3 Things You Didn’t Know About the New Tax Law

3 Things You Didn’t Know About the New Tax Law


Three surprising
things you didn’t know about the new tax law. That’s today’s episode. Let’s dive into it. Hey everyone. I’m Clayton Morris. I’m Natalie Morris. And this is the Investing
in Real Estate Show where we help you build financial
intelligence using real estate as the
vehicle to build cash flow, passive
income, and to hopefully help change your life. You know the whole goal of
this show, this channel, we try to treat it
like an encyclopedia. You can go back to past
episodes and you can really do step-by-step to build
wealth and change your life. It just depends on how
hungry you are, right? Some of you might be
watching, saying, I’m going to do all
of this right now, and I’m going to change my
life in a year to two years. Or I’m going to spread
it out over 20 years. I enjoy driving two hours
to and from work every day, and I’m just going
to spread it out. However hungry you
are, all the tools are right here for you to
make a change in your life. But today we’re going to
talk about the new tax law. You know there’s so many
aspects of this tax law. Even if we talked to
our accounting team, they’re still digesting
all of the changes and all of these little
nuggets that are popping up– little loopholes that are now
emerging as a result of the tax law. But we thought we would
go through a few of them today that are
kind of surprising. Right, especially if you
are running a small business or investing in real estate
as a small business owner, then there are things that
you can do differently now. So we’re sort of bobbing
and weaving all the time based on the things
that we learned. So– Let me just first say– –go ahead. –if you’re new to the channel
or you don’t understand how to purchase real
estate, we encourage you, and there’s plenty of
resources here on the channel to talk about how to purchase
real estate in a certain entity or a business entity. So we’re assuming
that you are now educated to the
point where you’re making purchases
in a legal entity, like an LLC or an S Corporation. We purchase real estate as a
limited liability corporation, as LLCs. Because we do it as
a business, now we get the full benefits
of the tax code as a business that
owns real estate. Right, because most people
understand that the Trump tax plan, the new Republican
tax plan that passed January of 2018, lowers the personal
tax rate by about 2% across the board. So every one of us individuals
has a lower tax rate. But for corporations, the tax
rate has plummeted to 21%, and that’s baked in. Whereas some of these tax
changes have expiration dates, the new corporate
tax plan does not. So from here on out, til death
do us part, so help me God, the tax plan for
corporations is 20%. So– 21% –21%. And that doesn’t– the
rest of this tax law, a lot of it sunsets in the
year 2026, to your point, but that provision does not. It does not. So we’ve talked
many times about how we want to funnel our
personal expenses legitimately through our company so that we
are not only paying a lower tax rate– because they’re
now business expenses. Right, exactly. All right so that,
that’s the introduction. That’s the context
for how you’re going to be paying attention to
this episode as a real estate investor, a smart, savvy
real estate investor that’s using business entities to
purchase your real estate and structure and run
your family as a business. We’ve had many episodes where
we talked about in your family as a business, and we’re going
to get to a few key areas today on why this
is so important. So what is number one? What’s the little
surprising nugget here that pops up in this tax code? So something that
I did not know is that business
automobile depreciation has just about doubled. So depreciation is
something we talk about a lot on this podcast. And it is basically you taking
a tax credit for the usability of your asset, right? The government wants you to
buy things like equipment to run your
business, and then it wants you to buy it
again 10 years later. It understands that
there is a lifespan of these types of things. And so it gives you a tax credit
so you can get sort of a refund on your money sort of
speak on depression. Now depreciation
is an amazing tool if you learn to use it properly. And it used to be that
you can only take so much on each vehicle per year. So the limits in the
first year were $3,000. Now the limits are
$10,000, so you can really accelerate the depreciation
on your vehicles. Now we can’t just do
it for like a minivan that we run carpool for
the kids to school, right? It has to be a business
vehicle, and your tax accountant can help you qualify it. But this is
something to consider if you need a new
car this year and you do use your car
for business, you wouldn’t get this
depreciation expense, you wouldn’t get this
benefit if you leased a car. So keep that in mind. I was going to say, that was
my point I was going to make, which is this is for
purchasing a car. So leasing a large backhoe or
digger or some sort of big– I don’t know what vehicle for
your business– like a truck. You’re so aware. I was trying to look
for the word “truck.” I couldn’t find it. I was like, digger. I couldn’t think of the
word “benefit” a second ago. I was like, digger. OK, no truck. If you’re going to buy it,
you need to buy the truck. You can’t just lease the
truck for your company. So you run a small
farm or you, whatever it happens to be, you
need to purchase it, not just lease it to get the
benefits of this depreciation. And actually, in the
tax code, there’s all sorts of other benefits
for purchasing large SUVs and things like that. Now I think, under
certain classifications, you can pretty much write
off the entire purchase of these SUVs in
the tax law as well. So check into that with your
accountant, if you need those or want those for your company. Now for rental real
estate, you can now apply the section 179
depreciation deductions to pieces of your real estate. So you definitely
want to bring this– Like a roof. –to your accountant. Because now these
depreciations have expanded to include residential
rental properties, roofs, HVAC units, fire alarms,
and security devices. So if you are not
getting depreciation for those pieces of
your investments, you want to, right? Tell your accountant this. So the tax code is very clear on
the difference between repairs and maintenance. And so when you make a
repair to the property that improves the lifespan
of the property, increases the value
of the property, or alters the property
in any appreciable way– for instance, you bought
a six bedroom house and you’re converting it to
a elderly care facility, that is altering the property. Those types of repairs are
depreciable now, specifically, so that roof that you put on
that property is going to alter or is going to prolong the
lifespan of that property another 20 to 30 years. Putting a new HVAC unit prolongs
the life of their property. But simply doing
routine maintenance, I liken it to changing
the oil of a car. When you change the oil of
a car, you’re not really– you’re not improving it. You’re not increasing
it in any value. You’re just doing
routine maintenance. That is depreciable in
the year in which you do those maintenance things. So these other items,
though– the roof, HVAC, –you can now
depreciate over a number of different years, which
is pretty exciting thanks to the new tax code. Exactly right. Another thing I
found interesting was that charity contributions
received state tax credits in many states. Now it always was
that you could get a deduction for your
charitable donations, like if I gave
$10,000 to UNICEF, then I pay taxes on $10,000
less than what I made. So I made $100,00 this year. I gave $10,000 to UNICEF. Now I’m only paying
taxes on $90,000. That’s a deduction. But now I can take I can claim
those charity contributions as a state tax credit
in many states. I don’t have a list
of which states. I would assume New
Jersey is not one of them because we usually get screwed
on taxes in New Jersey. But if that’s the case, I’m
going to be super excited. And so a credit is
different than a deduction. A credit means you get your tax
bill at the end of the year, you owe $100. If you have a credit for
$50, you only owe $50. It’s $1 to $1 off, whereas
the deduction just lowers the amount of taxes you pay on. So you get the credit, you get
the credit on your state taxes and you get a deduction
on your federal taxes. That’s exciting. So another reason
to be charitable. Now this next tip I’m
really excited about. And so when I told Natalie about
it the other day, she’s like– most of the time she
ignores me around the home when she’s doing some
dishes and things like that. And I was cleaning
up in the kitchen, and I said, by the way– why are you shaking your head? I wasn’t cleaning up. You were not cleaning up. I was clearly, or maybe– You had one hand in your
pocket and the other one on the text message. No I was looking at this new
provision in the tax code, and I shared this with you. I said, did you
know, by the way. And she stopped
what she was doing– this is how excited she
gets about tax code– and I said, with our
family, with our children, we can now have this
exemption for hiring our children in our business. It is now doubled
under the new tax law. And she said, whoa, whoa, whoa. Back up. Wait a second. What do you mean? So first of all, do
you want to lay out what this was to begin with
and what the change is? So it used to be
that children did not have to file a tax return
if they made $6,000 or less in a year as employees. Employees of your company. And these could be
two-year-olds that you use for your advertising
your little car company or a little linoleum
flooring company where the kids are in the
advertising going, hey, come to H&H linoleum. And they’re an employee, right? They’ve been used
in your advertising. You’ve seen these kids
in local commercials. For local pizza shops or– Come to Bud’s Pizza– Your dealer has a baby
and they think it’s– –my dad makes the best pizza. Exactly. So you can employ your
children in any shape or form in your LLC. Now you’ve got a
business, that business needs people to make money. And so in our house, we use our
children actually quite a lot. They do shredding. They do mailing. And we use them as
models for Morris Invest as well for a lot of
our marketing materials. So they get
legitimate paychecks. But I don’t want to file
paychecks for a three-year-old or file tax returns for a
three-year-old on $6,000. And so the government deems
it just not worth their time to go and track down what
happened to that $6,000. So we have three kids. They each have a paycheck
out of Morris Invest for specific reasons,
legitimate reasons. Now, they also have contracts. We have provable work. And they have a salary set,
so the IRS has sort of flagged them, like this is a minor,
why are they working? You know, why is money being
funneled into their bank account. And we proved it, and
the IRS was like, great. Right. We sent them their contracts,
and they were like, OK, totally fine. Because Brooke Shields
was a baby model. She made money, like a
lot of kids make money. We talk about her kids and
feature them in videos. We talk about
structure in our family as a business for real estate. So they’re import– they’re a
part of that entire process. Plus we have them
sending out mail. We have them– they’re
putting stamps on envelopes. They do shredding
every Saturday. They love it. They love going through
all the old stuff and just putting it
through the shredder. I don’t even know what
you shred in that stuff. I don’t know, just old papers. Seven year back taxes. Oh! Right, right, right. I have boxes of
stuff that take– it takes them a long
time to get through it, because they are not speedy. If I really wanted to hire
a more efficient employee, I probably wouldn’t hire them. No, but I mean,
look, if you have a– But it needs to be done. –but if you’ve got
a store or you’ve got a retail establishment
and the kids come in. Look at Robert
Kiyosaki talked about like working for the store
and coming in and having to sweep the floors and stock– He is Rich Dad. –stock the comic
books on the shelves, put those soda in
the soda coolers. Those are ways that
you can employ. You know, at the local car wash,
there’s a guy, all of his kids work at the local car
wash as employees. And the bagel shop. My dad owns a landscaping firm
and also green waste recycling, and so my sister and I would go. This was, you know, we were like
between the ages of 12 and 16, and we’d have to pick
through the pile. This large tub grinder
would take green waste and it would be dumped into
this humongous recycling thing. And we had to pick
through it to make sure that there was no
wiring or metal. And so we earned a paycheck
from my dad from very early. Both of us, I think,
from eight, we were we had the opportunity
to work for him. We came home so
filthy because you’re standing under a tub grinder
that’s funneling dirt. And it’s just going– but look at me now. Right. Was not a glamorous– Hard work. –job, but it was a hard work. So under the old tax
law, $6,000 per child is what you didn’t
have to pay taxes on. Now guess what? That has now increased
to $12,000 per child. So for us, that went from– what was it– $18,000,
jumped up to $36,000 because we have three kids. So if you think of all the money
that comes into our household from our transactional business,
from our rental real estate, from everything that
comes into our house, we don’t want to pay
taxes on all of it. So we funnel a lot of
it through the business, but now if we can
send $12,000 per child into their bank
accounts, then that’s $12,000 that, again,
we’re not going to pay taxes on because
it never was our money. It was their money. Now we have
investments for them. They all have IRAs that they
makes specific investments in. Really, it’s me that makes those
investments because they’re too young to manage
it, but they will. Using a self-directed IRA,
which is a killer strategy. So now this lowers our tax
rate by $12,000 times 3, which is $36,000. Because it was $18,000,
it just doubled. That’s now $36,000 that we are
not going to pay taxes on it. We’re at the highest
tax rate right now. So I was like, OK,
those two are going to get– those three
are going to get raises. We should have more kids! Right. It’ll save us $12,000 a year. Let’s get on it! All right, we got to
wrap it up because we’re going to have some more kids. We’re not actually
going to do that. No, we’re done having kids. But think about if you’ve
got a small business and you have four kids, and
you thought, oh my gosh, I’m paying so much in taxes. Here’s a way for you to really
reduce your taxable burden by being smart about employing
your children under the new IRS tax law. Now I want to be clear, I am not
handing my 7-year-old $12,000, being like, here
son, you get it so I don’t have to pay taxes on it. That money is still
in my control. It goes into his
savings account. But then, what if I took it and
paid a mortgage bill with it, right? Then I’m paying money
that has legitimately come into my family
with non tax dollars. I can do whatever
I want with it. I could go to Hawaii. If Miles is in control of it,
he’ll book a Disney cruise. Right, or he’ll buy comic books. So I’m not saying just give
your kids more money at all. You have to decide what
your values are inside of your household. And if they had
control of that money it’d be a totally
different story. So just be smart with it. Structuring a self-directed
IRA, setting those up for your children. And then purchasing or
investing in real estate, or lending it out to people who
want to invest in real estate. You could lend it out at
6% interest into your kids IRA, self-directed IRA. Imagine this, imagine your
son has a self-directed IRA that has 20 grand in it. And you know that a
real estate investor friend needs 20 grand in order
to purchase a rental property. Why not lend that out to
the friend at 6% interest, 7% interest rate. They’re paying your
son’s self-directed IRA back with interest. And maybe you do it for a year,
like a year loan or a five year loan. I mean, there is any number
of ways to create and improve your financial intelligence
and lower your taxable burden. And the IRS wants you to do it. They’re encouraging you to
do it with this new change to the tax law. Why do you think that is? Well, because– Why do you think
they want children to be able to make
more money per year? Well, I mean you could
look at any number of ways. These incentives
in the tax code, that you’re setting your
kids up for future success– maybe going to college, so
that they’re not in debt. I mean one of the big problems
right now is all this childhood debt. But it’s pushing money
away from the government. It’s saying we won’t tax– originally, it was
we won’t tax $6,000. That’s a give me, right? Now they’ve double it. So they’re saying that’s
$12,000 in your house that we won’t tax. I don’t know. I mean, you could go through
this with a fine tooth comb. As Tom Wheelwright likes
to say, the tax code is just a series of incentives
for entrepreneurs, right? It’s a series of incentives. And look, entrepreneurs
are savvy, and they’re paying
a lot in taxes. Here’s an incentive
for an entrepreneur to lower their taxable burden,
and maybe that’s what this is. I mean the whole tax code is
written for entrepreneurs. And there’s only a
small portion of it, 8 to 10 pages or so, that are
written for you to pay taxes. The rest of the tax code
are all of these incentives and loopholes– not even really
loopholes, but incentives. That’s all they are. So here’s what I don’t
want, is people moralizing in the comments about whether
or not you should do this, or pay your kids,
or this is cheating. It’s clearly not cheating. We are playing the game
as the rules are set out. We’re not telling you
to cheat anybody or do anything untoward. So just keep that to yourself. And I just did a whole video
on why the tax code is written. It’s rigged in
favor of the rich. So go check out the
video, because– and I’m not pulling any
punches in that video– and I explain why
this is how it is. This how the tax
code is written. So you can choose to sit
there and whine about it. You can choose to
be upset about it. But guess what? This is the law. So it’s not something I wrote. It’s not something you wrote. No. But given the law, we’re
going to say to ourselves, OK, how do we keep more of our
own money in our pocket as a business? Capitalism is kind of a game
of Monopoly, like if this, then that. Then I’m going to do this. We’re just– don’t hate the
game, don’t hate the player. Don’t hate the– don’t
hate either of us is basically what
I’m trying to ask. And don’t try to figure out
what she’s saying either. And don’t put hateful
things in the comments. Well, please don’t do that. Be kind. We have great listeners and
viewers of our channel here who say kind things and have
a lot of thoughtful things to say about real estate
investing and building financial freedom. So that’s what we try to do. We give it away all
for free to try to help you build financial freedom. So thank you so much for
downloading and subscribing. If you think that this
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financial intelligence. Surround yourself with smarter
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you build wealth. OK. All right? All right, stop
lecturing me about it. All right! I spend all my time with you. Get out there. Take action. Become a real estate investor. We’ll see you next
time, everyone.