who is jeff watson?
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Who Is Jeff Watson?. Ohio Bar Member for 19 years Full-Time Attorney with an active trial/hearing practice Real Estate Investor since 1993 America’s “Top Short Sale” Lawyer Co-founder of Realeflow LLC, Strategic Real Estate Coach, Inc., and Venture Land Title LLC - PowerPoint PPT PresentationTRANSCRIPT
Who Is Jeff Watson?• Ohio Bar Member for 19 years
• Full-Time Attorney with an active trial/hearing practice
• Real Estate Investor since 1993
• America’s “Top Short Sale” Lawyer
• Co-founder of Realeflow LLC, Strategic Real Estate Coach, Inc., and Venture Land Title LLC
• Frequent guest speaker at various RE Investors meetings.
• Legal Counsel to Nova Star Real Estate Brokerage Ltd, Sharp Concepts Realty LLC & Eagleville Bible Church Inc.
“Lawyer To The Gurus”
To Inc. or to LLC
C Corp
Sub “S”
Established precedent
Know Liability Shield
Tight Ownership Rules
Rigid Profit Distribution
More Record Keeping
SM LLC
MM LLC
Newer & Evolving
Uncertain at Times
Flexible Rules
Creative Profit Distribution
Less Record Keep
Entity Basics
• What is an entity? An entity is a business organized according to state law to limit the liability of the owners. Entities can be corporations, limited-liability companies (LLCs) and limited partnerships (LPs). All provide much greater asset protection when compared to a sole proprietorship or general partnership.
MultiMember
LLC
Sub S. Corp
SingleMember
LLC
VerbalPartnership
Limited Partnership
WrittenPartnership
C. Corp
Sole Proprietor
Assets$$$
MultiMember
LLC
Sub S. Corp
SingleMember
LLC
VerbalPartnership
Limited Partnership
WrittenPartnership
C. Corp
Sole Proprietor
Assets$$$
Creditors Easily Attack
MultiMember
LLC
Sub S. Corp
SingleMember
LLC
VerbalPartnership
Limited Partnership
WrittenPartnership
C. Corp
Sole Proprietor
Assets$$$
Sub “S” Corp Basics
• What is an S corporation? An S corporation is a corporation that has elected to be taxed as a flow though entity (similar to an LLC or LP). The “S” also refers to an IRS code section.
Sub “S” Corp Basics
• The S election allows the shareholders to be taxed only at the individual level instead of at both the corporate and individual level, thus avoiding the double taxation like the C corporation.
Sub “S” Corp Basics
• The S corporation still provides limited liability protection and is a good entity for many business situations.
“C” Corp Basics
• What is a C corporation? A C corporation is a corporation that is taxed at two levels. First, the corporation pays corporation taxes on corporate profits. Then, with any money left over, the corporation may distribute profits to the shareholders.
“C” Corp Basics
• These profits, or dividends, are taxed to the shareholders. Thus, resulting in “double taxation”. The “C” refers to an IRS code section. Despite the double taxation, C Corporations offer many planning and benefit opportunities.
LLC Basics
• What is a limited-liability company? A limited-liability company (LLC) is also a separate legal entity formed for limited liability and asset protection purposes.
LLC Basics
• The owners of an LLC are called members and the management is referred to as managers. LLCs are frequently used for holding real estate and other personal assets.
LLC Basics
• Single member means one owner. Taxed on a flow-through basis usually via Schedule C
• Potential for higher audit risk.
• Greater risk of mismanagement due to lack of business formalities.
Employee or Independent Contractor
Control EquipmentDuties
Location Hourly/Job
Just “Agreeing” may not be enoughJust using “1099” not enoughCan they go Broke or get Rich
Question or Fact
I.R.S. HAS Final Say
Liability Insurance Basics
1.Interview several independent Agents2.Home based Business Rider
A simple & cheap “must do”3.Umbrella Liability Policy
Affordable Legal Defense4.Basic General Liability Business Policy
Auto owners insurance5.Improve and maintain properties
Cash Flow is Critical
Active Income“Passive” Income• Rent• Dividend• Owner’s Profit
Truly Passive IncomeMoney Making MoneyIdeas Making Money Money & Ideas Making More Money
Increase Cash Flow by Lowering
• Expenses
• Taxes
Here ‘s Some Specific Ideas to Help You:
You can deduct the cost of a business expense
if it meets the criteria of ordinary and necessary
and it is not a capital expense.
Start-up Cost Deductions
You can deduct up to $5,000 in start-up and $5,000 in organizational costs for the first year of business. These deductions apply to expenses paid or incurred after Oct. 22, 2004. The rules differ if your costs exceed $50,000. Expenses that are not deducted can be amortized over a 180-month period, which begins when you open your business. You can write off or amortize market research, advertising, employee training, business-related travel, legal advising and other costs.
Entertainment Deductions
The IRS doesn't mind your mixing business with pleasure – within reason. You can deduct up to 50 percent of entertainment expenses for unreimbursed business meetings. The entertainment must be within a "clear business setting" (such as at a conference) or should immediately precede or follow a business meeting. If you are self-employed, the 50 percent deduction limit does not apply.
Travel Deductions
Travel expenses are tax-deductible. The IRS recommends keeping a log of your expenses and receipts. Transportation, (airfare) lodging and even dry cleaning can be deducted, and half of any business meals. You also can deduct expenses for business associates traveling with you. You can't write off expenses for family members or friends if they accompany you, unless they are employees and are professionally involved in the business end of the trip.
H.I.N.T.
What is H.I.N.T.?
High Income No Taxes
Self-Directed Account
Many People hear about itSome know about itFew actually do itWall Street Keeps it SecretFew Custodians allow itComplex Rules U.S.C. 4975
Some of What Your S.D. IRA Can Do
Flip Houses• REO’s• ShortSales• Probates• Rehabs
Lend Money• Secured• Unsecured
Borrow Money• Non Recourse• U.B.T.I.
Own/Lease
• Houses
• Mobile Homes
• Land
• Oil Wells
• Equipment
• Businesses
LLC’s
Partnerships
C Corp’s
• Notes
New
Defaulted
Roth Magic
If you left a Roth IRA with just $30,000 in an account earning 10% annually to an eight year old child, the distributions over the child’s lifetime would total over 5.5 million
Completely Tax Free
ROTH Magic
The owner of a 500k Roth IRA dies leaving a 20 yr. old as beneficiary. If the account only earns 8% yearly and the beneficiary chooses to take distributions over her lifetime, based on IRS tables the distribution would total over
14,000,000.00 Tax Free
I Pity Trust Fund Babies
•Lawyer’s in Control•Taxes at High Rates
Trust Fund Babies Drool
Roth “Bennies”Rule
More ROTH Magic
Greg, Jeff, Tracy & Lorri meet each other at an event
Each has 15,000 in Roth IRAEach needs Working CapitalEach Loans from IRA 5,000 to other 3
Each loan/note at 21% annual interestAnd contains 8% Profit participationClause1 year maturity/option to renewAware of “Step” Transaction Rule
After 1 Year
Greg’s LLC Earns/net 150,000
Jeff’s LLC Earns/net -0-
Tracy’s LLC Earns/net 75,000
Lorri’s LLC Earns/net 60,000
After 1 Year
Jeff’s get cancelledGreg look for better dealLorri & Tracy renew 1 more year
R.O.I.’s 93% to 173% TAX FREETAX FREE
INT % P.P.
Greg’s IRA earned 3,150 10,800
Jeff’s IRA earned 3,150 22,800
Tracy’s IRA earned 3,150 16,800
Lorri’s IRA earned 3,150 18,000
Short Sale Deal
• Marty Buys at $178K
• Marty Sells at $200K
• No Realtor• $22K Profit…Right?
WRONG!!
• $22K Profit – WRONG!
• Marty has partners!– FED– STATE– LOCAL
Short Sale Deal
$22K becomes $11K
Same Short Sale Deal
Smarty Buys at 178,000
Smarty Sells at 200,000
No Realtor
Held House 21+ Days
22,000 Profit
All Tax Free
Did Deal
Inside Roth IRA
More to come tomorrow…
Module 1 - Types of Accounts and Basic Rules of Self Directed
Accounts
Chapter 1 - Tax Deferred Account•Traditional IRA
Structural RulesCode Section
•HSA'sStructural RulesCode Section
•401k'sStructural RulesCode Section
•SEP'sStructural RulesCode Section
•SIMPLE'sStructural RulesCode Section
Chapter 2 - Tax Free Accounts•Roth IRA
Structural RulesCode Section
•Roth 401kStructural RulesCode Section
Chapter 3 - Custodian Selection•A Few Choices•Selection Criteria
ReputationExperienceLocation/Time ZoneWebsite functionalityPhone service quality
•Fee vs. ServiceWhich matters more?
Chapter 4 - Setting Up Self Directed Accounts•Opening the account with the selected custodian•New accounts
ConversionsQualified plansRe-characterizationRe-convert
•Rollovers•Transfers
Module 2 - Detailed Study of Rules Unique to Self-
Directed Investing
Chapter 1 - Eligibility and Contributions•Traditional IRA's•Roth IRA's•401k's•Regular Roth 401K•HSA's
Chapter 2 - Account Conversions•Qualified Plans to Traditional IRA•Traditional Converting to Roth•All, Some, or None
Chapter 3 - The Rules for Self-Directed Accounts
•Prohibited Investments•Disqualified Persons•Prohibited Transactions•Distributions
Chapter 4 - IRA-Owned Entities
Module 3 - Tax Free Living Before 59 1/2
Chapter 1 - Gifting From Existing Accounts
•Annual Exemption
•Unified Credit
Chapter 2 - Inherited Accounts
•Qualification Rules5 Years59 1/2Required minimum distributions
Chapter 3 - Purchased Beneficial Interest
•Delicate DetailsLocating accountsPhrasing
•Most powerful words you will ever say - Win-Win Opportunity
Documenting the purchasePaying for the beneficial interest
•Terms and Conditions•Protections•5 Years•59 ½•Required Minimum Distributions
Module 4 - Understanding the Paperwork Components
Chapter 1 - Direction of Investments•Completion•Processing•Handling
Chapter 2 - Contribution Forms•One Time•Systematic
Chapter 3 - Distribution Forms•Funding Deals•Cash to Others
ConsiderationDeal expenses
•Cash to You
Chapter 4 - Contractual Components•PSA's•Contract Addendum•Notes•Mortgages•Options•Contracts•Deeds•HUDs•Opinion Letters
Chapter 5 - Who Signs What
Module 5 - Structuring Deals Part 1
Chapter 1 - Real Estate•Rehabs
FSBOREO
•FlipsShort SaleREOFSBO
•RentalsResidentialCommercialBuildingsMobile Home Parks
•OtherRent-to-Own dealsLease Options, etc
Module 6 - Structuring Deals Part 2
Chapter 1 - Paper•Tax Liens•Tax Deeds•Notes
DiscountedNewDefaulted
Chapter 2 - Personal Property•Deals on Wheels•Internet Assets
Chapter 3 - Necessary Paperwork•Contracts•Titles•Notes