okay if you're watching this video you're a specialist you're in that niche
uhh that unique of selling notes you might be investing in notes and collecting
points and interest then you might be brokering those notes and selling those
notes off to others maybe they default and end up as a rental property but Wow
lots of strategies here right well I want to just share a few important tax
strategies and five tips of when you know you may have a self-employment tax
problem you got to hear this all right now first concept in general holding a
note is passive right you're gonna get points and interest you might hold the
note in your revocable living trust you might even have an LLC or holding
company to hold those notes for the long haul and a little asset protection type
strategy but from a tax point of view it is passive also if you have to foreclose
on that note and you take ownership of a property which sometimes is a great
thing and then you can flip the property or keep it as a rental that's gonna be
also a passive or long-term strategy you're going to collect rent put that
rental property in an LLC and if you turn around and sell it you'll have a
short-term capital gain but you're not in the business of foreclosing on
properties and it's reselling and right you're here for notes and maybe even
brokering the notes so that again is also going to be a passive scenario now
before I get into the question of are you in the business of brokering noes
and that's really what this video is all about one final point is your holding
those notes and maybe foreclosing on property and maybe holding rental
properties there's so many asset protection issues I want you to be aware
of please check out my other videos on my youtube channel please subscribe hit
the little bell and whenever I shoot a new video go live you're gonna hear
about it but there's so much to this topic and I love helping real estate
investors and small business owners know brokering is all about that so hopefully
there's going to be some extra videos that will help you out now let's get
into these topics or this topic of the brokering of notes and is it a business
now is brokering notes of business a lot of those that specialize in note
brokering like to say no because they just want short-term or long-term
capital gain every time they buy or sell a note well you've got to be careful the
IRS doesn't think that anybody that brokers notes is passive short-term
long-term capital gain it may be a business and if it's a business you owe
self-employment tax so I want to share five criteria that are subjective
there's no bright-line test that if you do this you're in the business of note
brokering we've got to go through five tests now if you are in the business of
brokering notes you're gonna want to implement an s-corporation it's not the
end of the world it's gonna save you a ton in taxes and it's okay so don't
think this sky is falling if you meet any of these five criteria and you're in
the business of brokering knows it's okay watch my videos on s-corporations
and get a consult with one of my tax lawyers and we can design a plan to give
you the maximum asset and tax protection make sure your accountant you are on the
same page make sure that you are realistic about what you're doing and
honest about what you're doing if you're in the business of note brokering then
buck up get an escort going and get a consultation with a real tax lawyer
don't go on to LegalZoom and click a button and think you've figured it out
there are some duties to do there you've got to do payroll and some other things
but that escort can open up a lot of doors for you and here's the bonus
here's the good news at the end of this process if you are in the business of no
brokering you just got the $1.99 a pass-through deduction which means you
get a deduction of 20% on the bottom line off any flow through income also
you could form a 401k and start brokering notes in your 401k there's so
many doors that open for you that this is not a bad news deal I've got clients
that want their note brokering to become a business so they can open up the door
to the 199 a and the solo 401k put their kids on bit on the payroll
guys if you're just brokering notes and not in the business of brokering notes
you don't have a business I can't deduct your cell phone in your
home office because you don't have a business it's all scheduled E so keep in
mind that this is not a bad thing number one is no brokering
your primary source of income if it is that might mean that you're in the
business of brokering notes that's how you pay the bills that's how you get
money to buy groceries in that would be one of these five tests that if the
answer is yes no brokering is your primary source of
income that might be your business number two do you have a separate source
of income like a w-2 or a substantial other business kind of related to number
one but this is really a different question you make may make a lot of
money as your primary source of income being a note brokering but you also have
a day job oh that's gonna help the argument that you're really not in the
business of don't brokering because you've got a full-time w-2 somewhere
else or a full-time business that you've been engaged in for many years to come
so if that's the case that you have this other source of income or a day job
that's going to help the argument number three how many notes do you broker now
in the fix and flip or the land flipping trade there's court cases that are very
clear on this if you do four or more that's four or more land deals or fix
and flips or rehabs in a year the IRS more likely than not are going to
categorize you as being in the business of rehabbing or land flipping fixing and
flipping real estate the same would go with notes now there's no case on this
that's the bright line case for everybody out in America that I brokered
five notes so I guess that's my business but you're in that genre and as an
accountant if I'm signing your tax return and you're doing 20 or 30 note
brokering deals in a year and you already failed test one and two we're
gonna have a problem number four what is your note brokering look like from year
to year maybe you did twenty or thirty note deals this year but is it an
isolated year what did you do last year what do you expect to do next year if
it's more of the same and it's 20 deals or more or ten deals or more five deals
or more every year and it shows a pattern that this is kind of a long term
gig for you and you're in the business because it's it's not an isolated here
in your life you're gonna fail that test in again you might mean the business of
no brokering number five how long are you holding the notes now I know a note
brokering you might hold them one day you might hold them one week two months
some people hold their notes at least a year and collect points in interest and
see how the property turns out and then it slipped the note or sell the note
it depends the longer you hold these notes the less of a business it is right
it's kind of a passive investment like a rental property and you get around to
selling that note a year or two from now so those are going to be long-term
capital gain and make the argue it would allow you to make the argument that
you're not in the business of note brokering because you're holding them so
long here's the point there's five tests there a good accountant is going to go
through those five issues with you now you might want to be aggressive and pop
them all on your tax return on a Schedule D on your TurboTax program and
say hey it's all long-term capital gain it's okay if the IRS comes after me it's
no big deal if they determined that your note brokering is a business you're
gonna owe self-employment tax which is FICA Social Security and Medicare on
fifteen on up to a hundred and thirty thousand or more it's adjusted for
inflation each year at fifteen percent this could be a fifteen to twenty
thousand dollar bill that you have to pay if you're making more than one
hundred and grand I'm doing this so you don't want to just roll the dice with
this you don't want to risk this that I'll just put my head in the sand and if
I ignore this issue I won't get caught or it won't be a big deal with the IRS
I'll talk my way out of it good luck in summary note brokering is awesome I
got so many clients that do it and love it I think it's awesome this was not a
Debbie Downer video this was a video to hopefully help you save more taxes and
do it right and better live your American dream thanks so much for
watching that video and I want to be your source for tax and legal strategies
it's hard enough to live the American dream without being out on the web on
Google trying to find answers to complex questions and just click in a mouse
hoping you got it right my team and I want to be a huge resource treatment the
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