The Tax and Legal Playbook

LLC

S-CORP

C-CORP

TAX

STRATEGY

ASSETS

liability? planning? retirement?

$$$

INVESTORS

THE

TAX & LEGAL

PLAYBOOK

THE TAX & LEGAL PLAYBOOK KOHLER

Game-Changing Solutions For

Your Small-Business Questions

MARK J. KOHLER

CPA, A orney

Mark is a superhero of super-smart tax and legal strategies for

businesses. He has the power to keep his clients safe from paying

too much in taxes. In The Tax & Legal Playbook, Mark offers

amazing tax strategies that allow you to keep

more of your hard-earned income.

—J. Massey, author, CEO, and founder of the CASH FLOW DIARY

Mark Kohler is the go-to source for tax and legal guidance for

small businesses. This is a must read for any business owner.

—Matt Allen, author of LEVERAGE YOUR IRA

and expert on ira lending

If you’re trying to change your financial habits, save money,

and build wealth, then having The Tax & Legal Playbook as

a resource is critical to your success.

—Cappi Pidwell, internationally acclaimed speaker and

expert on human behavior, nlp, and hypnotherapy

Tax and legal advice plus a playbook of strategies are what every

business owner needs. Mark’s book was written as if he were

hired to be your personal consultant providing you the

opportunity to build your personalized plan

and be on top of your game.

—Elinor Stutz, author of NICE GIRLS DO GET THE SALE

and INSPIRED BUSINESS

THE

TAX & LEGAL

PLAYBOOK

Mark is one of the most knowledgeable CPAs I know when it comes

to self-directing your retirement plan. Any serious investor

that wants to invest in real estate or a small business using

their retirement funds should read this book.

—Jeremy Ames, president of Guidant Financial Group, ranked in the top

1,000 small businesses in America by INC. magazine

Mark’s book and teachings are an absolute necessity for real estate

investors and those wanting to build wealth in the

real estate industry.

—Bob Snyder, president and founder of Renatus, a national leader

in online real estate education

Business owners need expert tax and legal advice. That is why

you need Mark Kohler! He is an expert on these matters

and his content is outstanding.

—Eric Lofholm, master sales trainer and

author of HOW TO SELL IN THE NEW ECONOMY

THE

TAX & LEGAL

PLAYBOOK

Game-Changing Solutions to Your

Small-Business Questions

MARK J. KOHLER

CPA, Attorney

Entrepreneur Press, Publisher

Cover Design: Andrew Welyczko

Production and Composition: Eliot House Productions

© 2015 by Entrepreneur Media, Inc.

All rights reserved.

Reproduction or translation of any part of this work beyond that permitted

by Section 107 or 108 of the 1976 United States Copyright Act without

permission of the copyright owner is unlawful. Requests for permission or further

information should be addressed to the Business Products Division, Entrepreneur

Media Inc.

This publication is designed to provide accurate and authoritative information

in regard to the subject matter covered. It is sold with the understanding that

the publisher is not engaged in rendering legal, accounting or other professional

services. If legal advice or other expert assistance is required, the services of a

competent professional person should be sought.

ebook ISBN: 978-1-61308-305-5

This book is dedicated to the amazing staff in my law and accounting

firms helping clients receive a proper tax and legal “game plan.”

vii

ACKNOWLEDGMENTS .................................................... XV

introduction

BUSINESS PLANNING WITH GAME PLANS ................................. .XVII

Building and Implementing a Game Plan.............. xix

What You’ll Learn in This Book ..................... xx

How to Read This Book ........................... xxi

PART 1

PRE-SEASON PLANNING

chapter 1

YOUR GAME PLAN FOR SUCCESS........................................... . 3

Six Characteristics for Success.........................4

Game Plan Takeaway and Action Items.................9

CONTENTS

viii • THE TAX & LEGAL PLAYBOOK

contents •

PART 2

GETTING THE MOST FROM YOUR BUSINESS ENTITY

chapter 2

SOLE PROPRIETORSHIPS........................................................ .13

Examine Your Business Needs ........................... 14

Game Plan Takeaway and Action Items.................... 20

chapter 3

LIMITED LIABILITY COMPANIES................................................. . 23

Three Major Reasons to Use an LLC ..................... 25

Series LLCs .......................................... 29

LLC FAQ............................................ 31

Game Plan Takeaway and Action Items.................... 33

chapter 4

S CORPORATIONS.............................................................. . 35

Reasons to Choose an S Corporation ...................... 36

S Corporation Tax Abuse ............................... 38

Choosing the Proper Payroll Level ....................... 39

The Future of S Corporations............................ 40

Avoiding the Affordable Care Act Tax ..................... 41

S Corporation FAQ .................................... 42

Game Plan Takeaway and Action Items.................... 43

chapter 5

C CORPORATIONS.............................................................. . 45

When the C Corporation Makes Sense .................... 46

Myths about C Corporations for

Small-Business Owners ................................. 47

Finding Trustworthy Advisors ........................... 53

Game Plan Takeaway and Action Items.................... 53

chapter 6

BUILDING CORPORATE CREDIT................................................... 55

What Is Corporate Credit? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

The Relationship Between Your Personal Credit Score

and Corporate Credit ................................. 56

THE TAX & LEGAL PLAYBOOK • ix

contents •

Seven Steps to Build and Improve Your

Personal Credit Score ................................. 57

Eight Steps to Build Corporate Credit..................... 60

Seven Devastating Mistakes to Avoid When

Building Corporate Credit............................. 61

Game Plan Takeaway and Action Items.................... 63

chapter 7

MAINTAINING AND PROTECTING THE CORPORATE VEIL............................ . 65

Four Ways the Corporate Veil Can Be Pierced.............. 67

Corporate Veil FAQ ................................... 70

Game Plan Takeaway and Action Items.................... 72

PART 3

GAME-WINNING TAX STRATEGIES

chapter 8

THE SMARTEST SMALL-BUSINESS TAX DEDUCTIONS.............................. 75

Write-Offs and Strategies ............................... 76

Home Office Deduction ................................ 81

Don’t Be Too Aggressive ............................... 83

Hobby Loss Rules ..................................... 83

Game Plan Takeaway and Action Items.................... 83

chapter 9

WISE HEALTH-CARE STRATEGIES ............................................... . 85

The KohlerCare Strategy ............................... 86

Game Plan Takeaway and Action Items.................... 96

chapter 10

HIRING FAMILY MEMBERS FOR TAX SAVINGS ..................................... 97

Paying Children Who Are Under 18 ...................... 99

Paying Children 18 and Older .......................... 100

Paying Grandchildren ................................. 101

Hiring Your Family FAQ .............................. 102

Game Plan Takeaway and Action Items................... 103

x • THE TAX & LEGAL PLAYBOOK

contents •

chapter 11

BUYING RENTAL PROPERTIES................................................... 105

Is Real Estate for Everyone? ............................ 107

Ten Steps to Purchasing Your First Rental Property ........ 108

Four Benefits of Owning Rental Property ................. 110

Rental Real Estate FAQ................................ 113

Game Plan Takeaway and Action Items................... 114

chapter 12

THE IMPORTANCE OF BASIC BOOKKEEPING ...................................... .115

Start with Separate Accounting.......................... 116

Adopt an Accounting System ........................... 117

Get Help Implementing Your Accounting System .......... 119

Bookkeeping FAQ .................................... 121

Game Plan Takeaway and Action Items................... 122

chapter 13

AVOIDING AN AUDIT........................................................... . 125

12 Ways to Stay on the Good Side of the IRS.............. 126

Game Plan Takeaway and Action Items................... 130

chapter 14

TAX-SAVING STRATEGIES FOR SELLING PROPERTY.............................. . 133

Option 1: Pay the Capital Gains Tax ..................... 135

Option 2: Installment Sale ............................. 136

Option 3: Like-Kind/1031 Exchange ..................... 136

Option 4: Charitable Remainder Trust ................... 139

Game Plan Takeaway and Action Items................... 141

PART 4

PROTECTING YOUR ASSETS

chapter 15

AFFORDABLE AND BASIC ASSET PROTECTION STRATEGIES....................... . 145

Asset Protection Myths ................................ 146

Basic Asset Protection that Works ....................... 148

Game Plan Takeaway and Action Items................... 152

THE TAX & LEGAL PLAYBOOK • xi

contents •

chapter 16

PRIVACY MEASURES VS. HIDING ASSETS ....................................... . 155

Reasons to Implement a Privacy Plan..................... 157

Four Stages of Asset Protection ......................... 161

Going Offshore ...................................... 166

Game Plan Takeaway and Action Items................... 166

chapter 17

PROTECTING YOUR HOME FROM A LAWSUIT ..................................... 169

Six Ways to Protect Your Home in a Lawsuit .............. 171

Game Plan Takeaway and Action Items................... 176

chapter 18

ASSET PROTECTION IN MARRIAGE AND DIVORCE ................................. .177

Who Owns What? .................................... 179

The Risk of Commingling.............................. 180

Rules in a Community Property State .................... 181

Division of Property in Common Law States .............. 181

Creating a Valid Marital Agreement ..................... 182

Marital Agreements and Asset Protection ................. 183

Estate Planning and Marital Planning .................... 183

Using Irrevocable Trusts to Avoid Marital Planning......... 184

Game Plan Takeaway and Action Items................... 184

chapter 19

CUTTING-EDGE ASSET PROTECTION STRATEGIES ................................ 187

Review Your Assets and Potential Risks ................... 189

Charging Order Protection Entities ...................... 190

Foreign Charging Order Protection Entities............... 191

Domestic Asset Protection Trusts ....................... 192

Retirement Plans ..................................... 195

Game Plan Takeaway and Action Items................... 197

PART 5

THE PROPER APPROACH TO PARTNERS AND INVESTORS

chapter 20

DOCUMENTING A PARTNERSHIP................................................. 201

xii • THE TAX & LEGAL PLAYBOOK

contents •

Pre-Partnership Vetting and Documentation .............. 202

Setting Up the Partnership ............................. 203

The Best Entity for a Partnership........................ 206

Partnership Management Tips .......................... 207

Game Plan Takeaway and Action Items................... 209

chapter 21

BRINGING ON INVESTORS...................................................... . 211

Investors vs. Silent Partners............................. 213

Avoiding the SEC Investor Classification.................. 214

The Crowdfunding Option ............................. 218

Game Plan Takeaway and Action Items................... 220

PART 6

PLANNING FOR THE NEXT SEASON

chapter 22

RETIREMENT PLAN OPTIONS................................................... . 225

Contribution Options ................................. 227

The Power of the Roth IRA and Roth 401(k) .............. 228

IRA vs. 401(k)........................................ 229

Small-Business Solo 401(k) Plan ......................... 231

The “Back Door” Roth IRA ............................ 233

Retirement Account FAQ .............................. 235

Game Plan Takeaway and Action Items................... 236

chapter 23

SELF-DIRECTING YOUR RETIREMENT FUNDS.................................... 239

Self-Directed IRA Basics ............................... 241

The IRA/LLC Structure ............................... 243

Buying a Future Retirement Home with Your IRA.......... 244

UDFI and UBIT Taxes................................ 245

Asset Protection for Self-Directed IRAs................... 246

Game Plan Takeaway and Action Items................... 247

THE TAX & LEGAL PLAYBOOK • xiii

contents •

chapter 24

FAMILY TRUSTS AND ESTATE PLANNING........................................ .249

Avoiding Probate with a Revocable Living Trust ........... 251

Estate Tax and the A-B Trust Strategy ................... 251

Don’t Gift Property with a Low Tax Basis................. 253

Creative Provisions for Children......................... 255

Disinheriting a Child .................................. 256

The Living Will/Health-Care Directive .................. 256

Using an Estate Closer ................................ 258

Game Plan Takeaway and Action Items................... 260

epilogue

POST-GAME WRAP-UP ......................................................... 261

PART 7

APPENDICES

appendix a

HOMESTEAD EXEMPTION BY STATE ............................................ .269

appendix b

TENANTS BY THE ENTIRETY BY STATE........................................... 275

appendix c

CHARGING ORDER PROTECTION ENTITIES (COPE) AND SERIES LLC BY STATE....... 279

INDEX........................................................................ .285