Generating a tax loss is one thing. Being able to actually use it is another.

Ian and Jeremy dig into the material participation rules and why understanding the difference between active and passive income is critical before jumping into a tax strategy or investment promising massive deductions.

They break down the material participation tests, including the familiar 500-hour and 100-hour rules, as well as the lesser-known tests that can unexpectedly pull an activity back into active treatment. They also discuss real estate, short-term rentals, cost segregation, passive K-1 income, oil and gas investments, and situations where intentionally becoming passive can create significant planning opportunities.

The conversation also tackles a growing problem in tax planning: strategies that look impressive on social media but fall apart once you examine the actual tax law. The takeaway is simple: before chasing a deduction, understand how the income and loss will be characterized—and whether you can actually use it.

• Active vs. passive income
• The seven material participation tests
• The 500-hour material participation test
• The 100-hour / no-one-else-does-more test
• Facts-and-circumstances material participation
• Prior-year participation rules
• Special rules for personal service businesses
• Real estate professional status
• Short-term rental strategies
• Cost segregation and bonus depreciation
• Grouping elections
• Passive K-1 income and why it can create planning opportunities
• Form 8582 and passive activity loss carryforwards
• Why generating a tax loss doesn't mean you can use it
• Evaluating tax strategies promoted on social media
• Understanding the incentives of whoever is selling a tax strategy
• Why some legitimate tax strategies still come with significant strings attached
• The importance of working with an advisor who understands how all the pieces of the tax code interact

When your CPA tells you something is "risky," they're not necessarily saying you're going to get audited.

Ian and Jeremy break down the different types of risk that business owners and their advisors should be thinking about—from aggressive tax positions and poor documentation to penalties, professional fees, bad bookkeeping, due diligence problems, and even risks buried inside the operations of the business itself.

They discuss why a technically defensible tax strategy still might not make economic sense, how documentation can dramatically change the outcome of an IRS examination, and why spending a little more time getting things right today can prevent an expensive problem years down the road.

The broader lesson: risk should be evaluated against the potential reward, the cost of defending the position, and the consequences if you're wrong.

• What CPAs mean when they talk about "risk"
• Firm risk vs. taxpayer risk
• Audit risk and defensibility of tax positions
• Documentation and substantiation
• When a CPA may refuse to sign a return
• Short-term rentals and material participation
• Cost segregation and increased scrutiny
• Estimated tax payments, safe harbors, penalties, and interest
• Why clean books and balance sheets matter
• Underreported income and extended statutes of limitation
• Preparing documentation contemporaneously
• QSBS and the importance of maintaining clean historical records
• Buyer due diligence and risks that can reduce or kill a business sale
• Operational liabilities that may never appear on a tax return
• Why the size of the tax savings alone doesn't determine whether a strategy makes sense

A $10 million offer for your business sounds great—but how the deal is structured can dramatically change what actually ends up in your pocket.

Ian and Jeremy break down the difference between an asset sale and a stock or ownership-interest sale, why buyers and sellers often want opposite things, and how purchase-price allocation, basis, depreciation, liabilities, and capital gains can affect the economics of a transaction.

They also discuss situations where a stock sale may be necessary, how a Section 338(h)(10) election can bridge the gap between buyer and seller objectives, and why strategies such as QSBS and ESOP planning require significant lead time.

The bigger takeaway: don't wait until an LOI lands on your desk to start planning your exit. Understanding your options years in advance can create significantly more flexibility—and potentially millions of dollars of difference in the final outcome.

• Asset sales vs. stock/ownership-interest sales
• Why buyers generally prefer asset purchases
• Why sellers often prefer stock sales
• Purchase-price allocation and Form 8594
• Step-up in basis and depreciation/amortization
• Goodwill and the 15-year tax amortization period
• Pre-existing liabilities and warranty exposure
• Section 338(h)(10) elections
• Inside vs. outside basis
• QSBS / Section 1202 opportunities
• ESOP and Section 1042 planning
• Why business-sale planning should begin years before an LOI
• Looking beyond the headline purchase price to after-tax proceeds and replacement cash flow