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.
Be honest with yourself. Are you going to make money, and is the thrill of money exciting to you and part of that fulfillment purpose? Welcome to the Retire On Time q and a podcast, a show all about answering your retirement questions. This show is not about the oversimplified advice you've heard hundreds of times. We want to get into the nitty gritty.
Mike:Text your questions to (913) 363-1234, and we'll feature them on the show. That said, remember, this is just a show. It's not financial advice. This is informational and educational only. David, what do we got?
David:Hey, Mike. I want to create a business in retirement to keep myself busy. What should I know?
Mike:The the first part is gonna be how knowledgeable are you on said business. Okay? So you don't start a business so that you can write off your hobbies. Alright. IRS does not like that.
Mike:I know people say, hey, you know, you wanna be a photographer and travel the world, write it all off to start a business, and you never get a client, you never that doesn't work. I've never heard of that passing an audit. Okay. So if first off, if you're gonna start a business, do you know what you're doing, or are you prepared to learn really, really fast? Which is not a bad thing at all.
Mike:It's good to be engaged critically in in learning and growing and all that. But also, do you legitimately want to make money off the business? You don't need to make a lot of money. You know, it could be $500 here, a thousand bucks there, like but it has to be a legitimate business.
Mike:K? You know, if you wanna have a garden and go to the farmer's market and sell it, maybe you barely break even, but it keeps you busy as long as it's a legitimate business. That's the first thing here.
David:Okay?
Mike:If it's a hobby and you're looking to write things off, please don't go there. I find that to be bad advice. K? Now the second part is how much money do you wanna make from this business? And this is an important distinction.
Mike:If you're only gonna make 20, you know, 10,000, 20,000, maybe up to 60,000 or less. Maybe you just do a simple sole proprietorship as long as there's not huge liability. Keep it simple from a tax standpoint. It's nice and simple. Mhmm.
Mike:Or you might, if it's if you there's some sort of liability, separate yourself into an LLC, single member LLC, pass through taxation. It's still relatively simple. Just make sure that you keep your books clean and you've got your personal expenses on your personal cards Mhmm. And all of that. And then you have a credit card.
Mike:You know, sorry, Dave. You got your credit card or or debit card, I guess, you could do it. But you have your business accounts, and they're just separate. Uh-huh. You you wanna keep them separate so it's clean and easy to do the books.
Mike:Okay. Okay? Make sure you understand that you you also spend money appropriately on both sides. So all all that said, that's that's the easy way, 60,000 or less. Just keep things simple.
Mike:Okay? The hobby business, as they say.
Mike:If you're like, no, I I I'm gonna make more money than that, whether it's a hobby business or not, you may consider filing your business as an LLC that files as an s corp. And the reason I go here is because you can take a reasonable salary of, you know, whatever reasonable is, 40,000, 50,000, 30,000. That's gonna be up to you and the business itself. A lot of gray area in this. But you pay yourself that salary, and then everything else is taken as profit.
Mike:That lowers your tax bill with FICA tax. Okay. Because you pay yourself the salary, you're paid FICA tax on the income that you have, but profits are not taxed on FICA. That's that's, you know, those Social Security tax and
Mike:And all that. And if it's just a one person show, very, very simple. You don't have deal with the unemployment and a lot of these other things. You still need to notify that you're a single person shop, but, you know, it's these are easy things you can you can solve for.
Mike:So that's kind of the tax background of it and kind of some thresholds you might consider. Make sure your bookkeeping is simple. Make sure, you know, you got QuickBooks, you got Wave, you got all these apps that that do that. Mhmm. Do you need to do it for the money, or are you just doing it to write off taxes?
Mike:Are you going to make money, and is the thrill of money exciting to you and part of that fulfillment, purpose, you know, you get the healthy hits of dopamine, serotonin, and oxytocin?
Mike:Or is it like, well, you know, I just don't wanna miss out on tax opportunities, I'm gonna complicate my life to save a few $100 in taxes. Mhmm. Be honest with yourself in in that standpoint. I think it's very fun to have a business in retirement. We have several clients that do that, and it's it gives them structure.
Mike:It allows them to have that edge to stay sharp and and to keep going. I mean, retirement's kind of a modern day invention. Think about it. Mean, it used to be that, you know, grand Pop Pop. Pop Pop.
Mike:Whoever.
David:Pop Pop. Yeah.
Mike:Yeah. Worked until the month before he died. He just couldn't work anymore, and then he died a month later. Like, that that used to be life. And then we invented this thing called retirement because we became very prosperous.
Mike:We we, you know, go to school for twenty years or twenty five years. You work for forty years, and then you've got this twenty, thirty year thing we call retirement. It's not necessarily healthy for you to retire. It's just what what are you gonna be engaged in? Be careful about these are just kind of some of the cautionary things I've noticed.
Mike:Be careful about getting into something you have no idea what you know what you're doing with and spending too much money doing it. There have been cases where people became too aggressive into becoming a landlord because they thought it'd be fun. They ended up hating it. They bought houses. They lost money on the houses.
Mike:They lost money on repairs. They sold thing it just it was a disaster. They put too much money into things like that. Hobby businesses, I mean, you could start a hobby business for less than $10,000. Depending I mean, assuming you're not a welder, assuming you're not, like, buying fancy gear, but I I think it's a it's one of the greater pursuits for someone to stay engaged in life with their business, whether it's a legitimate business, for profit, whether it's a nonprofit business.
Mike:Maybe you don't need to take any income from it. You're just it's your ex it I I I don't do it to stay busy to busy yourself. Make sure that there's a reason you're doing it, and it's clearly defined that you want to make money, or you're just doing a hobby.
David:And so are we saying then that there's a difference between just busying yourself and, like, truly, like, being engaged?
Mike:Yeah. Some people are just trying to recreate what they've always known, and that's to work for something. And I would suggest that maybe your work life was accidentally fulfilling, but you might be missing some few critical components.
Mike:And that now that you're working for yourself, trying to chase these ghosts, you're forgetting about the other parts of it, and it actually isn't as good as it may be. Mhmm. Does that make sense? Yeah. Just from the emotional standpoint, are you prepared for the difficulty of starting a business?
Mike:Are you prepared for the capital investment that goes into it and that you could lose it all? There's a reason why they say, well, eighty some percent of businesses fail in the first year. Mhmm. They don't know what they don't know. Yeah.
Mike:So but I mean, that said, I think it's it's a wonderful thing for the the person that's it's that they're prepared for to do that. Yeah. So be careful. Don't take shortcuts with your tax write offs and things like that. Don't get suckered in to cheating the IRS.
Mike:You don't cheat the IRS. And that's usually and that's kind of my hesitation is, are you doing it for tax write offs? Are you doing it to busy yourself? There's other ways you could find fulfillment in retirement or purpose without the business. Or is it like, no, I I really like, here's here's a fun thing I've thought of.
Mike:You want some fun fun
David:I mean, let this I like fun.
Mike:My wife and I have always talked about doing a hobby farm. I would love to have a hobby farm in retirement.
Mike:Would love it. And I don't like, if I have a couple 10 acres of farming Yeah. Equipments for land and then the farming equipment and all that, you better believe I'm gonna make sure that land pays for the farming equipment. That's expensive. Mhmm.
Mike:It's gonna give me something to do that I find fascinating. I mean, I what's the opposite of a green thumb? A red thumb that kills everyone? Yeah. The opposite of that's me with farming.
Mike:I am terrible, but I wanna learn. I think it'd be very exciting to do that as a part of when I say my retirement, I I don't know if I'd ever fully retire and just go on vacations. You know, I I wanna do something to pursue. So I'm I'm in agreement with this person.
Mike:But you better believe I'm selling that crop. Yeah. That I want to advance the capital or the investment of buying a farm and enjoying going to a farmer market, enjoying selling it in some sort of way. Like, that's fun to me.
David:You at least wanna break even so that you're not going into debt. Yeah.
Mike:You don't go into debt to fulfill yourself. That's called a hobby. Don't complicate your tax situation to go into debt and all of this. Yeah. And then also schedule f is a very fun way to write off a lot of things.
Mike:You gotta be careful with that. Don't wanna get too crazy. But but, like, that's that's a fun thing. Yeah. Right?
Mike:I I know many people that will become quilters in retirement. They just love quilting, and that's a really cool skill set. I mean, it's incredible to make custom made quilts
Mike:And then just try and sell them. Yeah. It's hard to sell them. Yeah. But you can do that.
Mike:You can make a business around that if you want. Maybe you don't. May I mean, you could be a tutor. Maybe tutoring should be free. I don't know.
David:But do
Mike:you see there's cool things you can do that already have a built in business element to it? Yeah. Just make sure you're up to that hard with sales, with marketing, and how to run the business, but it can be really, really fun. Just don't cheat the IRS, One
David:of the main takeaways. Yeah.
Mike:If you enjoyed this this show, this episode, and the content, make sure to subscribe to us wherever you get podcasts and or on YouTube. Also, don't forget to go to retireontime.com for many resources and much more. That's retireontime.com. Thanks for watching this show. We'll see you in the next episode.