Instant gratification. For some people, it’s a lifestyle. For business owners, it can be a trap.

I see instant gratification in business terms as a deal or a project that makes you money right now. Nothing wrong with that – we’ve all got to keep the lights on and food in the cupboard. And in the early days, it’s essential. You’ve got a reputation to build. But if you run your business solely on the instant gratification principle, you could find that you’re working constantly. That’s hard on you and it’s hard on your family.

In my early business years, I was 100% active income girl. It was what I understood, what I was comfortable with, and where the money was. I worked days, nights, weekends, scrabbled through the odd vacation, and took a lot of phone calls while traveling. I also used to travel with a mini-office. I had a box full of office supplies, so that in the worst-case scenario I could prep documents and send them by Priority Mail or UPS to a client. I did wind up doing that a couple of times!

As the business grew though, so too did the demands on my time. Hiring staff helped to a degree, but I still found that I was doing the bulk of the everyday work. That’s when I began taking a look at the residual side of things.

For me, what I see as residual things are products and books – basically packaging knowledge into a tangible format, and selling it to consumers. Write it once, sell it a thousand times kind of stuff.

Creating that passive income stream has become a goal for me. I’ve had some great encouragement along the way. One of the first products I created went off like a rocket, and I saw some really healthy income, at least until the economy went into free-fall. Things went up and down, and are currently stabilizing, with slow, but steady growth.

The downside to passive income though is that you’ve got to delay gratification. It takes time to create products, and that’s time you won’t be working (and earning). For me, that means either rearranging my schedule every now and then so I disappear for a few days, or working some very long hours, as I take care of business in the daytime and take care of the future in the evenings. It also means being aware that everything I write potentially has a larger purpose.

Is there a financial component of product creation? You bet. There’s time out of your working day, or your evenings. Depending on your delivery method you’ll also have out-of-pocket costs. Those can range from a few hundred, if you’re creating a sales website and maybe some downloads, or CDs, to thousands of dollars, if you’re trying to publish a book. Plus the build is slow. Rarely do you create a product and have instant success. There’s market building and advertising to think about, meaning more time + more costs.

I think the only way to look at those is as investment costs – you’re investing time, money (and likely both) up front, so you can have some time, money (and hopefully both), down the road, at least that’s what I tell myself at 2am when I’m working on a project.

There’s another investment element to think about, too. Products become a marketing tool you can use in your business. An eBook on a topic you’ve got knowledge about can easily help to establish you as an industry leader. Do you give it away? Why not – especially if it’s going to lead to a sale worth 5x what you charge for the eBook.

As business owners, we carry so much in our heads – and much of that has value. Getting that knowledge out of your head is perhaps the first step towards creating a whole new income stream, and an increased business presence. Yeah, you’ll spend some time, but isn’t that why we invented TiVo?

Related posts:

1. 3 Types of Business Income
2. Passive Income and the IRS
3. Turn Business Assets Into Passive Income Generators

Does your business make you tired, day in and day out? If so, chances are you’re working at just one type of business income: active income.

Active income means that you have to work to get paid. It also means that you haven’t looked at ways of leveraging your time. You’re caught in the entrepreneurial time trap. Bootstrapping in the beginning got your through what you needed to, but as time went on, you likely started thinking about adding staff. Maybe you took that step and hired someone. And, if you’re like most business owners, those first employees let you down. They didn’t do the work the way you wanted them to. They were slower than you. The quality wasn’t as good. They might even have stolen from you.

If you want to see some of the ‘stupid business stories’ that talk about what happens when employees go back, make sure you check out SmartBusinessStupidBusinessOnline.com on Saturdays. We highlight some of the stories of businesses gone wrong that others have sent us, and most importantly, the lessons you can take away from that.

But you can build a business with systems that work so you don’t have to. There are three steps to building systems: (1) Write systems (2) Train systems (3) Enforce systems. In Smart Business Stupid Business we give you step-by-step programs to document systems. That alone might be the best reason to pick up your own copy of Smart Business Stupid Business

As you move from active income to leveraged income (with much higher PROI – personal return on investment), systems will be your best friend.

You’ll safely and confidently turn over work you don’t like to do and focus on what you do best. That’s leveraged income.

Then it’s time to start looking at passive income. Make no mistake, there is work to passive income. But the secret is that you use money and/or time in the beginning to create income streams that continue. This past weekend, Megan and I had a teleseminar that had almost 1200 people sign up for. We gave good information on how to protect LLCs against the new wave of LLC-busting techniques some lawyers are using. And we gave a fantastic offer with good discounts (the 2011 Operation Guide to LLCs). And then every time we hit ‘send/receive’, we had orders flood in. It was work in the beginning, but it became passive income.

Every single business owner has that same ability to create active, leverage AND passive income from the business they already have.

Check out Smart Business Stupid Business Online for ideas on how you can do that.

Related posts:

1. Turn Business Assets Into Passive Income Generators
2. Passive Income and the IRS
3. How To Report Form 1099-C Income Without Paying Extra Taxes

There is a popular saying that if you work at your passion, the money will follow. Sometimes it works, most often it doesn’t. Why?

Or, let’s look at it the opposite way. What about the people who work at something that they are good at and that makes them money, only to burn out? They never had the passion for the work.

There are actually three elements to creating that ‘sweet spot’ of business income. These three are: What you’re good at (entrepreneurial), What you’re passionate about (emotional), and What people will pay (economic).

Picture three circles, overlapping in the middle. That middle, where all three circles meet is the ‘e-center’ and that is where you can make money, do good work and love what you do.

If you do just two of them, you’ll never be in complete balance. It takes all three!

Take some time today and think about what you’re passionate about. Ask others what they feel you’re best in the world at. Then put them together in way that solves other people’s problems. You’ll have created a business that can change the world, and your life.

Related posts:

1. The Secret Language the Rich Know
2. When the Series LLC Doesn’t Work
3. Can Bookkeeping Make You Rich?

One of the real life stories from Smart Business Stupid Business is about a client of mine who went from employee to business owner and discovered $10,000.

Before he lost his job, he was making $50,000 per year as a middle manager. His credit cards were maxed out and he worried everyday driving to work because his tires were shot. If he lost a tire, he’d have no way to buy another.

Then the worst thing happened, he lost his job.

That’s happened to a lot of people these days, so nothing new there. The fortunate thing for him was that he found a position within a month. Only he was going to be an independent contractor, not an employee. He made the same amount of gross income, but he was now responsible for paying his own taxes and medical insurance.

But somehow, at the end of the year, after his taxes were all figured out, he had an extra $10,000 in cash.

That’s because a lot of the expenses that he would normally have anyway like his car, home office, computer, cell phone, travel and the like became at least partially deductible.

He went from “Earn-Tax-Spend” to “Earn-Spend-Tax” resulting in less tax and more money.

If you don’t have a business yet, start one today! If you have a business, ask yourself: Are you getting all the benefits you should?

We’re covering How to Discover Your Hidden Business Deductions in the USTaxAid Coaching course tonight. Join us!

Remember that coaching is free when you become a client of USTaxAid Services.

Related posts:

1. Finding Money for Your Business
2. 95% of Businesses May Get a Tax Bill from a State They Didn’t Even Know They Owed Money To. Is Your Business One?
3. S Corp Owners Breathe a Little Easier … But Start Planning for the Future

This week we’re going to take a bit of a departure from taxes to talk about how to put more cash in your pocket.

If you pay less taxes, you’ll have more cash. That’s because taxes are probably one of your biggest expenses. When you cut your expenses, you definitely will put more money in your pocket. And if those expenses are after tax (not deductible), you’ll actually do better saving $1,000 then making $1,000. That’s because the $1,000 will be subject to taxes. If you want to find ways to pay less tax, then please scan the archived blog posts. You’ll find plenty of ideas.

How about ways to pay less in expenses? One of the best tricks I know is “Cashflow Sunday”. Every Sunday, my family comes up with a list of 10 things we can do during the next week to create cashflow. Some of the items will be ways to collect money. Others are ways to decrease expenses. Usually the expense items are easier to identify and put in place right away. But there is a limit to how much you can cut. On the other hand, there are very few limits to how much cash you can create.

If you don’t have a business, start one. If you have one, how are you doing at creating/ all three types of income: (1) active (2) leveraged and (3) passive?

We’ll be talking about all those ideas more this week in the blog posts.

For more information on building your Smart Business, check out Smart Business Stupid Business When you sign up for the Insider’s Club, you’ll save 10% on the book!

Review:

This book clearly, and almost informally, discusses choosing a partner, building business credit, selecting the right corporate structure and even explores business exit strategies. The style is refreshing in that it feels like they are talking directly to me. Every time I start, merge or acquire a company, I have to consider many of the things covered in this book, it is quite comprehensive. The content is primarily focused on building a business and has actually given me some ideas that I had not considered in running my own companies. Randy Thompson, Geneva, WI

Related posts:

1. 3 Ways an Operating Agreement can Impact Your Business
2. Finding Money for Your Business
3. 95% of Businesses May Get a Tax Bill from a State They Didn’t Even Know They Owed Money To. Is Your Business One?

The best structure these days, hands down, is the Series LLC, if it works. There are currently 8 states that have Series LLC law. They are Delaware, Illinois, Iowa, Oklahoma, Nevada, Tennessee, Texas and Utah.
If you’re not in one of these states, you still may be able to take advantage of the Series LLC law. California is causing a bit of a ruckus on the fees, but still allows a Nevada Series LLC to operate in California. Other states have specifically allowed the law from other states.

We’ve blogged about some of the basics on the Series LLC previously. Here are a few links on the Series LLC you can check out for more information:

3 Reasons a Series LLC Should be a Real Estate Investor’s Best Friend
Why You Should Have a Series LLC

Series LLCs Rock! Reason #1: Ultimate Privacy.
Most of the time you won’t have to register the individual cells anywhere. That means you have a structure that others aren’t going to easily trace to you.

Series LLCs Rock! Reason #2: Cheaper to maintain.
Because you don’t need to register individual cells, you don’t have to pay state fees on the cells. It’s cheaper.

Series LLCs Rock! Reason #3: Cheaper to Set-Up.
You’ll need professional help for the initial Series LLC set-up. And by all means, get a trained professional who knows what she’s doing. You don’t want to get someone who tries to use a recycled LLC agreement. A Series LLC agreement is complicated and will take some thought in the initial set-up.

But once the Series LLC is set up, you can easily set up the individual cells by yourself. Fast, cheap, easy – in less than 2 hours, you’ll have a new structure and you can do it all yourself.

Series LLCs Rock! Reason #4: You Can Roll Up Cells.



One of the challenges that real estate investors have is protecting the properties from lawsuits. If you have multiple properties that you put in one LLC, a lawsuit against one will mean you put all at risk. A Series LLC allows you to put each property in a separate cell for maximum protection. But, best of all, you don’t have to pay fees on each cell and you can file just one tax return for all the cells. Gotta love it.

Series LLCs Rock! Reason #5: Perfect for Serial Entrepreneurs.
If you like to start businesses, knowing that half or more probably won’t work out, then the Series LLC is the best structure going. You can set up cells cheap, easy and fast and dissolve them just as fast.
You will never again have to worry about liability from a failed business venture with a Series LLC, provided you follow all the rules and have a solid initial set-up.

I recommend Megan Hughes of Business First Formations for set-up on the Series LLCs. You can reach her at Info@BusinessFirstFormations.com.

Learn advanced strategies with the Series LLC with the Series LLC: The Ultimate Business Structure Flexibility.

Related posts:

1. Strategies with Series LLCs
2. 3 Reasons a Series LLC Should be a Real Estate Investor’s Best Friend
3. Why You Should Have a Series LLC

The choice of making your LLC member-managed or manager-managed has no bearing on the LLC’s tax election. It doesn’t matter if you’re planning to elect C or S Corporation taxation, or stick with the default flow-through – the issue is control: WHO can direct the LLC’s daily business.

Member-Managed LLCs

A member-managed LLC is operated equally by all of its members. That means that everyone is expected to share equally in business decisions and the day-to-day operations of the entity. Alternatively, you can select a group of members to become the managing members, and let those members manage by committee.

A member-managed LLC is a great choice if you’re a single owner business, and you don’t anticipate every having people come in as silent, non-participating members. It can also work for a multiple-owner business, again as long as everyone is prepared to participate equally, and you don’t anticipate bringing in non-participating investors.

A member-managed LLC is also a great choice for singles or couples who are using the structure for passive income activities, and who aren’t as concerned about estate-planning and ownership succession as others may be. For a single person with no children, there isn’t really a huge need to create a control transfer mechanism. And for couples, the member-managed entity allows for truly shared control between the spouses. If a spouse is injured or ill and unable to communicate, the other spouse can still continue the LLC’s business.

Manager-Managed LLCs

A manager-managed LLC is a two-level structure. One level provides the management for the LLC (hence the name managers) while the other level is made up of passive members. Essentially you’re creating a de facto limited partnership, without the liability that normally attaches to the general partner. You can have as many managers as you choose, and they can be individuals or other business structures. Managers don’t even have to be members, although in most cases they will be.

It makes sense to operate as a manager-managed LLC if you have a situation where some members are not interested in the hands-on management of the structure, but prefer a more passive role. It’s also great for estate planning. By naming your kids as members, you can bring them into the LLC using IRS gifting allowances, while still retaining control of the LLC.

Special Considerations for Real Estate Professionals

If you claim real estate professional classification on your tax return and have a manager-managed LLC, you must be an active participant in the management and operation of the LLC. That means you’ve got to be named as a manager. In a manager-managed LLC, the members who aren’t also managers are considered passive – just as they would be in a limited partnership. If you make a mistake with your planning here you could set yourself up for an IRS challenge.

On the other hand, you could set up your LLC as a member-managed LLC instead. That way, every member is considered to be actively participating. It’s a great way to strengthen everyone’s argument that they are entitled to deduct all of the available real estate losses.

Can You Change an Existing LLC?

If you have started with one kind of LLC but realize that you really need the other, you can fix it. In most cases, all you will need to do is file an Amendment to the Articles of Organization, noting the change from one to the other, and making any changes to the members or managers listed.

Remember though, that most LLC Operating Agreements require a members vote to make significant changes to the LLC, and this definitely qualifies! So you’ll need to draw up a set of Consent Resolutions and have all of the members sign, or hold a formal meeting and have the members vote on the issue. You’ll also have to change your Operating Agreement to account for the change.

Depending on where your LLC is formed, change can cost a little or a lot. In Arizona and New York, for example, you’ll have to re-publish the Amended Articles in a local newspaper, following the state requirements. That can add a few hundred dollars (in the case of Arizona) all the way up to a few thousand dollars (NY LLC in the 5 boroughs area). So, if at all possible, make sure you plan and set your LLC up properly in the very beginning.

Related posts:

1. Using a Single Member LLC to Protect Your Home
2. Payroll Tax Issue for Single Member LLCs
3. Basics of an Operating Agreement

Every so often I get an email question about tax preparation. I’ll send those questions one of two places: (1) Information on how to become a client or (2) (if they want a free answer) over to the USTaxAid form. That way there is leverage from answering the question. Other people get the benefit from both the question and the answer.

I get versions of this question often enough that it’s worth a blog post. What tax form do you use for an LLC?
The reason there is so much confusion from this simple question is “It depends.” There actually is NO LLC tax form. There is a tax form for a Sole Proprietorship, a tax form for a Partnership, a tax form for an S Corporation and a tax form for a C Corporation. But there is no tax form for an LLC.

The LLC is a tax chameleon. You get to choose how you want to be taxed. If you don’t choose, the IRS will choose for you. If you have just one owner (called a single member), you will be a Sole Proprietorship if you’re business or a Schedule E if you have rental property. If you have partners (called multiple members), you will file a Form 1065 – Partnership return.

And that’s the short answer to why there is so much confusion. Don’t like how you’re being taxed? You can change it. Just make sure you tune into “How to Protect Your LLC” to verify you’re not making a fatal flaw with your Operating Agreement when you make the change.

How to Protect Your LLC
FREE! Teleseminar NO HYPE
Saturday, July 24, 2010
10 am Pacific, 11 am Mountain, Noon Central, 1 pm Eastern
Register: http://www.DianesSeminars.com

Related posts:

1. Reporting Form 1099-A & Form 1099-C
2. Form 1099-C & Form 1099-A Debt Forgiveness
3. Form 1099 Due Out By End of January