Tag

management

Early Retirement, Lifestyle, Small Business

Inflection Point

The past week has been an interesting one around the Wealthy Accountant world and all I can think of to explain it is. . .

Put up or shut up.

The best way to tell this story is to go back to the beginning.

Long time readers know I opened shop without knowing I opened shop in 1982. I prepared my first tax returns that year because I wanted the money and it seemed like easy work. It took until the 1989 tax season to realize this is something I could do for a living and still appear as a hard working, up standing (that illusion wore off fast) young man supporting his new wife.

The world was a different place back then. The local newspaper had two and a half pages of business card sized ads during tax season for tax preparation services. I was one of those ads. There hasn’t been an ad in that newspaper offering tax services in 15 years.




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Meet Mister Cohan: The Client Who Never Keeps Tax Records

George M. Cohan

Today I have a very special guest I would like you to meet: George M. Cohan. George has been a regular fixture of my practice from nearly the first day. But he has one serious problem; he hates keeping business records.

There is a very good reason why Cohan doesn’t keep good records of his business expenses. He is a very famous Broadway actor. He also likes to enjoy his fame.

Well, the IRS came knocking and since most of his receipts were missing the expenses were disallowed. Cohan might be lax when it comes to keeping business records, but he can fight like a pit bull in the hot sun after a pair of double espressos. Our good friend was headed to court.

The IRS felt they had it in the bag. Unfortunately, the IRS had an education coming. The 2nd Circuit US Court of Appeals settled the case in our good friend’s favor. The court said when receipts are absent it would be impossible to get a perfectly accurate number. However, the court continued, allowing nothing is inconsistent when it is obvious there were expenses.

This court ruling happened March 3, 1930 and my office has never been the same.




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How Long Should You Keep Your Records and Tax Return

A common question around the office involves records retention. Many people think they need to keep their tax returns for seven years, others think it is three; both are wrong.

Tax returns are not the only records you need to consider when building a record retention policy in your business and personal life. Some items can safely be disposed after one year; some items need to be kept forever—your estate can handle disposal.

Record retention in the past required filing cabinets filled with papers. The filing cabinets can be—and should be—replaced by digital storage. A fire, theft or weather damage put irreplaceable documents at risk when stored in a filing cabinet. A better solution is to scan all documents into a digital filing cabinet and store a backup copy offsite.

Most banks already provide digital copies of statements and your tax preparer should have no problem providing a digital copy of your return. Your tax preparer is required to provide you with a copy of your tax return and it can be a digital copy. Have your accountant email you a copy or bring a flash drive to their office. Also, many accountants have secure drop boxes built into their website now. For security reasons you may wish to use this method over less secure email. Plus, emails are easier to subpoena for court proceeding.

Security is the biggest concern when storing records. The amount of documentation held by a business is huge. Even a modest household can accumulate a serious amount of paperwork they must retain. Digitizing data is fast and simple. Security of this “fast and simple” data is important because it is just as “fast” and “easy” to steal it. Storing data at home or business should be secure behind adequate firewalls, encrypted and password protected. Offsite storage must be with a reputable firm safeguarding your data. The cost of storing data is cheaper than ever so there is no reason not to keep all required documentation and store these records safely.

Below is a handy guide for determining how long you need to keep records. I have added a few notes after some items to clarify certain requirements. It would be a good idea to bookmark this page for future reference. I list personal requirements separately from business requirements. To simplify your search I have listed items by 1 year, 3 years, 6 years, forever, and special circumstances.

It should be noted state requirements can differ from federal requirements. I follow the records retention list with special rules affecting certain states. People filing a tax return, conducting business or own property in these states will need to consider additional records retention issues.




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Early Retirement, Lifestyle

You, Inc.

Whether you like it or not You are a brand. Everything you say and do either adds or subtracts from your brand. Ignore You and your brand starts to turn stale.

You, Inc. is your brand. It will take you wherever you want to go. But do you know what You, Inc. is all about?

It is simple to see You, Inc. in action when compared to a business. Take this blog for example. I can speak at conferences or just attend to build contacts. Guest blogging brings more visibility to my work. Or I can spend money to promote my brand. How I act and interact with people around me reflect on my brand. Treat the brand well and it will take good care of me; ignore it or treat it badly and the brand will kamikaze faster than you can snap your fingers.

Building You, Inc. takes time and effort; destroying You, Inc. can happen fast. Your income and net worth are directly related to the brand of You, Inc.  Arming yourself with knowledge is the surest way to supercharge your brand. But knowledge is not enough. Knowledge without action is worthless. Creating a large net worth in a relatively short time is possible. Increasing income to retire debt and grow investments is the only road to financial independence.




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Recommended Reading

Call it a weakness.

You can’t sit down with Bill Gates for more than 10 minutes before he starts telling you about a recent book he read. If you’re not lucky enough to chew the fat with Bill you can get an update on his reading recommendations anytime you want on his blog: Gates Notes.

Ryan Holiday actually has a free subscription service to inform his followers monthly of great books he has read and recommends. Over the years I have found many inspiring and mentally stimulating books from Holiday’s list.

Books are the foundation of knowledge. I read a lot because you will be hard pressed to find a successful individual who doesn’t read on a regular basis and because it is fun. Books have a special feel. Some people enjoy Kindle versions; I still prefer holding a book in my hands. I might get my news digitally, but when I dive deep into a subject I want paper in my hands even if I have to lug it through an airport. It’s just me.

Outside family, books have provided my greatest pleasures in life. I have traveled the world and through time; I have seen great societies and dined with the greatest minds of history. I did it all through the eyes of those who were there. Books have given me all that and more. You are free as long as you can crack a book and disappear into another realm.




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Lifestyle

Crowdsourcing Experience

There are advantages to writing a personal finance blog that go beyond the love of writing and meeting new people. Few things in life bring as much pleasure as sharing knowledge gleaned over decades of experience. Stories are the best. Sharing stories with friends is a time honored pleasure handed down to us through countless generations.

The old adage about the teacher learning more than the student applies in blog writing as well as in formalized education settings. Additional research and looking at a situation considering perspectives wider than just your own is an eye opening experience.

The constant search for a story idea and angle is hard, yet rewarding, work. Topics I would never think of digging deeper into eventually reach the front burner. Unexpected paths are taken. I always have a plan. It never ends up the way I anticipate. Stories have a habit of taking on a life of their own. (At least I started with good intentions.)




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Investment Commercial Real Estate Profits and Pitfalls

Residential investment property is forgiving for the most part. Professional managers exist in most markets and except for the very worst of conditions it is possible to fill most apartments even if it is not at a profitable rate.

The number of residential properties available is large and unloading a single family home or duplex is fairly quick and simple. Many economists consider a six month supply of homes on the market a healthy balanced market.

Things get slightly less forgiving when you graduate to multi-unit apartment complexes. There are fewer to select from, they cost significantly more, there are more tenants to manage and it usually takes longer to sell the more expensive buildings. Not as many investors can swing a multi-million dollar deal or even finance one.

It might not be intuitive, but the more expensive the property the more likely it will be purchased as a cash deal. Big buildings carry big responsibilities and risks, but also are coupled with larger rewards.

Generally the rules are straightforward with residential rental properties. Lease contracts are generally standardized in most states and the landlord/tenant rules are clearly defined. The laws tend to protect the tenant more than the landlord. Still, the landlord, if she bought right, should turn a tidy profit.

Real estate investors usually start small, a single family rental or duplex, moving up to multi-unit buildings later. Most landlords stop at the duplex level with maybe a 4-plex or so tossed in for good measure.

The next leap takes courage. Financing a large deal is more difficult. Only a select number of banks are willing to fund a seven figure project. You need good credit, experience and a documented plan. At the end of the day the multi-unit complex is still a forgiving animal in the real estate world.

Then there is the commercial property.




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The Right Way to Own Investment Properties




During the 1980s and 90s I owned a lot of real estate. It started slow and exploded into a 176 building pain in the ass. To be fair, most of the investment properties we owned were either single family homes or duplexes. A few multi-family buildings, a boarding house and a storage facility rounded out the mix.

With so many properties running through my personal accounts and a partnership with dad and brother, I learned a few things along the way. One hundred seventy six buildings is a lot of buildings. Good thing I didn’t own all of them at the same time. Mistakes were sure to happen.

By the early 2000s the real estate empire was gone. I was burnt out and sick of working with tenants. Countless property managers helped us over the years, but it was not enough. Managing over a hundred units much of the time over a footprint covering most of NE Wisconsin took its toll. To complicate matters, I also ran my accounting practice with double the employees I have today (during tax season).

Starting slow was my greatest idea. It felt good to see the passive income filling the checkbook. Our teams of contractors allowed us to buy fixer-uppers and increase the property values significantly. Our best deal was the purchase of an upper-lower duplex in my hometown for $8,000. Hard not to make a profit on those.Continue reading

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