Buying a car is like marriage to me; it is until death do us part. So far she has been the one dying and I remain to keep the memories alive. In 2009 I bought a 2007 Toyota Camry from the local credit union to help them clean up a bad loan. I have never had serious problems, but periodically I have to invest a bit into the vehicle so the ‘ol girl makes it to 20. The Camry had one of those days.
The exhaust pipe broke near the head next to the catalytic. The metal was too thin to weld so replacement was the only option. My neighbor across the road (how convenient living out in the country), Roger, has a lift in his garage and handles most minor repairs for me. I still change the oil so I can brag this accountant gets his hands dirty now and again.
The replacement part had the cat in it so it wasn’t going to be cheap. I went over the O’Reilly Auto Parts for the replacement. It set me back $184. Roger charged me $25 to change it. I knew it was going to be a bit more than a simple muffler repair. When I picked up the section of exhaust pipe the kindly clerk asked me if I was a member of their rewards club. I said I was now. It works like this: for every $150 you spend they send you a $5 coupon for a future purchase.
I’m a sucker for that crap. But when I really think about it for a minute I realize how much a waste it really is. I don’t buy stuff at O’Reilly’s that often. The only way to use the coupon is to run over there for oil and a filter before the coupon expires. All for $5. I charge $120 per hour minimum for my time at the office. I average just under $340 for every hour I actually work at the office. (I don’t work that much.) Even if it is a slow day and I only turn $200 per hour, my time is worth over $3 per minute. How much is that $5 coupon worth now?
And so it goes, as Kurt Vonnegut said. Mrs. Accountant sits at the kitchen table clipping coupons and testing products for surveys for some side change. She wants to feel she is contributing to the household finances. She doesn’t understand how valuable she is to me regardless the coupon clipping or product testing.
Mrs. Accountant is not alone in such foolish endeavors. I like to handle certain projects around the farm and at the office myself. How much money do I really save changing my own oil? Roger charges me ten bucks (I have to buy the oil and filter). He does it faster and cheaper than I ever can. I convince myself it is a good expenditure of time because I am not working at the office so I may as well do something that saves money. And it is the prime reason I am not richer; it is the prime reason I don’t help more clients. I spend too much time fucking around on projects I have no business doing in the first place. My free time is worth as much as my work hour rate! Free time is important time to recharge and refresh; time to grow the relationship with Mrs. Accountant and my girls. But at least I saved $10. Right?
People spend too much time crying about money when they need to focus on their strengths. I’m pretty good at earning money; I’m also tight with money so there is a stickiness between money and me. I’m not so good as an auto mechanic. I have ramps so I can crawl under the car and pull the plug. What if those ramps ever failed? I would be killed or worse over $10. Do they have a medicine for that level of stupidity? Doubtfully.
The $10 spending spree to pay someone to change the oil does not affect my financial situation one bit. In fact it makes it worse because I am focusing my time on a weakness. A short consult with a client during the same time the oil is changed would yield 20 times more wealth.
The line becomes blurred as the activities change. Some people steal (yes, steal) soap from hotels. Vacation time is an opportunity to fill the soap drawer back home. Jesus fucking Christ people! The last several years I have earned 8% interest guaranteed from banks around town on up to $50,000 at a time. Every bank with a bonus offer had your favorite accountant enjoying a FREE cup of coffee and opening an account. One day after the bonus period ended I went back and got my money. Yes, I know that is $4,000 per year, but the full $50,000 wasn’t always invested as there were a varying number of banks with offers at any one time. The amount of time I spent dicking around opening accounts and closing them for what ended up as no more than $2,500 per year was a fool’s errand.
My sanity has returned. Sort of. I have given up on the idea of sticking it to the banks and their bonus programs. I’m still a sucker for a credit card bonus, but the time involved is small and I rarely cancel a card. I don’t sign up for as many cards as I once did. I carry two with me and another dozen reside in the sock drawer with other assorted personal possessions. The card I always use pays 2% back on everything. Story over. Time to live life.
It’s not just about money either. All this stupid stuff takes time. Because we have employers (or are a motivated business owners) we keep the coupon clipping and other crazy stuff to our personal time. While Roger is fixing the Camry I will not be on the phone with a client. I stuck around and helped (if Roger reads this don’t believe a word he said about me standing around the entire time with my hands in my pockets). Between busted knuckles we talked. You know neighbors used to do that kind of thing.
Filling our down time with tasks destroys happiness. Everyone needs downtime to recharge. Not every second of every day needs to be filled with productive labor. It is okay to read a book, watch a movie, and make small talk with the wife. AAHHHHHHH! Yes, you must talk with your wife. She is a nice lady if you ever got to know her.
When was the last time you had a beer with a neighbor? When was the last time you snuggled your wife. . . for hours? When was the last time you sat quietly alone in a room doing nothing, only you and your thoughts? Yeah, I thought so.
Friday night is cards for your favorite accountant. I play sheepshead with family and neighbors. As a bunch of old codgers, we don’t play late. My youngest daughter likes to sit behind one of the neighbors and watch him play. The memories created on Friday night will make us smile a lifetime and one of the experiences every one of us will hold fondly on our death bed.
Turning Failure into Success
You are a failure because you focus on the unimportant. Financial independence is not built on 30 cent coupons. Yes, Mrs. Accountant still uses coupons, but a hell of a lot fewer than in the past. Most grocery coupons are for processed food we should not eat anyway. Mrs. Accountant loves testing products and reporting her results. It makes her happy so I support her efforts. The $250 or so a month she earns testing said products is not a productive use of time unless it brings happiness. It is not a real moneymaker. If she did anything else it would earn more.
Elon Musk is so hyper focused on his businesses and ideas there is no time for a personal life. People like Musk create the world we live in with their products and services. I am okay with that. Most of us don’t possess the ability to be so driven. Most business owners live their business, but still need down time to maintain good health.
Yet, we all try to act like Elon Musk, filling our days with stuff to do. We fail because what we focus on is unimportant time wasters. A free second waiting in line causes fidgeting. Soon the Mister Spoke tricorder, aka, the smartphone, comes out. Gotta check the time, email, and news. God forbid we have more than nine seconds without mental stimulation.
You can turn failure into success. Money is not the indicator; happiness and satisfaction are. When you sacrifice time with your significant other and kids to save $10 changing the oil in the car you need your head examined.
Instead of wasting time saving a few dollars, educate yourself to earn more. Improve your investing skills by learning how great investors like Warren Buffett control their emotions during market turmoil. Time is your most precious commodity. You get the same exact (notice the redundancy in my writing here) amount of time as the greatest men and women in our society. Bill Gates revolutionized the world with his software and had no more time available to him than you do. So why the difference in results? I can tell you one thing. Mark Zuckerberg didn’t make his money Facebooking all day. He did it by building Facebook. When you learn the difference you will start living a significant life with plenty of money.
Money doesn’t make you happy so success is not measured by the size of your Vanguard account. I know plenty of people with eight figure net worth’s so unhappy they contemplate suicide. I know happy, well-adjusted people with very little money. It is all between the ears, my friend.
Failure and success are measured by how you live your life. For some reason, people who live life right always seem to accumulate enough money to satisfy their needs and more. When you get greedy things tend to head south fast. Stop checking your email all day; same applies to social media and news. If you are a business owner stop selling to every person you meet. It’s annoying. As an accountant people want to ask me tax questions at inappropriate times. For example, while standing at the urinal is not the time to ask me about your required distributions from your IRA. I’m just saying. If I lose my concentration I might piss on your shoe. What I am trying to say is: turn it off. I am as guilty as hell on this, too, so go ahead and rub it in. An hour is not enough. The world will not end if you take a few days off here and there. Trust me. (Nothing ever goes wrong when someone says, “Trust me.”)
The most productive, successful, and happy people know how to separate work from play. They know how to come home and unwind. Happiness is not another $10 in your pocket. Happiness is handing Roger $10 to change the oil in your car and catching up with him on family news.
If you are failing in life, if you are not living the life you want, then maybe this post explains why. Focus on the important. Anything is possible when you believe. Start thinking big. You can do this. It is too important not to. Your family—your children, for Christ’s sake—depend on you. They need you; quality time with you. Kids could give two shits if you worked more overtime for more stuff. The time spent together playing cards or throwing ball are gifts they will never forget. If you enjoy changing the oil in your car at least bring junior along and have some bonding time while you work on the car.
There is so much more I have to say on this. Maybe later. I have a $5 coupon in my email with an expiration date and the Camry is due for an oil change.
More Wealth Building Resources
Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?
Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.
Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.
QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.
A cost segregation study can save $100,000 for income property owners. Here is my review of how cost segregation studies work and how to get one yourself.
Amazon is a good way to control costs by comparison shopping. The cost of a product includes travel to the store. When you start a shopping trip to Amazon here it also supports this blog. Thank you very much!
Life in the accounting business can be difficult at times. Clients are as close to friends as you can get without actually being friends. You know all the details of their private lives. I know a divorce is imminent many times before the spouse does. I get details on illnesses in the family. I have to. Part of the tax preparation process is to know your client. When you ask about medical expenses you get the details too. In Wisconsin we have a deduction for certain private school tuition. When I ask about the kids I get the low-down on little Billy. And I don’t mind one bit. I care about my clients so I listen and interact. The line between client and friend is thin indeed.
That is why it bothers me when I can’t communicate a message to a client. Try as I may, some clients could care less about their taxes. They are willing to overpay their taxes to get out of all the reporting. They don’t understand the amount of money left on the table.
A few weeks ago I emailed a client reminding them to verify their retirement contributions and to provide a log for business miles and business overnight stays. To be honest, I didn’t expect a response. They are awesome clients and I love’em to death, but they just don’t engage at the level I would like and it bothers me because it is costing them dearly.
To my delight, the client did respond with a promise to begin building the logs and verified the retirement contributions for the year. I was still skeptical I would see logs. A few days ago I was sent the logs and they are in excellent order. Mrs. Accountant had to bring out the paddles and revive me; I was already walking into the light. The logs provided should save several thousand dollars in taxes. Life is good because I did my job well.
Anyone for a Game?
I come up with some pretty wild ideas to save taxes. Some of the ideas never see the light of day as research kills the poor sucker. But every so often I have a moment of brilliance (if I don’t say so myself) that endures the vetting process.
Many ideas I have outlined throughout this blog. I have a post in the queue on how to collect on the Earned Income Credit even if you make too much to qualify. The research is going really good so far. If the idea survives I will share it shortly.
I get giddy when ideas hit me. I lose myself as I think the idea through and write it down. The research is an addiction I have to satisfy. Sometimes the idea almost seems too good to be true; sometimes it is. Then there are times when all I need to do is make a few adjustments to put the tax reducing strategy into action. I can’t wait to write a blog post about it and tell affected clients the exciting news.
For me taxes are a game. The rules of this game are incredibly complex. Every so often they change the rules of the game just to keep it interesting and keep me on my toes. Taxes are NOT boring! This is the best, more enjoyable, game ever played. The government wants a percentage of your money. Your job: keep as much as possible within the rules of the game. (Cheating and ending up in jail means the government took their ball and went home—you can’t play anymore.)
The nice thing about the tax game is you can play as much or as little as you want. I like to play more often than average, hence my choice in career. You don’t have to be a tax game fanatic to enjoy a nice game of “pay the government less”. A small investment in time researching and talking with your tax advisor can yield significant rewards.
The rules of the game are long and complex, but anyone can play. In fact, the government insists you play! I have no reason why.
Collecting your information is the first step to playing the tax game. Excel spreadsheets (or Google Docs) are a great way to organize data. A log book is also important if you are in business and spend time on the road. My client above kept a record of his trips so overnights were easy to calculate. He also kept a log of his business trips so mileage was easy. I recommend a simple pocket calendar to record this type of information. You can transfer the data to a spreadsheet at a later time if desired. Many pocket calendars cover two years. Get a new calendar each year anyway. Keep each annual calendar with that year’s tax records.
Form over substance. I say it ad nauseam. If your forms are in order you win. If you don’t keep good records, no matter if you would otherwise qualify for a deduction, you lose. Remember: form over substance. Keep good records. The IRS only believes verifiable documentation. Me, too. There are ways to reconstruct a tax return without records, but it is not a preferred method and it leaves you open to serious IRS scrutiny.
The tax game can be fun at this most basic level too. A simple spreadsheet showing your overnights so I can deduct the per diem and the mileage makes it easy to see how much you have lowered your taxes as you go. Are you starting to see why this is a fun game? Let me point it out. You get paid to play the game! Just think of all the fun you will have keeping track of your finances. It will be easier than ever to reduce and eliminate debt, reach financial independence, achieve goals, and enjoy life. Good records helps you keep more of your money! What is more fun than that? (Put your hand down, John.)
Once you have good records you can get serious about playing this game. Using the data you produced it is easy to calculate your maximum retirement plan contributions. You can plan around the Affordable Care Act, Earned Income Credit, education credits, and the Saver’s Credit. All these credits are based upon income. You can use your records to know what steps to take to minimize your tax liability. Fun!
Give Your Accountant a Coronary
A small percentage of clients have records to die for. One client I have served for a few decades now brings in records so good he has details on every stock he has ever purchased. When the 1099-B is wrong he has records to back it up. It is so easy to fix on the tax return. But he and his wife are the exception. You can count on one hand the number of clients I have who know the basis in the stocks or mutual funds they hold. They just trust 1099-B which is usually correct. Usually.
Frequently people bring in records in a somewhat acceptable form. The problem stems from a lack of understanding of tax law. Things are mixed and jumbled. It has the feel of a weekend cram session gathering all the tax records. Not a good plan if you want to reduce your tax liability.
Recordkeeping is a year-round activity. Put all expenses on a credit card (and get cash-back or travel rewards) or debit card for easy recordkeeping. At least you have a record in one place and it’s convenient. Some receipts are required; others are not. Meals under $75 don’t need a receipt, but need a record (date, cost of meal, and business purpose) in your logbook or QuickBooks. Meals and incidentals for overnights can be handled with the per diem, currently $57 per overnight ($68 for high-cost localities). Hotel expense requires and actual receipt for business owners. Mileage is another great way to reduce the tax bill. Business miles are deducted at $.54 per mile as I write. It adds up fast.
Bringing clean records to the accountant will either bring a tear to her eye or cause heart palpitations, probably both. Clean records are the low hanging fruit in this game. When your tax professional asks for something, give it to her. She asked for a reason. I have said it before and I’ll say it again. It is a good idea to talk with your accountant outside tax season. It is also a good time to review your records year-to-date. A short consultation should save you many times what you pay your accountant. And besides, the accountant needs income in the summer too.
I like to tell a story and then come full circle at the end with something witty. Not today. Taxes don’t have a witty ending. They go on, and on, and on. And on. Periodically we file tax reports, but the process is ongoing. When you die there is a tax mess to still clean up. Consider it job security for Keith. Good thing I love my job.
My goal today was to convince you to keep good records so I can do my job well and to encourage you to turn taxes into a game. Everybody likes a good game. When you reframe your mindset on taxes it makes it easier to maximize the benefits and enjoy the process.
Paying taxes is the unfun part. The only way to reduce the unfun stuff is to turn the whole process into a game and work it to death. Literally. You, know, the estate tax. Work it to death. No. Not a witty enough end? Maybe next time.
The day after Thanksgiving in the States is called Black Friday, as if anyone doesn’t already know that. What you might not know is that it is also Buy Nothing Day. Buy Nothing Day started in Canada (how un-American) in 1992 and has grown into an international movement against overconsumption. The idea is one day of no spending should lead to a lifetime of responsible personal finance which should ease pressure on natural resource demand and pollution. It has been a slow start.
If you print it they will spend. The non-stop growth of fiat money, created by central banks at the click of a button (I know it involves more than that, but a longer description would interrupt the flow of my story) gets spent. The money supply growth of the last decade has not generated a massive wave to new consumption and inflation because most of the newly created money is sitting bank vaults and central banks around the world to prop up balance sheets. Siphoning off the excess cash once it is unleashed has a high likelihood of being very painful. Before this happens you must hone your financial muscles to protect yourself.
Self control is the only tool you have in self protection. Just because you have money doesn’t mean you have to spend it. If you hold a hammer in your hand do you automatically hit something? Okay, bad example.
Buy Nothing Day is a great idea to get us thinking, but it is a stupid idea in practice. Staying home and not spending on one day of the year is meaningless. It’s like those “Don’t Buy Gas on Friday” slogans, as if not buying gas on Friday will stick it to OPEC and Exxon. It doesn’t. You just fill up on Thursday and drive all the more. You want to stick it to OPEC and Exxon? Ride a fucking bike. Want to send a message on overconsumption? Then spend less all year round.
Things work differently in the Accountant household. Society says you need to buy gifts every goddamn birthday, anniversary, and Christmas, Halloween, Valentine’s Day, Easter, Mother’s Day, Father’s Day, and Boss’s Day (screw the boss). Add to that the required excessive spending on partying for all the above mentioned events and St. Patrick’s Day (green beer), Memorial Day, Independence Day (yes, I am U.S.-centric), Labor Day, oh, and why the hell not, every weekend (Friday and Saturday). As long as you are going to act crazy with your money, don’t stop there. Make up a couple of new holidays all your very own to blow this week’s paycheck on. The Accountant household participates in none of it. Bah! Humbug!
Mrs. Accountant and I haven’t exchanged holiday or birthday gifts in decades. We were light on the gift giving prior to that. (There are some things we do give on special events, but that is personal. And besides, this is a family blog.) The same goes for my brother and me. We decided long ago to forgo the Christmas gift giving. The kids are somewhat tougher.
There is a good reason why I am against the Christmas gift haul that goes beyond the money and overconsumption issue. Each year as I get older I notice youngsters all seem to go through a phase where they end up crying at Christmas. They didn’t get enough or what they wanted so the tears and temper tantrum ensue. My junior accountants never suffered through such a phase. We kept expectations low so there was nothing to cry about. The house is NOT crammed with plastic crap imported from China to give the home a holiday feel. You want some holiday feel? Grab a shovel and start moving snow. It is NE Wisconsin, you know.
It’s all madness. And cruelty. We live in a society where we all have a thousand times more than we need so we have this special holiday (what the hell does Christmas stand for anymore?) specially made to unload our pocketbooks and saddle us with more junk to take care of (and eventually throw in the landfill). Stupid.
I know you guys are with me on this, but I hear your moans. Accepting a gift free holiday season is easier said than done. What will mom and dad think? And the kids? Holy shitstorm! I can’t speak for you guys, but I can share how I moved from a ‘gift at every turn’ lifestyle to ‘no more gifting’.
When I graduated from high school I hated every birthday and holiday. A month never went by when I wasn’t thinking about a gift I had to buy for a birthday or holiday. I wanted to crawl in a hole and live like a hermit it drove me so mad. Before Buy Nothing Day was a wet dream I was already well on my way to celebrating the event. I was laying down the law.
The first thing to go was gifts for birthdays and most holidays. For Mother’s Day and Father’s Day I started a fire pit with wood from some old dead trees around the farm and had a fry-out. I was going to eat anyway so there was no additional spending involved. (Okay, mom can really pack it away so I do buy an extra package of brats, but who’s counting?) For birthdays I give a phone call and maybe have a family gathering to play cards. Once again, food is the only cost and we normally eat every day anyway so we have acted financially responsible.
Christmas was a tough nut to crack. Mrs. Accountant and I agreed to no gifts and it was an easy agreement. To placate anyone unwilling to accept we don’t give each other a Christmas gift and stay married, we consider a purchase made during the previous year to be our Christmas gift to each other. (How do people stay married when they give each other Christmas gifts? The risk of the wrong gift hurting feelings is sure to result in the major expense of a trip to the divorce attorney.) Mrs. Accountant got a new bike this year for Christmas; it was my gift to. Mrs. Accountant uses it for me. That’s it. No more gifts for us. We have all we want and more than we need!
The kids were on board when they got older. By the time they were 10 the gift giving was done. We use the same policy Mrs. Accountant and I used to placate the masses when we were asked what we got each other for Christmas. During the course of the year if we buy the kids anything, we call it their Christmas gift. It might be a weekend trip to a park or some other family time. This year the girls got a new bike too. No new bike for me. I got mine last year when the old Huffy couldn’t make the 30 mile round trip to the office anymore. The girls needed new bikes as theirs old ones were getting too small (they grew up on us) and Mrs. Accountant’s bike was approaching 30 year old too. I guess the bike qualified for Collector’s Plates.
That’s it. There will be nothing under the tree this year like in years past. The Christmas tree is a decorated houseplant again this year. But there is one more Walnut to crack: parents. They are the last to be weaned. My parents are still a work in progress. But I have to admit when I broached the subject again this year my mother lamented how people buy whatever they want when they want I, so it is hard to buy Christmas gifts. I replied we are that lucky to live in such a time and age where we can have whatever we want with little restraint. My parent will get a small gift. The best we will give is family time together; the best gift of all. Last year my parents gave us a cookbook (something we will put to good use) and cash (a good way to get money from one generation to the next without waiting for anyone to die). (Before you think it, there are no strings attached to the cash from my parents. No forced self-gift buying and letting everyone know later what you bought. We don’t spend what we earn already so it just adds to the stack.)
One Special Gift
When you are as blessed as Mrs. Accountant and I are, you do want to consider giving one special gift. Each year we choose a charity and make a sizable contribution. Every year is a different charity. I have written enough in the past on my contributions to charity so I will not repeat what I have written before.
Before I sign off and let you to your weekend I want to point out I am not a hypocrite when I have Amazon links on this page. As I stated, I have nothing against buying stuff, gift giving, or spending in general. My argument is against excessive spending. I will not think less of you if you and your significant other exchange gifts. All I ask is that you consider what the gift represents. Keep the cost reasonable (only you can decide what reasonable is).
My goal is to turn this blog self-supporting. That is why I include ads, affiliate links to products or services I think are valuable to my readers, and Amazon links. In no way should you feel compelled to use any of these links. The ads on this blog also break up the text because I know how long I get at times. White space and a break in the text are kind of nice on the eyes. And it helps keep the blog self-sustaining. Don’t use them just to please me! If you are going to make a purchase anyway, by all means, think of your favorite accountant.
Keep gifting to a minimum. I recommend giving more of you to your significant other, children, extended family, and friends. Time together is the only gift I feel comfortable giving. Buy Nothing Day is a joke unless you incorporate the message into everyday living.
Talk to your family about reduced gift giving. Set expectations low with your children. Birthdays and holidays are not a time to make a haul! Make it a special day. My kids always want to give mom and dad a gift for Christmas; it is hard giving up something society focuses so much on. Our girls make a craft for us. They give something of themselves, something money cannot buy. That is the kind of gift I really cherish and means something to me. The stuff from China? Not so much.
From the Accountant family to yours: Happy Holidays!
We live in strange times. One day—and for most of us only one day—we take time to give thanks as we gather with family, enjoy an awesome meal, and watch football (in America; I don’t know what the rest of the world does on their Thanksgiving festival). Then the next day we kick the shit out of our neighbor so we can save a hundred dollars on a flat screen. I‘m beginning to wonder how thankful we really are.
Feelings of gratitude and expressions of thanksgiving should not be relegated to one day per year. We live in the best of times where we should feel thankful non-stop. People in times past found the expression of gratitude an admirable trait. People actually worked hard to remember to feel thankful for the gifts life has bestowed upon them. And we have it so much better today!
In my short 52 years of life the world has changed so much and for the better. One gift I still can’t get over is the one you are using right now: the internet. I have the largest library ever collected at my fingertips; I have the ultimate communication tool. Has it ever been easier to communicate with people with shared interests from around the world? Never! I think of all the people I would never have met or known all because of this awesome gift called the internet. And the World Wide Web didn’t exist 25 years ago.
Microwave ovens, camcorders, and VCRs (remember those animals?) did not exist or were cutting edge technology when I graduated from high school. Personal computers were just invented. The precursor of the internet was just starting. And cell phones were not smartphones! Cell phones were huge clunky things with a massive antenna attached on the top of your car with a strong magnet. You had a carrying case for the cell phone and it was a sizable piece of luggage.
A Medical Story
I am grateful every day I wake. There is no doubt in my mind I am the luckiest man alive. Not only do I have the greatest wife ever, my kids are awesome, too. Must be genetics.
But none of it would have been experienced by me if I did not have the most awesome stroke of luck; I was in hunting accident, shot at point blank range. Our group was hunting pheasant. I was thirteen at the time. The dog flushed a pheasant. As the bird rose high my dad had the best shot. He took it. As the bird fell from the sky another hunter not with our group turned to see the bird drop. He raised his 12 gauge shotgun and followed it down. When the bird was head level he pulled the trigger. Three members of my group fell; I was one of them. Thank god he didn’t pull the second trigger or I probably wouldn’t be here talking with you.
At the hospital the doctor removed the pellets. One pellet pierced the grove on the top of my Adam’s apple. Another half inch and the talkative accountant we all know would be mute. A little further and. . . Well, I don’t like to think about it.
The doctor found something else. In the exam my blood pressure was high in my upper body and low in my lower body. Strange. This could be something serious. A month later I was in surgery for a catheterization. They stuck a tube in my vein in the crook of the elbow. The tube had a camera. They imaged my heart and aorta. The news was bad. I had a coarctation of the aorta. This means my aorta got really narrow in one spot, restricting blood flow to parts of my body. Unattended, my life expectancy was another 10 years, max.
When school was out I was back on the operating table. I spent the summer recovering. This was 1978. I was thirteen when they cut me open. A few years later my surgeon died of AIDS.
Remember AIDS! We don’t talk about it as much anymore, at least not like we used to. Back then doctors had no idea what AIDS was. All they knew was gay men were dying of an autoimmune disease and it was spreading. Blood supplies were not tested as vigorously then as now. One nick in the surgeon’s glove and good-bye accountant.
Does anyone think for even a fraction of a second I am not the luckiest man alive? I had a medical condition without knowing it. All I knew was that I could run a half mile faster than anyone in school, but could barely finish a mile. That is how my condition worked. And pushing that hard was a prescription for a heart attack at twelve! And I had to get shot at point blank range to live.
We all have stories about technology saving our life or at minimum making our lives easier. Food is cheaper than ever and more abundant. I can eat food (and do) from every corner of the world. Fresh grapes are on the menu in February for a buck thirty nine a pound.
Refrigeration is a fairly new luxury. Food-borne illnesses are rare today. Cooking is easier than ever. Transportation is unreal. For a modest sum of money I can be anywhere on the planet in person this time tomorrow.
Life is so good I can scarce take it in. Thinking back 30 years is one thing. What about 200 years? Once you go back 200 years, things didn’t change much for thousands of years at a time. Progress was slow until the 20th Century. Indoor plumbing is a blessed gift! Many of you readers have family members alive who grew up without indoor plumbing. Think of your ass stuck to a cold outhouse board in the dead of winter in NE Wisconsin. No need to bring a book. You’ll be finishing up soon enough.
Which brings us to sanitation. Germ theory is a very new idea. Penicillin didn’t show up until World War II and other antibiotics were later still. Strep throat used to be a life threatening illness. Look at how George Washington died. And that was the best medicine could do back then, less than 250 years ago! Are you thankful yet?
Feel It Every Day
One day of formalized thanksgiving is okay as long as we understand it is an every day requirement. Stuffing our face and overweight bodies with yet more food as our way of saying, “Fuck, yeah, I’m lucky!” as you belch and keep stuffing is not giving thanks; it’s gluttony. Then, after an afternoon of sleep we load our ass into the car and drive to Wally World to push that bitch Edna Jones to the ground so we get one of the limited flat screens a hundred dollars cheaper. That is where we came in, isn’t it? We can’t do it, folks. We can’t pretend we are thankful one day and hold the world around us in callous disregard every other day.
Gratitude comes from inside. If you have it, you have it all the time. Thanksgiving is about acknowledging and accepting you have enough, you are satisfied. No matter where you are or what your condition or position, you can feel and express gratitude. It is all in the mind. You and I are lucky. We have friends around the world we can talk to at any time by phone or social media. We work less and get more thanks to modern technology. If you think minimum wage is bad, think of wages in times past and the work involved earning that wage. Image working for a dollar a day plowing a field by horse. The Amish still do it.
Imagine sleeping outdoors in the dead of winter. Imagine a house so cold water freezes indoors in January (June for my readers in the upper latitudes of the Southern Hemisphere). These things were part of daily life only a few centuries ago. Life was really hard then, and short, and painful, and filled with much more sorrow. And they managed to offer thanks for all the blessings they had. Lucky us. We can give thanks from a position of real luxury and fortune.
Ryan Holiday is an author I admire, especially his writings on Stoicism. He recently published The Daily Stoic. The Daily Stoic is in the form of a daily devotion used by religious people. Each day is a thought from a great Stoic for us to meditate on. Rather than plow through this book, I am reading each meditation on the day it is listed. I want to absorb the whole Stoic thought process slowly so it sinks in deeply. For today, he takes a quote from Epictetus:
In short, you must remember this—that if you hold anything dear outside of your own reasoned choice, you will have destroyed your capacity for choice.
Epictetus’ warning is valid today. Happiness is only possible when we let go of attachment. You will find you are most thankful when you don’t have attachments to stuff. If you notice, all the things I gave thanks for above, none of it was stuff. It was experiences. I didn’t plan this post that way. It just came out and only now at the end do I realize what I have said. It is important. When we let go we find true happiness and contentment. It is then when we express thanks and feel gratitude, and mean it.
Now forget about the flat screen on special and help Edna Jones up. Brush her off and wish her a wonderful holiday. Maybe even help her find what she is looking for. At the end of the day you will not have a new flat screen TV. But you will have a new friend and an awesome experience to share. Now that is something to be grateful for.
***Don’t forget to share what you are thankful for in the comments section.
The end of the year is fast approaching. Time is running out to modify your finances to optimize tax savings. I will run down the more common ideas to reduce taxes. Keep in mind this is not a comprehensive review. Your facts and circumstances will determine what is best for you. Use this review as a guide to reduce your tax liability.
Most readers here have significant investments so we will start there. All adjustments to investments should have an economic reason beyond taxes. Reducing taxes is the goal, but the increased costs of selling can offset a portion or all of the benefit.
If you are not using an automatic tax loss harvesting program such as Betterment, now is the time to review your non-qualified (non retirement) portfolio. Mutual funds and stocks with losses can reduce the capital gains distributions of other mutual funds or ETFs. You can also report up to a $3,000 loss against other income on your federal return. Your state taxes will differ. In Wisconsin, for example, the loss against other income is limited to $500.
Be careful with the wash-sale rule. You cannot sell a stock or mutual fund at a loss and buy it back immediately. The wash-sale rule says losses are disallowed if you buy a substantially identical security within 30 days of the sale, before or after. A different mutual fund is not a substantially identical security, but an S&P 500 index fund swapped for another S&P 500 index fund is. Selling an S&P 500 index fund and buying a growth & income fund or a broader index fund is not substantially identical.
The bond market has suffered serious losses over the last few weeks. Realizing some of those losses might be the right choice for you. Selling a longer dated bond mutual fund for a shorter term fund avoids the wash-sale rule. Skipping on bonds in this low rate environment where interest rates are rising might be a better idea from a tax and personal viewpoint.
The long-term capital gains tax rate peaks at 20%, but beware the Medicare 3.8% surtax, which is in addition to the capital gains rate for high earners. Selling losses to offset gains can have a positive impact on your tax liability.
Stocks have had a hell of a run the last 7 or so years. For securities held longer than a year you can deduct the full value if you donate the stock or mutual fund to a tax-exempt charity. There are negative consequences on donations to a charity for items with an unrealized loss.
Tax loss harvesting is more important than ever this year as the stock market rally has many people wanting to lock in some gains. Inside a retirement account it is easy to do. Non-qualified accounts create a tax event. Your personal circumstances will dictate your actions. Selling bonds and bond funds to the extent you want to lock in stock market gains is a good place to start planning.
Also, beware new investments into mutual funds at year-end. Mutual funds and ETFs frequently have outsized distributions of dividends and capital gains in December. Buying prior to a distribution subjects you to the tax on the distribution although your account value is unchanged. This is not an issue inside a retirement fund, but outside retirement funds it can cause serious tax pain.
Starting at the top of Schedule A we have medical deductions. Medical deductions need to exceed 10% of adjusted gross income (AGI) to count; 7 ½% for folks 65 or older on December 31st. If one spouse is 65 or older, both get the 7 ½% threshold. This is the last year for older taxpayers to enjoy the 7 ½% threshold on medical deductions; it goes to 10% on the 2017 tax return filed in the spring of 2018 for everyone.
Be sure to use funds remaining in employer plans (medical and daycare) so they are not lost. If you have an HSA, be sure to contribute the max allowed. If given the choice, fill the HSA savings account from withholding through payroll.
Elective medical procedures or medical expenses you can time offer a tax opportunity. Bunching medical expenses in one year can reduce your tax liability. The difficulty in reaching the deduction threshold means planning is more important than ever in this area.
Next we address deductible taxes. When you pay your state income taxes determines when they are deducted on Schedule A. Sending your final state estimated tax payment in December allows you to deduct that expense in 2016 as an itemized deduction. There is a game you can play with state taxes as well. You can significantly overpay your state tax estimated payment in December and deduct it for 2016 on your federal tax return, thereby lowering your federal liability. In a few months you have the money back as a state refund. This strategy works best if you have a significant income change in one year where the tax bracket will be higher, but lower in the next. Careful planning is needed.
Property taxes can be doubled up one year to take advantage of itemizing when you can’t itemize if you pay property taxes separately each year. To do this you pay your property taxes in January and then again in December of the same year. The goal is to itemize one year and take the standard deduction the next, thereby increasing your deductions over a two year period. Be sure to include as many itemizable expenses as possible in the year you double up property tax payments to maximize the benefit. There is one warning. This idea works poorly in some states, like Wisconsin (are we seeing a pattern with Wisconsin). In Wisconsin you get a property tax credit of up to $300 per year on property taxes actually paid that year on your primary residence. By doubling up one year and skipping the next you lose the $300 credit every other year for Wisconsin. This digs into the value of the strategy and may make it unusable. I don’t cover state taxes here because there are too many to review. Be sure to include state tax issues when you tax plan with your federal return.
Finally, we discuss charitable contributions. If your income fluctuates or if you are in retirement and required to make IRA distributions, you can plan your giving to reduce the tax burden. Mixing and matching contributions to charity with income is a great way to mitigate taxes over a lifetime. Contributions to charity from an IRA may work for some older taxpayers. Also, be sure you get the contribution to charity in before year-end for it to count. Waiting until the last second might be an issue. Payment with a credit card counts as a deduction the day it posts.
All this goes out the window if you are subject to the Alternative Minimum Tax. We will leave the bulk of the AMT discussion for another day. What I want to warn is that certain items are not allowed on AMT. State taxes are a biggie added back if you itemize and the standard deduction and personal exemptions are also not allowed. AMT turns your planning on its head. If you suffer AMT you want to accelerate income and minimize deductions, saving them for a future year when possible. Someday I’ll write at length about AMT. But because it is such a massive issue it would take plenty of space so I need to find the right time and venue. Maybe I’ll create a side track to The Wealthy Accountant to handle these more extensive issues in tax law.
Medicare premiums are based on income. Taking a larger distribution from retirement accounts in one year and a reduced amount every other year could yield a lower premium every other year. Discuss the matter with your tax professional to see if there is a planning opportunity.
Business Owners and Landlords
Now is the time for business owners and landlords to review their books for lost opportunities. Verify all expenses are included, especially non-cash deductions. Meals and incidentals for overnights are deducted as either the actual expense or the per diem. For many the per diem is worth more. The per diem is $57 for most locations in the US, $63 for the transportation industry. More details on the per diem are here.
Other non-cash deductions provide plenty of opportunity to reduce taxes. Mileage is the most common. The business mileage rate for deduction is $.54 per mile in 2016. This adds up fast! A trip to visit clients counts; so does a visit to the accountant to review the business and business taxes (same goes for landlords). I see way too much missed in this area. Your records must be contemporaneous which means you need to have your mileage log in order at the time you file your taxes. Now is the perfect time to review your schedule to verify you did not miss any deductible miles.
Business owners and landlords can plan their income. Revenue can be delayed if it saves tax dollars. Capital purchases might be the perfect solution to a high tax bracket. A purchase today could be worth more if your income is higher this year. Small business owners can expense capital purchases using Section 179 in most cases.
Landlords need to remember the de minimis rule for capital purchases. Business owners can use the same rule to cut their income. This rule is a godsend for landlords, however, who cannot use Section 179 and must depreciate capital expenditures. $2,500 can be expensed under the de minimis rule as long as the election is made on a timely filed tax return. Most stoves and refrigerators can now be deducted as long as the purchase cost is $2,500 or less. Be sure to make the election and list the items separately. Certain improvements under $10,000 can also be deducted as a repair expense with an election.
A year-end tax planning guide can only go so far. In my office we send a questionnaire to clients so we know which additional questions to ask. The tax code is just getting too big to cover it all by voice. Our questionnaire doesn’t even cover many of the topics in this post. What I put on this page is planning, not preparation. There is a difference. A conversation with a qualified tax pro at this time can pay for itself many times over.
Don’t be afraid to pay your accountant. I know it is self-serving, but if we don’t get paid, everyone wants our limited time. It’s Free! But time isn’t free to the accountant. We want to help, but we need to cover our overhead and justify our time investment. Besides, good accountants charge for their time; I can’t vouch for the ones who are free.
If you have a specific question, feel free to leave it in the comments section below. I’ll do my best to answer it. And it’s (ahem) FREE!
The holiday season is fast approaching and the best laid plans of financial independence and early retirement are left for discussion another day. Normally frugal people can lose their senses when the holidays roll around. One day they are giving thanks and the next they are trampling their neighbor to get a deal on a flat screen over at Wally World. And this is supposed to make us happy?
Wants are a harsh mistress. Once you satiate your wants, new wants fill the void. It is a forever hungry beast. Wants satisfied are not the end; they are the beginning of a long slog through financial hell. Once you buy something you need to take care of it. You need a place to store you newly owned junk, ah, I mean, stuff. You now must spend more to protect your pile of garbage. A home or car needs insurance lest something happen which could cause you to lose your slavery, sorry, belongings. Room is made in the home or stuff is put into storage to make way for the new round of crap purchased on the credit card so you can keep wasting your hard earned money on interest. Once you own stuff, stuff owns you. It becomes an obligation and obligations cost money.
In the end you are less happy than before. If buying stuff gave you happiness you would not require a constant new supply of junk to satiate the lust. Instead, the wants filled turn into ever greater wants. Having stuff starts a vicious cycle of keeping up with the neighbors. They might have more stuff and what would your kid’s friends at school then think? Best to avoid such embarrassments.
Your soul is purchased one credit card transaction at a time. I remember Christmases past where a youngster would end up in tears because they did not get the gift they wanted or felt they should have been given more. What a great lesson to teach our kids! Nothing is ever enough! If you hate your children, this is the way to fuck’em up for a lifetime. Teach them to spend unchecked and make the holidays nothing more than a spendfest.
The Accountant Household
Let me introduce you to Fronds, our year round Christmas tree. Mrs. Accountant won Fronds when Fronds was just a two inch twig at a seminar in Lake Geneva presented by the Fox Cities Apartment Association. The rentals are long gone but Fronds is still with us, a 15 foot fern. She also serves as our Christmas tree. We decorate the girl with a few free and homemade decorations we gathered over the years and a string of lights. She is as cute as a button. Nothing fancy. Fronds reminds us the basic can be more than enough to celebrate the holidays.
Gifting is out, but visiting is in! The girls and I spend plenty of time with family and friends this time of year. It is a real gift to catch up and tell stories. We laugh and sing to the craziest stuff. The best part is no one can sue away the memories. Stuff ages and deteriorates. Sometimes it gets lost or, as usual, ends up in the landfill. Imagine! All the way from China just to end up buried in a pile of dirt a year or so later. You did keep the stuff for a year or two before sending it to the landfill, right?
Memories are what you hold dear on your deathbed. I never heard (though I suppose someone has done it) anyone asking for material things on their deathbed. They ask for family and friends. Grandpa always got the most joy telling us stories of things that happened in 1932. If an object was part of the joy it was because it was a reminder of a story that made his life worth living.
The holidays around the Accountant household are very similar to any other time of the year. We decorate some, but the traditional Christmas tree was out long ago to my parent’s chagrin. My argument is why buy something you must throw away in a month! Crazy! Fronds has always done an awesome jobs, she loved the work, and grows another foot each year.
The lights. The Accountant farm has no additional lights outside the house this time of year. I could blame it on laziness (too much work to put the lights up) or my cheapness (electricity to run the light ain’t free), but that is not why I do it. The extra lights are just another way to spend like a Wildman and I want no part of it. It sends the wrong message. There are plenty enough lights around town to enjoy the season any way I want. The truth is I prefer a Spartan and simple holiday season where I can focus on how lucky I am to be a live and have such an awesome family, friends, and life. I don’t need expensive props to remind me of my wealth. In fact it does the opposite. The lights and decorations distract from the true meaning of the holidays. It is about love and giving thanks. It requires a quiet moment of solitude to drink it all in. No commercialism required. All commercialism does is ruin the effect so we eventually forget the true meaning of the season.
We are not the First to Notice
Before you call me an old prude or holiday shame me (as if it would make a difference), let me remind you what Seneca wrote nearly 2,000 years ago: But perhaps this is the very season when we should be keeping the soul under strict control, making it unique in abstaining from pleasure just when the crowd are all on pleasure bent. So the Wealthy Accountant isn’t nuts after all. And neither are you for checking out of the “normal” way people conduct their holiday activities.
An old man from the First Century had more sense than many of us do today. Seneca showed his wisdom when he wrote: For a holiday can be celebrated without extravagant festivity. Wow! Before Christmas was Saturnalia, starting on December 17th and going for several days. The depths of winter are always a traditional time for festivals. We now have the twelve days of Christmas. Crazy spending and self-enforced poverty are not new to our generation. The ignorance has been going on for very a long time.
Participation is our choice. People might point, laugh, and ridicule us for our lack of participation in their madness. But we still participate in our own way. The religious can read the Bible with their family, retelling the story of Jesus’ birth. You can have fun with family and friends without getting shit-faced drunk New Year’s Eve (or any of the other seasonal holidays) and taking the risk of an auto accident of rape or unwanted pregnancy. A nice game of cards or a board game with a refreshing beverage in moderation is a great way to build fond memories.
In my neck of the woods I see Christmas trees are running $40 and up. Add the decorations, parties, and unending gifting demands and it is no wonder people are broke. If it takes a gift to have friends, better to have fewer or no friends. Besides, with all the money you save you will have plenty of friends. They will be frugal friends, but they are the best kind.
Getting family, especially younger children, on board is a challenge. A challenge worth pursuing. Teaching your kids that life is not an endless litany of gifting obligations is the greatest gift you can bestow on them. Money issues are a great cause of anxiety and relationship distress. When the demands for money disappear, the greatest obstacle to happiness in life is eliminated and you can enjoy life for what it is.
I will not even joke that you should buy gifts using Amazon links from this blog. If there is a need for something, by all means think of your favorite accountant. But I will be fine either way. The holidays are a time of year when our normally low spending is even lower. There are so many free things to do together as a family that we cannot see them all. Enjoy watching the snow this holiday or a warm cup of apple cider with the family. Read a book together, tell stories, remind each other of how wonderful it is to know them.
Life is really great in this era. We have so much and the cost is so small. We can enjoy the greatest gift of all: family and friends. What a shame it would be to waste that gift in exchange for a trinket from China.
There are two dangerous times in a retirement plan: when things are going really bad and when things are going really good. We have been lucky the last seven and a half years. The market has marched higher at a steady pace with nary a pullback to be seen. There are people in their 20s who have only seen the mildest of market corrections (a decline of 10% or more) and have never seen a bear market (a decline of greater than 20%).
The steady beat higher for so long is unusual. Regular investments have only known one direction: up. Money invested last year is worth more this year, same for the year before that, and so on. It is easy to invest in such an accommodating environment. The goal of early retirement looks so easy when every year is an up year.
Now the election is over and we have seen a serious move higher in the stock market. Bonds have been down more than stocks are up. The rally is narrow. High dividend yielding stocks and growth companies are down significantly. Banks and other financials are drinking the Kool-Aid. For the first time in years I have clients calling and readers emailing me for my opinion on borrowing money to invest in the market. Ahhhhhhh!
Don’t Drink the Kool-Aid
Now is not the time to change your investment plan. On a regular basis you should be investing into index funds. Preferable, your investment strategy should be on autopilot. Every paycheck should see a large portion dropped into the investment plan. The level of the market never changes that. Chasing a market when it is higher is a Don Quixote move (look out for the windmills); selling out after the market drops hard is a Chicken Little move.
For the record, we don’t do Don Quixote or Chicken Little around here. We don’t drink the Kool-Aid the crowd is slurping up. Predicting the next 10% or 20% move in the market is nothing more than a guess. The best can’t do it consistently, indicating the ones who do for a short time are temporarily lucky. Luck is a harsh mistress in the investment world.
I can give you a number of reasons why we should dump out of the market: low dividend yields, high P/E ratios, lots of government debt. There are an equal number of reasons to double down in this market: Trump will spend like a drunken sailor (I apologize to any sailor I may have offended), higher interest rates will spur bank profits, and more spending should mean more jobs with higher wages. Each side has a point. At the end of the day one fact remains. The risk is to be out of the market.
A steady investment plan requires a steady hand. A drop in the stock market is not a reason to sell stocks. If anything it is a buying time. A market rocketing higher is dangerous because people place over-extended risky bets in the belief the Kool-Aid will not kill them. If you buy on margin (borrowed money) now, at a market high, you take the risk of a market decline exaggerating your paper loses. Worse, short-term paper losses can turn into permanent losses when you use borrowed money. You can’t be wiped out by a market decline unless you use leverage. (Don’t start with me. If the market drops 100% you are technically wiped out, too, without leverage. That will never happen and here is why.)
What’s the Plan?
How did you grow your portfolio to this point? By making regular investments automatically. When you play with the darn thing the wheels fall off. The computer doesn’t freak out and sell after a crash or buy on margin in the major rally. All the computer knows is to keep chucking more wood onto the pile day after day, week after week, just like the automated plan was set up to do. No emotions involved. Set it and forget it.
My wealthiest clients tend to take a disinterested view of the stock market. They have no idea where the Dow is or if the market has been rallying or collapsing as of late. All she knows is that her automatic investing plan will buy more shares when prices are cheaper and fewer shares when the price is higher. There is no need to fiddle with the equipment. It is working fine. You have a bit more this week than last. So what? It’s just a number.
Deciding to start an investment plan now is peachy! Where the market is today has no bearing on where it will be in 10 or 20 years. (Warren Buffett recently said the market will be higher in 10 and 20 years. The ’ol boy has been right a time or three so we might want to listen.) If the recent rally is your reason to start investing, good for you; if you are a fair weather investor, save your money. If you start an automatic investment plan you MUST stick with it through thick and thin. There are going to be serious down days. And I mean serious. If you can’t set it and forget it, you are doomed.
Exceptions to the Rules
I before E, except after C, and in proper nouns. People spell my first name wrong, a lot. If they remembered the grade school grammar rhyme, my name would never get butchered. Oh, well. Then some smartass asks, “What about ‘society’ and ‘science’?” If you are that guy, please sit down right now.
There are exceptions to the rule when it comes to investing, too. Example: I recommend clients already retired keep a few years of living expenses liquid. There is never a forced need to sell investments to cover living expenses when the liquid fund is always available. Now is a great time, with the stock market higher, to start increasing the value of the liquid portion of the portfolio. Once again, the process should be automated. As long as the market is up, keep taking a select amount to transfer from the index fund to a money market. (Bonds are a really bad idea right now.)
There are few other reasons to deviate from the program. I understand some of you have medical issues which may necessitate a change of plan. Other personal matters or an emergency might make changing your investment plan the smart thing to do. I’m good with that. As long as the current trend in the market is not clouding your actions, the decision is acceptable, if not always ideal.
After bragging about my oldest daughter retiring at 22, she was in tears when Donald Trump won the election. She thought her money would all be lost in a market decline. She has a lot to learn. And she learned a big piece of it this week. When the whole world felt the market would collapse over a Trump election victory, the world was wrong. Again. Even your favorite accountant thought a Trump victory would mean a market decline and an awesome buying opportunity. Good thing I don’t trade on my opinion.
Currently I expect more volatility in the market over the political environment. I could be right. But it makes no difference! The only thing to do is stay the course. No borrowing money to plow into an index fund. No selling without a valid reason. The S&P 500 throws off a dividend yield of a whisker over 2% as I write this. Those dividends keep reinvesting and growing like an army without an understanding of stop. Those investments in turn churn out an ever increasing stream of dividends.
Every month Vanguard pulls money from my checking account and drops it into the 500 Index fund. The withdrawal is entered into the checkbook automatically. No action is required on my part. When I have extra money, I drop it into the 500 Index fund manually.
And I still make mistakes! I have a SIMPLE IRA plan in my office. Mrs. Accountant and I can contribute $15,500 each per year. I like to wait for a down period to make the most of the annual contribution. Mrs. Accountant and I have $5,000 in each so far this year. I should have spread it out evenly over the year. Instead, I played with my money and now will end up investing in a higher market. Somebody slap my paw and tell me to “Set it and forget it!” I guess I still dollar cost average on an annual basis.
Take a look at a really long-term stock chart. See that little blip in the 80s? That was the big 1987 stock market crash. The Dow was down 22.61% in one day. It was a big deal back then. People all over town were soiling their shorts. Now look at it. It’s so small you might mistake it for fly shit on your computer screen. Forget about timing the market. By year-end I will max out the SIMPLEs and put it in the index fund. No waiting for the magical day I can buy cheaper. It might come; it may never come. If it never comes I lose big. If it does come I will have a speck of fly shit on my screen 20 years down the road. It is not worth it.
Emotions are running high. Whatever your reasons for modifying your investment plan, don’t. A new client informed me before the election he sold all his index funds and put the money into money market funds because the market was too high and if Trump won he would lose. I advised he reconsider that market timing strategy. Now it looks like selling was a bad idea. You can’t time the market accurately.
One thing seems certain. The low volatility market of the last seven years is at an end. We are back to normal. Unless I am wrong. Regardless, timing the market is a fool’s errand. End the stress and anxiety. Don’t watch your portfolio like a cat dancing on a hot tin roof. Each jig and jag of the market is just that, a jig and jag. There is only one way to keep your sanity and maximize your portfolio value: Set it and forget it.
Anyone for a hike?
Starting a business is an act of love and courage. Enjoying a task soon becomes a business. You might start working out of the home or buy a small store front. The previous hobby now commands more of your precious time. A business is about more than making money. Small business owners love the work they do and get paid to do it. Awesome! Then reality sets in.
When I was a sophomore in high school I fell in love with the stock market crash of 1929. The teacher said economists don’t know what really caused the crash. The Smoot-Hawley Tariff was probably the trigger but many other events also played a role. I could not let it go. Every book in the school and public library in my small town was in my paw, devoured for any tidbit of information on why things went so wrong in 1929. I never found a definitive answer, but I did learn a lot about economics.
And the stock market. From that point on I wanted to be a stockbroker. When I was in college I took a business class, accounting, and macro and micro economics. Though I never earned a degree I learned a lot that has helped me in my career. It gave me a start on where and what to study to get good at finance.
Years later I saw an H&R Block tax course and took it. I was already preparing returns on the side and was ready to make the leap into a full-time seasonal business. I enjoyed preparing taxes and research. Tax Prep & Services was born. Later I would incorporate as Tax Prep & Accounting Services (TPAS). The name was intentionally generic. Schroder’s Tax Service or some other machination with my name was out. The day I started my business I already had an exit plan. There was a chance I would take that early retirement thing folks talk so much about, cutting short a practice I so enjoyed. The generic name made it easier to merge the company with another. In the back of my mind I was think General Motors, General Mills, and General Electric. I actually toyed with General Tax, but decided that would send the wrong message.
The business started as a tax practice, evolved into an accounting practice, and now is evolving into a personal finance communications company. By 2005 my office prepared north of 2,000 tax returns annually. It drove me insane! I spent my entire day managing people and the company. I prepared fewer tax returns than anyone else in the office, save the front desk staff. What I loved doing I was no longer doing! I had people for that. I was no longer happy.
That is when I decided to transform the company into an accounting firm. I added payroll and bookkeeping to the mix of services offered. We had few than 10 clients in this area and increased to over 100 in six months. At the same time I reduced head count in the preparation department. Unprofitable tax returns were gone and clients who required too much of my time was out. There is only one me and I have limited hours each day.
Fast forward to the last few years. TPAS was down to a comfortable size. I wanted to expand because I have a sickness. This time I had to be smarter. For several years I have had an online portal where you can prepare your own tax return using commercial grade tax software, the same software used in my office. This, I felt, was a vast improvement from other online programs. The issue was marketing. I could not figure out how to get it done.
Then it dawned on me I could offer the program to personal finance bloggers. If I shared revenue it would be a great way to promote that line of my business. The plan was in place until I met my first personal finance blogger, Pete, from Mr. Money Mustache. In less than thirty seconds my plan was in the ash heap. He was not interested in the DIY tax program, but wanted me to do his taxes. He was gracious, giving my brainchild a favorable mention.
Too Much Growth
There was no doubt such a visible client would bring a deluge of new clients, more clients than a small office can handle. I was happy with 700 clients and a handful of employees. I did not have to work much as my team did most of the work and I could prepare taxes for a few months of the year to my heart’s content. That is history now.
Giving up my practice was a consideration. If it was only about money it would have been an easy call. TPAS, presented to potential buyers with the new stream of clients, was worth a cool seven figures. Not bad for a country boy. But it isn’t “only” about money. If it were I would never have met Pete because I would have cashed a check a long time ago.
The problem persisted. Readers of MMM wanted me to write a blog. I do write on some shitty blogger blogs and content farms, but it had been a few years since I focused my writing so heavy on finance. The Wealthy Accountant url was already owned by TPAS for 18 months. Now was the time for it to see the light of day. And still more people want to be clients.
I learned to say no a lot this year. A lot of people I could help were left to suffer because there was no room at the inn.
Automate Your Personal Life
Simplifying life with automation is easier than ever. Most spending can go on a credit card where they pay you a bit back and the credit card payment can also be on autopilot. A few minutes setting up the automation frees many hours over the years and saves on postage costs.
Amazon and other online retailers allow you to automate regular purchases. Coffee in the office never runs out; Amazon sends a new package on a regular basis so I don’t have to waste time reordering and Amazon gives me an additional discount for doing so.
Automating the Business
I had a choice: leave a lot of clients on the table (I have been) or find a way to manage the influx of new clients. I chose the latter. The stream of clients has slowed over the summer, but I am under no illusion tax season will be a quite time for me to relax.
This summer I have worked harder than any time of my life. As long as I can see the light at the end of the tunnel I was willing to do it. Bringing in thousands of new tax clients was possible if I engaged some of the grey matter between the ears. Enter: outsourcing.
Finding enough qualified employees is hard. Training employees on a different way to run an accounting office did not work. Time to get serious. Over the summer I worked on several outsourcing projects. I found several businesses I could train to handle my work flow. My employee count is actually lower (!) because a few employees left for greener pastures. I think they will regret not applying themselves later. The workload will drop, revenue will increase, and payroll for the staff I have will rise significantly.
I inked the first of several outsourcing agreements this last week. All payroll clients in the office will be outsourced to this firm. I worked hard training them on my program. The best part is I got paid to turn my payroll over. The next best part is the clients are still working with my office and me to get the best tax deals. I now have more time to work with more clients and serve them better.
The best use of my time is to work with each client to get them setup and then turn the work over. Business management time is limited so outsourcing is a massive advantage. Most bookkeeping will be outsourced by the end of the year to local firms, once again trained by me. By working with a group of twenty payroll clerks and bookkeepers I leverage my time. I accomplish more in less time. Everybody wins. Profitability is up! Stress is down!!
Even some tax returns will be outsourced to firms I can personally train. This will be the hard part. I refuse to use outsourcing outside the country. My clients would have to give permission and I am uncomfortable sending personal information to a non-US source.
There are two massive benefits to me as a business owner. One, I get paid a very nice amount of money to technically sell this portion of my business. In reality I still have the clients. New payroll clients will also generate revenue for TPAS. Since I don’t have economies of scale in payroll, the sale/outsourcing of the payroll accounts brought in over 20 years of profits in that department all in one day and the partner company can do it cheaper, faster, and better. Two, I work less and get paid more. When a new client comes in, we handle tax setups and consultations. Then the payroll service pays me to get the payroll portion of the account. The client is served better with a dedicated staff and I keep my sanity
The same strategies apply to the bookkeeping and tax preparation end of the business. The best news is I stay in business doing what I love, get to talk with clients all day long about saving them money, and can serve thousands of people more than my small office could ever do on its own.
The hardest part for a small business owner is letting go of the reins. The business thrived due to hard work and an attention to detail. Business owners have a hard time trusting someone else will step in and do the job right. That is the number one reason a small business stays small. Your favorite accountant is guilty as changed. Nobody can do the job as good as me. Well, now I will leave thousands of clients in the dirt if I don’t step up my game. I found a solution which requires I let go. I trained these people. If I am so darn good then they should thrive too. What I have found is they do a better job and faster. When you get spread too thin it hurts quality. Time for the Wealthy Accountant to man up.
Instead of managing a dozen employees, I will manage workflow. A regular review of work performed by other firms will ensure quality. The client will be served better than ever! And that is why they emailed me for help.
It took a while to find an analogy to help me let go. Then I had it. Warren Buffett runs one of the largest companies on the planet with 24 people at the corporate office, plus himself. Berkshire Hathaway has over 300,000 additional employees. To me this means Buffett finds good people to run his companies and goes out and finds new businesses to buy. I am no Warren Buffett. Still, I can channel his talent and apply it. And so I am.
Even Non-clients Benefit
Never satisfied with mediocre, I am expanding these services to you, my dear readers, even if you are not a TPAS client. The final plans are in place. Once I am certain the outsourcing firm can handle the payroll properly with the additional influx of clients I will share the links in a future post. (I will also update this post to include the links.) All small business owners reading about the advantages of an LLC treated as an S-corp will now be able to hire the same outsourcing firms I use. Some of these firms are huge. I trained the people inside these firms necessary to get the job done right and maximize tax advantages.
Bookkeeping will be a bit slower setting up and you are already able to prepare your taxes online with TPAS. The number of clients served in 2017 should increase somewhere around 500%. By focusing my time on training outsourcing companies to get the work done rather than individual employees, I can focus on helping new clients get on the right track and set the process in motion so their personal finance plan is automatic.
Few accounting firms provide such a level of automation to their clients. My unique situation gave me an either/or choice. I choose or. (As in, I can either sell the business and retire (the real retire), or I can step up my game.)
What I am building is usable by other tax offices, too. The outsourcing strategies and resources I am developing are something anyone can use. Before the end of the year I will provide links to the contact person for payroll outsourcing. This person has a fully developed team well aware of the strategies I use with my clients to maximize tax savings. When it comes to LLCs treated as S-corps, I will tell you what you want to get paid to optimize taxes. My team of partner companies will understand what I am doing and execute with laser precision.
I am so excited! A summer of hard work is coming together. My expanded team allows me to help a massive number of people and businesses. One small tax office building, TPAS, will provide the tax/accounting/payroll services of a massive accounting firm at prices lower than any major firm charges. Bigger, better, faster.
Outsourcing is about focusing on tasks. The jack-of-all-trades never provides premium work. I tried it. It doesn’t work. I am a tax office. That is how I started; it is how I will end. All the other related services will still be available through TPAS. My outsourcing partners will keep work flowing smoothly as I work with larger and larger groups of people.
The results are already bearing fruit. In the last few weeks as payroll is slowly moving to the outsourcing company I have used the extra time to add 32 new clients. This would never have been possible without the new automated system. I have an excited group of businesses eager to serve the people I bring in. Keep your eyes open for more updates.
If you contacted me in the past, I am working through the list. When things came in too fast I had to skip large chunks of emails just to stay somewhat current. I will keep working back until I get to the people who emailed me months ago or even during tax season. Soon I will have staff helping me manage my email flow, sometimes over 300 per day. It takes a good plan to handle that volume. I finally have the first pieces in place to get the job done.
Business is like that. Your plans can change often and rapidly. Where you start is not where you end. My tax office is different than anything I imagined even a few short years ago. Business is exciting and addicting. The world changes and I am part of that change. I am inspired and humbled all at the same time. The accounting/tax industry needs radical changes to serve our communities. If I end up a leader in that transformation it will be the greatest thrill of my life. The accounting industry is uniquely positioned to transform our society from one that focuses on spending and long working hours into a society freed from the mundane tasks, freed to reach for the stars and dream dreams never dreamed before.