How To Master Your Taxes with Mark Kohler

Summary

The Candy Valentino Show
Episode: How To Master Your Taxes with Mark Kohler
Release Date: February 3, 2025
Host: Candy Valentino
Guest: Mark Kohler, Senior Partner and Founding Partner of KKOS Lawyer

Introduction

In this episode of The Candy Valentino Show, host Candy Valentino delves deep into the intricate world of taxes and legal strategies essential for sustaining and growing a business. Joining her is Mark Kohler, a seasoned expert who is not only a CPA and lawyer but also a thought leader in tax planning, legal structuring, and asset protection. Their conversation aims to equip entrepreneurs with the knowledge to navigate the often-overlooked financial aspects that can make or break a business.

The Crucial Role of Tax and Legal Management in Business

Candy opens the discussion by emphasizing the importance of moving beyond just starting a business. She notes, “It's really easy to start in today's world... but it is really hard to sustain in business” (01:00).

Mark Kohler echoes this sentiment, stating, “The biggest pieces that will crumble a business are taxes and legal” (02:00). He elaborates that while operational challenges like firing employees can be managed, tax and legal mishaps can have devastating, often irreversible impacts.

Key Takeaways:

Tax and Legal as Pillars: Proper tax planning and legal structuring are foundational to business sustainability.
Subtle but Critical: Overlooking these aspects can lead to sudden financial crises, such as an unexpected IRS audit.

Common Mistakes Entrepreneurs Make

Mark shares insights from his extensive experience, highlighting that many business owners mistakenly believe that merely hiring an accountant or lawyer will suffice.

Mark Kohler warns, “The biggest mistake business owners make is thinking they're going to find an accountant or lawyer that's going to do it all for them. People have got to be the captain of their ship” (05:00). He stresses the importance of understanding the basics of tax and legal matters to effectively collaborate with advisors.

Candy Valentino concurs, expressing frustration with the misconception that professionals are a "holy grail" solution. She points out, “We have to be the ones that are educating ourselves on what these tax codes mean to you” (06:00).

Key Takeaways:

Active Involvement: Entrepreneurs must take an active role in understanding their business's financial and legal framework.
Educate Yourself: Continuous learning is essential to effectively direct and utilize the expertise of professionals.

Strategies to Legally Reduce Taxable Income

Transitioning from common pitfalls, the conversation shifts to actionable strategies that entrepreneurs can employ to minimize their tax burdens legally.

Mark Kohler introduces a plethora of strategies, likening tax tools to items in a toolbox: “It's like opening up that toolbox. What's a screwdriver do? ... We have these strategies and how they layer” (06:30). He emphasizes the importance of being knowledgeable enough to apply these tools effectively.

One of the standout strategies discussed is the Health Savings Account (HSA). Mark explains its benefits extensively, comparing it to a "Roth IRA for medical expenses," highlighting its tax advantages and flexibility.

Mark Kohler states, “A health savings account is like a Roth IRA for medical. But it's even better. You get a tax deduction on the front page of your tax return... It grows tax free and comes out tax free for medical” (14:00).

Key Takeaways:

HSA Benefits: HSAs offer significant tax deductions, tax-free growth, and tax-free withdrawals for medical expenses.
Strategic Use: Utilizing HSAs in conjunction with high-deductible health plans can optimize tax savings and financial planning.

Deep Dive into Health Savings Accounts (HSA)

The discussion delves deeper into HSAs, addressing common misconceptions and providing practical guidance on maximizing their benefits.

Mark Kohler underscores the importance of proper HSA utilization: “Half of small business owners, especially those with S corporations, aren't even writing it off in the right spot under audit” (12:00). He warns against complacency, noting that many miss out on potential deductions due to lack of knowledge.

Candy Valentino seeks clarity on HSAs for those already having healthcare benefits, questioning, “Can you break that down a little bit? What is the benefit of that, of having that and how you actually take distributions” (09:54).

Mark elaborates on the operational aspects, explaining the necessity of having a qualifying high-deductible health plan and the process of setting up an HSA through a third-party administrator.

He emphasizes urgency, stating, “The deadline for setting up your health insurance for this year is January 15th... you got a week” (16:17), prompting listeners to take immediate action to benefit from HSA advantages.

Key Takeaways:

Eligibility: Must have a high-deductible health plan to qualify for an HSA.
Setup: HSAs must be established through third-party administrators, not directly through traditional banks.
Deadlines: Be aware of critical deadlines to maximize HSA contributions and tax benefits.

Business Structure and the C Corporation Debate

A significant portion of the episode is dedicated to discussing business structures, particularly the pitfalls associated with C Corporations.

Candy Valentino raises the topic, considering potential tax rate changes: “If Trump is going to take the tax rate down to 15 or 17%, which he wasn't fully successful in his first term” (19:00).

Mark Kohler responds emphatically against C Corporations, warning of the complexities and disadvantages such as double taxation: “Stay away from the C Corp. And Trump's not going to get it lower than 21%” (20:00). He advises entrepreneurs to stick with S Corporations for optimal tax efficiency, especially for businesses making over $50,000 a year.

He further elaborates on the complications and long-term consequences of converting to a C Corp, sharing personal experiences of unwinding C Corporations and labeling it a “nightmare” (21:00).

Key Takeaways:

Avoid C Corps: Generally not advisable due to complex taxation and double taxation issues.
Prefer S Corps: Ideal for small to medium-sized businesses seeking pass-through taxation and simpler structures.
Consistency: Entrepreneurs should maintain their current entity structure unless there's a compelling reason to change.

Real Estate Investing and Tax Implications

Mark transitions to discussing real estate investment strategies, emphasizing the diverse categories and their respective tax benefits.

He outlines four main categories of real estate in the tax code:

Long-Term Rentals: Includes single-family homes and duplexes. Requires qualification as a real estate professional for depreciation benefits.
Short-Term Rentals: Such as Airbnbs, offering tax loopholes that don't necessitate being a real estate professional.
Self-Rentals: Renting property to one's own business, enabling depreciation without the need for professional status.
Syndications: While popular, they often complicate pass-through losses for passive investors.

Mark Kohler advises, “Do you understand why you're buying it? What are you good at? What are you bad at? How is it going to impact your tax return” (28:30), urging investors to align their real estate strategies with their tax planning.

Candy Valentino adds a cautionary note about the risks associated with syndications, highlighting potential pitfalls like lower returns or complete losses due to inadequate vetting (31:00).

Key Takeaways:

Diverse Strategies: Different types of real estate investments offer varying tax advantages and require distinct management approaches.
Informed Investing: Investors must understand the tax implications and operational requirements of their chosen real estate strategy.
Caution with Syndications: While appealing, they come with risks that necessitate thorough due diligence.

Final Tips and Resources

As the episode nears its conclusion, Mark shares final tips aimed at empowering entrepreneurs to take control of their financial and legal strategies.

He introduces the concept of the Family Office, adaptable even for small business owners, to manage finances, asset protection, and tax write-offs effectively.

Mark Kohler encourages listeners to proactively manage their business structures and seek comprehensive consultations: “Find someone like me and they're very rare that has these sources to help you get there” (33:00).

Candy Valentino reinforces the message of self-education and active engagement with financial strategies, summarizing the episode's core theme of empowerment through knowledge.

Key Takeaways:

Family Office: A strategic approach to managing business finances and family wealth, tailored to individual needs.
Comprehensive Consultation: Engage with knowledgeable advisors who offer holistic and forward-thinking financial strategies.
Continuous Learning: Stay informed about tax laws and financial strategies to maintain business resilience and growth.

Resources Mentioned

Mark Kohler's Website: markkohler.com
A hub for comprehensive tax and legal resources, including blog posts, podcasts, and certification programs for tax professionals.
KKOS Lawyers: kkoslawyers.com
Mark Kohler's law firm offering a wide range of services including trust management, self-directed IRAs, and business entity structuring.
Main Street Tax Pro Certification:
A certification program for tax professionals to become proficient in advanced tax strategies and client management.

Notable Quotes

Mark Kohler (02:33):
“People have got to be the captain of their ship. ... You need to know why you're doing it, what you're going to be doing, and then turn to your first mate, your tax and legal advisors to get it there.”
Mark Kohler (05:05):
“You have got to be the captain of your ship... But you need to know why you're doing it, what you're going to be doing, and then turn to your first mate, your tax and legal advisors to get it there.”
Mark Kohler (14:57):
“A health savings account is like a Roth IRA for medical... It grows tax free and it comes out tax free for medical.”
Mark Kohler (20:25):
“Stay away from the C Corp. ... S Corporation is the perfect strategy for Main Street business in America making over 50 grand a year.”
Mark Kohler (33:10):
“One major tip that every small business owner in America needs to use in their small business is the family office... It makes your company better asset protected.”

Conclusion

This episode of The Candy Valentino Show serves as a crucial guide for entrepreneurs seeking to master their taxes and legal structures. With Mark Kohler's expert insights, listeners gain a comprehensive understanding of the strategic financial maneuvers necessary for long-term business success. From leveraging Health Savings Accounts to optimizing business structures and navigating real estate investments, the conversation underscores the imperative of proactive financial management. By equipping themselves with this knowledge, entrepreneurs can steer their businesses towards sustained growth and resilience.

For more episodes and insights, follow Candy Valentino on all social media platforms and subscribe to her YouTube channel.

Summary

Introduction

The Crucial Role of Tax and Legal Management in Business

Key Takeaways:

Tax and Legal as Pillars: Proper tax planning and legal structuring are foundational to business sustainability.
Subtle but Critical: Overlooking these aspects can lead to sudden financial crises, such as an unexpected IRS audit.

Common Mistakes Entrepreneurs Make

Mark shares insights from his extensive experience, highlighting that many business owners mistakenly believe that merely hiring an accountant or lawyer will suffice.

Key Takeaways:

Active Involvement: Entrepreneurs must take an active role in understanding their business's financial and legal framework.
Educate Yourself: Continuous learning is essential to effectively direct and utilize the expertise of professionals.

Strategies to Legally Reduce Taxable Income

Transitioning from common pitfalls, the conversation shifts to actionable strategies that entrepreneurs can employ to minimize their tax burdens legally.

Key Takeaways:

HSA Benefits: HSAs offer significant tax deductions, tax-free growth, and tax-free withdrawals for medical expenses.
Strategic Use: Utilizing HSAs in conjunction with high-deductible health plans can optimize tax savings and financial planning.

Deep Dive into Health Savings Accounts (HSA)

The discussion delves deeper into HSAs, addressing common misconceptions and providing practical guidance on maximizing their benefits.

Mark elaborates on the operational aspects, explaining the necessity of having a qualifying high-deductible health plan and the process of setting up an HSA through a third-party administrator.

Key Takeaways:

Eligibility: Must have a high-deductible health plan to qualify for an HSA.
Setup: HSAs must be established through third-party administrators, not directly through traditional banks.
Deadlines: Be aware of critical deadlines to maximize HSA contributions and tax benefits.

Business Structure and the C Corporation Debate

A significant portion of the episode is dedicated to discussing business structures, particularly the pitfalls associated with C Corporations.

He further elaborates on the complications and long-term consequences of converting to a C Corp, sharing personal experiences of unwinding C Corporations and labeling it a “nightmare” (21:00).

Key Takeaways:

Avoid C Corps: Generally not advisable due to complex taxation and double taxation issues.
Prefer S Corps: Ideal for small to medium-sized businesses seeking pass-through taxation and simpler structures.
Consistency: Entrepreneurs should maintain their current entity structure unless there's a compelling reason to change.

Real Estate Investing and Tax Implications

Mark transitions to discussing real estate investment strategies, emphasizing the diverse categories and their respective tax benefits.

He outlines four main categories of real estate in the tax code:

Long-Term Rentals: Includes single-family homes and duplexes. Requires qualification as a real estate professional for depreciation benefits.
Short-Term Rentals: Such as Airbnbs, offering tax loopholes that don't necessitate being a real estate professional.
Self-Rentals: Renting property to one's own business, enabling depreciation without the need for professional status.
Syndications: While popular, they often complicate pass-through losses for passive investors.

Candy Valentino adds a cautionary note about the risks associated with syndications, highlighting potential pitfalls like lower returns or complete losses due to inadequate vetting (31:00).

Key Takeaways:

Diverse Strategies: Different types of real estate investments offer varying tax advantages and require distinct management approaches.
Informed Investing: Investors must understand the tax implications and operational requirements of their chosen real estate strategy.
Caution with Syndications: While appealing, they come with risks that necessitate thorough due diligence.

Final Tips and Resources

As the episode nears its conclusion, Mark shares final tips aimed at empowering entrepreneurs to take control of their financial and legal strategies.

He introduces the concept of the Family Office, adaptable even for small business owners, to manage finances, asset protection, and tax write-offs effectively.

Candy Valentino reinforces the message of self-education and active engagement with financial strategies, summarizing the episode's core theme of empowerment through knowledge.

Key Takeaways:

Family Office: A strategic approach to managing business finances and family wealth, tailored to individual needs.
Comprehensive Consultation: Engage with knowledgeable advisors who offer holistic and forward-thinking financial strategies.
Continuous Learning: Stay informed about tax laws and financial strategies to maintain business resilience and growth.

Resources Mentioned

Mark Kohler's Website: markkohler.com
A hub for comprehensive tax and legal resources, including blog posts, podcasts, and certification programs for tax professionals.
KKOS Lawyers: kkoslawyers.com
Mark Kohler's law firm offering a wide range of services including trust management, self-directed IRAs, and business entity structuring.
Main Street Tax Pro Certification:
A certification program for tax professionals to become proficient in advanced tax strategies and client management.

Notable Quotes

Mark Kohler (02:33):
“People have got to be the captain of their ship. ... You need to know why you're doing it, what you're going to be doing, and then turn to your first mate, your tax and legal advisors to get it there.”
Mark Kohler (05:05):
“You have got to be the captain of your ship... But you need to know why you're doing it, what you're going to be doing, and then turn to your first mate, your tax and legal advisors to get it there.”
Mark Kohler (14:57):
“A health savings account is like a Roth IRA for medical... It grows tax free and it comes out tax free for medical.”
Mark Kohler (20:25):
“Stay away from the C Corp. ... S Corporation is the perfect strategy for Main Street business in America making over 50 grand a year.”
Mark Kohler (33:10):
“One major tip that every small business owner in America needs to use in their small business is the family office... It makes your company better asset protected.”

Conclusion

For more episodes and insights, follow Candy Valentino on all social media platforms and subscribe to her YouTube channel.