Why We All Need 1099 Income – Episode 575

This transcript was auto-generated and may contain errors.

[00:01] Welcome to the Prosperity Podcast. Prosperity thinkers, welcome to the podcast. We’re going to be talking about taxes. Now, the tax piece that we’re going to be talking about is something extremely new and also principle-based because, Kim, you were recently at a conference with a mutual friend of ours, Caleb Williams, and at the conference, Tom Willwright, the tax professional that you’ve often referred to, shared a few things with you that opened your eyes. So we want to share that with our audience. Absolutely. It worked out so well. The second day of the conference, I ended up leaving my cell phone in my hotel room and the conference is at a different location. And you just can’t not have your cell phone. I mean, I had to get pictures that day.

[00:50] My husband was speaking. I used my phone, someone he’s speaking for, because I help him. I just need it for various things, et cetera, et cetera. So I just popped out and asked Mariah, is there any chance one of the local people has a car that can run me to the hotel real quick? She said, as a matter of fact, I have to go pick up Tom right at the hotel you can come with. So Tom and I got to have some time in the car, which is such a treat because we don’t live in the same city anymore like we used to and don’t get to have our friendship time and got to cover all kinds of good things just from knowing each other so long and families, et cetera. Additionally, Tom in his talk with all of us shared something

[01:30] that I am so excited to share with the rest of our listeners. Wasn’t anything super profound, but it is absolutely something that I literally emailed my bookkeeper that day and said, let’s please implement this. And one of the things he said is if you are earning over a million, it is true that there will be more audits in that income space these coming years. He said, I’m not a red flag for audits person like fear-based, oh my gosh, you need to be on the lookout at all. Nevertheless, just make sure your books are in good order. And as an example of something specific that we can all do have this type of event. So normally on your books, you might call it a seminar labeled as continuing education. He said,

[02:24] seminars are technically not deductible. And it’s interesting because I’ve heard people say that before, but I’ve always been in business. I’ve always had continuing education that I’ve done. Yes, they were in the form of seminars. So I asked our bookkeeper, how are those reflected on the books? They were seminars, right? Like who wouldn’t do that? That’s a normal thing, but that’s really dangerous. So if you are 10 99 income without a shadow of a doubt, you’ll want to look at your books and make sure that the continuing education that you do is not listed as an event or a seminar, but as continuing education, very specific area that they will be looking at. And that is so easy to fix and continuation continuing

[03:10] education is fabulous. Somebody asked me like, you’re so experienced in the space. Why are you still coming? Because I get energized. Of course I get a new idea or two. I remember things I’ve forgotten and it’s helpful. And it sends me into the next two or three months with lots of good new energy and ideas for growth, et cetera. And also you learn some things not to do, right? You hear a presentation and you’re like, nah, don’t want to head that direction. And that’s valuable as well. So I really encourage that kind of thing, but I think we’ll keep our subject to taxes. And there’s a few more ideas that we might share around 10 99 income. Am I correct? Yes, the 10 99. So talk about the, there’s one other 10 99

[03:57] tip that I’m going to put in. I’ll save it for a little bit longer. Um, it’s a sneaky one that I heard a lawyer recently say, I haven’t implemented this, but it is something that could be done delicately. We’ll say, so let’s hear about the other 10 99 pieces. Well, it’s just so important that every human that has the capacity and is desirous of improving their own personal financial situation, figure out a way to get some 10 99 income. So for some of you, you own a business end of story done. Good job. Others though have w two jobs and that’s fabulous. Congrats. Good work. Keep it up and look at your life and see if you can find a way to pick up some side work, a side hustle, a gig, whatever you want to call it so that you can get some 10 99 income so that you

[04:51] can take advantage of deductions that are available to somebody that earns 10 99 income that are not available to somebody that is only w two specifically home office deductions and how important it is that you treat it properly. Tom even said that used to be a red flag for audits, but that stopped in like 1997. So as long as you treat your home office properly, something, for example, that becomes deductible, that wasn’t previously is your commute is not deductible. So if your commute is from your bedroom to the kitchen, to your home office, and the first time you get in your car and you go to your PO box or you go to your first appointment, then you can deduct that. Now, again, if you’re w two, you cannot do this. And believe me, I am not pretending

[05:47] to be a tax expert. If people have questions about this, they need to go to wealthability.com, which is Tom will write CPA network and ask the questions. But I just know again, hearing Tom speak at the conference, he reiterated this, that if you can have so a really good 10 99 example is to get into the network marketing space. Now you’ve got to find a product that you love and you’ve got to actually earn some income. You cannot do deductions if you’re not earning that 10 99 income. So if that’s not your thing, then go find another gig or some other side hustle that you can do. Maybe it’s some consulting or maybe it’s just working Starbucks on a Saturday, coffee’s your thing. Or maybe it’s providing your service to another company, similar to the one that you are your w two

[06:32] employee, but they’ll pay you 10 99. Or maybe you just go to your regular employer. If you work for a small company, maybe they’ll be willing to handle you part 10 99. That can get a little tricky sometimes, but having the 10 99 income enables these deductions that are so beneficial in offsetting taxes that there is no way to do with w two income. And then I would always recommend Tom’s got a couple books on Amazon, tax-free wealth, and the seven investments government pays you to make. Those are both excellent primers to learn more about the tax law so that you can handle it properly, legally, appropriately with documentation so that you can legitimately get these deductions and not have to be worried

[07:19] about an audit. Yeah, that’s very solid. One thing you mentioned, and I’m going to take the correlation between you going to the conference and some of the red flags that would happen in the tax world. So you mentioned that the home office and that was something in the nineties, maybe even early two thousands, that was an issue. And people still talk about that now in 2024. But if you weren’t going to conferences and continuing your education, you wouldn’t be aware of those things. So that’s a big piece. A friend of mine, and I’ve got two of the 10 99 related pieces that I’ve seen work really well. One of those requires a little bit more effort, but it can have a significant payoff. And then I would imagine Robbie may or may not have thought of this,

[08:12] which is becoming a real estate professional. So if you own short-term rentals, if you have rental properties, then if the spouse is not working, it may make sense for the spouse to get a real estate license so that you can have those additional write-offs as a real estate professional. And your son, Robbie, he’s heavily involved with real estate now. Is that something he’s considered or that he has with partners? What does that look like? That’s interesting, because my understanding is you actually don’t have to have a real estate license to be a real estate professional. There’s a distinction there. And the real estate professional rules. And again, not a CPA, please do not email me questions about

[08:52] this. Go to wealthability.com if you have them. But my understanding is that it’s 750 hours per year, which is about 14 hours a week, I believe that you spend on real estate activity. So let’s say you’ve got a couple rentals and you picked up on something very critical. It’s going to be tough to do if you’ve got a W-2 job, because they’re going to look at that and say, no, you spend the bulk of your time there. And this is an area that is ripe for mis-documentation. And if you do not have this well-documented, do not do this. But if you have rentals and you’re always developing real estate, or you’re always speaking with the property managers, or you’re always trying to get it rented, or you’re always trying to do the various things and you’re legitimately spending

[09:39] the 14 hours a week or whatever the number works out to be at 750 a year on real estate activities, then you can deduct your real estate expenses against all income, not just against your real estate income. But this is also kind of an interesting space. My husband, Todd Langford, heavily numerical, truth concepts calculators, was a real estate professional for a while because he went through a period of time where he just really didn’t need to spend much time on his calculator business and the software that he had for it. And it’s interesting because it’s most valuable if your piece of real estate is not really doing that well as an investment and you need the deductions to make the real estate perform. So it’s kind of a tricky space because if being a real estate professional is

[10:38] what it takes to make your real estate business good and productive, then you want to look really hard at that because maybe your individual real estate deals aren’t really doing the job that they should be doing, especially individual rentals. So kind of an extra, hope I didn’t throw water on your fire there, but an interesting perspective that Todd brings because he’s so good at analyzing real estate deals. Again, not that we do that as a profession, but he has the ability to do that for us. Yeah, that’s a really good point. I think that we lead out so many times, people are focused at the beginning of the year at what can I do to minimize my taxes? And a prosperity thinking person is going to say,

[11:25] how am I going to have more abundance around me? And you’re going to come up with additional channels. And of course, we want to surround ourselves with professionals and people that are going to help us so that we can reduce those taxes. So the last piece that I had, and then we’ll see if we have another wrap up, the 1099C. So I have a recent conversation that I had and this was come from a lawyer and then another friend. And they had a contractor that did some work and the contractor, it was, let’s say it was very complicated. And then they had another situation where money was owed to them and not paid. So instead of going through a large lawsuit and dealing with all these other things, they just issued a 1099C. And now the IRS is the one that gets to fight

[12:13] the battles with them. They discharged the debt. It’s not something that I personally want to deal with right now of issuing the 1099C. But knowing that the IRS, it’s setting a pit bull loose. And so if it’s something that has to happen, and if it’s also something that needs to happen as far as discharging that debt, that is what can happen there on a 1099C. But that’s not necessarily a tax thing as much. It’s a great idea. And it’s interesting that you bring it up because I do have somebody that I will share that with that might be valuable for them. And so like we’ve talked about both these last two things are not for everybody, but just being aware of them, being open-minded, having your brain turned on,

[12:56] listening are all good things that prosperity thinkers do. Absolutely. Kim, thank you for sharing the recent conversation with Tom. We’ll put a link to Tom’s website inside of the show notes as well to wealthability.com. Thank you listeners. Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you, visit ProsperityThinkers.com.