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Find out more at cdw.com/lenovoclient. >> Today on Radical Personal Finance, it's live Q&A. Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge, skills, insight, and encouragement you need to live a rich and meaningful life now, while building a plan for financial freedom in 10 years or less.

Today is Friday, May 17th, 2024. Friday, May 17th, 2020, 2024. On this Friday, as we do on every Friday, which I can arrange a microphone and a computer and a video camera and all that stuff, we record a live Friday Q&A. This is your first time here for a Friday Q&A show.

I welcome you. It works just like call-in talk radio. You call in, talk about anything that you want, ask any questions that you have, raise any topics of conversation that you have, you direct the call. It is an open-line Friday show. You can join today's show or any Friday show by becoming a patron of the show.

Go to patreon.com/radicalpersonalfinance, patreon.com/radicalpersonalfinance. Support the show on Patreon and that gains access for you to one of these Friday Q&A shows. In addition, quick note, you may have noticed in the podcast feed, but I have opened up consulting appointments. So if you are interested in a personal consultation with me, you can sign up for a consultation at the end of May, beginning of June.

I have two weeks open, a total of 50 slots. I've actually sold out about 10 of them so far, in the last few hours since I published the announcement. So we're down to about 40 slots. You can sign up for that if you go to radicalpersonalfinance.com/consult. My timing is messed up today.

Radicalpersonalfinance.com/consult. If you want the cheapest way to talk to me, cheapest way to talk to me is generally by joining me for a Friday Q&A show, but then I get to pick and choose based upon what's interesting and cut you off when I want to and all that stuff.

And you give me content for the public podcast. If you want to talk to me, though, you like the way that I interact with you on a Friday Q&A show, you can sign up for a personal consultation at radicalpersonalfinance.com/consult. Radicalpersonalfinance.com/consult. We begin today with Larry in California. Larry, welcome to the show.

How can I serve you today? Hey, Jeff, hope you're doing okay. A little bit soft. Let's check the connections on my end. If you can do anything on your end, just pop off of a handset or something like that, that would be helpful. Go ahead when you're ready. Okay, great.

First of all, for the other listeners, just give a plug for the personal consulting. I did that last year and found it well worth it. Thank you. Today I've got a different question. So my wife has been doing private consulting for a little bit of time, and she set up an LLC to help with that effort.

More recently, she started a new venture with a partner where they're going to be splitting all their proceeds 50/50. And we're kind of sitting here wondering how to structure that new venture and kind of what to do with the LLC that already exists. Okay. Why does she want any kind of business entity in the first place?

For the new partnership, I think just as kind of an organizing structure to provide some liability safety, we set up her personal LLC separately because we thought it could help kind of segment the income and help with taxes. Okay. So the reason I ask it is before you do anything, it's important to ask why you're going to do something.

And it is perfectly common and normal to establish some form of business entity for a business, but I always question, is it necessary? And whether or not it's necessary is going to depend in many cases on the actual facts and also based upon who you actually ask for advice.

So the first thing I would point out is the reason to have a limited liability corporation is to protect yourself from liability. But generally with something like a consulting business, a limited liability corporation doesn't protect you from any liability because you don't really have any. So if you're just giving your advice to people and interacting with people as a professional, you have professional liability, but an LLC doesn't protect you from professional liability.

Rather some form of errors and omissions insurance or other professional liability insurance policy is what you need to protect you there. And so establishing a limited liability corporation for a business that doesn't really have any liability is not that big of a, is not particularly important as a thing to do.

Now, it may be something that you do if you are trying to file for your tax returns as an LLC tax, as an S corporation, that's the second most common reason that people do that. But I think there do the math carefully because depending on what state you're in, depending on the cost of preparing your business tax returns, depending on all of that stuff, it may or may not actually work out and may or may not actually save you all that much money in the long run.

So what I have found is that while these are great tools and they're useful tools for many people to use, in general, they're tools that are probably overused and you wind up spending all the money that you would have paid in social security taxes. Instead, you wind up spending it all in tax preparation fees for yet another entity and yet another set of California franchise tax board filings and things like that.

Why not go ahead and just pay self-employment taxes and increase your social security wage base or social security earnings record, which may result in earning a few bucks down the road. So run the math on it before you do it. And for something like a consulting business, there's generally not a lot of liability.

Now, to the new partnership, will this continue to be a consulting business with no employees, no plant, no equipment, just two individuals working together as consultants, or is this entity probably going to get bigger? - It looks like it may expand to bring on additional employees. - Okay. Well, then when you have liability, then that's a really good reason for you to make sure that you have a separate entity.

And so in general, you will choose probably another LLC. You could, of course, adjust the current LLC, but my thought would be, depending on the costs involved, it's probably simpler just to start a new one with the member units distributed between the two partners from the beginning so that everything is clean.

And if you're gonna shut the other one down, shut the other one down, finalize the whole thing, create a new entity, unless there are substantial costs associated with it. Do you think that an LLC is appropriate, or do you think that a more formal corporation would be appropriate for this new entity and this new business?

- I think that's what they're trying to figure out. I think the question we have that we're not totally sure how to solve is there will be certain expenses that are kind of truly joint for the business, say, legal fees for contracts and things like that. But then there are gonna be other expenses that are kind of more personal that you might not wanna split 50/50 at the partnership level, say, gas or certain business meals.

The question is how to structure the consulting business to kind of capture those joint expenses as part of the business, but also be able to have kind of more personal business-related expenses separately. And if you need some kind of structure to do that, like a second business entity or if that's unnecessary.

- Generally, more entities are not necessary. You can establish any kind of compensation plan in just about any kind of business that you want to. So if you want to include as part of the compensation plan that this person gets these benefits, then that's fine. You don't wanna go around just willy-nilly creating entity after entity after entity.

They're expensive and they're a hassle. They require bookkeeping, they require proper management of the corporate affairs. They're expensive and they're a hassle. So you want the bare minimum necessary to do the job fully and properly. Going back just a step from the business entity, what is this partnership plan to be a 50/50 partnership?

- Yes. - What is each partner bringing to the table? - The consulting is doing brand strategy and kind of founder coaching. They do have a different and complementary skillset. One is a little more marketing focused. One is more business planning and helping folks find investors. - Okay, so you're anticipating what I'm focusing on, which is to say that in order for a partnership to work, the partner should bring complementary skillsets to the table so that they produce more as a team than they would as individuals working alone.

Is there, who's gonna invest the money? Are both, is the money coming in equally? Is it just everything, it's a natural 50/50 split from the beginning? - Yeah, it's a natural 50/50 split from the beginning. - Okay. So I don't know that there's a clear or obvious answer that I know from right off the bat without getting into the details of what specifically you want to accomplish from a compensation perspective and what kind of deductions and benefits and things like that that you want.

Either the easiest thing to establish is an LLC and then you can choose to be taxed as an S-corporation. In this case, you generally want to establish a corporate entity in order to protect yourself against unlimited liability that you would have in a partnership arrangement that weren't in a corporation.

So when you're going into an actual partnership to protect yourself from unlimited liability from your business partner, then you definitely do want to go ahead and establish an entity. An LLC taxed as an S-corporation allows all of the income to flow through and it's simpler, that's why it's loved.

There are fewer administrative requirements, it's less expensive to maintain generally, it's just simpler. An S-corporation or a C-corporation is more burdensome from the perspective of maintenance of the entity. But you're going to appreciate some of the higher level planning that you can do with either of those operations. So I can't answer it here in the context of a call because you would want to look at things like health insurance.

Do we want to put programs through? Do we want to have executive compensation programs? How much money are we actually looking to make? If this is the kind of thing where there's going to be $100,000 split two ways, then we're pretty obviously going to want a simple entity that just passes the money through and distributes everything on a simple equal basis.

On the other hand, if this is a seven figure business and or multiple seven figures or an eight figure business with potential, then we may want to go ahead and have more of the formalities that we can bring in more of the programs and benefit programs that we would like to have with a corporation.

Some form of self-reimbursed medical program might be useful to one of the partners. You may want to go ahead and bring in something related to transportation allowances, car allowances, things like that. So I don't think I can go further here in this context without going through those step-by-step. So I'd recommend and refer you to a local attorney for a consultation or an accountant who could go through and look at the anticipated profit of the business and then see if there's kind of a natural connection for one entity over another.

There's nothing wrong with starting as an LLC and then changing in the future. That's the simplest and easiest to get going. - Sounds great, thank you. - My pleasure. All right, move on to Christian. Christian, welcome to the show. How can I serve you today? - Hi, Joshua. And thanks for that last answer.

It was, I just actually brought in partners from my consulting firm. And so we had gone through all those discussions and so forth. - What did you wind up doing in terms of your entity selection? - Yeah, so we actually went with a multi-tiered structure so that we have a partnership that's an LLC, and then we each own our ownership through individual S-corps that we have.

So we are expecting this to be, it's already in the seven figures and expecting to get to an eight-figure company pretty soon. So we'll be bringing in junior partners and so forth for the partnership. But to be able to control some of the taxes, how we want to be taxed and our own compensations and split of the profits and so forth, we were advised that having that individual S-corp that owns the shares of the partnership would be most advantageous.

- Yeah, when you have significant money coming in, significant revenue and potential for significant profit, then you absolutely need to make sure that you're getting full advice and that you are structured in a way that takes advantage of it with as many individual entities as necessary to get what you're looking for.

It is much easier to pay your annual tax preparation fees for three or four different entities and pay for your bookkeeping and administrative costs and your franchise tax board costs and all that stuff when you have seven figures than if you're just getting started and you may have $70,000 of revenue.

So good move, and that sounds like a super interesting, I would have enjoyed being there and listening to those conversations and planning your structure personally. Go ahead with your topic of conversation, please. - Yeah, so my question's entirely different. I was actually gonna ask you about language learning for young children.

So my wife and I have two kids, three and eight months. Our three-year-old, we started off actually speaking Portuguese at home with her. My wife is Brazilian. My Portuguese was good enough for young kids. So we got by with that, and then after a little while, we lived here in Texas, we started speaking, or I started speaking English with her.

And so she transitioned to that just to help at church and elsewhere, she was getting frustrated communicating. And now I'm trying to actually speak German with her. And she's getting very frustrated with that as we're trying to teach her that, 'cause we figured, okay, we can do one parent, one language at home, now Portuguese with my wife, German with me, and then she can speak English elsewhere.

And yeah, she's been having trouble with it. It's not been easy for her. She gets very, very frustrated, it doesn't go very well. But we're sticking to it. I was just wondering about that approach. Also with the eight-month-old, I was gonna start speaking actually German in the home with him, and then maybe transition him to more English outside.

And that was kind of our approach or our strategy. But I was wondering how you approach it with younger kids and any tools or tips or anything like that to be able to get them immersed easily, especially when you're trying to do languages that aren't predominant in the area that you live.

- Is your German sufficiently strong that you will feel comfortable having the fullness of your relationship with your children in German? - I can do that. I went to grad school in Switzerland in a German program, so I'm fine with that. I need to brush it up a little bit probably as we mature, but I don't think I would have any issues with that in the long run.

- Okay, so to me, that's the most important thing is just to make certain that your language ability is a level that you can really do it. And that requires mastery of a language, and you really need the high level in order for one language to work. I think that your plan of your wife speaking Portuguese exclusively and you speaking German exclusively, and then perhaps your community language is English on occasion is the right plan.

And what I would say is the frustration, if there is frustration, then it should be relatively short-lived because the frustration is coming from the fact that perhaps you didn't begin from the beginning. So I would expect your eight-month-old to not experience frustration, and your three-year-old to experience frustration just for a fairly short period of time.

I don't think that, I guess my only comment in terms of frustration is I wouldn't try to require in the short term your three-year-old to speak in German to you. And so as long as there's enough English input from school or from community, if she can reply in whatever language she wants.

But at three years old, you could change to Russian tomorrow and she would figure it out and be fine in a couple of months. I've never known, I know a lot of families who are multilingual who do one parent, one language. I've known families who do one parent, one language where mom speaks a different language, dad speaks a different language, and then their community language is a third language.

And it works fine. It absolutely is the best way to do it. And it works fine as long as the parents don't give in. If the parents give in and they allow the child in the fullness of time to have the relationship in another language, then something happens. So what I find is with when your child is facing frustration, you have to look at it and say, is this something that is genuinely a problem?

Or is this something where I'm just gonna be tougher than my child is? And obviously you wanna make good decisions as a parent, but in general, it just comes down to who's gonna be tougher and more stubborn. And I've determined I'm gonna win every stubbornness battle because I'm gonna make a decision.

And if I make the decision, I say, this is the best thing for my child, I'm far more stubborn than you are at three years old. So I think it'll work fine. What I would suggest is that you add in media in a way to make sure that there's more exposure.

Remember that if a child starts learning a language from the age of one, he's being spoken to for thousands of hours in the language before he sticks out even the first sounds, the first da-da, it's so much input. And so if you've recently made the switch to German, then really pour on the input.

And so story time with lots of great story books every night in German, movies in German, tablet in German, if you're using a tablet or computer, making sure that there's some kind of German exposure, go take a special trip to Germany for three or four weeks and make certain that you get involved in something local where there's a lot of exposure.

Because it just is a numbers game based upon who gets the most exposure. And what causes failure is when people are thinking that somehow I'm gonna do 30 minutes a day of German exposure or whatever language exposure, and that's gonna overcome the 15 hours a day of other language exposure that's there.

It's not, it needs to be quite a lot. And so if you'll be super intentional about it for the next six months to a year, I would bet that a year from now, nothing has changed. And then the standard, by the way, I'm contradicting myself. So let me identify the contradiction.

I said, I wouldn't require the child to respond in German because maybe we can relieve the frustration. Then I also said, but who's gonna be more stubborn? I think you should balance it, but the vision should be within six months or a year, if I've just started this, that we're going to interact in German and the child's going to interact with me in German and I'm gonna interact with the child in German all the time.

So I would just say it's going to work. It's absolutely great. Your child can learn English for the community language in Texas. Your wife can speak Portuguese. You can speak German. And on occasion, you can use English as a family language. Just be careful because if you have, you need to get in the hours of German in order for her to reach that point.

- Right, yeah, and I've noticed one of the challenges is that my wife and I speak together in English primarily. It's just always what we've done. I didn't know Portuguese when I met her. So that becomes an issue 'cause our daughter wants to try to speak more English with my wife now.

So we've always got to try to remind her, hey, no, stick with Portuguese, stick with Portuguese. And that's become a challenging point. - I've listened to parents who do, I mean, I believe you can do it. In your situation, it'll be simple. And what I mean by simple is you be committed to German.

Whenever you're with your daughter, it's always German between the two of you. You don't read to her in English. You don't read to her in Portuguese. It's always German. All your books are German. Everything's German. That's your relationship language. And then with your wife, the same thing. It's Portuguese all the time.

And then use audio books and use other people who are reading in English and the school teachers and things like that. It's fine to have English as a community language at the dinner table, as long as you're consistent about the other times. I have heard from parents who've been very successful, even just using different languages on different days, but the child needs a context for the language.

I'm sure you've experienced this yourself with German and with English. I have friends who speak, I speak Spanish and English, very comfortable, totally comfortable, I need a language. I have friends of mine who are perfectly comfortable in both languages. In the beginning, there's kind of a back and forth about what language are we gonna do.

After the first couple of conversations, whatever the language of our relationship is, that's the language of our relationship. And I can't switch it. It's just so uncomfortable to switch it, even though both people are totally comfortable in both languages. It's something about the brain where it says, this person, this is a relationship that happens in this language.

And so I would say that your daughter's probably still working through that. So just stick to your guns. You won't regret it. You will be happy with it, even if you have to just muscle through the frustration. - Yeah, for sure. As an aside, have you played with the ChatGPT voice capabilities for language learning?

- A lot, yes. - Okay, yeah, yeah. I've been working with that and I found it incredibly helpful. I've been trying to find a good app that actually ties into it a little bit more naturally, but I haven't found anything. But it's been great. - It has been. I have been using it to tutor.

So I've been testing it extensively. I've used it for conversations. I'm amazed with the switching ability. It's scary good at switching. You could start your conversation with it in English and just without any warning whatsoever, you switch to German and it'll switch right back with you. You can switch to Portuguese.

It's scary good with regard to switching. I find that it's really useful for back and forth. As long as we have a scenario base. So what I think is the best way right now that I've found to use it is you can use it to create a list of scenarios.

So let's say you're gonna travel. So you say, give me a list of 10 different scenarios, the kinds of things that would be in a standard language book. And then give me dialogues for those scenarios. And you do this in text form. Now you take those dialogues and you say, let's role play.

And you give it the instructions that you want. You do it all verbally and go back and forth and back and forth. It's so useful to have a conversation partner who's gonna feed you different things and different scenarios. I think it's great. I've also find it really useful for making sense of language textbooks.

I've been teaching my children how to use it with a language textbook for the languages that they're learning that I don't know. And so it'll, you know, language textbook will say, hey, do group work. I'll say, well, listen, I don't have group work. So let's take a picture of the page, send it to chat GPT and tell chat and say, listen, we're gonna do a role play.

I need you, I don't have a group partner to do this example from my Chinese textbook. So let's go back and forth and let's do the example together. And I find that that's a useful tool as well. It's really working well. - Yeah, I've been using it where, I like that role playing idea, or I've just been talking to it, starting off a conversation.

I'll usually open with the prompt of, hey, I'm learning, you know, whatever language, Spanish, or working on my Portuguese and start the conversation and tell it to give me corrections if on any grammatical mistakes or pronunciation mistakes or anything like that. And it's usually pretty good about it, about getting back and it'll give me the response and then correct everything.

So I have that quick feedback of, oh, I made a mistake here and then continue the conversation. - Yeah, chat GPT is completely upending the world of languages. I still think it's valuable to learn languages, but I'll tell you what, we're already there with real time AI translation. And I can't even imagine how good it's gonna be in five years with real time AI translation.

It's so, so good. So we'll see, it's an exciting world we live in. For now, the learning tools right now, using chat GPT as a personal tutor, as a personal teacher is, it's so good. So we'll keep it up and I hope it works out. Anything else from you?

- No, that was it. Thanks, I appreciate it. - Great. And with that, I had two more callers on the line, but they both dropped off. So we'll just end it there early today. Thank you so much for listening to today's podcast. Remember, if you'd like to join me for next week's Friday Q&A show, go to patreon.com/radicalpersonalfinance.

If you'd like to book a private consulting call with me where I can be more prepared for a question like in depth discussion of entity formation, things like that. And if carefully thought through the situation in advance, you can do that by going to radicalpersonalfinance.com/consult, radicalpersonalfinance.com/consult. Talk soon. Something amazing is happening with supply chains.

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