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Episode 024 - LLCs: How to Form Them, Use Them, Pick Your Taxation and Why

llcs protection Feb 08, 2019


Find out more about Garrett Sutton at his website,  You can pick up his free guide, The High Cost of Cheap Corporations, there.  Also, you can apply for a free 15-minute consultation. 

Garrett is also the author of several MUST-HAVE books for your library.  My favorite is Loopholes of Real Estate but I don't think I would be anywhere without Own Your Own CorporationBuying and Selling a Business, and Writing Winning Business Plans


Also, if you would like to try  WAVE Financial, you can go to their website,, and check them out.  

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Here are just a few of Garrett Sutton's amazing books that Michelle referenced in today's podcast. Note, these are Affiliate Links.  Plus, you can try Audible for 30-Days Free and get your first audiobook free.  After that, you can pay by credit or purchase a membership.  With a membership, you get 1 audiobook and 2 Audible Originals each month for only $14.95 per month.  Prime members get 2 FREE Kindle books this month.  Make them Mr. Sutton's!

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Show Transcript

[00:01] Over the last two centuries, nearly 90 percent of the world's millionaires have created their wealth through real estate. Here to tell you how you can ride this wave with less risk and less capital while creating greater income, is your host, best selling author and Speaker, Michelle Russell.

[00:21] Hi, this is Michelle, the Master of Money Mindset, and you are listening to the Short Term Rental Revenue Podcast...

and in today's episode, we are talking about llcs because we have gotten a ton of questions about them. Now. I've got two very good friends of mine that I've got requests in to do an llc interview with and both of them are willing and able only their schedules have been conflicting, so I'm going to get some basic information out to you. I'm going to head this up with one of those disclaimers that says I am not an attorney. I don't even play an attorney on tv that this is just my personal opinion, but I am going to have my friends who are both attorneys and one of them is a corporate attorney and he hopefully he will be on to tell you exactly what you can and cannot do with your llcs, but I'm going to tell you a little more about them because we've gotten a ton of questions about llcs, but before we get into that, what we're going to do is tell you the contest rules.

[01:27] I know you're so excited because I am so excited. This is our first contest, our first giveaway. We're giving away that Amazon camera. That camera is amazing. I know it's worth at least 120 bucks or I can't remember what they told me it was worth, but it was like over a hundred and 20 bucks. I remember that. Anyways, you can get that Amazon. You can get this Amazon camera for yourself, link it up to your ear lock system and set it up through Amazon, through your Alexa App and everything. And what's really cool is once you do that, you can let the Amazon guy into your house and the camera will be on him and he, they'll see him opening your door. They give them the code, you know, it was that one time code, he opens your door, shoves your package in there. Honestly, you got to see the video because it's super cool and you know the liability that goes along with that, the liability insurance must be outrageous that Amazon is willing to pay to allow guys to do this.

[02:27] But I think it's a cool concept. So I'm super, super psyched. Obviously you can use it for other reasons if you want to put it on your dog, you know, while you're at work all day and you want to have, you know, be watching your dog and see how your dog is doing. I don't blame you for that. I love watching my dogs, but whatever you want to do with it, it's all up to you. But how you earn it is by leaving a five star review on itunes. So leave your five star review on itunes and then you have to email us your real name and your user name together because I guess you can have like all these cool, you know, like Surf City USA or whatever you have as your itunes name. So when you leave a review for somebody, it shows your little cute little name that you made up and not your real name unless you put your real name in there.

[03:17] So we're going to need some kind of, you know, just send us an email that has your username, whatever you use to leave reviews on through itunes and your real name. Now we're not going to ask you to verify that until you win. If when you are the winner and we've got the winter, we're going to just ask you to verify by showing us your account and stuff. And it's super easy verification process. Give us your firstborn child, your credit card. Now I'm just kidding, but super easy verification process. Now remember what I said, if you left a five star review any time in the beginning through January 10th, then you're going to get two entries put into the drawing so you get, you know, you get to double your chances as everyone else, everyone else, you can only leave these reviews obviously starting now, starting now, start your engines now, but they have to be left by the 18th of January to be in this contest.

[04:15] Okay? So make sure you get your five star reviews in there and then send us the email and you're going to send that to [email protected] That's our parent company. It owns all of our other companies. It owns all of our intellectual property. It owns everything. So that's our parent company. And you can just send it to [email protected] And remember you get two entries if you left your review before January 10th and you know on January 10th as well. And then if you're leaving at any time between January 11th and January 18th, you get one entry. And remember, sometimes your reviews don't show up, so they told me, you know, just to mention this, if you are reviewed, doesn't show up, go ahead and go into your apple account in inside itunes and when you go to the account, I guess it would be the account overview.

[05:17] You'll be able to scroll down to the bottom and see the reviews that you left and click on that and just take a screenshot of, you know, the reviews that you left and you can see that you've left it for short term rental revenue and it'll have your little user id and stuff on there. And then just send us that and you know, so if you don't see it pop up right away. If you know, then then do that just to make sure, because we want to make sure your entries in there. But I guess that depending on where you listened to it, sometimes the reviews aren't showing up and they said, okay, this is adjusting case scenario. So there's, you're just in case scenario. I'm super excited. We got that giveaway coming up and I'm going to announce that on the next podcast after the 18th, so I know that a podcast drops on the 18th, but that one we won't have known.

[06:09] Well, we will. We'll know who has one but it the podcast will already be recorded and you won't be able to know. We won't be able to get on the podcast for that day, so it will probably be the next week or you'll get to know right away if you go on our website because we're, we're gonna. Announce it right there and you know, big bold letters right on the front of the website and we'll also put it on our facebook page, so go to the facebook page and like us and follow us there and leave us a review on itunes and this is going to be super exciting and I'm really excited for you guys because this is a really cool giveaway. I love, I love gadgets and Gizmos and gadgets and Gizmos. Aplenty. Isn't that what they say? Gadgets and Gizmos. Aplenty. I'm. I've been a Disney way too many times.

[06:59] I'm quoting all those songs that are inside of the little mermaid ride, but anyways, this is going to be super exciting. You're going to love it. I'm going to love it too. I'm going to love giving this away. We'll get your address and stuff. When you win, it will be [inaudible] and you know what? Don't get disappointed if you don't win. First of all, always think you're going to win. Always picture yourself winning. Picture yourself, getting it, you know, picture yourself receiving the prize. That's always the way to do it. When you send it out to the universe, already feel as if you've received it and feel the gratitude, but just in case know and realize that we're going to have a lot more contest coming up so you're going to get a lot more chances to win in the future. So don't worry if you don't win.

[07:42] I've got a whole bunch of stuff in the work, so don't you worry about it. Okay, so let's get down to this llc business because honestly, we've gotten a ton of questions about llcs. So that is why I contacted both my attorney friends and I said, look, we need to get you guys on. We need to talk about llcs. I want an attorney to do it. I want it to be super legal, super verified, but you know, everybody has been busy. It's the beginning of the year, but I want to get this information out to you. So again, I'm not an attorney. This is not advice for you. This is simply my perspective on things. The things that I believe, you know, they're all, it's just my opinion, but once we get an attorney on here, they're probably going to give you a legal disclosure as well. So I don't think it's going to make a difference.

[08:30] Which one of us it is always, always guys, do your own due diligence, be responsible for you. Get your own attorney and hire an attorney. I always recommend you have an attorney go through everything. Now I can pick up llcs, you know, through different companies. I've actually got one company that I paid into a long time ago where I can get an llc for free just paying the the whatever state I decided to have the LLC formed in just paying those state fees, but I can also go on legal zoom, but here's the deal. I've got. I've had a lot of llcs. I know what I'm doing, so I recommend at least the first time that you do your best to go through some kind of legal advisor and a corporate attorney. Okay? You always want to deal with the attorneys that are going to help you the most when you're forming an llc that's going to be a corporate attorney.

[09:25] If you're dealing with transferring titles and things like that inside and outside of an LLC, but you already have your llc made up, then you're going to be talking about real estate attorneys. You need a different type of attorney for whatever you're doing. If you. If you're fighting for custody over your kids, obviously you would need a family attorney, so different attorneys for different needs. Just know that and let's just start from the beginning. What is an LLC and why do you want one? And LLC is a limited liability company or corporation and what it is is a shell. Just picture it as a shell. Some people picture it as a briefcase, but that briefcase is an entity in the eyes of the law. Okay? And it can own assets. It can run companies that can do a bunch of different things. It's its own separate entity and it adheres to laws separately and its assets are owned completely and separate from, you know, the members of that llc and therefore it protects you.

[10:31] So why people started these llcs and these corporations was because mel probably when it started, it wasn't nearly as happy as we are in America today. But in America today, if you have money, people are always looking to see you. The more money you make, the more people think that it's going to be easy money. If they just somehow, you know, you see people on videos, even in other countries where they jump in front of a car to get hurt so that they can get somebody else's money. They don't want to work for it, they just want to take it, and so if you have it, people want it, so in order to protect your things, it's good to have them in some kind of entity like an LLC, especially your businesses, so let's say your business somehow caused harm or especially like a real estate business when you're renting out a property as an airbnb property or anywhere else.

[11:24] Let's say somebody falls or a child drowns or something terrible happens inside that company or the shell that holds that property and runs that property, they're the ones who are going to be held liable for the damages or to the person to the, you know, if it's a car or whatever it is, they're the ones who are going to be in trouble and the every piece of acid, everything they own is now up for grabs whenever something like that happens. So that's why people have all these individual llcs and some people even have a separate llc for every single property they have. You don't need to go that far. You just need to have really good insurance most of the time. Now I'm judges don't allow, unless there was something, unless you were really will willfully negligent and something that you did, you know you didn't have a banister up on the fourth floor, you didn't have a fence around the pool and you knew people were going to have children there, so something that you will fully did that you neglected and some and caused harm to somebody else.

[12:35] But think of it this way. If you have a business or a property without an llc and someone got hurt there, they could sue you for damages. And if your insurance didn't cover it or didn't have a high enough limit, they could go after you personally and take everything you own. So that means they can take your house, your cars, your bank accounts. I mean, what's hers in your savings? That would be, that would be up for grabs. Everything you own would be up for grabs. So when we start businesses, the way to protect ourselves is to put those businesses in their own corporations. Now, sometimes corporations can own other corporations and that would be like Pepsi Cola. Pepsi owns Taco Bell and Kentucky Fried Chicken and a bunch of other, I mean Frito lay, they own a bunch of other things, right, but if you were to choke on a Frito, you couldn't sue Pepsi and Pepsi because each of those corporations are their own individual entities and they protect the assets that are within that entity, so that's what a corporation is for basically for the most part, is to protect the assets of the individuals who own it.

[13:55] Now, big corporations are owned by a bunch of people. Some companies are publicly traded and so you know, you'll see them on the stock exchange and you can buy a piece of, let's say Microsoft or IBM or Apple. You can be an owner and you will own part of that company and some companies are private companies and that's what your company is would be most likely they would all be private companies owned by you. Most of the time it's going to be just you and that's called a single member llc. The majority of time when you get started in real estate, those are going to be the top. The, the type of llcs that you're going to form now when you buy a property, if you're buying a home or a rental home or a rental property, you always, you always want to buy it within your llc.

[14:49] If you don't have an llc yet, it gets complicated depending on which state you live in to transfer that property into your llc later. Okay, you can do it. It is possible, but it's more beneficial for you to buy the property within the LLC to start with. In some states, it's going to be as easy as transferring the title and in other states it's going to be super duper difficult and you're going to need an attorney to do that. You might even need to get an entirely new loan for your corporation. It's hard to get a loan for a corporation unless there's some kind of seasoning involved, meaning they want to. They want a seasoned property, a property that has been making money for a specific amount of time that they can see a history of income within that property, so that's called seasoned. A seasoned property has a history of income, so when you have to get an entirely new loan for a property, it can be a lot more complicated.

[15:54] That's why I said best case scenario is that you always buy a property within an llc if you ever want it to be inside an llc, the state that you have your llc formed in can make a difference in a few ways, but honestly, until you're making a lot of money, it really doesn't matter. You you'll have different attorneys will tell you, well, you can hide your identity if you have your, you know, form your llc in this state or you can do this and do that. You really don't need to hide things unless you're a multi multimillionaire and you can do all that later. So I wouldn't worry about the state that I was having my llc formed in until I got a little more money behind me, a few more properties. Once you get a few more properties and you're making money than you will on for sure, you will have an attorney on your.

[16:50] There'll be already in your circle of friends and you're, there'll be on your payroll. So if you, when you have an attorney on your payroll and your paying an attorney all the time and you're talking to an attorney all the time, you'll know they're going to say, how well are your assets protected? Um, we have our assets, different types of assets in different llcs to so our Ip, our intellectual property, like books and programs and articles and courses, all that stuff is protected inside one llc. And that one license it to another LLC. And the reason why is because let's say you held an event, Brendon Burchard had this happen to him. God bless him. He held an event and someone was hurt at the event. He had no idea actually, I don't think anybody had any idea that somebody had gotten her at the event until like a year later than somebody came forward and said they were hurt and Max it and took all his books and all, you know, all his intellectual property that he had tied up in that entire business.

[17:57] So there's a lot of reasons why you have different llcs for different things. You want to make sure that your assets are always protected and so any kind of property that's important to you, like your home or your car or things like that you wanted to have. First of all, you wanted to have great insurance, great liability insurance. You always want to be taking care that you do everything you possibly can to protect other people against getting harmed within on or because of your property. But then you also want to make sure that those properties are separate from each other so that when somebody sues you, they can't get every single property that you've ever invested in. You want to make sure they're all separate, that they all have their own llcs and then there some way protected against the damages or something from somebody else that they can't.

[18:51] Just like a domino. You can't lose everything. That's why you have an LLC. You want to make sure that your assets are protected now because we're going to be teaching you in the long run on this show and inside our our website and everything to become an investor because we want you to stop trading your time for money, right? We want to take you from the self employed and employee mentality over to the opposite side of the quadrant and that's going to be a business owner and investor, so we want to take you from one side to the other and the only way to do that is get you away from trading your time for dollars and becoming an investor and a business owner, and in order to do that too, you're going to do a lot of duplication, a lot of buying and selling properties, right?

[19:38] Ones that work for you, ones that don't work for you, ones that are you're going to hold for a long while and let them cash flow for you. Creating Nice residual income for you and some that you're going to buy and then just let go, which is called flipping. If it. If you don't have a property for two years, it's not called, that's not a hold property. A hold property is something that you hold more than two years and you want to keep those properties separate from the properties that you flip, that you sell within a two year period. So a property like a short term rental. If it's going well, you might hold it for a long time. Right? And if it's not, you might flip it, but you want to have one holding company for the properties that you're going to hold. And that's why you see a lot of llcs that are, you know, Joe Smith Holdings or Jones Holdings, whatever.

[20:31] The holding companies usually just let the person know that, oh, this is my holding company. Whatever property I buy within here, I'm going to want to hold it for more than two years. Now, the reason why you want to do that is if it's a piece of real estate, you can depreciate so much stuff. You can do so many write offs in a property that you hold. You can write off everything. Everything depreciates and it's like the paint on the walls, the cabinets, the flooring, so much stuff. There's so much to write off in a property that you hold for more than two years, but a property that you flip, you can't do those same deductions. You can't have those same deductions, a property that you flip and that you hold less than two years, you're going to be taxed on differently. That's going to be a capital gains tax as if you just went out and made the money, earned the money.

[21:22] It's a higher tax rate and you don't get all those deductions that you get when you hold a company, but get this. If you were to accidentally, let's say you had a corporation that held right and let's say you bought a property and it turned out to be a loser. You thought it was gonna be a winner. You bought it within your holding company. You put it in there and then you decided, Oh man, this thing is such a loser. I'm losing so much money. I'm going to flip it, and you sell it within that two year period. Every single property that is inside that holding llc is now taxable at that flipping rate, so you are no longer allowed to take any of those longterm deductions off that you could take off when it was a holding company. You can't write off all those little things that you are writing off before and there are so many amazing things that you can write off and hold property, like I said, not just the flooring and the cabinetry, but light switches.

[22:18] I mean everything depreciates in value because eventually everything has to be replaced. Even your roof has to be replaced, even the AC system and so you know over a specific amount of time for each thing. Let's say a roof, it lasts usually 30 years or something. You'll get to write off a little bit of the cost of that roof over every year across that whole 30 year term. Now, if you flipped inside that property, no more can you do that, you just screwed it up for all the rest of those properties, so you never ever, ever want to flip inside a hold property. You lose those deductions for everybody across the board, so you really have to be careful. It's like it's like dealing with your own Iras and and all the rules I was telling you about that when you do these things, whenever you do these things, anything investing, you need to abide by all the rules that go with them and you need to know what those rules are because they can cost you, oh my gosh, thousands and thousands and thousands of dollars and not that you're going to be paying that much.

[23:26] You're just not going to get the deductions and the break for like you were before and. And a lot of times, I mean they're, they're critical. Especially my husband being a doctor, he gets taxed at a very high rate, but because I'm a real estate investor, as a professional real estate investor, my deductions and stuff can bring his income way, way down. So a lot of women, that's when they started getting involved in real estate was in the eighties and nineties and stuff. Because they started to learn that there were people like Robert Kiyosaki out there who were teaching. People. Look, here's how to do it, here's the loopholes of the rich, you know, read this book and, and take your wife and put her little butt to work looking at properties, buying properties up and fixing up homes, putting renters in there. That's why we did what we did was because of all those books and all that education that came out at that time.

[24:21] So you really have to know the rules and the laws that go with things and you know why you're doing it now, right? So why are you having your llc to protect yourself? That's basically it, but you want to make sure that you're protecting the assets that are within any of those groups and the businesses that are within any of those groups. Okay? So we've fought of our LLC and we think of our LLC as its own private entity, right? And therefore what's really cool about llcs and trusts and things like that is it's never really owned by a person. It's run by a member. So as a single member owner, if something were to happen to you, then you could just pass that entity off to somebody else. So just like in a trust, if somebody passes away, then the briefcase that is the trust gets handed to another person to oversee it.

[25:19] They become the custodian of it or the member or the whatever, you know, depending on what type of entity it is, they will be the person who runs it, who gets to tell, you know, tell everybody where the money goes and how it's dispersed and everything. But it's very important that you do have those things. Once you form an LLC, especially if it's a single member LLC, you want to have it in the bylaws. What happens to the LLC once you're gone, if something, God forbid, were to ever happen to you, now you can have llcs taxed in different ways to when you first get started, and I think we talked about this, I would recommend that you do an s corp, which is a flow through type of taxation. An escorp gets taxed within your personal taxes. So you can list your, your llcs inside, your personal taxes, it'll just make your taxes, will be a really, really long form and your businesses will be in there and all the income that they make and all the deductions that they have.

[26:22] Everything will be listed within your personal taxes. Now a c Corp is different, a c Corp taxation, and you can do either one, you can decide which way you want to be taxed as a c Corp is taxed on its own as its own personal thing. Now if it's a business that you are running personally, you'll get taxed twice. And let me explain that. So my husband is an eye doctor so he has a personal corporation. So it's a PC. You've, you've probably seen that best, you know, behind somebody's name as a PC. He is taxed as a corporation, a c Corp. So he pays himself, his business will pay himself with a w, a w two will come to him and he'll get paid as a doctor. He alSo gets to take draws as an owner, as an owner of the corporation. So you know, like when you saw public, publicly traded corporations, a lot of times they're the um, all the shareholders, they'll get a little bit of a check when they make, when the company makes a lot of money, right?

[27:26] So they get dividends. Well that, that happens too in your little corporation. Um, if you're taxed as a c corp, you will get those dividends or you can call them draws and then you'll get something like a k one we get [inaudible] from his pc. So the [inaudible] are for the draws, the w2 is for his salary and we pay taxes on both of those inside our personal thing. So not only is the corporation taxed and they pay a business tax, but we will pay taxes on top of that tax. We will pay taxes on hisw , two s and the [inaudible] on the draws. So your text twice when you have a c corp, your text once as a business and one for the money that you get personally. So it's okay to do that for, you know, there's different reasons why you want to do that and you will probably want to talk to your accountant and ask him and he's going to give you all the pros and cons of having that.

[28:25] Now in my llcs, a lot of them might be s corp's as corpse are corporations that are taxed within your personal taxes. So they just get listed along with your income as you're another two type thing. It's just part of your income. The business income is part of your personal income as a single member holding companies. It's just an s corporation. So they call it a flow through corporation. The money flows through you personally and that's why it's a flow through corporation. It's not taxed as a company by itself, but it's tax through you. So a lot of people like that better because you're not paying taxes on it twice. You're only paying whatever Texas you would be paying. It's going to be taxed at your personal tax rate. So that's nice in a lot of ways. Now you also might not pay taxes on it at all.

[29:21] Why? Why would you not pay taxes on an llc? You wouldn't pay Texas. I'm your llc if it was inside of your roth ira, for instance, right? Because your ira doesn't have to pay taxes on that. That money is taxed before it goes in, that ira is taxed before it goes in. So if your ira, for instance, buys a property and starts making money on the property, then all the money that it makes, that's all tax free money. You don't get to draw it out, not until you have retired and you, you are, you know, technically able to draw it out. But that money is just building money, making money upon itself, and any of the money it makes is tax free. That's why people love to do flipping and fixing and real estate and stuff inside of their iras because it's tax free, especially if it's a roth ira.

[30:17] It's going to be tax free as it comes out and remember to to go back to tHat episode. If you don't know why, it's not going to be taxed. You want your money texts before you put it into your ira. And a roth ira, the reason why is you're going to pay a lot less in taxes if you pay taxes before you make your money. Then after. So let's say you had $10,000 to invest in and you made a million bucks, would you rather be taxed on the 10,000 that went in or on the million bucks that came out, right? Yeah. So that's exactly why you want to do that. So a lot of your llcs will be indifferent things. It could be, it could also be a trust. You can buy properties and do things inside trust. But that's very complicated. I definitely need to get somebody else in here to talk to you about that.

[31:08] But I know just the guy, he is an investor out of Florida. Um, his name is larry and he is amazing. Amazing when it comes to trust and what he taught us all about trust beats. Anything that you can find out later. So I'm definitely gonna get leery on. I hadn't even thought about that until when I was writing all this stuff down. When I started writing trust, I was like, oh, I should get leery on the show. I know a lot of people and they all have given me great information over the years and I want to share that information with you too. So those are the reasons why, and remember it's like passing these different things off. These are the taxation is the c corp and an escort for the most part. Those are the two big ones that everybody wants to do and you just need to decide.

[31:57] Talk to your accountant, right, and he'll tell you which one iS best for you and the money that you make it a lot depends on the type of income that you already have coming in. Like I said, when your husband is a doctor and you've got a lot of money coming in, the way that I was taxed and the things that I did really helped knock down that income. So your accountant can give you all kinds of information about stuff like that. what's really cool is you can always form all kinds of different businesses, business entities and llc corpse. Once you. Once you get rolling in it, it literally is about 165 bucks every time you pick one up from legal zoom now is a 3:50 because most of the time most of you are going to get that big package thing. Garrett sutton owns a website.

[32:51] His website is corporate direct, I believe, and I'll put a link in the podcast notes for you so you can get to his website. He also has some really great little starter kits if you're just getting started and he is a corporate attorney. He's really great. He's written some really amazing books and he is a rich dad advisor, one of the smartest men I've ever met and very, very nice too. So that's rude to say about any attorneys. I actually had no. A lot of really nice attorneys. It's always fun to tell attorney jokes though, isn't it? But they don't mind. They laugh at them too. So anyways, garrett, if you go to his website you can pick up and he I believe, gives those away. Like you can just email him. He even gives away free consultations. Fifteen minute consultations to help you figure out what types of assets, protection that you will need, but he is a corporate attorney and you want to always start out with, you know, the big things that you can read through the whole giant packet with all the information inside of it, because that information is going to be information that you need.

[34:03] Some questions came up when it comes to llcs. Do your llcs buy your furniture? Do they pay your bills? Yes, yes, yes, yes. they do all that stuff. But here's something really cool about it. So when you start a business, you might know the name of the business entity that you're going to start with. let's just say it's purple black company. there's a sign in front of me that's purple and black, so we'll just say purple, black company a llc, but you can't call it an llc until it legally is an llc. So don't buy anything in the llcs name. Don't sign any contracts or anything in the llc name until it's illegal llc. And that's when you get the the corporation papers and everything back there will be stamped and certified in everything. You'll get it back in a little packet and you'll know like you can't miss that date and it'll even say that the corporation was formed on this date, x date, so you can't get that wrong, but you can do purple black business before then so and you can also do business personally and transferred over into that because a lot of times your corporation, once it is purple, black corporation or purple black llc, I should have picked an easier name because the black, once you get that name then and you formed it into an llc, obviously going to have to be funded some way that company's going to have to be funded and who's gonna end up funding that corporation.

[35:44] The majority of the time it's going to be you. If it's your personal llc, you're going to be the one who puts all the money into it and you can do that in the form of assets. So let's say you are especially. This is especially good if you're leasing property or doing cohos stain or something and you just need the furniture and you buy the furniture. You can buy the furniture, even on your credit cards, just keep all your receipts for everything, and then when the llc is formed later than all the money, let's say it adds up to $5,000, then you can just write a memo and a receipt and everything that you funded, you know the business with $5,000 worth of assets. Here's the list of assets. Here are the receipts. You need to keep track of everything though, once you start with llcs, because once you start making your taxes complicated, you are way more likely to be audited because they're going to want to find something that you did wrong and they're also going to want to find businesses to be hobbies and not businesses.

[36:59] Let me give you an example. I have a friend who invests in real estate heavily. They actually call her the queen of rehab. Um, her name is robin thompson and I've gone to a bunch of her courses and her classes and she, she teaches at rias all around the United States and she's really amazing. They call her the queen of rehab and she's amazing. But anyways, robin got into horse breeding because she lives in ocala down in Florida. And believe it or not, down there, that's like the horse breeding capital of the world, like these thoroughbreds are down, they're worth hundreds of thousands of dollars, some of them. and so she got really heavy into investing in these horses and you know, they sell, I know, sounds weird, but they sell the sperm for some of these duds, these thoroughbreds studs who were racers and stuff. They sell them for.

[37:57] Oh, I forget what she was telling me, 20,000 and it might even be more, maybe $120,000 shot just for, you know, just to get the sperm to breed into other horses. I mean the lines are crazy. So she bought this entire ranch and she hired trainers and she has people who maintain it and it's a business. It's literally a business, she makes a lot of money and there was a time where the, the obama administration hired a bunch of people fresh out of the military to just wreak havoc on everybody. I think it was more like somebody told me at one time it was like 40,000 new employees to the irs. Specifically. Their job was to go and audit people and she was one of the ones they audited, but they audited the wrong person because she's meticulous about her records and they didn't even audit her in order.

[38:52] They started with one year and they went back and forth to different years. So instead of, you know, let's say for instance, doing 2007, 2008, 2009, 2010, they would do 2000, 10 to 2000, seven to 2012 back down to 2008. Like they went all over the place. But robin was an accountant and meticulous as all get out. She, you know, she was just really meticulous about everything and they sent this new girl out and you had to feel sorry for her. She's all military and very nice and she's walking around and she said, you know, what is this? And She said, that's a trough, it holds water, you know, so many gallons of water and stuff. And she said, do you really need this? Like they were trying to prove that her business was a hobby, that she wasn't really making a lot of money out of it at first when she first started getting into it, but she was spending a lot of money on the horses and the equipment and all this stuff.

[39:49] So she's probably making a lot more money noW because she's a really great investor. But anyways, so here she was, she was, the girl was questioning are on whether or not she needed this water for the horse. And she said, do you know that the average horse drink x amount of water and that if they don't, they, you know, they will dehydrate and they could go into convulsions and here's a list of stuff. And she goes, you know, they need to send somebody out who knows something about horses in order to audit this as a business or a hobby. Right, but the government wants to prove that you're not serious about your business. If you're not serious about your business and they audit you and it looks to them like you're just playing around, that you're not keeping accurate records, that you don't know what you're doing.

[40:35] Guess what? your business is no longer a business to them. It's a hobby and it will be taxed unlike anything else differently. You won't be able to write anything off because you can't write off a hobby. You can only write off a business, so you always, always, always want to keep accurate records. You want to have everything meticulously set aside. I don't care if you're not good at it. Then yoU get a box and you throw all your, you know what? All your receipts and everything into that box and you hand it to an accountant that you pay because some way, shape or form, those records have to be kept in order and were legible. So don't be setting among your dashboard and you know, having rings of coke cans on them or something. you, you want to take care of all that stuff. Whenever you make a, you know, get a receipt, take a picture of it with your phone.

[41:30] Now there's a bunch of apps. Wave is a really good app that you can use to keep track of your receipts and and slide into different folders. Each folder can be a different property and you can set that up and you can just take that receipt. Oh, that was, you know, the light fixtures to fix property xyz on elm street and boom, boom, boom. Or this one is to fix it on jane street and this one's on constitution. You'll know by the reCeipts and the pictures that you take. You can just slide them into the files of each of those addresses and you can take care of them and keep them separate and keep them orderly in an orderly fashion until you can get it to your accountant. If you don't do your own taxes. And if you do do your own taxes, then I'm sure that you already have some kind of way to keep them straight, but you really always need to keep your receipts.

[42:25] And everything straight, inaccurate, you can't write anything off that you can't prove. so make sure you. A lot of people are like, well, we'll just go have lunch and we'll write this up. Well, you better be talking business. You better be writing down who you're with. You better be writing down what you talked about, um, the date and that the amount is usually I'm there, but all of those things need to be on there. So I mean, there's a lot of different things. People think they can write everything off. You can write off education. But remember, if you just are dabbling in something and changing your mind constantly and opening up a bunch of businesses, the irs will come and say that that's a hobby, that, that is not a business and you will legitimately have to show that you are trying desperately to make money.

[43:10] And hopefully you are making money if you're making money usually. And you're not spending a lot. I'm sure robbins was. She was spending a lot of money on all that stuff. So it probably looks kind of gray, but you just don't want to. Once you start doing this stuff, you don't want to take off the irs. The irs is one of the only branches of government. There are more now because of the patriot act, but it used to be the only branch of government that can come in and take all your stuff. They will take your shit people and they will not ask questions. They don't need any kind of judicial order signed. They don't need a reason other than the fact that they think you're screwing around with them. They will freeze your assets. They will do whatever they can and they don't need to get a reason why.

[43:51] They don't have to prove that you're guilty. You have to prove that you are innocent, so you don't want to piss off anybody at the irs. You always want to pay your taxes and you want to keep really good, accurate records and you really want to pay for the best type of accounting that you possibly can pay for always because the irs is not people you want to f with. They really, really are not as your friend. Let me beg you, please, always be on the up and up with the irs. You don't want to, you don't want to mess with any branch of government and really, but the irs that they're the ones, man, they will, they will come, uh, guns ablaze in and take everything inside your home. that won't be pretty. So when you've got these all your, your llc set up, you formed your llc and then you decided what type of taxation you were going to use with your corporations.

[44:45] If you were going to do like an s corp or a c corp, right? And then you started paying your taxes and then you're taking care to put all the receipts inside them. Now here's where it gets a little tricky is when that, when you bought something with one before your llc was an llc and then you're going into another. The only time it really, really gets complicated on that, like I said, you can take a lot of receipts and just sign it over as the money that you're putting into that business. But if it's a legal holding like a building. So let's say you bought a rental property, obviously as a rental dwelling. Then putting it into your llc name is not always going to be easy. Some states, yes, other states, absolutely no, so you're going to need for that a real estate attorney and let me tell you why.

[45:37] You can start paying the mortgage for the property with your llc and you can change the title over. But if the bank finds out, they can call the note right away because anytime a note on a property is a mortgage basically. So what the mortgage is called a note and when you make a promise to a mortgage company to pay that note, you are. You are the owner and you're the one making the payments and they did all of their due diligence checking out you and how much you made to make sure that you can pay for the property, but you're a corporation or your llc is something totally different. And a lot of times when you're looking to put a property into anything, even a business or even personal, they want seasoning on the property. Meaning they want to know that the property is bringing in some kind of income and they want to see a history of that income called seasoning.

[46:36] Now there are ways to get around seasoning, but most of the time you can't and if you can, you can start paying as your llc, but then all kinds of shit can happen and I'm going to say all kinds of shit because honestly that is exactly what could happen. They could call the note and say, look, you're trying to switch ownership from you to this llc and we want it paid in full right now, and if they do that, you will have so many days to pay that note or get another mortgage and if you don't, boom, you lose that property so you don't want to screw with them. You want to get an attorney and find out how legal and how easy it is. In some states it's incredibly easy. You sign a few documents, a few papers, pay a title company a little bit of money and boom, you just changed it over.

[47:23] It's super easy and depending on your credit and how much money you have in the seasoning and other property, it can be really easy and you can. You can even find another loan company that would be willing to give you a loan on a as a business loan, so there's a lot of ways you can do it, but you always want to do it the up and up way because honestly if you screw it up, you can lose that property and you really don't want to. You don't want to do that. The number one way you ever want to obtain a property is in the llc name anyway. The number two way would be to legally through an attorney, a real estate attorney switched the title over in a legal form. And the third way I would do it would probably be if the loan was assumable, then I would maybe do go into a title company and do an owner carry on it and just switched the title over that way.

[48:20] But even that way you've got to go and you know, cross all the t's dot all the i's. You have to make sure that you do it in a very legal, sophisticated manner. That's the only time it gets really complicated because the rest are easy receipts. So you know, putting the down payment on the property and stuff, reimbursing yourself for the money that you put down a security, reimbursing yourself for bills. All that stuff is traceable as long as you know, you wrote a check for it or it's on your credit card statement. If it was furniture or something. So all those other things can be repaid to you personally buy your company at a later date easily because you can prove it. Whereas a house, a mortgage that's a debt, that's a debt that you own to, you know, a company like a bank and that you're taking over your business wants to take over that dead.

[49:17] Well, it's totally up to you. I mean, imagine that if you lend somebody money and then they said, hey, uh, my cousin joe, he's going to pay you back that money. Well, you know, joe, uh, like as joe, a reliable guy, is he going to pay you back? You don't know joe, you lent the money to those people. You want that money back. That's exactly what the bank thinks. We know how much you're making. We know how much you're worth. We know that you're good for your word. How do we know that you won't just form this llc and then next year dump it. They don't know that and they want to make sure that they're protected in case that does happen and an llc protects what an llc protects all the, the, the assets inside of it and so it can't go to you personally.

[50:03] So don't feel you know, like they. Well they should just let me do that. Well, why would they. You don't have any kind of track record, especially with a brand new llc, so don't be leery of them. They want to see some kind of track record of income. They want to know that that money is going to be made back to them in some way, shape or form, right? They want to know what's going to be paid back, so don't get mad at the bank for not wanting to just hand it over to a brand new llc corporation that you just formed yesterday that could go to the wayside and a week. Don't. I would feel bad for any lender who had that happen, right? So just think of it in their terms. So now as soon as you get your llc formed, one of the first things you're going to do, well you might not do it now because the government is shut down, but most of the time when the government is working correctly, you can just go online and you can get yourself an ein number.

[50:59] And that's a business. It's basically a social security number for a business. And you fill out the form for your llc and your llc gets an ein number or tax id number for their business taxes. Once you get an ein number, you take your ein number, all your id, your proof of address and everything. And I'm trying to think, I'm going, your proof of address your ein number. Oh, your corporation papers. Um, you want to take all those into a bank and you open up an account there, so they're going to ask you for the llcs corporation papers, they're going to ask you for the ein number that you got, and then they're going to ask for your id and proof of residency. That's usually what you have to give them in order to open up a bank account. But once you do that, you can pay all your bills through your llc and you're going to want to do that.

[51:55] You're going to want to start funding your llc with money if you need to. So let's say you need to give your new corporation a shot, an oven investment, right? You always want to make sure that you've got enough money because that's the number one reason any business fails is lack of funding. They just don't have the startup capital. So they fail and they crash. So you want to make sure that anytime you're giving your corporation money that there is a paper trail to go along with it. Meaning you wrote out a check to your company, look like from your personal account or whatever and that you have some kind of paper that says, I joe blow and lending my company purple black llc. I'm lending them $5,000 for the next one year at six percent interest or whatever you want to charge. Now remember too, you can't go crazy and and charge like, you know, 28 percent interest every day.

[52:55] You know? Yeah, go ahead and do that. But guess what? You're going to pay taxes on the money that you give back. Just remember that you're probably going to pay a lot less taxes if you are a lot easier or even have no interest payments or something. I mean just talk to your accountant about it because your accountant will be able to help you make some really smart decisions about how and who you lend to yourself. Right? You know, like how you do it. We have even had our kids do stuff for us. Once you have a corporation is really cool because I'm like at kevin's business, he would have the kids come over on saturdays. Sometimes, I mean I remember the kids being really little and they were filing files for him and you would hear the a, b, c, d, e, f, g through the whole alphabet.

[53:42] I'm like, oh, this is going to be bad. Nobody's gonna be able to find these patients, you know, but the kids were like filing the files in there for him and doing all kinds of really cool stuff so that they could help out and earn money. So you can pay your kids, you know, up to a certain amount of money for your corporation and they're going to pay way less in taxes than you would pay. So there's a lot of stuff you can do once you have a corporation, but your accountant can give you all the ins and outs of how to do everything legally and on the up and up. How the pay the correct taxes, how to lend yourself money, how to pay yourself back, money from your company. All that stuff you're going to want to know. But your llc is basically there to protect you and you are there to make sure that your llc has the capital it needs to get going and get launched and you're also there to make sure that the money is flowing back into your llc, that you're doing everything right.

[54:41] So you always want to make sure that you're spending your money smartly, wisely, correctly. I mean just do all your due diligence. Don't go crazy and get every little thing like don't go crazy right now when you're first getting started and say, well I have to form this corporation in Delaware, but no, I want to hide my identity here and I want to do this and I want to do that. And it's like, look, this is your first llc. This your first property. You don't have to worry about all that stuff. You get too involved. And what that does is it puts things off. You spend a lot of money on stuff you really don't need yet and it wastes a lot of your time, effort. And I mean just literally valuable time that you could be spending elsewhere making money. So don't get carried away with how in depth you can go in depth about anything.

[55:31] A lot of times you just need a little bit of knowledge to be dangerous. You don't need a lot. A lot of knowledge can sometimes make you even more dangerous and we don't need that just enough. You want to surround yourself with people like attorneys and accountants who know what they're doing, let them do their job and they'll tell you exactly what you need to do. Find somebody you trust and like I said to garret's website, it's corporate direct and it's a really great website. There's a lot of great information there about, you know, getting, you know, what type of, of llc to form, when to form it. You know what to put inside of it, how to protect things. Garrett actually is the one who helped me when, when my daughter, she's now 30 so we can talk about her. She's not going to know.

[56:19] She's not gonna know, but when she was younger we moved from gilbert. I'm out to apache junction and I was working for rich dad seminars at the time. And this is how garrett told me, because we had, we had incidents like a few of them. There's a plural there. We had a few incidents with our daughter, our oldest because when we moved she left a bunch of her friends and she was not happy. We were moving to apache junction. It was our way against the mountain. So you know, we had property that was backed up against the national forest and it was really beautiful, big, big house. Lots of land horses and everything. And she was just miffed that being a preteen, she wasn't, I think she was 14 or 15. She went, might've been 14 when she started stealing our cars and driving down the freeway down down, down the road to the freeway and down the 60 all the way to gilbert to go see her friends.

[57:17] Like really late at night when we were sleeping and I woke up one night and I'm looked and I'm like, where is. Nicole has a checker room and she's not there. And I look out in. The car's missing that. I remember going to my husband going, your car and your daughter are both god and she didn't even have a permit at the time. She was like, it was crazy, but the kids knew how to drive because we were on farmland, so they'd driven tractors. They had driven, we had atvs and all kinds of stuff, so she just decided she was taking the car, so she had done it a couple times. She got pulled over once and it was just a mess. So I remember being at rich dad one time and garrett, I can't remember if he was listening, but we were, we were talking, my friend debbie and I were talking about it and he said, michelle, you need to put your cars in an llc.

[58:04] And I said, what? And he said, honey, just listened to me. Put your vehicles in an llc and they do all the transportation for your husband's business and your business and blah blah blah. And so he kind of showed us how to do it and we did. Now nothing happened, but here's what he told us afterwards. He said, you know why that's so important is because if she had ever gotten into an accident, it didn't matter if she was at fault or not, a drunk driver could have been, you know, wasted on his, on his life and driving on the 60 backwards and hit her and she'd still be at fault because technically she's not allowed to be driving. She shouldn't even be there. So therefore in the state of Arizona at that time, she would have been at fault and had she been at fault and anybody got hurt or killed, god forbid we could have lost everything because our car was in our personal name and that would be our land or property.

[59:00] All the things that we owned personally would have been at risk. And so garrett was the one who suggested that and we did that and luckily nothing ever bad happened to her. She, she got slapped on the wrist and had to do community service and some other things and she learned her lesson. She stopped doing that because she literally could have not had her license until she was like in her twenties or thirties. If she wasn't careful, but the judge was really kind to her and gave her a lot of work and now and what she did, you know, did teacher her lesson, she actually turned away from crime. She did. She became a, an upstanding citizen, outstanding and upstanding. And she goes, but at the same time, I mean think about the liability that she had done to her dad and I, we never even had thought about it.

[59:50] And luckily garrett is the one who told us that. So I really love garrett and he's brilliant. He's written a bunch of books. We're going to put them on the site as well so you can take a look at those, but go to his website, check out all the things that he has about forming your llc. We're also going to put links up and a step by step up article for how to form your llc. Just a quick checklist of things to do and how to get everything in there. And then I'll also put some wave information in there for you. So the wave is the bookkeeping, you know, app where you can take pictures with your phone and then take those jpeg files and then slide them into different folders for each of your properties or whatever you know, whatever expenses that might be, you know, for your husband's business or your business or whatever.

[01:00:41] You can just slide those, those jpegs right into those files and you have a picture of the receipt for ever and ever. Amen. And the. Those are really great. I mean I wish we had those a long time ago. We had those clean receipt things or neat receipts. That's what it was. Neat receipts we used to do, but those were a pain in the butt too. I mean that was a big huge bar and things just get easier and easier all the time. So I am still going to get garrett or carrot lita out here to do an asset protection llc formation episode for you guys. So you have an attorney's view on how to protect yourself because it's really, really important. Surround yourself with really good people and two of the people that you are always going to need are going to be your attorney and your accountant.

[01:01:33] Those are two really important people who you're going to need on your team and I always recommend them. I know a lot of people, especially people like me because we're like, oh, I was a math major. I know a lot about numbers and math. Guess what? I don't know a lot about accounting. Math, you know that it's totally different and I certainly don't know a lot about taxation which gets more and more complicated all the time. What I do know makes me, like I said, little knowledge, little dangerous, little more knowledge, a little more dangerous, but what I do know is that I can just hand it over to my accountant and he'll take care of everything and I can hand things over to my attorneys and they take care of everything. Anytime there's any problem, I know exactly who to call and that's what you're going to have to do.

[01:02:18] You're going to have just surround yourself and build for yourself. A team of people who are an asset to you and help you protect everything that you're building here. This is your business. Remember, do not treat it like a hobby. It is a business. This business is going to take you and take care of you now and in the future. So treat it with respect. Okay? And that means don't be a cheap ass. Don't step over a dollar to pick up a dime. It doesn't work that way. You can't save money by not having an accountant or you can't save money by not having an attorney because if you don't, it will cost you money in the long run. It will cost you money. Thanks so much for listening. I really want you to win that camera. That camera is so incredibly cool and if you get it, I just want you to the first time that you guys, if you use it for this, but if you do let the, the amazon guy in.

[01:03:15] I just got to see it. I got to see it live because the pictures and the video that they have of it is pretty cool, but I'm like, okay, who would really do that? I guess I would do it because I live in a nice area and I, I know my ups guy who comes, but sometimes it's not always the ups guy who comes with the amazon packages. Now sometimes it's the, it's the post office guy and sometimes it's like a, uh, just a little white truck. It's not even a real truck. It's just somebodies minivan that they take around. So, so it's not always the right person. So I'm like, I'm wondering what the liability is on that. They probably only use it for their ups guys and it's pretty darn cool that they can just unlock your front door and slip it in.

[01:03:57] And I'm wondering if my dogs will bite their hand if they ever did it. Here's all the things going through my head. But anyways, I would love, love, love, and hey, do this for me too if you, if it's, if it's something you can't do, if you really go, I really can't fathom giving this woman a five star review. I'm really sorry you feel that way. Don't do it. Don't just enter the contest to do it. I want you to only leave a review if you genuinely want to leave a review. So don't just do it to when the camera, there's going to be other stuff that you can do later on, other contests that we have, and you won't have to do something that goes against your grain if it goes against your grain. Hopefully it doesn't. Hopefully you're listening because you love me and you know I love you too.

[01:04:41] So that would make me really happy because I really care about you. I want you guys to know this is really cool, but we are getting so many inbound on our inbox on facebook. It's crazy. Incredible. So it's getting to a point where I can't do all of them personally. I've actually hired somebody to help me do them. They're getting anything that gets even personal at all. I said, if it gets personal, don't continue reading, just slap that baby into my inbox and stuff, but if I can get on there and I do quite often get on there and make a personal response. I will definitely do that for you. Hopefully if if any response comes back, it's something that I've written, unless it's a thank you and then they, they just show them to me and it just enlightened up my entire day. I just want to thank you guys for all the great positive responses and I want you to know that we are really here for you.

[01:05:32] We really care about you. We really want you to run your business like a business. We really want to help you in any way, shape and form. Take this and duplicate it. So do me a favor. Read those books that I told you. Okay? Cashflow quadrant. You really want to read that. You want to go from the employee mentality, the superman mentality. Remember we had that episode about that into the business and investor. Okay? So no more self employed people out there, you are going to start to to work this as a business and work at smartly, and then we're going to duplicate it. So again, thank you for listening. Thank you for your positive responses. Thank you for your interest in our show and god bless you. Have a great day. Go and grow.


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