What You Missed - November 2009 General Meeting
By Rob Earhart

Al Aiello

Al Aiello began investing in real estate over 45 years ago and found himself getting upset over giving away too much money to taxes. It was then that he decided to get a Masters Degree in taxation.

Al proposes that saving taxes is a way of creating wealth. A dollar growing tax free for 20 years can create over $1 million, but $1 taxed grows to only $22,000.

Mr. Aiello explained that there are 10 critical planning steps to creating wealth with real estate.

1. Avoid inept CPA's; they will cost you thousands every year and 80% of them are inept. Instead, utilize a Certified Bookkeeper (CB) who can do a lot of the work for less. Conduct an Internet search for a list of them.

2. Avoid the IRS: Don’t get audited. With Al’s Goldmine System you get high return, low or no risk tax reduction strategies with over 30 ways to audit proof your returns.

3. Create the right structure and business entity for your business.

a. Protect your assets

LLC Partnership is the best form of organization. Legal side, Tax side, and IRS side. Filing a partnership form 1065 lowers your IRS audit profile. It provides a total flow thru to the partners with no schedule C’s or E’s, you get a clean 1040 filing.

Avoid single member LLC’s because there is a higher chance of veil perforation with no charging protection. Al explained how the charging protection gives you a higher liability protection. He says to always operate as an LLC Partnership so you can fully deduct conferences, home study courses, travel and other expenses.

When setting up a new LLC always use state where the physical property is located because the court of the property’s location will control all legal actions, making it easier to defend if need be. If you invest in paper you can use an outside state LLC.

You can set up one LLC partnership for keepers and flippers and another for other businesses besides real estate. Al said you do not need individual LLCs for each property.

Equity stripping is another tactic using a second LLC to create liens on properties in the first LLC so they have no equity, thus making your properties less valuable in case of a lawsuit. With this system you can protect unlimited properties.

Other types of entities are not as protective and are limited in tax issues. Limited Partnerships, for example, cannot deduct losses against other income. The same goes with Family Limited Partnerships. “S” Corporations are not good to use for Real Estate because there are over 20 tax pitfalls. The IRS requires you to pay a w2 salary, has a high audit profile, and there are limits on deductions for property tax losses. If you do private loans or borrowed funds, the money becomes taxable. You could also be declared a dealer in an S Corp. One could be used for non-real estate with some expenses being deductible.

With a C corporation taxes are bad and many, but there you can pay for fringe benefits, just do not use one as a primary company for real estate. You can make it a minority member (5%) of your LLC and get additional deductions. You can pay yourself rent for the use of your home for Web-based seminars, meetings, conferences, etc. and not report the rental income since you rent your home for 14 days or less, and can deduct it as expense to your Corporation. Double taxation to your way. So you can rent your house for $1,000 per month for one day a month, used less than 14 days, not reportable save $4,000 per year and it’s your money.

b. Save on your tax bills. Get off IRS schedule c’s and e’s
They will offer no privacy
Both increase your personal liability
Both forms cause a high IRS audit risk

4. Depreciation: Create large cash flows in your pocket no cash out.

Normal house depreciation is 27 ½ years and land improvements are depreciated over 15 years. You can accelerate your depreciation by componentizing. If you make things movable you can write things off over 5 years. With capital improvements there are 20 ways to convert improvements into repairs. Fractionalization converts the big rehab into 21 smaller and fully deductible repairs – no longer capital improvement, just repairs. With Al’s system you can attach a schedule to the return explaining each deduction, causing the IRS to not want to audit you.

5. Deductions for paying your family. Hire your children and other family members, supply family fringe benefits and convert vacations into business travel.

6. Sidestep passive losses so you can deduct from your other income. You can then fully deduct paper cash losses from ordinary income.

7. In order to show you are active in your business, you can attribute activities such as watching Jerry Springer or girls gone wild showing what kind of tenants to avoid. These hours will work toward the 750 hours a year or 14 hours per week you need in order to deduct your losses from ordinary income. Audit proofing statements 469(c)(7) tax act of 1993 you can deduct unlimited amounts, etc.
Goldmine componentizing deductions reduce tax liabilities from high AGI and AMT.

8. Sell and flip without being a dealer, use a 1031 exchange, buy with a self directed IRA, Selling tax free - Avoid costly dealer status – Dealer tax rates are 50% or higher. Facts: quick flips and dealer status are not synonymous. There is no real definition and there is no Dealer Real Estate License. There is also no dealer IRS form, no dealer box to check and there are no set number of sales.

There have been a number of cases where people have been cleared of being called a dealer. In the Supreme Court case of William Malat 1966: If you document your intent as investment you are not a dealer and you can show the IRS that you will only sell if some extraordinary situations come up, i.e. cash flow, money for operations is needed, etc.

Non dealer investment transactions per the Supreme Court case William Malat and 36 other cases. John Burley sold 260 houses in one year, was audited, and by using investment intent saved $200,000 in Phoenix, Az.

9. Recoup refunds based on going back on earlier tax returns. There is a low exposure to audit.

10. Purchase Al Aiello’s Goldmine Program, including downloadable updates, 10 audio cds, forms to audit proof your return, 40 entity structuring techniques, componentizing system, 30 strategies showing you how to not be declared a dealer.

His program also explains 1031 exchange, flip profits into IRAs, (no limit to profit in an IRA), extensive tech support, and a referral program.

In his VIP Program he will assist in creating reports for Audit proofing, will set up an LLC in any state + filing fees, and will amend 3 years back, personal or LLC etc.

In order to operate your Real Estate Business in an orderly and non-auditable way, make sure you check into Mr. Aiello’s system and give your business a jumpstart.

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