LLC vs S Corp: The Entity Mistakes Costing Real Estate Investors Thousands

David Wiener: Welcome back to the tax strategy playbook. I'm your host, David Wiener I specialize in cost segregation, bonus depreciation, 179D and R &D studies, but there is so much more to tax strategy. Today we're tackling one of the most confusing and potentially expensive decisions investors make, entity selection, S-corps, that kind of thing. And to break it down, I brought in somebody who lives and breathes this stuff. Matt Bontrager is a CPA and managing partner of TrueBooks, a firm that focuses on real estate investors and entrepreneurs and helps them proactively design their tax strategy, not just file returns. We're going to talk about when an LLC actually matters, when S-Corps help or hurt, how to think about entity structure if you're investing with a spouse or partners, and what to do first if you're already set up the wrong way. Matt, thanks for joining me. I was going to say welcome, Matt, but that doesn't sound right. So thanks for joining me on this.

Matt: Dude, thank you for having me. I love the name of the podcast and that was a really good intro. As somebody who's not the best at doing intros myself when I do this kind of stuff, that was a good intro. 10 out of 10, dude.

David Wiener: Thanks very much. Matt, you and I, we've worked together ⁓ my clients and your clients. We both live in the weeds with real estate investors pretty much all day, every day. Give me just a 60 second origin story ⁓ ⁓ tax strategy became such a big part of your life and ⁓ TrueBooks came to be.

Matt: Yeah. So an accountant, what I love about this profession ⁓ it's easy to moonlight, right? It's easy to do work on the side. And so that's what I started to do, which was do tax returns for people. And was very apparent to me that the firms that I grew, you I like to say I worked, you know, for, for the older old school types of they're going to prepare Jim's tax return. Jim's going to pay 700 bucks for his tax return. And Jim might have a question here there that he calls in and talks to somebody about. And maybe at the end of it, they mark up Jim's tax returns, 150 bucks, and they charge him 850 and he's done. problem with that model in my eyes now ⁓ you run into these examples to where when Jim's out at the bar with his friends and hears somebody talking about taxes, ⁓ he's hearing things that he could have done and then goes back to his accountant and is like, dude, why didn't you tell me I could be doing this and saving money? And so it was very clear to me that the unspoken expectation of a client is that their tax preparer is going to do everything A to Z for them under the sun to bring down their tax bill. And I don't think that that's a bad expectation to have, but it's a terrible expectation to not set up front.

David Wiener: Thank you.

Matt: Because what happens is then you have all of these clients that are thinking that you're doing the best for them and trying to bring down their tax bill. When in reality, you're not. All you're doing is saying, hey, send me your W-2s, your profit and loss statements, your cost segregations. you know, obviously a cost segregation, you know that they're talking about more stuff at that point. But it was very apparent to me that clients really wanted that and they weren't getting that with the old traditional model. So when we founded TrueBooks and started in 2020, it was apparent to me that not only did we need to have the preparation component, the compliance, but the strategy component. And what it also allowed us to do was to set that expectation up front and say, hey Jim, do you want us to look out for you and like be your accountant and bring things to you to help bring down your tax bill? Or do you just want more of a transactional relationship where we're gonna file your taxes? And so it not only gave major clarity up front and set a better standard with the client, it's way more profitable. Right? Because now if I can come in and save somebody 40 grand and my bill is six, I go to sleep at night just fine knowing that I charged them six, but they saved 40. So that is how my own experience, tax has come about. Now it's obviously, and you would know this too, just as well as I do, ⁓ so different iterations of it and how it's being sold and how it's being offered. But that for me is how tax strategy to be.

David Wiener: Okay. So we're talking about real estate investors in small businesses, is selection really a big deal?

Matt: major and it's a like, ⁓ go off on my rocker with this because it's even for newer business owners. One of the biggest things is, is they think it's some tax play. But in reality, I'm no attorney here is my disclaimer. There's my CPA license there, but it's not a, it's not a tax play upfront, Setting, setting up the right entity. can be, and it should be factored in, but it really is a legal play. And so to that answer, to keep it pointed is yes, it's a, it's a, I don't know if you use the term big deal, but I would say it's a big deal upfront when you're starting off a new venture, what sort of entity you pick and how you structure it for sure.

David Wiener: So give me just a quick explanation of each option, just in plain English. What are the options for an entity?

Matt: So when you're starting out on a new venture, your options are gonna be the following. The lowest tier, I would not recommend is your a sole proprietor, which is not even an entity. I just wanna say it though, because I want it to be clear to people that if you don't choose an entity, that is likely what you are operating as, which is a proprietorship, it's your social, it's you as the individual doing that activity. Then you move into a LLC, limited liability company. And you set this up with your State again, piece of advice or you what I've heard ⁓ in my practice and from talking to other attorneys is typically it's going to be the state in which you're doing the activity in, you're buying the rental in, whatever it is. If you end up wanting to do the whole Delaware, Wyoming, I'm obviously running on here, but that's more of a strategic play. But ⁓ limited liability company is that first tier. and then you have things like a partnership. And then you have an S corporation and a C corporation. But what I want to make clear here, which, which actually, no, you go yet. Cause I can probably tell one of the questions you might ask is going to lead it. So yeah, we'll let.

David Wiener: It will, but in my experience, most people, a lot of the people that I've dealt with, choose an entity based on what their friends are doing what they heard on social media. ⁓

Matt: Yeah, definitely. ⁓

David Wiener: what aggravates you about entities and the way people choose entities?

Matt: not seeking the right advice and just simply going off of what their friends are doing, assuming that it's a very ⁓ broad decision to make when in reality, taxes and finance is so specific to the individual that obviously you need to seek out information that is grounded in what you are doing. I would ⁓ what annoys me the most is people willy-nillying going out and setting up LLCs for every new idea that they have when it's like, ⁓ my gosh, no, I would not do that. You're wasting a lot of money and time doing that. Another thing that annoys me, but it's pretty nuanced is people going out, setting up LLCs. Then they go get their EIN letter, right? Employer identification number with the IRS. It's like your social security number for the entity. And they're marking that thing as if there's multiple people involved. they'll, you know, Hey, responsible party. How many people are involved? And they put two, they get this letter that says, you now have a tax return due on March 15th, the next year, which is of right form 1065, a partnership return. And they ignore the hell out of those. And then they always come to us with the penalties that they're getting hit with. Because now that you said that there's two of you involved, the government expects a partnership tax return to be filed. And if you don't file that partnership tax return, you start to incur $240 a month per month per partner. And the fees can rack up very quickly. So it annoys me that people really quickly run through this process without really reading what's going on and understanding what their obligations are and then coming to us to clean it up. and being annoying about it. Yeah.

David Wiener: Are there common myths out there that you hear about entities?

Matt: Yes. Yeah. ⁓ you're going to get me going here for this one, which is the holding company though. Everybody needs a holding company. And I'm like, that is so oversold nowadays. It's crazy. And what it really causes what we see is much more decision-making and administrative and costs and organizational time spent. by having all of these LLCs set up with no real purpose. So that is a big one, the management company. And then this, ⁓ I live in California, but I'm going to go set up a Wyoming LLC so I can dodge the state income tax. let's just say that that's the reason that they do it when I'm like, ⁓ my God, that's not the case at all. If you live in California, but use a Nevada or Wyoming LLC, you are still going to pay California income tax because you're doing the business in California. ⁓

David Wiener: Absolutely.

Matt: major misconception is setting up an LLC in a state that doesn't have state income tax will help you avoid it. And I'm like, that is so far from the truth.

David Wiener: So when you go to choose whatever entity you're going to choose, needs to be considered? Is it just tax, or is it liability, or financing, or something else?

Matt: An entity for me and what I would recommend to somebody is, what's the activity? Is there multiple people involved? Is it something that you're trying to raise money for and go public? Like notice these are dramatically different scenarios. Like am I just getting a partner together and we're going to go flip homes? Because even I would argue at that point, you don't need to have a partnership together. You can run your own shops doing the same thing that whatever the goal is there, you know, flipping real estate. But if you're going to go get $10 million in funding and you're going to have shareholders and you're going to try to sell this company eventually in the next zero to 10 years, maybe a C corporation will make sense. But yeah.

David Wiener: Probably not as often are you going to see that with real estate investors or small businesses that may not ever grow.

Matt: Yeah. ⁓ Exactly. Small businesses and real estate specifically, nine out of 10 times, you're going to go with an LLC, limited liability company in the state where the business is going to be held and serviced. You're going to get an EIN and then you're going to worry about your accounting and making money. That's it.

David Wiener: So like when I started my business as an independent contractor many, years ago, I was given ⁓ wisdom from my ⁓ my manager, just do it on your own until your income hits about 80, 85,000 and ⁓ then need to incorporate. that good advice, bad advice, or neutral? Or don't you know enough about it to know?

Matt: I'm going to say, this is where going to tiff some people here that are in the tax world and I just, everybody wants to come at each other's throats nowadays for something that they said. I like that advice because my rule of thumb typically is you should go S corporation, which I think is what you were referring to. ⁓ your net income is around 50 grand is usually the break even there. And, and I want to sort of peel that back for a second. What I want people to understand is

David Wiener: Right.

Matt: I've, you know, we'll ask somebody, are you an S corporation? And they're like, no, I'm an LLC. it's like, ⁓ God, you are technically an S corporation, but you're an LLC first. And, and, and what I want people to understand here is, is to become an S corporation. This is the series of steps that you would follow. You'd set up an LLC. You would be operating as a single member LLC at that point, which means on your tax return, it's going to be on a schedule C. You're not filing like a separate tax form for your business. then profits for the business start to take off and it makes sense to incorporate. At that point, your accountant is just simply gonna go tell the IRS, hey, David has this LLC and we would like to treat it for tax purposes as an S corporation. So we're not setting up a new entity, we're just filing one form that now tells the IRS, hey, we're gonna treat this as its own tax return, it's a separate entity, it is for tax purposes a corporation now, an S corporation, small business corporation. ⁓ and that's how we get to this S corp, ⁓ sort of status. Why the 80 grand I agree with is because you're well within the bounds of where that cost benefit makes sense. And to kind of make that short, but hopefully clear is if you're a service based business contractor, right? You run a small business and S corp is going to help you from a tax strategy standpoint, but it comes with increased costs to operate as an S corp. What are the increased costs? You have to run payroll because you're an employee of the business now and you have a separate tax return.

David Wiener: Thank

Matt: call it—that's gonna cost you two to three grand a year. So the point of wanting to have profits or income be 50 to 80 grand or so is so that you have the income and it's gonna make sense tax-wise. You're gonna save money on taxes going to the escort model in excess of what your additional costs are. So overall, I like that advice. I think that's good. I think it's—it's a good rule of thumb. And the last thing I'll say to that is that's what tax advice should be to start out. It should be— Hey, you should hear this. You should not run off and do exactly what I'm saying, but you should use it as a rule of thumb to say, ⁓ wow, that sounds like my situation. Let me ask my tax guy. then figure it out to see if it makes sense for you.

David Wiener: And I'm assuming that most tax guys would know.

Matt: Yeah, you're hoping and that's where if they don't you find something you find a new tax guy.

David Wiener: I don't think you can make that assumption because I've learned how much some people don't know, and it's kind of scary. And so you need somebody who really can answer those questions without getting that deer in the headlights look. Now, for a real estate investor, does entity choice have anything to do with the real estate professional designation test or the material participation test?

Matt: Yeah. Yes. No, no, and that's a really good question. so of the time what we see is investors, they're going to hold the real estate inside of an LLC, okay, for liability protection. It's not going to help them tax wise. And then for their business, let's say they're a realtor or they're a flipper wholesaler, they're an investor. They can ⁓ stay a sole proprietor. They can get an LLC and do business as the LLC. They can. Be an S corporation, either of those designations, whether sole prop or operating their business out of an LLC, they can still earn that real estate professional status. They don't need an entity to do so, which is again, good topic that you bring up because it is a big misconception that when we start talking, hey, David, you're gonna need to be a real estate professional. They're thinking that they have to a ⁓ license to do that, a certain entity to do that. And that's not the case at all.

David Wiener: had a lot of real estate agents and brokers who, when I'm talking to them about cost segregation, I ask them about real estate professional status and they say, oh yeah, I'm a licensed real estate agent. And I have to slow them down and say, well, wait, wait, wait. That's not what that means. And go into what the real estate professional designation takes and what material participation takes and that you have to document. I know that's a big thing for you. Document, document well.

Matt: Yeah. Yeah. Exactly. Yep, exactly. Yeah, we have the law.

David Wiener: Because should the IRS come to call, got to have something to show them.

Matt: Exactly. And I like the answer of, yeah, you know, hey, I'm a real estate agent because it starts to lay the foundation. Well, hey, at least we know they're a rep. We know they're a real estate professional. But yes, the misconception for the consumer slash client is yeah, that they need a license to earn that status, but that's not the case at all. And that's where, while we're on the topic of LLCs, what I want to make super important is, and we saw this in one of the audits, is if you don't operate

David Wiener: Right.

Matt: a business or a rental out of an LLC and you're mingle, right? You're co-mingling spending with your personal accounts. It is a nightmare in an audit because one thing that I want to make clear is, is when the auditors ask for statements and if you tell them, my business was only in service for July to December, they don't care. They're going to want all 12 months of your personal bank statements given that you run it without an LLC. Let's just assume without an entity. And so that's a problem right there. And two is, all deposits that they see within these statements, they're going to presume is income. So the Venmo that your friend sent you for a reimbursement for beers at a bar or lunch one day is no longer just a innocent transaction. looks like it could be taxable income to the IRS and they're going to question it. again, it just really strengthens the argument for my argument is to and my recommendation is if you are out in pursuit of income and you're going to spend money on an activity, real estate, investing in business, whatever it is, At a minimum, you should have an entity to be that blocker between you and the activity.

David Wiener: really an LLC is not going to be any tax advantage. That's mostly for protection, right?

Matt: Yeah, exactly. Until you start to get cute with the S-Corps and you're going public and a C-Corp makes sense or you're going to raise money from a few people and go out and do a deal together and you need a partnership. That is where entity classification and selection makes a lot of sense and needs a lot of forethought and planning. But if you're just going to go out and you're going to start trading card business, a photography business, get an LLC to separate that liability between you and the activity itself.

David Wiener: and keep your records separate.

Matt: Keep your records. If they leave this podcast with one piece of advice, keep your records separate. Exactly.

David Wiener: And fortunately I was given that advice early ⁓ never had to worry too much about that. an entity selection then later affect their ability to sell or to bring in partners or to get financing?

Matt: Yeah. So it can and that's why upfront you want to do as much of the thinking through that and what the, you know, what potential sort of paths down the road, forks in the road you're going to end up having to take. Cause context, you can only have certain owners within an S corporation. Another big thing is we see a lot of the times ⁓ spouses that they need to start a partnership together when in reality that it's going to flow through to their individual return anyways. Or you have people that are going into partnership and they, one person's going to bring the expertise. The other person's going to bring the money. And so there's this disproportionate amount of cash being brought to the deal, but then they'll go in as an S corporation when S corporations have rules that you have to be very pro rata based on whatever it is that you set the ownership percentages to be. So it can tie your hands later down the road. which is why if you're going into If you're not starting something simply as yourself, a business that you were starting and it's like a partnership or something you're gonna raise money to do, you definitely should consult somebody at that point because it's likely that a simple LLC isn't the play for you.

David Wiener: ⁓ let's to make this a little bit more practical for individuals. And I've got some, I actually have some listener questions for you later. But if someone is just starting like their first rental or their first side hustle, what's the starting point? I think you sort of touched on that. What's the starting point you'd recommend and what would make you not start there?

Matt: So you're saying for somebody going out, starting a new business or a new real estate investor.

David Wiener: Yeah, they're either they're either buying their first rental, you know, I'm to go out and buy a short term rental or I'm starting my own little ⁓ independent contractor business. I think you said start at just as a sole proprietor or get an LLC or do the LLC to keep everything separate and then at some point. Move to S Corp election. Is there a reason that you would not go that way?

Matt: Yep. I would not go the S-Corp route if I was only acquiring rentals. So this is where you run into a nuance of you don't want to hold any appreciating assets inside of a corp. You lose a lot of flexibility of being able to move them around within your ecosystem of entities. But if I'm a new real estate investor, a new business owner, I am starting off with it's the same sort of four step checklist that I use. first, EIN second, which pausing their EINs are free. had some of it. That's funny. The joke that I use now is the guy that cut my hair was telling me one day, Hey, yeah, I just paid somebody 150 bucks. They got my EIN for me. And I'm like, well, you just got scammed. Those are free. LLC EIN ⁓ account there, cause you're going to need those first two steps to go get a bank account. Third is a bank account. Fourth is your accounting software. And then really the fifth is like, worry about earning now at this point, go out and market, you know? ⁓

David Wiener: and go find a good CPA.

Matt: Yeah, exactly. Yeah. So I mean, yeah. So my choice is new real estate investor. I'm following those same steps. New business owner. I'm following those same steps. But you could see where real estate investor, I'm not going to go S-corporal out as I start to acquire properties because the type of income that I'm earning is simply rental income. And let's just say I maintain a W-2 role on the side versus if I'm a business owner and I'm going into business, I'm still going to start off with an LLC, single member LLC. And then once I start to hit that 50 to 80 grand of net income, I'm gonna start talking to my accountant about, I think an S corporation election makes sense for me. And then I'll move into that direction. And then let's say later on, I haven't invested yet, I haven't bought any real estate, but I have an S corporation where I'm a coach. a consultant and I've brought in 300 grand in profits and now I wanna go out and buy a property. I'm gonna set up a separate LLC to own that property. So you can see where. That's how people's entity charts start to get built out and they have entities for certain, you know, certain purposes versus some people I see every idea that they have, set up a new LLC for it. And it's like, ⁓ my gosh.

David Wiener: That brings up a question that I hear a lot when I'm talking to people about cost segregation, because they're always asking me CPA questions. And I'm always trying to defer them to you or to somebody else that I know that. they ask me, I'm buying, I have one property. It's in an LLC. I'm buying another property. Should I put it in a separate LLC or should I put it in the same LLC? Or does it matter?

Matt: Great question. Yeah. So for tax reasons, doesn't matter. Most of the time doesn't matter. If it's like a state income tax thing where let's just say Arizona, you have an Arizona entity, but you bought a Texas property. Could the Texas property now be subject to Arizona state income tax? Yes. Cause it's held within the entity you live there, that kind of thing. But, am a fan of to the client about what their risk tolerance is. to determine if they want to keep all properties or some properties within an LLC. I am not a fan of setting up a new LLC per rental property. Reason being administratively, cash flow logistically, they're not going to follow that. And that's where I feel very strongly about this because the companies out there that do this, you're really doing more hurt because the clients themselves are not going to utilize these entities the way that you intended them to be set up. Meaning, if I have entity A and entity B and they each own a rental, I need to make sure that I have banking set up for each entity unless they're owned by a holding company, let's say, and they can all share a bank account. But if a client feels they have five properties and all in an okay area and they don't see any sort of larger amount of risk with one property over the other, I'm going to put all five in one. If they're in different states and I see more risk with one of them, then I maybe start to peel them off and split them out. But it's a total risk.

David Wiener: Because I'm constantly seeing people name their LLC, 123 Main Street And then they feel like if they get another property, they need to put it in an LLC with the name of that property on it. And they wind up with a whole handful of different LLCs that I don't think is necessary.

Matt: Yeah. Yeah. and you're racking up fees, renewal fees, you need RAs and registered agents form. It's just so much of an administrative burden that ⁓ end up not using it the right way and that's where let's really land the plane here. If you don't end up using the LLC the right way, you're not gonna get the protection that you literally went out to set it up for in the first place. So that's where I'm like you could you could shoot yourself in the foot right out of the gate if you're not moving cash the right way, you're not titling things the right way. So that's even the The worst part is people still have these lethargic entity charts that have no protection anymore because they've already crossed and commingled the thing every which way to Sunday. Yeah, ⁓ You need to follow the path and move money the right way. Unless you do that, these entity charts aren't worth it.

David Wiener: It's not magic. So if somebody is an entity now, but they realize they made a mistake and chose the wrong entity, can it be changed?

Matt: It can, it can. And sometimes maybe makes sense to wind down an entity. So for context, my old business partner, when I met him, ⁓ he operated as an S corporation. He also had rentals in an S corporation, which is not advantageous. Like we talked about, you don't want to have appreciating assets in an S corp. And a of years into our relationship, he was starting a new business on the coaching side of things. And so. ⁓ first he was a real estate investor and generated most income that way and then set up a coaching business. At that point, we didn't want to commingle the real estate risk with the new business risk. So we split it off as a new entity. So that could be a time where, hey, can you run four companies and four different activities out of one LLC? Yes. But does that really make sense if they're all completely separate businesses, different contracts, different vendors, different employees, then it maybe makes sense to split it off and do its own thing. can you end up changing the entity classification? Yes. But sometimes also it may make sense to know just set up a new one for sure. ⁓

David Wiener: I'm thinking if somebody had made the S-corp election and then realized that's not the right thing to do. I've got appreciating assets and that's really all I've got. Can they undo the S-corp election and go back to an LLC? ⁓

Matt: You can, so you can terminate the S status, but just know that at some point, depending on when the assets were bought and held within the entity, that one problem could lead to a taxable event, which is the issue. And that's where you bring up a good topic that I think would be important and I think helpful to hit on is real estate investors get hurt the most from what we see with bad entity selection, and here's why. Long story short, if you set up an LLC, put a property in it, you can move that property in and out of that thing daily if you wanted to. And I just say that to get the point across to where that's not a taxable event. If you move a piece of property out of an S corporation, that is a taxable event that is treated as if it was a sale between the fair market value and your cost basis. And what I want to make very clear here is, is real estate investors get hurt the most from this. And here's why. Typically, it's a flipper or a wholesaler that will be operating their flipping business or wholesaling business as an S-Corp, which is fine. So if you're a flipper, yes, you can buy properties within an S-Corp. That's okay. But they're not rentals. They're flips. They're like no different than a gallon of milk that the grocery store sells. It's inventory. But when they find a good deal, they're quick to use their operational entity, which is an S-Corp, to buy it. And then, you know, a few weeks go on and they're like, man, this is a good deal the way that it pencils out. I'm going to keep this as a rental. And then they move it out of their escort, maybe into their holding company. And that's a tactical event. Why do they get hurt the most? Real estate investors are great at what? Finding discounted deals. So if they find a deal where it's valued at 200 and they locked it up for a buck 20, and then a week later they transfer it out, you have an $80,000 gain right there for doing that.

David Wiener: . That brings me to another question then. And this is just something that popped up in my head. Let's say somebody is a flipper and he has it in an S-Corp. And he buys properties and he renovates them and he sells them. And then he buys one and he renovates it and he says, I think I'm going to hold on to this. So he moves it out of the S-Corp. Does he get a stepped up basis in the LLC?

Matt: You're not gonna, you're gonna get a step up, but it's because you technically had to pay for the new price and pay on the gain. So that's where, you're not gonna get what it is you're essentially alluding to, which is a free step up and basis at all. That's gonna be a taxable event. And if we had two hours to dive into this topic, it hurts real estate investors even more because not only now does moving that property out trigger that taxable event.

David Wiener: Yeah

Matt: What's the number one thing that investors want from their rentals? They want the ability to take these tax losses against their other income through cost segregation. And the problem with doing that in an S-Corp is you don't have the basis in the deal to do that because you don't get debt basis or what we would call qualified non-recourse ⁓ financing as if it's a normal real estate deal. You're not going to get that with an S-Corp. you run into multiple problems with buying rentals in an S-Corp, is why it's always another key takeaway from this podcast. Don't buy any rental. Don't put any rentals inside of an S-Corporation. It really is going to hurt the client in the long

David Wiener: And that's why they need you and TrueBooks, right?

Matt: Find someone good, find someone you can, and this is the thing, right? They should be listening to something like this and thinking, ⁓ wow, that's relevant to me. And then maybe get like a good thumb on the pulse as to what kind of questions to ask. But exactly. It's such a circumstantial, situational, specific thing that they need to meet with somebody to talk about what their deal is. Cause it's all different. You know, you know.

David Wiener: Absolutely. Well, I'm looking at the two listener questions that were sent to me and we've already pretty much answered them, but I'm gonna go ahead and give them to you anyway and you can give me just a concise answer. One says, I have three properties in my own name. Will putting them in an LLC help me with taxes?

Matt: Yeah. Hit me. love the question because I see the innocence in it. If you put them in an LLC, it is not going to help you with your tax bill. No.

David Wiener: And the same person said, should I put all my properties going forward into the same LLC or individual ones? I think we pretty well covered that.

Matt: Yeah, and yeah, and so my straightforward answer to that is I'm a fan of putting all rentals in an LLC for the protection purpose. Whether you put them all in one or one in each, I am a fan of keeping less entities. But if you are a person that wakes up daily and you're like, man, this is really causing some adjuda here to have them all in one entity and you want them split, you can split them. You just have to understand the ramifications that come with that. and making sure that you're utilizing each LLC appropriately. that is a go to sleep at night knowing that you can't make a wrong answer. That is a total personal preference question.

David Wiener: And a friend of mine asked me, my wife and I own rentals together. Should we be in a partnership or can one of us claim more benefits than the other?

Matt: Hey, great question. If you file a joint, no, I would say that they should not be in a partnership because now you're just having an unnecessary—you're having an unnecessary tax filing that you would otherwise not need and spend money on because they're gonna be reported on your personal tax return anyways. So unless there's a third person in the mix, if it's just husband-wife, report them on your personal return. Put them in an LLC for protection if you'd like, but no need for a separate filing. No.

David Wiener: Good answer. So let's begin to wrap this up a little bit. Some practical steps. This is the playbook after all. ⁓ If somebody's unclear about choosing an entity, give them four or five practical steps that they can take right now to begin the process, maybe even before they talk to somebody about it.

Matt: Yeah, I was gonna say the playbook, yeah. So I would have these details hashed out. Do you plan on taking on any debt for whatever the activity is? Do you plan on having partners? And I want to linger on that question for a second and say, think through this. Are there people involved that are going to contribute money? Are there people involved that want their voice to be heard and have a say in how things are done? Are there people involved that want Equity in the deal. Those are all things that make me really think yes Those are potential partners if it's somebody that just wants a commission split you do not need to be a partner with them It the type of activity are you going to do consulting? Right type work where you just earn fees. Are you gonna buy? Actual products and then sell them for a profit Those are questions that I would start to ask because those are going to immediately point the professional to the right answer to give you the best recommendation. But I can tell you now, most of the time LLCs are great. And here's why we have the flexibility to turn into a C corp, to turn into an S corp, to turn into a partnership. So you really can't go wrong with starting as an LLC you have the tax flexibility to ⁓ change later on.

David Wiener: and get some advice from somebody who really knows what they're talking about.

Matt: Always, always. This is the business where obviously what you don't know, you don't know and it hurts you.

David Wiener: If you could give one piece of advice to the listener who just feels totally overwhelmed by this, what would it be?

Matt: Have one entity, I love this question, have one entity for your business, start off as an LLC, have one entity for your investing, have that own your rentals, and shift all of your attention back to making the money. Because it tells me that once you have an income problem, you're gonna have no problem going to a tax preparer or a tax strategist that can help you and you're gonna spend three to 15 grand with them to help you plan. Too many people get caught up in the weeds of setting up these really complex structures with no income problem yet. So have an LLC for your business, have an LLC for your investing. If you just have one of those, have one of those, that's fine. And then shift your attention back to making the money.

David Wiener: So for the right fit client, whether they're building a portfolio or whether they're scaling a business, is ⁓ with you and the team at TrueBooks look like over a year?

Matt: So we take a larger timeline approach. So for a client that comes to our firm, remember, we don't just want to prepare their taxes. We want to work with them to help bring down tax bill and optimize their tax bill is what we say. So for us, it's you meet us, ⁓ have a couple calls to talk to an advisor and get things in order, whether it's from the prior year, whether it's this changes that you have for this upcoming year, you need to get for lack of better term, You need to get the lay of the land down first and then we work on your compliance filing your tax returns and things like that. But for us, we want to have a relationship with a client. I don't just want to do the transaction of filing your taxes. So for us, it's a integrated approach where you're coming in, you're giving us everything upfront, we get a lay of the land, we get a plan in place, and then we worry about the compliance after. And that's what I would argue, yes, what your people need to look for. They need to look for a planner, not just someone that's going to file for

David Wiener: and you can help. Absolutely. And you can help them correct any mistakes that they've made along the way.

Matt: ⁓ of course. that's, that's the first thing you're doing right for us is looking at the prior year returns. Are there anything that we have to go back and clean up and fix now? Of course.

David Wiener: Fantastic. What's the best way for somebody to get in touch with you or in touch with TrueBooks if they want to go further?

Matt: Yeah. Hey, I appreciate that. ⁓ It'd be our website, truebookcpa.com. That's the best way. Or if they want any content to absorb anything like that, same thing for the Instagram or my Instagram. That's the best place to get a hold of us.

David Wiener: Fantastic. And I'll put Matt's contact information and Truebook's contact information in the show notes with us. Do me a favor, if you're a listener, if you ⁓ ⁓ you got out of this, go ahead and subscribe to the podcast, like it, leave me a comment, leave me a review, ask a question, whatever, or feel free to contact me if you want more information about cost segregation, bonus depreciation, 179D, all of those kinds of things. Matt, thank you so much for joining me. I really appreciate it. I think we gave them a lot to think about today. join us for the next episode of the Tax Strategy Playbook.