Subscribe
Share
Share
Embed
Welcome to How to Retire on Time, a show that answers your retirement questions. Say goodbye to the oversimplified advice you've heard hundreds of times. This show is about getting into the nitty-gritty so you can make better decisions as you prepare for retirement. Text your questions to 913-363-1234 and we'll feature them on the show. Don't forget to grab a copy of the book, How to Retire on Time, or check out our resources by going to www.retireontime.com.
Welcome to how to retire on time, a show that answers your retirement questions. Say goodbye to that oversimplified advice you've heard hundreds of times. This show is all about getting into the nitty gritty. Now that said, remember, this is just a show, should not be considered financial advice. As always, text your questions to (913) 363-1234, and we'll feature them on the show.
Mike:Let's begin. Hey, Mike. I've got friends who have family businesses for retirement so they can write off their family travel and fun expenses. I knew this question would come someday. Does that really work?
Mike:That's a good end to the question. The answer is no. Please don't do this. Let me give you a little background. So there's this place called the IRS, and their job is to make sure that people are following the tax code as it was intended to be done.
Mike:The IRS will do this thing called an audit on people every now and then, and they'll look at your tax returns, your financials, and so on to see if it's legitimate or if there's any tomfoolery going along, any shenanigans. I've never seen anyone ever in my fifteen years over a decade of doing this get away with this strategy. Every audit that I'm aware of. Now it's never been to any of my clients because I don't put up with this crap. I don't lead them down this idea of taking advantage of the tax code through these gray area ideas that don't hold water.
Mike:I don't deal with this crap, but I know people do. So let's address it. Okay? Here's the idea. The idea is if you have a lot of money and you're already be taking family vacations, why not create a company and have fancy board meetings where your family can get together, you've got some minutes and all as well, and then then you go off and play.
Mike:Okay. Well, first off, all of that is a deduction, not a tax credit. You need to understand the differences. A tax deduction is you're gonna get maybe 20¢ back on every dollar you spend. So why would you deliberately spend money to then get 20¢ back?
Mike:And you might say, oh, Mike, I'm gonna spend the money anyway. Well, I guess, yeah, if you're gonna spend the money anyway, might as well get 20¢ I get that side of it, but you don't wanna spend money for the sake of trying to get a deduction. Plus, most people aren't even gonna exceed the standard deduction regardless. And then if you put the standard deduction and the senior deduction and the Trump deduction, you're now really high up. Like, it would cost a ton of money.
Mike:You have to spend a ton of money to even get there. Are you jumping over dimes to pick up pennies? Do you really wanna take these lavish vacations? Because it has to be so lavish, extremely lavish, for you to even facilitate the idea that maybe you could do an itemized deduction right now because the standard deduction is so high. That's the first bit.
Mike:Okay? The second bit is, yeah, you could put money into like some sort of LLC, I guess, and maybe manipulate things. But look, it's I've never seen it pass an audit, because it all comes down to a simple question. Are you running a legitimate business or not? A legitimate business is where you're actually working to create a product or service that is intended to be sold to the public for gain.
Mike:That is a business. If your business is to go on vacations and then go on Instagram and say, hey. Look at how fun this is, and we're sharing our experiences on the travel and blah blah blah. Hey. We're doing this, and you're trying to build up a social media audience, but, like, you're not really trying to do it.
Mike:You're just posting so you can rationalize it. It's not gonna fly. Please do not assume you can cheat the IRS. They're not dumb. Now let's take the same example and just have some fun with it.
Mike:Let's say and I'm not saying you should do this, but let's say you want to travel extensively and you wanna do it with your family. Fine. Let's say then all of your family I don't know. There's three kids. You and three kids.
Mike:You're going on these vacations, and you legitimately all have jobs in this business. You legitimately are putting in ten, twenty hours of work at least every single week. And you're legitimately going on there and posting and taking trainings and spending marketing dollars to grow your reach and whatever you do for social media influencers and all of that. If you can legitimately show that and there's a trajectory to where you're gonna make money instead of just spend money, then maybe you've got a shot in the dark. But that's a huge if, and you actually need to work.
Mike:Now here's an example where it might actually can make sense. So I I joke about this with my family, but I'm actually pretty serious about it. My son, when he turns, I don't know, 14, 16 years old or so, is gonna start a business, whether he likes it or not. I want him to learn what entrepreneurship is actually like. I want him to understand how difficult it is, because I think entrepreneurship's been romanticized when it's actually rather difficult to do.
Mike:Most businesses fail in the same year that they start. So I want him to start a business with the intention of scaring him out of doing a business. I want him to take a safer route unless he's really got the gumption to do this. The company that I've picked out for him is called Buen Tacos. I like tacos.
Mike:Who doesn't like tacos? But we're gonna create a small food truck business called Buen Tacos, which, you know, Bueno Buen, it's good tacos. That's what it translates to. And maybe we create an LLC. I will fund it, and maybe we take a vacation to Mexico to try out a few things.
Mike:So it's like a one time vacation. We go back, we've invested in there, and then we're going from place to place, park to park, whatever we end up doing to legitimately try to do the business. So there is some research to it, which kind of would be a lot of fun, but it all is going to be going down into trying to make money, and we could legitimately project the research, the trajectory, the inventory, what we've purchased, and how we're gonna break even in all of that. It would be treated as a legitimate business. And if he takes off with it, then great.
Mike:Maybe we sell it. Maybe we franchise. I don't know. Whatever we end up doing. But the exercise is intended to make more money than we put into it.
Mike:So then we can start to rationalize what we're deducting, what we're spending on, and so on. Are we gonna invite cousins to these trips? No. Are we gonna be inviting other extended family to the trips? That doesn't make business sense.
Mike:You've gotta keep things within certain parameters. So just be mindful of that. And just for fun, yeah, I heard about the domain, so it's just sitting there. But that's gonna be a real thing. So if you're in Kansas City, and I don't know, in ten years you remember this this show.
Mike:Buen tacos. But and then I've got the other one, yoyi teriyaki, because I'm from Seattle originally, and I love teriyaki. I would love to have real teriyaki here in Kansas City. But anyway, the point is don't cheat the IRS. Don't spend money just to get the deduction.
Mike:It's different deductions. You might get 20¢ back on the dollar, maybe. A credit is dollar for dollar. You're not buying credits. You're not getting credits for this.
Mike:You really wanna make sure that you're doing a legitimate enterprise if you go down this route. And if you do, maybe that's your encore career. Maybe you have a lot of fun doing it. Just don't cheat the system. That's all the time we've got for the show today.
Mike:If you enjoyed the show, consider subscribing to it wherever you get your podcast. Just search for how to retire on time. Discover if your portfolio is built to weather flat market cycles or if you're missing tax minimization opportunities that you may not even know exist. Explore strategies that may be able to help you lower your overall risk while potentially increasing your overall growth and lifestyle flexibility. Is not your ordinary financial analysis.
Mike:Learn more about Your Wealth Analysis and what it could do for you regardless of your age, asset, or target retirement date, go to www.yourwealthanalysis.com today to learn more and get started.