Posts Tagged taxes

Stimulus check

This week the government announced the schedule for the delivery of our stimulus tax check.  If you used an electronic debit to pay your taxes, you will get yours in early May.  If you paid the old fashion way, then those checks will be spread out over the next three months with the latest being delivered in July.  I don’t now about you, but if I was one those receiving my check in July, then “frustrating” would be the descriptor I’d be using instead of “stimulus”.  With everyone else already in their money so to speak, the pressure to spend it ahead of time via credit card will grow exponentially.  Just what we need, more pressure to use credit.

Meanwhile, the possibility that the U.S. will suddenly change into a nation of savers with this check continues to disappear as food and fuel prices escalate.  The free market frame of mind that has held America and the world in thrall for the last 30 years is going to be more than difficult to shake off.  Just as individuals have been captured in the credit debt cycle of living large, so is the U.S. caught in the cycle of being the world’s only super power.  Both with the same type debt loads, and with the same spending styles.  I see no reason not to believe that just as American lenders are extremly unfriendly when we don’t pay on time, so to will the foreign investor countries follow form.

Our problem, it seems to me, is our very own political and economic behavior.  As a people, according to the last two elections, we eschew taxes.  The lower the better.  For the middle and lower class that means they will have a few more dollars upon which to survive.  For the rich and the ultra-rich, it means they will have more and more to invest and sock away and pay for the richest standard of living in the world.  Politically, because we are constantly stressed out over which party is in power, we almost never notice that economically both parties are the same old same believers in the efficacy of the free market.  Though I don’t know if believe in is the right phrase at this point.  Many of them may be finally noticing the free market failures but just like any credit debtor knows being locked in means paying for your mistakes right to the very bankrupt and foreclosed end.

Tomorrow I’ll be reviewing Charles R. Morris’s The Trillion Dollar Meltdown.  I am hoping it will provide some ideas for what we as individuals and as a nation can do to turn this disaster into an opportunity.  After all, isn’t that what super powers do, save the world?

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Some say yea, some say nay,

We have reached one of those defining moments.  Questions abound as to what is the solution to take to deal with the credit crisis.  On the one hand, the government in power apparently believes in the approach of patching the tire.  Soon or later they guess we will get to a gas station and we can buy a new one and then continue on our trip to the free market future.  Meanwhile, they want to throw in some new rules for the drivers, read lenders here, and the passengers, read you and I and all the rest of the taxpayers here.

The government not in power, has some suggestions too.  If you are going to patch anything, they say, it ought to be the consuming, bankrupt home owning, middle class wage earning, and health care without ordinary person.

Then there are the people not in power, bloggers just like you or I, who have some ideas too.  Hellasious at Sudden Debt says don’t fix anything while Jon Taplin at taplinsblog say we need to address the budget with a view towards a new Federalism.

Where we will be tomorrow no one really knows.  Really.  But I am open to suggestions if you care to make them.

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Money, money makes the world go . . .

How do I really feel about money?  Funny you should ask.  I  like money.  Like the feel of it folding into my poor man’s money clip (picture a premium jumbo smooth paper clip from Office Depot).  There’s a funny story that goes with that.  One sunny Sunday, me and my then current wife were out shopping at our local street bazaar and we came across a vendor selling wallets and you guessed it, money clips.  My immediate response was “Cool!” as I pictured myself pulling out my money clip to an admiring and envious crowd.  But then reality slammed into me as I pulled out my wad of ones and a five or two and tried to fold it into the clip.  I was about 50 bills short of filling the space.  No clip for me.

Still, I do like my money to be organized.  I hate it when it comes out of my pocket all scrunched together and out of order.  I like it folded with the big bills on the outside and then in descending order towards the ones in the middle.  That way when I open up the fold the ones are on top ready to remind me that I like having money more than I like spending it.  I like my money organized in other ways too.  I like my checking account linked to my saving account for over draft protection and my emergency fund in an ING savings account so it can earn money and still be available.

I like the sense of power that comes with having money.  Personal power, that is.  The money and the having of it representing in some way what I am capable of accomplishing.  So guess what, I don’t like not having money.  Which is quite different from just using less money in a frugal life style.  Back in college, my first year away from Mom’s cooking and Dad’s car, I really learned something about the part money played in having a happy life.  That car I bought from my summer job earnings ate up my slender college job salary faster than the hungry teenager I still was.  I ended up trading it to the gas station owner who had let me run a tab to keep it running.  These feet were made for walking I discovered.  And money for food.  Thank the gods I lived in an agricultural community.  Oranges, apricots, avocadoes, tomatoes anything I could jump over the fence and pick became my fare.  At least I didn’t get scurvy.

Nowadays though what I really like about money is how it piles up in my savings account and how it lets me invest in real estate and how it gives me the freedom to take a vacation any time I want.  I like money because the lessons of those lean years were worth their weight in yep, money.

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Building your business

The first step is to realize that you actually have a business.  Most of us grow up with the notion that we are going to work for someone else’s  business.  Get a job, pay the bills, own a home, marry, have x number of kids, pay taxes, and then die.  Hope comes in the form of bigger and bigger paychecks, more and more benefits, and early retirement.  But for some of us, that is not the road we end up travelling.

Take me for example.  I worked for a living for many years in the school system earning my paycheck by dint of teaching others and by adding degrees to my own resume.  The freedom of the flexible schedule and the summers to myself were quite rewarding.  Then came the year that my tax bill was so large I had to borrow money from my credit union to pay it.  I know it doesn’t seem like a magical inspiration but sometimes, no make that all the time, the gods work in serendipitous ways.  I had been developing a side line based on my own love of dancing and my tax guy told me I needed to find a few write-offs.  Voila! I became a sole proprietor.  For the first time in my working life, I was really my own boss. 

Over several years this quasi-business took on more and more life of its own.  The first steps were simple: go to the county courthouse and apply for a DBA, Doing Business As license, which tells the county that you are going to make a formal announcement that is published at least four times in a newspaper that you are now doing business as thenameofyourbusiness.  You can write off the expense.  Modify and use a part of your house for the business, set up your phone as a business line, purchase sound equipment to use for your classes, advertise in the paper, use your car to travel to clients, take workshops, and travel to competitions, all can be written off.  Any local licensing or national copyright licensing, write it off.  All good but the best thing for me, the elephant in the room, was the discovery that in this business, my clients actually wanted my services.  I didn’t have to pursue them, didn’t have to follow someones curriculum, didn’t have to assign homework, or detention.  They came to me.

Gradually, but surely, as you might expect this tax break became my main preoccupation and then my main job as I retired from the public school system at age 53.  At that point, though I was quite happy with what had transpired, I also found myself with the freedom to explore other opportunities.  Now that I had let go of the working for others syndrome I became an independent contractor

Since I had spent many years planning and thinking for others under the guise of teaching, I decided to open a second business as a consultant.  This too provided its own set of write-offs and its own set of unique learning experiences.  I had always been eclectic in my interests and had always incorporated this into my teaching.  As a consultant, I began to put this to use since each client was unique and each required that I learn specific information about their businesses in order to help them.  Again, Serendipitous took a hand.  One of my clients ran a small business of her own as a sole proprietor – a roadside fruit and vegetable stand.  Initially, I helped her set up her sole proprietorship but gradually I found myself sitting on the roadside selling fruit and vegetables too.

Between us two, we took that business from the roadside stand to concession stand at horse shows and sporting events to eventually a permanent business with a summertime concession at the OC Fair.  And that brought me to the realization that incorporation was the next logical step.  Would that I had known how to access  Google then but this was in 2002 and we had just barely joined the Internet.  But that’s another story isn’t it?  Anyway, I took us to our trusted tax accountant and for a mere $700 plus fees of $500 to the state, we were on our way.  A service which by the way these days is available usually on-line for under a $100.

As a corporation we have been able to institute a health care plan, purchase vehicles and lease them back to ourselves as its employees, and most important of all, pay us a salary while alleviating us of any personal liability from the corporation’s actions. 

Most of what has happened was through sheer perseverance but some of it was through paying attention to the attributes that make a business different from a hobby.   And we always paid attention to that first lesson I absorbed when I had to borrow money to pay my taxes.  Make it a business.

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Take care of your plan

You don’t have to go far to hear or see the news that tough times may be coming.  Matter of fact, the stock market reports I get from Investor Guide Daily are clear on one thing.  The money is moving.  And then there is the government’s acknowledgement of the possibility of a downturn, a recession, whatever . . . with the recent passage of a “stimulus package” for the economy.  We all know about the subprime/real estate bubble collapse, and now we are starting to hear news that a second level of loans called Credit Default Swaps is becoming a possibility.  On top of this is the extremely exciting possiblity that our own national government policies toward free trade, health care, immigration, defense spending, and taxes may be in for an overhaul under a new president.

Still, you might ask, in the security of your own personal finances, what has all this to do with me?  You have a plan in place don’t you?  Well, it is time to really stick with your plan.  It should still be very fresh since you probably went over it, at least in your mind, when you made those New Year’s Resolutions.  But right now it is really important to look at it with several filters in place.

First, are there any places in your year long plan where your expenditures, for taxes or insurance, or new purchases intersect unfavorably with your expected incomes?  For us the months of March, April, and May are important in this regard because not only do our taxes come due, (corporate, personal, and real estate) but the deposits we pay to reserve our spots in the concession business during the summer also have to be paid.  Luckily for us I followed my own advice here and by checking the online site I discovered that the fair board had moved the due dates up two months.  Whoops, there goes the interest we were going to earn at ING. But that’s what I’m getting at here.  Your plan and everyone else’s plan may no longer be in sync. 

Second, is your money in savings, MM, CDs, bonds, stocks (indexed or traded individually) or real estate.  The wisdom here appears to be to settle in for the long term.  Now is not the time to be flipping real estate, or trying to time the market.  On the other hand, how have you allocated the emergency funds – short term savings or MM, timed and tiered CDs, or do you just have it hiding under a mattress?  T likes to tier her larger CDs so that she can take advantage of any uptick in the interest rates, no more than $10K to an instrument, but now, with the Fed responding so quickily to the demand of the banking and loan industry, she has had to adjust her thinking to $25K to lock in what’s available now and get the higher rate per dollar advantage too.  And maybe not so conversely, she has begun to invest in blue chip dividend stocks that time has proven will outlast whatever the market throw at them.

But, and this is a big but, both she and I have begun talking about what we would be able to use a in bartering situation should the economy actually come to that.  We are both capable of physical labor, we both have extensive retail experience, we have had plenty of practice living frugally, but aside from these qualities what else do we have that someone else might want in trade for food or gas or some other commodity that may become scarce in the future?  This idea wasn’t in our plan even two months ago but now it is.

 Third, you have a monthly budget, right?  But you may have made it up based on predicted income and prices from two months ago.  Right now, we are in the process of reviewing the prices of our basic expenditures to see what is going on and one thing is standing out.  The Target stores are the best market place to buy quality for price.  And strangely enough, and probably because of the competitive pressure from the large marts (wal mart, costco, sam’s) the chain grocery stores are next in the savings department.  Still, since the first of the year, we have had to increase our allocated percentage for groceries from 15 to 20 percent and decrease our entertainment amount by 5%.  

Fourth, and for us this is always the hardest part, where are you in relation to your community?  Do you know what the current plans for development are?  What about the local public transportation system?  Our ridership is up 6% since the start of the quarter.  What about the community garden?  Is there one, NOPE.  Should we find out why and what we can do about that, YES.  I know our plan didn’t call for any of these latter ideas but by reviewing the plan in the light of current events, I could see that sticking to the plan meant adding to it when it is necessary.

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Yeah, it’s tax time again

Now this is probably going to sound strange but I actually enjoy tax time.  I like summing things up and looking at where the year has brought us.  It also gives a me chance to look at my bookkeeping and decide if I need to make adjustments.  It also sets us up the information for our annual shareholder’s meeting where we look at the year past and plan the next. 

All my record keeping for our Corp and our real estate investments is kept in Quickbooks.  My version is still the QBPro2005.  There are several reasons for this.  One, QB lets me tailor the program to our particular needs and stores and reports all the info in accountant’s terms.  Two, I can use it as a file cabinet that stores all the relevant data: the bills, the sales, the inventory of equipment, the bank and credit card accounts, and the payroll and tax information.  Three, I can keep it simple.  By that I mean I don’t let the program nor the company behind it, Intuit, tell me what to do.  I am not really interested in the constant innovations or updates that the company keeps sending me.  I have learned through use of the earlier versions that like most computer programming it is designed for common use not for individuals.  It assumes to do the accounting so given certain input it is programmed to interpret and handle that input a certain way.  I am not an accountant nor do I want to be.  Luckily, QB lets me set up my company as a cash business.  That means everything we do, every piece of info I input is right in front of me all the time.  No hidden accounting practice requiring double entry.  No lag in reviewing or comparing the data.  And really, no need for the constant stream of updates.

So here it is tax time again.  With a few clicks and a quick review of the company’s finances we are on our way to our tax accountant.   Like I said, I love doing taxes, here it is January and I am already done.

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