How a Land Trust With LLC As Beneficiary Benefits Property Owners and Investors

Having a land trust is a good idea for property owners and real estate investors. Land trusts are especially a good idea in case you own more than one property and don't want everyone to know you own so many properties.

You can choose whoever you want for your land trust. However, it should be someone you know and trust since your property title will be going to them to keep it safe and private for you. While your property is in a land trust's name, no one can see that you own it. For example, the title company cannot announce in the local newspaper that you own property (like they do with everyone else).

How to Start a Land Trust For Privacy and Asset Protection

First, you have to choose someone or a certain business to be your land trust. You don't have to choose an individual if you can't find one to do it for you. You also have the option to choose a business if the business owner agrees to do it.

Whichever one you choose, you need two legal documents for the land trust. The first legal document is a trust agreement between the owner of the property and the person or business who will be the land trust. The second legal document is the deed of the property from the owner to the trust.

Although the land trust will be holding on to the deed of the property, they will not be the owner of the property and will not receive any benefits from holding the deed and having their name on it. The owner still has all rights. The land trust is just for privacy. The trust agreement is also private and only you and the land trust know about the agreement.

Land Trust With LLC As Beneficiary for Privacy and Asset Protection

Although a land trust is for privacy and asset protection, a land trust does not receive the benefits that an LLC or a business does. However, if someone falls on your property and gets hurt, the beneficiary will be held responsible. This is the main reason to use an LLC or a regular business to stand in as the beneficiary of the property. The reason for this is that LLCs and other businesses are protected from something like this happening.

That was just the first reason for obtaining an LLC or other businesses as a land trust. The second reason to do so is because they receive tax benefits. This means that the transfer of the property can be done tax-free.

A third reason to use an LLC is that many attorneys and accountants don't even know what a land trust is in many states. Because of this, you won't have to worry about litigators looking at your property and thinking you have deep pockets. This way, they won't be trying to file a lawsuit against you.

How To Hide Ownership Of A Company: 3 Simple Steps

The main reason you might want to know how to hide ownership of a company is to prevent lawsuits.

I'm going to talk about the concept of anonymity, and one of the most effective tools for maintaining your anonymity is the Anonymous Trust. When set up correctly, the anonymous trust can be extremely effective at hiding ownership of your company—which in turn prevents you from being sued.

Here are three simple steps you can follow to hide company ownership and prevent lawsuits.

Step #1: Form an Anonymous Trust For Your Business

The Series LLC reduces your liability exposure, which effectively limits the potential damage a lawsuit can do to you. What it doesn't do is stop the lawsuit from happening in the first place. On the other hand, an anonymous trust can. If you truly want to make your company litigation proof and protect your assets, you need an anonymous land trust.

The probability of a lawsuit happening is based on three separate components: legal, factual, and financial. An anonymous trust will attack each of those motivating factors. What this does is reduce the chance of a lawsuit happening in the first place.

Step #2: List Your Anonymous Trust as a Member of Your LLC

Yes, believe it or not, you can do that, at least in America. (You have several options when it comes to structuring your business assets.) Anyway, this tactic targets the financial component of a lawsuit.

Why?

Because lawsuits only happen when a plaintiff believes they have a reasonable case for seizing assets to cover damages. If there's nothing they think they can seize from you, they won't sue you.

The anonymous trust structure enables you to hide company ownership by listing your company as a member in your LLC’s Articles of Incorporation. Another advantage of an anonymous trust is that you don't have to file it with the state. This means the people who want to sue you won’t be able to access your ownership information in the public records.

There will be nothing to associate the assets with your name, shielding you from potential legal action.

Note that you can use this strategy with any type of LLC, including the Series LLC.

Step #3: Allow Uncertainty to Work Its Magic

People sue you because they want your money. Most of the time the people suing you have little to no money in the first place. And if they don't have enough money they can't pay a lawyer to sue you.

People usually get around this obstacle by offering their lawyers part of the settlement. This means it's up to the lawyer whether or not you get sued.

If a lawyer is uncertain about whether you own assets worth anything, they won't waste their time trying to sue you. After your anonymous trust is in place it will be next to impossible for someone to determine what you own.

No lawyer is going to spend months or years trying to figure out what you own, period. I would know, I'm an attorney myself.

I hope you enjoyed this article. If you want to hide company ownership, make sure you do it right. To learn more about setting up an anonymous trust, visit our Land Trust hub or take our investor's quiz and find out if engaging with us is a good option for you.

Introducing The Anonymous Trust LLC

One day you're living life, enjoying the profits from your real estate investments. The next day you're trying to figure out how you got sued. That's life.

And that's why creating an anonymous LLC for your business is so important.

One in Four Americans Will Be Sued

According to a Clements Worldwide study, Americans face the greatest risk for being sued. The risk is even higher if you own real estate. Are you willing to roll the dice on your future? Investing in real estate without asset protection is like betting against the house. You might come out on top, but you're more likely to lose everything.

Asset protection was a tool of the rich for generations. Regular folk usually weren't aware of strategies to protect wealth (such as the anonymous trust LLC), or they were unable to afford it. Today these techniques are accessible to everyone, thanks in large part to the introduction of two new legal structures.

The Series LLC Structure

In the past, investors held companies under their name or a single entity. This created a jackpot scenario, where successful litigators could access the person's entire wealth. Savvy investors would spread assets between multiple entities, but creating and maintaining a host of businesses proved too expensive for most.

The series LLC changed the way assets are held. It makes it possible to spread assets across multiple holding companies, but reduces the filing and management expense to that comparable with a single LLC. For more information, learn the basics of the LLC structure.

The Anonymous Trust LLC Structure

The problem with a series LLC is that you can still be sued one property at a time. It doesn’t make you invisible. This is where an Anonymous Trust LLC comes into play.

Using a trust in this manner allows you to hide the ownership information of your company, including its assets. As a result, plaintiffs are unable to identify you or target you based on whatever juicy assets may be ripe for the picking. That information is invisible.

A Lawsuit Can Affect More Than One Property

Just because your assets are wrapped up in a traditional LLC doesn’t mean you’re protected. Unlike the series LLC, where your assets are spread out individually, a traditional LLC groups assets into one basket. While there are some legal benefits to a traditional LLC, it still leaves you vulnerable to attack.
In any case, here's a short list of what you should and shouldn't do.

Asset Protection "Do"s and "Don't"s

1. Don't Hold Property Under Your Name

Individuals have the least protection of any entity. Maintaining ownership status as yourself is the worst possible scenario and leaves you open to the maximum level of risk. A simple mishap, such as someone slipping while on your property and being denied insurance coverage, could result in a devastating legal battle and even wipe out your life savings.

It’s essential to create a company structure to hold your assets separate. This will make your legal person litigation bullet proof.

2. Don't Hold All Property in a Traditional LLC

While this is a much better scenario than personal ownership, it still leaves you exposed to losing everything under the LLC’s ownership. Which means you could lose all your assets, not just one.

A series LLC, on the other hand will offer twice as much protection.

3. Don't Leave Yourself Exposed Because You’re A “Good Person”

Lawsuits have nothing to do with whether you mean well. Instead, most lawsuits are based on accidents and misunderstandings, not fraud or malicious intent. The purpose of asset protection is to provide coverage when things don’t go as planned. Ask yourself: “Would I be comfortable giving them access to my bank account or credit card?”

4. Do Get Professional Legal Advice

It's hard to tell if your LLC was filed correctly, but there are some common areas that account for the majority of mistakes:

Was the LLC properly formed and maintained (requires an operating agreement and yearly state filings)?
Did you properly sign for all the contracts and business dealings?
Have you filed the appropriate franchise taxes to maintain good standing?
Are all records, including accounting and banking information, current and accurate?

A single technicality can invalidate your protection, which is why we always recommend consulting a specialist in the field.

Insurance Won’t Protect Your Investments

Insurance companies are in the business of collecting premiums, not protecting their clients. They routinely look for ways to deny coverage as a way of lowering their costs.

It’s always a good idea to have an insurance plan, but you shouldn't assume they will pay by default. There are a variety of ways your coverage can be reduced or denied. These range from state and local policies to your payment status or specific instances surrounding your claim.

Are You Sure You Can Count On Your Insurance Company?

Successful investors are experts and managing risk. Purchasing insurance is a good example of this, but having a Plan B takes things to the next level.

Let’s go through a fictional scenario. Imagine one of your newly acquired properties has a rotting staircase and someone accidentally trips and breaks their toe.

Most people would expect the insurance company to cover this unfortunate incident, but this time the insurance company fights back. They claim you exhibited gross negligence and are individually responsible for your guest’s injury.

This lands you in a tricky situation. The best case scenario is to endure a series of stressful negotiations and come out on top. Unfortunately, this doesn't always occur and you could be left holding the bag, exposing your life savings and assets in the process.

Smart risk management requires good up front decision making, such as purchasing a solid insurance plan. But it also includes having a plan for when tragedy and the unexpected strikes. In this case, it means not only carrying insurance, but protecting yourself from potential failure of your insurance.

You Can Be Fully Protected Within A Week

Did you know it's possible to create a scalable company plan in as little as a week? This plan includes both the company setup and the transfer of properties to the new legal structure, and the benefits are legion.

Compared to traditional structures, our asset protection plan provides a layered defense against lawsuits. Not only do we split your assets across various holding companies, but we veil your wealth in anonymity. This strategy makes you unappealing to most would-be plaintiffs and makes your assets inaccessible to the rest.

Most people struggle to pay the upfront costs of a lawsuit and agree to split the winnings with their attorneys. An asset protection plan for Royal Legal Solutions costs less than the typical attorney fees for a single lawsuit and lasts for a lifetime.

Lawsuit prevention is important, but cobbling together a complex network of business entities can be difficult and expensive. Each LLC requires its own filing expenses and management. It adds up fast and the maintenance doesn't scale. Compare that to our custom solution, which provides no hidden costs and comprehensive service. If you want to learn more, contact us today.

How To Take Money Out Of Your S Corp

If you’ve formed an S Corp to manage your real estate investments, you probably already know about the benefits that come with S Corp taxes. In fact, the primary difference between S and C corporations is the way the businesses are taxed:

C Corps are separate taxpaying entities. This means that the business pays income taxes on its profits and any profits that are distributed to the owners will be taxed again as their individual income.
S Corps are “pass-through” tax entities. This means that the business does not pay taxes. Instead, its profits and losses are passed through to the owners, who will report them on their personal income tax returns.

That’s the beauty of an S Corp compared to a C Corp. C Corp income is taxed twice: once at the corporate level, and once at the individual level (as a dividend). S Corps avoid this double taxation by passing all of their income through to their owners. The business doesn’t pay taxes; only the owners do.

Whether you’ve started a corporation, an LLC, or a series LLC, you can elect to be taxed as an S Corp. If you’ve gone this route, congratulations! You’ve made a great economic decision that can save you some serious dough that would otherwise go to Uncle Sam. Now the question is: how do you take the money you earn out of your S Corp?

Take Money Out Of Your S Corp: Cash Register

3 Methods: S Corp Distributions, Loans & Personal Salaries

In addition to tax benefits, a major advantage to forming a corporation is the protection it offers your personal assets in case the business gets sued. You should never use business money to pay for personal expenses; you could lose the protection of the corporation in the event of a lawsuit because you have commingled assets.

So how do you access the money that your S Corp makes? I’m assuming you didn’t start a business for your health: you’re doing it to make money to cover personal expenses.

If you want to take money out of your S Corp, you have three options:

Take a distribution
Pay yourself a salary
Give yourself a loan

Take S Corp Distributions

Distributions are the best way to get money from your S Corp. Because you’ll report it as “passive income” on your income tax return, it won’t be subject to employment taxes. This saves you money!

Because S Corps are pass-through entities, you have to report your business’s income on your personal return whether you actually receive it as a distribution or not. The upside of this is that you won’t have to pay additional taxes on a distribution unless it constitutes a capital gain. A lawyer or tax accountant can help you determine the most advantageous way to take your distributions.

Transfer Money From the S Corp to Your Personal Account

Unfortunately, Uncle Sam won’t let you take all of the money out of your S Corp as distributions, because the government wants your tax money. For this reason, the IRS requires that you pay yourself a “reasonable” salary for your contributions to the company. You should try to minimize the amount of salary you take while still meeting the “reasonable” standard.

True to form, the IRS doesn’t give any specific guidance as to what “reasonable” means. Some factors that courts have considered when deciding whether a salary is reasonable include:

Your training
Your experience
The type and quantity of work performed
Prior distributions received
The time and effort devoted to the business

Another way to look at it is to pay yourself what you would pay somebody else to do your job.

Give Yourself A Loan From the S Corp

When you’re taking money out of an S Corp other than your salary, you can set up a line of credit between you and your business. Then, you’ll take cash out as a loan against that line of credit. At the end of the year, you and your accountant can decide if you should convert some of that loan to a distribution or leave it as a loan (you’ll need to pay interest on the loan). If you borrow money from the corporation (via a loan), you’re never going to have capital gains.

However, even if you list your withdrawal of funds as a loan on your financial statements, the IRS can recharacterize it as a distribution. If Uncle Sam recharacterizes your loan, you’ll have to pay income taxes on it just as you would a distribution.

If you take out a loan from your S Corp, you need to dot your i’s and cross your t’s to make sure it stays characterized as a loan. For example, creating a legally enforceable promissory note helps prove that the transaction was actually meant to be a loan. Before you take a loan from your S Corp, you should seek advice from your lawyer and your accountant.

Can A Land Trust Borrow Money to Buy Property? Finance Your Next Investment

There are many advantages to setting up an anonymous Land Trust for your real estate investments. Did you know that you also can use these trusts to borrow money to buy additional property?

In this article, we will examine the advantages of a Land Trust mortgage and how to obtain one.

What is a Land Trust?

Over in our Tax, Legal, & Asset Protection Secrets For Real Estate Investors mastermind group, you'll hear me recommend this type of asset protection pretty often, but before we go much further, let’s make sure we are clear on some definitions.

A Land Trust is a legal entity that has control over a physical property and other real estate-related assets at the instruction of the property’s owner. As a living trust—one that is created during your lifetime—a Land Trust is typically revocable, meaning it can be amended or terminated at any time.

A Land Trust can protect both your assets and your privacy and prove to be a valuable part of your estate plan. Let’s say you own an investment property. If you deed the property to the trust, your name comes off the property deed as the owner, and the trust becomes the owner.

The terms of a Land Trust can be unique to the type of real estate it owns. You, as the grantor, then choose someone, called a trustee, to make sure your instructions in the trust agreement are carried out to benefit your heirs (beneficiaries). The trustee can be a friend or a relative, your attorney, or a professional appointed from a financial institution.

Unlike a will, which is a public document, a living trust is private. No one can know the details of your Land Trust other than the trustee.

What Is A Land Trust Mortgage?

Now, let’s say you want to borrow money to make improvements or preserve assets that are held in a Land Trust. Or maybe you need to refinance a property held in the trust. As long as the trust is revocable, you can apply for a mortgage.

Not all lenders extend loans on trusts, so your first step is to notify the lender that the property is included in a trust and provide them with a copy of the trust agreement. If the lender is on board, you’ll next need to check the trust deed to determine if the trust allows the trustee to take out a mortgage on the property. (It is not always the case.) You’ll also need to confirm that the trust allows the property to be used as collateral or security for a loan.

How to Obtain Financing Through Your Land Trust

If the trust does allow the loan, the trustee will need to sign the mortgage or a promissory note. The note stipulates that the trust will be responsible for paying back the loan and that the refinanced property will be used as collateral for the loan. If the trustee won’t be signing personally, you will have to apply for the loan and sign the guarantee or the note.

If the trust doesn’t allow for the loan, the trustee cannot sign the mortgage. If the property can still be used as collateral, however, the lender may require you to re-title the property. This requirement means you will have to take the property out of the trust and return it to your personal ownership before you can take out a new loan.

This process requires the preparation and recording of two deeds with your county recorder or registrar. One deed takes your property out of the Land Trust, and the other one puts it back.

Some lenders will accomplish this deed paperwork for you, or you can ask your attorney to handle it. Your attorney should then draw up a document that states the property can be used as collateral on the new loan.

Suppose your property is already in a Land Trust and you want to borrow against the beneficial interest. In that case, the lender must serve a Notice of Collateral Assignment on the trustee. Then the trustee will write an acknowledgment of the assignment. When this situation occurs, the trustee cannot transfer the property’s title in the trust or encumber or mortgage it without the lender’s written consent.

Now, here are the five steps the lender will take before granting the loan.

The lender will review the trust instrument, also called a deed of trust.
The lender will confirm the identities of both the grantor and trustee.
The lender will establish whether the trust grants the trustee power to borrow money and pledge or encumber trust assets.
The lender will determine if the trustee needs to sign a trustee certificate to stipulate the trust’s terms and confirm the trustee’s authority to apply for a loan.
The lender will require the deed on record as legal evidence that the trust actually owns the property. (You’ll need to provide the deed on record for this step.)

Advantages of Land Trust Mortgages

Borrowing money on property held in a Land Trust gives you more options than a conventional loan can provide. In addition, selling property held in a Land Trust to current tenants is often more secure and less risky than conventional sales.

In addition to maintaining your privacy as an investor, you also can avoid transfer taxes because the sale of a beneficial interest in a Land Trust does not involve the property itself. Another advantage is that tax assessments are lower because the sale price of the property is not publicly available for real estate assessors to view. You also can skip lengthy and costly probate procedures after the death of an owner.

What About The Due On Sale Clause?

Many investors worry that they will sacrifice their anonymity by triggering the due on sale clause if they finance a property purchase through a Land Trust. This clause in a loan or note states that the full balance of a loan may be called due upon sale or transfer of ownership of the property used to secure the note.

It's important to understand that banks rarely invoke the due on sale clause if mortgage payments are being made regularly on a property. After all, banks profit from your mortgage payments.

You are able to transfer your property or obtain better financing for an investment property without the worry of triggering this clause. Here are the basic—and perfectly legal—steps to take.

Consult your lawyer.
Buy property in your own name for optimal loan terms.
Transfer your property into a Land Trust.
Move the property from the trust to an anonymous LLC.

I like to encourage my clients with this advice–a Land Trust is simply a tool for an investor. You can use this tool to protect your anonymity, prevent frivolous lawsuits, or manage certain pieces of property. Yes, an unethical person can use a Land Trust in a dishonest way, but that reveals more about that individual’s integrity (or lack thereof) than it does about the Land Trust as an investment entity.

Finally, if you’re seeking to obtain a loan against your Land Trust assets, you’ll need the advice of an expert trust administration attorney. Our dedicated professional team at Royal Legal will prevent you from taking any action that might harm the assets of the trust.

Note: You also may be interested in our article about S Corp distributions here.

Land Trust Mortgages: How To Borrow Money Using a Land Trust

I’ve been harping on for years about the importance of setting up a land trust for your real estate investments. Today I want to touch on one of the issues many real estate investors struggle with – how to borrow money using a land trust.

There are times when you may want to borrow money to make improvements or preserve assets held in a land trust. There may also be a need to refinance the property at some point. You need to make sure that the trust has the power to borrow money. It may not always be the case and this is normally covered in the trust deed.

Let me get right into the mechanics of it all.

What Do I Need to Get a Mortgage Loan Using a Land Trust?

The first step you’ll need to take is to have the trustee sign the mortgage or note. However, you will need to apply for the loan and sign the guarantee or the note since the trustee won’t be signing personally.

Alternatively, if you have your property in a land trust already and want to borrow money against the beneficial interest, then the lender will need to serve a Notice of Collateral Assignment on the trustee. The trustee will then write an acknowledgment of the assignment.

When this happens, the trustee is no longer able to transfer title of any property held in the trust or encumber or mortgage the property without the lender’s written consent.

Here are the five things the lender will be looking for when granting the loan:

The lender will need to review the trust instrument.
The lender will need to confirm the grantor and trustee identities.
The lender will need to establish whether the trust grants the trustees power to borrow money and pledge or encumber trust assets.
The trustees may be required to sign a trustee certificate reciting some key terms of the trust and confirming the authority of the trustees to take out a loan.
The bank will need evidence that the property is actually owned by the trust. For this, you will be required to provide the deed on record for review.

If you’re seeking to obtain a loan against trust assets, you need to consult with an expert trust administration attorney. You do not want to take any action that might potentially harm the assets of the trust.

You may also be interested in our article that answers the question, "Can I take a loan from my S Corp?"

How Do I Collect Rent From Renters That Have Moved Out?

You have to collect rent that is past due. That's not fun, but it's sometimes necessary. This whole process can be a sticky situation for any real estate investor.

Maybe you disagreed with your tenant over their excessively late rent. Or maybe they broke the lease and added another pet without your knowledge. Maybe their kids dropped a firecracker in the toilet, and it exploded.

For whatever reason, either you had to evict, or your tenant packed up and moved out, denying you the ability to collect back rent.

That's not an ideal situation. It's an unpleasant annoyance that a real estate investor contends with as part of doing business. But it doesn't have to be.

In this article, we'll cover three practical and actionable strategies that enable you to collect back rent for the services you rendered.

Collect Back Rent From The Security Deposit

You can't control that your tenants violated the terms of their lease, broke it, and left. You can control how you respond to their actions.

Suppose your tenant left without paying rent. Their violation is a situation in which they surrender the security deposit to you. Being behind on rent or breaking the lease is probably enough for you to collect back rent.

Check with your real estate attorney to be safe. You never know when your absent tenant might demand the security deposit back.

Use The Courts To Collect Back Rent

Even if your tenant left, they still have the responsibility to fulfill the terms of the lease agreement. First, you should try communicating with the tenant to explain their financial obligations. That doesn't always work out.

A lease is a legally binding contract. In other words, your tenant signed a legally binding contract stipulating that they would pay rent to live on your property. Once they violate the terms of the agreement, you have legal recourse in the form of your state's small claims court system.

How Does Small Claims Court Help Me Collect Back Rent?

Small claims court is a relatively cheap and time-efficient way to collect back rent. The process differs from state to state, but in general:

It's without attorneys
For claims less than $10,000
The court guides you through the process

You'll get an enforceable judgment if you win in small claims court. With that enforceable judgment, you can collect back rent from your tenant via:

Wage garnishment: you may be able to collect a portion of someone's wages to satisfy your judgment
Bank levy: you have your tenant's bank info, and you're a creditor that needs payment
Sell the judgment to an enforcement specialist: you'll get paid some, but not all the judgment

Use Other Legal Remedies to Collect Back Rent

Another excellent, straightforward legal remedy to collect back rent is to sue in assumpsit.

When you sue your former tenant in assumpsit, all you're doing is asking the court to get them to pay what they owe you. That's it. Some states don't believe you're entitled to just back rent but also interest on the unpaid rent. We're fans of such landlord-friendly statutes.

It's always a good idea to check local laws and retain counsel if you plan to go to court. The court may be a worthwhile endeavor for large enough sums that the tenant could plausibly pay. Others may prefer to negotiate directly, arbitrate the dispute, or seek small claims damages as alternatives.

When Is Suing Worth it?

Your mileage with success in court will vary. The most significant considerations are their likelihood of success and the value of their own time. State law largely determines the former, how much you can recover, and in what venue.

The second consideration--about the value of your time and how you wish to spend it--is far more personal. Lawsuits are lengthy, often painful affairs. Most people will go well out of their way to avoid one. The reward and chances of victory need to be sufficiently high for the stress to be worth the trouble for most of us.

That said, court remedies exist for a reason. They're there when all your other, more straightforward solutions to your problems fail. When diplomacy, asking nicely, raising your voice, lowering your voice, offering to solve it between yourselves, offering to "release" from or any won't do anything.

If you've lost money from nonpayment, you can be made whole financially. Just understand that with anything court-related, there are never any guarantees.

Key Takeaways

It's never fun to have to collect back rent. It's time-consuming for you and takes you away from running your business. Unfortunately, collecting back rent is a necessity sometimes.

You have several options to collect back rent that we covered. You can use each or all of the following strategies to get your money:

Use the safety deposit to recoup your losses
Go to small claims court and get an enforceable judgment
Sue in assumpsit

Royal Legal Solutions helps real estate investors protect their assets. Secure your financial future, and register for your FREE Royal Investing Group Mentoring Wednesdays at 12:30 pm EST!

Retirement Planning and Charitable Giving

Charitable giving is a popular strategy among the wealthy for diminishing their tax payments. But this strategy doesn't just have to be for the Michael Dells and Kim Kardashians of the world. Wouldn't you like to reduce your taxable income and save money too?

Intelligent real estate investors, just like you, can use charitable giving too. But even savvy investors don't always know that they can make charitable gifts from retirement accounts.

The funds in IRAs and 401ks are among the most heavily taxed that the average investor will hold. Whether you want to donate money from your 401(k) to a cause close to your heart, save on your taxes or both, this article is for you. Read on to learn more about your options for giving charitable gifts with your Self-Directed 401(k).

Why You Should Designate Your Retirement Funds for Charitable Giving

Ultimately, it would be best to consider designating your retirement fund for charitable giving to reduce your taxable income and save money. The tax break is why many highly wealthy individuals donate in large quantities. Sure, many of them may be philanthropic at heart, but there is also a distinct tax advantage to making donations. The higher your taxable income, the greater your tax responsibilities when Uncle Sam comes to extract his pound of flesh and collect tax bills.

Giving to charity also qualifies you to receive a Charitable Gift Tax Credit. Anyone can take advantage of this deduction. Generally, the credit is figured by taking the market value of an item or the actual amount of cash donated, then subtracting the percentage of your tax bracket.

This strategy can lead to thousands returning to your pocket. Of course, there are limits: you cannot donate more than half of your income in a given year. Similarly, for these benefits to apply, you must itemize each donation.

What Options You Have for Giving to Charity

Some of these may already be familiar to you. Others are less obvious. Here are some, but not all, of the many methods you can use to donate funds to a charitable cause:

⦁ Real Property Gifts (includes real estate, stocks, etc.)

⦁ Trusts (Charitable Remainder Trusts, Charitable Lead Trusts, and more)

⦁ Charitable Sales (purchases will benefit a charitable organization or purpose)

⦁ Deferred or Traditional Charitable Annuities (the donor receives a tax deduction and a fixed income for the remainder of their life)

⦁ Life Estate Gifts (allows donors to claim a charitable deduction for the remainder value of real property donated to charity)

⦁ Retirement Plan Asset Gifts (passes the retirement plan assets to a charity)

⦁ Life Insurance Gifts (name the charity as a beneficiary, and it may reduce the donor's taxable estate)

Which Options Are the Most Beneficial?

Life estate gifts, retirement plan asset gifts, and life insurance gifts are the most beneficial options.

While any of the previously mentioned options are undoubtedly beneficial and generous, intelligent investors may be wondering which will benefit their bottom lines. You may be surprised to learn that the final items on the list are among your most robust and lesser-known gift choices.

Many potential donors do not know much about life insurance or retirement plan asset gifts simply because charities are less likely to request them. Many nonprofit organizations need immediate cash that these donations do not address. They are nonetheless useful for the organizations--and you.

Ways to Give to Charity from Your 401(k)

Option 1: Donate Directly from the Plan

You can liquidate an asset (or several) held by your plan, then directly donate the funds to the nonprofit group or cause of your choosing.

Option 2: Name a Charity as a Beneficiary of Your Plan

Naming the charity of your choice as a beneficiary works the same way as designating any other beneficiary. However, this option has the advantage of allowing plan funds to pass through to the charitable organization completely tax-free. If you have tax-deferred funds, this is a more intelligent expense than passing those same funds on to your heirs. Your heirs would have to pay the taxes, but the charity does not.

Key Takeaways for Effective Retirement Planning and Charitable Giving

Charitable giving is a popular and effective strategy to reduce your taxable income and save you money. One strategy that most people don't know about is the ability to make charitable gifts from retirement accounts.

It would help if you considered giving to charity from your retirement account for the following reasons:

Reduce your taxable income
Receive a Charitable Gift Tax Credit
Pay less in taxes

The tax benefits of charitable giving are multiple. It may result in you pocketing cash when tax season rolls around.

You have a lot of options available to you, but one of the most beneficial options is to give from your 401(k) by:

Donating directly from the plan
Naming a charity as your beneficiary

This strategy will reduce the tax burden on your estate and may save your heirs a hefty tax bill down the line.

Do you want to learn more about charitable giving or other strategic plays that may be useful to you? Join us and learn more! Register for your FREE Royal Investing Group Mentoring Wednesdays at 12:30 pm EST.

Navigating Historically High Inflation Combined with Low Interest Rates

Let's discuss what's happening with the cost of goods and how you can navigate historically high inflation with low-interest rates.

We recently held a Royal Investing Group Mentorship with Ron Galloway, an expert financial researcher with 35 years of experience to answer the inflation question. Galloway has been featured in The New York Times, CNN, CNBC, and The Wall Street Journal.

Please keep reading to learn more about inflation, how it's measured, and the potential impact on low rates in your real estate investments.

What Is Inflation?

According to expert financial researcher Ron Galloway, inflation is "simply an increase in the money supply." In the past year, nations increased their money supply up to four times, says Galloway, which led to historically high inflation.

The rate currently reduces your money's value and drives up prices.

When you shop, do you notice that things cost a little more each time you go back?

For example, last year your shopping cart cost $300. An identical shopping cart might cost you $320 or more this year. At its most basic, that's inflation.

Contributing Factors

Galloway explains that the economy is not as strong as it is reported because of:

a high unemployment rate
supply chain issues caused by high unemployment
increase of deposits into checking accounts
the significant growth of $1, $20, and $100 bills in circulation
historical lows in the movement of money (people are hoarding it)

Each of these factors contributes to the inflation situation we are experiencing.

How Is Inflation Measured?

We measure inflation by measuring the cost of many items over a specified period. The Bureau of Economic Analysis and the Bureau of Labor Statistics measures goods and services costs, categorizes the expenses, and creates different price indexes.

Price Indexes

Price indexes are lists of prices. There are different price indexes; one measures households and their consumption of personal goods and services. Another price index measures commercial companies and their raw materials consumption and needs for machinery.

Measuring Inflation

To measure inflation, we look at the level of a price index. If the price index level is higher than over a year ago, we know that prices are higher on average, and there is inflation.

Galloway argues that inflation numbers provided by government statistics agencies do not adequately account for essential goods like food and fuel. Necessary commodities like food and energy cannot negate an increase in prices and other goods that aren't essential, like electronics.

That means that real inflation for essential goods may be even higher than the reported rate of 7.5%.

What Is the Impact of Low-Interest Rates on Banks?

The impact of low-interest rates is that banks are less willing to loan money. Banks have increasingly heightened their standards and investigated and thoroughly vetted potential borrowers. All in all, interest rates are low, but there hasn't been a corresponding increase in loans.

Galloway explains that real interest rates are "the rate of interest minus inflation." Accordingly, the combination of low-interest rates and rising inflation disincentivizes banks from loaning money.

As a result of that unprofitable combination, top institutions would instead use their cash for trading derivatives between each other. Galloway notes if one of those significant banks defaults on their derivative, we'd have a repeat of the 2008 recession.

Expand your portfolio, diversify your assets, and hedge against inflation. To do that, you might consider investing in Carbon Credits.

What Is the Impact on People Who Hold Assets?

Inflation eats up your cash, but people in debt and assets benefit from it. If you hold assets, like real estate, during an inflationary period, those assets increase in value.

Now might be a good time for you to invest in real estate.

Indeed, prices are up, but so is demand. So far, there are no obvious indicators that the housing market will slow down. In addition, as Galloway mentioned, real estate, a tangible asset that appreciates, is a good investment during inflationary periods.

If you are ready to take the next step to secure your financial freedom, check out:

Key Takeaways

Never in history have we had interest rates this low and inflation rate so high. As a result, you need to protect yourself and your assets. Here are the key takeaways from today's discussion:

inflation is an increase in money supply
price indexes measure inflation
the actual rate might be closer to 20%, not the reported 7.5%
low-interest rates and high inflation makes banks less likely to loan money

During this period, it is an excellent time to be a real estate asset owner. If you want to learn more about market trends or other real estate investment topics, register for FREE Royal Investing Group Mentoring Wednesdays at 12:30 pm EST.

Real Estate Syndication to Diversify Investments

Suppose you want to invest in real estate but don't want to personally oversee or manage the investment. In that case, you might want to diversify with real estate syndication. Ideally, a real estate syndication would provide you with the benefits of real estate investment, and you wouldn't have to worry about personally being a landlord.

In this diversification strategy guide, we will discuss real estate syndication basics.

What Is Real Estate Syndication?

A real estate syndication occurs when investors pool their money to make large real estate purchases. Here is a list of some things that real estate syndications commonly invest in:

Apartments
Mobile home parks
Multifamily housing

You can diversify with real estate syndication and enjoy the benefit of your partner's shared expertise and experience.

If you want to learn more about real estate syndication as a diversification strategy, check out our article Real Estate Syndications.

How Does a Real Estate Syndicate Work?

There are two parties in a real estate syndicate: a real estate syndicator and passive investors.

What is a real estate syndicator?

The first party, the real estate syndicator, will:

operate the syndication
provide the operation's structure
research real estate
underwrite

After your group finds a property for investment, then the syndicate will:

find financing
find investors
raise capital
oversee the real estate transaction
work with property managers and investors

The real estate syndicator handles virtually all aspects of the investment. Their role is to create, execute and deliver a business plan that brings cash flow to you, the passive investor.

What is a passive investor?

The passive investor is someone like you.

A passive investor would provide a percentage of the syndicate's capital to purchase the property. Then the passive investor would receive a portion of ownership in the property.

The ownership you have in the property entitles you to:

appreciation and equity on the property
income generated from the property
return on your initial investment (when and if you decide to sell)
tax benefits

Should I Diversify with Real Estate Syndication?

There are several benefits to investing in real estate syndications. Those include, but are not limited to:

passive income from the property
worry-free real estate investment
tax benefits

Another beneficial aspect of real estate syndication is that the property will appreciate over time. When you get ready to sell the property, you could potentially increase your return on investment.

Perhaps the most intriguing aspect of real estate syndication is the ability to control which properties you invest in and the ability to diversify. As a passive investor, you have the opportunity to split your investment across several syndications.

What Are the Risks of Investing in a Real Estate Syndication?

All investments carry an element of risk–investing in a real estate syndication is no different. The most considerable risk comes from finding someone you trust with your investment.

You have to find an experienced, trustworthy, and competent syndicator as the investor. Ensure to do your due diligence and research that company before you invest with a real estate syndication company.

How Can I Diversify with Real Estate Syndication?

You must be either an accredited or sophisticated investor.

An accredited investor must:

have an income of at least $200,000 in each of the last two years ($300,000 with a spouse), or
has a net worth of $1 million (alone or with a spouse), or
hold certain types of professional financial licenses

A sophisticated investor refers to an investor who has enough money, investing experience, and net worth to conduct complicated investments. Sophisticated investors must be knowledgeable and have a track record of successfully identifying and evaluating winning investments opportunities.

What Are the Steps to Invest in a Real Estate Syndication?

You have to do a little bit of research to find just the right place for your investment. One thing you will want to do is communicate and network with other investors. As you develop strong bonds with other investors, they will be able to direct you to trustworthy real estate syndicates.

You can also attend real estate conferences to meet other investors, learn more about investing in real estate syndications, and land your first deal.

All in all, you (as a passive investor) will need to find a trusted, successful, and experienced real estate syndicate. Once you identify and invest, the real estate syndicator will do almost all the work, find an investment property, structure the syndication, and conduct the business.

Key Takeaways

If you want to invest in real estate but don't want to control the day-to-day aspects of owning property, you may want to diversify with real estate syndication.

The benefits of this type of diversification strategy are appealing. You can invest without the hassle of being a landlord, earn passive income, enjoy the benefits of appreciation and real estate tax rules.

As always, you need to ensure that you know about any investment you make. To learn more about real estate syndication and other real estate investment opportunities, Register for FREE Royal Investing Group Mentoring Wednesdays at 12:30 pm.

Judgment Enforcement Effective Strategies for Collecting

Have you ever wondered how about judgment enforcement on non-paying tenants? Or maybe you want to know what your options are other than evicting someone and putting them out on the street?

If so, you’re in the right place. Keep reading to learn more about:

what judgment enforcement is
your options if a tenant stops paying
tools available to you for enforcement

What Is Judgment Enforcement?

First, it’s helpful to know that a judgment is merely a court order or a decision from a lawsuit. Sometimes, the court will order the defendant to pay the plaintiff a certain amount of money in the judgment.

Lawsuits happen. In most cases, it’s not if but when they occur. As a real estate investor, you must protect your financial future and assets. Take our FREE, five-minute investor quiz to learn more.

Why does this matter for real estate investors?

Here is a typical example you may encounter as a real estate investor. Imagine you have a tenant who has stopped paying rent. While it may not be easy to evict your non-paying tenants, they still owe rent to you. You have other options available for judgment enforcement.

What Should I Do If a Tenant Stops Paying?

You don’t always have to evict. You can sue the tenant for breach of contract, get a judgment, and then enforce the judgment. Remember the tenant signed a lease agreement with you. You can sue the tenant in small claims court.

What is a small claims court?

First, you should know the rules that control your state’s small claims court system. Second, you should know that small claims court is a low impact, relatively cheap, and hassle-free way to get paid.

In general, small claims courts are:

without attorneys, it’s you (plaintiff) versus your tenant (defendant)
for claims less than $10,000
helpful to you in filing and explaining court procedures

How does small claims court work?

What’ll happen is this, you will file a suit in small claims court against your tenant for breaching their rental contract with you. After that, the court will set a hearing date. Then you serve your tenant with papers (this is easy because you know where they live).

Both you and your tenant have the opportunity to represent yourself in court. Present your facts:

term of the leasing agreement
fees for not paying rent
tenant’s refusal to pay the rent

After that, the court will most likely issue a judgment in your favor. Here are some things to consider about court decisions:

they are good or ten years
there is an option of renewal for an additional ten years
judgments accrue interest

After you win a case, you will need to enforce the court’s judgment.

What Tools Do I Have for Judgment Enforcement?

If your state allows it, you can:

garnish wages
enact a bank levy
sell the debt to an enforcement specialist

These options are convenient because you most likely have your tenant’s job history and banking information already on the leasing contract.

Wage garnishment

Suppose you’ve won in court against someone that is gainfully employed. In that case, you may be able to garnish (or collect) a portion of their wage to satisfy your judgment.

Just the threat of wage garnishment is enough for most defendants to pay. Generally, to garnish someone’s wages, you don’t have to expend much effort:

you provide the local official information about the tenant’s workplace
the local official serves the garnishment order to the employer
the employed must comply with the order and sets aside a portion of the salary to satisfy your judgment

There are various rules and limitations to wage garnishment, but this is an effective judgment enforcement strategy.

Bank levy

You have your tenant’s bank information, so it might be better for you to enact a bank levy.

When you win a money judgment, you become a creditor, or someone owed a debt. As a creditor, you may be able to tell the bank to withdraw money from an account without the debtor’s permission.

Sell the judgment

Another option for judgment enforcement is to sell the judgment to an enforcement specialist. Selling is a win-win situation because it allows you to relinquish the responsibility of debt collection to a third party.

Selling debt might be a good option for you if you think the debtor cannot pay or will not pay. The enforcement specialist will usually enforce the judgment and pay you a portion of the debt.

Key Takeaways About Judgment Enforcement

You have rights as a landlord too. When a tenant does not keep their promise, you should follow the law because it’s the right thing to do.

We discussed what judgment enforcement means, how to take action against non-paying tenants, and what tools you have available to enforce judgments. Now that you know this information, you have proven strategies at your disposal to ensure that your real estate investment journey is successful.

Secure your financial future, and register for your FREE Royal Investing Group Mentoring Wednesdays at 12:30 pm EST!

How to Maintain Operational Anonymity

How do I maintain operational anonymity after a structure is in place?

Maintaining operational anonymity isn’t easy, which is why most real estate investors worry about being the target of a lawsuit, regardless of the protection in place.

Does this sound like you? You’ve made it to the right place. In this article, we’ll explain:

why anonymity is important
how to obtain and maintain anonymity
who you should disclose your identity to and how
what you should do if someone compromises your anonymity

We invite you to read on and learn how to maintain anonymity operationally.

Why Is Operational Anonymity Important?

Anonymity is essential because it stops lawsuits before they start, as belligerent parties will be unable to find the actual target of the suit.

How Do We Obtain Anonymity?

We obtain anonymity by using a variety of tools. These tools include using:

an agent trust as the member of your LLC
a land trust to hold title to a property
a separate LLC for operations (vs. operating from your asset holding LLC)

We hide assets using Anonymous Trusts, which allows you to keep ownership information hidden. The Anonymous Trusts keep you safe by owning your LLC and serving as the Title Holding Trust, the name disclosed when filing Articles of Incorporation.

In practice, it would look like this:

You
LLC
Series LLC
Anonymous trust listed as the owner of the property
Your real property

When someone goes to research the owner of the real property, the Count Clerk’s records will show the anonymous trust as the owner. Neither the trust owner nor you registered with the state, so your identity is safe.

How Do You Maintain Your Operational Anonymity?

There will be times when you need to maintain operational anonymity throughout running your business. As you continue on your real estate journey, you want to make sure that you protect your investment and your livelihood.

What follows are three common scenarios in which you will want to maintain your anonymity:

#1 How To Purchase A Home

What matters is how you plan to purchase the home. If you buy it:

with cash–purchase the house into a land trust using a nominee trustee
with a loan–purchase the property, take the loan in your name, then move to the land trust post-closing

#2 How To Enter Into A Contract With A Third Party

When you contract service providers, you will want to interact through an anonymous operating LLC. These providers include, but are not limited to:

contractors
property managers
utility providers

The operating LLC will be the party that contracts with the service provider, and you will sign as the manager of the LLC.

When you contract with a tenant, you will interact through an anonymous operating LLC or a third-party property manager. The operating LLC will be the party that works with the service provider, and you will sign as the manager of the LLC

#3 How To Sell Your Property

When you sell your property, anonymity is not a priority. To sell, you should move the title back to your name and sell. When you sell the property in your name, it simplifies the closing process. Finally–as the seller–you ensure the proceeds check comes directly to you.

What Parties Can You Disclose True Ownership To?

In some cases, you will want to disclose actual ownership. Some of the most common parties to tell include:

your bank
your lender
your title company
your insurance agent
court officials

How Should I Disclose True Ownership?

Sometimes you may not need to maintain complete operational anonymity and disclose true ownership. When considering whether you should tell your identity to each of the previous parties, ask yourself the following questions:

How will the information be used?
Will the data be publicly available or privately held?
Under what circumstances would you disclose this information to a third party?

What Happens If Your Anonymity Has Been Compromised?

Don’t panic if someone compromises your anonymity. You have options available to you to address the situation. The initialism “STACK” details the steps you should follow:

Stop the action until you gather more information
Talk to the party requesting the information to understand why the information is needed
Assess if you can provide information without disclosing ownership
Call your attorney if the information is necessary to see how to give it safely
Know who can distribute the information and where

Conclusion

Ideally, it’s clear how to maintain operational anonymity while managing your real estate investment.

Now that you know how to protect your privacy, here are some key takeaways about the protection provided by anonymity:

Anonymity is essential, but ultimately the liability protections are your foundation
LLCs and trusts can protect your privacy
Protect your anonymity by following the guidelines:
- who can receive information
- how to sign documents
- how to ensure records do not end up with third parties
If anonymity is compromised, you can take some steps to mitigate the exposure

Do you want to join other savvy investors and learn more about how to protect or grow your investments? Register for FREE Royal Investing Group Mentoring Wednesdays at 12:30 pm EST.

Roth Conversions to a Solo 401K to Offset Losses

Are you a self-employed real estate investor? If so, the solo 401K may be the best option for you. The solo 401K is an IRS-approved retirement plan that enables you to minimize your tax burden. Read on to learn more about how this tax strategy works and how you can offset losses with a solo 401K and Roth conversions.

What is a Solo 401k?

As mentioned, a solo 401K is an IRS-approved retirement plan. Also, the solo 401K is ideal for self-employed business owners or business owners with one other employee, usually their spouse.

This retirement plan allows contributions of up to $60,000 each year.

If you want to learn more about the solo 401K and its many benefits, read our informative guide: Solo 401K vs. Self-Directed IRA: Which Is Better For You?

What is a Roth IRA conversion?

A conversion is a taxable movement of cash, real estate, or other assets from a Roth IRA to a Solo 401K.

When you convert from a Roth IRA to a solo 401K, there's a tradeoff. You will face a tax bill, possibly a big one, due to the conversion. If you decide to convert a portion of your Roth IRA conversions into a Solo 401K, you will pay taxes on the money you convert.

However, you'll be able to secure tax-free withdrawals as well as several other benefits, including no required minimum distributions, in the future. With proper tax planning, you may even be able to mitigate the tax bill from the conversion.

All in all, you pay taxes on the money you convert to secure tax-free withdrawals and several other benefits. One of the most significant benefits is that you will no longer have the required minimum distributions in the future.

Why are Roth conversions a popular tax strategy?

Roth conversions remain popular as many taxpayers fear that tax rates will only increase in the next few years. A Roth conversion enables you to convert now at lower tax rates, let your account grow, and let you make a tax-free withdrawal over the life of your retirement!

How is a solo 401K different from a traditional IRA or 401(k)?

Remember, if you have a traditional IRA or 401K, that money grows tax-deferred, but you pay tax on the distributions as you withdraw the funds at retirement.

The tax rate might be much higher when you retire. That means you would potentially lose more money to taxes each time you make a withdrawal.

Another thing to remember is that once you reach age 72, you must withdraw a certain amount of money each year, or the "required minimum distribution."

How can I offset losses with a Roth conversion?

One of the ways to mitigate the tax impact of the conversion is for a business owner to offset net operating losses (NOL). The income generated by a Roth conversion may offset the NOL, and the business owner may not incur any additional tax liability. Additionally, there is no limit to the amount of income that an NOL can offset.

What is a net operating loss?

Generally, a net operating loss (NOL) is an excess of deductions over income from the operation of a business. These deductions are expenses from the operation of a business.

For individuals, an NOL may also be attributable to casualty losses. A casualty loss occurs from the destruction or loss of your (taxpayer's) personal property. The casualty loss is a single, sudden event.

For instances of theft, you will need to prove that someone stole the property.

Example of how you would offset losses with a solo 401k

First, a disclaimer: these calculations can be complex, and investors should consult with a tax professional or financial advisor to decide the best strategy for them.

Imagine you're a sole proprietor who has a traditional IRA for self-employed individuals worth $300,000.
Your business experienced losses totaling $170,000 this year.
Your spouse's annual income was $75,000.
Both of you also reported $5,000 in income from interest and dividends, bringing your total income to $80,000.

The following example illustrates the calculation.

INCOME

Spouse’s wages
$75,000

Interest and dividends
5,000

Total income
80,000

DEDUCTIONS

Net business losses
(itemized deduction and personal exemptions not allowed in net operating calculation)
(170,000)

NOL for tax year
(90,000)

Income from Roth IRA conversion
90,000

Net taxable income
0

This example is for illustrative purposes only.

In this case, the couple may decide to convert $90,000 from the IRA. Then they can use that $90,000 to offset the loss and possibly avoid generating any tax consequences.

If you want to learn more about how the solo 401K lowers your tax burden, read Self-Directed Solo 401K: How to Avoid Tax Penalties.

Here's The Bottom Line

The solo 401K is probably right for you if you are self-employed. You need to decide if it's the right time for you to convert money in your Roth IRA to a Solo 401K.

If you do decide on a conversion, remember the tax bill upfront secures your freedom from "required minimum distributions." Also, you may be able to offset your losses with a solo 401K.

To learn more about this powerful tax savings strategy and others that you can use to keep more of your earnings, book a tax consultation by taking our tax quiz. The information you provide will enable us to have a productive discussion the first time that we speak.

Invest in Carbon Credits to Diversify Your Portfolio

By Ron Galloway,
Researcher, Finance and Healthcare Expert

One area of investing that has taken off in the last few years is socially aware investing due to the dual influences of the environmental movement and the sustainability movement. Most people don't think of carbon emissions as an investment, but they are. And this is accomplished when you invest in carbon credits.

In this article, we will cover:

What are carbon credits?
Why should I invest in carbon credits?
How can I invest in carbon credits?
What do you predict for the carbon credit market?
Key Takeaways

What Are Carbon Credits?

A carbon credit is a bit like a stock certificate. It represents a certain amount of carbon emissions, for instance, one metric ton of carbon emissions. A company that emits a lot of carbon during its business process can offset its carbon output by purchasing carbon credits. If the company emits 30 metric tons of carbon, they buy 30 carbon credits to counteract this. This investment in carbon credits has become so common now that carbon credits are routinely traded in major markets worldwide.

Watch Episode #12, Investing in Carbon Credits, to hear our experts discuss investing in carbon credits. The webinar is on Wistia and does not require a log-in.

Why Should I Invest In Carbon Credits?

Let's look at this a little bit more. Carbon credits are a function of the government's "cap and trade" policies. The "cap" refers to the amount of carbon emission (in metric tons) a company can produce as a part of its normal business process. The "trade" refers to the number of carbon credits a company is allowed to buy or sell to bring its carbon emissions under the "cap."

If you decide to invest in carbon credits, remember the market is relatively new. Still, it is a market that represents tens of billions of dollars per year and is growing. Environmental regulations on companies increase every year, and carbon credits have become the default mechanism for adhering to these regulations.

For instance, when Ford Motor Company is building cars, their factories emit a lot of carbon. The government allows Ford a certain amount of carbon pollution. If the carmaker goes over that allotment, it needs to purchase carbon credits to offset its overages.

Investing in carbon credits is attractive because the number of existing credits is relatively fixed; it's not infinite. There is a limited supply, but not limited demand.

Therefore, it's not just companies that can profit (by balancing their carbon emissions). There are also many opportunities for investors to benefit from this area. There are a few different ways to do this.

How Can I Invest In Carbon Credits?

One straightforward way is to invest in companies that trade carbon credits as part of their everyday business. Companies that have announced that they're going to become 'carbon negative,' such as Boeing, need to contract a certain amount of carbon offset credits to achieve these goals. Some companies, such as Shell, directly buy and sell carbon credits with other companies as a trading profit center.

Another mechanism is to invest in carbon credits through an exchange-traded fund (ETF). This investment pool tracks the performance of the assets that comprise it. For example, the QQQ exchange-traded fund mirrors the S&P 500's performance. There are existing ETFs benchmarked to different carbon indexes that track the performance of carbon credit-related futures contracts. ETF such as these commonly returned double-digits in 2021.

Probably the most active market for carbon credits exists in the futures market. Much as you can trade corn, gold, or hog bellies in the futures market, you can also trade carbon credits. This market is more complex, but returns can be much higher in the futures markets because you can use leverage. There are lots of risks and lots of potential rewards.

As with any investment, there is risk involved. There is some risk in investing in carbon credits through the aforementioned vehicles. Remember that investing in carbon credits is a very specialized and targeted investment. It does not by any means represent a diversified investment, but what it does represent is an asset class for an overall portfolio.

This particular investment is attractive because it is new and growing at a tremendous rate. Institutions at first did not invest in carbon credits; now, they do.

What Do You Predict For The Carbon Credit Market?

Here's where things get interesting:

Of the world's 20 largest countries that emit the bulk of the carbon, 19 of them have set a "date certain" for when their net emissions will reach 0. Hitting that goal means subsidizing lower emission activities, taxing higher emissions, or simply banning some activities. Essentially carbon credits are a "tax" on higher emission activities. Offsetting emissions with cash is the path most countries and companies will use to hit their emission targets.

Worldwide accounting standards will soon have standardized metrics for measuring carbon emissions. The new metrics will create explicit standardized targets that companies and countries must follow. It's the same principle that currently has oil trading settled in dollars. It's a standard. And the accounting of carbon credits will soon be standardized.

As more and more companies deal with the reality of reducing their carbon footprint, the easiest way for them to accomplish this reduction is to trade carbon credits. After all, it's much easier to pay a tax than shut down a factory or retool a factory to produce fewer emissions. Carbon credits are taxes in the form of a tradable asset.

The emerging asset invites speculation into the market as hedge funds and other portfolio managers invest in carbon credits. Since the number of carbon credits is limited, higher demand will create higher prices. Suppose a portfolio manager looks at a company and realizes that it has not set aside enough money to pay for its carbon credit targets. In that case, that portfolio manager can go for "long" carbon credits.

Or, more deviously, they could "short" carbon credits. A short squeeze would occur if companies went into the market and realized there weren't enough carbon credits to buy at their intended price. The companies would have to buy at any cost. In this scenario, the price of carbon credits could go parabolic. A short squeeze on carbon credits is inevitable at some point.

In 2021 we witnessed short squeezes in several stocks that caused prices to go straight up. There's no reason this cannot happen in the carbon credits market because:

able to be shorted
itis a tradeable
is a liquid investment with a limited supply

Carbon credits act just like stocks.

There's more potential for upside in carbon credits than in many other investments because governmental and institutional pressure drives the need for these carbon credits. It's artificial, but that doesn't mean that demand doesn't exist. It does exist and provides much of the momentum for rising carbon credit prices.

Key Takeaways

The opportunity to invest in carbon credits is relatively new and not very well understood. Hopefully, the discussion we had in this article gives you some actionable advice.

In this article, we:

defined carbon credits
explained why you might invest in carbon credits
predicted what the future may be for carbon credits

The market is not well known and relatively new.

Still, credit carbon investments will be part of any portfolio that follows the "prudent man" rule sooner rather than later. Being early will be much better than being late in this particular investment.

Do you still have questions? We have experts ready with answers. Join a community of like-minded investors. Register for your FREE Royal Investing Group Mentoring Wednesdays at 12:30 pm EST to learn more.

Tax Savings Strategy to Achieve Financial Freedom

Are you ready to grow your real estate business? To do that, you need a solid tax savings strategy.

You already know that there are considerable advantages to investing in real estate. The passive income, substantial tax savings, and long-term security most likely drew you to real estate investing.

Real estate investing is the first step in your plan for financial freedom. The first thing you need to focus on is finding good real estate deals.

The next step is to maximize how your money works for you. Read our list of six tax savings strategies to achieve financial freedom and build wealth.

#1: Start with the children, house, and vehicle

Give money to your children as employees of the company and pay tax at a lower rate
Maximize your home office deduction
Write off your vehicle expenses

#2: Maximize your deductions

This tax strategy is primarily for single-family home investors and the available deductions.

You have a multitude of deductions available to you as a real estate investor.

Deductions that do not impact financing	Deductions that do impact financing
- Amortization - Auto - Depreciation - 529 Plan - Home office - HSA - SDIRA - SOLO 401K	- Business expenses - Credit card processing fees - Legal fees - Office furniture - Office supplies - Repairs and maintenance - Tax prep fees - Travel expenses

As a sharp real estate investor, you need to know which deductions impact financing because it affects your ability to get loans, secure more properties, and generate wealth.

#3: Start a SOLO 401K

With a SOLO 401K, you can save $58,000 a year in taxes. If you're married, the tax savings increase to $116,000.

How a SOLO 401K works as a tax savings strategy:

Collect rental income, not qualified for the 401K
Channel it through your Operating Company
The rental income is now active (tax-free)
Active income goes inside the SOLO 401K
Now, you can invest that tax-free income into more properties or yourself

Do you want to know more about this powerful tax vehicle? Visit our SOLO 401K Hub to learn more!

#4: Create a Self Directed IRA (SDIRA)

You can add a Self Directed IRA on top of your SOLO 401K.

This SDIRA enables you to manage everything as long as you set up an LLC owned by the IRA. Then, you can invest through the LLC and shelter about $7,000 more per year from taxes.

#5: Use the DB(K) Tax Savings Strategy

The official name of this plan is the Eligible Combined Plan which Congress created as part of the Pension Protection Act of 2006 under Section 414(x) of the Internal Revenue Code.

You can combine the SOLO 401K and SDIRA with the DB(K) strategy. You gain an additional shelter which allows you to grow your wealth with a deferred tax, more capital in play, and higher returns.

#6: Get a Real Estate Professional Designation

If real estate is the primary source of your income or you are a "stay at home" husband or wife, use this strategy.

You can use your depreciation and other losses from real estate to offset other income.

If you are a high self-employed or 1099 income earner, you should consider investing in commercial and multifamily investments. You can use cost segregation, accelerated, and bonus depreciation to avoid taxes.

Even if you are a W2 employee, you have to document your time thoroughly and may be able to secure the designation.

Learn more about the requirements it takes to earn a real estate professional designation.

Tax Savings Strategy Key Takeaways

We went over six tax strategies you need to take to grow your real estate business. These six strategies will help you achieve financial freedom and grow your wealth.

Remember to:

Start with the children, house, and vehicle
Maximize your deductions
Start a SOLO 401K
Create a Self Directed IRA (SDIRA)
DB(K) strategy
Get a Real Estate Professional Designation

We've covered a lot of information that may include concepts that are new to you. To hear this content presented by Scott Smith check out Royal Investing: Episode #1 Tax Savings Strategies on our Wistia channel.

Wyoming Statutory Trust vs. Delaware Statutory Trust

Asset protection isn't easy, especially if you are a California-based real estate investor. The good news for you is that LLCs aren't your only option. A Wyoming Statutory Trust, for example.

Using LLCs is a last resort for the California investor when looking for comprehensive asset protection. The $800 per year franchise taxes probably make a non-starter for you as you seek to compartmentalize every asset you own.

Does this sound like you?

The truth is that you don't need LLCs for protection in California. Also, you can use trusts that function just like traditional LLCs and Series LLCs. That's important as a real estate investor because these trusts provide:

protection
anonymity of ownership
relief from the California franchise tax

To protect real estate investors like yourself, you might consider reliable and proven options, like the Wyoming Statutory Trust and the Delaware Statutory Trust.

Read on so you can evaluate the Wyoming vs. Delaware Statutory Trust, then decide which one is right for you.

Wyoming Statutory Trust: A Unique Tool for Savvy Investors

The Wyoming Statutory Trust and Missouri Statutory Trust function like LLCs, but they are trusts.

If you use the Wyoming Statutory trust for protection, you can:

create an individual trust for every single property that you own
they are individually asset protected just as if you held them in an LLC

Since you create these trusts with anonymity through the use of a nominee trustee, you can anonymously own both:

your trust
the underlying asset(s)

We recommend using an attorney to create the Wyoming Statutory Trust. Your attorney should also serve as the nominee trustee to ensure your anonymity. Your attorney protects you and your trust with attorney/client privilege as a trustee.

Valuable Evaluation of Pros and Cons

The Wyoming Trust may be the right trust for you if you have fewer properties or have no plans to grow.

The upsides to the Wyoming Statutory Trust include:

they are inexpensive
provide effective protection

Wyoming privacy laws do not require the registration of trust agreements. That means privacy about you, your family, assets, and your estate plan.

You should be aware of the limitations of the Wyoming Statutory Trust. The main issue with the Wyoming trust is the complexity it adds to scalability. It may turn out that this trust proves too complex and expensive to provide the proper protection for you.

The first is management. Management of each trust requires:

its bank account
set of accounting books
dedicated attention to each trust

You would have a multitude of entities that may each require their tax reporting and filing. The amount of reporting on the entities can be an operational nightmare as you grow.

The second limitation deals with scalability. As you scale, you will be financially responsible for:

costs of the creation of an additional trust
operational complexities of banking and accounting
tax preparation and filing costs

What follows is more information to help you decide on the merits of the Wyoming Statutory Trust vs. Delaware Statutory Trust.

Delaware Statutory Trust: Proven Asset Protection

The Delaware Statutory Trust functions like a Series LLC, but it is a trust. That means the Delaware Trust might be for you if you have multiple properties to protect and you have plans to grow your business.

The Delaware Trust allows you to:

create a single trust
produce an infinite number of free children for your trust
compartmentalize and own your company properties anonymously

An attorney is acting as nominee trustee and masks the actual ownership.

Promising Security from Delaware's Trust

The upside to the Delaware Statutory Trust includes:

infinite scalability for free,
streamlines your tax, bookkeeping, and banking into a single entity (the parent Delaware Statutory Trust)

The trust allows you to scale freely without additional operational complexity or tax filings.

Everything in your life should stay precisely the same as if you managed everything through a single entity that you wholly owned.

The primary downside is that the Delaware Statutory Trust cannot hold any active businesses such as typical commercial businesses, and you cannot "flip" your investments.

The limit on commercial businesses and the inability to "flip" properties may not fit your specific situation. Still, the Delaware Trust is a solid option in many investing cases.

We know the decision is an important one for you to make. Read our "Step-By-Step Statutory Trust Beginner's Guide" for more information.

The Bottom Line: Wyoming Statutory Trust vs. Delaware Statutory Trust

The Wyoming Statutory Trust is an excellent option if you have a single asset and don't plan on acquiring more.

If you are an investor with intentions to scale, then the additional upfront costs of a Delaware Statutory Trust will pay dividends in the long run.

You want to protect your assets and ensure your financial freedom. Let us help you! Register for FREE Royal Investing Group Mentoring on Wednesdays at 12:30 pm EST to learn more.

1031 Exchange Update for 2022

Are you fed up with paying taxes on your hard-earned real estate profit? Are excessive taxes preventing you from securing your financial freedom as a real estate investor? If so, you should read further to learn more about the 1031 Exchange update for 2022.

As a savvy real estate investor, you can use this little-known tax break to increase your wealth. Once you've mastered the 1031 Exchange, you'll see an increase in your purchasing power as you keep your money working for you and not filling the federal government's coffers.

What Is A 1031 Exchange?

First, you have to know what we mean when talking about a 1031 Exchange. In general, a 1031 Exchange is a tax provision that lets you sell an investment property, take those gains from the property, and reinvest those gains into another property without paying taxes.

When you sell real estate and earn gains, you have to pay tax. Appreciated property means more tax when you sell. The flip side of that is true too. If your property depreciates, you are subject to depreciation recapture taxes when you sell. Those taxes apply to you whether you claimed the depreciation deductions on your taxable income or not.

Either way, the federal government will try to extract their pound of flesh from your gains.

The beauty of the 1031 Exchange provision is that you get to defer the taxes on your gains. That means as a real estate investor you pay no taxes when you sell your property and exchange it for a new real estate investment. If you follow the rules, you may be able to defer the taxes indefinitely as you reinvest into bigger or better properties.

If you want to learn more about the finer details of the 1031 Exchange, we recommend that you read Understanding 1031 Exchanges And Asset Protection Entities.

What Is The 1031 Exchange Update?

When President Biden won the election, one of his campaign promises was to eliminate the 1031 Exchange because of the perception that it gave an unfair advantage to the ultra-wealthy.

The Biden administration had planned on either eliminating the 1031 Exchange program or modifying it somehow. One of the planned changes was the complete overhaul of the 1031 Exchange program, but that plan hasn't come to fruition.

The other plan included a $500,000 limit on the amount of money exchanged per year. That plan has also failed to earn widespread support.

One of the reasons the government failed to eliminate the 1031 Exchange program is that it is not in their best interest to kill it. Here's why.

If the government were to limit the 1031 Exchange successfully, it would mean less tax revenue in the long run. In the short term, the government would enjoy the taxes from the sale of the property.

However, a limit or drastic change to the 1031 Exchange would probably chill the real estate industry. That means that more people will hold onto property to avoid taxes. When people hold

onto their properties, all the ancillary sources of tax revenue dry up.

That means the contractors, cleaners, attorneys, real estate agents, and title companies do not participate in those deals. When you eliminate those people from transactions, you eliminate the taxes they would have paid. On balance, the federal government earns less in tax by removing or reducing the effectiveness of the 1031 Exchange benefit.

Fewer taxes and political gridlock have prevented any significant changes from the tax code yet. However, as a competent real estate investor, you should prepare for changes, just in case. That means you should look into all tools available to you right now and take advantage of them.

You might wonder if the 1031 Exchange is the right investment strategy for you. Answer that question by checking out Is a 1031 Investment Strategy Right For Me?

Key Takeaways

The 1031 Exchange update doesn't take away from the fact that it still might be the right vehicle for you to avoid paying capital gains taxes. Right now, there is talk in Washington D.C. about making policy changes, but nothing has emerged from those discussions yet.

That's not to say that nothing will happen, but a lack of support and institutional gridlock are keeping policy changes at bay. As an intelligent real estate investor, you should plan, but don't worry too much about things out of your control.

The best thing to do right now is to use all your tools. That means finding out which real estate investment strategy is suitable for your particular and unique circumstances.

Do you have a plan for your financial freedom? If not, let us show you how to secure your financial independence and build generational wealth to pass on to your family.

The Ultimate Estate Management Guide for Savvy REIs

Here is your ultimate guide to estate management and a list of things you should do to get started.

As a savvy real estate investor, you know that you don't have to be ultra-wealthy to need estate planning. Your estate includes everything you all own. Protecting your assets for future generations makes estate planning worthwhile.

Keep reading to learn how to protect your assets!

Basic Overview

Estate management, also called estate planning, is the action of picking who receives your estate and manages your responsibilities if you are dead or incapacitated. The process ensures your beneficiaries enjoy your estate with less tax burden.

Estate planning establishes a procedure that can align with your personal and financial goals. How do you want your assets divided if you die or are incapacitated?

If you want to learn more about estate planning benefits, check out our guide, Estate Planning for Real Estate Investors.

Here are three estate management tips to protect your financial future.

Estate Management Tip #1: Inventory All Your Assets

You have enough stuff to start estate planning. Once you take a closer look, you will realize how many assets you have. In general, you can have tangible assets and intangible assets.

Tangible assets include:

Automobiles, motorcycles, or boats
Collector's items
Home
Land
Personal possessions
Real estate

Intangible assets include:

Bonds, CDs, mutual funds, stocks
Life insurance policy
Money in your checking and savings account
Ownership in a business
Retirement accounts and plans

Once you know how large your estate is, you need to estimate its worth. You have options for assessing the price of your assets:

Option 1: Get an outside appraiser to determine their value.
Option 2: You estimate their value based on how your beneficiaries value them.

Either way, you choose to estimate the value of your assets, you will ensure that your heirs inherit your possessions equitably.

Estate Management Tip #2: Establish Your Legal Plan

Once you know what's in your estate and how much it's worth, you need to think about how to protect your family and assets once you're not in the picture.

As a real estate investor, you have more things to consider, and your estate management plan needs to include legal directives. A wise option for carrying out your directions is establishing a living trust.

A living trust might be right for you. A living trust allows you to designate which portion of your estate goes where. If you're incapacitated, your trustee takes over. But, how do you find a trustee for your living trust?

Finding a trustee can be tricky. At a minimum, you want your trustee to be someone who:

will make funeral arrangements;
inform your family and heirs of your estate plans;
determines how to allocate your assets

Read our article Finding A Trustee For Your Estate Plan to learn more about selecting the right trustee for you.

If you die, your trust assets transfer to your beneficiaries, and you get to skip the probate process.

Probate is a time-consuming and expensive court process that determines how to divvy up your estate. It's best to avoid court in these matters, so you might consider using a pour-over will in addition to a trust for the best protection.

A pour-over will is a standard will form stating that the assets not included in your trust should be moved into the trust and distributed via the living trust terms.

Read more about the benefits of establishing a living trust in our article Living Trust Versus A Will: What's The Benefits For Rei?

Estate Management Tip #3: Determine Your Beneficiaries

Whether you choose a will or trust to carry out your wishes, you will need to determine who receives your estate.

Follow these steps to ensure that your assets go to the right people:

Check your retirement and insurance accounts. Generally, retirement and insurance accounts have beneficiary documentation that you need to keep updated. These documents may carry more legal weight than a will.
Keep your forms updated. Over time, people forget the beneficiaries of past policies–that oversight can come back to haunt you. For instance, if your ex-spouse is a beneficiary on your retirement account, your current spouse gets nothing from that account.
No blanks allowed. Fill out every beneficiary form on all your assets and accounts. If the section is blank, it may trigger a date in probate court.
Name backups. If you forget to update forms before you die and one of your beneficiaries passes before you, your assets will go to your second-round pick.

Key Takeaways

Change is the only constant in life. As a result, your estate management plan needs to be flexible. To keep your assets protected, make sure to revisit your plan regularly and if you have a life circumstance change.

We went over the importance of inventorying your assets, estimating their value, establishing a legal plan, and determining your beneficiaries. If you follow our ultimate estate management guide, you will take a huge step toward protecting your assets.

To learn more, check out our Estate Planning hub. This page serves as a knowledge base on all things related to leaving your legacy.

Real Estate Professional Designation

As a real estate investor, you have to contend with mortgage payments, repair and maintenance, insurance, and other myriad fees. On top of all of those fees, you still have to pay tons of taxes—capital gains, net income investment, and income.

Sometimes, it’s hard to carve out profitability, and you want to have all the weapons in your arsenal to combat your tax burden.

Sound like you? You’re in the right place.

This article doesn’t list every tax break you have available to you as a real estate investor.

What is in this article is a tactic that works. Establishing a real estate professional designation for yourself reduces the amount of tax you owe, improves your cash flow, and acts as a step toward securing your financial freedom.

Why should I get a real estate professional designation?

The short answer is that it might save you money. It’s essential to determine whether your involvement in real estate activities makes you a real estate professional for tax purposes.

First, the real estate professional designation establishes if you can deduct losses from your real estate activities against ordinary income. Second, it determines if your income from real estate investing is subject to the net investment income tax.

What are the rules that determine the deductibility of real estate losses?

IRS Sec. 469(c)(2) states that rental activities are considered passive activities regardless of your level of participation.

That is important to you as a real estate investor because:

A passive activity is when the taxpayer does not materially participate.
Passive losses are only deductible against passive activity income.

That means your passive losses from those activities are only deductible against your passive income activity income.

However, if you qualify as a real estate professional, the passive activity loss rule doesn’t apply to you.

That enables you to deduct losses from rental real estate against nonpassive income. Examples of nonpassive income include:

Wages
Stock trades
Business activity

You have the potential to reduce your taxable income close to zero and increase your cash flow.

A net investment income tax of 3.8% applies to income over the threshold amount. The threshold amount is:

$250,000 for joint returns
$125,000 for married filing separate
$200,000 for individual

However, there is an exemption for gross rental income from being included in investment income for real estate professionals.

What constitutes a real estate professional?

You, as a taxpayer, qualify as a real estate professional for any year as long as you pass three tests with your real estate business:

Material participation
750 hours
50% of the time

Test 1: Material participation means that you participate through the year on a regular, continuous, and substantial basis. There are seven ways you can “materially participate,” so finding a way to qualify is surprisingly easy.

Test 2: You must spend at least 750 hours per year in real property trades or businesses in which you materially participate. Personal services performed as an employee do not count unless you (as the taxpayer) are at least a 5% owner of the trade or business.

Test 3: You must spend more than 50% of your working time on real estate activities in which you materially participate.

For the real estate professional designation, an actual property trade or business includes, but is not limited to:

Acquisition of real property
Brokerage trade
Conversion of real property
Leasing
Management
New construction
Operation
Real property development
Redevelopment
Reconstruction
Rental

If you meet the requirements of the three tests and have documented proof, when you file taxes, you will file an IRS Section 469(c)(7)(A) Election to Aggregate Rental Real Estate Activities. The election is a written statement sent with your return for the tax year of the election.

Why should you become a real estate professional for tax purposes?

The IRS recognizes three categories of real estate investors. The third category, “real estate professional,” enables you to deduct 100% of your real estate losses against ordinary income. You can even deduct your real estate losses against your spouse’s income!

You might have one rental property or several properties. As a property owner, when you take the real estate professional election, you can create thousands of dollars in tax deductions. Those tax deductions may result in no tax liability at the end of the year.

Key Takeaways

As you will quickly learn, real estate has incredible potential with the sheer number of tax breaks to create cash flow.

One of the top strategies that savvy investors use is qualifying as a real estate professional.

As a real estate professional, you can:

deduct 100% of your depreciation and losses against any type of income (passive or nonpassive) when it comes time to file your taxes
mitigate the effect of the net investment income tax (3.8%)

Asset Protection for Financial Freedom

Whether you are an experienced real estate investor or building a new real estate business, asset protection & financial freedom have to be on your mind. Scott Smith, Royal Legal’s founder, and lead attorney, recently sat down with real estate investor Whitney Sewell to discuss Asset Protection for Financial Freedom.

This informative discussion covered the importance of protecting your assets and why a real estate investor should not solely rely on insurance policies for protection against lawsuits.

#1 Insurance doesn’t provide asset protection from lawsuits

As a real estate investor, you have to know that you can’t hold assets in your name and rely on insurance to protect you. The amount of coverage insurance is insufficient, and you may find yourself on the wrong end of a lawsuit.

Scott provides a personal anecdote about a friend who got sued for breach of contract and lost. Because his friend relied only on insurance and held his assets in his name, he lost $3 million in real estate.

That’s not to say that you shouldn’t have insurance. It would be best to get insured, but you must realize that insurance does not completely protect your assets. Insurance covers you from things like negligence. However, it does not protect you from things like breach of contract, fraud, and gross negligence claims.

Breach of contract, fraud and gross negligence claims have the potential to derail your real estate investment business. To get 100% bullet-proof protection, you have to think and conduct business like a wealthy person.

#2 Think like a wealthy person

We live in a litigious society, and having assets may make you a target for lawsuits. To protect yourself, adopt the same strategies that wealthy people use. That means:

Don’t own anything in your name.
Create asset holding companies.
Secure your anonymity.

Think about it like this: Wealthy people don’t own things. Instead, they have companies that own stuff for them. When someone sues a wealthy person, there isn’t anything to get. The asset holding company protects wealth and ensures privacy from litigation. That’s why asset protection for financial freedom is such a critical step in wealth generation.

#3 What is the most cost-effective way to achieve asset protection for financial freedom?

The Series LLC is the most cost-effective way to protect your assets. With a Series LLC, you can isolate your investments from one another.

If the worst happens and you get hit with a lawsuit, the plaintiff cannot get to your other investments, nor can they get to your assets. The Series LLC helps you think and do business like a wealthy person because:

You don’t own anything. Your LLC owns your assets.
The trust holds your assets and companies.
The trust is anonymous.

These layers of a Series LLC work together for maximum protection of your assets and investments. Savvy investors use the anonymity of the LLC to prevent people from locking onto them as a target to sue, and it allows them to keep their investing strategy private from competitors.

#4 How does the Series LLC provide asset protection?

The Series LLC efficiently and affordably protects your assets from lawsuits by using a “parent-child” structure. The process goes like this:

Create “parent” LLC.
Create individual “child” Series LLCs with no additional filing.
Each “child” LLC minimizes your liability.

Each of the “child” LLCs protects assets and isolates them from the rest. If you did not have a Series LLC, you would have to pay to establish an individual LLC for each of your assets to create separation.

The best protection from lawsuits is anonymity. When people think that you have nothing of value, they have no motivation to sue you. A Series LLC shields your assets from the public and makes it an unprofitable decision to sue you.

If a plaintiff sues you, the Series LLC “parent-child” structure makes it so that only one of your assets is at risk.

Do you have a plan in place already? If not, let us show you how to achieve asset protection for financial freedom and build generational wealth through the use of a Series LLC.

Read this article to decide if it is the right way to get bullet-proof protection for your assets, Series LLC For Real Estate Investors.

Asset Protection for Financial Freedom Wrap-Up

And there you have it! An explanation about how to achieve asset protection for financial freedom.

We started by discussing the shortcomings of focusing solely on insurance for liability protection, noting that insurance provides some, but not all, of the asset protection you need.

We’ve also talked about the tips and tricks that wealthy people use to protect their wealth. Then, we went over what a Series LLC is and how it provides the most cost-effective way to protect your investments.

Ready to take your education to the next level? Get FREE Access to the Asset Protection Vault. This contains access to our top 5 video Masterclasses and ebooks for real estate investors.

Year-End Tax Preparation: What You Need to Know

Are you ready for year-end tax preparation?

It's hard to believe that there are only a few days left between you and 2023. As 2022 ends and you forge your path forward into 2023, you must undertake some housekeeping to close out 2022 and start 2023 in the best position possible as a real estate investor.

As a real estate investor, it might not seem that there is much to do. However, each year, you need to assess your plans, goals, and the state of your investments. Before the year closes out, make sure to go over this essential end-of-year checklist.

To prepare for tax season, we strongly suggest you:

Organize your tax documents (this saves time and money)
Optimize your end-of-year deductions
Prepare your LLC for taxes

Read below to find out the best ways to accomplish the preceding tasks.

#1 Organize Your Tax Documents for Year-End Tax Preparation

You want to make sure you prepare everything for filing. Tax day seems far off in the distance, but April 15th comes fast in reality. As a result, it's never too early to get your documents in order.

Right now is the optimal time for real estate investors to collect all documents related to filing taxes. Some things you can do to make this process easier include:

Meet with your CPA
Ask questions and clarify misconceptions
Discuss tax breaks

Ensuring that you have all your taxes settled ahead of time reduces stress and allows you to move past the financial commitments of 2022 and focus on growing your business in 2023.

Paper receipts can be burdensome, so it might be easier to pull out your bank records and highlight all your expenses. Some apps make tracking expenses more manageable. We like Expensify.

#2 Optimize End of Year Deductions for Year-End Tax Preparation

You plan on growing your business in 2023. One way to maximize your deductions is to purchase business vehicles and additional assets. Then you can schedule business meetings. Then, claim them as expenses on 2022's taxes.

As the year ends, you want to recheck your deductions to get your taxable income as close to zero as possible. One of the ways to lower your tax responsibility is to file deductions. You can file deductions on:

Being a real estate investor comes with plenty of tax deductions. The following list is not comprehensive but provides you with some ideas of what you can deduct in addition to the standard deduction:

Theft/Damage to real estate properties
Repairs and maintenance for your rental properties
Utilities (if you pay for them without reimbursement)
Property management fees
Real estate insurance
Tenant credit reports and background checks
Home office equipment

It's hard to maximize your profit if it's getting eaten up by all the sales, properties, federal income, and state income taxes you must pay. As a savvy real estate investor, you need to finesse your documentation and deductions and realize the benefits of being a landlord.

An easy way to make sure that you are optimizing your end-of-year deduction is through Royal Legal Solutions' Peace of Mind Program. We hold all your tax accountability through the program, work with your account executive and CPA to maximize deductions, and shelter your assets.

Contact support@RoyalLegalSolutions.com to learn more about how the Peace of Mind Program will protect you and your assets.

#3 Prepare Your LLC for Tax Season

As a real estate investor, you know the importance of having your assets protected by an LLC. Depending on where you do business, having an LLC means paying a yearly franchise tax.

The franchise tax is a required fee that your LLC pays for the right to do business in any given state. This tax is separate from other federal or state income taxes required by government entities.

Franchise taxes are required:

regardless of profit
based on the state in which you do business

In addition to franchise tax considerations, as an LLC owner, you will want to:

adjust your operating agreement if you changed business partners
collect LLC Minutes
prepare tax documents
protect newly acquired assets with current or new LLC

Key Takeaways

When you began your real estate investing journey, you had a set of goals in mind. Now is the time to revisit those goals, assess your performance, and make needed adjustments to accomplish your goals.

As you enter the new year, you should focus on growing your business. That means putting 2022 tax burdens behind you. Make sure you finish 2022 strong by having a clear and detailed plan where you:

Organize tax documents
Maximize deductions
Optimize your LLC

A solid plan in place will allow you to earn more and grow your real estate portfolio.

To learn about powerful tax savings strategies that you can use to keep more of your earnings, book a tax consultation by taking our tax quiz. The information you provide will enable us to have a productive discussion the first time that we speak.

Successfully Investing in Real Estate as a Married Couple

You've chosen a life partner and are married. You may be asking yourself, is it wise to make my spouse my business partner? The answer could be yes. You would want to be sure to have a game plan in place. Good communication would also be necessary to balance the commitments of your marriage and business. Real estate investing as a married couple can be a very rewarding and lucrative endeavor.

In this article, we discuss:

Benefits of owning a family business
Steps before starting a business with your spouse
Actions to determine how to run your business
Options for structuring your business
Tax considerations

Keep reading to develop a solid plan that safeguards your marriage and business.

Benefits of Real Estate Investing as a Married Couple

First, let's talk about why operating a business that involves real estate investing as a married couple is a good idea:

Shared goals
Peace mind
Reliability

You and your spouse will share financial goals in your business. For instance, there will not be interoffice politics to navigate, and you will both work to secure your financial freedom.

Working with someone you trust, like your spouse, there is also peace of mind. Since you trust your spouse, the business will benefit from your stability and commitment to your marriage and the company.

Before You Start Real Estate Investing as a Married Couple

Before you dive into a real estate business with your spouse, you should discuss:

How (or if) you will incorporate your business?
Who will be the owner of the business?
Who will manage the business?

After you answer these questions with your spouse, make sure to write your decisions down. Having these agreements in writing protects both of you in the event of:

Divorce
Death
Surrender of the business

No one wants to think about the bad things that can happen in a marriage, but those adverse events have ramifications for your business. That's why it's essential to have plans "just in case" different types of scenarios occur.

Options for Running Your Real Estate Investing Business as a Married Couple

In general, the IRS allows for four different types of business structures:

Sole proprietorship
Partnerships
Limited Liability Company (LLC)
Corporation

Did you decide that only one spouse will be an owner? You might choose to create a sole proprietorship or a single-member LLC.

Are both you and your spouse going to be owners? You will most likely choose either a partnership, LLC, or a corporation.

Sole proprietorship

The following conditions must be met to be a sole proprietorship:

No other employees are active in the business, including but not limited to children and other relatives
Both spouses must materially participate in running the business

Taxes on a sole proprietorship, each spouse must file:

Schedule C reporting their share of the business' income
An additional (and separate) self-employment tax form
Employee spouse receives a paycheck with federal income tax and FICA withheld

Considerations for running your business as a sole proprietorship:

Easiest to establish
Generally, one spouse is an "employee," and the other is the "owner"
You and your spouse are 100% liable if the business fails
No protection from creditors

If you want more detailed information about this business structure, check out our article, "Can My Husband And I Own Our Business Together As A Sole Proprietorship?"

Partnership

Typically a partnership:

Organizes the company so that both you and your spouse share the profits and losses
Formed via a written agreement between two or more parties
Must register in all states where it does business
Both spouses are owners

Taxes on a partnership:

Only one form is involved, so it's a little easier to file taxes
Requires your to obtain a tax ID number
May be subject to state and federal regulations and tax
"Pass-through" income means that the owner's share of the business income goes on to your income tax return
Must pay self-employment tax

Considerations for running your business as a partnership:

Has opportunities for growth
Multiple types of partnerships (GP, LP, LLP) give your business flexibility

Read up on how a Limited Partnership can structure your real estate and other business deals in "Limited Partnership for Real Estate Investors" to see if this structure will work for you.

Limited Liability Corporation (LLC)

You will want to check your Secretary of State web page for more details, but in general, to form an LLC:

Name your business
Register with your state and pay a fee
Designate an agent
The agent will receive legal notices on behalf of you and your spouse
Both spouses are owners

Taxes on an LLC:

Taxes based on your salary and profit from business
If you set up as a sole proprietor and an employee, you will pay income and FICA
Partnership--LLC does not file taxes–you pay personally on income
If you set up as a C corporation, your corporation files taxes, and you file taxes
If you set an S corporation, LLC reports income sent to you as owners, you have to report the payment but do not pay self-employment tax

Considerations for running your business as an LLC:

Enables you and your spouse to share money and other resources
Protects you from being sued directly
Shields both you and your spouse's personal assets from lawsuits
Need management plan for "what if" scenarios

If you want to learn more about how LLCs protect you, your spouse, and your assets, read "What Are The Different LLC Types USe By Real Estate Investors?"

Corporation

This business structure is a separate entity from either your or your spouse. In general, a corporation:

Each spouse is a shareholder who divides the ownership shares of the company
Individuals have invested money in the business
Incorporation can be complicated
Payout in dividends based on level of investment

Taxes on a corporation:

If you set up as a C Corporation, your corporation files taxes, and you file taxes (double taxation)
If you set an S Corporation, LLC reports income but is sent to you as owners, you have to report the payment, but do not pay self-employment tax

Considerations for running your business as a corporation:

Taxation is more complex
S Corporations have "Pass-through" income which means that you must include your owner's share of the business income on your income tax return
You may qualify for a qualified joint venture

Final Thoughts

Real estate investing as a married couple can be a massive advantage for both of you. You can secure your financial future together and reduce your tax burden. However, it's essential to know how to maximize your savings as a real estate investor.

For more information about how to keep more of your hard-earned money, read the following articles:

Consider attending our FREE weekly group mentoring calls if you are just starting with real estate investing as a married couple. During these calls, we discuss topics such as: how to best structure your business, how to protect your assets, what tax savings you can take advantage of, and more. Join us for Royal Investing, Wednesdays at 12:30 p.m. EST by Registering Today.

Millennial Real Estate Investors Outlook for 2022

Some might think that ‘millennial real estate investors’ sounds like a contradiction in terms. Until recently, this generation was happy to rent because of substantial student debt and the desire for flexibility in changing jobs.

Millennials also waited longer than previous generations before getting married and starting families. However, current trends show more millennials have begun to invest in real estate.

More Millennial Real Estate Investors

In recent years, real estate purchases by people ages 25 - 40 increased significantly. Buyers in this age group now make up close to 65% of the total population. Millennials are also the largest living generation in the U.S.

Financial Benefits

Millennials recognize the potential for income tax savings when buying a home. They also see property as a potential income source through renting.

Crowdfunding Options

Younger buyers have typically had difficulty investing in real estate because of the large down payments required. However, online investing platforms now offer lower-cost options through crowdfunding.

You can have a real estate offer accepted at the cost of only $500 to $5,000. In addition, most syndication or crowdfunding companies outsource property management, leaving the owner free of landlord duties.

Flexibility, low cost, and variety are vital characteristics of crowdfunding that appeal to millennial real estate investors. It’s also easy to manage online, fitting the lifestyle of this tech-savvy generation.

Changes After Covid

The pandemic changed millennials’ perceptions regarding homeownership. The following factors played a significant role:

Working and studying from home
Less spending on leisure (travel, eating out, movies)
Mortgage rates at a historic low

Comfort and Practicality

After spending so much time working and studying from home, millennials realized they might enjoy more comfort than their rented properties afforded. Many professionals continue in a remote or hybrid model, making it critical to have adequate residential space.

Couples who work and study from home often look for homes with two workstations and an open kitchen.

Preference for Real Estate over Stocks

Most millennials believe property provides a better return than the stock market. Many of them were looking for their first job during the 2008 recession and had trouble finding work. After this experience, they became skeptical about purchasing stock.

Spacious, Multipurpose Homes

Except for some minimalists, most millennials prefer spacious larger homes with spaces that can serve multiple purposes. For instance, a large balcony may double as an exercise area and mini garden.

Location

While a few millennials prefer the suburbs, many choose to settle in the city. Some reasons include:

Accessibility
Proximity to retail stores
Vibrant nightlife
Multiple high-quality restaurants

There’s a trend toward leaving larger cities like Los Angeles and New York. Instead, millennials choose places with low-income tax rates, for example:

Seattle, Washington
Henderson, Nevada
Frisco and Austin, Texas

Newer Homes

Most millennials prefer to invest in homes that are new construction or recently renovated. New dwellings carry several benefits with the decreased chance of a peril claim, leading to better insurance coverage. Modern houses are also more likely to be compatible with many smart home options that improve ease and comfort.

Sustainability

Millennials have always been interested in sustainability, so it makes sense that this characteristic carries over to real estate decisions. Living in the city allows for a shorter commute and a smaller carbon footprint. There’s also access to parks and walkable neighborhoods.

Millennial Real Estate Investors Strategies

Maybe you’re looking to invest in property to increase your income. Here are some specific approaches to try:

Subletting

Once you purchase a property, you may wish to share costs with a roommate or rent out a portion of the home. These strategies can help free up funds to invest in more real estate.

Short-Term Rentals

If you live in an area with significant tourism, short-term rental properties can yield a notable increase in income. A service like Airbnb or Vrbo can help you find tenants and manage bookings.

Investment Trusts

Real estate investment trusts (REITs) offer young investors the benefits of owning property without the responsibilities of private ownership. They require a smaller investment and give you access to returns that might not be possible as an individual.

You can buy into a REIT involving a collection of assets like:

Commercial warehouses
Residential properties
Data centers
Apartment complexes

To take a deeper dive into the details of Real Estate Investment Trusts, you should read:

Renovating and Reselling

This strategy, also known as flipping houses, requires an excellent understanding of the housing market. You want to find an undervalued property and renovate it as quickly as possible to sell it for a profit. To do so, you’ll need maintenance expertise or excellent contacts with skilled contractors who charge reasonable prices.

Pre-Construction Investment

Pre-construction involves purchasing an “option” on a property before the groundbreaking on the development project. You pay a fraction of the cost of developed land.

This type of investment is most successful in high-demand areas with frequent housing shortages. In such locations, prices can skyrocket, and new units often sell before they’re complete, leading to substantial profit for the investor.

Millennial Real Estate Investors Takeaway

Millennials are investing in real estate more than ever before. The Covid-19 pandemic led to conditions that favored these investments.

This generation looks for newer, spacious, multipurpose homes in urban areas. Sustainability is also a significant concern for millennials.

Millennial real estate investors interested in learning more are encouraged to register for our weekly FREE Strategic Group Mentoring sessions. We discuss the best practices for protecting your assets, strategies to achieve tax savings, and pitfalls to avoid when investing in property.