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My name is Joshua. Today is Friday, and that means live Q&A. Works just like talk radio, where if you have a question, you wanna make a comment, you wanna discuss something with me, you are free to do that. And as you know from past shows, these topics tend to be very wide ranging.

Everything from technical financial planning to broad-based philosophy, ideology. We talk about all kinds of things. No subject is barred from a Friday show. If you would like to join me for a Friday show, I would love to have you next week. You can do that by going to patreon.com/radicalpersonalfinance just search for Radical Personal Finance on Patreon, and sign up to support the show there, and you will gain access to the call-in information so that you can join me on a Friday Q&A show.

With that, we begin with Jose in Colorado. Jose, welcome to the show. How can I serve you today, sir? - Good morning, or good afternoon over there, Joshua. I appreciate you taking my call. Just finished listening to your show on Donald Trump's taxes. And I never thought I would say this, but I think I'm actually inspired by Donald Trump.

(Joshua laughs) But it's something that I've actually been thinking a lot about lately anyway, which is decreasing my taxable income. And so I've got a couple of questions that are tied with that. So first of all, this year we sold a property. I'm in the business of real estate investment.

And I sold the property with the intent of doing a 1031 exchange. Some things happened at the last minute that made that not possible. And so we're gonna end up with about $200,000 of capital gains, which I wasn't initially planning on. And so I'm trying to think about ways where I can decrease my taxable income for the year.

And so that's part one. And then part two, which is kind of tied in with that, is my family and I, we really like to travel. I also do write sometimes. I blog. And listening to your episode the other day, it made me realize, well, maybe instead of, I've never tried to monetize my blogging, but maybe if I, is it something that I could do to actually run the blog as a business?

And then maybe if I start another blog focusing on travel, actually run it as a business, with the intent of making money, of course, a travel blog, would I then be able to deduct some of my expenses, or most of my expenses involved with travel, such as maybe an RV, et cetera?

- Good questions. All right, let's start with the real estate and the $200,000 of capital gains. When was the property sold? - This April. - This April. And at this point in time, with the timing and your property selection, there's no chance to still consummate a 1031 exchange, is that right?

- Yeah, correct. - Okay. So you have a tough row to hoe, because anything, any expenses that you're going to use to offset that $200,000 of capital gains need to be incurred here during 2020. So across your real estate business, do you have any big expenses that are sitting there waiting for you that you need to pay for?

- You know, I really don't. The biggest expenses are buying the properties and rehabbing the properties. And I don't, and those just kind of come along as they come along. I don't have any major tools that I need to buy. The one possibility, I thought, is maybe, and this also ties in with travel, especially where this year's travel is probably gonna be, we try to travel in the winter, and this year's travel will probably be based in the US and based out of some sort of camper or RV.

So I did think, well, maybe we could buy a truck for the business, and maybe the business would be generous enough to let us use it this winter for traveling. That's my only thought with as far as big business expenses. - Right. Well, then you're gonna be limited, because at the end of the day, you have what you have.

So what can you do? Well, first, have you done any cost segregation studies for the properties that you own to see if you can increase the depreciation rates based upon a cost segregation study? - You know, I haven't, and for the most part at this point, most of, I don't have a whole lot as far as long-term properties, buy and holds at this point.

It's mostly just flipping. - Right, okay. So you know as well as I know that there's nothing magic about real estate. And I probably overstated a little bit, I hope I didn't overstate, but in terms of, when you read about President Trump's low tax return, the reality is that he has a low tax return because of losses.

Now, what we can't know, what I tried to emphasize in the show, what we can't know is the degree to which those losses are paper losses that are simply reducing his taxable burden, but he's having additional gains elsewhere, or are those real losses, meaning he's actually getting poorer because his properties are consuming more money than what they create.

We can't know that. Depreciation is not a magic pill. There's a depreciation schedule. And so if you're running a hotel, you have the ability to do a cost segregation study and potentially take higher rates of depreciation on your equipment, and a lot of those expenses will come in the front end.

But at the end of the day, depreciation always runs out as well. And so you cannot escape taxes forever, and you cannot escape taxes on current income. The only way for you to offset your $200,000 of capital gains is going to be to generate expenses. But it's one thing to generate expenses if you have an underlying profitability component where, hey, I'm generating expenses, but I'm still gonna be profitable overall when I look at the overall structure of my business.

It's another thing to just simply spend money that you don't need to spend. And so I'm always nervous about people spending money just for a tax deduction. If you need something or if you have a business where you can profitably invest money, sure, take the tax deduction. Take the loss if you can do it in a way that genuinely leads to a profit and it helps your tax situation, do it.

But I wouldn't even necessarily go out and buy a new truck just simply to offset the taxes. Now, if you need a new truck or if you want a new truck or if a new truck makes financial sense for you, then by all means, make this the year that you buy a new truck and think about what kind of truck that you need.

But at the end of the day, there is no 100% tax rate. And so you don't wanna spend money just to reduce taxes. You want to invest money, and if you can see a way to profitably invest money so that it pays off in the long term, that's what you do.

And I think that, as I thought more about it after I did that show, I think that if President Trump is doing something intelligent, right, if he's doing something intelligent, then it's probably due to the structure of the golf businesses where you have so much land that you're baking a long-term play for the appreciation and the value of the land, the appreciation and the value of the buildings, et cetera, that that's where your long-term profit play is.

You're trying to capitalize by owning grade A real estate in highly desirable locations, and yet you have the benefit of the fact that that property is not currently taxed because it's just simply an increase in capital gains. So I don't see a solution for you other than is there a place that you can profitably invest money?

If there is a place that you can profitably invest money, do it, if not, pay the tax. - Yeah, that makes sense, and I agree. I actually don't like the idea of buying things just to buy things. To save 30% or whatever. Yeah. - Now, if you expect there to be other income in the future that you need to shelter, for example, if you have two businesses, you have a real estate business that you're involved in full-time, but you also have another business that's a cash flow business, then think about your strategy of real estate and ask yourself, is there a type of real estate I can invest in that's gonna give me more depreciation, more current losses to offset this income?

So, you know, a big multifamily apartment building might be a good fit. You can buy one that's gonna require significant capital up front to do repairs to the property, et cetera. Something like that is an ideal solution for your overall tax planning. But at the end of the day, I always come back to the fact that there's no 100% tax rate, and even as things stand currently, the capital gains tax rates, the long-term capital gains tax rates, are among the more fair of the US tax rates.

I don't wanna call them fully fair, but they are more fair than our income tax rates, certainly. - Yeah. - All right. - Yep, that's my-- - Let's talk about your second question. Can you start a travel business and use that travel business to fund your family travels in a way that is going to allow you to use your business expenses as part of that business?

The answer is certainly yes, you can. But you will need to be very thoughtful about how you do this. So from the IRS perspective, there is nothing unique about a travel business versus any other kind of business. A travel business is a travel business. So imagine that you are a photographer and you get a job for National Geographic Magazine.

I think they're still around. And so you're a photographer. And National Geographic calls you up. You live in Denver, Colorado. And National Geographic calls you up and they say, we're doing this special series on the waves off the coast of Portugal. And we want you to go and we want you to photograph the winter waves there that are 85 feet high off the coast of Portugal.

So you say, fine, right? And so you take out your National Geographic business credit card. You're an employee of the company. You take out your National Geographic business credit card. You call up the airline. You buy an airplane ticket to Portugal. You reserve a hotel for yourself there in Portugal.

You go to the beach with your camera. You take those pictures. Then you come back from that business trip. You're there for a couple of weeks to cover the surfing competition. And you gotta be there every day because the waves are, the waves are, you don't know when to expect them.

And the surfing competition goes over the course of a couple of weeks. Then you come back to your home in Denver, Colorado. When you arrive back at your home in Denver, Colorado, you submit an expense report to your company telling them about all of the expenses that you've had.

You tell them about the hotel cost, the plane cost. You tell them about the food that you ate on the trip. And all of that is deductible business expenses for the National Geographic Organization. It doesn't matter whether they paid you as an independent contractor or you submitted as an expense report.

It doesn't matter whether you did it as an employee. All of those are deductible expenses. The IRS does not say that because National Geographic is a big business and a big known brand that they can deduct the travel expenses for their photographers. But you can't because you're not yet a big business or you're not yet a big brand.

So let's say that you have an idea to start your own travel magazine. And you sit down and you figure out is this something that could be profitable? You write a business plan that shows, listen, if I start this offbeat travel magazine, I'll have the ability to create really just stunning photojournalism that everybody's gonna be really interested in.

And you decide that you're gonna start a surfing magazine. Your first feature is going to be a feature on the Giant Wave Surf Competition in Portugal. So you do all exactly the same thing for your own business to start your own magazine. There's no difference from a tax perspective about your ability to do that starting your own magazine versus National Geographic.

So that's the first thing is you gotta get very clear on what's allowed and what's not allowed. There's no, National Geographic and you have exactly the same tax code. And the tax code doesn't say, well, you have to, you're having fun on the job, so therefore you're not allowed to, you can't deduct it, right?

'Cause you can't deduct fun. The tax code doesn't say whether you can deduct your fun. The tax code says that you can deduct business expenses that are ordinary and necessary business expenses. Now, you can imagine that if you had a desire to start this travel magazine, this surfing travel magazine, and you spent nine months a year traveling to far-flung surf spots and putting yourself in a situation where you, each and every week, you're filming these things and those never make it public, right?

Those never make it to a magazine, those never make it to the internet. You can imagine that in an audit, when you submit, I have $130,000 of travel expenses that I'm trying to deduct, you can imagine that being audited. But there's no rule that says that a paper magazine is more appropriate than an online magazine.

There's no rule that says your magazine can't be a PDF magazine. There's no rule that says the travel photographer who takes pictures for National Geographic is not equally, that somehow that's allowed, but the travel photographer who takes pictures for Instagram is not allowed. There's not a rule on that.

So you can build a business like this that allows you to live a nice lifestyle and to put these kinds of expenses into a business expense deduction. Now, let's talk about your children and your wife, and we'll cover the RV, and then I'll tell you how to do this and how to do it properly so that you are steering clear of the edge.

Because the biggest thing you wanna do is wanna know how to do it properly if you do it so that you don't have a problem. Now, if you're going to Portugal as a National Geographic photographer, and you ask them, "Listen, I've got a nine-year-old son "who I'd like to take with me," and you ask them, "Do you mind?" They'll say, "Sure, you can take your nine-year-old son "with you after all, you're just gonna be standing "on the beach with a camera and a tripod taking pictures.

"Your nine-year-old son can stand there next to you "and watch the surfing." But National Geographic would not pay for your nine-year-old son's travel expenses. You know, my dad did a lot of business travel over the years, and many times he would take my mom with him but he would always cover my mom's expenses.

It was no big deal. She would hang out, and if they were in Stockholm, Sweden, then she would just spend the day cruising around Sweden by herself. She would spend time with my dad at night. But, and the company paid for my dad's hotel room, the company paid for my dad's food, the company paid for my dad's transportation, but my dad paid for my mom's plane ticket and for her food.

So any additional costs, he covered personally. And that's the way the tax code works. So let's say that you wanna start your independent travel photography business, you're starting your own independent magazine, and you wanna take your nine-year-old son with you. Well, if your nine-year-old son is not an employee of the business, then you can't deduct your nine-year-old son's expenses.

So you can't fly to Portugal and deduct two airplane tickets. You can deduct yours, but you'll pay for his out of your pocket if he's not an employee of the company. You can have a hotel room, and it's no big deal if your son uses the second hotel room.

But what you wanna make sure of is that there's no additional cost for that second, for that two-bed hotel room versus the one-bed hotel room. And so a very scrupulous accountant who wants to be totally audit-proof would get a quote for a single occupancy room, and then they get a quote for a double occupancy room.

And if there's an additional cost to the double occupancy room, then they would not deduct that additional cost. If the single occupancy room is $100 a night and the double occupancy room is $110 a night, you can deduct the $100 a night for you, but you can't deduct the marginal $10 a night for your son.

If you're going out to dinner, you would get separate checks. You would pay for your son separately and not bill that to the business. You would pay for you as an individual. Now, it's rather obvious that there's some wiggle room in there. I would guess, although I don't know this, I would guess that when my dad did his expense reports, his bosses were fairly lenient with him.

They probably didn't check to say, "Was your $40 that you bought, that you charged for this particular meal in Stockholm, Sweden, was that for an appetizer and a full entree that you ate yourself? And then did you separately bill an additional entree for your wife? Or was that an appetizer and an entree that you and your wife split?

And because you don't eat very much, you're split." You get the point, that there's obviously some margin in all these things, where it's never that specific. The laws are clear, but there's a lot of, there's a good bit of wiggle room in some of this stuff for practicalities. So, you can travel with your children, you can travel with your wife, but you can't deduct their expenses unless they're part of the business.

Now, let's take it to a different level. Let's say that your son has his own surf travel magazine, and he recognizes that there's an unfulfilled niche for an online magazine, specifically dealing with young surfers. And he wants to go and he wants to interview for his online magazine and for his YouTube channel, he wants to interview the young surfers that are in the surf competition.

And so, you and he together are going to travel to all these places. And he's not just a bystander, he's actively running the camera. In fact, he's doing a lot of the interviews. So, he's very much part of the business. Well, in that situation now, he's clearly an employee of the business.

He's not just a tag along, he's clearly an employee of the business. And so, his expenses are every bit as deductible as your expenses are. And so, you can imagine how you could expand this. If you have a business where the nine year old is very much a part of the business, then you can incorporate the whole family.

Your wife can run a camera, you can run a camera, your daughter can run sound, your son can be the on-air talent, and then your other child is taking pictures, running the third camera and taking pictures and updating the social media while you guys are doing the interviews. Well, now you have a family business where it's genuinely part of the family where everyone is involved in it.

And there is nothing in the tax code that says that you cannot hire your nine year old son to run a camera, assuming that your nine year old son is capable of running a camera. Now, you're not gonna win the argument that your one year old son is running a camera.

But if your nine year old is running a camera or your nine year old is on-air talent, there's nothing that says it can't do it. And there's also nothing in the tax code that says that you can't shoot the entire thing with an iPhone, right? An iPhone today, a new modern iPhone has every bit as high of a recording quality as a professional TV camera did eight years ago.

So, there's no reason why you can't do this with your iPhones. So, I hope you see what I'm saying is that the tax code is very, very clear, but it doesn't specify these details. So, if you design a business that incorporates your family, if you design a business that incorporates a lifestyle that you want to live, if you do that, you're not doing anything questionable.

So, what do you have to do to prove that this works? Well, first of all, you need to be very careful that from the very beginning, this is a business and not a hobby. Because you cannot deduct hobby expenses, but you can deduct business expenses. That is your most important thing to be careful of.

You cannot deduct hobby expenses, you can deduct business expenses. So, you wanna make sure that this is not a hobby. So, from the very beginning, you need to run a business. What does that mean? Well, you start with a business plan. One of the most valuable documents that you can create is a business plan.

And so that if you're sitting with an auditor and the auditor says, "This Youth Surf Magazine thing that you guys do, this sounds a lot like a family hobby. I think you guys just like to travel and you're doing this for fun and there's not actually a business plan." But if you can pull out your business plan that was designed one year before you started the business or six months before it, and here's a 30-page business plan showing, "Look, here are three competitors who are doing this.

Here's our plan to make money on ads, on YouTube revenue, on building a YouTube channel. Here's our brand sponsorship plan where we think that if we can grow our Instagram channel to 300,000 followers, we can monetize that for a promoted Instagram post for $5,000 per promoted Instagram post. And look, here's all the research that I've done on how I can do that." So, that's one of the most important things.

You wanna have that business plan that clearly shows what's going to happen. You wanna, in that business plan, clearly show how this business can be profitable and outline what the business idea is and outline who's gonna be involved and how it's gonna work. There's no reason why you and your three children can't be all of the employees of the business, but you would wanna make sure that you understand why those three children are necessary and what they're actually doing in the business.

The next thing is, if possible, you want to show a profit. Now, there are what are called the hobby loss rules of business losses. There is no requirement from the IRS perspective that you actually make a profit in order to prove that you have a business. One of the most common misconceptions that people have is they believe that I have to make a profit in order to prove that I have a business.

That is not true. There are many businesses that lose money every single year for a very long period of time. And in that situation, they can still deduct those losses. Now, the deductibility of losses will be determined based upon the function of the business. If you're running this business as a sole proprietorship, losses from an active sole proprietorship business can be deducted against your other forms of earned income, which is very important for you to know.

If the business does not have a significant liability exposure, and if you expect that in the future, this business will, if you expect it to create some losses for a while, you wanna think very, very seriously about running it as a sole proprietorship, because that's the most advantageous scenario.

If your wife has $50,000 from her earned income, and your business produces a $20,000 loss, well, now that $20,000 business loss can be used to reduce her earned income from a taxable income of $50,000 to a taxable income of $30,000. Thus, that's valuable. Now, the other forms of business ownership, be it an S corporation, C corporation, et cetera, have more limited deductibility of losses, but they do still exist.

So back to the hobby loss rules. One of the things that is important is that you understand what the hobby loss rules are. What the hobby loss rules are is they are a safe harbor. And basically, the IRS says that if you can prove that your business is profitable, and you're making money, then we know that you're running a business, and you're not running a hobby.

And so we understand that many businesses have some losses in the beginning, but at the end of the third year, if we sit down and we look and see that you're profitable, and then you have a safe harbor because you're making money. So the safest thing to do is to make sure that your business is making money.

Now, we all know that some businesses make more money than others. We all know that you might have a business that you designed to make money, and you might run it to make money, but it may not work out. That's the case, that's true. But you still wanna make sure that you make money if you wanna be absolutely safe and have that safe harbor from the perspective of the hobby loss rules.

So make sure that you make money. And along the way, if it looks like you're not making money, you wanna make sure that you're doing the things that a business would do to make sure that you're making money. So for example, if you started a magazine, a surf magazine for children, a digital surf magazine for children, and that digital surf magazine for children took you all around the world.

In the first year, you lost $100,000. And then in the second year, you lost $100,000, and you still had a revenue of zero. You wouldn't keep traveling around the world spending $100,000 a year with a revenue of zero unless you thought that something would actually was gonna change. What would you do?

Well, you would go to a conference on how to make money online, and how do people make a business as Instagram influencers and with digital magazines and with events, et cetera. You would hire a consultant to help you. You would focus on making money. That's the most important thing I can tell you is that any business that you run must be focused on making money.

So if you can make money, then you get a safe harbor. And so if you can generate a profit in at least three of the last five years, now you have a much stronger position to not have these expenses disallowed, even if these expenses are not, even if they're significant.

So with that in mind, what I would recommend that you do is you imagine the kind of business that is most likely to lead you to profit and to be the kind of business that your entire family can be involved in. And there are many of these kinds of businesses that you can do.

Business does not have to be joyless. Businesses can be fun. Businesses can be interesting. And the expenses associated with them don't have to be without joy. The expenses do have to be ordinary and necessary expenses for the goal of making a profit. And within those guidelines, you can build the business that fits your dreams.

And there are many things that you can do, including today with, like you said, with things like photography, et cetera. There are many people who make a living online simply taking photos and selling them as stock photography. And so I could do that. And if you have an eye and you have the equipment, you don't need fancy cameras, but if you have the eye for it and you recognize that, and you say, "My business is I'm gonna sell, "I'm gonna set up a stock photography business "where I take photos all around the world, "or I take little video snippets "and I sell these photos and license these photos "to the sites that sell them "and license this as B-roll video," you can do that.

And your expenses associated with that endeavor are every bit as legitimate as the expenses that National Geographic has with their stories. Your stories that you write for a travel blog are every bit as legitimate as National Geographic stories if you have a business plan that leads to profit with your business.

Now, the last thing I would touch on is the RV. RVs are tricky because that's an area of significant abuse. And so what I would say is you can research that further, but in general, RV expenses are not deductible expenses because the IRS, even for those who say, "Well, I'm gonna use the RV to go and I make my living," you know, there are people who make their living like this, "I make my living traveling around the country "and going to weekend expos "and putting my products out for sale "at these weekend expos." In general, the IRS will not allow you to deduct expenses associated with the RV.

So what you wanna do is you wanna think about that and then figure out, "Is this a big deal for me "that I really need to do this differently or not?" Now, I have never been able to find any IRS cases, you know, private letter rulings or revenue rulings that have answered all the details.

But what I would say is that there's probably some degree of variability here. So for example, let's say that I really wanted to be able to deduct an RV myself. What would I do? Well, I would make sure first of all, that the RV is the thing that is necessary.

So maybe my business is, I hesitate to say horse racing, but it is a legitimate business. But maybe my business is horse racing. I'd rather use car racing, but horse racing gives me a set of facts that's a little bit clearer. So if my business is horse racing and I have these prized horses, maybe my business very well might be rodeo, right?

Maybe your business is you're trying to do something related to the rodeo. You're an independent, you're a showgirl, you know, the girls that do the awesome tricks on horseback or you're a cowboy and you use the horse and whatnot. Well, that situation, you might buy yourself a nice RV, but it's one of the RVs that has quarters for your horse inside of it and also living quarters for you.

And you need to be with your horse 24/7 because your horse needs to be cared for, it needs to be fed, it needs to be exercised, watered, et cetera. Well, in that situation, I would feel very comfortable deducting my RV expenses as part of my business of being a rodeo cowboy or a rodeo cowgirl.

That makes a lot of sense because the RV is a fundamental tool in that business. The RV is what allows me to travel all around the country, caring for this horse, and it's a horse trailer as well, which is clearly connected to the business. I think that those RV purchase expenses would clearly be business deductions.

And also all of the expenses associated with driving from one place to another with my horse to compete in these rodeos, these are clearly business expenses. Those are clearly business miles. It's much less certain, however, if the facts start to be not so clear. It's much less certain if you say, I'm gonna buy this RV and you don't use it all the time.

In fact, most of your travel in it is personal travel, but you take it out once or twice a weekend for your child's motocross race. Well, now you've got a big, big problem. The other thing you wanna look at is that you wanna be very careful about business use of it.

So if you had an RV and you were trying to deduct it, then I would keep a logbook. You better have a logbook of how many nights is this thing used and the amount of time that's being used for business versus other things as well. So on the RV thing, what I would say is it's probably not deductible.

And so I wouldn't push that one because there have been some guidance that's come down on RVs that basically RV expenses have generally been disallowed. But if your family business is something that could be created where the RV is clearly necessary, clearly important, maybe, maybe. That'll give you some thoughts to go on, Jose.

- Yeah, that's great. I really appreciate this. I'm definitely gonna come back and re-listen to this. - Cool, my pleasure. Well, thank you for calling in and best of luck to you in your tax savings efforts. All right, I guess my answer was probably a little bit too long.

I had four callers drop off, but I still got four more to go. So we go to California next. Welcome to the show. How can I serve you today? - Hi, Joshua, is this me up? - That's you up. - All right, thank you so much. So I'll try and be quick right now.

Let me explain my situation. So I'm 25 years old. I currently hold three jobs. One is I'm an auditor for a public accounting firm. The other, I work as a dog hygienist on Saturdays and I work under a veterinarian. And then I also have a minor bookkeeping business. And so, and that's very, very minor.

Basically what I'm trying to do is to end all three of these and I want to go into a sales career. I believe I have the personality to do it. I believe I have the determination, organization, et cetera. My goals are basically that I want to invest in real estate along the way, have passive income, be able to have other businesses to have passive income as well so I can live the life that I really do want to live.

And I feel like accounting is great, but it's very static. It's good income, but that's going to increase slowly and steadily, not necessarily very quickly like how sales could be. So I just wanted to get your thoughts about that. - Do you currently have a CPA license? - No.

- Do you have an ambition to get one? - No. - You don't have any ambition to get one, you're not interested enough to study and get it, you really want to make the career change faster. - Exactly. - Okay, totally fair. So what kind of sales have you thought about going into?

- So I'm thinking about medical sales. I can, doing the hygienist as a dog, a cat and dog hygienist, I can leverage that to say that I had some sales experience in there when I'm recruiting for a medical sales job because I did talk to veterinarians and kind of sell the practice to other veterinarians.

- Do you have a wife or children? - No sir, I'm single, or I have a girlfriend, but we're not married. I have about $20,000 saved up and we're looking to move to a lower cost area sometime next year. So this would all be like next year. - Yeah.

Well, I love it. I think that sales is certainly one of the best money-making things that you can possibly be engaged in. Then sales skills, to acquire sales skills at an early age in your life, I think is an incredibly valuable proposition, whether you pursue it long-term or not.

I started in insurance sales when I was 23 years old. And one of the reasons I did it was because I wanted to learn sales skills. And I figured even if I sell insurance for a couple of years and then quit, then I will still have gained a lot from that process and I can take that experience to many other things.

And I'm glad I did. I did it for what, six years and then I quit to start Radical Personal Finance, something like that. And when I left, I left with a very strong sense of self-confidence in my ability to control the future. And being in sales taught me that if I wanted money, I picked up the phone and made phone calls.

And that's a really valuable sense of confidence because you know, hey, if I want money in the future, I pick up the phone and make phone calls and the money starts to come in in the fullness of time. You start to understand how to deal with people better. There's a lot of skills that are associated with it.

And I think that those skills, developing those skills at an early age are very, very valuable. So when you think about the different kinds of sales, what types of criteria will you use to decide what kind of sales job to go after? - That's a great question. I'm probably thinking more along the lines of like what do they expect of me?

Are they expecting me to be there in the office or can I kind of run my own schedule? 'Cause I'm very determined by myself, but I don't, one of the things that isn't great about being an accountant is you're stuck to the job no matter if there's work or not.

You gotta be there for the time. So that'd be one of my criteria. I had a buddy walk through the different pay scales for how they reward, what's it called? I'm blanking right now. - How they reward commissions. - Yeah, commissions. Yeah, he walked through the different commission scales and so I'd look for a company and ask them how that is determined.

Basically just flexibility and their wide range of clients is the only criteria that I have right now. - So let me give you a few criteria to think about because what I want you to do is I want you to do a broad survey of the sales marketplace to try to start your sales career in the place where there's the most long-term potential.

And let me begin with how would I do the survey. What I would start by doing is I would start by making a list of anybody that I know who is involved in sales in some degree or another. And then I would call them and I would take them out to lunch and I would get their input and I would ask them and say, I'm thinking about going into sales.

Could you tell me a little bit about what you're involved in and most importantly, ask them what other areas have you heard of that you think are very lucrative or that you think I might like to be involved in? What other types of things should I consider? If you were gonna start in sales over again, what kinds of companies would you look at or what kinds of sales?

Because the term sales is very broad and if you think about it, you can use it to create the kind of lifestyle that you would like in a number of different ways. So let me give you a few things to think about. The first thing to think about is what's the maximum amount of money that I can make in this sales job?

You could go to your local cell phone store, right? You know, Verizon or T-Mobile or whatever your local cell phone stores are. You could go and you could get a sales job working as a clerk in that cell phone store and they will pay you a commission based upon the amount of new business that you generate.

What's the problem? The problem is that to the extent that you are a sales, just a simple sales clerk, there's gonna be a cap on your income. I don't know this for certain, but I can't imagine how somebody in that situation could make $100,000 a year. They could probably make 50, which would be a great step up for somebody that goes from, you know, dipping, serving food at the food court, being paid $13 an hour to somebody who goes to selling cell phones, to go from $13 an hour to effectively $35 an hour with the ability to make commissions on your sales activity is a great step up.

But you're gonna be capped in that kind of business. Why are you capped? Well, number one, you don't have recurring revenue. You just simply have transactions. I can't imagine how even the very best salesman, I can't imagine how that really good Verizon salesman can build a portfolio of clients who are gonna come back every year and upgrade their phone with him.

Maybe he can get a few, but that's just not how that business works. And so you don't get a lot of recurring revenue. Everything is a new sale. It's just whoever walks in the doors. That's the second thing, is you're limited in your ability to sell based upon the foot traffic.

And so you don't really get to control that. You can't, when coronavirus hits and all the malls are shut down, you can't really pick up the phone and make it rain because you're stuck due to the amount of foot traffic that's coming in. In addition, what else do you face?

Well, your commission rate is just relatively low. I have no idea what it is, but you know that even if somebody's doing a big transaction they're buying a $600 phone or a $1,000 phone. And if somebody is signing up for $70 a month, maybe you can make $100. Maybe you can make a couple of hundred dollars and that kind of thing.

I don't know what their commission rates are, but you're stuck, right? You've got a couple of hundred dollars of maximum commission. I can't imagine they could pay more than 150 or $200 even on a big deal, right? When you sell a thousand dollar phone and $80 a month of service.

So your commission rates are relatively low. Other things you would want to consider are things like scheduling. Downside of selling cell phones in a cell phone store is that you've got to be there to attend the store. And you have to be there to attend the store when it's busy and when it's not busy.

And so you don't have any flexibility and control over your life. And in the end of the day also, there's not really any ownership. Like I talked about with recurring revenue. It's not like you get to a point where, okay, now I can just sit and I own this.

I own my business. You don't. You're an hourly employee who gets sales commissions, but that's sales. Now let's compare that to something like insurance sales. Maybe you say, I'm good at money. I'm good at these numbers. What I'd like to do is I'd like to become an insurance salesman.

And maybe you want to join and start a property and casualty insurance agency. So you call up State Farm and Allstate and you look at independence and you go around and you figure out what can I do here? Well, now you have a very different sales job. You have a very different structure to how your business is going to work.

From the money perspective, your maximum upside is much, much bigger. If you can grow your book of business significantly, you might start off at a relatively low income, right? You might make 60 or $70,000 your first year, but you could put a plan in place in seven, eight, 10 years.

You could very clearly be at half a million dollars a year. And if you can build the agency very, very large, you could certainly make a million or a couple million bucks a year doing that kind of business. I've worked with many property and casualty insurance agents who are making seven figures a year from their business.

Seven figures is very different than 70,000, right? A million is very different than 70,000, but you still are going to be capped, right? You're not going to create a $100 million organization doing, you know, working as a State Farm agent or something like that. You're just not going to do it.

But you have a much higher profitability than you do with the sales job. What are the other benefits? Well, one benefit you get with going with something like insurance sales is you get recurring revenue. So once you build the book of business, you're going to have some cancellations, but you're going to receive recurring revenue.

And with a property and casualty agency, your ongoing commissions are substantial. There's not a big difference between your first year and your ongoing commissions. And so you can provide good service and you can build this company to be very large, and you can do very well, and you have ongoing recurring revenue.

So if you had last year, you had the expected profit of $350,000, whether you work 60 hours a week or 20 hours of work a week, probably 300 of that is pretty well guaranteed. You also have the benefits of being able to build more of an actual business. So in something like a property and casualty business, you hire staff, the staff is servicing the client, they handle most of your customer service needs.

And so once you've done the initial work to get the business going, your time requirements are far less. You'll work a lot in the beginning, but once you're 10 years in, your time requirements are much more modest. And so you have a lot more free time. You never get to the point of total free time, but you have a lot more free time because your staff and the agents that are under you can handle most of those things.

That gives you a lot of benefits. 'Cause if you can say, I'm making $400,000 a year and I'm working 30 hours a week, that's a very different type of business proposition than if you are going into cell phone sales. Now, what are some downsides? Well, things you would wanna think about.

If you built a property and casualty agency, something like that, you're not at all flexible in terms of your location. You're gonna be in the community. You need to be in the community. You need to become part of the community. And so if you say, well, I wanna move every two years, that's not gonna work because you've got to be part of that community.

You've gotta build the relationships and establish the presence that's gonna see you as a long-term part of that community 'cause it just gets easier and easier and easier. So you're not gonna be traveling a lot. From the perspective, you can take personal trips, but you're not gonna be traveling all the time and moving every couple of years because you're tied to that place.

In addition, you'll be tied to that place for the productivity of your overall business. So you're not gonna, you're gonna build one kind of business in a small town, you're gonna build another kind of business in a big city. And so you wanna think about that. Also, you're gonna have substantial responsibilities.

You're gonna have an office, you're gonna have employees, and you need that. So that brings a significant amount of additional pressure on you when now you realize, not only is it my family that's eating from this business, but rather I'm supporting six other families. That's a big responsibility. It can be great.

It can give you a tremendous feeling of pride. It can also be a downside where you're saying, I don't like this so much. Medical sales, right? You can do the same kind of rubric applied to medical sales. What's the benefit of medical sales? Well, the benefit of medical sales is you're gonna be given a route, you're gonna be given equipment.

You don't have to deal with the difficulty of personal sales, right? Some people hate insurance sales because you know that whenever you meet someone, you're hoping that they'll place their insurance with you. You know, I used to sell life insurance, and there's always this thing in the back of your mind is I should probably sell this person a life insurance policy.

And some people don't like that, right? Some people do not like doing business with their friends. They don't like working with it. So in a medical sales job, you don't have any of those constraints. You can have your personal life and your business life. And when you're doing sales, everyone knows what you're doing.

You're just doing sales, but there's no crossover to your personal life. So medical sales can be a very high compensating business. You can do very well. I don't think you're gonna make as much as you could with something like a state farm office or running a big financial sales business, running a big investment company, but you could do very, very well in medical sales, certainly multiple six figures if you're with the right company and the right opportunity.

But you are going to be, you're gonna lose freedom over your time, right? You've got a route, you've got to service these clients, you've got to see them a certain amount of time, and you've got to do it regularly. You can have some flexibility over your daily activities. You know, I've worked with medical sales people who had a significant degree of personal freedom.

They had a lot of personal freedom. Many of them were doing real estate on the side, and they had plenty of freedom because they just have their route, and they're in their car. The company provides you with a car, and as long as your clients are happy, everyone's happy.

But you don't have quite, you do still have a boss to report to. You do still have people that you're in charge of. Compare that to something like real estate sales, right? You could become a real estate agent. Now, if you're a real estate agent, that might put you closer at hand to your investment goals.

Now, that might give you much more autonomy because as a real estate agent, you basically have total control over your time. And because you have total control over your time, you can choose when you work. But, you know, the downside of being a real estate agent is that much of that work, at least if you're on the buyer's side, not on the listing side, much of that work is in the evening.

That's one of the biggest complaints for somebody who's a father with children, is I have to do this in the evening when I'm with my family 'cause that's when I show houses. But if you're single, it can be a great life. So I don't know which of these is right.

But what I wanna point out is, if you'll survey the marketplace and get some ideas from people who know, get some ideas of what works in your area, of what works in your target area, what opportunities there are, then I think that'll help you to make a more informed decision.

And as I look at it, if you're gonna go into sales, why go into sales where you're capped, right? Why go after the $70,000 a year cell phone job when you could go after the $700,000 selling 747s job? Why not? If you're gonna develop the sales skills, then why not target the job where those sales skills can actually pay off significantly profitably?

And so I think that what I would recommend that you do is as you are talking to people, filter things based upon where the money is. And if you can find someone who's making half a million a year, then I would put that a lot higher on my list than somebody where, yeah, they're making 120.

120 is great, right? It's probably more than what you're doing right now, even with your three jobs. But don't put yourself in that, unless you're doing it as a training or it's what you can find, don't put yourself into one of those low-budget sales jobs. Target, you have the ability, target something where there's a big long-term potential.

I think that makes a lot more sense. - Joshua, I appreciate your time. - My pleasure. - Very much. - Yeah, keep in touch and let me know how it goes. All right, we go to the great state of Montana. Welcome to the show. How can I serve you today?

- Hi, this is Jeremiah. I was just calling to see if you could give me some thoughts on app protection, mainly at my primary home. So we live, again, we live in Montana. The homestead protection here in Montana is $250,000 from my understanding. The value of our home is about 500,000.

We both work in fields that have, we have liability protection for a handyman service and for the medical field. So we're a little bit worried about protecting our home, but we also like the idea of paying off our mortgage, having no mortgage. We have a rental and we thought about selling the rental to pay for the mortgage and we wouldn't have that cost.

So I was just calling to see what your thoughts are on that. - Well, it's hard. There's certainly a balance there. So I've pulled up my little cheat chart here and let's just talk through what my chart tells me. First of all, Montana does not allow tenancy by the entirety.

So that's a downside because tenancy by the entirety can be a useful way of protecting the house. Montana has a $250,000 homestead exemption. So they'll protect $250,000 worth of value. Evidently Montana will protect IRAs, but not Roth IRAs. Looks like Montana will only protect about $4,000 of life insurance cash values.

My chart doesn't say annuities, it just gives me some code that I would look up and I would know if I were a Montana attorney. Life insurance proceeds protects beneficiaries' interest in proceeds and availability, 100% protected, and they'll protect $350 a month of annuity and cash values and they won't protect 529 plans.

So what do you do? Well, the first thing that you wanna do is you wanna calculate your risk to the extent that you're able to. Because you can't, a lot of times with asset protection, you're trying to cover something that's just not really worth it. Many people have paid off houses and many people live in states where there's very modest homestead exemptions.

And in that situation, they still are covered because they still, they don't have, getting tongue tied, they're fine because nothing happens. So if nothing happens, you're fine. You don't have to always have the world's greatest asset protection. Now, if you are in a higher profile scenario or you're potentially more exposed than a lot of other people, then yes, that's a big deal.

And so you wanna make sure that you cover things a little bit better. So the first thing is the homestead exemption. That's always the first step. So you have $250,000 of protection. So I would make sure that I covered $250,000 worth of exception. Now, beyond that, I wouldn't hurry to pay off the mortgage, especially if hurrying to pay off the mortgage is costing me something else.

I don't know if you have a 401k, but a 401k would be an obvious place to put money. So if I had a $250,000 mortgage, I would first max out a 401k for me, max out a 401k for my wife if she has one, and get as much money in the 401k because the 401k is protected from creditors.

And with a low cost of a mortgage, a personal mortgage, then that's your first step. So keep $250,000 worth of exemption, sorry, of equity in the property, but wait a moment before paying it off to see if there's anything else that's eligible for you. It looks like- - Can I have a follow-up question?

- Go ahead, sure. - Yeah, so with that, in, let's say, five or 10 years, if you paid down some of the mortgage, would you look at refinancing at that point to keep that equity covered, the $250,000 worth of equity? - It depends on the value of the asset, where else you would put the money if you did, if you stripped it.

That was gonna be my third thing, is strip the equity, right? That's the strategy. But it would depend on where else you could put the money, and then also how much your exposure is. So if you really are gonna benefit from having the paid-off house, it's gonna be wonderful.

Well, if you have a $350,000 house, and you have it paid off, by the way, I blanked when you told me, how much is this house worth? - Maybe $500,000, we'll say. - So if you look at it and say, all right, if I've got $250,000 of equity exposed here, it's not that big of a deal.

Now, 500 is significant, 'cause it's a lot. If it were a $300,000 house, I'd just say pay off the mortgage, because it's fine. It's 50 grand. In the grand scheme of things, you're gonna be okay. But if it's a million-dollar house, you can see how now it's a different scenario.

So that's the Homestead exemption. Number two was tenancy by the entirety. You can't do it in Montana. So now we talk about equity stripping. And so equity stripping requires you to have a better place to do it. So if you have a good place to put the money that's gonna be more protected, or you have a good use for it, yes, I would definitely go ahead and strip the equity off.

And so if I had a $750,000 house, and I had other places to put the money, and I felt like those places, and I was concerned about my exposure, then in that situation, I would definitely refinance. So if I get my mortgage balance below 500, and again, it's gonna be significant.

It doesn't have to be every year, but if it gets down to 420, right, I'm gonna refinance if rates are low, and get it back up, and go ahead and bring it up to a $600,000 mortgage to protect that equity again. That's equity stripping. And you can do that so easily on a house that there's little reason not to do it.

Okay, now the next thing you can look at is you would look into a domestic asset protection trust. Do you know if Montana has any legislation around a domestic asset protection trust? Okay, give me just a moment, and let's see if I can answer it with a one-minute solution here to see.

Not coming up. Okay, so let me explain to you briefly what a domestic asset protection trust is. If your state allows it, and I'll try to get you an answer here, but you wanna research, can I do a domestic asset protection trust in Montana? This is a relatively new form of asset protection, but it is not as proven as some other things, but it is doable, and it works really well for an individual home.

And many states are passing legislation on it, and let me see if Montana's on the list. Alaska, Delaware, Hawaii, Michigan, Mississippi, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia, West Virginia, and Wyoming. So we're out, evidently. So a domestic asset protection trust is probably off the list for you.

But basically, it does work really well, probably. It's not perfectly proven, but it does work really well for protecting a personal residence. And so it's a self-settled trust that gives you a significant amount of asset protection. So I'm gonna skip it there, 'cause it doesn't apply to you. That was the next thing.

Next thing is, how is the home titled? So do you and your wife have equal liability exposure in your assessment, or does one of you have lower liability exposure than the other? - I guess that's not something I've really been able to figure out. I'm a handyman. She works as a consultant in the medical field, but also as a W-2 employee.

- Yeah, that's not-- - So mostly for her. - I'm sorry, I interrupted you, but that's not particularly clear. Like, both of you have some exposure. But if there's a spouse that has a low risk to liability exposure, then title the home into her name or into your name as appropriate.

And then the final thing is just simply umbrella insurance. What you can do, no question, is you can put in place a nice umbrella insurance policy on the house. And so assuming that you want to keep homeowners insurance, which obviously in most situations is wise, but I say assuming because sometimes one of the goals of paying off a house is actually be able to drop insurance.

You have to assess the value of it. But for example, when I was living in South Florida in hurricane country, the cost of, you could drop windstorm insurance, but the cost of maintaining the insurance was just crazy compared to the actual risk of the windstorm happening. And so one of the reasons why in Florida I would have paid off my house was so that I could have the ability to drop homeowners insurance on it.

Or if I weren't gonna do that, just have a basic fire policy. And if you do that though, that runs into trouble with your umbrella insurance policy. But certainly umbrella insurance will probably protect you sufficiently. So I would guess that with that, you're probably okay. Both of you are probably okay.

It's unknowable whether these strategies are valuable, but you're much more limited in your strategies than other people are. - Great. Well, that helps a lot. I wanted to make sure I wasn't missing something and thinking about it. And then umbrella policy, you said it on the house. Is that separate?

'Cause we have an umbrella policy for ourselves. Is there different umbrella policies for a home versus a business? I'm just a sole proprietor at this point. So I don't think I would have any on the business side, but if I was to advance and maybe become an S-corp at some point, would then you need an umbrella policy for the business separate from our personal to protect the home?

It's just a sentimental thing. That's why we really wanna make sure that we're protecting this house. - Read the contract, right? Pull out your umbrella. If you have an umbrella policy with your homeowner's insurance company, pull it out and read the contract and see what it covers you from.

And then protect it. And what I would say is that this is the problem with any kind of asset protection. You could get bulletproof asset protection, right? It's possible. You could establish an offshore trust and move all your money into the offshore trust. And your plan is that if something goes bad and anything emerges, I'm gonna leave.

And if you're out of the country and your money's out of the country, it's pretty bulletproof, as long as you're willing to stay out of the country. That's always the weak point in offshore planning is that if you're there, the judge throws you in jail and says, "Get the money out of the trust "and pay your bills." But if you're gone, the judge can't touch you.

And so you can do that. But that's probably not appropriate where you are in terms of your wealth, et cetera. So I would keep $250,000 of equity. I wouldn't hurry to pay off the mortgage beyond that. I wouldn't hurry to do it. I would put a good umbrella liability insurance policy.

I would max out my 401ks and make sure that those are totally funded and IRAs, if eligible. And probably that's good enough in your situation. And then just control your liability with proper insurance. So with your rental properties, make sure that those are properly insured, that those are properly insulated with well-done LLCs.

Make sure that your business is insured with your business liability policy. And that probably protects you well enough. You don't have to have a bulletproof plan. - Great, I like taking it to the extreme to think about it in that way. It helps settle it down a little bit.

So thank you so much, Joshua. I appreciate it. - Yeah. My pleasure. The extreme is interesting to know, but a lot of times it's just simply unlivable. So you gotta just always be aware of that. All right, thank you for calling. We move on to, looks like the great state of Washington.

Welcome to Radical Personal Finance. How can I serve you today? - Thanks for taking my call. Got a fairly rudimentary growing family housing scenario, but would appreciate your thoughts on it. My wife and I recently grown our family and we are in the Tacoma metro area, which is getting a lot of fallout from the growth in the Seattle metro area.

So we looked and we're like, "Hey, great. "Our house has gone up tremendously in value, "but so has everything else as we are looking to move along." And so we're just trying to balance buying in an inflated market and the realities of what that means financially. We've been super conservative, bought an inexpensive house, got a starter home.

But as we look on moving up, we've always been committed to doing a 15 year and not a 30 year mortgage and having it be a fairly small part of our lives. But the house no longer suits our lifestyle and we're trying to balance the market and where is appropriate and where is lifestyle creep.

And it's all highly subjective, but just looking for some of your input there. - What's your household income? - Last year, right around 200. Down a little this year due to taking a bunch of voluntary time off to spend with our baby. But next year should be right back up around 200.

- And how many children do you have? - Currently one. We'll have another, maybe another, maybe another. But probably two to four. - Okay. Do you have any ambition to move outside of the Tacoma area or do you feel pretty well planted there in that area? - We're pretty well planted in this area.

We're probably not willing to relocate, which is part of the reality is we don't get a pass on now. We're just trying to not be unwise. - How much did you buy your current house for? What is it worth? And what is the mortgage balance currently? - We bought it 265, currently worth 380, balance is 200, and looking to purchase somewhere in the five to $700,000 range.

- Okay. Well, let's talk about it, which obviously is why you're calling. So some big picture discussions. The first thing that's gonna make a big, big difference in the value of your house is simply where you are located. There's all the difference in the world of being located in Tacoma, Washington versus Columbus, Ohio.

There's all the difference in the world of being located in Long Island, New York versus Shreveport, Louisiana. And so you've got to think about where you are with regard to what that gets you. And think about the lifestyle associated with that. Now, why do people live where they live?

Usually it's due to that's where my family is, that's where I grew up, or it's due to this is where I have a job, or this is where I have a career, right? I'm in the tech space, and so I need to live in this place because it's in the tech space, or my family is here.

And those things are very, very valuable. With children, having mom just down the road makes all the difference in the world for your ability, it's so valuable to have grandparents that you can trust, who can come and take care of your children. And those things are really valuable, but they often come with a cost.

If you're in Tacoma, or you're in Southern California, or you're in South Florida, it just comes with a cost. And so you've gotta recognize what the cost is. Now, you're well-employed, and so if you really want to be able to make this move to a fancier house, and to do it comfortably, the answer is make more money.

Because if you make more money, you can always accomplish both things. If you make more money, you have the ability to increase your lifestyle, move into a fancier house, and increase your savings. And so where your focus should be is not necessarily on finding the cheapest house that you can find, but figuring out how can I go from a $200,000 family income to a $350,000 family income, and enjoy a better work-life balance, and a better work lifestyle along the way.

Is that that's usually the solution. When people are stressed about their housing decisions, it just usually means they're not making enough money. But if you're gonna live in a place where there's an expensive house market, it probably means there's plenty of money that could be made there. And so I would encourage you, spend time meditating on your career, and make a plan to go from $200,000 to $500,000 over the next 10 years, and the housing problems become much simpler.

More money solves the housing problem elegantly. Second thing I would talk about is that when you live in a place where there is an expensive market for housing, it's not necessarily a bad thing to buy a more expensive house. Because generally, if the trends that made that house go expensive continue, that real estate market is probably gonna continue fairly strong.

So it stinks for you when you're buying the house, but probably it'll continue to be fairly strong. That's not always the case. And of course, here's where we're guessing, is California real estate gonna stay California real estate? Is New York real estate gonna stay New York real estate? We don't know.

But generally, these areas have a pretty good insulation around them. People like to live there because of the lifestyle associated with it, and they're not anxious to move. And I think that's the case in many places. I think that if you went to the average New Yorker, and you said, "Would you like to move from New York City "to Biloxi, Mississippi?

"And would you like to trade your postage stamp house "that costs you $900,000 for an enormous mansion, "an enormous mansion on the lake that costs you $450,000?" Most of them would probably say no, because they like the lifestyle associated with New York City more than they like the lifestyle in Biloxi, Mississippi.

And I think the same thing applies across the country. Most people, they like where they live. If not, they would probably leave. And so if you like where you live, then you're gonna be stuck with whatever that market returns to you. But from a financial perspective, if you buy a house for $500,000 to $700,000, and the housing market stays strong, then it'll often increase even more.

And I think that another thing I'd point out is that when you have a high housing market, it's probably because there's a lot of money. And when there's a lot of money, it means that when you're higher in the market, in some cases, I think you have more protection.

Because when there's a recession, rich people don't generally, rich, high-income earning people don't generally suffer in a recession as much as poor people do. And so I wouldn't be scared to upgrade the house if it, just from a value perspective. I wouldn't be scared from, oh, am I making a bad decision to move from a $400,000 house to a $600,000 house, because probably the $600,000 house is doing fine.

Now, what you wanna really home in on is your opportunity cost. What are you giving up? So the first thing that people usually will give up is they'll give up lifestyle. And so by lifestyle, I mean number of square feet. Let's say that you move to New York City, and you've got four children.

You don't expect to move to New York City with four children and be able to afford a comfortable four-bedroom, three-bath house with a half acre of land. That's just not the New York lifestyle. You don't live that way. You're gonna get cramped into a little apartment, and you go to the park for your entertainment.

You don't have the lifestyle. That same family with four children can move to the suburbs of Texas and have a really great lifestyle there, but they're not gonna expect that in New York. And so what people give up when prices go up is they give up lifestyle with regard to space.

They give up lifestyle with regard to space. I don't have another answer to the space. You give up, you go to a smaller place, smaller yard, et cetera. And so ask yourself if you're willing to do that. If you're not, yeah, you might need to go to another place, but if you're not gonna go to another place, it is what it is.

The market is the market. The other thing you wanna think about is what am I giving up in terms of lifestyle if I took this, sorry, what's the opportunity cost if I move up in-house? So if I move up to a $500,000 to $700,000 house, and my mortgage goes up commensurately, then am I not doing something else?

Am I not buying a rental property? Am I not investing in something that I wanna invest in? Is there a cost associated for me there? If you're well-employed, you're happy with your job, and you say, "I just wanna go ahead and move up," you can do that, but I wouldn't move up if it's costing you the ability to do something else that's important to you.

I think the most obvious solution for you is to simply go from taking a 15-year mortgage to a 30-year mortgage. And if you don't wanna do that, then stay put in the smaller place. If you have one child who's less than one-year-old-ish, you don't need any space, right? Your child is not even walking yet.

You don't really need any space, and you don't need any space right now. There's a change that happens, I would say, somewhere around maybe four, four to five years old, where your children, and there's a change that happens probably around three children, where now all of a sudden, more space becomes really valuable.

Your two-year-old, you can have the biggest yard on the block, your two-year-old won't play in it, right? They wanna be right inside, right next to mommy. They wanna be inside, they wanna be with you. And so the yard doesn't matter. And if you're gonna go out and play with them in the yard, then you might as well just go to the local park and walk down the street 'cause you've gotta be there.

That's very different if you have a five-year-old and a six-year-old, because now your five-year-old and a six-year-old can go play in the yard by themselves. And so the yard is more helpful at those points than it is necessarily right now. So if you wanna wait, I think you're fine with waiting and saving more money.

I don't see any reason not to take out a 30-year mortgage. If you, and it gives you more safety and may allow you to provide, it may provide you with a better lifestyle. So if your family's upgrading in lifestyle and you are gonna really find this house to be valuable, the house is gonna be valuable when your children are from four to, I guess, 18, right?

17, 16, that's the point in the time where it's gonna be really valuable. So if you have a 15-year mortgage and you buy this bigger house, so from when your children are four to 17 or 18, what's the point of having it paid off when your children are 19 years old?

At that point in time, your need for the house is probably gonna be less. And so go ahead and if you need to, use the 30-year mortgage to allow you to move into the bigger house comfortably, where it's not a strain, live in the house during that period of time, and then pay off the mortgage by selling the house when your children are out of the house and buying a smaller house again, now that it's just you and your wife.

I don't see any downside to getting the 30-year mortgage instead of the 15-year mortgage. And in fact, I think the opposite. I think that the opportunity cost of the 15-year mortgage can sometimes be really expensive. In the United States, the whole real estate market runs on debt. And the debt is easy to get, it's low interest rate, it's safe debt, it's fixed, and so you're safer in almost every situation by getting the 30-year mortgage.

And if you wanna pay it like a 15, pay it like a 15, but I'd rather you get the 30-year and then buy another rental property. Or get the 30-year, live in it for 15 years, and then sell it and then downgrade, or do something like that. I don't see the really strong arguments for the 15-year mortgage myself.

Did that clear anything up or help at all? - It does, it does. We never intended to be moving this quickly. It's just been a lifestyle change this year. I mean, of course, the kid's not gonna benefit now. A lot of it comes from my wife has an immune condition, so she's basically been housebound and is now working from home, and we never intended to have a setup for that.

- Could you put a shed in the backyard or fix the work problem in some other way? - No, no, that's the other big stressor has been, and this is completely our lifestyle decision, we've got two big dogs and have a tiny yard. We didn't intend to do that when we bought the house.

So we've made some choices that have accelerated us growing out of this house. We're not completely there yet. We're looking kind of casually at this point and trying to be prudent and plan this out and consider the different angles. And I guess struggling with the reality of the market is just our big hiccup right now, 'cause we can make arguments.

- Self waste. - And trying to come down to, are we being foolish to decide to do this lifestyle thing? The only reason we had been so hesitant to move forward on the mortgage, the financing changes, not because we'll be looking at it outside of financing at that point, right?

It's to be able to have the security of the lower payment. And at this point we save 100% of my wife's income and I love being able to preserve the opportunity for her to choose if she's working or not. We don't wanna be in a position where that's not an option.

As we have more children, I want her to be able to decide if she wants to work or not. The fact that we went through a pandemic, being able to say, yeah, if she chooses to quit her job because they're forcing her to come in in person, like, yeah, whatever, no big deal.

She'll find a job later. That flexibility has been so worth it, this year especially. And so that financing change would be to keep that level of flexibility in our lives moving forward with increasing lifestyle. - Right. Are you working from the house too during the pandemic? - No, no, I'm not.

- How close is your house to your work? - I travel for work. So I am all over the state of Washington, but always home at night. So I'm paid to commute. It's kind of an interesting situation. - Is your wife or your family very close to where you live right now?

- Not at all. - Then what if you just went more east, right? What if you went inland a little bit? Because if she's working from home, and I expect that in most cases, that can continue to be negotiated in the future. But if she's working from home, what if you head east a little bit where prices are not so significant?

- She won't be, she'll be back. She teaches public school, so she's online right now, but next year is anticipating being back with her team. - Yeah, I wouldn't give up. I mean, you know my opinions if you've listened to the show. I would not give up. First of all, if we're saving 100% of my wife's income, I would keep saving 100% of my wife's income.

I would not dedicate her income to lifestyle costs. If we can do it from my income, if I can increase my income and do it from that, fine, but I wouldn't dedicate her income to that because that makes it so easy. If she decides that, hey, I do wanna be a full-time mom, that makes it so easy because you know, yeah, we don't need your income to pay our bills.

We're gonna be totally fine. And with one new baby, with her working from home, she's experiencing one set of conditions. If you have two or three children, things change dramatically. One child, you can afford the daycare, right? You can afford those kinds of, the expenses associated with that with one child.

If you move to three and if she's a public school teacher, the financial argument for her to work, if you have three children versus one, that financial argument totally falls apart. And you're far better off as a family from a lifestyle perspective with the ability for her to be a full-time mom than you are with her working and earning, you know, 40 to $60,000 as a school teacher.

And then trying to figure out how to take care of the three children. And so with those details, I would encourage you to punt, figure out if there's a temporary solution, right? She's not gonna be working from home forever. You have one child who's less than one year old.

Your child is not gonna use the yard. The dogs will and you're gonna be out there with your poop bags, you know, keeping the yard up. But whatever, maybe it gets you out walking at night. But so that's annoying, but you made that choice. I would punt and I would punt a couple of years with the idea being that once she learns what it's like to be a mom, and if you have another baby, if you travel for work, then it should be fair, and your mom is not five minutes away or her dad is not around the corner.

We can just come over and take care of the baby anytime. Then I think that would be an obvious solution for you instead of trying to stay in the inflated area where people have to be in that area for work. The obvious solution would be move further out in the suburbs, go ahead and get a place that's large, and even if you go up a little bit in price, that's fine, but go ahead and move out to the suburbs where you can get a large place.

Then you'll really have a lifestyle improvement because to go from a postage stamp yard to a slightly bigger than a postage stamp yard is not that big of a deal. But to go from a postage stamp yard to a couple of acres is a huge deal when you have a seven year old, a five year old, and a three year old.

And then if she's a full time mom and you travel for work, then in that situation, there's no reason why you can't build a much better lifestyle being 45 minutes east, which would just change everything for you in terms of these costs versus trying to be 10 minutes outside of where you are now.

So that's what I would do. I would punt and I would wait a little bit to let things develop. - Yeah, yeah, that's the direction, the type of house we're moving. I guess when I say a little towards the area where there's a couple rural pockets in the area.

Still, and so a little further outside of the city, but not crazy far is the type of thing we're looking at now, 'cause that's where we are wanting to be in the future. So thanks for the input. Are there any indicator signs you can think of to pay attention to as far as the general market goes?

I guess in the back of our minds is we have been on such a, I don't know, full market applies to housing too, but housing's just exploded here in the past couple years. And we do have the concern in the backs of our minds is there anything we can look towards for early warning signs, especially as we progress through a lot of these government mandated rental and eviction and foreclosure scenario that we're in right now.

- I don't understand what's happening in the real estate market in the United States right now. I do not understand it. And I've followed it, but I get reports from people all across. For example, my understanding is that rural properties are selling like crazy. Even if you move to rural Washington or rural Oregon, rural properties are selling like crazy.

I'm hearing that even vacation properties, lake properties are selling like crazy. I got a client of mine who's trying to buy a house on a lake in the central Michigan. And he can't get a house accepted. In many markets in South Florida, everything is nuts. There's no decrease in prices and houses are selling with full offers on exactly the same day.

And I don't know where the demand is coming from. I'm totally confused right now by what's happening in the real estate market in the United States. And so what I would say is, my only advice is, don't try to worry about the whole country. Worry about your neighborhood, your town, and figure out what's happening in my town.

If there's a big tech company that is your biggest employment option, that tech company is not losing right now. Whereas if you're competing with people who are blue collar workers whose businesses got shut down, then you can expect that things to pull through. But it feels to me like right now, the whole country is just kind of sitting and waiting to see what happens with the election.

And I don't know what's gonna change with the election one way or the other, but I don't understand it, I guess is the best thing. You have to look at your local market. I don't understand what's happening across the whole country at the moment. Enough to speak on it.

- Yeah, us either. It's a little odd and not what we're used to seeing historically. So it's got us a little uncomfortable too. - Yeah, cool. Well, I think that, like I said, in your situation, I think everybody, all the signs in my opinion are punt. And I think that with a new baby, just punt.

Punt for a little while. Your wife is gonna learn a lot over the next couple of, over the months in the year. And one baby, two babies, three babies, those are big changes in her lifestyle and big changes with the employment situation. And so I would not commit myself to something that requires her income for us to flourish in that kind of situation.

We move on to Andy in Indiana. Welcome, sir. What's the interview today? - Hey, Joshua. Thanks for taking my call. I actually didn't have a question in particular. I was just calling to make a comment about home mortgages. Your audience is pretty savvy, so probably everybody else is ahead of me on this, but I'm in the process of refinancing all of the real estate debt that I have and rates are, I think, crazy low.

And I was able to just tell them that my house I bought a year ago has gone up 15%. And they said, "That sounds about right," and gave me a, I'm blanking on the word, but a waiver where I don't have to get it appraised. - Great. - Appraisal waiver.

And saved 500 bucks on closing costs that way. So it just seems like a really great time to be refinancing or at least considering that for any real estate debt. - That's a great tip. And definitely, I think that right now, the idea of refinancing is certainly worth doing.

I don't predict any kind of exploding interest rates, but when you have the opportunity to borrow money at the current rates, if you can borrow money, and again, markets are high, if you can borrow that money on a home mortgage, even if you put the money in the bank and wait and see what happens, I think that's a very reasonable situation.

If you've got a goal of paying off the house, obviously, follow your plan. But I have certainly encouraged a number of people, refinance the house, take the money, and just sit and wait, and wait for some investment opportunities to appear. Because the opportunity cost on doing that is so low.

If you take the money out and you say, "I'm gonna buy a rental house," or whatever you're doing with the money that's profitable, right, don't spend it necessarily. But if whatever you're doing, and you leave it in the bank for two years, you calculate the interest cost that you'll spend from doing that, and you say, "No deals emerged, "we'll just pay down the mortgage again." But the cost of doing that right now is very, very low.

And I think it's well worth doing for the average person. - Thanks for the tip, Andy, appreciate it. - And the other comment I was gonna make, I don't know if you saw this, but I saw with the CARES Act, the first national moratorium on eviction for late rent was based on if that house had a federally subsidized, anything involved with it, which included a mortgage owned by Fannie Mae or Freddie Mac.

So where I'm refinancing to, I'll be going from being owned by Freddie Mae, Freddie Mac, to a local bank owning and servicing those mortgages, which, not that I had a problem with that, but that kind of makes me happy to get that as well. I just noticed that as I've been reading about real estate lately, and didn't know if others had seen that.

- So is what you're saying that you are potentially losing some of the protection that the CARES Act was providing, because you're going from a Fannie Mae, Freddie Mac loan to a private loan? - Sorry, so I, as a landlord, as I understand it, 'cause the houses were owned by, the mortgages on my rental houses were owned by Fannie Mae, Freddie Mac, the CARES Act prohibited me from evicting, which didn't matter to me, but it did.

And then if this is owned by a private bank, that CARES Act, which has now, that provision has now expired. But if they did that again, I would be out from under it. - That is a great point. Now I understand it's for a rental, not for your personal residence.

So now as a landlord, you have more protection, because now you're not dealing with the government as a lender, you're dealing with a private entity. And so unless your state passes some kind of broad-based moratorium that applies to private lenders, you're protected from the federal action. Great point, Andy, I love it.

Good move. - Cool. - All right, well, that was all I had. Thank you. - Awesome. Appreciate the input. All right, final call of the day. We go to, it says Grand Prairie. I can't see where that is. Michigan, I can't remember. Is that Minnesota, Michigan? My screen is blank.

- Texas. - Texas, oh, there we go. - It's actually Fort Worth, Texas. - Welcome, sir, how can I serve you today? - Hi, Josh. Your podcast on the New York Times article was fascinating, and the way you were able to provide clear insights into various tax features and practices, and just the mindset one should have towards tax planning.

- Thank you. - But my question goes to some of the pieces I have trouble connecting the dots on is things like on whose tax return do things like business expenses, losses, depreciation, get reported beyond anything that's a sole proprietorship? And so we talked about, you talked about Trump's 500 companies, and so I didn't quite understand how are Trump's losses in business entities, these losses that we talked a lot about, how are those making it onto his personal return, or reducing his personal income, and am I even getting that part of it wrong?

- Yeah, so it's hard because we're dealing with a newspaper article, not the returns, would be my basic approach, and I don't know the answer. So let me just start with I don't know, because I'm not competent enough from the newspaper article to know all of those questions. When, for example, they say he has 500 companies, we don't know, I don't know whether those companies, what the structure is of those companies, and how each of them is being taxed.

Obviously each of them can be a number of, can be different structures. So they could be pass-through entities, in which, and thus if they're pass-through entities, then the taxes roll up to the parent organization. So if you have your company A, and you have subsidiary B and subsidiary C, but if subsidiary B and subsidiary C are pass-through entities, then the losses of the profits roll up to company A.

And so that makes sense, right? If Berkshire Hathaway has a loss on Furniture Mart, then Berkshire Hathaway is netting that loss against the other businesses. And I don't know the extent to which, I don't know the extent to which, how his actual companies are structured. I doubt the New York Times reporters fully understand it as well.

I mean, it's obviously incredibly complex. I don't know, I don't know the answer to that fully. I think the important thing, that I feel like I glossed over it too much, the important thing is not to minimize, when you look at Trump's taxes, is that, is not to minimize how big of a deal his ability to take advantage of that 2009 tax credit was, that he had a huge amount of taxable income, but because that tax credit was passed, where instead of his losses being limited to being deducted over the last two years, but they could look back, then that allowed him to wipe out the big portion of taxes.

With regard to his, you know, the last couple of years, what I would say is that probably, the Times article led me to believe that just simply his businesses are eating up cash, and he was getting cash by refinancing. And so that's the clear picture they made. And the point I tried to, that they painted, and the point I tried to make was, we don't know whether President Trump is actually a great businessman, and his businesses are just doing swimmingly, and these losses are merely paper losses that are offset by other gains in other places, right?

We don't know if maybe he bought this awesome deal, he bought this golf course for $50 million, but in the last three years, although he's poured $30 million a year into it, and it's thus creating giant losses for him, it actually magically became worth $500 million over the last three years.

We don't know if that's true, or if he's just simply a mediocre businessman, and these losses are real losses, and he is actually scrambling, like the Times article led us to believe, that he's scrambling and saying, "How can we cover the debt?" The data is unclear. And so what I would say is that while it's impressive planning that he has been able to reduce his taxable income so low, that's not to say that that's always the best move, because we don't know whether he's actually, again, a mediocre businessman, or whether these are just paper losses.

So how it's structured, I don't know. What I would say is that because the vast majority of his empire is real estate, then there's a parent corporation or a parent holding company that is where the taxes are being paid at the entity level, and they're netting the losses against it.

And also with him being very clearly a full-time real estate professional, he can deduct his losses against any other type of income. And that's something that is available to a full-time real estate professional. That if you are classified as a full-time real estate professional, then you can deduct 100% of your losses against your ordinary income.

And so if he was earning ordinary income from his work with a show, if NBC was paying him ordinary income of whatever the price was, then, or if his entity, where he was doing the apprentice through, was paying him ordinary income, because he is a real estate professional, he can deduct his real estate losses against that ordinary income.

Most people don't qualify as a real estate professional, but he clearly does. And so that would be the other kind of important part that would work in that situation. And so the way you can set that up-- - So that look back, the look back then worked on real estate losses or those business losses?

- I think so, I think so. - He's going against his personal income strictly because of that, he's in that industry. - I think so, yes. And again, I'm not the world's greatest tax expert. I do my very best, but I wanna always proceed with, there are people way smarter than me.

I'm just probably one of the few people that publish it, that talks publicly about this stuff. But I try to understand it, and I try to share my understanding with you. But yes, it's because of his real estate professional status that he was able to expand, when they passed the 2008 expansion of losses, then that allowed him to wipe out the profit.

Because basically, as a real estate professional, here's what I understood, kind of speaking big picture. President Trump doesn't generally make that much income. He doesn't usually do that, because he started with money, and then most of his income has come through developing projects and renting them out. But he's primarily trying to spend capital gains.

And so he's done most of his investing with debt. That was what he clearly talked about in "The Art of the Deal," right? He was a billion dollars in debt, and he turned to whichever wife he was married to at the time, and he said, "That bum on the street over there "has a billion dollars more than I do." So that was his famous story.

And so most of his income, sorry, most of his business activities are financed by debt. That's common in the real estate space. He inherited some money. He used that money for personal expenses, but then most of his work is with debt. And so if you imagine yourself that you're a real estate developer, what do you do?

Well, you finance the project, you oversee the work, and then you refinance the project. And with the refinancing, you take your profits from the refinance, no taxable income, because you're taking a profit from a refinance, and you're hoping in time that the property will appreciate in value. And if you do this right, you have enough money from the refinance for you to live on, and thus you don't have taxable income 'cause you're taking out loans.

But your business, the rents that you're receiving from your tenants are sufficient to cover the mortgages, to cover the notes, and you might get a little bit of profit on the top, but probably not a ton, especially by the time you bring in depreciation expenses. So you shelter most of your current profit, and then your big wins, if there are any big wins, will come from appreciation, which you'll realize when you sell the property.

So it's very easy for a real estate developer to live a very tax-efficient lifestyle because most of the time, the money that they're spending for their personal consumption is debt. And they're keeping their portfolio, and thus avoiding incurring capital gains taxes on the sale of the portfolio. Now, what business was that he was involved in changed that?

Well, his success was The Apprentice, right? He had other endeavors. He had the stakes. He had the beauty pageant. But in my reading about those, most of those have either been relatively small fish or relatively unsuccessful, right? They just weren't, the beauty pageant was a token thing that he liked to do because it gave him a fun way to be this celebrity and to look at beautiful women.

But it wasn't a big moneymaker. The moneymaker was The Apprentice. And so when The Apprentice came along, that created income that was just pure income from the profit. So that created a hundred, what was it, $400 million of profit over the course of the running of The Apprentice. And so that's what he wasn't able to shelter because it was actual profit.

So when The Apprentice ended, that ended his cash generating businesses. And now he was back to real estate, which is very tax efficient. And then it was a stroke of luck for him that he had all these losses from real estate that hit that 2008 extension of the look back period.

That was the stroke of luck for him for him to apply for that $70 million thing. And so you can't, I've never been able to figure out any way that an American can shelter $400 million of profit from a TV show. There's nothing available that's gonna shelter that. You can't also go and all of a sudden buy a bunch of real estate and have that work.

But for him, he was a full-time real estate guy, very tax efficient business. And then he had this big hit and then he had a very fortuitous timing of that tax deduction. And that's the basic underpinnings of the story. - Okay, well, let me shift gears slightly and thinking about this in terms of, having our own business as you encourage us to do and thinking about starting a small business, at what point does one move from reporting business profit or loss through your personal tax return to the business entity filing a tax return?

And then, well, yeah, I'm trying to resolve how losses credit to you personally in that case versus to the business entity as a separate entity and taxing tax return, I guess. - So let's begin with what's deductible for a business versus what's deductible for real estate because that's important.

The reason why President Trump can deduct his losses of real estate against his personal income is because he is a real estate professional. There are three classifications that the IRS uses for real estate. One is a passive investor. And so if you're a passive investor, you go and you buy your neighbor's house when they sell it and you own one house, then in that situation, you are only, wait, would that be a passive investor or an active investor?

I need to check the rules on that, but let's just punt that. So if you're a passive investor, okay, so I think that this would be where if you go and you join, so let's say you join a local real estate investing club and you are investing in real estate, but simply as a passive investor, you're not active in the business, you're investing with a group, a consortium of people, but then you're a passive investor.

In that situation, you can only deduct your passive losses against your passive gains. So your pals and your pags, which is how we remember it in the CFP, right? Your pals and your pags get put together. So losses, passive losses, only are deducted against passive gains. And this was a big deal when the tax code changed, I guess it was about the '80s, because previously people would go and they would invest in all kinds of, you know, an oil well and all these real estate projects.

And the reason they did it, they would buy these, they would invest into a consortium, a company would put together a big real estate project, and they would say, "Listen, if you buy this, "then we'll give you a tax shelter for it "because we're gonna lose money "by the time we bring in our depreciation expense "on our real estate or our depletion expense "on our oil wells, "and so we're gonna report to you a passive loss." And at that time, you could net your passive losses against your other sources of income.

And so the IRS changed all those rules, and forgive me, I'm just off the top of my head here, I would have to check the dates, but I think it was the '80s, and they have moved all of that. And so now your passive losses have to get netted against your passive gains.

And you can only deduct those passive losses to the extent that you have gains. So if you buy shares in an oil well, and your depletion expense exceeds your income, your depletion expense exceeds your profits, then you won't have any taxes due, but those passive losses have to sit there until that oil well or your other passive losses generate gains for you.

So that's the first thing is a passive investor. Now, the second thing is an active investor. So here is where you buy your neighbor's house. And so as an active investor, you can deduct losses against ordinary income, but you can only deduct that up to a limit of $25,000.

And that phases out at, it was like $150,000 of adjusted gross income for a married couple filing jointly, so $100,000 for an individual. So if you go and you become an active investor, you buy your neighbor's house. And if that neighbor's house generates a loss for you, where the costs of the property plus the depreciation expense exceed the profit, so you have a loss, you can net that up to $25,000 of losses against your ordinary income if your adjusted gross income is below $150,000 for a married couple filing jointly or $100,000 for a single individual.

So that's if you're an active investor. Now, the third classification is to become a real estate professional. So if you become a real estate professional, then you can deduct all of your real estate losses against your ordinary income. And so again, that's what Trump is doing. You can deduct all of your real estate losses against your ordinary income.

And so what do you do in your household? Maybe you have an ordinary income of $500,000, but your wife is a full-time real estate professional. She qualifies as a full-time real estate professional. She spends the majority of her time in a real property business. She spends 750 hours or more per year in that business, and she materially participates in that business.

So now, to the extent that your properties produce losses, you can net all of those losses against your earned income. So that's the real estate. Now let's pivot to business, and let's talk about business losses. So here, the type of ownership matters tremendously. At the simplest level, which I talked about earlier in the show, a sole proprietorship has the ability to deduct unlimited losses against ordinary income.

And so you can deduct any loss in that against your ordinary income. An S corporation and a C corporation are limited to deducting their losses against the capital that's been contributed. So you can only deduct your, man, I wish I had a reference book in front of me. You can only deduct your losses against what's actually been contributed to the company, and against your actual adjusted basis.

So you can't start an S corporation or a C corporation, lose a million dollars in those, and then use that to offset your other million dollars of earned income. You can only use that to reduce you up to your basis that you put into it. And I can't, since I don't work with it every day, I can't do any better than that right at the moment, just off the top of my head.

I would just point out that you can't just magically start a company and then use that company to reduce all the rest of your losses everywhere. Now, what you can do is you can, if you're a passive investor, you can net passive losses against passive gains. And so if you had one company, it would be in theory possible to net a company, one company against another if they're related for the individual.

But I'm a little lost now. So I'm gonna stop talking. And I would say is that for some of my expert accountants in the audience, send me an email. And if you can explain this better than I'm doing it, I'd love to profile this out in more detail for the audience.

So send me an email, joshua@radicalpersonalfinance.com. But in summary, what I would say is that it's just not possible to do it unless you're really involved with real estate. - Yeah, well, you covered the basic point in that real estate's different, but these others, sole proprietorship works on your personal return, basically those losses.

And then these other entities, I guess you put distinct capital into those, it becomes a separate entity from your personal income and tax return. And only if you get paid from those, is from those entities is how the two start to mix. - Right, right. So if you're gonna have related businesses, and your businesses, so let's use an example, okay, to try to clarify this.

I'm not aware of any rule that would say that you can't have disparate businesses involved in your business and net them together if it's part of your activity. So let's use a company like General Electric, right? General Electric famously produces stuff, they make stuff, but they're also a massive financing company.

And so if you have a company that has two divisions, one is a financing company, and the other makes stuff, well, you can use that as a way to net that income together in order to avoid taxes. So if you're, let's say that your manufacturing business loses money because you've got so much money on plant, capital, depreciation, et cetera, but your financing business has very low expenses and it makes money, you have the ability to net those two things against each other because in order to reduce your overall taxable income at the end of the year.

Now, in that situation, you would clearly have a C corporation, right? So what happens tax-wise? The business nets all of the income, and then the business pays taxes on the profit that year under the corporate income tax rates. And then that same business issues a dividend to their shareholders.

And then the shareholders, when they receive the dividend, they pay taxes on that dividend income. And so that's clearly the case with that kind of business. And so if you have a business yourself, where you think that there's something you would do that would not be profitable or less profitable and something that would be more profitable, you can certainly do that.

You can have in your business multiple lines. And so you can structure that under your personal business. And so all of the same rules apply that I talked about earlier. If the business is involved in something and it's something that you would enjoy, you can structure that under your business.

Now, if it's a C corporation, the business will net the income and the losses together underneath it. And then it'll declare a dividend to you, the owner, and then you'll pay taxes to the owner. You can do the same thing in an S corporation and the taxes will flow through to you.

You could do the same thing in multiple sole proprietorships. It's just a matter of where does my income come from? If you have a job, then that was what I was saying earlier when I was talking about the advantage of a sole proprietorship. If you have a job where you're earning a salary in the family, then the sole proprietorship is useful, but there's a big danger there because you don't have any asset protection and it's more likely to be disqualified.

If you have an S corporation and you net your activities together, you might have multiple forms of business that you're engaged in, but I'm not aware of any rule, could be there, but I'm not aware of any rule that says these businesses all have to be exactly the same thing.

You just need to make sure that you report the profits from your business and you need to prove that these are genuine lines of business. So if I have a business that, earlier I gave the example of my starting a photography company. If I have a car dealership and I also start a photography company, I just need to make sure that the decisions that I'm making under this business qualify as being ordinary necessary business expenses.

And so I always need to be able to prove to my auditor that I'm making wise business decisions. I'm not just throwing money down the drain, but if my expenses are ordinary and necessary with a clear profit motive, then I can net them together underneath whichever corporation I'm paying the taxes out of.

Okay. All right, that helps some. - Yeah, may you have great wisdom as you figure out how to make things better from here. All right, I had one more question come in, but I'm gonna save it. It came in on the chat from a listener who had to go.

So Ori, call in next week and we'll try it again, but I'm gonna save that question. I think an hour and 48 minutes is sufficient. Thank you all for listening to today's podcast. I would encourage you, take these ideas, apply them to your own personal life and take action.

Thank you for listening. If you'd like to join me on next week's Q&A show, please go to Patreon and search for Radical Personal Finance, sign up for the show there on Patreon, and you'll be able to join me on next week. Be with you very soon.