out if our firm, ProVision, would be a good fit for you.

It is very important that you start out the right way. This will take a lot of stress from you. I applaud you for recognizing this. There are several more questions you will need to answer. How should your LLC be taxed? How do you maximize your depreciation deductions? How do you get money in and out of your business without bad tax consequences? All of these should be answered during your Tax Strategy with your tax advisor.

Warmest regards,

Tom

There is potentially a huge difference in taxation between a real estate dealer and a real estate investor. A dealer is taxed on his net income (income less costs) at ordinary tax rates and could also be subject to self-employment tax on this income. An investor is taxed on net income at capital gains rates. If he owns the property for more than 12 months, then the maximum tax rate is 15%. Plus, he can do a like-kind, or 1031 tax-free exchange of the property into a new property. And there is no self-employment tax for an investor. So the goal for every property owner is to have as much gain as possible from their property taxed as investment, or portfolio income.

Nick has been talking to his tax advisor who has painted the following scenario for him. Nick is asking me whether it works. (Seems perhaps like Nick is not entirely confident in his tax advisor and now wants a second opinion. Nothing wrong with a second opinion. I do wonder if you want a tax advisor in whom you are not entirely confident.) Here is Nick’s specific situation and his advisor’s recommendation:

Q: Hi Tom: Nick here again. I have been recently informed by my tax advisor that being a real estate "dealer" is NOT a good idea and we should try to avoid this status labeled by the IRS if at all possible. I understand there are ways to try to prevent the IRS from labeling my business as a real estate dealer (I currently wholesale and retail contracts/deals). One technique suggested by my tax advisor was to create two entities. The first entity would be a C-Corp. This entity would enter into all contracts and transactions. The second entity would be a LLC taxed as an S-Corp. My LLC would charge my C-Corp a fee to find and manage the deal. Example: Let’s say I (My LLC) finds a great wholesaling deal. My C-Corp enters into Contract and closes on the deal. The profit from said deal is $150,000. My LLC would then charge my C-Corp a fee of $150,000 which zeros out the profit/loss from the C-Corp thus I avoid having to pay any taxes on the C-Corp entity. Since my LLC is taxed like a S-Corp, I would deduct all expenditures ($25,000), then pay myself a salary ($25,000) and take the rest ($100,000) in dividends. Is this a viable tax strategy? Can you provide some light on this and let me know if it's okay to structure my entities this way? Thanks in advance! – Nick

A: The first challenge, of course, with this answer is whether the IRS will allow a shifting of the entire profit from a deal away from the company that did the deal (the C corp) into another company. Why would the C corp even do the deal if there is no profit? I’m not quite sure why you even need the C corp. Why not just have the S corp do the deal and not worry about the IRS? No difference in outcome. BTW, this doesn’t avoid the S corp from being a dealer and recognizing ordinary income. Other than reducing self-employment tax (which I like), I’m not sure what this structure does for you.

There are ways to split the baby, so to speak, so that some of the income is taxed as capital gain while the rest is taxed as ordinary income. For more about this, come to the Rich Dad Education Tax and Asset Protection course. You can get more information on this course by sending an inquiry to cs@provisionwealth.com.

Warmest regards,

Tom

A huge industry has cropped up over the past several years that involves recommending real estate investing inside an IRA. Some of you have heard me say that I think this is a bad idea. Jim was on our call last week when I mentioned this again. He has the following question about it:

Q: I don’t know if you’re open to this kind of communication but I’m hoping to get an answer to a question that came to mind when I heard Tom make a statement on the live event last Thursday. He said that buying real estate through a self directed IRA was silly because you are putting a sheltered asset inside another shelter. He clearly felt that buying real estate through the Self Directed IRA was a bad idea. I have money in a SD (self-directed) Roth IRA and my understanding of the SD Roth IRA is that once you satisfy the tax burden of the Roth you never pay taxes on any profits made on future investments. My question is are there ways to shelter real estate outside of the SD Roth IRA that would be as effective?
Example (as I understand it per Entrust Arizona): If I have $100K that I moved from a Traditional IRA into a Roth and I pay the tax on that $100K at say 20% leaving $80K, I can, through the SD Roth, turn the $80K into a million (or more, no limits) and never owe any tax on the $920K or more that I earn. The $920K can come from fix and flips, or even wholesale deals (as I understand it). Are there ways to shelter the $920K outside the Roth if I’m not holding the real estate but rather buying and selling or buying and flipping?
I haven’t been able to find anyone yet who is willing to give me an affirmative answer on this and I’m hoping Tom’s commitment to educating the masses will allow him to take a moment for a response.

A: I am very happy to debunk this advice. First the obvious. Doing wholesaling or flipping inside an IRA will likely be subject to the Unrelated Business Income Tax, a tax that is at a 35% federal tax rate as soon as you reach $7,500 of taxable income. Second, chances are very high that you will have engaged in a “prohibited transaction” if you do this. The reason? You are prohibited from rendering any services to your IRA. If you are doing any of the work with regard to the wholesaling or flipping, you have a prohibited transaction. Prohibited transactions result in the IRA being treated as being distributed to you plus severe penalties.

Now let’s say all you want to do is true real estate investing. You want to purchase real estate and then rent it out for the long term. This is allowed without tax inside an IRA, whether regular or Roth. There are still serious challenges with this. First is the lack of leverage. As most real estate investors know, real estate is a best an average investment if you use all of your own money. While leverage (debt) is allowed on real estate in an IRA, very few lenders will loan to an IRA as the loan cannot be guaranteed or co-signed by the beneficiary of the trust or any related party (that means you!).

Next, you lose all of the tax benefits from depreciation. A good tax advisor will show you how to create tax losses from your real estate that can offset other taxable income even while receiving positive cash flow from the rental property.

To avoid taxation on your gain, you simply enter into like-kind exchanges (also called 1031 exchanges). These can go on forever. You can still get cash out (through borrowing) and you can render any services you like. There simply is no need for a serious real estate investor ever to be taxed on cash flow or appreciation from rental real estate. And you have total control of the asset. The IRS isn’t putting restrictive rules all over you like they do when you invest through an IRA.

Long answer to a simple point. Never put a tax shelter inside another tax shelter. This is a case where two rights make a wrong. For more about this, register for my Rich Dad Education Tax and Asset Protection class (three days taught every month around the U.S.) by inquiring at cs@provisionwealth.com

Warmest regards,

Tom

Many of you are just starting out in your first business. This may be real estate investing or some other business. Hopefully, like Perrilee below, you are running your business through a limited liability company (LLC) or similar entity to protect yourself from lawsuits and judgments. Perrilee wants to know how to get money back out from the LLC that she earns in her business. She asks the following question:

Q: Tom, I have an LLC that is actually accruing money in the bank from the single family residence rentals. How do I Pay myself from this business account? Wages? If yes, for what? How do I do this? I put down money from my savings for down payments and expenses. Can I get paid back any of these expenses? Thanks, Perrilee

A: This depends on how you are taxing the LLC. Assuming you have not made an special elections (such as to tax it as a corporation), then your LLC is treated as a sole proprietorship (if you are the only member) or as a partnership (if there are two or more members). In either of these cases, you can put money into the LLC or take it out at any time. It’s unlikely you will ever incur tax by doing so. This is one of the great benefits of treating your LLC as a sole proprietorship or a partnership when you are investing in rental properties. It’s just a return of capital. Your expenses should be deductible against your rental income.

Warmest regards,

Tom

One of the most common (and overlooked) business expenses is for your car. You have the option of using the actual expenses (including some depreciation) or using the IRS mileage rate. Doug and Sandy ask the following question in this regard:

Q: Tom, I have a follow up on business vehicles. You said something about up to 80% business use. Am I right in thinking that the actual expenses are much better than the mileage deduction due to the added depreciation factor? If I have signs on the vehicle will this override any small personal usage? If we do have personal usage do we keep those miles and then reduce the depreciation by that value? We are moving into the rent and hold business.

A: I’m going to focus on the mileage vs. actual question. The IRS mileage amount includes a factor for depreciation. General rule is that if you drive a lot of miles then use the mileage deduction. If you only drive a few miles, then use the actual expenses. Signs on your car don’t make it all business. The IRS only allows the percentage use for business based on business vs. personal mileage. If you use the actual expenses, you simply multiply the total expenses (including depreciation) by your business use % to determine your deduction.

For more on maximizing your automobile deductions, visit our School of Tax Strategy at www.provisionwealth.com/products. We have an entire course focused on these tax savings opportunities. And don’t forget that your home office will affect your business mileage.

Warmest regards,

Tom

There are lots of types of entities that can be used for your business and investing activities. One activity we are seeing a lot of lately is wholesaling real estate, where you put a property under contract and then assign the contract to another buyer before close. This gives the wholesaler some cash flow without having to actually purchase the real estate. Jay asks the following question in this regard:

Q: Hello Tom: I'd like to start a real estate company for wholesaling transactions. I plan to flip the deal or contract of said property to other buyers/investors for quick profit. Most deals will net me anywhere from 5K-200K+ in profit. In each deal, I do not plan to hold title no more than 30 days. With this being ordinary income, which type of entity should I form to best mitigate my tax liability for these types of transactions. Thank you in advance. Jay

A: For most regular business activities, like wholesaling, I typically like using either a limited partnership or an S corporation. Either of these can use an LLC as the legal entity with simply an election to be taxed as a partnership or S corporation. The reason I like these entities is because they both serve to reduce the amount of self-employment tax you pay on the net income from the business.

Be sure to work with a qualified tax strategist when setting up your entity (or entities). You can avoid a lot of headaches and taxaches (my newest word) from the very beginning. Call my office for more information on tax and asset protection strategies at 866.467.5809. Ask for Siggy.

Warmest regards,

Tom

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