Earning on Savings

Off Topic
21

[quote]toughcasey wrote:
If you truly have 500k to invest then it would be silly not to invest (purchase or open) in a small to medium size business or businesses. you could easily generate 100k+ in passive income annually while retaining and building equity at the same time.

this is superior to real estate due to the passive income being potentially so much higher. this would of course require some work, potentially a lot, but I am a 26 year old business owner and can not tell you enough how valuable being my own boss is in so many ways even more than just financially.

calling stocks investments is really poor thinking considering the history of the stock market. just ask people how their 401k is doing now. it is more of a speculation than a true investment, and unless you are a guru, i would avoid jumping right in.

if you do choose stocks, do some research, lots of research, “how to make money in stocks” by william j o’neil is a great book that can help you tremendously.

good luck[/quote]
When you purchase stock, you are buying a business.

You inherit less risk when buying blue chip and diversifying than you do when buying one business with a net worth valued at 500k.

22

[quote]toughcasey wrote:
If you truly have 500k to invest then it would be silly not to invest (purchase or open) in a small to medium size business or businesses. you could easily generate 100k+ in passive income annually while retaining and building equity at the same time.

this is superior to real estate due to the passive income being potentially so much higher. this would of course require some work, potentially a lot, but I am a 26 year old business owner and can not tell you enough how valuable being my own boss is in so many ways even more than just financially.

calling stocks investments is really poor thinking considering the history of the stock market. just ask people how their 401k is doing now. it is more of a speculation than a true investment, and unless you are a guru, i would avoid jumping right in.

if you do choose stocks, do some research, lots of research, “how to make money in stocks” by william j o’neil is a great book that can help you tremendously.

good luck[/quote]

Also, if you are asking people how their 401k looks, ask the small business owners filing for bankruptcy or losing their asses right now how their own, much more permanent future looks.

A 401 will come back as soon as the market turns around. You still owe the same units of a company you bought, their value is just temporarily lower than normal.

If you own a small company and lose profit, reach the end of your credit line and go bankrupt… there is no recovery. When the market comes back it’s too bad for you. You are already cut out of it.

Mutual funds are very secure and take care of diversification strategies for you and if you want to play individual stocks, your broker is your guru.

There is always risk in everything. You take a much greater risk with a small business (where the “shutter rate” is ridiculously high even in a good economy) than you do with a large, established one who may temporarily lose some value.

Even if you buy stock at $5 per share, it goes up to $10 and then “loses value” and drops to $7, you are still winning long term and this is a more accurate history of the stock market.

23

[quote]countingbeans wrote:
toughcasey wrote:
you could easily generate 100k+ in passive income annually while retaining and building equity at the same time.

this is superior to real estate due to the passive income being potentially so much higher. this would of course require some work, potentially a lot,

Not arguing with your statement as much as nit picking.

Your contradicting yourself. When you run/manage/materially participate in the business, the income is not passive. And this is a good thing. You can often tax plan your business to near zero or a loss.

If the income is passive you cannot claim the loss, but if it is active you can take the loss. In general there are three types of income, GAAP, Tax, & cash. All three can be vastly different. [/quote]

yes i agree, while the work put in at first is demanding, the idea, at least for me was to slowly integrate myself out with time which is allowed by increases in revenues,

and dont forget that my corporation helps me shield some of my tax liability by working from home and taking plenty of expenses that negate the need to take a paycheck, and lowering my corporate tax liability. working from home for a few hours a week is passive enough for me, especially when my corporation is paying a big part of my house payment.

24

[quote]FormerlyTexasGuy wrote:
toughcasey wrote:
If you truly have 500k to invest then it would be silly not to invest (purchase or open) in a small to medium size business or businesses. you could easily generate 100k+ in passive income annually while retaining and building equity at the same time.

this is superior to real estate due to the passive income being potentially so much higher. this would of course require some work, potentially a lot, but I am a 26 year old business owner and can not tell you enough how valuable being my own boss is in so many ways even more than just financially.

calling stocks investments is really poor thinking considering the history of the stock market. just ask people how their 401k is doing now. it is more of a speculation than a true investment, and unless you are a guru, i would avoid jumping right in.

if you do choose stocks, do some research, lots of research, “how to make money in stocks” by william j o’neil is a great book that can help you tremendously.

good luck
When you purchase stock, you are buying a business.

You inherit less risk when buying blue chip and diversifying than you do when buying one business with a net worth valued at 500k.

[/quote]

i am familiar with what stocks are, but you have to keep in mind he is wanting passive income, which would be relatively low when investing in stocks compared to opening a successful franchised small business.

25

[quote]FormerlyTexasGuy wrote:
toughcasey wrote:
If you truly have 500k to invest then it would be silly not to invest (purchase or open) in a small to medium size business or businesses. you could easily generate 100k+ in passive income annually while retaining and building equity at the same time.

this is superior to real estate due to the passive income being potentially so much higher. this would of course require some work, potentially a lot, but I am a 26 year old business owner and can not tell you enough how valuable being my own boss is in so many ways even more than just financially.

calling stocks investments is really poor thinking considering the history of the stock market. just ask people how their 401k is doing now. it is more of a speculation than a true investment, and unless you are a guru, i would avoid jumping right in.

if you do choose stocks, do some research, lots of research, “how to make money in stocks” by william j o’neil is a great book that can help you tremendously.

good luck

Also, if you are asking people how their 401k looks, ask the small business owners filing for bankruptcy or losing their asses right now how their own, much more permanent future looks.

A 401 will come back as soon as the market turns around. You still owe the same units of a company you bought, their value is just temporarily lower than normal.

If you own a small company and lose profit, reach the end of your credit line and go bankrupt… there is no recovery. When the market comes back it’s too bad for you. You are already cut out of it.

Mutual funds are very secure and take care of diversification strategies for you and if you want to play individual stocks, your broker is your guru.

There is always risk in everything. You take a much greater risk with a small business (where the “shutter rate” is ridiculously high even in a good economy) than you do with a large, established one who may temporarily lose some value.

Even if you buy stock at $5 per share, it goes up to $10 and then “loses value” and drops to $7, you are still winning long term and this is a more accurate history of the stock market. [/quote]

well i think again you missed the point here and dont really understand how small businesses are run, he stated he wanted the highest return for his money, in the most passive way.

the examples of people closing their doors are mostly small mom and pop type businesses, that do not have national marketing,a solid market proven concept, brand awareness, or a large corporate structure like that of a franchised small business. i am showing positive growth and have for 8 years running, good times and bad.

at this point, even if i closed my doors tomorrow, i have made five fold what your 401k has in the same amount of time all with a relatively small out of pocket investment which i turned over five times if not more.

not to mention, you put that money in your 401k from YOUR income, my business generated the income to build its own equity and pay down its own debt, to pay me and my family members and employees, to donate to charity, and to expand and generate more income. THAT is what the definition of investment is.

while yes there is of course risk, there are PLENTY of solid business investments out there for 250 - 500k that will be able to survive even in times like this when credit isn’t readily available, its called cash flow management, and operating capital, properly run businesses are prepared for things like this!

tell the guy who is trying to retire right now to wait until his 401k comes back up, and that he has to work for two more years possibly, even though he has worked for 40 years to build it up and now is being forced to retire,while it only took me 8 to generate the same return for my money.

26

[quote]FormerlyTexasGuy wrote:
toughcasey wrote:
If you truly have 500k to invest then it would be silly not to invest (purchase or open) in a small to medium size business or businesses. you could easily generate 100k+ in passive income annually while retaining and building equity at the same time.

this is superior to real estate due to the passive income being potentially so much higher. this would of course require some work, potentially a lot, but I am a 26 year old business owner and can not tell you enough how valuable being my own boss is in so many ways even more than just financially.

calling stocks investments is really poor thinking considering the history of the stock market. just ask people how their 401k is doing now. it is more of a speculation than a true investment, and unless you are a guru, i would avoid jumping right in.

if you do choose stocks, do some research, lots of research, “how to make money in stocks” by william j o’neil is a great book that can help you tremendously.

good luck

Also, if you are asking people how their 401k looks, ask the small business owners filing for bankruptcy or losing their asses right now how their own, much more permanent future looks.

A 401 will come back as soon as the market turns around. You still owe the same units of a company you bought, their value is just temporarily lower than normal.

If you own a small company and lose profit, reach the end of your credit line and go bankrupt… there is no recovery. When the market comes back it’s too bad for you. You are already cut out of it.

Mutual funds are very secure and take care of diversification strategies for you and if you want to play individual stocks, your broker is your guru.

There is always risk in everything. You take a much greater risk with a small business (where the “shutter rate” is ridiculously high even in a good economy) than you do with a large, established one who may temporarily lose some value.

Even if you buy stock at $5 per share, it goes up to $10 and then “loses value” and drops to $7, you are still winning long term and this is a more accurate history of the stock market. [/quote]

well i think again you missed the point here and dont really understand how small businesses are run, he stated he wanted the highest return for his money, in the most passive way.

the examples of people closing their doors are mostly small mom and pop type businesses, that do not have national marketing,a solid market proven concept, brand awareness, or a large corporate structure like that of a franchised small business.

i am showing positive growth and have for 8 years running, good times and bad. at this point, even if i closed my doors tomorrow, i have made five fold what your 401k has in the same amount of time all with a relatively small out of pocket investment which i turned over five times if not more.

not to mention, you put that money in your 401k from YOUR income, my business generated the income to build its own equity and pay down its own debt, to pay me and my family members and employees, to donate to charity, and to expand and generate more income. THAT is what the definition of investment is.

while yes there is of course risk, there are PLENTY of solid business investments out there for 250 - 500k that will be able to survive even in times like this when credit isn’t readily available, its called cash flow management, and operating capital, properly run businesses are prepared for things like this!

tell the guy who is trying to retire right now to wait until his 401k comes back up, and that he has to work for two more years possibly, even though he has worked for 40 years to build it up and now is being forced to retire,while it only took me 8 to generate the same return for my money.

27

[quote]FormerlyTexasGuy wrote:
toughcasey wrote:
If you truly have 500k to invest then it would be silly not to invest (purchase or open) in a small to medium size business or businesses. you could easily generate 100k+ in passive income annually while retaining and building equity at the same time.

this is superior to real estate due to the passive income being potentially so much higher. this would of course require some work, potentially a lot, but I am a 26 year old business owner and can not tell you enough how valuable being my own boss is in so many ways even more than just financially.

calling stocks investments is really poor thinking considering the history of the stock market. just ask people how their 401k is doing now. it is more of a speculation than a true investment, and unless you are a guru, i would avoid jumping right in.

if you do choose stocks, do some research, lots of research, “how to make money in stocks” by william j o’neil is a great book that can help you tremendously.

good luck

Also, if you are asking people how their 401k looks, ask the small business owners filing for bankruptcy or losing their asses right now how their own, much more permanent future looks.

A 401 will come back as soon as the market turns around. You still owe the same units of a company you bought, their value is just temporarily lower than normal.

If you own a small company and lose profit, reach the end of your credit line and go bankrupt… there is no recovery. When the market comes back it’s too bad for you. You are already cut out of it.

Mutual funds are very secure and take care of diversification strategies for you and if you want to play individual stocks, your broker is your guru.

There is always risk in everything. You take a much greater risk with a small business (where the “shutter rate” is ridiculously high even in a good economy) than you do with a large, established one who may temporarily lose some value.

Even if you buy stock at $5 per share, it goes up to $10 and then “loses value” and drops to $7, you are still winning long term and this is a more accurate history of the stock market. [/quote]

well i think again you missed the point here and dont really understand how small businesses are run, he stated he wanted the highest return for his money, in the most passive way.

the examples of people closing their doors are mostly small mom and pop type businesses, that do not have national marketing,a solid market proven concept, brand awareness, or a large corporate structure like that of a franchised small business.

i am showing positive growth and have for 8 years running, good times and bad. at this point, even if i closed my doors tomorrow, i have made five fold what your 401k has in the same amount of time all with a relatively small out of pocket investment which i turned over five times if not more.

not to mention, you put that money in your 401k from YOUR income, my business generated the income to build its own equity and pay down its own debt, to pay me and my family members and employees, to donate to charity, and to expand and generate more income. THAT is what the definition of investment is.

while yes there is of course risk, there are PLENTY of solid business investments out there for 250 - 500k that will be able to survive even in times like this when credit isn’t readily available, its called cash flow management, and operating capital, properly run businesses are prepared for things like this!

tell the guy who is trying to retire right now to wait until his 401k comes back up, and that he has to work for two more years possibly, even though he has worked for 40 years to build it up and now is being forced to retire,while it only took me 8 to generate the same return for my money.

28

[quote]toughcasey wrote:
countingbeans wrote:
toughcasey wrote:
you could easily generate 100k+ in passive income annually while retaining and building equity at the same time.

this is superior to real estate due to the passive income being potentially so much higher. this would of course require some work, potentially a lot,

Not arguing with your statement as much as nit picking.

Your contradicting yourself. When you run/manage/materially participate in the business, the income is not passive. And this is a good thing. You can often tax plan your business to near zero or a loss.

If the income is passive you cannot claim the loss, but if it is active you can take the loss. In general there are three types of income, GAAP, Tax, & cash. All three can be vastly different.

yes i agree, while the work put in at first is demanding, the idea, at least for me was to slowly integrate myself out with time which is allowed by increases in revenues, and dont forget that my corporation helps me shield some of my tax liability by working from home and taking plenty of expenses that negate the need to take a paycheck, and lowering my corporate tax liability.

working from home for a few hours a week is passive enough for me, especially when my corporation is paying a big part of my house payment.
[/quote]

LOL. If the IRS calls, don’t ever say what you just said.

If you’re the president, which I’m only assuming here, and your actually incorporated, not just a schedule C, your REQUIRED to take a “reasonable salary”. Now calling your home office deductions a salary might be justifiable, I wouldn’t go into that audit optimistic.

As a tax advisory in that situation I would tell you to save up for the large adjustment your about to get, and the extra 15.3% on top of that bill because your in arrears of FICA.

It would actually be more beneficial to take a salary more often than not. The business can deduct it’s half of FICA, and your gross wages. You will report your wages on your W2, but won’t have to pay the extra 7.65% on self employment income on your 1040.

(Aside from the convenience of adjusting your withholding’s and not having worry about making quarterly payments.)Often times the individual tax rate is lower than the corporate rate, unless the corp has a loss for the year.

But a lot of this depends if your a C or S corp. Either way your required to take a salary & pay your payroll taxes like any business/individual.

Now if you are a schedule C filer, that is self employment income, therefore considered earned, therefore not passive.

Your thought process is in the right place, your just confusing what is passive income, and what is earned income. Passive income includes rents (for the non-real estate professional), royalties, interest, etc. Being the president, a general partner or a managing member makes you active, therefore it is earned income.

The only way “owning” a business is passive income is if your a limited partner in a limited partnership, being a stockholder in a NON-closely held corporation, and in most cases a non-managing member of an LLC.

29

[quote]toughcasey wrote:
FormerlyTexasGuy wrote:
toughcasey wrote:
If you truly have 500k to invest then it would be silly not to invest (purchase or open) in a small to medium size business or businesses. you could easily generate 100k+ in passive income annually while retaining and building equity at the same time.

this is superior to real estate due to the passive income being potentially so much higher. this would of course require some work, potentially a lot, but I am a 26 year old business owner and can not tell you enough how valuable being my own boss is in so many ways even more than just financially.

calling stocks investments is really poor thinking considering the history of the stock market. just ask people how their 401k is doing now. it is more of a speculation than a true investment, and unless you are a guru, i would avoid jumping right in.

if you do choose stocks, do some research, lots of research, “how to make money in stocks” by william j o’neil is a great book that can help you tremendously.

good luck

Also, if you are asking people how their 401k looks, ask the small business owners filing for bankruptcy or losing their asses right now how their own, much more permanent future looks.

A 401 will come back as soon as the market turns around. You still owe the same units of a company you bought, their value is just temporarily lower than normal.

If you own a small company and lose profit, reach the end of your credit line and go bankrupt… there is no recovery. When the market comes back it’s too bad for you. You are already cut out of it.

Mutual funds are very secure and take care of diversification strategies for you and if you want to play individual stocks, your broker is your guru.

There is always risk in everything. You take a much greater risk with a small business (where the “shutter rate” is ridiculously high even in a good economy) than you do with a large, established one who may temporarily lose some value.

Even if you buy stock at $5 per share, it goes up to $10 and then “loses value” and drops to $7, you are still winning long term and this is a more accurate history of the stock market.

well i think again you missed the point here and dont really understand how small businesses are run, he stated he wanted the highest return for his money, in the most passive way.

the examples of people closing their doors are mostly small mom and pop type businesses, that do not have national marketing,a solid market proven concept, brand awareness, or a large corporate structure like that of a franchised small business.

i am showing positive growth and have for 8 years running, good times and bad. at this point, even if i closed my doors tomorrow, i have made five fold what your 401k has in the same amount of time all with a relatively small out of pocket investment which i turned over five times if not more.

not to mention, you put that money in your 401k from YOUR income, my business generated the income to build its own equity and pay down its own debt, to pay me and my family members and employees, to donate to charity, and to expand and generate more income. THAT is what the definition of investment is.

while yes there is of course risk, there are PLENTY of solid business investments out there for 250 - 500k that will be able to survive even in times like this when credit isn’t readily available, its called cash flow management, and operating capital, properly run businesses are prepared for things like this!

tell the guy who is trying to retire right now to wait until his 401k comes back up, and that he has to work for two more years possibly, even though he has worked for 40 years to build it up and now is being forced to retire,while it only took me 8 to generate the same return for my money.
[/quote]

I do understand his question and know that 500k in the stock market can bring pretty big dividends.

He is also looking for security according the the tone of the thread.

Small businesses do not afford security and the amount of income a 250-500k small business would provide would be comparable at best to the same amount invested well in the financial markets.

30

[quote]countingbeans wrote:
toughcasey wrote:
countingbeans wrote:
toughcasey wrote:
you could easily generate 100k+ in passive income annually while retaining and building equity at the same time.

this is superior to real estate due to the passive income being potentially so much higher. this would of course require some work, potentially a lot,

Not arguing with your statement as much as nit picking.

Your contradicting yourself. When you run/manage/materially participate in the business, the income is not passive. And this is a good thing. You can often tax plan your business to near zero or a loss.

If the income is passive you cannot claim the loss, but if it is active you can take the loss. In general there are three types of income, GAAP, Tax, & cash. All three can be vastly different.

yes i agree, while the work put in at first is demanding, the idea, at least for me was to slowly integrate myself out with time which is allowed by increases in revenues,

And dont forget that my corporation helps me shield some of my tax liability by working from home and taking plenty of expenses that negate the need to take a paycheck, and lowering my corporate tax liability. working from home for a few hours a week is passive enough for me, especially when my corporation is paying a big part of my house payment.

LOL. If the IRS calls, don’t ever say what you just said.

If you’re the president, which I’m only assuming here, and your actually incorporated, not just a schedule C, your REQUIRED to take a “reasonable salary”. Now calling your home office deductions a salary might be justifiable, I wouldn’t go into that audit optimistic.

As a tax advisory in that situation I would tell you to save up for the large adjustment your about to get, and the extra 15.3% on top of that bill because your in arrears of FICA.

It would actually be more beneficial to take a salary more often than not. The business can deduct it’s half of FICA, and your gross wages. You will report your wages on your W2, but won’t have to pay the extra 7.65% on self employment income on your 1040.

(Aside from the convenience of adjusting your withholding’s and not having worry about making quarterly payments.)Often times the individual tax rate is lower than the corporate rate, unless the corp has a loss for the year.

But a lot of this depends if your a C or S corp. Either way your required to take a salary & pay your payroll taxes like any business/individual.

Now if you are a schedule C filer, that is self employment income, therefore considered earned, therefore not passive.

Your thought process is in the right place, your just confusing what is passive income, and what is earned income. Passive income includes rents (for the non-real estate professional), royalties, interest, etc. Being the president, a general partner or a managing member makes you active, therefore it is earned income.

The only way “owning” a business is passive income is if your a limited partner in a limited partnership, being a stockholder in a NON-closely held corporation, and in most cases a non-managing member of an LLC.[/quote]

haha i guess you are mis-understanding me, i still take a salary and pay all of my taxes, i realize that i said negate the need to take a salary, but what i meant was, having a company that uses my house for an office lowers my personal salary needs to make a house payment month to month.

and my corporation is a subchapter S corp., so i dont pay tax on my profits, and it is still totally legal and ethical to take deductions for things like home offices and company vehicles. i was simply trying to point out the advantages that setting up a corporation can bring to someone as opposed to simply investing in stocks and money market accounts.

i have a great cpa that has been in business for a long time, and feel comfortable with the way my business is structured.

and i agree again about the whole passive income thing, but understand that minimal oversight of a company can still yield someone with a high salary if things are in order. this salary can be considered ROI right? so my argument still stands that buying/opening businesses is a superior investment to stocks and bonds when it comes to creating long term wealth.

31

[quote]countingbeans wrote:
toughcasey wrote:
countingbeans wrote:
toughcasey wrote:
you could easily generate 100k+ in passive income annually while retaining and building equity at the same time.

this is superior to real estate due to the passive income being potentially so much higher. this would of course require some work, potentially a lot,

Not arguing with your statement as much as nit picking.

Your contradicting yourself. When you run/manage/materially participate in the business, the income is not passive. And this is a good thing. You can often tax plan your business to near zero or a loss.

If the income is passive you cannot claim the loss, but if it is active you can take the loss. In general there are three types of income, GAAP, Tax, & cash. All three can be vastly different.

yes i agree, while the work put in at first is demanding, the idea, at least for me was to slowly integrate myself out with time which is allowed by increases in revenues, and dont forget that my corporation helps me shield some of my tax liability by working from home and taking plenty of expenses that negate the need to take a paycheck, and lowering my corporate tax liability.

working from home for a few hours a week is passive enough for me, especially when my corporation is paying a big part of my house payment.

LOL. If the IRS calls, don’t ever say what you just said.

If you’re the president, which I’m only assuming here, and your actually incorporated, not just a schedule C, your REQUIRED to take a “reasonable salary”. Now calling your home office deductions a salary might be justifiable, I wouldn’t go into that audit optimistic.

As a tax advisory in that situation I would tell you to save up for the large adjustment your about to get, and the extra 15.3% on top of that bill because your in arrears of FICA.

It would actually be more beneficial to take a salary more often than not. The business can deduct it’s half of FICA, and your gross wages. You will report your wages on your W2, but won’t have to pay the extra 7.65% on self employment income on your 1040. (Aside from the convenience of adjusting your withholding’s and not having worry about making quarterly payments.)

Often times the individual tax rate is lower than the corporate rate, unless the corp has a loss for the year. But a lot of this depends if your a C or S corp. Either way your required to take a salary & pay your payroll taxes like any business/individual.

Now if you are a schedule C filer, that is self employment income, therefore considered earned, therefore not passive.

Your thought process is in the right place, your just confusing what is passive income, and what is earned income. Passive income includes rents (for the non-real estate professional), royalties, interest, etc. Being the president, a general partner or a managing member makes you active, therefore it is earned income.

The only way “owning” a business is passive income is if your a limited partner in a limited partnership, being a stockholder in a NON-closely held corporation, and in most cases a non-managing member of an LLC.[/quote]

haha i guess you are mis-understanding me, i still take a salary and pay all of my taxes, i realize that i said negate the need to take a salary, but what i meant was, having a company that uses my house for an office lowers my personal salary needs to make a house payment month to month.

and my corporation is a subchapter S corp., so i dont pay tax on my profits, and it is still totally legal and ethical to take deductions for things like home offices and company vehicles. i was simply trying to point out the advantages that setting up a corporation can bring to someone as opposed to simply investing in stocks and money market accounts.

i have a great cpa that has been in business for a long time, and feel comfortable with the way my business is structured.

and i agree again about the whole passive income thing, but understand that minimal oversight of a company can still yield someone with a high salary if things are in order.

this salary can be considered ROI right? so my argument still stands that buying/opening businesses is a superior investment to stocks and bonds when it comes to creating long term wealth.

32

[quote]countingbeans wrote:
toughcasey wrote:
countingbeans wrote:
toughcasey wrote:
you could easily generate 100k+ in passive income annually while retaining and building equity at the same time.

this is superior to real estate due to the passive income being potentially so much higher. this would of course require some work, potentially a lot,

Not arguing with your statement as much as nit picking.

Your contradicting yourself. When you run/manage/materially participate in the business, the income is not passive. And this is a good thing. You can often tax plan your business to near zero or a loss.

If the income is passive you cannot claim the loss, but if it is active you can take the loss. In general there are three types of income, GAAP, Tax, & cash. All three can be vastly different.

yes i agree, while the work put in at first is demanding, the idea, at least for me was to slowly integrate myself out with time which is allowed by increases in revenues, and dont forget that my corporation helps me shield some of my tax liability by working from home and taking plenty of expenses that negate the need to take a paycheck, and lowering my corporate tax liability.

working from home for a few hours a week is passive enough for me, especially when my corporation is paying a big part of my house payment.

LOL. If the IRS calls, don’t ever say what you just said.

If you’re the president, which I’m only assuming here, and your actually incorporated, not just a schedule C, your REQUIRED to take a “reasonable salary”. Now calling your home office deductions a salary might be justifiable, I wouldn’t go into that audit optimistic.

As a tax advisory in that situation I would tell you to save up for the large adjustment your about to get, and the extra 15.3% on top of that bill because your in arrears of FICA.

It would actually be more beneficial to take a salary more often than not. The business can deduct it’s half of FICA, and your gross wages. You will report your wages on your W2, but won’t have to pay the extra 7.65% on self employment income on your 1040.

(Aside from the convenience of adjusting your withholding’s and not having worry about making quarterly payments.)Often times the individual tax rate is lower than the corporate rate, unless the corp has a loss for the year.

But a lot of this depends if your a C or S corp. Either way your required to take a salary & pay your payroll taxes like any business/individual.

Now if you are a schedule C filer, that is self employment income, therefore considered earned, therefore not passive.

Your thought process is in the right place, your just confusing what is passive income, and what is earned income. Passive income includes rents (for the non-real estate professional), royalties, interest, etc. Being the president, a general partner or a managing member makes you active, therefore it is earned income.

The only way “owning” a business is passive income is if your a limited partner in a limited partnership, being a stockholder in a NON-closely held corporation, and in most cases a non-managing member of an LLC.[/quote]

haha i guess you are mis-understanding me, i still take a salary and pay all of my taxes, i realize that i said negate the need to take a salary, but what i meant was, having a company that uses my house for an office lowers my personal salary needs to make a house payment month to month.

and my corporation is a subchapter S corp., so i dont pay tax on my profits, and it is still totally legal and ethical to take deductions for things like home offices and company vehicles. i was simply trying to point out the advantages that setting up a corporation can bring to someone as opposed to simply investing in stocks and money market accounts.

i have a great cpa that has been in business for a long time, and feel comfortable with the way my business is structured.

and i agree again about the whole passive income thing, but understand that minimal oversight of a company can still yield someone with a high salary if things are in order. this salary can be considered ROI right?

so my argument still stands that buying/opening businesses is a superior investment to stocks and bonds when it comes to creating long term wealth.

33

[quote]FormerlyTexasGuy wrote:
toughcasey wrote:
FormerlyTexasGuy wrote:
toughcasey wrote:
If you truly have 500k to invest then it would be silly not to invest (purchase or open) in a small to medium size business or businesses. you could easily generate 100k+ in passive income annually while retaining and building equity at the same time.

this is superior to real estate due to the passive income being potentially so much higher. this would of course require some work, potentially a lot, but I am a 26 year old business owner and can not tell you enough how valuable being my own boss is in so many ways even more than just financially.

calling stocks investments is really poor thinking considering the history of the stock market. just ask people how their 401k is doing now. it is more of a speculation than a true investment, and unless you are a guru, i would avoid jumping right in.

if you do choose stocks, do some research, lots of research, “how to make money in stocks” by william j o’neil is a great book that can help you tremendously.

good luck

Also, if you are asking people how their 401k looks, ask the small business owners filing for bankruptcy or losing their asses right now how their own, much more permanent future looks.

A 401 will come back as soon as the market turns around. You still owe the same units of a company you bought, their value is just temporarily lower than normal.

If you own a small company and lose profit, reach the end of your credit line and go bankrupt… there is no recovery. When the market comes back it’s too bad for you. You are already cut out of it.

Mutual funds are very secure and take care of diversification strategies for you and if you want to play individual stocks, your broker is your guru.

There is always risk in everything. You take a much greater risk with a small business (where the “shutter rate” is ridiculously high even in a good economy) than you do with a large, established one who may temporarily lose some value.

Even if you buy stock at $5 per share, it goes up to $10 and then “loses value” and drops to $7, you are still winning long term and this is a more accurate history of the stock market.

well i think again you missed the point here and dont really understand how small businesses are run, he stated he wanted the highest return for his money, in the most passive way.

the examples of people closing their doors are mostly small mom and pop type businesses, that do not have national marketing,a solid market proven concept, brand awareness, or a large corporate structure like that of a franchised small business.

i am showing positive growth and have for 8 years running, good times and bad. at this point, even if i closed my doors tomorrow, i have made five fold what your 401k has in the same amount of time all with a relatively small out of pocket investment which i turned over five times if not more.

not to mention, you put that money in your 401k from YOUR income, my business generated the income to build its own equity and pay down its own debt, to pay me and my family members and employees, to donate to charity, and to expand and generate more income. THAT is what the definition of investment is.

while yes there is of course risk, there are PLENTY of solid business investments out there for 250 - 500k that will be able to survive even in times like this when credit isn’t readily available, its called cash flow management, and operating capital, properly run businesses are prepared for things like this!

tell the guy who is trying to retire right now to wait until his 401k comes back up, and that he has to work for two more years possibly, even though he has worked for 40 years to build it up and now is being forced to retire,while it only took me 8 to generate the same return for my money.

I do understand his question and know that 500k in the stock market can bring pretty big dividends.

He is also looking for security according the the tone of the thread.

Small businesses do not afford security and the amount of income a 250-500k small business would provide would be comparable at best to the same amount invested well in the financial markets. [/quote]

thats completely false, 500k could easily generate a 200k annual salary with the right business investment by the right operator, i would love to see someone return 200k from 500k in LOW RISK stocks annualy! if that is happening please sign me up.

34

[quote]toughcasey wrote:
FormerlyTexasGuy wrote:
toughcasey wrote:
FormerlyTexasGuy wrote:
toughcasey wrote:
If you truly have 500k to invest then it would be silly not to invest (purchase or open) in a small to medium size business or businesses. you could easily generate 100k+ in passive income annually while retaining and building equity at the same time.

this is superior to real estate due to the passive income being potentially so much higher. this would of course require some work, potentially a lot, but I am a 26 year old business owner and can not tell you enough how valuable being my own boss is in so many ways even more than just financially.

calling stocks investments is really poor thinking considering the history of the stock market. just ask people how their 401k is doing now. it is more of a speculation than a true investment, and unless you are a guru, i would avoid jumping right in.

if you do choose stocks, do some research, lots of research, “how to make money in stocks” by william j o’neil is a great book that can help you tremendously.

good luck

Also, if you are asking people how their 401k looks, ask the small business owners filing for bankruptcy or losing their asses right now how their own, much more permanent future looks.

A 401 will come back as soon as the market turns around. You still owe the same units of a company you bought, their value is just temporarily lower than normal.

If you own a small company and lose profit, reach the end of your credit line and go bankrupt… there is no recovery. When the market comes back it’s too bad for you. You are already cut out of it.

Mutual funds are very secure and take care of diversification strategies for you and if you want to play individual stocks, your broker is your guru.

There is always risk in everything. You take a much greater risk with a small business (where the “shutter rate” is ridiculously high even in a good economy) than you do with a large, established one who may temporarily lose some value.

Even if you buy stock at $5 per share, it goes up to $10 and then “loses value” and drops to $7, you are still winning long term and this is a more accurate history of the stock market.

well i think again you missed the point here and dont really understand how small businesses are run, he stated he wanted the highest return for his money, in the most passive way.

the examples of people closing their doors are mostly small mom and pop type businesses, that do not have national marketing,a solid market proven concept, brand awareness, or a large corporate structure like that of a franchised small business.

i am showing positive growth and have for 8 years running, good times and bad. at this point, even if i closed my doors tomorrow, i have made five fold what your 401k has in the same amount of time all with a relatively small out of pocket investment which i turned over five times if not more.

not to mention, you put that money in your 401k from YOUR income, my business generated the income to build its own equity and pay down its own debt, to pay me and my family members and employees, to donate to charity, and to expand and generate more income. THAT is what the definition of investment is.

while yes there is of course risk, there are PLENTY of solid business investments out there for 250 - 500k that will be able to survive even in times like this when credit isn’t readily available, its called cash flow management, and operating capital, properly run businesses are prepared for things like this!

tell the guy who is trying to retire right now to wait until his 401k comes back up, and that he has to work for two more years possibly, even though he has worked for 40 years to build it up and now is being forced to retire,while it only took me 8 to generate the same return for my money.

I do understand his question and know that 500k in the stock market can bring pretty big dividends.

He is also looking for security according the the tone of the thread.

Small businesses do not afford security and the amount of income a 250-500k small business would provide would be comparable at best to the same amount invested well in the financial markets.

thats completely false, 500k could easily generate a 200k annual salary with the right business investment by the right operator, i would love to see someone return 200k from 500k in LOW RISK stocks annualy! if that is happening please sign me up.[/quote]

For one, he is asking for balance.

From the OP: "what can one do to earn the most interest on it while keeping it from being lost(insurance)?
"

small business doesn’t fit the criteria. He will maximize gains while minimizing risk with a diversified, blue chip stock portfolio. Especially if buying stocks at current discounted pricing.

For all the statistics on success rates of small businesses, his risk would be allocated better with high risk, high yield stock anyways, but return isn’t his only concern.

He is also wanting to live on dividends afforded by the money he has. A small business would require work, and much much more than even a typical 40 hour weekly schedule to pull any kind of profit, franchise or not. His money is not working for him in a small business as it is on a financial market.

A small business in no way fits the bill for what he is looking for.

COngrats on your small business success, but your results are atypical.

You probably have earned more than my 401k, but I would challenge that statement across the board on total investments & assets I own, even with current value considered and hands down future value. I’m not going to get in to that pissing contest though. Neither of us will be posting the necessary and sensitive documentation for proof online.

Hell, corporations diversify for security and additional income by purchasing stock in other corporations.

Anyways, as we are discussing who understands what on the question here, the OP wants to know how to earn dividends while securing his money long term and as mentioned, small business doesn’t meet both criterion and more often than not, won’t meet either.

35

[quote]toughcasey wrote:

haha i guess you are mis-understanding me, i still take a salary and pay all of my taxes, i realize that i said negate the need to take a salary, but what i meant was, having a company that uses my house for an office lowers my personal salary needs to make a house payment month to month.

and my corporation is a subchapter S corp., so i dont pay tax on my profits, and it is still totally legal and ethical to take deductions for things like home offices and company vehicles. i was simply trying to point out the advantages that setting up a corporation can bring to someone as opposed to simply investing in stocks and money market accounts.

i have a great cpa that has been in business for a long time, and feel comfortable with the way my business is structured.

and i agree again about the whole passive income thing, but understand that minimal oversight of a company can still yield someone with a high salary if things are in order. this salary can be considered ROI right?

so my argument still stands that buying/opening businesses is a superior investment to stocks and bonds when it comes to creating long term wealth.[/quote]

You argument absolutely still stands. I never meant to argue your point, just mention it’s not passive income.

Your an S corp then, so all your profits pass through to your 1040. You still pay tax on your profits. I prefer the S to a C or even a partnership. Distributions are a beautiful thing.

I wouldn’t call the salary ROI, but the distributions yes, but that is just splitting hairs really.

Your expenses are legal, I misunderstood that you didn’t take a salary. My bad.

IMO, if your the type of person that has the backbone & motivation for it, your right about owning a business verse buying into the market.

36

I think the poster is looking for an answer we can not give him.

For anything safe the most he can expect is about 5% return. That would be OK if drawing social security , pension or if he had some side employment. It would be better if he worked and he could tax shelter some of his money in a IRA.

As the saying goes nothing ventured, nothing gained.

The S&P averages 9% annual return.

$200,000 compounded over 30,years.I will let some one else do the math.

He can keep 50,000 as down payment on first home. Another tax advantage.

Best to let the money work for you and keep working while young.

I like low cost, index, mutual funds.

37

[quote]FormerlyTexasGuy wrote:
toughcasey wrote:
FormerlyTexasGuy wrote:
toughcasey wrote:
FormerlyTexasGuy wrote:
toughcasey wrote:

For one, he is asking for balance.

From the OP: "what can one do to earn the most interest on it while keeping it from being lost(insurance)?
"

small business doesn’t fit the criteria. He will maximize gains while minimizing risk with a diversified, blue chip stock portfolio. Especially if buying stocks at current discounted pricing.

For all the statistics on success rates of small businesses, his risk would be allocated better with high risk, high yield stock anyways, but return isn’t his only concern.

He is also wanting to live on dividends afforded by the money he has. A small business would require work, and much much more than even a typical 40 hour weekly schedule to pull any kind of profit, franchise or not. His money is not working for him in a small business as it is on a financial market.

A small business in no way fits the bill for what he is looking for.

COngrats on your small business success, but your results are atypical.

You probably have earned more than my 401k, but I would challenge that statement across the board on total investments & assets I own, even with current value considered and hands down future value. I’m not going to get in to that pissing contest though. Neither of us will be posting the necessary and sensitive documentation for proof online.

Hell, corporations diversify for security and additional income by purchasing stock in other corporations.

Anyways, as we are discussing who understands what on the question here, the OP wants to know how to earn dividends while securing his money long term and as mentioned, small business doesn’t meet both criterion and more often than not, won’t meet either.

[/quote]

so here is a good example of balance:

open a small business, contrary to what has been said, that is still a very safe venture, that employs you and your family. use that salary to buy into mutual funds and blue chip stocks. and when you are ready to retire, sell the business, which should appreciate, and even if not, your equity will basically have been built for free through revenues from the operations.

i will take that option over 30 - 40 years in the workforce with slow, low risk investing any day!

agreed? :slight_smile:

38

I have a friend that is buying blue chip stocks and is selling deep in the money calls against. Figures with downside protection, 6-7 is good. dunno what he found

39

[quote]jp_dubya wrote:
I have a friend that is buying blue chip stocks and is selling deep in the money calls against. Figures with downside protection, 6-7 is good. dunno what he found[/quote]

I wouldn’t call calls safe. But I’d like to hear more about it.

GE at a bit over $16 and an 8% dividend, which they just confirmed will not be cut in 2009, sounds like a safe bet. When the market turns around, I’d say it’s also a safe bet that GE will be going up with it. Same thing with Pfizer and Altria which are both currently paying around an 8% dividend and are around $16 a share.

40

DISCLAIMER

I am no investment professional just a lay person that has been investing in index ETFs for about two years now. So take the following advice for what its worth.

DISCLAIMER

One thing you have to keep in mind is that what really matters is real returns which means nominal returns minus INFLATION. When factoring in inflation you can even lose money with save investment vehicles like T-bills.

The expected real return of T-bills is about 0.5% (“All About Asset Allocation”, Richard Ferri). So, if you do not earn and save hordes of money this will not be enough for you to retire early. On the other hand, the expected real return of the S&P 500 is about 5% and about 2% for high-grade corporate bonds.

Therefore in addition to safe investments like treasuries you will have to invest in stocks and corporate bonds to increase the expected real returns. And for these asset classes it makes the most sense to invest in INDEX funds or ETFs. It is just too risky to hold bonds or stocks of a single company. Even blue chip companies can easily go bankrupt (Enron, Lehman,…). And study after study shows that most mutual funds do not beat a comparable index over the long term.

As for your concern about stocks not suitable for providing income. There is no difference in selling a certain percentage of stocks to provide income to just using the yield of say T-bills. The inflation adjusted value of your T-bills will decline as well. However, you will in general decrease the percentage of stocks you hold until you retire because you do not want to be fored to sell stocks to provide income during a bear market. A common formula is to hold your age in bonds and the rest in stocks. E.g. if your 30 you hold 30% bonds and 70% stocks.

For further information I suggest you read some books. I recommend the already mentioned “All About Asset Allocation”. You may also turn to an investment advisor but you should be very careful in selecting an advisor. You want to make sure it is a fee-only advisor that does not get commisions by selling high-load mutual funds to you. You will have to expect about 0.5% of the managed assets as fee.

A good forum for sound investment advice is Bogleheads.org - Index page

Whatever you actually do, make sure that you are absolutely clear about what you are investing in.

Another caveat as for expected returns. There is no guarantees for these returns. The total real return of the last ten years of the S&P 500 is about 0%. Another real bogey is the Japanese stock market. The Nikkei has a total negative return even after 24 years!!

So you might have to work longer than you planned.