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that is both timely and important for you to know in order to engage in this
area of the world. Welcome to the Wealth in Law.
Podcast. I am Brent Nelson. And sometimes, uh,
people or your clients or your friends or your family members are wanting to
start a business and they don't really know where to go.
They may go on social media and get quote unquote advice, uh,
but to ensure that they don't always have to rely on bad advice. Uh,
we're gonna talk about it today. And to help me is Toby Mathis. Toby,
thank you for joining me.
Hey, thanks for having me, Brent. Should be fun. Yeah.
Yeah. I mean, obviously this is something that you and I see a lot of. Um,
I don't know if everybody listening to this will be as familiar with some of the
traves of these types of, uh,
decisions right up front when you're trying to form a business.
But to set the stage for people,
you wanna maybe give us your high level so people know who you are and why
you're here.
Yeah. So I'm a, I'm pretty much a tax attorney. Been doing this for 25 years.
I think it's 25 years. Yeah. 25 years now. Um,
specializing just in small business asset protection, uh, tax, ton of tax,
and they all go together and estate planning, uh,
they all kind of are three keys of accord that if you, uh, ignore one,
it sounds off. Right. So you Yeah. And some people are really good at one key,
so you're always trying to, Hey, let's even that out a.
Little. Yeah. Oh man. That's so true.
And it's funny you mention all those together because I get questions from
clients who have businesses and they'll say, you know, do you,
do you help people with their businesses say, Well, yeah, of course.
Cuz my clients tend to be rich and they have businesses.
That's how they make their money. Um, and then they'll say, Well,
do you think I need to do a trust? That's not even a question. Like,
that's almost a necessity because there's a human involved,
so you have to do estate planning. Surprise.
Isn't it weird? But I still get push back. I still, like all the time,
I'll have people like, Oh no probate. It's easy in my state. And you're like,
Well, okay,
that's great if you wanna shut down the business and have like an interruption.
But otherwise you probably want to have that ironed out.
We just give this as real life. We just had a client, uh,
passed away last week, last Friday. He was hit on a,
on his motorcycle by a drunk driver. And you know,
here it is a construction company. He worked with his, uh, spouse,
They were newly married, married for 104 days total. And the,
you know, we had tightened it up pretty quick.
Had his trust before he was married, trust after he was married.
But that would've been a, just about, just think of that,
that situation before they were married with no estate plan, no trust,
no document. How does that business carry on? Does the,
at the time fiance have any rights at all to the business? You know,
she was working in the business for several years, What would've occurred?
And then you look at it and say, even in this circumstance,
how do they continue on? And it was a licensed business.
So like you have to have a principal or somebody that has,
carries a certain type of licensing and, uh,
just how difficult that is when you don't have a written plan.
And I always am shocked that people kind of just do the, well, I did a will.
Right. Got it on legal dom or something like that. I make fun of. Right.
You know, hey, I, I, you know, my,
my brother Ned has this guy and he does wills for $99. So I did one of those.
You know, like Okay, that's great. Yeah. Not gonna do anything for you, but, Mm.
Good. Yeah.
I mean, I, I, yeah, I, I have,
I have similar frustrations and I try to even it out with, uh,
empathy for people because I think, you know,
when you start talking about trusts,
even among lawyers and accountants and financial advisors,
a huge portion of those people, let alone say regular people. Yep.
Uh, they don't even understand trust. So when you start talking about trust,
it's like you're, you might as well be talking about fantasy land.
Yeah. I, and it's so, I mean, I always think of 'em as really simple, Hey,
it's contract. Yeah. And because you have this contract,
you don't need a judge to tell you who gets it. And if you don't need a judge,
it means you don't have to go to court. And if you don't have to go to court,
that's a good thing. Courts are all those lawyers hang out, no offense to the.
Lawyer, real lawyers, Toby, real lawyers, not, not weird lawyers like us. Yeah.
That's exactly right. I,
I look at myself as kind of an anti lawyer cuz I'm like the last place I ever
want go as a courthouse. Like, let's just never go there .
I don't want you to go there as a defendant.
I don't want you to go there as a plaintiff.
And I definitely don't want your family to have to go there if,
if you pass away, let's assume avoid it.
So that a little written agreement that says, Hey, we don't want go to court.
That's really all it is, is fairly simple. And if you wanna create a legacy,
it's the only option. Like the,
I guess you could do foundations and you could create your legacy that way,
but you're always gonna die with something.
You may as well have a written plan for it and not just a die and distribute
like a will does. It's like, hey,
let's actually think about it and create something. Uh, I always tell clients,
Hey, think 200 years in the future, what kind of values do you wanna pass down?
What does that estate look like? And they look at you funny and you go, No, no,
seriously, you're, you're a human being. You're, you're creating this thing.
You know, you're, you've started your business,
What does it look like in 200 years? And it's kind of funny,
you give 'em permission to actually future trip a.
Little. Yeah. That's really interesting. You know, I kind of teed this up as,
um, creating businesses and we've gone straight to the very,
very top of the organizational chart at the human level.
But I think actually that's probably the right place to start. Cuz you know,
what you're describing would be something where the business or the assets
would, would end up in Yeah. What we, what we might call an irrevocable trust.
We might say a dynasty trust or if you Googled it,
you might find dynasty trust or whatever.
It doesn't really matter what name you give it.
And I have clients sometimes when I, we sort of are talking about this concept,
they'll say something like, Yeah, but you know, I just wanna give it to my kids.
Cuz they're, they're responsible and they can handle things.
And I'm sure you hear that too. And I'm curious to hear, I hear.
That. How.
Do you respond to that?
I I always say, that's great, but uh, you know,
your kids might be absolutely fantastic,
but we don't know what their life circumstances are gonna be in 10, 10 years.
We don't know in 10 days. Uh,
so we probably shouldn't just hand them something that they may not be in a
position to handle at the time. Uh, again, when nobody has a crystal ball.
And what happens if something happens to the child before you, you know,
are you, are you landing this on a grandchild's lap?
And then we don't know who that person is.
We've seen people harm themselves irrevocably, since you used that term,
uh, by getting, uh, an asset that they weren't prepared for. I, I had a guy, uh,
early on, he said, Hey, Toby, uh, hold this coffee. He gave me a cup of coffee.
He goes, Is that heavy? And I said, No. And he goes,
Now put it at the end of your arm and put your arm straight out in front of you
and, uh, I'm gonna come back in five minutes and ask you the same question.
And I go, Well, okay. And it is getting really heavy, like my arm. I like,
can I put it down? And he goes, No, no. That's the point. It wasn't heavy,
was it? It seemed like it was not that big of an issue.
And then you put it out there and you hold onto it for a little while and it
gets heavier and heavier and heavier and eventually you just have to put it
down. And that's kind of the way, uh, he said, that's, that's money. He goes,
It needs a place to go. You need a place to put it.
And if you don't have something solid to put it on, it's, you know,
somebody's gonna walk up and you're gonna hand it to him because you're just,
you don't know what else to do.
And I think we see that with lottery winners or people that get newfound wealth
and they usually have a few bruises and you just gotta decide, Hey,
do I wanna do that to somebody? Yeah. Or do I wanna say, Hey, you know what, uh,
I, I have a really cool, one of my favorite ones was these,
this couple that I was working with, and they love to travel. And they said,
You know what, everybody I know that travels internationally is pretty cool.
Like, they, they end up getting a worldly view. They're not just, you know,
pounding their chest about this country, that country or whatever mm-hmm.
. But they tend to be nicer people.
And they wanted to create a trust that allowed their descendants to all
travel internationally at least once a year. And that was it. And I was like,
Hey,
that would be pretty cool if grandma and grandpa had set up a trust that said,
Hey Toby, uh, or you know, any of my brothers or cetera, Hey,
you guys can leave the country. I'll pay for it. You wanna go to Paris?
Here you go. You know, seven days, 14 days, talk to the trustee. You know?
Uh, and I always think of that situation where I'm like,
That would be really cool.
I would've really liked that somebody done that for me. And, uh,
and I can't help but think, yeah,
you could do really neat things with your state or if you love mission work,
Hey,
I want you to travel and be able to go do mission work or fill in the blank.
I want you to be able to go to college.
It's really important that everybody goes to college.
It's when you create these things and actually give 'em a purpose,
people will remember you, you know,
and it's not that we're doing it it for vanity,
but if you want your grandkids to know your name, your great grandkids,
your great great grandkids, people that come after you, it's kind of,
you gotta put, here's my values, here's what I thought was important,
and create a vehicle for it. And when you start at that point, then it's,
it makes our life a lot easier when we're deciding what type of business
structure we're gonna put in place. Yeah. And, uh, and and,
and why we're doing what we're doing in the first place.
Like what's our purpose?
Right. Yeah. No, that's really well sit said and you know,
it just sort of turns out that if you want to,
we'll say control that's probably a little too strong a term,
but control things after you die,
there's really only one legal mechanism to do it. And it's a trust.
The trust just owns stuff. But it can,
you can put your values into the trust and then it exists beyond your life.
Everything else terminates when you die.
I would say that. And a non-profit. Yeah. Either an operating,
a private operating or a just a private foundation. Even if you just wanna be,
hey, uh, just want give money away to these organization, that's great.
But if you actually set one up, like I always crack up that IKEA as a charity,
you know, I'm like, , ikea, like, it's like the most,
the furniture that's, that's, that's made into a puzzle so it can frustrate you.
Right. But it's,
it's actually a charitable organization and I always use that as an examples.
Like,
you can create something that's important to you that we'll never die if you
fund it. Right. You know, and we can go back to,
there's a great case of Milton Hershey who set up the Milton Hershey School.
It's still educating people. I think he set it up in 1905.
He didn't have any kids. He and his wife died, uh, childless.
And it was there to help, uh, orphan boys learn agriculture.
Now it's morphed into this, the, the Milton Hershey School. And uh,
over a hundred years later, the thing has so much funding,
I think it's got 12.6 billion in it cuz it doesn't pay tax.
And it just keeps educating these kids.
And I think it's 2000 kids a year that go through that.
And I always think is like,
I wonder if Milton was actually thinking that when he set it up, it's like, oh,
in a hundred years this is gonna be like a really good school.
I'm sure he was just like, Hey, there's a low prom, uh,
like we wanna help society out and we don't want these kids to end up being,
uh, blight to society. We want to be productive members.
So here's my little part.
And you create something that's so small in the beginning and then it ends up
being this big thing in the end. And I always look at your,
your options as being, Hey, I can do that. You can do that with a trust. Yeah.
You can do that with, uh, with a nonprofit.
But what you can't do that with is you own it all and then you die and give it
to.
Somebody . Right, right. Yeah, it's such a good point. Yeah. I, you know,
I was curious cuz I, I think about that a lot on the nonprofit side where,
you know, how, uh, you know, a lot of financial advisors and,
and sort of supposed gurus, those sort of be talking about, uh, you know,
compounding interests. You know, how much money you could accumulate. And we,
you know, we run those sorts of projections and trust too.
But it's rare that I hear somebody say,
and just imagine with, with even just a, a small,
relatively small investment on the charitable side,
how big that can get and how much of an impact that can have down the road.
And I think you're probably right,
most people that that do it initially are not thinking that, well,
if this thing is properly managed,
it could grow into something massive and really have a huge impact.
But that's the reality. I mean, if it's properly managed, it can, it.
Will just continue.
Like that's why you look at Harvard and these big institutions mm-hmm.
and they kind of joke, you know,
it's a institution a tied to an endowment. Right.
The endowment's getting so massive they can't even get away from the snowball
effect.
Yeah.
Yep.
Very interesting.
Those are nonprofits.
Those are just 5 0 1 c three s that are educational institutions. Um,
and guess what? You can make one too . It's not that hard. Yeah. Yeah.
And, uh, you set one up and this is the, this is the part that always gets me,
I don't know whether you ever encounter this,
but you'll have somebody come in your office and they said,
I talked to an attorney and I was gonna do an estate plan. And they said,
Trust her for rich people, that I didn't have enough assets.
And I always think of, uh,
if you called up a d t or like some company saying,
I want an alarm system for my house.
And they walked into your house and they looked around your house and they said,
You don't need an alarm system. In fact,
you should probably leave your door open.
Maybe somebody will steal some of that crappy furniture you got .
You know, they would never do that. They would just say, Hey,
here's something that might be appropriate in our profession.
They'll literally just say, No, that's not for you. And I look at it going,
Wait a second. If I ensure somebody,
I could buy really cheap term and I could create a vehicle very simple so that
if they pass away that it's funded with that money and now you have a
substantial asset for future generations or whatever,
even for organizations that you care about, you know,
maybe you like dogs or cats, you know, it could still be going to,
that you could create a private foundation and fund it with a term policy. Yes.
And then, hey, we're gonna give away money every year to my favorite, you know,
my, my my favorite cat organization. Right. You could, you could do that.
That's, that's not difficult. But they just immediately say, Ah, yeah, yeah,
this is for people that are worth more than 5 million. And I'm like,
where's that written?
Yeah, yeah.
Yeah. Probate suck. Probate is horrible for, for poor people.
Probate is horrible, for rich people. I just think probate's pretty horrible.
And, you know, and the attorney might say, Well, this isn't so bad. But, uh,
I think it just forces people to act in their worst behavior on their worst day.
And the, the outcome is quite often catastrophic for the family. Emotionally.
I usually get fights over plates. Right. And like that.
And you just wanna minimize that. So just put a little thought to it.
Let's not leave these people to, to that.
Situation. Yeah. And I, I mean,
I kind of feel if I'm sort of being more philosophical about it from a
professional standpoint, you know, as a, as a lawyer,
very technically you're an officer of the court and you are supposed to act in
the best interests of the court and justice, et cetera.
Which of course I believe in all of that stuff.
I'm not trying to diminish it mm-hmm. . But if that's true,
and I know that simply by setting up a, a pretty straightforward,
doesn't have to be complicated, but a pretty straightforward structure.
I can eliminate something that's gonna end up on the court's docket in the
future. And the court has plenty of things to do.
It's not like they're hurting for cases a hundred percent.
Why would I not do that?
Isn't it sort of my professional duty to help the court out and eliminate things
off of its docket that are unnecessary.
Because I was taught to do wills and then they'll contact me when they die.
Yeah. And I will probate it and then when, if I sell my practice,
I'm selling all these, you know, these files that I created over my life. No, I,
my, one of my partners, uh, his,
his grandfather was a probate attorney and that was the asset that he sold.
And so when he came to, he was, he was talking to, it was Clint.
He was talking to him saying, Hey, you need to do this. And we just, it,
since the very beginning we kind of looked, Yeah.
Knowing what we know just a little bit when we were brand new lawyers,
You're looking at it going, i, i,
I think it's better if people don't go through a court process when they're
grieving,
just logically thinking you probably wanna minimize big things from
happening while people are in a bad space. You know? Right. Like, it's like,
let's, let's see if we can't minimize it and oh,
there's a convenient thing that eliminates it and it's pretty cheap. Yeah.
It's a lot cheaper than the actual pro probate costs.
And I come from a family where we had assets in a state from my grandmother
that it was too expensive to, like, it was just some lots in Alabama and it was,
we just let 'em go, let 'em go to the state because it was,
they weren't worth much. And the attorney wanted more than the, than the lot.
So I remember that as a young, young person. And I was like,
well that kind of sucks.
I don't think grandma really wanted those lots to go to the state, but okay.
Because again, it was a,
it was a remote probate in a jurisdiction where nobody lived.
So the cost of probating it was gonna be more than the lots were worth.
And okay, we'll just let 'em go back to the state that, again,
I just look at it going, Boy, it's so easy to avoid that situation.
I'm sure you're looking at it going, Why did she do that?
Trust would've been really easy, Would've avoided.
It very simply would've been a lot less expensive than a plane ticket. Why?
You know, why didn't we just do that? And now I have that same question. So.
Yeah. Uh, I I, well I,
I know these family type questions cuz the as clo the closer somebody gets to
you, famili, the less they listen to you.
So I I understand how that works. Um, well,
they keep our promise here. Um,
let's talk a little bit about kind of entity selection. I think we've,
we've probably clarified for people that at the very top of the structure really
needs to be a trust for a whole host of reasons. Yes.
You should think about that strongly.
So when people are trying to pick entities, you know, oftentimes they're one,
they're confused.
Cause nobody understands the difference between an LLC and an LP and an LL P and
an LL p and a corpor. So, you know,
help us walk through that just a little bit. If you were,
if you had somebody who said, I got this great idea, it's gonna be,
it's gonna be a big business. We've got,
we got some traction now we need to formalize it. What what should I do?
What would you tell that person?
I I would, I would say, Hey, we gotta sit down and actually chat about what,
what's your exit gonna be like, Hey, is this something where I'm creating it?
I got something that's gonna be worth something and I'm gonna sell it.
Because then you have to worry about 1202 stock. Uh,
is this something where I want to depreciate and I'm gonna have a bunch of
expenses in the beginning and I, and I'm, you know, my spouse has, you know,
a lot of income and I wanna offset that income with losses. You know, I,
I would try to get to know a little bit about the situation and say that at a
minimum you need a box around that business. I always say like,
what's the worst thing that can happen? Well, in the business you could,
let's say you discriminate against an employee and they sue the hell outta you.
Right? That's the worst thing that could happen. Or you,
you're a plumber and you flood somebody's house and you don't have an adequate
insurance and they come after you. So let's put a box around that.
Let's just try to isolate that liability.
And then also you look at your business and say, Hey, I build a business.
What's the worst that could happen if I did something like,
let's say I get into a car accident, or better yet,
let's say one of your kids gets into a car accident and they come after your
business. How can I isolate the business for me and me from the business?
And that leads us to really simply, we need a,
some sort of limited liability entity.
So that net narrows our focused really to ll you know, to LLCs, LPs,
corporations, and realistically we're talking LLCs and corpse for the,
for the vast majority. You know, you look at licensing,
are there any restrictions depending on what type of license they have?
And then you look at it and say, Hey, all right, we can isolate the liability.
Now let's look at taxes. And from a tax standpoint, there's two different world.
There's the, Hey,
I'm a sole proprietor and I enjoy paying world because sole proprietors get
audited. What, 800% to 16?
I think what the last time I saw it was table 17 B on publication
55 is this IRS data book. The last time they published it, I think was in 2020.
And it is when if you're,
you have a client who's making a hundred thousand dollars a year,
quite literally the audit rate is about 1600% higher if they're a sole
proprietor. And they lose 94 to 95% of the time. So I'm like,
Hey, you know what, let's not get nailed by the government.
So let's not be that,
and all of a sudden we're limited to an LLC taxed as an S corp,
an LLC taxed as a C corp or just your traditional S corp or C corp.
And then we just look at, uh, hey, do we, or you know, might we have losses?
Is this risky?
Do we want them on our individual return or do we wanna leave them in the
company? It, you know,
is this thing gonna be something that could be worth something someday?
I just had a client who exited a very lucrative company and had, you know,
the zero capital gains under the 1202 and saved himself, uh,
quite literally about 2 million bucks, uh,
because there was no capital gains on it. You know,
so you ask those little questions and you come to a very, like,
usually it's two taxable entities that you're really looking at s and C corps
and whether that can be an LLC or just whether it needs to be properly a,
a a corporation. Yeah.
I, I love all of that. And I think you're,
you're exactly right that the starting place is actually the ending and then you
work backwards. Um, and so people, so, so many people, I think it's,
they get hung up on where to begin and they don't spend enough time thinking
about where am I gonna end? Uh.
And the, the the beautiful thing is on any of those, it's not you.
You could die and somebody else walks right into your shoes and continues to
operate the business. You're the sole proprietor. I'm sorry that thing's toast.
It's not gonna make it died with you. Right.
And so I'm always kind of shocked that I think it's 70%,
last time I saw 70% of new businesses are still sole proprietors.
I think it's because accountants say it's easier and,
and corporations are more formal. And I look at it and go, Hey,
the IRS doesn't distinguish. They just say a business.
You have to keep books and records. Nobody ever says, Oh,
but you have to keep extra records if you're an S corp or a C corp. Right.
If you're an llc, boy, you have to even keep more records.
And there's nothing that says LLCs don't have formalities. They always say, Oh,
the formalities of an SRC corporate more than an llc. Not really.
They're pretty much the same. Well,
the taxes are more complicated and I put up a schedule c a so proprietorship
return versus an S corp return. And I'm like, No,
actually they're pretty much identical. So what else do you got? Yeah. You know,
And then by the way, if you structure it as a corp,
you're probably gonna pay a lot less tax.
You're gonna have something called an accountable plan that's available to you.
You're gonna be like,
if you're an S corp and you make a hundred grand a year as a sole proprietor,
you're gonna probably save somewhere around $10,000 a year on self-employment
tax. If you do it right, uh, you're gonna have,
instead of having to do this horrible home office, you know, depreciation,
recapture, nonsense,
I can just do a reimbursement for an administra administrative office in the
home and I can, I don't have to report it anywhere. Like,
there's just so many other little benefit. And I'm still, I just,
I I scratch my head as to why so many people are still so proprietors. Maybe,
uh, maybe I'm weird, but I just look at it going,
Why would you do that to yourself? You're pretty much,
it's not gonna be pleasant if any, any of these things happen. And by the way,
at least one of them is a hundred percent likelihood. Right.
You're gonna pass away. Yeah. That not gonna make it,
You're just building something on, It's like you're building it on a,
on on sand or you're, you're building it on thin ice,
eventually it's gonna sink. Why would you do that?
Yeah. It's a, it's a strange phenomenon. I agree.
And I think the , anybody who has,
has worked with Schedule C would probably agree that Schedule C
is actually less organized than the C return or the C corp return. I mean, they,
they just are and they're messy that you look through 'em and they don't make a
lot of sense. It's just why they get audited all the time and.
They lose.
And you lose.
5% Of the time. Like you just look at it go, Why do they lose so much?
It's cuz some accountant told him, Oh, the formalities aren't as bad.
So the guy says, Oh great, I don't have to keep records.
Exactly. Exactly. Right. Yeah, I think you're right. It, it lure, it, uh,
lures people into a false sense of complacency. A hundred percent.
Cause they feel like, well, I'm just a so proprietor, I'm just schedule C,
so I don't need all this backup. And guess what?
The IRS cares about all the backup. That's all they care.
About it. You know what I,
I used to clerk for a judge and she said it's the interpretation of the
presentation. She'd always say that to me.
It's the interpretation of the presentation.
So make sure you're presenting it right. And so the IRS wants to look abc,
right? Yeah.
And you walk in there and you're sole proprietor and you just give 'em a,
the whole alphabet all on a big, you know, plate cuz hey,
I don't have to organize that. And they're like, But we want to see abc.
Well it's in there. My accountant said I didn't have to separate it out. Okay.
You lose next. Yeah. Yeah. And, and I always, you know,
I think of that kind of stuff cause you know,
respect people and it sticks in your head, but I can't help us saying,
all we wanna do is make the business look the way the IRS wants to see it and
they tell us exactly how they wanna see it cuz they do these beautiful audit
guides and stuff and you can see exactly what they wanna see. And I don't know,
it's like, it doesn't say only if it's a sole proprietor,
you don't have to do this. I never saw that in anywhere. Right.
It doesn't exist. They always say, if you're a business,
here's what we need to see. I don't care whether it's an S corp C Corp llc,
taxes and S corp, lp, LL P L L L P, it doesn't matter.
You still have to do those, those basic who, what, where, when, and why.
You still have to have some records. And it's,
it's such a benefit to you to learn how to do it. Right? Like,
I don't know how you run a business if you don't have some idea what your
numbers are.
It, it tends to be challenging or, or less, uh,
less filled with successes. How about that? Uh, at, at least in my experience,
I know about yours, but there's a,
there's an interesting other phenomenon that I do that I do see from time to
time where, you know, the, particularly in the real estate industry,
which I think you're in Vegas, was, you know,
there's heavy real estate economy there,
heavy real estate economy here where the, there's this debate about like, well,
should we be a partnership versus say an S corp? And it's like,
well that's a false dichotomy to begin with. Yeah.
Because you're talking about completely different sides of your business and one
will serve one side and the other will not. So you, you know, but it's just,
I think people have a hard time conceptualizing that their business itself could
have separate components to it.
Where one structure for one component will be extremely advantageous and a
different structure for a different component will be equally advantageous. Y.
You know, what you, what you're saying, we,
we just saw this with a residential assisted living and they had an S corp,
they had the residential assisted living, uh,
operating business inside it as well as their building and it was in California
and it had appreciated significantly. And so they have the question,
how do I get the real estate out of the escort ? And I'm like, well,
it's gonna be a taxable event, you know, it's a sale liquidation. No,
my accountant never said that. Whoop. Yeah, they probably didn't.
How about this, Did nobody ever told you don't own real estate in a corporation?
No, I've never heard that. Okay.
Well now you're gonna hear it and this is why you're gonna live it. Yeah, yeah,
yeah. It's just, uh, it's,
it's a little bit frustrating when you see those and you well intended people
and they were trying to sell one side of the business, you know,
the operating business,
and they were trying to figure out how they could sell the whole business and
keep the real estate like, Oh my God, this person,
because they had bad advice in the very beginning,
built this whole thing on a false premise and they're gonna have a negative
consequence. Like they'll, they'll survive, but it'll be a, they'll still be a,
an ouch via a little bit of a tax.
Hit. Right. And there are, you know, if you're trying to comp service providers,
you know, sometimes it's better to have a partnership versus, uh,
a corporation depending on how fancy you wanna be with things.
But it gets to your, it gets to your point initially, which is the great point,
which is where do you wanna end up? And, you know,
you kind of have to be able to see the whole road and then build backwards.
And one other thing that you mentioned, um,
I just wanna chat about here just for a second before we we drop off, is, um,
you mentioned 1202, a couple of times,
1202 is qualified small business stock for anybody who doesn't read the internal
Revenue code and the qualified small business stock, among other things,
um, has to be a quote unquote domestic C corporation. So it can't be Yes,
a corporation from Canada, for example, Sorry Canadians. Um, but the,
the advice I think that most people get is, Oh no,
you would never want a C corporation. Of course that's false.
That you just hit the nail in the head.
We still are heavy on C CORs in our, in my, in my company,
and we get a lot of heat from accountants. Whoa, it's double tax. It's this,
it's that. I'm like, well actually you can write off the $50,000, uh,
loss if it, if it's not successful, this is startup, you know, blah, blah, blah.
We can control a lot of the income into it, but also there might be value here.
We might be selling it. They still don't get it. They always repeat the mantra,
it's double tax. And I said, So what, what if it's double tax? You know, a,
you're in control of that.
I've never seen anybody pay a double tax that didn't want to pay the right,
they just Right. They could retain it.
There's a million reasons why you could retain it. Um,
but also when you crunch the numbers, it's not that bad. You're gonna have,
you know, sometimes it's zero tax on the dividends. Oh, you paid 21%. Big whoop.
Right? Uh, you know, I, but again, it's, it's, it's,
it's that little get your pencil out and crunch the numbers.
And a lot of times people have a knee-jerk reaction thing.
No C CORs are bad or S corp. So they're more complicated. Hey,
we should always be a sole proprietor. And I just say,
people do better dig into it,
understand it a little bit more because it's not just like there's the asset
protection side. There's the how will a bank treat it?
How will a court treat it? How will a, you know, a lender treat it?
How will an angel treat it? You know, if you have somebody that's gonna be bed,
they're gonna wanna see it in a particular way.
And then we look at the IRS and say, And how does, how is it gonna be taxed?
So set it up with the state. What is that gonna look like? Well,
who are you dealing with? Are you, you,
you mentioned something and I don't wanna go too long, but it,
real estate for example, we can get most people to zero. Like if,
if we wanna wipe out your income and you're, you're,
you're significantly involved in real estate, you could do that,
but it's really tough to get loans when you have, when you show no income.
And so you're having a conversation with people that are like,
I wanna pay no tax. And like,
but you need to show how much income to qualify for loans to continue to buy
your real estate. Uhhuh,
they go to the mortgage guy and the mar got mortgage guy says,
you need to show a hundred thousand or whatever the number is.
And they come back and they go, Well I have to show this much income.
And I'm like, I thought you wanted to be zero. Right. You know? Yeah.
It's like you better figure out what it is you're trying to accomplish and who
you're gonna be interacting with before you just make a kneejerk reaction and
go, you know, this entity, this, this is the best. I saw this on tv. Right. You.
Know? Right, right. Uh, that's such a good, that's a very, that's a long,
very interesting behavioral, psychological, uh,
conversation that we'll have to have another day.
But yes is the answer to that all the time. .
Um, Toby, I'm so glad that we could do this. Uh,
if people are trying to connect with you,
what is the best way for them to connect with you?
Uh, just type in my name and the internet. Toby Mathis. I have a, uh,
I'm on YouTube all over the place. You could actually go to toby mathis.com.
I work with Anderson, uh, business advisors. You go to anderson advisors.com.
But it's actually just simple. Type in my name, you'll find me.
Yep. The internet knows that you exist. That's the perfect place.
We like the internet. It's a great place to share information.
It doesn't exist in a boring, old, dusty book and somebody's basement anymore.
You can get the information with a couple clicks.
It's pretty nice. Yep. Well, Toby, as I say, thank you very much.
I'm humbled you could spend some time with me. Thanks. Hey.
Anytime.
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