Tax Q&A for Business Owners: 11 Real Questions, Answered (May 2026)

Lightly edited for readability: filler words and false starts are removed and misheard terms are corrected. Timestamps match the video above. This conversation is educational and is not tax, legal or investment advice.

0:00 · The big quotes

Laura Dohanes: The IRS is watching the same TikToks you're watching. It could end up being $5,000 to $25,000 per worker. The IRS doesn't care what happens afterwards. What you can do when you have multiple properties is group them, and now you can take a larger deduction.

0:25 · Welcome: what this Q&A is

Laura: Hello, and happy Thursday, everyone. Welcome, and good morning. I don't know where you are in the United States, but most places have beautiful weather just about now. Maybe not Texas, where it's already in the three digits. Again, thank you for being here. These are real questions. Some came in ahead of time, and I have them on my slides. If you have questions, things you've been struggling with or still aren't clear about in your own situation, drop them in the chat and I'll pick them up as we go.

1:07 · Q1: Will a Wyoming LLC protect you from the IRS?
Full write-up: the Wyoming LLC myth

Laura: The first question came in last week: "If I form my LLC in Wyoming, the IRS can't touch me, right? My peers said so." Where you file your LLC is a legal question, not a tax question. What do I mean? You can form an LLC in Wyoming, Delaware, Nevada or Texas, states with no income tax. But just because you incorporate there doesn't mean you're done. Filing income taxes is based on where the business operates, where you live and where you generate income. If you live in California, there's no way to file somewhere else instead. You still file taxes in California.

Laura: A lot of people have the idea that forming an LLC in Wyoming means escaping all the taxes. You might go to a conference and meet a friend with a business very similar to yours, set up differently or as multiple businesses, who says, "I'm not paying any tax. I'm set up in Wyoming." It could work for them. It doesn't mean it applies to you. Wyoming, Nevada and Delaware are mostly asset protection states. They're great for holding companies and for C corps with franchise tax exposure. But for most of you with pass-through entities, meaning a business that files as a partnership, an S corp, or even a Schedule C like a single-member LLC, it isn't going to work. So be careful with these conversations: what works for someone else might not work for you.

Laura: So my typical response is that filing your LLC in a particular state is a completely legal question. You might want to do it for specific reasons: you're going through a divorce, you have family members or partners involved, and there are a million other reasons to file in a specific state. That's legal. Where you get taxed is what we call nexus: where you live and where you generate your income, which aren't always the same thing. Nexus is what triggers tax filing. I hope that makes sense.

3:53 · Q2: My 1099 contractor filed for unemployment
Full write-up: when a 1099 contractor files for unemployment

Laura: This is a really legitimate question that just came in the other day: "My 1099 contractor filed for unemployment." The person told the state that she was actually an employee. One person can completely disrupt everything you're doing by telling the state they're an employee, and now you have a workers' comp audit. This is very common, and I'll tell you why. The states have put a lot of regulation around 1099 workers. I'll use California as the example, because it's my home state and where I've done the most work, though I've done work in other states too.

Laura: In California, when you hire a new 1099 worker, you have to report it to the state. And the state has various laws in effect: if the person does that job only for you and doesn't have a business serving other businesses like yours, they're classified as an employee. So the same person might be a 1099 worker in a different state, but California almost forces the issue. It makes it very hard to prove that the person is a contractor and not an employee.

Laura: Why does that matter to you? Because with a 1099 worker, you're not paying income tax withholding, Social Security or Medicare on them. That's different if you're the one being paid. I've seen many people with their own single-member LLCs pay themselves on a 1099. And if you pay your spouse on a 1099 and your spouse files for unemployment, really? I know people are very creative, and I've seen a lot of different things. But I wouldn't go as far as "I hired my spouse, and now my spouse can collect unemployment." Don't be that person. Unless you get divorced and other things are going on at the same time.

Laura: So what does the state do? It audits your 1099 people to see whether they're truly contractors or should be employees. Here's the myth that goes around: "I hire a person, we agree I'll pay them on a 1099 basis, I get a W-9, they agree, I agree, it's a deal. The IRS doesn't care what happens afterwards." That's wrong. We've seen states like New Jersey, New York, California, Illinois and Massachusetts give people a really hard time, and the IRS uses control tests: how do you control the way the work is done? For example, we're a remote company. If I provide the computer and all the tools to do the job, and I dictate when the person starts and stops work, or how they have to do the work, they're most likely an employee.

Laura: And the biggest issue for income tax purposes is that they can come back and penalize me as the employer: "This should have been an employee." They go back in time and penalize you for not paying back taxes for FICA and unemployment, workers' comp premiums, and state misclassification fines. That could end up being $5,000 to $25,000 per worker. Huge. We've seen a lot of audits lately on this classification issue alone, and that's without even touching on hiring people overseas. This is just domestic workers in the United States.

8:26 · Q3: 12 rentals in an LLC. Why am I still paying so much?
Full write-up: why an LLC won't lower your rental taxes

Laura: The next question: "I own 12 rental units and I still pay a fortune in taxes. If I just put them in an LLC, that fixes it, right?" This is a close cousin of "I watched a webinar, so why am I still paying taxes?" Watching a webinar doesn't really mean anything. It's there to spark interest and make you aware that there are other options. People think an LLC unlocks deductions they couldn't take before. But if you move the rentals into an LLC, your tax bill doesn't just drop. An LLC holding rentals can be taxed exactly the same as if you owned them personally.

Laura: Remember what I said earlier: an LLC is a legal way to be set up in one state, while the way you get taxed is a nexus question. In this case it's a structure question. Why am I holding all these units in an LLC? Because I manage them? Because someone else manages them? There are many different scenarios. An LLC can be helpful, but the LLC itself means nothing to us from a tax perspective. It just means you get to choose how you want to be taxed, and that's probably the hardest choice a lot of people have to make.

Laura: People say, "My CPA said I'm a partnership." Well, you're not stuck. With an LLC, you get to choose. You can be a partnership even without another partner; put your trust in at 1%, find something, be creative. You can be an S corp or a C corp. Many times people don't think about their options. On top of that, an LLC can be owned inside a retirement account. So there's a lot of misunderstanding about what LLCs do. They give you more flexibility in how you're taxed, and that's a conversation we could go on about.

Laura: What actually moves the needle on rental income is depreciation: cost segregation studies, and short-term rentals, which is a big one right now. A lot of people have done short-term rentals completely wrong, and it's catching up with them because the IRS got the idea. The IRS is watching the same TikToks you're watching. They have people seeing what's happening. Then there's real estate professional status, financing, and one of my favorites, entity choice: the entity you operate the activity through. If I'm servicing my rental units, who am I? The holder of the real estate, the manager, or both? Very interesting questions that can go in a lot of directions.

12:09 · Q4: Cost seg on a $130K rental: worth it?
Full write-up: is cost segregation worth it on a small rental?

Laura: Mahesh says, "Hey Laura, I just joined. How do I know if I should get a cost seg study done? I have two long-term properties valued at $130,000 and $211,000." Such a great question. With a cost segregation study, the number one question is the math. Everybody's talking about cost segregation, but you have to understand what it does. It breaks down the property. Why? Because the IRS picked an arbitrary time frame: residential property is recovered over 27.5 years. Whether you paid $100,000, a million or $10 million, you have the exact same time frame to recoup the cost.

Laura: What does that mean? Even if I pay cash for the property, I can't deduct more than that table lets me. If I spend $100,000 cash on a property, I can't take it as an expense. I can only take about 1/27.5 of it each year. What a cost segregation study does is split the building up: what's the foundation and main frame, and what else counts as improvements with a shorter life? Land improvements like irrigation aren't 27.5-year property. Then there's plumbing, windows, cabinetry and appliances, all the things that aren't part of that 27.5-year life.

Laura: For a property valued that low, there's rarely enough to make a cost segregation study worthwhile. And you also have land. I've seen land values in Michigan as low as $1,000 or $2,000, and many states are like that, but even after you take out the land, it's rarely enough. Where the math may start to make sense is somewhere around $400,000, if it's a newer build. If it's a very old house with a high land value, it's not worth it.

Laura: I know it's hard to give one answer, but here's what I'll tell you: do the math. When you ask "Should I do a cost seg study?", first, I don't know whether you can use the deduction, because that depends on what kind of income you have. Even if you can, look at the land value. Out of $130,000, if the land is $30,000, you only have $100,000 left. It rarely makes sense, because you won't save enough to cover the cost of the study. The lowest cost for a cost segregation study is probably about $1,000 for a lower-end property, and it can go to $5,000 or more for a commercial property. So for a $130,000 property, it's rarely worth it.

Laura: What you can do when you have multiple properties is group them. Instead of separate $130,000 and $100,000 properties, together you might have a $500,000 group that gets treated as one, and now you can take a larger deduction. That's a possibility. I hope that answers your question, Mahesh. That was a long answer.

16:05 · Q5: Hiring overseas 1099 contractors

Laura: Gino is asking about hiring people overseas as 1099 contractors. Hiring overseas comes with another set of questions, because there's different compliance, and it's very common right now. You need a W-8 on file. You might need a person or company of record that pays them. We've used companies like Deel, among others. Gino, if you're our client, reach out to us. We have resources for hiring people outside the United States and for going through the process to avoid backup withholding.

Laura: With overseas workers, if you don't have documentation in place showing they shouldn't pay U.S. income tax, you may be required to withhold. And if you don't withhold, the IRS doesn't care. They'll take it from you. We fought for one of our clients for years on a case like that. It wasn't even overseas; it was a 1099 issue where the IRS thought they had to withhold and they didn't. We just closed that case this year, and it had been open since 2019. That's seven years, guys.

17:29 · Q6: Do I issue a 1099 to a contractor with an EIN?
Full write-up: 1099s for contractors with an EIN

Laura: So think very carefully about 1099 issues. The IRS has made a tremendous effort to bring people into compliance and check these. When they send you those notices, it's a $60,000, $70,000 or $80,000 tax bill, minimum. So do what you need to do on your 1099s.

Laura: Charlene is asking: "If someone working as a 1099 contractor uses a business name and an EIN, do I still need to issue that person a 1099?" I don't know how much you know about my background. I've handled more than 3,000 audit cases face to face with the IRS and the states. I didn't prepare those returns. I fought for those people. And 1099s were an issue in a lot of those cases, along with business expenses, income and so on.

Laura: If you take one thing from me today: if you're in business, you've already signed up for the IRS newsletter. You'll get letters no matter what, so make peace with it and take whatever pill you need to deal with it. It's part of being in business, and many times the letters are wrong. So get over the fear of the IRS mailing you a notice.

Laura: Here's the tip. When you file a 1099, forget that it's a chore you're required to do. You're doing it for yourself. When I file a 1099, I've completely proven that expense. It's out of my queue, and the IRS will give me that expense, no question. They will never ask why you gave that person a 1099. I've never been asked that in all the audits I've done.

Laura: So if I'm wondering whether to file one or not, I always say file. You've just proven your expense. If the other person already reported their income, nothing changes for them. If they don't report it, or say they get 1099s for a million dollars and report $500,000, the IRS may look at them. But filing a 1099 for someone doing work for you, I'd do it. Typically we don't file for C corps, but is there any rule prohibiting you from filing? No. So if you're ever worried about whether to file, file it. You're filing it to protect yourself. I have some funny stories about 1099s, maybe for another time.

20:29 · Q7: Cost seg on my principal residence?

Laura: There's another one here: "Do you recommend I get a cost segregation study on my principal residence? I plan on renting it out, and it's valued at about $200,000." You can't do it on your principal residence, and that's a separate conversation. If you're going to rent it out, the first step is converting your principal residence into a rental, and you have to deal with those steps. Then you look at the value: how much is land, and what's left? Say $200,000 is left. That's still very minimal. I'd rarely recommend cost seg below about $400,000. That's the lowest I like to go.

21:22 · Q8: Can a K-1 passive loss offset a capital gain?
Full write-up: can a K-1 passive loss offset a capital gain?

Laura: Again, you're not going to save enough on it, in my opinion, though it depends on what's on your return. Kenneth is asking: "With a 100% K-1 loss on a passive investment, can I write it off 100% if I have the same amount in capital gains, say from stocks, a windfall from a deal that didn't go well?" Such a good question, and we see it a lot. Passive income and passive losses go hand in hand. Passive income gets taxed. People think passive income is somehow taxed at lower rates, but much of it is still taxed at ordinary income rates, unless it's dividends, which might be a bit lower. Real estate or other passive investments through K-1s are still ordinary income.

Laura: Passive losses, however, can't offset anything other than passive income. People often use strategies where they specifically invest in deals that generate passive losses, to use those losses in year one. As long as it's passive, a passive loss offsets passive income. Say you had a massive loss, a million dollars of passive loss you couldn't use three years ago, so you carried it forward. Now, in 2025 or 2026, you sold a property and have $700,000 of passive income. Can you use the carryover? Yes. But until passive income hits your return, you keep carrying those passive losses forward.

Laura: I'll tell you the saddest stories, and it breaks my heart when I see this: when someone passes away. People make investments and do all these things to have losses, then they pass away and the loss disappears with them. Their estate may have other assets, and a beneficiary may later have a gain, but the loss is gone, because it was tied to that person's Social Security number.

Laura: So here's the tip: when you have large carryovers, do deals that use them, so they don't sit on your return for so long. Is it worth carrying a large passive loss for many years? I don't find it useful. Always try to use as much of your passive losses as possible, before something happens and they're just gone. Use it up. I hope that answers your question, Kenneth.

24:39 · Q9: Can my LLC pay me a 1099 management fee?
Full write-up: paying yourself a management fee from your LLC

Laura: On the topic of 1099s, Smurfy asks: "I personally manage our rental property held in an LLC. Can the LLC pay me a property management fee as a 1099 hire without triggering payroll tax or any other reporting requirement?" Such a great question. Remember what we said about LLCs and rentals. This is where people get very confused, and here's why. Tax likes structure, and structure begins with entities. Who holds the property? Who manages it? And how does the cash move? These are very distinct questions.

Laura: Who holds it is typically whoever's name is on the deed. It could be a holding company, an individual, a trust, many things, and that's who reports what happens. If there's a management company, it collects the rental income, pays the expenses and sends whatever is left to whoever holds the deed. In your question, the way I read it, you don't have a property management company. You are the property manager, which is cool. I'd prefer my spouse to be the property manager, but that's whatever you decide as a family.

Laura: So what are you trying to do? The math drives the decision. You don't decide because it sounds good. Tax planning requires doing the math. To make it easy, say I charge $100,000 a year to manage the property, and my spouse holds the deed and pays me $100,000 a year to manage it. My spouse and I file jointly, so we're one return. I've just moved that money from rental income to business income for me. Unless I have deductions to offset it, I've shifted income from ordinary income to ordinary income plus self-employment tax.

Laura: Why would I do that, unless there's a reason? That's a tax planning conversation. Maybe you're paying $10,000 or $15,000; I don't know how much. The question is what you're trying to achieve with the move. Whatever is left from rental income at the end of the year is taxed at ordinary rates. With 1099 income, on top of ordinary income tax, you add self-employment tax, roughly another 15%. If you have a reason to do it, yes. If you don't, no. The math drives the conversation.

28:08 · Q10: The home office "shared use" trap
Full write-up: the home office exclusive-use rule

Laura: This question is about the home office deduction: "The IRS is behind the times. Home offices today share exclusive use with personal use in space and time: one computer, one room. Can't we calculate exclusive use from floor space and time used for business to get to 100% business use?" No. The tax law is very clear. In Tax Court, nobody asks whether you agree, or whether a law passed many years ago is behind the times. It has to be a space used exclusively for business. You're never going to win that argument.

Laura: Just because many of us work remotely doesn't change it. I have dedicated space for my work, an office I can lock, places where I store things, filing cabinets for all my paper, which I'm trying to get rid of as much as I can. You have to set things up a certain way to have a home office. If my home office is in my kitchen, it won't count. It has to be used exclusively for business. Don't mix your opinion with the tax law. The IRS doesn't care whether you agree or I agree. "Half the time I do this, then I switch to that" doesn't work, unless a new law comes into effect that allows shared space. Until then, no.

Laura: There are so many parts of the tax law you can use legitimately. Why taint your deductions with something so clear? Find a space and make it exclusive. Move your TV somewhere else. If you have a separate dining room or a nook, make that the business space. Very simple. I've had audits where I met revenue agents at people's places of business. They look in every cranny and open every door to see what you have. Why put yourself in that position, especially with large deductions or a large house?

Laura: I've had people fighting the IRS over a 700-square-foot apartment in downtown LA, and people fighting for the same thing in a 6,000-square-foot mansion in Kentucky. It has nothing to do with how much space you have, although it was easier for the person with 6,000 square feet to prove half the house was business use. We still had to prove it. And the person in LA argued that even the balcony was used for business, because he was a sports photographer. So don't play with the rules that are black and white. There's so much room in the tax law that it's not worth muddying the waters with something this clear: exclusive use for business. There are other home office expenses you can take.

31:41 · Q11: Should my primary residence go in my trust?

Laura: William asks: "When creating a trust, should the primary residence be included in it to avoid issues with deeds?" I'm not sure of the intent, so I'd ask. Trusts have very specific tax implications. I'm not giving legal advice here; I'm telling you what tax implications can come up in various scenarios. A revocable living trust doesn't exist for tax purposes. The IRS doesn't care how you use it. You can put everything in it or nothing. It's almost like a transparent veil over all your assets while you're alive, and it only takes shape when you die. When you die, your Social Security number goes away and the revocable trust becomes irrevocable.

Laura: So whether your residence is in the trust or not is a legal and asset protection question. "Avoiding issues with deeds," I don't know what that means. If you put the property in, the trust gets the deed. Maybe you have a deed shared with other people, where you own a percentage and someone else owns a percentage. Could that be an issue? Probably. But I don't know what it means.

Laura: Whenever you ask a question, whether from a legal standpoint or a tax planning and preparation standpoint, you have to be able to answer: what am I trying to achieve? Say I have a lot of equity in my house and want to borrow against it to invest elsewhere. If that's really the question, should the house be in the trust or not? It depends on your bank and whether they'll lend if it's in the trust. If it's not in the trust, then it's a legal question for your estate attorney: can you make sure it goes into the trust if something happens to me? You have to go through the scenario to get the setup you're trying to achieve. I hope that makes sense, William.

35:01 · Q12: The Augusta Rule TikTok trap

Laura: That was the list of questions, but I'll pick up one more that I think is worth mentioning right now. I saw it on TikTok and Instagram, it's all over the place: "I can rent my house to my business for $5,000 a night, 14 days a year, tax-free. Free money." Here are my two cents. First, it can't be by the night. TikTok is funny, and ChatGPT is even funnier; it can go a million directions. The myth is that you can pick any number and hold 14 board meetings in your house, all tax-free. You're looking for trouble.

Laura: And here's my foretelling moment. People are abusing this good piece of law to an extent that's not even funny. It's a legitimate section of the code. Yes, it's called the Augusta Rule, as you mentioned, Kenneth. But people often don't understand the rules and what comes with implementing it. You have to do it right. Fewer than 15 days; one day over and it's gone. It has to be an ordinary and necessary business expense with a business purpose, and everything has to be documented. People abuse it because they hear about it on YouTube and Instagram. You don't come up with a number from your head because it sounds right, or because a friend says they did $10,000 a night.

Laura: Maybe your friend has a $5.5 million property in San Diego by the harbor. Would $8,000 or $10,000 a day be OK there? Yes. But if I'm in the middle of nowhere with a tent, or one of those fancy unusual rentals they have now, and I say, "This rents for $5,000 a night because it's unusual," can you find comps? Can you prove your point? Just because a piece of law is legitimate doesn't mean everything you see is deductible.

Laura: Here's how I look at it, and this is my foretelling: I suspect the IRS is going to come down hard on this strategy, because people are ruining a good piece of law for everyone who can do it right. When you take the time to do it right and protect yourself, you make it better for everyone. Otherwise they could audit everyone using Section 280A. That's what happened with conservation easements. Great piece of law, abused, absolutely. Everyone who had one was audited. Some won, some lost. Many of us stayed away from it. Why go through an audit you know 100% is coming?

Laura: I mention this because it's so common. People think it's gold: "How much, $5,000? I'll take it. Done deal." It's not always that easy. Understand what qualifies for you. Your property is different. One property can go for $8,000 a day, another for $10,000, another for $1,000, and some for $500. Understand the limitations. It all comes down to comps and everything in between. Make sure you go through what you have and use it right. It's not worth doing it improperly.

39:12 · Closing thoughts

Laura: I hope that makes sense. Again, if you have questions for me, put them in the chat for everyone. Kenneth is asking about some other strategies; we'll pick those up next time. I have questions here about 401(k) to Roth. We're almost at time, so if you have questions you'd like us to cover next time, drop them in the chat, or reply to the emails we send out. They won't be about your specific case; they'll be more general.

Laura: And again, this isn't a webinar. I know a lot of you expected one, and I love teaching, but I'm here to serve you. So think about your questions and come back next month. We'll let you know about a week before each Q&A. If you're a client and we have all your data, put your question in the chat or use our app, so we can run the actual numbers. Thank you so much, I appreciate all of you, and keep sending the questions. I love them. Thank you, Charlene, Clint, Mahesh and Kenneth. See you next month in June, probably the third week or so. Enjoy your weekend. Bye, everyone.