http://www.tomwheelwright.com/ by Tom Wheelwright, Founder and CEO of ProVision en Copyright 2012 Sat, 12 May 2012 15:12:29 -0700 http://www.sixapart.com/movabletype/ http://blogs.law.harvard.edu/tech/rss This question comes from Kelly Q: I want to use part of my traditional IRA for investing in growth assets, via a self-directed traditional IRA in precious metals or something else, eg real estate. What do you think? I will convert to Roth ASAP, but cannot do so this yr b/c of receiving soc sec (not wanting to lose it) -- next year. You didn't talk about precious metals as growth asset -- why? Thank you!! Clear and helpful!! A: You should not lose your social security because of converting an IRA to a Roth IRA. You only lose social security if your earned income is too high and a Roth conversion should not be treated as earned income. I am adamantly opposed to investing in real estate inside an IRA. You would be putting a tax shelter (real estate) inside another tax shelter (IRA) and the result is loss of the tax shelter. Good investments for an IRA include all high tax income, such as interest income, short term capital gains and gains from precious metals. Precious metals are not assets as they do not create cash flow. They are simply insurance against inflation. http://www.tomwheelwright.com/2012/05/ira_for_investing.html http://www.tomwheelwright.com/2012/05/ira_for_investing.html School of Tax Strategy Sat, 12 May 2012 15:12:29 -0700 This question comes from Kelly Q: How should I choose a financial advisor? Credentials? Check on state registration, training, complaints? A: I would recommend against a financial advisor. No financial advisor is going to care about your money like you do. Instead, get the education that you need to invest yourself and then sit down with a wealth strategist to help you figure out what type of investing you should do and how to set up your investing like a real business. Our CPA’s at ProVision are the best wealth strategists I know. Feel free to contact us about a wealth strategy at cs@provisionwealth.com. http://www.tomwheelwright.com/2012/05/how_to_choose_a_financial_advi.html http://www.tomwheelwright.com/2012/05/how_to_choose_a_financial_advi.html School of Wealth Strategy Fri, 11 May 2012 15:11:10 -0700 This question comes from Richard Q: Hi Tom, Based on your knowledge of IRS standards, would educational activities (like reading books about real estate or attending a seminar)count toward the 750 hours in a year needed to be considered a real estate professional? Thanks, A: Yes, so long as you have other hours that include managing the property, construction or real estate broker type business. It’s not enough to have investor hours. You must also have hours that only a real estate professional would incur. This is a tough test to meet and the IRS is challenging it every chance it gets. We have been fortunate to win this on audit several times. For more help, please feel free to call our office at 866.467.5809 and ask for customer service. http://www.tomwheelwright.com/2012/05/real_estate_professional.html http://www.tomwheelwright.com/2012/05/real_estate_professional.html School of Tax Strategy Thu, 10 May 2012 15:07:56 -0700 This question comes from Jesus Q: Hello, I heard that if you fix and flip (properties). Currently, you get exempt from paying tax up to 2013? Is that true? Can this be forwarded to the right person in ProVision, or send me a link to where I can post this (ask a question)? Thanks, Jesus A: Jesus, not sure where you heard this but it is not true. When you fix and flip you are in a business and are subject to tax like any other business. In fact, if you don’t use the proper entity structure, you could be subject to tax up to 56%, depending on the state in which you are doing business and your other income. http://www.tomwheelwright.com/2012/05/fix_and_flip.html http://www.tomwheelwright.com/2012/05/fix_and_flip.html School of Tax Strategy Wed, 09 May 2012 15:06:16 -0700 This question comes from David Q: Dear Tom: Here is my question: Can I combine the losses from my sole proprietorship real estate investment activities with my other sole proprietorship gains to determine my total net self employment income for 2011? These are all Schedule C activities. I invested a little over $60,000 in Rich Dad courses and other related expenses (travel, meals, mileage, office supplies, establishing an new LLC, etc.) in 2011. The only money I made in Real Estate in 2011 was from holdings my wife and I already had prior to 2011. We net about $15,000 before taxes from those activities on Schedule E. I am a self-employed construction professional and self-employed part-time flight instructor. The gross earnings from these activities was over $120,000 in 2011. Expenses are significant, putting the net at about $85,000. I also converted an IRA (approx. $135,000) to at Roth IRA in 2010, and am splitting the taxes over the 2011 and 2012 years. My accountant says that you are limited to how much you can deduct for “start up business expenses.” If over a certain amount (approx $50,000) it has to be amortized over a ten year period. I say this RD and Provision course expense is not a start up, since I already own and operate investment real estate, I hold a RE Broker’s license in one of the states where most of my property is located, although it is on “inactive status” right now. I also held a Real Estate sales license (now expired) in another state, where another property is located. So, I am not “starting” something new, just expanding and supercharging my business. I really want to deduct all the education and other expenses to offset my high earnings and the added income effect of the IRA rollover. I formed an LLC for RE investment purposes last year, but I did so after paying for the Rich Dad and Provision education and coaching. Can I transfer the costs to the LLC?, or should I? I know…..”IT DEPENDS!” That is why I am asking you. Thanks in advance, David A: Your education at Rich Dad definitely is NOT a start up cost. I strongly suggest a new tax advisor. Your current CPA clearly has not done his research or simply does not understand the law. You are a real estate professional (construction plus rentals) and your Rich Dad education is simply improving the skills in your current business. If you would like help finding a new CPA, please contact ProVision Client Services at 866.467.5809 or email us at cs@provisionwealth.com http://www.tomwheelwright.com/2012/04/deducting_education_1.html http://www.tomwheelwright.com/2012/04/deducting_education_1.html School of Tax Strategy Thu, 26 Apr 2012 07:46:56 -0700 This question comes from Jesus Q: Tom and Team, Need to set up an entity. I'm thinking of an LLC. Need to include 3 rental properties in CA that I've had for at least 3 yrs each. Would also like to include my home (prop I live in, had it for 9 yrs). Though, I also should be doing some "quick turn" prop transactions/deals (flips, assignment of contract, wholesale, etc) - within a year. For asset protection purposes and tax implications (short term and long term capital gains) what might be the best entity? Do I also need a land trust? A: First let’s answer your last question. You probably do not need a land trust unless you are looking for extra privacy and/or concerned about California transfer taxes. The entities you set up really should be done in context of an overall tax and asset protection strategy (TAP strategy). A TAP strategy looks at the cost and benefit of each type of entity within the context of your goals and business and investment plans. Remember that there are significant costs to LLC’s in California, including an $800 annual minimum tax and a $900-$11,000 additional fee on gross receipts as soon as you reach $250,000 of gross receipts. If you would like to speak to one of our tax strategists, please call ProVision Client Services at 866.467.5809 and we would be happy to help you decide on the best way to handle your entities and properties. http://www.tomwheelwright.com/2012/04/setting_up_an_entity.html http://www.tomwheelwright.com/2012/04/setting_up_an_entity.html School of Wealth Strategy Wed, 25 Apr 2012 07:45:35 -0700 This question comes from Brady Q: I am just starting my real estate business. I have 3 strategies that I am going to focus on. 1.) Wholesaling properties to other investors 2.) Lease Options 3.) Brokering, manufacturing, and selling mortgage/seller financed notes. I will be selling/flipping properties to investors using the wholesale strategy. I will be holding/controlling the debt services and cash flow by using a contract to lease option homes currently owned by someone else. And, I will be brokering or assigning seller financed notes to other financial investors, institutions, etc. As the business grow I expect to buy notes for cash flow secured by real estate. Since I am new and starting out fresh, what would be the strategy for these different parts under 1 company? Or what would be your suggestion of entity structure since one will be selling and 2 will be buy and holding? Thanks a bunch! A: You certainly will want a different entity structure for your buy and hold properties than your selling businesses. There are many considerations, including how much activity you will have in each business, how much profit you expect in each of the businesses and your level of concern for protecting your assets. I would suggest you sit down with one of our tax strategists and map out a plan for both your entity structure and how you will use each of the entities you set up. You can do so by calling ProVision Client Services at 866.467.5809. http://www.tomwheelwright.com/2012/04/entity_structure.html http://www.tomwheelwright.com/2012/04/entity_structure.html Business Strategy Tue, 24 Apr 2012 07:43:18 -0700 This question comes from Sione Q: Question: What courses in your wealth strategy and tax strategy series should I take before signing up for the advanced training with Rich Dad Education and Tigrent Learning? A: I would suggest you take the first four wealth strategy courses (Vision, Massive Passive Income, Strategy and Team) and the first two of the Tax Strategy courses (Entity Fundamentals and Perfect Foundation). I would also suggest you read my two books, The Real Book of Real Estate and Tax Free Wealth. That said, I think you cannot go wrong with Rich Dad Education advanced training and we have many clients who do our training in tandem with Rich Dad training. You should also consider a Wealth and Tax Strategy with one of our CPA’s. Feel free to contact our client services group at cs@provisionwealth.com or 866.467.5809. http://www.tomwheelwright.com/2012/04/wealth_strategy_courses.html http://www.tomwheelwright.com/2012/04/wealth_strategy_courses.html School of Wealth Strategy Mon, 23 Apr 2012 07:42:01 -0700 This question comes from Katherina Hi Tom; when i first sign up for rich dad education in May 201, I use my husband’s corp to pay for my tuition and I’m not the employee of that company. I m the primary of the education program and my husband is a guest and we take courses together since then. My question for you is that the money that i spend on education and travel to take class at other states during the year 2011 is tax deductible? A: It depends. It depends on the nature of your husband’s business and the nature of the education. I would strongly suggest you work with a CPA on developing a tax strategy that maximizes this deduction. If you need help finding a CPA who understands how to do this, please contact ProVision Client Services at 866.567.5809 http://www.tomwheelwright.com/2012/04/deducting_education.html http://www.tomwheelwright.com/2012/04/deducting_education.html School of Tax Strategy Fri, 20 Apr 2012 12:54:09 -0700 This question comes from Richard Q: Does it matter which of my two LLCs I set my business checking up with? I have one Wyoming LLC serving as a holding company for my Virginia LLC. Right now I have my LLC checking account set up with the Wyoming LLC, but I wanted to find out if it would be better to use a checking account with the Virginia LLC. A: You need a bank account for each LLC. Most of your activity should be within your Virginia LLC so that would be your most active account. A savings account would probably be sufficient with your Wyoming holding company. http://www.tomwheelwright.com/2012/04/business_checking_accounts.html http://www.tomwheelwright.com/2012/04/business_checking_accounts.html Business Strategy Thu, 19 Apr 2012 11:50:02 -0700 This question comes from Ron Q: I was seeking this wealth strategy as a way to invest the money that I am making in wise ways. The main asset direction that I have been interested in is real estate... However, I just heard something that could be a big game changer. Is it true that I cannot get the tax leverage from depreciation (which I understood to be one of the biggest motivations) unless I am a full-time real-estate person... and more importantly, unless real estate is my biggest use of time? I am in a career that I love and that is bringing in more and more money all the time... and wanted this other direction as a wise way to invest that $. Please help! A: Great question. The rule you are referring to is the passive loss rule as it applies to real estate. The general rule is that unless you are spending more than 50% of your time doing real estate and more than 750 hours doing real estate, then your losses from your real estate (generated by depreciation) are limited. At ProVision, we have devised strategies to deal with this rule so that it is rare that an individual doesn’t get full benefit of his or her real estate losses. These strategies are a little more complex than can be answered in an email and require more time and information from you. If you would like to know more, please contact ProVision Client Services at cs@provisionwealth.com or 866.467.5809. http://www.tomwheelwright.com/2012/04/wealth_strategy.html http://www.tomwheelwright.com/2012/04/wealth_strategy.html School of Wealth Strategy Wed, 18 Apr 2012 11:48:41 -0700 this question comes from Marisol Q: If we just started an LLC, but we do not own real estate then we are not considered to be doing business yet? A: No. Not until you have real estate ready to be rented. http://www.tomwheelwright.com/2012/04/when_does_your_business_start.html http://www.tomwheelwright.com/2012/04/when_does_your_business_start.html School of Tax Strategy Tue, 17 Apr 2012 11:15:31 -0700 Q: What are the positives and negatives of having a CPA local to your area? Does it matter? I only ask if it will make a difference if I need to sit with them in person when doing bookkeeping, otherwise I'd just go with a CPA through Provision. Thanks again in advance. Love these sessions!! A: The only benefit of a CPA local to your area is if you want to go in and sit down with them in person. At ProVision, we work with most of our clients by phone, fax and email, even those who are local to Phoenix. We do have people come into Phoenix once in a while just to meet their Tax Advisor in person or because they want to go over a diagram that they would like to see drawn out on a white board. Even bookkeeping can by done remotely (and is probably more efficient that way). Since Phoenix is a beautiful place to go in the winter, you are always welcome to come and enjoy the sunshine and make it a tax deductible trip. http://www.tomwheelwright.com/2012/04/local_cpa_is_it_a_benefit.html http://www.tomwheelwright.com/2012/04/local_cpa_is_it_a_benefit.html Mon, 16 Apr 2012 11:14:05 -0700 Q: This may sound like a silly question: Does each business I own or will own need to have a separate chart of accounts? A: Yes. Each of your businesses should be set up as a separate company in Quickbooks. http://www.tomwheelwright.com/2012/04/chart_of_accounts.html http://www.tomwheelwright.com/2012/04/chart_of_accounts.html School of Tax Strategy Sun, 15 Apr 2012 11:13:09 -0700 This question comes from Sione Q: Hi Tom, My question is regarding bookkeeping. If I haven't started my business yet, would it be a good idea to practice bookkeeping using quickbooks pro for my personal finances? Thank you in advance for your help =) A: Definitely a good idea. http://www.tomwheelwright.com/2012/04/start_using_quickbooks_pro.html http://www.tomwheelwright.com/2012/04/start_using_quickbooks_pro.html School of Tax Strategy Sat, 14 Apr 2012 11:08:42 -0700