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Natali Morris

How To Turn Your Family Into A Profitable Business With Natali Morris

Natali Morris of MSNBC joins us to discuss how to turn your family into a profitable business.

Incorporate Your Family

The tax system is not set up to benefit the individual, it’s set up to benefit businesses. That’s why eleven companies on the S&P 500 who made profits last year paid less in income tax than you. How much less? Well, they paid nothing. 

If you want to get in on that, incorporate. Set up an LLC, S-Corp, whatever is the most appropriate for your situation. What if you don’t have a business? Well, you might and not realize it. Do you baby sit, clean houses, mow lawns? No? Well start! And incorporate your hobby, side hustle, how ever you term it, as a business. Remember what Adam Carroll told us in last week’s episode? The two biggest expenses in life are taxes and interest. Incorporating your family is one way to maximize those tax savings.

Teach Kids About Money

Children have established their ideas and habits about money by the age of seven! So the earlier you start teaching them about money, the better. For the most part, many of us can afford to give our kids almost anything they want, at least when their they’re little. We can afford the stuffed animals and the action figures. That’s why it’s important to put a system in place to help them understand what money is and how it works.

Natali gives her children an allowance but not in the traditional sense. Each kid has responsibilities that come with being part of a family; keeping communal areas and their own rooms clean. Taking care of their possessions. If she wants them to do work for her, washing her car for example, they are paid for those kinds of things.

The kids also have real jobs, things like helping Mom scan and then shred documents, that pay them from the family’s LLC and they pay taxes on those earnings. Because the money is taxed, it’s eligible for an IRA and that’s where it goes. The IRA’s are Roth which means they only pay taxes on them during the years they contribute.

The children are given three, clear glass jars. The clear part is important, it lets kids see the money accumulating, something they won’t get using a traditional “piggy bank.” The jars are “give,” “save,” and “spend.” The kids can buy whatever they want with the spend jar money, even if Mom knows they’ll lose interest in five minutes. It teaches that once the money is spent, it’s gone, so make it count.

Self Directed IRA

How-To-Turn-Your-Family-Into-A-Profitable-BusinessA self-directed IRA is a retirement account that gives you control over your investment choices. You’re not limited to stocks, bonds, or mutual funds. This allows you to invest in alternative assets like real estate, limited partnerships, and gold through your self-directed retirement account.

These IRA’s are more work than the average IRA but the advantages can outweigh that for some. Natali buys rental property through her IRA, the proceeds come back into it and all expenses, property management fees, repairs, utilities, are paid out of it. There are yearly fees with this kind of investment which can be paid from within the IRA which is another tax deduction, or paid separately.

Finding Real Estate

Like our contributor Allison Karrels, Natali is a big believer in rental properties as investment vehicles. Natali owns nine properties and has never seen any of them. She uses wholesalers to find properties that are not on the open market.

One investor finds properties that would not do well on the regular real estate market and sells it to another investor, usually for cash. Buying this way allows you to buy at deeply discounted prices. Like Allison, Natali’s properties are handled by a property management company so there is no day to day hands on work involved.

 Get The Goose, Not The Eggs

Conventional wisdom tells us to build up our nest egg. But having the nest goose is better. Money depreciates, investments sometimes perform poorly, taxes aren’t going away. These things all chip away at your nest egg. Your nest goose is an asset that makes money for as long as you own it. Rental properties, buy or invest in a small business. Find things that create a stream of income.

Borrowing Against A 401(k)

Natali took some heat when she wrote about borrowing against a 401(k) to buy a rental property. But doing so allowed her to purchase the property free and clear and that house now generates $800 a month in income and the loan has been paid back.

If your job is secure and you have either high interest debt to pay off or a good investment opportunity like Natali’s rental property, borrowing against your 401(k) can be a good strategy. No one is saying it’s a good strategy for everyone but it’s not something that should be completely disregarded either.

How To Write Off Date Nights

If you set your family up as a business, you can write off those romantic nights out! Some of them anyway, don’t get greedy. You do need to legitimately discuss business on your night out and document it with notes and receipts. Travel expenses can be written off too. Traveling to check on a rental property is a deductible expense so buy at least one somewhere you like to visit!

The Family Business

This phrase doesn’t mean what it used to, a brick and mortar business. Now it can be something on-line or what you spend your weekends doing. And you can get the entire family involved, Natali’s children are three and five and they already have IRA’s! So look into ways to set your family up as a business.

Show Notes

2XMAS: An ale from Southern Tier flavored with figs, orange peel and spice.

Natali Morris: Natali’s site devoted to personal finance. Really, check it out. It’s a great site and I spent a couple of hours on there one day. Tons of useful information.

LMM Community: Join the money revolution! You’ll get exclusive access to our two new pod casts, Ask Anything and Rich Tips.

The Opposite of Spoiled: Raising children to be generous and financially savvy.

Hold: Growing real estate wealth.

Tax Free Wealth: How to lower your taxes.

Profit First: How to turn any business into a money maker.

Featured Image Photo Credit: “Business Baby Pointing” by Paul Inkles on Flickr

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  • Jeffery Barnett

    Holy crap! You start off with what I thought was going to be a show on how to teach your kids about money and then you took a sharp left into Natali’s brilliant mind. Great show! Thanks

    • Hah, thanks dude! She is brilliant. All kinds of new awesome stuff got pulled out in the Rich Tips episode.

      You should know by now we start our shows slow and relaxed ;)

  • Avi Lang

    Hi great podcast. The three jars is whatwhat dave ramsey does to. Is this from dave ramsey?

  • Nick

    I don’t know what has been going on behind the scenes at LMM but you guys have seriously been stepping your game up. I remember Natali back from her CNET days but I never knew she had such a passion and knack for personal finance. Wish I found out sooner. Great job on this one guys.

    • Natali Morris

      Thank you Nick!!

  • karim

    Can you list the books mentioned in the podcast please!

    • Candice Elliott

      They’re in the show notes at the bottom of the page.

  • James Wald

    I’ve been binge listening through all of the LMM podcasts posted since 2015 (season 2) including a few dozen from before that point. The past few episodes have literally blown my mind. Thomas, Andrew, and the rest of the team have really stepped up their game! This is AWESOME!!!

    • Hah, dude, thanks! You seriously made my day! I will say that the whole process takes quite a lot more time than it use to so I’m glad you notice the difference. We’re like fine wine – we get better with age ;)

  • Colourful_Socks

    This sounds awesome, and it sounds like a neat overall strategy for educating my kids when I have kids. But I’m really confused about something- how is it that kids can earn taxable income? How does that get around ‘child labor laws’? (For that matter how can kids be prof’ actors?) What are the rules about how/when kids can and can’t work? (BTW, my extend of knowledge on ‘child labor laws’ is that kids can’t work, which is likely an over simplification.)

    • Here’s the IRS portal in all it’s glory: https://www.irs.gov/businesses/small-businesses-self-employed/family-help

      “Payments for the services of a child under age 18 who works for his or her parent in a trade or business are not subject to social security and Medicare taxes…”

      That directly implies that you’ll be hiring minors. There are also numerous articles around hiring family members as young as 5. The major stipulation is you need to pay them in cash, not things like toys or food and then deduct those costs. It also needs to be for a business.

      – Start a business and put your kids to work.
      – Pay them and take a loss on your taxes, get cash back from the IRS.
      – Earn a profit within the first 3 years to keep it going.

      LMM was fantastic for my taxes as I didn’t claim a profit until the 3rd year – I spent on growth. If you can’t make a profit in 3 years you’re doing something wrong.

      • Colourful_Socks

        Huh, it sounds like everything is rigged to favor family / small business. Cool.

        • Pretty much. It’s all incentives. the Gov would rather you create the next Google than work at the existing one. The majority of jobs in this country are through small business.

  • Shaun

    Awesome episode! So many great tips and insights for lowering your taxes. Looking forward to checking out the books Natali recommended.