BONUS EPISODE - ASK RALPH SHOW LIVE FROM OCTOBER 15, 2024

Narrator
00:00:02

Welcome to the Ask Ralph podcast, where listening to an experienced financial professional with over 30 years of experience can help you make sense of confusing questions, current headlines and industry trends about taxes, small business, financial decision making, investment strategies, and even the art of proper budgeting. Ask Ralph makes the complex simple by sharing his real world knowledge from a Christian perspective with all things financial.

Now here's your host, Ralph Estep Jr.

Ralph
00:00:30

Well, hello and welcome everyone to the show on our inaugural Ask Ralph podcast live. And I asked you to have a little patience with me tonight as this is my first night doing this live. And I want to encourage everyone while you're here, this will be a weekly opportunity for you to ask your questions.

You know, I do that daily podcast, but I wanted to give everybody the opportunity to ask their questions. And if you have a question, you can type it right into the chat window. When you put it in the chat window, we'll answer your questions. Now, when you do send over a question, I'm going to ask you to do me a favor.

If you could put a Q and a colon next to the question, I'll know it's a question and not just a comment. So before we get started, I want to bring something to your attention. If you have a question, you don't want to answer it or you don't want to ask it tonight in the show, one thing you can do is just go to justaskralph.com. You'll see a comment board there. You can send over a question, and I promise you, I'll get you an answer and you may even end up on the show. So that's something you definitely want to look at. And before we get rolling tonight, I want to bring something to your attention. This Saturday, my mother-in-law has Alzheimer's and we're going to be doing the Ask Ralph team Alzheimer's walk here in Wilmington, Delaware.

And I know that the, the thing is coming up this Saturday, but it's not too late. If you want to get involved and go to askralphpodcast.com/ALZ, you can join our team when we walk in on Saturday morning at 8 AM, or you can always make a donation. We would love it if you would join us and help us in that particular Avenue.

So now is the time to start. If you've got any questions you'd like to have answered on the show, just type them into the chat window and we will get started with your questions. Now, I'm going to tell you something. Today is actually a momentous day in in the life of a tax guy. Not most people don't think about this, but today is actually the true end to tax season.

If you had filed an extension for your personal tax return, you actually had till today. And yes, I had clients today coming in as late as three o'clock this afternoon to get their tax returns done. So this was actually the end of the tax season. I'll bring something to your attention. Because of the terrible hurricanes that have come in, the IRS has actually extended the tax filing season. Yes. Another extension. If you live in Florida or one of the areas affected by the hurricanes, you now have until May 1st, 2025 to file your returns.

So before we get into it, I want to remind you that I do a daily podcast. You can go to askralphpodcast.com. You can join us there. There's a little button there. You can click to join the email list, and we'll send you a notice whenever we have something going on, like it's every day. And we also released these on YouTube and Rumble. So if you'd rather watch my beautiful face rather than listen to it, you can do that right on YouTube and Rumble.

And if that wasn't enough, we also do a daily blog. So if you don't like to listen, you don't like to watch, you can actually get a copy of our daily blog. Again, just go to askralphpodcast.com you join our email list. And I've got a great gift for you if you do that. And that's seven biblical principles to get you out of that living paycheck to paycheck bondage.

If you're like a lot of people, you know, sometimes it's tough to get past living in that bondage of that paycheck-to-paycheck cycle. And also bring to your attention, we do have a Facebook insiders group. If you're a Facebook person, go right to Facebook and you can look up the Ask Ralph podcast insiders group.

I think we've got about 300 members to that. And I post information every day about what's coming up on the show. And it gives you an opportunity to interact with the show. So like I said, we celebrated the end of tax season today and I'm telling you what I am wiped out over it. So I'm happy to be moving on to the next tax season.

And again, I wanted to bring to everyone's attention. Like I said, if you are affected in those hurricane zones based on the terrible things that have happened and I want to encourage you, my good friend, Mark's in the, in the chat and he does a podcast called practical prepping. And he mentioned that him and his way for supporting Samaritan's purse.

And if you're looking for a really good organization to donate money, to help those who are affected by that terrible thing at, at hurricane, I would highly recommend Samaritan's purse. Well, let's start with our questions. It looks like we've already got a question here. Speaking of Mark, it looks like Mark has got a question for us and bear with me as I learn this technology.

But let's go ahead and add Mark's question to the thing here, and we're, Mark says, here's Mark's question. It says, how long should we keep personal and business records? Well, Mark, that is a great question. And it's a question I get asked probably 15 times a day. And I'm just kidding, Mark. I get asked that question a lot.

And my answer is this, the IRS says that you should keep your records for seven years. That's basically the statute of limitations. Well, here's Ralph's take on that. If you have a very simple tax return where there's nothing unusual going on, it's just a straight W-2. Maybe you've got mortgage interest statement, maybe you've got property taxes, those sorts of things, if that's what you've got, then you really are safe with just keeping it for seven years. Now that said, you can put those on a digital file if you want to. Just make sure you have those records. If you own a business or if you've got some unusual circumstances, I'm going to tell you to keep those records for 10 years.

If you have a small business, if you've sold a home or you've done something unusual, that's where I think it's a really good idea to keep those records for seven years. Now I will tell you the honest to God truth, generally, if you haven't heard from the IRS within three years, you're generally good to go.

So if you've gotten past that three-year threshold, I'm not going to tell you not to hold on to your records, but generally you're okay. Now I will tell you when I first started out my career, I was working for my dad and he in accounting practice. And we actually had a client that got audited by the IRS.

In that particular case, this guy, he had a drug issue. It was really a sad situation. He was a great painter, but he had a drug issue, and the IRS came in cause he hadn't been filing, and they actually went back 10 years, and we had to do 10 years of tax returns for him. Now the good news in that case was we were able to jump on the coattails of IRS because what they did was they actually subpoenaed his bank records.

So they subpoenaed his bank records. They got copies of his bank statements. They got copies of all the canceled checks. And here's the best part. He actually listened to us when we were telling him time to time, “Hey, make sure you're paying yourself a salary. Make sure you make an estimated tax payment.”

And even though he didn't file when he was supposed to file, in the end, which is absolutely amazing, he actually was due money back from the IRS. Now, unfortunately, Mark didn't ask this question, but I'm going to volunteer the answer anyway. Even if you file your returns and you save all your records, the IRS will only let you go back three years and ask for a refund.

So in that case, there was no chance of getting a refund. But so Mark, I hope I've answered your question. Generally seven years is the statute of limitations. If you've got anything unusual, I know you and Krista have some small business stuff. You might want to hold onto those records for 10 years, but it's totally okay if you want to scan those records in. I've even had clients, and you spell do this on the schedule an itemized deduction schedule where you could take a deduction for renting a storage unit to store your tax documents. I don't know if we want to get to that extreme, but that is something you definitely could do.

Well, I got another question that came in when I first posted about doing this show. And the question came from a fellow named Joe. And Joe said, Ralph, how do I go about converting my property to a rental property? And I, you know, we went back and forth a little bit. So apparently Joe's got a place in Florida.

I guess it's his, his secondary residence at this point, but he said, Ralph, what do I need to do to convert that to a rental property? So I'm going to talk about what I call the seven top things that you can do if you've got a property that you want to convert to a rental property. The first thing you've got to look at, and I've done some shows on this.

If you want to go see those, you can go to the askralphpodcast.com. You'll see a little search icon. If you click on that and you can do this for any of the shows, I think we're up to almost 300 shows just this year. And in our catalog, we're well over 520. So it's possible. I've done a show on it, but in this particular case, let's jump right to it.

So he asked me, you know, what are the things that need to be concerned about? Number one thing you want to be concerned about is check the legal requirements for your area, especially if you're going to do a short-term rental, you know, one of these Airbnb or something, because there are actually jurisdictions in the United States where you're not legally allowed to do those.

So that's one thing you definitely want to look at and make sure you've got the right permits. Some towns and municipalities also require you to do a special inspection. Frankly, I think they want you to pay extra money, but yeah, what are you going to do if you want to do that? The second thing you've got to look at based on that inspection or based on those town requirements or those municipality requirements, you may have to make some modifications to the property.

So you've got to look at, you know, do you need to put ramps in, do you need to put any special mechanical devices, any kind of a, you know, things like smoke detectors or fire suppressant things. So those are also things that you definitely want to take into consideration. The next thing you want to do is you want to do a financial analysis and that's where hiring somebody like me would probably be really useful.

You want to lay pen to paper and see if this actually makes sense to do this. And I say that because it might not make sense financially for you to do this. Let's say you had a property that was worth half a million dollars. Now a lot of people don't have those, but let's just say you did. And you look at, and, and what could you do if you were unable to rent that for a decent price?

You have this rental property that you're paying a big mortgage on, but if you're not able to financially make it fly, that's one of the things you got to do. You got to look at the financial analysis. And this next one I'm going to take is a lot of people miss this one. And you've got to think about insurance because in most cases, you're going from this to being a primary residence or second resident, but it's personal in nature.

So you want to talk to your insurance company and make sure you've got the correct insurance so that you're not putting yourself out there for a problem down the road. There are specific insurance policies for landlords. So you've got to tell them that that's what it is, and you know, you got to make sure you've got those insurance policies.

The other thing I want to mention while I'm here, one of the things you definitely want to do is require your tenants to buy what's called renter's insurance. That renter's insurance helps protect them. And frankly, it helps protect you as well in the event that there's something going on with the property.

The next thing you've got to do, you got to talk to someone like me. Again, we're going to talk about the tax implications of this. A lot of people get into rental properties because they hear talked about, well, you know, I can write off losses on rental properties. And that's generally true, but you've got to be real cautious of that because as your income increases, there's a thing in the IRS code called passive activity loss limitation.

I'm not going to put everybody to sleep. It's late enough today, but passive activity loss limitation basically says that if you have a rental property that generates a loss, now why would it generate a loss? It would generate a loss because maybe you, you're renovating, you're getting ready to rent it out and the income coming in is less than the expenses because think about it like this.

Joe didn't mention this, but let's just say Joe had a property in Florida that was worth $300,000. So when you go to rent that out, you're entitled to take what's called a depreciation deduction. So you basically take that $300,000 and amortize that or spread that out over 27 and a half years. So that's a real expense, but here's the tax side of that.

If your income is over a certain amount and it's married filing joint, it's $150,000. So if you and your spouse have an income of over $150,000, there's going to be a limit on how much you can take in losses. So you need to understand that from the front end. So take time, make an investment in meeting with somebody like myself that can help you work through those things.

Another thing you've got to consider. And a lot of people, again, you got to have the stomach for this. Having a rental property is something you got to have the stomach for. So have a tenant screening process in place. You don't want to just rent this to any Tom, Dick or Harry who walks through the door.

I mean, you want to have a process in place, whether that's pulling credit, maybe calling references, which actually leads me to the last thing I have on my list. Number seven, you've got to make a determination if you're going to do it yourself, you're going to hire a property management company. You want to get those calls at 3am in the morning when the toilets back up, or there's a leak here, there's something going on.

So you might want to consider adding a property, a property management company to help you with that so you're not doing that all on your own, but again, that's individual decisions and property management companies charge based on a lot of them charge based on a percentage of the rent. They might take what they call a placement fee.

They'll charge you the full one month's rent to find somebody. But I've got clients that do both. I've got some clients that manage their own properties, and I've got some clients that use management companies. And I'm not going to say there's a right or wrong answer. You just need to understand what you're getting into.

So Joe, I hope if you're listening, I hope that answered your question. Now we did get another question, and this one comes from bookworm. Let me bring this over here right now. And so bookworm says, what happens if I don't pay my estimated tax payments? Shame on you bookworm. Nah, I'm just kidding. So here's the thing.

Estimated tax payments, and I'm going to sound like I'm being silly or estimates. So basically if you come to somebody like myself, you're getting your taxes done, we're going to give you estimated tax payments so that you can avoid paying a penalty. And everybody says, what do you mean by paying a penalty?

Well, if, when you do your tax return at the end of the year, you owe the IRS money, the IRS can actually charge you a penalty for not making estimated payments. Cause here's the deal folks, the IRS wants their money when you make the one, just like if you're working for a W-2 job, you get a traditional work.

When you get your paycheck every Friday or every other Friday or once a month, you see those taxes coming out of your check or your direct deposit, whichever you get. Well, the IRS wants the same thing when you don't pay for those things that way. So maybe you're retired and you've got passive investments.

Maybe you've got dividend income and interest income. Maybe you've got a rental property and you're driving income from that. Maybe you sold some stock. All those types of things can be useful and, and those things are why you have to make those estimated tax payments. And listen, I have clients, and this is a true story.

I got one particular client. He makes a lot of money, and he says to me, he says, Ralph, look. I don't want to pay estimated taxes. The IRS can go pack sand. That's fine. But what I tell them, I said, listen up, dude, when you come to get your taxes done at the end of the year and you owe $20,000 or something like that.

And then I say to you, and you also owe this much more than guess what? You've been, you've been hit with that penalty. And the States do the same thing. And it's not a small number. You know, it can be anywhere from a couple of dollars to a couple of hundred dollars to a couple of thousand dollars. So the whole point of doing those estimated tax payments is to avoid those penalties.

But you might say, and I say this to clients sometimes, listen, keep your money in the bank and just be prepared that when we go to do your tax return, you may owe some money. That's just the nature of what it is. A lot of people like to pay estimated taxes as well so they don't get hit with that, “Ralph, I can't believe you just told me how much I owe things.”

Cause I got some clients, they come in, listen, I just had a client, I guess it's been about two weeks ago. And I had to tell the client, I said, you owe $160,000 in taxes. Now, again, it's a high net worth individual. He's making good money. He's doing the right thing and all those kinds of things. But I had to tell him, look, you owe a lot of money.

And now he's going to get hit with a little bit of a pain and there's a bunch of ways to get around it. There are things called safe harbors. I'm not even going to get into those tonight. I probably have done an episode on that. If not, if you've got a more bookworm if you've got another question to follow up on, just send it over to justaskralph.com. Well, thank you bookworm for that question. That was an excellent one. Now one of the other things I want to talk about tonight is IRS. You know, you see these things on tv all the time. They drive me crazy because this is what I do for a living. Maybe if you've ever seen one of these comments in the comments, but we'll, the IRS will work with the IRS, and we'll help you settle your taxes for pennies on the dollar.

And that just drives me crazy because there's people who are out there hurting. They've run up tax debt and now they're getting hit with this nonsense of these people, you know, paying for these ridiculous ads of, you know, you owe 20, $30,000, a $100,000, $200,000 and we'll settle your IRS debt for pennies on the dollar.

Well, guess what folks, that's generally a scam. So I'm going to talk to you about some things that help you prevent being scammed on those things. The first thing you need to understand is if it sounds unreasonable, like my grandfather used to say, if it sounds too good to be true, well, guess what? It's probably not true.

So if they're giving you these unrealistic expectations, like I remember I had a client this probably been 15 years ago and he had gotten her to work, wasn't able to work. And he owed the IRS about, don't hold me to this. I want to say around $20,000 and we did what for him, what's called an offer and compromise is basically when you say to the IRS, Okay,

IRS. Yes. I owe you $20,000. I'm not going to argue with you, but I simply can't afford to pay it. And in this particular case, I work with him. We filed what's called an offering compromise. We worked through the whole discussions with the IRS. We narrowed it down and the IRS was going to settle this $20,000 tax debt for about 6 grand.

Now that's reasonable. And you're never going to believe what happened in this case. I had worked for months with this client and months and months. We got this thing at first, the IRS wanted $20,000 and we got it down to 15 and we got it down until we got it down to six. And I'm not going to tell you the guy's name because I don't share the conversation, but let's say his name was Joe, right?

I like to use Joe. Let's say Tom, Tom sounds better. So I got this thing down, Tom. I said, Tom, listen, if you pay the IRS $6,000, this whole debt will go away. And he said, “Well, let me think about it.” I didn't hear from him for about a month, a month later, he says, Ralph, I spent all the money. The wife and I went on a vacation.

I was so frustrated, but you know, you know, you can lead a horse to, but you can't make them drink. You know, that's just the bottom line. So if it's an unrealistic expectation in that same situation, I just told you about, let's say that you owe the IRS $20,000 and somebody on TV says, I can settle that for 200 bucks.

Guess what? They're lying to you because the IRS is going to say, well, do you have assets? Do you own a home? Do you have a job? If you have nothing, you're not making any money, then maybe you could settle it for $200, but just pay attention to those things because as the economy starts to get worse and we see taxes going up,
and I think we're getting ready to get into a bad time in the economy again. I don't have a crystal ball, but that's just my personal opinion. Just be aware of that. The second thing, if they want to charge you upfront fees, and I've seen some of these and Craig, I see your question. I'm going to get to in just a second.

So thank you for sending that in. And Craig, we're going to get to it right here in a minute. But if you see these upfront costs, a lot of these knuckleheads, and I use the word knuckleheads nicely, but they're knuckleheads. They're trying to scam people. That's what they're trying to do. If they want to charge you an upfront fee, you know, send us $5,000 and we'll settle your tax debts for penny on the dollar,
listen, run the other direction because they, there's no way, now they can charge you a fee for the work to do. It's called a 656. It's an offer and compromise. They can review your tax returns, make sure there's no errors, but if they're trying to charge you some exorbitant upfront fee, run the other way. Another thing.

You got to look at the eligibility requirements. And a lot of people don't understand this. The IRS will not even consider what they call an offer in compromise If you're not up to date on your filing. So if you're one of these guys, I had a client in, this has been about three weeks ago that hasn't filed tax returns in like seven years. And he said to me, said Ralph, can we file, you know, one of these pennies on the dollar things?

I'm like sure, but here's the deal dude. We've got to get all your tax returns filed first, because right now you're not in compliance. If you're not in compliance, they're not even going to have a discussion with you. You've got to be up to date and be in compliance. And I'll throw a little caveat in here at the same time.

And Chris, I see your question. We're going to get to that in a second as well. I'll throw another caveat in there. If you do not file. Let me take a quick break. So here's the deal. If you file your tax returns and owe money, that's a civil issue. The IRS can come after you. They can, you know, attach your wages, they can file liens, they can do all those types of things.

I'm going to be doing a show in the next few days on, can the IRS take your passport if you owe taxes. So make sure you check that out, but those are all civil things. Now, if you don't file, that's what we call tax evasion. And that's criminal. That's where you get a visit from the IRS guys with guns and gold badges.

So just be aware of that. And so make sure you're meeting the eligibility requirements. The other thing I'm going to say about these tax scam firms is to make sure they're doing something personalized. Make sure you're having meetings with them. Make sure they're asking you for actual documents and all that sort of thing.

If it's not personalized, again, it's a scam. And the last thing I want to say on this, if they're high pressure, cause I've actually had clients tell me they'll start calling because see what happens is this. Generally the way that these companies get your information is to keep an eye on IRS tax levies and liens that are found. As soon as they see one of those, bam, they're on you because all that information is public record.

So they start sending you notices. Maybe they're calling you, all these types of things. If they're doing that high pressure stuff again, be on the lookout. So let's get to some more questions. So I got a question here from Craig. Craig is coming to us from Louisiana. Craig is a good friend of mine. And Craig says this, he says, how should someone decide when to start taking social security?

Okay, Craig, well, you hit me with the toughest question of the night so far, because this is such a difficult discussion. And I bet that I probably have this discussion three or four times a week with clients. And listen, I just turned 52. And you know, 10 years ago, I didn't really think about this, but now I think about it just about once a week.

And it's a tough call because see, you can take, and let me back up a sec. A lot of people don't know how this works. I've done many shows on this, but basically the way it works is you can take social security as early as 62. It's what they call taking it early. Obviously, if you're taking it before, and then there's, so there's early taking it, there's full retirement age, and then there's waiting till 70. So let's talk about all three things and what that looks like, Craig. This is going to be, I think, the key to your question. And at 62, this is the way you have to look at it. You're basically going to lose 25 percent of your benefits for the rest of your life.

So think about it like this. Your full retirement age for most people, it's going to be between 66 and 67. It depends on your date of birth and your year of birth and month they give you when you get the, when you go to ssa.gov and I encourage everybody to go do that. See what you've vested in social security.

Make sure your account is up to date, but they're going to tell you what your full retirement age is. So let's say Craig, in your case, your full retirement age is 67, exactly 67. If you decide to take your benefits at 62, there's a couple of things that I'm worried about. Thing number one is how long do most people live in your family?

I know it's not a crystal ball thing. Like, I don't know, Ralph. Craig might say, well, my mother's 99 and my dad lived to be 98. So I'm like, okay, so he's got a lot of longevity in his family. So at taking it at 62, you're locking into those benefits at 25 percent of your expected benefits at full retirement age.

What am I saying there? So let's use a simple example. Let's say that your full retirement benefits, and it's going to be a real simple example, is a thousand dollars at full retirement age. So if you wait until 67, Craig, you would get a thousand dollars a month in social security. Well, if you decide to take it at 62, now you're only going to get about $750 in social security.

So you can do the math, take that 750. And that's what you're going to get for the rest of your life. So it really comes down to sort of a gamble at that point. If you said to me, Craig, listen, my health is terrible. Nobody in my family lives past 70. I'm not doing well now. You know, health wise, then maybe 62 is the right answer, but another thing you got to be worried about.

And a lot of people don't think about this either. If you retire and take those social security benefits early, you also have a cap on how much income you can make before they start taking away benefits. I think this year it's around $19,000. So what am I saying? You're saying, let's say you decide Craig to take that, those benefits at 62.

And you say, you know what, this is what I'm going to do. I'm betting it all on black because I don't live that, people in my family don't live that long. Now all of a sudden, let's say you're a month or two into it and you realize, man, I can't live on this social security benefit of 750 a month. You just say, I'm going to go get another job.

Well, now all of a sudden, you've got handcuffs on you, because if you make over that $19,000 and that's indexed with inflation, but let's say you make more than that $19,000 a year. Well, for every $2 you make the social security administration is going to take away a dollar.

So you just made a bad decision, but again, it comes down to your longevity. So now let's talk about, oh, and another thing I want to add to that. A lot of people don't understand this either. You also are going to pay tax on your social security if you've got other income up to 85 percent of those benefits.

And we'll get into that in another discussion. Okay. So let's see, Craig, now you've decided, Ralph, I'm going to wait till I'm my full retirement. Let's talk about what that looks like. So you're going to get a hundred percent of those benefits that you found that you were going to get. They used to send out a green form once a year.

Now you go to ssa.gov. And like I said, I encourage you to set up an account there and it'll tell you how much you're going to get in your social security benefits, but you wait till full retirement age. Now, first of all, you're going to get a hundred percent of your benefits. Second thing, you're not going to have that earnings cap.

So you could get those benefits and go make a million dollars. It doesn't matter. Now your social security is going to be taxable, but there's no earnings cap whatsoever. So for most people, that is a better decision than taking it early. But again, I say it depends on your health. Now, you have another option.

You have many other options actually, but let's just use the most extreme option. So you could take it at 67. You could take it at 68. You could take it at 69. Well, let's say you waited till you were 70, if you wait till 70 and this is the real cool thing to do. And again, it depends on your circumstances.

And I would encourage you to schedule a consultation with me or someone that you trust and let's lay pestle to paper and talk this through. But if you wait till 70, Now all of a sudden, you're going to get 25 percent more benefits. So once you get 67, they're going to add more benefits to it each year.

But when you get to 70, it's going to max out at 25 percent more benefits. So we talk about those thousand dollars a month. Well now all of a sudden, maybe we're at $1,250 a month. And in Craig's case, Craig said to me, “Hey, my dad and mom are both living to be a hundred years old.” Well, chances are if Craig doesn't have a lot of health issues, he may live that long as well. So waiting till 70 might be a great answer for Craig and again, there is no earnings cap.

You're going to pay tax on it, but there's no earnings cap. And that is another thing that I see a lot of clients. Let's say that you and your spouse have a big age difference. So let's say Craig, you're the older of the couple, but let's say your wife is five or 10 years younger than you. It might make sense for you to wait till 70 so that you could give your spouse more benefits in retirement.

This is not a simple answer. Like I said, you hit me with a good one and I appreciate it because a lot of people don't understand all the nuances in it. And there's also, there's talk of Medicare and all that sort of thing. And I'm going to tell you ahead of time, I've got some great shows coming out this Friday and Saturday to talk about Medicare.

I'm going to, I'm going to let you in a little secret. I'm going to drop a bomb this week about how much you can expect to spend in retirement on medical expenses. So make sure you don't miss the shows this week because you are going to be shocked at just how much that is. Well, Craig, again, thank you for your question.

So let's move on to our next question. And this one comes from Chris. Let's see what Chris is asking here tonight. Chris says this, how does inflation impact my personal savings and investments? That is another great question. And it's going to be one of those answers. It depends. If you are in, if you are locked into investments that you can't change.

You can't reprice. For example, let me give a real simple example. I did a show about this a couple of weeks ago. Let's say that you're one of these people that's very risk averse. And you only invest in CD, certificates of deposit. Well, during times of inflation, if you've got longer term CDs, let's say for example, you bought a five-year CD and it's at 3%.

Well, then all of a sudden, if interest rates go up, like they have in the short, you know, recently, those interest rates go up. Then you've got a bad, you've got a bad investment there. So that's one of the things I recommend doing what's called CD laddering. I talk about that in the show, go to our search and look for that.

But basically what I would recommend you do in that case is rather than buying at five year CD, maybe you want to buy a six month CD and then a one year CD and then an 18 month and 24 months, that way you can work against that inflation. So as interest rates go up and you have a CD that's maturing, you can then jump into that better rate.

It's the same thing with personal savings. The thing that's beneficial about personal savings is that maybe your savings account interest rate doesn't go, but maybe you take advantage of a CD because now rates have increased. Or maybe you use a money market account. This is one of the things my wife does a lot of times.

My wife is great with managing money. I wish I was as good as she was. Maybe she should be sitting here behind the microphone. Behind the camera, but the truth is she's really good at this. My wife is a whiz at using her money efficiently. She's a CD buyer. She's a person that buys, you know gets into these money market accounts because she doesn't want to just sit and let her Money just sit there and go to fleece but inflation's hurting everybody. And dirty little secret is I think it's going to get worse. Now, a lot of people don't agree with me, but I think after the election, we are really going to see a very difficult time in this country.

I hope I’m wrong. I don't think it's going to matter who gets elected president because the truth is, and I’ll take a tangent here for just a second. But we as a country have been spending more money than we've brought in for years. Eventually somebody's got to pay these bills and we're going to have to make some tough decisions as a country which is going to lead to inflation. Inflation has been bad the last few years.

If you go to the grocery store, like my wife handles most of that stuff. I go to the grocery with her and I get annoyed because I can't believe how much stuff costs now. And so I hope that answers your question, Chris. And that, that really is the key is you've got to look at your investment portfolio, your investment strategy, make sure it's diversified, but also make sure that these are things that you can work with to change pricing if the economy does change. All right. Well, we've got another question here. And this one comes from DB. Let's see here. We got DB telecom consulting. And it says this, it says, I have a hobby and make things. Well, that's cool. I'm not good at making things. If I start selling them at flea markets or online, do I need to start a business, collect tax, file income tax, and all those sorts of things?

Well, I'm going to, I'm going to give you the answer. Yes. Unless you want to go to jail for tax evasion, because the truth of the matter is basically the IRS code says, if you make money, if you have a business, you have to report that as income. Listen, this is what put Al Capone in jail. It wasn't all the racketeering and stuff.

It was tax evasion. The IRS doesn't play with tax evasion. So let's, let's get more into your question. You said if I start selling them at flea markets or online do I need to start a business. I'm going to recommend that you do that for a couple of reasons. Number one, if you start a business, you're going to be better off from a tax perspective.

You can work with somebody like me, and I can show you how to structure your business in a way to reduce some taxes. I'm not going to get into that discussion tonight. But there are definitely things you can do to reduce your taxes. Now, the second thing I'm going to tell you is liability protection. And I'm not an attorney.

I don't play one on TV. I don't have an attorney hat, but you may have some liability. You say to me, you're going to start selling stuff that you make. Well, what happens if you make something and it hurts somebody, they get hurt with it. You definitely don't want to have all of your personal assets at risk
if that happens. So I would definitely recommend that you set up a business that could be an LLC, that'd be a subchapter S corporation. You want to meet with somebody, make an investment in meeting with somebody that understands it. I do this every day, meet with somebody and talk about how can I protect my personal assets?

Because here's the thing, if you don't do that, let's give a real simple example. So you're saying to me, Ralph, look, I make little trinkets. I sell them at the firehouse. I sell at flea markets around the holidays, craft fairs, that sort of thing. And I say, that's fantastic. I'm happy that you're creative.

That's fantastic. Well, if you do nothing, you are what's called a sole proprietor. And basically what that means is you're going to report all the income on your tax return. You're going to take all the expenses, you know, your materials, maybe some utility costs, whatever bank service fees, and it's going to go on your personal income tax return.

And you're going to pay income tax on that. You're going to pay federal state. And if you're in a state that has tax like Delaware does, you're going to pay self-employment tax. Well, what is self-employment tax? So when you work for somebody else, It's social security and Medicare. And basically what I'm saying there is 15.2% in additional tax. So that's one of the other reasons I say to create a business, but here's the deal, there's no separation in that sole proprietorship between the business and you. So if somebody gets hurt with your particular craft that you're making, or whatever you're making, you say your hobby, you make things, they can sue you and your liability is anything that you own personally.

They could take your home, again, I'm not an attorney. I'm not giving legal advice. Talk to an attorney about this. But if there is no separation between you and the business, then all of your personal assets are in jeopardy. Your house, your retirement, whatever those things are. Now let's turn the tables a little bit.

Let's say we create this business and let's just say you're married, and we set up an LLC with you and your spouse. That LLC then segregates that business and personal, creates what we call the corporate veil. I'm going to use a piece of paper. So the corporate veil looks like this. You're hiding behind the corporate veil.

Now it's not perfect. If you do something really stupid, they're still going to permeate the corporate veil. If you do something outrageous, then they're going to come after you personally. But if you do things in the normal course of business, if you use the right product, you use the right material, you have insurance, you have liability insurance, you're not hiring people that you know are drug addicts or something like that to make your products and they're going to be defective,
then you've got what they call that corporate veil. And there's a, there's a segregation between your assets and the business assets. So in that same situation where you got sued because of a product that you made, well, you're going to be able to protect your personal assets because a judge is going to say, wait a minute.

The person who bought this isn't doing business with whatever your name. Let's just say Debbie. You're doing business with Debbie, Inc. And then the liability would only be what the assets are to Debbie, Inc. And there's also some really great things we can do from a tax perspective to help limit that liability exposure as well. So that is really a great question.

You talk about collecting tax. Again, it depends on where you do business. If you do business in a state that has sales tax and your particular thing that you're selling requires the remittance of sales tax, then you're going to have to do it and that's a huge thing now with online retailers. This wayfair decision, if you got time once you're done with the show here, you can go look this up but wayfair basically was a supreme court decision that allows states to make sure they're able to collect taxes. So for example, let's say you buy stuff from Amazon.

Well in Delaware, we don't have sales tax. Several States that don't. When I buy something from Amazon, they don't charge me sales tax, but my oldest son, he went to boarding school and he went to boarding school in Pennsylvania. And when we would buy things for him on Amazon, even though I was buying it in Delaware, if they shipped it to him in Pennsylvania, all of a sudden, we had to pay sales tax in Pennsylvania. So I want to give you this warning. If you do sales in other states, and they're online sales, you're shipping things to other states, you've probably have what they call corporate nexus. What I'm going to tell you do is a lot of people are using Shopify or these online sites that will collect that sales tax for you

It will definitely take away a lot of headaches. There are a bunch of websites out there that'll tell you how many sales you have to do on a state before you have to pay sales tax and all that sort of thing. Now, your final part of your question was, do I need to file income taxes?

Again, I'm going to go back to, if you had income, then you have to pay taxes on it. Now you said it's a hobby. So I'm going to take a little bit of a sidetrack here. With a hobby, the IRS will not let you write off a loss. So let's say that you sell trinkets, and you make these trinkets, and you sell $2,000 worth of trinkets in a year, but your cost to make those trinkets was $3,000.

So what do you have? You have a thousand-dollar loss. Real simple math. Even I can do it. I got enough fingers and toes. So you've got a thousand-dollar loss. Well as soon as you used the word hobby, the IRS are going to say, okay, that's fine. Debbie, you can write off your sales, but you can't take that loss.

It's what's called a hobby loss. So you can write off up to a zero, but they can't, they won't let you make it go negative. So therein lies another reason why you might want to set up a separate business because then you don't have that obstacle per se, because if you've got a business, you're paying somebody to create the business, you're buying a business license, you've got business accounts, all that sort of thing.

The IRS really isn't going to make the argument that you're not doing this for a profit motive. And that's really what it comes down to is what is the profit motive? Is there a profit motive? If there's a profit motive, then let's turn the tables on that. And you had that same situation where you sold 2000, it costs you 3000.

Now all of a sudden, you've got that thousand-dollar loss that you could actually take to reduce your other income on a tax return. Otherwise there's all kinds of rules on the personal side. They want you to show a profit out of two out of five years and all that sort of thing. So this was a great question, and I appreciate it.

So let's look at our next question. This one comes from bookworm and this one is when should I, let's see here. And this is when should I stop claiming my children as a dependent? So I'm going to make a funny here. Do children ever stop being dependents? No, I'm just kidding, but no. So here's some rules with this.

Okay. Now here's the deal. If your child is a full-time student, then you must claim them up to them being 24 years old. That's a must. But if they are not a full-time student and they're over 18 years old, then there's a bunch of other rules. I don't want to get into this tonight. Depends on how much money they make, how much support you gave them.

But generally, if they're a full-time student, meaning high school or college, then you can take them as a dependent up to age 24. If let's say they're 18, they graduate from high school, and they're just done. Then they go and do something else. Then you probably are not going to be able to take them as a dependent.

So that's a great question. And again, this gets complicated because it depends on, you know, are you married? Do you have a split custody with a former spouse? You know, does this, does your child now is, is your child 18 and married? They're not a dependent anymore. And then you could have dependents that are older than that.

You could have a dependent that maybe has special needs or maybe a parent that's living with you. And, and there are a ton of different nuanced things to that. And that's one of those things where you can get yourself in trouble if you use one of these online tax software, if you've got a situation like that, I'm going to highly recommend you go to askralph.com. You'll see a little button at the top says, book a call with Ralph. And let's talk about your situation because everybody's situation is different, and you don't want to get yourself into a bad problem. So again, bookworm, that's a great question.

And DB Telecom, you're welcome. I appreciate sharing this. This is why I'm doing this because here's the deal. My mission is to help people be successful. When I turned 50, I said to myself, Ralph, you know, you've done well, you've done well, financially, God has blessed me in so many ways. But what can I do to give back?

And that's why I started doing this podcast again. I had been doing it back in Sep 2017, 2018. And then I really started in earnest this past November doing a daily show. And my goal in my daily show is to help you grow in your finances, in your faith, because I truly believe that these two things run hand in hand.

They just do. And, you know, it's important that you, that you, you look and see how can I merge those two worlds because they're not by themselves. And like I said at the beginning, if you've got a question you didn't have a chance to ask tonight, we're going to wrap things up here in just a minute. You can always go to justaskralph.com and you could submit your question right there and I will answer it on the show. Well, I want to thank you for joining me tonight. I'm going to be doing this every Tuesday night at 7 p.m. Eastern time and what I encourage you to do is come join us. You know, if you've got a question in the interim, you can send it to justaskralph.com or you can wait and bring them here.

I don't charge for this time. So this is a time to pick my brain for free. And it's an opportunity for you to meet with other people, see what other people are talking about because we're living in tough times. You know, I have clients tell me every day, Ralph, I feel like I'm living paycheck to paycheck.

I feel like I take two steps forward only to get shoved back three. I'm looking, I feel like I'm in financial bondage. Well, let me help you with that. Let me help put together a personalized plan for you to help you break free of that once and for all, because Listen, I will sit down with you. We'll do a personalized meeting.

It's not some cookie cutter approach where you have a TikTok video, or here's Ralph seven ways to get out of debt. That's all nonsense. You need somebody to sit down with you, come alongside you and build a personalized financial roadmap. And that's if you really want to be successful, that's the key to the whole thing.

So I'm going to encourage you, if you've got value out of this, I'm going to encourage you to listen to my daily podcast. Like I said, it's released every morning. You can go to askralphpodcast.com. You can look right there. There's a place you can join our email list, and I'll send you that when I said that Free guide of seven biblical principles of how to stop living paycheck to paycheck, and finally break free of that bondage.

You can also watch our show Daily on YouTube and Rumble, and I'm going to ask you for a favor, if you get value from this, share this with a friend, share this with family members who could benefit from the things we talk about here. And I always start the show on the daily show in the podcast with a Bible verse.

And I want to close with one today. And this comes from the book of Philippians. It's chapter 4, verse 19. And it says this, "And my God will supply all of your needs according to his riches in glory in Christ Jesus." And I wish that on all of you. I wish I was in my show with this. I'm going to end tonight's live show with this.

And I thank you for joining me again. Hopefully it wasn't too bad to get through this first time. I feel like we did okay. Thank you for the comments. If you've got a comment, feel free to leave those out, make sure I read all of them, but I always end my show with this. Stay financially savvy, learn things, go find people to talk to, surround yourself with people that can help grow your education, your financial education, because you don't have to feel hopeless.

You don't have to feel like the world's working against you. There are concrete things that you can do, and I don't care where you are. I don't care if you're super poor or super rich. There are always things that you can do to improve your financial situation. And there's hope, there's hope in Christ.

There's hope in Jesus and there's hope in your faith. So don't ever lose sight of that. So I'm going to leave, I'm going to close with this and I'm going to ask for you to be blessed. You know, God bless you abundantly and again, thank you so much for joining me tonight.

Narrator
00:43:48

Thank you for joining us on the Ask Ralph podcast. And with a simple click to subscribe, we'll invite you back to our next episode. And remember, financial issues don't have to be complicated, just ask Ralph. The information contained in this episode of Ask Ralph is based on data available as of the date of its release.

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