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Tommy Thornburgh on The Military Millionaire Podcast

00:00 - 05:00

David:

What's up Military Millionaires! I'm your host, David Pere, I’m here with the ever beautiful Alex Felice and my friend, Tommy. And we're gonna be talking today about legal structures and corporate structures and all kinds of fun goodies.

Tommy is the president of Prime Corporate Services, which many of you may have noticed, just recently, I added to my resources page and send out an email, as they have been taking over all of the amendments and creation of LLCs for myself, and helping me build out my legal structure to cover my butt a little bit. And I realized we haven't really had anyone on to discuss protecting your assets. And that's as somebody who's been in a lawsuit and had to settle a lawsuit, I can tell you that that's fairly important. And I did not think it was as important as I should have when I first started. And I did not take things seriously. And I think some people have that tendency. So I wanted to get Tommy on to chat about all this. And here we are. So Tommy, thanks for joining us today.

Intro:

Welcome to the Military Millionaire podcast where we teach service members, veterans and their families how to build wealth through personal finance, entrepreneurship, and real estate investing. I'm your host, David Pere. And together with my co host, Alex Felice. We're here to be your no BS Guides along the most important mission, you'll ever embark on your finances.

Sponsor:

Hey, guys, if you're looking to take your investing, business, life, or just yourself to the next level, then I have something for you. The War Room Real Estate Military Mastermind group is a mastermind group that meets weekly in small groups of five to six people to help you hold yourself accountable and really experience that growth. But we also have a monthly guest speaker that we bring in. And we've had guest speakers that talk about mindfulness, taxes, we're bringing in somebody to talk about marketing, we bring in very specific topics that will adhere to very broad any kind of real estate investing, or investing or entrepreneurship that you want to do, and will really help you out. And we let you ask these speakers questions and get very personal with them. And then back to the small groups, weekly accountability for what you're trying to achieve. And just being surrounded by like minded people, and they say your network is your net worth. I know that's an overused phrase. But I recommend that you check it out. So just shoot an email to Wrmastermind@gmail.com. Once again, that's Wrmastermind@gmail.com. And we'll send you some more information.

Tommy:

Awesome. Thank you. Thanks for having me.
David:

Absolutely. Why don't you give a brief overview of well, I guess really, before we dig into that, how did you get into working at PCS? And how did that all kind of transpire?

Tommy:

Yeah, so we started Prime Corporate Services about 10 years ago, 10 years this year, and I've been self-employed since I was 18 years old. So when I was 18, I got annihilated with taxes in my first year. So ever since I've become obsessed with why is this not a more common practice? Why does nobody I turn to understand how to save money in taxes? And ever since when we started this business, we had the small business owner in mind, right as you grow, and as you scale, you can start to afford hiring in house accountants or attorneys that you have on retainer. But when you're just getting started, or when you have just maybe a couple properties, or you are a business partner, it's difficult to get some decent advice on how to structure your business, how to make sure you're protected, you're maximizing from a tax standpoint, and you're actually showing yourself as a legitimate business.

So 10 years and we've helped over 100,000 entrepreneurs structure their business out of a cool milestone.

David:

Obviously we touched on it briefly taxes and you know, legal structure and everything's important I would just ask like for for the entry level investor, right for the guy starting out what do you think is like the first step in just kind of protecting your but everybody you know, goes online and says, you need an LLC immediately and nobody knows what that means. And then it's also not always true, because I hear people who are like, Well, I have a VA loan and I need an LLC, and it's like, well, you can't even put your VA loan primary residence in the LLC. So I guess kind of like at what point do you think this starts to become a necessity and then kind of walk me through from there like as you progress what like in your head is like the ideal there's no way to really ask that because there's not like an ideal situation is different for everybody.

05:00 - 10:00

Tommy:

It's one that we get asked all the time obviously as when should I structure my business? Should I wait until I get my first deal? Should I wait until I'm making money? And the hard thing is you ask 100 different people, we're probably gonna get 100 different variations of that answer. So I'm going to preface this answer by saying that I've got a biased opinion, right? I will say that I do think everyone in the US should have a side hustle, should have a side business, or be self employed to some extent. And the reason I say that is there's over 70,000 pages of a tax code. And a lot of that tax code is made up for individuals that are self employed.

So all the IRS is looking for is that you are showing the intent to treat and operate this as a business. So if you spend money on education, training, masterminds, I truly feel it's beneficial to have an LLC, legitimize your business, give yourself some protection and make sure you're maximizing on those deductions.

Alex:

We focus mostly on real estate. And so if I'm a person with a regular W2 job, and I want to buy some real estate, and I'm gonna do it with a Fannie Mae mortgage, so I'm probably not I don't need an LLC, and it probably adds, it adds a layer of complexity for me to have, you know, one to five single family homes with Fannie Mae mortgages, and then, you know, take quitclaim deed them to an LLC. Let's talk about that. I know, it's a specific scenario, but like, does that really add me any liability protection? Also, let's consider that I'm probably going to have low equity in these properties and mostly debt. So like, and if I'm a new investor, like this is the majority of my assets, the majority of my assets is basically a mortgage. Let's say that, right? So at that point, you're adding a significant layer of complexity, maybe even risk for what I consider to be a low. Now I know this is specific, but like to that cell investor, is there really? Well, I think I'm asking the same question as David, when does it become like, Okay, now you do have some liability?

Tommy:

I mean, it depends on how you got there, right? I mean, at the end of the day, if you own a house most in most states, if you search right now, how do I avoid probate in the state that I'm located in? Or how do I avoid probate in the state that I own real estate? Having a trust is going to be most of those most most states, it's going to stay, say a living will. But if you're buying through Fannie Mae, and everything's under your personal name, you don't have to quit claim deed those in a lot of cases. I don't recommend it because you potentially lose your ability to 10-31 exchange.

So Dave, and I have talked about this quite a bit actually, is the lawsuit, how expensive is the lawsuit going to be in comparison to what is the capital gains if you aren't able to 10-31? So it really, it's tough, everyone's situation is different, right? For some people, there may not be a benefit. But for other people, there are more deductions, being a business owner, even if they're not tied with your properties, take the startup expenses, take the organizational expenses, show the loss for the marketing or for whatever you you had to do, and show that as a business, I think tax wise, is where it makes more sense than the liability protection in those situations.

Alex:

Okay, I love this.

I also, I do like that advice. Like everybody. Everybody listening to this podcast is doing some, let's say at least self investing, right? Even if they haven't bought a house yet, or they really haven't had some business income. I mean, like, even my camera, like, I'm a, I don't know, you know, this, but I'm a camera guy. And so it's like, it comes with considerable expenses, and like, you know, like, pretty insignificant income, but it's enough that it's generated, like, now I write off on my camera stuff, because I have a camera company. And so even though I don't, I don't show a, I don't show a big income. It's like everything that I do now goes, I mean, we write it all off. So at least not paying any taxes on the income that, you know, we do get. And so there's a lot of businesses, a lot of people, like you said, where I have a real estate company, and maybe I haven't bought that much yet, or done that much. But I am investing into, you know, David's war room platform, or I'm investing into you know, I got a YouTube page or channel or this equipment. It's like, Yeah, there's a lot of tax code that, like you said, beyond liability is lucrative financially.

David:

Well, if you just sold pictures of your feet on only fans with your camera, then you'd have all the income in the world. You'd be good.

Alex:

Yeah, I just don't want to be that rich, you know.

David:

I make a joke, but my buddy Chris, he's a YouTuber, and he was talking to a CPA and his CPA told him his client that made the most money in 2021 averaged $80,000 a month as a dude selling feet pics on all the fans. Whether that's true or not, I don't know. But I'm like, if your CPA told you that. It's probably something and somewhat legit made me question my life choices. I was like that sounds easy.

10:00 - 15:00

Alex:

If I find out that I can sell feet pictures to only fans, then I am announcing my resignation From the Military to Millionaire podcast. I don't need it. Real talk. I'm so sorry, David.

David:

Wouldn't even blame you. Just don't try to sell me.

Alex:

Tommy, tell me about your client base? I mean, I'm curious like what the overlap is between our listener base and who you generally serve?

Tommy:

Yeah, I'm sure there's definitely overlap, no doubt about it. I mean, that's kind of how David and I ended up getting in contact with each other initially. So we help people that are brand new, just getting started, never done a deal, never been in business before, all the way up to people that are building funds and putting together syndication deals and everything in between, right. So one of the benefits of working with us is that we do recommend, crawl before you walk and walk before you run once again, because not everyone needs holding companies and subsidiaries and separating their active income from their passive income. And, yes, it's easier to set it up properly from the beginning, set up the business that you want, not the one that you have, we can come up with right a cheesy saying for everybody is treated like a business and reap the rewards of a business, treat it like a hobby, and it'll cost you like a hobby, right? Just like you've done with your camera work. You've reaped the rewards of what businesses have to offer. So everyone's on a different journey. That's why we give our consultation to find out where you are and where you want to be so that we can tailor it specifically to your needs.

David:

Yeah, so the reason we got connected is because John and I have a partnership. And John had been working with you to set up some of his legal structure. And we realized that I had at the time, I had six LLCs. And all six, if you looked up, the owner, had my personal name attached to them. And so we went and filed amendments to create a holding company to own them all so that I have some level of anonymity in order to not to say that a single LLC is going to ruin you. I mean, I've been in a lawsuit and they weren't able to pierce the corporate veil. I was okay. But it's still a little odd to be like, Oh, no, I don't own that. And they're like, well, your names on it. So I mean, that's how we got tied in. I guess, you want to talk a little bit about like the difference between, like, I guess like what you might consider like level one asset protection and two or three, or if there's like a breakout for that, or I mean, obviously it's different for everyone, but maybe just kind of break through like we mentioned, LLC, as we mentioned, holding companies, you've mentioned trusts, like kind of some general guidelines for when those might be applicable to people.

Tommy:

For sure.

Yeah, there's a, there was a study that came out that said, there's 76 new lawsuits filed every minute, right? So you can't avoid getting sued. That's just it's a happy world that we're living in a very litigious society, it is what it is. But the more successful you get, the larger the target on your back becomes. So if you can protect yourself, part of that an amenity piece is if somebody slips and falls, one of the top reasons for lawsuits, you don't want them to see your name and your address where they can come serve you at your house or a disgruntled tenant can come show up at your door, right? It's okay, if that's not something you have to do, but everyone's tolerance level is going to be a little bit different. So being aware of what your risks are, I feel like it's half the battle, right? So having that protection is great.

Alex:

I'm so sorry. The way you're implying, I think you're implying that it's a bit of a war of attrition, like just make it like make him make it difficult. If you make it more difficult for people to sue you, then you will get less lawsuits.

Tommy:

Well said, 100%.

Alex:

That's so fascinating!

Regardless of the legal actual legal liability, just like being a pain to do is, is the part of the process or part of the protection

Tommy:

You know, it's just like working out right? It's hard so a lot of people don't do it. Those that do get those results, right.

Alex:

Yeah, it makes perfect sense. I suppose. It's kind of obvious now that I'm saying it, but I guess I just, I don't know, I never really sat and thought about it like that. Like if you just like hey, I'm just gonna. It's regardless of the actual liability, like I'm just going to make this a nightmare for you and then you're gonna go away.

15:00 - 20:00

David:

It makes sense. If I'm an attorney and someone comes to me and they're like, I want to sue this guy, and he owns the house I am renting You know, free and clear under his own name. Cool, let's go after him. But if it's like seven different LLCs and a trust fund, and the house only has its 85% loan to value on a first position lien, it's like, not really worth going after that thing.
Tommy:

The goal is to build wealth, but to look as broke as possible on paper, and there's a fine line between now I'm just overcomplicating this, and this is ridiculous. And it's costing me more money to file my taxes because I have things that I don't need. We don't want to do that either. We want to keep it simple and keep it easy. But a lot of times just giving yourself one extra layer of protection is enough to make sure you're protected and not show where you live.

Alex:

Yeah, I am rethinking my strategy now because I've been a fairly Cavalier. And to be fair, when I started right, to your earlier point, I was like, I'm just some broke dude who bought one house. That was a foreclosure that we spent like 50 grand, right, like there's, there's nothing sue me like I have nothing still. And then real estate's interesting. Have you heard of this thing called appreciation? And so all these cheap houses that I bought, are now worth something. And now I have a bunch of them and low equity and low debt. And I'm like, oh, you know, my name is all this stuff. And it didn't matter before. Now, I'm, like, having this conversation. I'm like, oh, you know what this might matter now. But it's interesting how you go from, you know, playing business owner, where I'm a guy, like, with a theoretical business. Now, you know, and I think a lot of people do that, they go off, and they do the LLC and the business cards, and they play business owner first, and they have no income, and they have no assets. And then next thing, you know, you sort of have some stuff that you need to protect, and it's like a gun, right? You can't buy it. Once the guy breaks in, you have to do this in advance.

Tommy:

Yeah, there's probably some listeners listening to this that are like, show up at my house. Do me a favor, right? But everyone's different, right? I'm just, I'm just joking with that. But make sure you're protected. Show yourself. Protect the assets that you're working hard for, but also separate the liability from what you've worked for personally, bank accounts, cars, retirement accounts, should be business 101 says, separate your personal and your business. And I appreciate you saying that the way that you did, because a lot of people that come to us are that way, like, we're not qualified to work with you yet. How much money do I need to make to work with you? And we work with people, even before they're getting started in their business ventures, the more you know, the easier it is to get there.

Alex:

So the last two years I've spent going from, you know, when I started not to make it about me, but when I started it was just like, hey, I'm gonna buy some real estate because the thing just crashed and is all under price. And I can create a little retirement plan for myself. Not that not that hard. And I never expected actually had to boom over the last four, or three years, like it did. And so I've been trying to really systemize things and like get bookkeepers in there and get better tax people and then you know, now I think I'm gonna, I'm gonna come have a conversation with you about legal, because it's much harder to do it once thing, once the machine is going, it's hard to get new bookkeepers in there new tax people and like machines moving. And you know, you got a bunch of assets and a bunch of stuff. And it's, it's much harder to go from Excel to QuickBooks 10 years down the road, it's somewhat unnecessary to start with all those kind of like people who, you know, they put an LLC for every single property, I'm not saying it's a bad idea. I'm just saying it is an added layer of complexity out of the gate. But eventually, you do need to get this thing, you know, talk to a guy like Tommy and run it and run this thing like an actual business. Don't take it seriously. And the earlier you do get ahead of it, the easier it does seem to become.

Tommy:

For sure.

Yeah, I think a couple of things to build off that as well as one thing we've tried to do is keep everything under one roof as well, right. So not only do we help with the entity structuring but we also help people build and develop business credit and corporate funding. That's separate from their personal funds and their personal credit. We have the accountants, we have the CPAs. And we have the estate planning portion as well. And what are the things that David I think the reason that this conversation is as far along as it is, David was like, I need to I need a trust. And I'm like, Dude, you're a vet, go do it. There's ways that you can get it done for free. And he's like, Well, as opposed to just selling me something. I really appreciate that. So that's kind of how we ended up in this conversation in the first place, was there's resources for a lot of you that are military and former military. And I appreciate rather help you understand what those look like.

20:00 - 25:00

Alex:

Well, let's talk about that for a minute. Because I didn't realize that basically everybody who listens to this podcast I mean, I really would like to get you some business. But also, I really want to make sure that service members know what's available. You know, I don't know anything about this. So could you maybe share a little bit?

Tommy:

Yeah, for sure.

If you reach out, and maybe what I can do, I'll get you an email over so that in the show notes, there's a link to that. I don't know it off the top of my head, I just know, I've worked with enough people in the military that have taken advantage of the trust and the wills through their benefits.

So there are a lot of areas to your point earlier as well, where a lot of people will set up different entities for every property. In most cases, that really is such overkill. But it also depends on the state that you're in. If you're in California, you'd be crazy to do that, because they're going to try and charge you for anything and everything you do and every breath that you take, but there's there's other states that are out there that it may make more sense to give yourself that protection, depending on the equity you have in the property. So you have to be the one to make that decision on your risk versus your reward.

Alex:

Yeah, that's a good point. It's a couple 100. It's 200 bucks a year for an LLC here in North Carolina. I know in California, it's something like eight times that maybe not that much.

Tommy:

830.

Alex:

Yeah, right. And so, you know, that starts to become pretty significant, especially on you know, someone's California property that doesn't cashflow. Now you're just putting gasoline on a burning car.

Tommy:

I lived in Raleigh for a little bit. I liked North Carolina.

David:

In good old Missouri. It costs $50 to start an LLC, and then every year it's $20 plus $1 for every unit that LLC owns. Because it's like 2030 bucks for LLC.

Alex:

Yeah, that's what makes a lot more sense. So, you know, if you got a single family house that, you know, cash flows, you know, 200, 300 bucks a month. 200 bucks a year is, you know, it's noticeable, let's say, right, I mean, there's 8% of your income, just on LLC creation, which is nothing in the world. And if you own something long enough, you know, that should increase, especially rents going bananas. But in Missouri, I'm like, I didn't realize it, he gets a law that's pretty appealing, right. Now having an LLC, for every property does. The argument against it becomes a lot less valid. So I didn't realize the swings in that cost could be so significant.

Tommy:

Yeah, every state is different. Some states are free on an annual basis. And the highest is California at $800. And everything in between, right. So depending on the equity, depending on the property, depending on the long term goal, those conversations are going to vary naturally. So that's why we're here to help you understand what they are and what to be aware of.

David:

To your point, the reason that we are on this zoom call. So Tommy and I, we did a call with John to talk amendments and whatever for anonymity. And while Tommy and I were talking before John, and I jumped on the call with him as like a prelim, exactly that he was, instead of selling me on this thing, he's like, Well, hang on, here's a spot where you can go and you can get the exact same thing for free. Here's the pros and cons, right, the con is you're working with the VA or the government. And so it'll take God knows how long to get it done. The Pro is, you know, it's pretty whereas I just really appreciated the fact that he had made a spot where he could have very easily been like, here's how much this is going to cost you we are the best you gotta go with us, sell, sell, sell. And instead, he was like, well, here's this awesome option that's free, if you want to wait. I was like, Well, I don't want to wait. So he and they created an LLC. I can't advertise that they can do this, but I'm gonna at least showcase where I was hooked. I have screenshots. I made a YouTube video and I'm gonna add the screenshots into it. Have I received the signature document at whatever time and paid the receipt for creating this LLC. And an hour and four minutes later, I had all of my documents back from the state. And I was like, There's no way I'm like, let me go through them all, like, holy crap. They got the entire LLC setup done, structured and emailed to me from the State Secretary of State website in an hour and 4 minutes. And I was like, that's definitely better than waiting for months because it was free.

Alex:

Cheap is almost always the most expensive way to go. And anybody who's, you know, you don't have to be in this business long to realize that, you know, the cheapest contractor is the most expensive. And it's the same. It's similar to bookkeepers, and CPAs. And I imagined lawyers. You know, I've had my share of lawyers in my day. I like to pay up because I like to stay out of jail.

So yeah, you can go. I like the option of having something free. But yeah, I mean, it's not going to be the best if it was, you know, we live in a capitalist society, nothing free.

25:00 - 30:00

Tommy:

And it's I mean, let's just break it down if I want it right, if you're new to this, if you're watching this, listening to this, and you want to set something up, you have three options, really, you can set it up on your own. But all you're doing is going to the state website, and paying the state fees and the filing fees, and calling it a day better than nothing for sure. You can also go hire an attorney, the average attorney right now to structure something is going to be $1000 to $2,000, depending on where you live and the caliber of the attorney. So that can be expensive, right. And I think that's where a lot of people shy away from getting anything. It's like, this is going to be expensive. But something like working with us or help you program, we still the LLC that David got from us is legally prepared, the operating agreement structured, everything set up for what he needs it to be set up for state fees, filing fees, in most cases, most states, you're going to be three to $600, for everything to be done, state fees, filing fees. So do what once again, do what you want to do, do what's best for you. But it is a lot easier to do it right from the start. And David, I know you'd share this yourself. But we're going back and fixing a lot of the stuff that has previously been done. Because the knowledge wasn't just there, you're kind of just shooting at the hip, as you build as you grow your business.

David:

Nor did I realize how much of an issue it would be down the road with my in-laws for them to be my Registered Agent, because they started getting mail about things. And they did not appreciate getting mail about things, especially when I had code violations pop up. And they're like, Oh my God, our name is tied to this. And I'm like, no, no, it's okay. You're just the Registered Agent, but that is what it is. I am now filing amendments on everything I own for a new registered agent in the state of Missouri, as well as the holding company. So yeah, lots of lessons learned the hard way. I can't necessarily say that they were all terrible. It's not like I didn't get burned and like royally screw something up. But it's a good thing that I'm catching it now. Rather than, you know, down the road, I'm somehow dragging my whoever into this mess of something that nobody wants to deal with.

Alex:

Yeah, I love that you threw some, you know, information about costs in there. Because I think so many times, I have this thing about not worrying about costs when I don't know them. You know, it's like, oh, this is gonna, you know, it's gonna cost me X, it's gonna cost me Y it's like, I don't want to have an emotional opinion about information that I don't have yet. So I sell that, like, how can you don't know what this legal costs people go? I can't afford a bookkeeper. It's like, what is it if you don't know when costs, you don't know if you can afford it or not? Because sometimes, you know, when I built my website. I was always like, I want to get a new website built, but it's gonna cost me a fortune until somebody reached out and like, Dude, I can do that for a couple grand like, well, within like, well, within my, my budget, but I was I was abstaining from the decision about a cost that was prohibitively high. That wasn't true. And so somebody goes, I can't afford to talk to Tommy because, you know, legal costs are so high, and it's like, you don't know what they cost. Well, now you have an idea, right? And so it's not prohibitively high, by any means, right? And so it's like, I just love that you give that information out, because now people can make a decision, or at least call you and say I want some more information or, or I can say, hey, you know, within my well within my budget, especially for, you know, for the value. So I just love that because people I think abstain from making decisions based on costs that they don't actually know.

Tommy:

For sure, I 100% agree, I appreciate you saying that. I want everyone to be clear with that as well. It's we are we are here to help and if we have something that's going to be able to help you great, but we built this business for 10 years based off of giving information that is valuable and we the services that we provide are valuable, right you have to file your taxes you probably want asset protection and building business credit. I'm yet to have someone in the 10 years I've been doing this call me back and say Tommy I sure wish I didn't build this business credit having additional capital sucks dude. So I haven't dealt with that either. If we can help, great, if not, we shake hands and we carry on our day. No big deal.

30:00 - 35:00

David:

How does from a basic fundamental level like the business credit, how does that work? What are some of the options there? Like, I guess we could just, we'll just get super personal. I have a rental property company that owns, I don't know, we'll say 20 properties. I don't know how many properties are in that specific LLC. But I will say I grossed 10,000 a month in rent. And we'll say I net three of that I, I'm just spitballing. I don't know. What kind of options like how does that work? As far as building business credit? Does that open like business lines of credit? Does that open? Like, what are some of the why? Really, I guess just a general overview of the business credit world? Because I am really not that savvy on that subject.

Tommy:

Yeah, for sure.

So on a fundamental level, everyone has a legal name, a social security number, and a personal FICO credit score, right. So from a business standpoint, we want to help do the same thing, we want to make sure you have a business name, make sure you have an EIN number, employer identification number, it's like the social security number for your business. And then we actually help people build and develop what's called a Paydex score. So it's similar to your personal credit, it's a numerical score. It ranges from one to 100. But it's a credit profile for your business. So we have a team of credit advisors, they're awesome. And they help you go through the phases, there's stage 1,2,3 and 4, really, building business credit is not rocket science, it's just a process. So the first steps are getting something like a gas card, maybe staples, or Lowe's, but it needs to be tied with the business. That way you can build up that paydex profile, 80 to 85 on that paydex score would be like you having a 750 to an 800 credit score. So once you build that profile up, now you can go get some actual business cards, maybe eventually, even some lines of credit. So it takes time, it doesn't happen overnight. I would rather under promise and over deliver, it's usually three to six months to where you have a good enough credit profile to where you can start to get some actual lines of credit.

David:

The trust side of things. So could you give just a basic understanding of the difference between an LLC to trust from the elite from an asset protection standpoint?

Tommy:

Yeah, for sure.

So I mean, for those that are a little bit more experienced, and those that have multiple properties, and those that have a little bit of a higher net worth, one of the things that we try and do is provide layers of protection.

So from top to bottom, from an estate planning standpoint, we do all four components: Trust, Will, Living Will, Power of Attorney, and a lot of real estate investors want the living trust to have ownership in a holding company. So some of you may have heard of Delaware, Nevada, Wyoming, having additional protections or being corporate Haven states, right? What does that even mean? The main benefit of Delaware and Nevada and Wyoming is there's additional privacy and protection laws to protect your privacy, the anonymity piece comes from those states. So a lot of times we lean towards Wyoming, just because it saves you a little bit of money upfront, and on an annual basis. But then from there, a lot of people will use that holding company to own the subsidiary LLCs, right, a lot of real estate investors that I work with, I'll tell them to separate their active and their passive income. If you're fixing and flipping. If you're wholesaling. Those should be separate from your long term buy and holds for a couple reasons. One, the liability is separate, two the tax rates are different. Active income, ordinary income if you're fixing, flipping or wholesaling, is zero to 37%, right now, based on your income level, or your passive investments is zero to 20% based on the income level. So if you can take more deductions on the active income, taxes are a game right? And tax code changes are meant to impact behavior. The more you understand how to play that game, the easier it is to win by keeping percentage points in your corner. So there's kind of the levels of protection and a little bit of tax strategy on how to keep more money in your corner, depending on your investments.

Alex:

I never heard that before. I did. I've been doing some flips. I really don't do much. I don't like it. But I just threw it all into the same LLC. And I think you know Kate and I are gonna do some more at the end of this year. And so I might do that. I might open up a new LLC, just as the flips and separate out and keep it away from my rentals.

35:00 - 40:00

Tommy:

Tax Rates are different, yeah, separate those out. Let's talk, hey, schedule a call the link below let's talk.

Alex:

Yeah, I can do that actually yeah.

David:

So as much as we, you know, always talk about having a no pitch show. Here's the pitch, it's a no pitch, but it's a pitch, but it is what it is. PCS Prime Corporate Services, Tommy, they've agreed to that, we're gonna have a link down below, if you're interested in this or you're curious if it's right for you, or you're thinking about legal structure, or you have no idea what's going on, they're going to, anyone in the community who clicks on the link will get a free consultation. So it doesn't hurt you to talk to somebody who actually knows what they're doing, and figure out whether or not it's a good fit for you. And that's, I mean, it's not really much of a pitch. It's just, Hey, I like these guys. And they talk to you without you having to pay them to talk to them. So pretty sweet opportunity. I'm a fan.

Alex:

We're not getting paid for this, David, are we?

Tommy:

Here's the other thing that I want to say as well as I've got a big team of advisors. So just schedule a time that works for you. If you don't want to buy anything, that's totally fine. If you are already totally structured, and you have some questions, or if you want a review, just let us know, right? That's the goal. But ultimately, privacy, protection, tax benefits, and the ability to show yourself as a legal business is what we're trying to help you accomplish.

Alex:

Love it.

But yeah, I think this is definitely, you know, it's legal. It's kind of like accounting for most of the entrepreneurs listening. It's not the most exciting part of business, but it's also one of those things where, you know, I've watched David go through this lawsuit for like, two years, and it's miserable, and I'm not in the lawsuit. Three years, you know, now David's particularly bad at real estate. So like, I understand that that's not everybody's, you know, not everybody's gonna have the same experience. But watching him do it is like, I can assure you that this is something it's, it's definitely something that I don't want to endure. So, yeah, 'm gonna set up a call. And, you know, if we can get some service members, some veterans, some free consultation, then I'm all for it. I love it. It's a good idea.

David:

What do we miss Tommy? What is something that people smarter than us would ask?

Tommy:

I think we've covered it pretty well, I think the holding companies and just the layers of protection are the ones that I wanted to cover. So I think I think we're good. Unless you have other questions you want to go over? I think it's a pretty good, you know, overview at least of getting people to think and that's the goal.

David:

Well, it's a complicated enough subject that the answer to almost every question is, it depends. And therefore, there's only so much you can really do on a podcast, because it's like, well, what if this exact situation pans out? And I'm at this point in my life, and you're like, well, that's great, that applies to you, and no one else listening. So that's what makes it such a pain and Alex alluded, it's one of those things that, like accounting or whatever that you're like, I don't want to do that, that sounds terrible. And then you get slapped with a lawsuit, you're like, Ooh, I should have done that. Oops. And so it's like, it's a necessary evil. And it's not an exciting part of business. So talking to somebody who doesn't, this is one of those instances where I would just say it's, in my opinion, having done it myself, and not done it myself, pay to play and illegal scenario is probably a really good bang for buck.

Alex:

Dude, I said earlier, like paying lousy contractors or vendors, like cheap, is bad, but actually doing it yourself is worse, because you are worse at it than them and more than likely, it's like, you're not going to save any money doing it yourself, right? And you're gonna get the worst possible service because you have no idea you're trying to figure out like trying to do your own taxes is insane. Like, I mean, maybe if you're a W-2 employee, you have no investments and just do it yourself. No problem. But if you have anything, I don't know anything about legal and like, if you have the audacity to go try to, you know, he said, You know, Tommy, you said somebody's going online and doing it yourself. It's like, I That's the craziest idea. You have no idea what you're doing. You're gonna mess this up, you're gonna muck it up, you're gonna spend your valuable time and then you're probably not gonna have a lot of legal liability that you actually need anyways. So, yeah, you're the worst vendor, not you like people, right? Like, if you've not done this, if you've not it's like, if you're not gonna build houses, and you're like, I'm gonna save money by doing all the rehab on my own house and flipping it. It's like you're gonna make this up so bad. You're not gonna save any time or money and you're miserable like do not do that. Just write a check, bro.
40:00 - 45:39

David:

Absolutely.

It's kind of funny sometimes. You know, having been the cheap guy who did full disclosure like my First LLC, I won't tell you who it was. But I took somebody's in a similar industry. And they gave me a word doc version of their operating agreement and articles organization and I tweaked it like, oh, replace this LLC with that LLC replace this name with that name doo doo doo doo doo. Luckily that LLC has not been sued. And realistically, theirs was drafted by an attorney for the same industry in the same town, it's probably not the end of the world. But it's funny how I've gone from that to like, I will absolutely pay for somebody to do everything right without it stressing me out at all. And when you think about it in the context of like any other thing in life, it's like you wouldn't, you wouldn't go hike Mount Everest without actually paying a guide. Unless you have a death wish you wouldn't like there's all these things in life that you have to pay to play. But when it comes to like, paying an attorney, everybody's like, Ooh, I don't know if I want to do that. And it's like, it's definitely worth the headache to not have the headache.

Tommy:

Another question that we often get asked is, like, Alexander even talking to you here, it's like, when you're talking about your active income and the flips that you hate that you're doing, those should probably be taxed as an S corp. Or they should be an S corp, and they should be separated. Because when you have that S corp election, then you're able to pay yourself a salary or a distribution, but it's active income, so you're able to avoid half your self employment tax, Medicare, Social Security, and it saves you seven to 8% of that overall income. So little things, little tweaks that those points add up every dollar counts when we're talking tax.

Alex:

I love that example because I didn't do that. Because I kind of just like I said, I never really took it super seriously, like I should have, well, I just thought it was a permanent staple in my life. But that's a really good point. Because if you say that one little thing, and then somebody goes off, and they set their S corp to do it, then they save 8 or 7%. It's like, Dude, that's more than any lawyer was going to cost you. I mean, unless you again, unless you flip money, flip houses like David and lose money, then you know, then it's all sunk. But, no, but if you put those kinds of things, that kind of advice, you can save 70% by the year, like that's whatever the legal costs more than legal costs are going to be. So it really starts to add up fast. And that's just one little thing. David, your retort was muted, and it probably wasn't that good anyways.

David:

Yeah. I just said, at least I got to write it off.

Alex:

Yeah, yeah.

David:

$30,000 loss really went a long way against the rest of my income. It's like, it's like people who donate to charity solely for the write off, it's like, or buy a truck solely for the write off, it's like, well, you save 20% of the money, you just spent good for you.

Alex:

I knew a woman who kept telling me she's like, I'm gonna buy an Escalade, but my company is gonna pay for it, my company's gonna pay for it, my company's gonna pay for it. I'm like, You're the only employee of your company. I don't understand. If you understand. I hope you understand how this works? You don't have to do that.

David:

That's like buying a work truck for whatever. Yeah, it is what it is, I suppose.

All right, Tommy. If we didn't miss anything else, obviously, we're gonna put a link down below for people to reach out. Is there anything else that we..

Tommy:

I think that's it. I mean, there are ways to write off those vehicles, but you gotta make sure to justify it, you got to make sure to track it. And a lot of this stuff isn't the most exciting thing in the world. I'm fully aware, I promise. But it's, let's make complicated things simple. And if we can save you a couple bucks in taxes and make sure you're protected, then that's a win.

David:

I would just like to throw out that you're right. Legal protection and asset protection and corporate structures is not the most exciting thing in the world. The converse of that, is that being sued or suing somebody and being in a three year multi, you know, at least one comma, whatever. I mean, we're $185,000 into this thing, into this deal. 35 of that is legal fees, and we haven't gone to court yet may 2nd. So we're probably looking at $40,000, maybe $45,000 in legal fees that we might get back if we win the lawsuit, right. That's very exciting. I'll take boring legal structure. Thank you. I'm at a point in my life where exciting is not always the right answer. So I'm just going to throw that out there to people. You're right. And it might not be the most exciting thing in the world, but that's okay. That might be a good thing for you.

Tommy, thank you so much for joining us today. I appreciate it and I appreciate all the help with my personal setup and everything I've earned in just a couple of weeks that we've been, I guess a couple of months at this point that we've been chatting. And actually, ironically, Tommy and I are gonna jump on a call here in nine minutes when we get done with this recording to talk about another structure I need to set up for a different business, so it's gonna be good times.

Tommy:

Awesome. Love it. Thank you so much for having me.

Alex:

Yeah, thank you, sir.

End:

Thank you for listening to another episode about my journey from military to millionaire. If you liked it, be sure to visit frommilitarytomillionaire.com/podcast to subscribe to future podcasts. While you're there. We'd love for you to rate the show. Give us a review on iTunes. Now get out there and take action.

Episode 171

Tommy Thornburgh

Here's where to go if you'd like to schedule that FREE consultation: https://www.frommilitarytomillionaire.com/pcs

Join your host David Pere and Alex Felice in this episode with guest Tommy Thornburgh, as they talk about investments, income taxes, business corporate funding and so much more in the world of finance.

About Tommy Thornburgh:

Tommy Thornburgh is the President of PCS and has helped over 20 thousand investors and entrepreneurs personally. He leads a team of 40 Business Advisors that specialize in helping investors and entrepreneurs.

03:57 – Entry Level investors first steps..

08:21 – Self Investing, income, taxes

10:22 – Tommy talks about his customer base, and business

11:44 – Difference between different Level assets of protection

17:45 – Keeping everything under one roof (business credit, corparate funding, accountant, CPA etc.)

24:33 – Cheap is almost always the expensive way to go

29:56 – Business credit basics and fundamentals

32:22 – Difference between LLC to Trust from an asset protection standpoint

37:30 – Importance of having different level assets of protection

41:04 – Taxes in S Corp

 

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My name is David Pere, I am an active duty Marine, and have realized that service members and the working class use the phrase “I don't get paid enough” entirely too often. The reality is that most often our financial situation is self-inflicted. After having success with real estate investing, I started From Military to Millionaire to teach personal finance and real estate investing to service members and the working class. As a result, I have helped many of my readers increase their savings gap, and increase their chances of achieving financial freedom! – Click here to SUBSCRIBE: https://bit.ly/2Q3EvfE to the channel for more awesome videos!

THIS SITE IS INDEPENDENTLY OWNED AND OPERATED. ALL OPINIONS EXPRESSED HEREIN ARE MY OWN. THE VIEWS EXPRESSED ON THIS SITE ARE THOSE OF THE AUTHOR OR THE AUTHOR’S INVITED GUEST POSTERS, AND MAY NOT REFLECT THE VIEWS OF THE US GOVERNMENT, THE DEPARTMENT OF DEFENSE, OR THE UNITED STATES MARINE CORPS.

 

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