Two-Family Tax Extension Discussion & 2025 Tax Planning

We're talking taxes. Nothing too exciting.

Oh, it's totally exciting. What are you talking about?

Um, yeah. Hey Mike.

Hey, how are you?

Good. How are you doing?

I am good. I have Ching here with me. She's going to help us out with the return this year.

Hi, nice to meet you.

Um, so Um, I was hoping, like, some of these things I, I think fairly straightforward, and I don't know if we can walk through them because, um, just want to make sure we're close, um, with these numbers and, yeah, kind of, kind of tax adjust everything.

Yeah, I mean, my, the, the questions that Sammy had sent over, I I just wanted to make sure, well, I want to know kind of where two-family stands from a tax basis. Like, do we have an accumulated loss that we can dip into right now in two-family, or are they pretty much net neutral?

There is, um, well, I mean, kind of, do we have any loss? Yeah, so we do have some annuals carrying forward, but it looks like we're already operating at a loss this year as well. Is that what you're expecting? I mean, from a tax perspective, and that's one of the things we wanted to confirm, like obviously the couple of big differences are depreciation We don't really have a lot, but mainly based on the current year additions. Right. And then the sales proceeds, you know, we do have some basis, but not very much. So I want to confirm the gross proceeds so that we can make sure we get our estimated gain correctly. Correct.

The gross proceeds sounds correct.

The.

The What am I trying to say? The net additions sound correct, although the trailers, I feel like we might be— I need to confirm because 6-something, whatever that 620-ish number, 626 grand. Yeah, I need to double check that that is accurate. Um, there was like 8 trailers that we bought that we would have received in 2026. Um, but 626 sounds a little low, so I don't know if we applied like a deposit towards those in 2025, and then we did the completion payments in 2026, which are in 2025.

Um, but would it be— would they be placed in service and actually started to be used in 2025 so I can depreciate them, or— yes, they would have.

So I'm sorry, I misspoke. I don't know if we took depreciation on those in '24 for like the partial payments, which I don't think we would have. Um, I'm gonna have to go back and look, but I might— the main, like, the crux of it is assuming that that's those two items are correct. It's that fleet management expense. I don't want it to go from the $3.6 that we were charging down to $1.2, back up to $3.6 unless we absolutely need it to.

Yeah, no. So I will tell you right now, if the numbers for the additions and the sales proceeds are correct, like from a federal standpoint, if we knock that management fee down to 1.2 million, too. And we're at like a $48,000 loss. So we're right there. Now, if we go into income, 80% of that can be offset with NOLs too. But, you know, obviously if we get crossed into the income standpoint, right, I can't offset 100% of it. So I'd have some income, but we're right there pretty much. If I'm— I think this assumes we're taking bonus on the $600,000 of vehicles. Let me just double-check that. Yeah, I think 100% almost. Yeah, for federal anyway. So California, it looks like because we have more basis in those sales, right? We've got a bigger loss in California because the gain on sale is going to be much less than for Fed.

Right.

And there's more depreciation too, because obviously we couldn't take bonus in the past. And so we've got a big loss for California. So I'm not too worried about California. So for federal though, I think we're bonusing the $625,000 of additions. We are showing about a, let's see, 2.5, I guess we're assuming 100% gain on the sales proceeds. And with that and taking the bonus depreciation stuff, we're right about $50,000 of loss. So I think— and I'm not sure how you guys view that management fee, like if you're trying to keep it consistent and keep it at that certain dollar amount per month or— because we just assumed that you'd want to keep it at last year's level for now.

Yeah. Yeah. Since we were at $1.2 million last year, I want to keep it at $1.2 million this year. Especially as we wind down two-family. I don't want it to jump up 'cause that doesn't, that's not reflective of.

The real— Unless there's a ton of sales or some other activity to adjust up in there, right? But I don't think they're, relative to last year, it's probably fairly comparable.

Yeah, I would say so. Okay, so I will update that fleet management expense to reflect the $1.2 million. Do you want me to resend you the copy of those financials?

It would be great, yeah. And then if you can just shoot me an email and verify you're okay with the proceeds and the trailers that way, because Sammy's out at a client thing today and so he'll have that information in his email when he gets back.

Yep. Okay.

And then if that's the case, then we can just get you a zero due extension.

And this is all an estimate, right? We'll still— we're still going to file.

Yeah, yeah, yeah, yeah. I just want to know whether you guys— you know, what to put on the extension.

Right.

So I'm assuming we're going to come to a zero due extension for Fed and Cal. And if something changed, we would just update that when we do the return. But okay, this is all very low pressure. Just want to get all the other entities that have already been extended. So.

Right.

Just have this one last extension to get out so we can push through this date. And then I understand we're moving forward with some assurance work, but maybe only at a.

Um, so we're gonna do a compilation. Yeah, we're gonna do a compilation this year, um, which doesn't help us much.

Just because you're doing weird entities again, right? Just NCNT and Silverco and— right.

Um, so that should be out of the way. We'll have that locked in so we won't have two concurrent things kind of pushing and pulling and needing to make sure those schedules all align. We'll have compilation schedules that will then be able to forward over and hopefully we won't have so much, not so much, but the confusion that we had last year where we're getting two different versions based on like updates that both teams wanted.

Yeah, yeah, yeah. Well, biggest thing for us and then we kind of coordinated this, I think it worked well last night was last night, last year was the fixed asset stuff. And so we kind of took the lead, did that stuff and then gave it to assurance and then they worked well with that and, and that aligned everything pretty well. And so obviously We want to do the same thing this year. And so fixed assets continues to be key for us.

Right. And are you— the, um, the comment you made a while ago about getting on an asset management system to make sure we're managing that book and tax, um, and not just trying to keep it all in an Excel spreadsheet did, uh, ring true. So I am working on that right now to get us— okay, something— are.

You looking at like some sort of a Well, I mean, imagine whatever system you do, you've got to kind of implement it and put it in, put all the assets in there.

And then, right, it'll be as of year-end 2025 and then just carrying it forward. So I'll probably go through, use the power of AI to get some of that book value from the tax returns or sorry, the tax basis from the tax returns. So I don't have to do it one by one and then see if we can just take that forward. But I'll keep you updated as— okay.

And what are you thinking? Like, I mean, I won't have that stuff for this year's return, right? Or I just want to know kind of what you're thinking as far as when we might actually have books. Is that a May?

Uh, we want to have the compilation done. I think the goal is by the end of April. So yeah, if we start in May with tax, if not sooner, um, the compilation Good.

I'm sorry, the books for all the other entities you're not actually doing comps for, those will be rolling and ready at the same time?

Yeah, we're going to bring it all together at the same time, even though the review is— or the compilation is just scoped to those entities. Okay. Yeah, perfect.

Okay, so we should plan on somewhere around May. I just— that would be fantastic because I really— I think this year I know, I think it sounds like it's a fairly easy transaction you guys did. I don't know if it was August or October, whenever it was when you guys acquired some assets or— Well, we.

Actually have not completed the transaction yet. We're under an MSA agreement right now.

So what does that mean? You just have operations from that that you're recording or— Pretty much. How does that impact your books?

Yeah.

So we are— there's no contributions, there's no assets you took over. You just have sort of like a management fee that you're getting, or how is that?

Well, I mean, I don't know. I guess I would ask you, like, we control the bank accounts, we keep the books, we effectively operate as if we own the assets, but the actual contribution of those assets have not— has not occurred yet. And that was due to the, the group that was contributing them had liens related to a couple of lenders that made it so they couldn't contribute this portion of the assets because it was a part of a larger asset pool because they do like commercial shoots and those kind of things.

So yeah, it's just interesting because like you don't actually own the assets and so you're not getting the depreciation, things like that. But how are you Recording the income, is it being recorded as if, as if it was all your income or is it coming in as, I don't say a management fee, but like, is it because they still own the assets? Are they doing any recording, any bookkeeping for that on their side?

Yes. And we are paying a management fee. So we are paying them for the asset because they're— we're paying them for— there's a lease associated with it that gets passed through. There's some vehicles that are still being paid down that we're paying that are being passed through to us. And then there's some other like margins.

That are being passed through to you, like you're making payments on that, but they're not your assets. So how are you recording that?

They are making the payments and we are just paying it in like a managed— I don't know what it's called. It's like a service fee, right? Right. So we pay— so the income is.

A service agreement and there's a paying an expense. That's the service agreement. It's kind of like, I mean, you're netting.

Well, no. So I should say the income is going to the entity that we control. So there's an entity called VS Rentals OpCo LLC where we provide the service, we receive the revenue, and we also pay all the expenses, some out of Avon, some directly out of VS Rentals OpCo. And then there's this other entity called colloquially the Versa Group, who we pay for the rent on one of the properties and these vehicle like debt payments, they pay it and then we just make them whole on it through a monthly payment with them.

And you record that monthly payment as like a management fee or like a lease agreement fee or like— Yeah, I mean, technically If you had to describe the operation, it's more like you're leasing the equipment that you need to run the business, and then you're basically operating your business and paying some sort of a lease fee, or— Right. Even though it's probably not a lease agreement.

Right. I mean, that's effectively what it is. Like, we are leasing the equipment from them, and then we are operating the business with that equipment and receiving the income, and we're paying them, for that, whatever that lease cost is.

And you say some things out of Avon, you mean out of MT Studio.

Or, uh, for example, the employees are paid out of Silverco, but because it all rolls up to the partnership level, it don't, we don't like, we allocate the costs from a P&L perspective for company prepared financials, but whether it gets, whether the employee, we didn't want to set up a new Paylocity instance because they didn't want to pay $1,300 a month. So we just pay them out of Silverco, but because it's all in our LLCs that roll up to MT Studio Services, we didn't— it's all— yeah.

And when we get books from you, from all that stuff, you don't separate that stuff, right? Like MT Studios. I'm trying to remember what this looked like last year. If we're doing a roll-up of a bunch of trial balances or if we just get one consolidated financial statement.

No, we— it's a roll-up of the entities. So you'll have, you'll have Silverco, Two Family, NC&T— well, sorry, Two Family's not included, that's their C corp. So you get Silverco, NC&T, uh, HDR, Hollywood Depot Rentals LLC, um, Hollywood Site Services, which is more or less nothing anymore. There's not much activity going on in there. And now there's this VS Rentals OpCo LLC. Which will show how much of a loss, I think like $200,000 of an operating loss this year. Okay.

Yeah. And so no real changes to other than the Nelson buyout stuff. No real changes on the ownership side for '25.

Not for '25 because the deal has not closed. Once the deal closes, they they get a 3% equity award in MT Studio Services that could escalate up to 10% based on hitting certain thresholds of financial performance. But as of 2025, because the deal is not closed, they don't have equity in the.

Business. I see, I see, I see, I see.

Okay.

I mean, it sounds relatively straightforward. Are there any agreements or anything related to this quote-unquote kind of quasi-acquisition, or because the deal hasn't closed, you're sort of operating like not under the radar, but like there's no formal structure, like we are going to lease these assets and here's how we're going to operate. We're going to pay you a set amount per month. It's just cash going to pay certain lease payments and certain— you're paying for the employees, obviously, but They're your employees now, right?

Yes, they are our employees. Let me see this. So the MSA with VS Rentals OpCo does define like, here's the monthly payment we're going to.

Make.

Let me see. Management, I do want me to send you this MSA.

Agreement. Yes. I know that I'll look at it right away, but yeah, definitely. Before we get to the May timeframe.

Kind of want to— It's only 37 pages, so it's just light reading that you can do over.

Yeah, that's, that's a good lunch break, right? Yeah. I mean, I'm sure a lot of it's legalese stuff too. And you only care about everything that's really classifying kind of how it's operating. So you guys signed something that kind of covers what you're doing right now until the deal closes, and then you'll have a formal contribution equity membership and you'll take over all the assets. And all that stuff. That's correct. And when do you think that's happening?

I think it will happen in 2026, but I don't have a timeline inside of the year of when it'll happen because he still has to get one of his liens with the SBA removed, and that's going to be the hardest one to like actually get them to do it.

Okay. All right. Well, so that actually, of all the acquisitions and things you've done in the past, sounds like a more a fairly straightforward deal. I mean, I probably can just rely on what you guys have recorded and, you know, yeah, no fixed assets to worry about. It's still the same fixed assets we've always had, which is good.

So may have been one or two like capitalized assets for 2025 that we acquired after the MSA was in place, but that's all standard stuff.

So Okay. Okay. Well, if you can confirm those things, I think we can get this extension taken care of. We'll get that out of here. And then did I send you or did we send you payments for '26, like $800 payments and all that? So I think there's actually some payments that for '25 that were never made, like $800 payments and things like that. Okay, so we've got a summary of what payments are outstanding and then what payments are due for '26.

I haven't seen that yet, so if you can send that, that'd be helpful.

Okay. Yeah, we'll send that to you. I think it's going to actually have 3 categories. One, which is here's '25 stuff that's technically due with like the extensions, right? Here's '26 stuff that'll be due like April 15th. And then some of them have previous year balances that were carried over that the FTB or the IRS or whoever's In most cases, the FTB is saying, you know, you still have an outstanding balance from prior years of X dollars. Got it. So we'll send that over and you can put that up on your dartboard and do with it as you wish. Perfect. So we'll get that stuff out to you probably the same time we get you this two-family extension, which hopefully will be the next couple weeks. Okay. As soon as you can get us, you know, probably within a week. Yeah. Once we get confirmation of all this stuff.

I'll get this information over to you later today. Um, and then I'll look out for that stuff.

Okay, perfect. Cool. All right, thank you very much, sir.

Appreciate it.

Thanks, Mike.

Nice to meet you. All right.

All right. Bye.