The Wealthy Accountant is turning into a vibrant community. Readers share their stories helping me do my job of teaching you, kind readers, how to live a joyful life without money problems. Readers also do things your favorite accountant cannot. For example, you would never ask me anything about IT. On my best days I am dangerous when given the access codes to computer files in my office. Karen, my office manager, has a standing order with the IT firm managing all our information to never give me a pass code or access to any secure files. It’s better that way.

When it comes to taxes, the story is different. I immerse myself in taxes the way a college guy plays video games. Most tax questions are front brain answers to me and minor research for most of the rest. (Every now and again someone throws me a curve requiring serious research, but we will not talk about those times to protect the ego of the innocent accountant in the room.) Then a reader sends me a link for a website that blows my mind. John Haldi did just that.

Missing Deductions

Clients tend to have the same problems when providing records to my office. Preparing an accurate return is required. Tax professionals sign tax returns they prepare under penalty of perjury. This means a tax professional better perform her due diligence. Still, the tax pro is not auditing the return, only preparing it. As long as numbers look reasonable, the tax pro will sign off on the return and move to the next. Tax season is triage. Tax accountants have no spare time to debate issues until after the due date.

One area I never gave much thought to was charitable deductions, especially the non-cash kind. If a client gives a car to charity I notice because those situations require special reporting. What I am talking about here is the mountain of clothing and household goods donated to Goodwill and other non-profit organizations.

A significant portion of clients drop receipts in their tax folder for non-cash donations. With rare exception, they put a best-guess estimate of the value of the goods donated. The client thinks they are being aggressive, but experience tells me they are under-deducting, leaving tax dollars in the government’s hands.

The Salvation Army has a worksheet they provide online to track your donations, including the thrift shop value. This is a perfect tool to maximize non-cash donations, but people rarely use it. My office prints a large stack every year for clients; most go unused because they need to be filled out by hand.

John Haldi, a long-time reader, emailed me a website he put together to track  non-cash donations. The best part is it is FREE!!! I wanted to get that out up front so people don’t tune out. John is not a tax guy, but he knows his stuff when it comes to getting the largest deduction for non-cash donations. He has his own accountant (not me) who helped him put accurate information on his site.

John’s site is, in honor of the form used when itemizing non-cash deductions in excess of $500. 8283ez has simple pull down menus with all the values built in. The program automatically takes the midpoint value for each item which you can change if necessary. (Sometimes a donated desk is worth more than the listed range.)

You still need to get a receipt from the organization proving you donated the goods. What is better with 8283ez is the time it takes to record the deduction. Paging through the Salvation Army worksheet is the main reason few people use it. It takes time to find all the items on the form and tally the donation. It’s easier to just tell your tax guy (or gal) you donated $250 to Goodwill. And in most cases you just screwed yourself.

Taxes are bad enough without overpaying. Mrs. Accountant this past week did some spring cleaning, hauling unused stuff to Goodwill. In the past I would spend an hour entering all the items and adding the amounts. Using 8283ez I was done before I started. It blew my mind.

Minimalists Take Notice

The worst part of non-cash donation recordkeeping is when you move or decide to turn minimalist. The stuff you collected over the years for the first time starts to look like a mountain. In most cases the client tells me they donated, say, $3,000 of stuff. I dutifully enter the deduction on their return. People have no idea how much it is really worth, missing massive tax deductions.

My staff respectfully offers the Salvation Army worksheet for them to fill out; I get maybe three back a year. It is easier to stamp a number on the receipt and move on. Life is too short. I predict this will change with 8283ez. Plugging the numbers is fast, easy and you get a really nice printout to share with your friendly accountant. The way this thing is designed I predict many taxpayers getting a big sloppy kiss from their accountant.

The client thinking their donation was worth $3,000 is always surprised when they list each item out separately. A $100 bag of stuff donated to Goodwill is probably worth double that amount. With 8283ez you can do the right thing and get the full tax break you deserve without painful recordkeeping.

Check out John’s site. Be sure to thank him in the comments below. He created 8283ez because he likes doing that kind of stuff and he doesn’t charge a dime. Anyone who puts together a useful tax site for grins deserves a round of applause. Thanks, John. Thank you for the email introducing this old accountant to a new (and useful) way to do business. You made my life, and that of my clients, better. A good day in my book.

And just think, you get $25 while Fido takes all the risk.

A few years ago Mrs. Accountant and I attended our first Camp Mustache in Seattle. It was my epiphany to the personal finance community. Sure, I had decades of experience under my belt and a history of writing on the subject, but never before did I have such a platform to spread the gospel.

It didn’t take long for people to know who I was. I have that effect on people. Many attendees were still working a job as they moved toward financial independence and early retirement. From the minute I arrived people knew I was a tax guy. People were interested in what other people did as they worked toward their financial goals.

It didn’t take long before Mrs. Accountant was asked what she did. She hesitated for the smallest fraction of time. It was a tell. But Mrs. Accountant is fast on her toes; you have to be if you live with a crazy accountant. She said, “I work in his office,” pointing to me. Of course, they pressed her for details on the kind of work she did in my office. It wasn’t pretty.

Later, when Mrs. Accountant and I were alone, I explained to her that this is one group you don’t have to bullshit. They get the early retirement thing. Somewhere back in her early 30s Mrs. Accountant checked out of the regulated work routine. She did what I was supposed to do.

Early retirement doesn’t mean ‘waiting for death’. Mrs. Accountant is very active. Sometimes it takes me upwards of an hour to catch her. I’m getting old.

The best part about Mrs. Accountant taking an early retirement is that I eat in a 5-star restaurant every day. Every day! We rarely dine out because nothing compares to what Mrs. A can put on a plate.

Mrs. A has a busy day. Sure, she gets plenty of time to read and relax; something her husband has a hard time doing. She also does plenty of work (Ick! That 4-letter word again.) around the house and farm. She takes care of the chickens every day and, except for repairs and maintenance, keeps the household running smoothly.

She also guarantees I never pay a cent for anything I buy on Amazon.

Retirement is more profitable than working at times. The free food from the garden and meat from the barn is tax-free income because we never have to spend much for our food. And you don’t pay tax on what you could have spent on something. Mrs. A turned us into Free Birds.

There is one other thing she does: product testing. Our annual spending dropped below $30,000 this last year and it seems to decline slightly each year that passes. We just lost the desire to want stuff. To keep up with what is going on in the world around us Mrs. A has product testing.

She has quite a list of resources available to her (she uses iPoll the most).Several days a month she checks all the polls that pay her for her opinion. The best part is the offers of product testing. Companies send her lots of stuff to test and pay her for doing so. Tooth paste, candy, hand lotion, and even boxes of buns have arrived at our home for testing. Some stuff is really bad and she lets the manufacturer know about it. Other times stuff is really good and she shares that too. Most stuff is only okay.

It’s more fun than profit that motivates Mrs. A. She likes doing it so I support her efforts. There is also a side effect. Polls pay a buck or so, but product testing pays on average $10 to $25 a swing, sometimes more.

Some venues pay cash to a PayPal account. They all offer Amazon gift cards, sometimes at a discount, so your $25 product testing might be worth $27.50 in Amazon gift cards.

We started by taking Amazon gift cards and then moved to PayPal cash when we discovered we did not spend all the money Mrs. A earned testing products. It bothered me Mrs. A did all that work and was not allowed a discount when taking cash. The Amazon cards were frequently worth more so we went back to them.

I hate shopping, even online. I’d rather have a root canal than shop. That is why I leave the task to Mrs. Accountant. But all that money accumulating in the Amazon account was disconcerting. Mrs. A can pull in several hundred dollars a month testing products. And when you have a household filled with people allergic to shopping it becomes a problem. That money should be invested, earning more money, while waiting for the day in will never get spent.

Good Thing I Work

If all we spent money on was personal stuff we would never in a lifetime use all the Amazon money. Your favorite accountant came up with a solution. The tax office needs stuff more than our household. The business bought office supplies, digging into the stash a bit. Still, $3,000 (and many times more) was added to the pile each year. That is a lot of office supplies. We don’t buy toner because it is included in the service contracts. Paper is free because I have a print shop for a client and they load me up on paper in exchange for doing their sales tax reports. (A hell of a deal.) When paper and toner are removed from the equation there is not much spending left in the office either and employees refuse to take their paycheck in Amazon gift cards.

At least we used some of the bounty.

Hound Dog

Collecting stuff is a sickness. At least my sickness doesn’t fill storage sheds. By now you probably guessed I collect money. More accurately, I collect investments. You will not find a fancy car in my garage; it is a bank repo I bought over 10 years ago. My home is an old farmhouse I remodeled. The clothes I wear were purchased by Mrs. A from the discount or clearance rack. Most days I wear less than $10 to cover my dignity. You would be surprised how many shirts and pants I own that Mrs. A paid $3 or less for. And this is all clothing that sold for $20 or more only a few months prior.

As much as I hate shopping, I have a nose for a deal. Around the house there is little to spend on; the office is different. A modest sized business requires some spending, regardless how tight-fisted the accountant happens to be. When spending is no longer avoidable I go into action researching the best choices. Many products have rebates, even if purchased as part of a contract. Many times I get rebates as gift cards that are used like cash. Other times they offer Amazon cards. For some reason when you keep your eyes open for that kind of thing it shows up everywhere.

So the Amazon pile grows.

It Pays to Shop

Building a pile of cash in the Amazon account is fun on one hand and a bit of a waste on the other. When a pile of money is not working for me earning even more money I get antsy. I broke down and deiced to shop Amazon. I was looking for a way to use some of the money on things I already was spending on. Nothing.

The office had plenty of supplies and I don’t want more crap in the house.

I ran across an article about gift cards Amazon sold. You could buy gift cards for nearly any store on the planet, including more Amazon gift cards. I had no interest in spending at any of these merchants with one exception: Netflix. I already have Netflix and I paid for a year or three of service with my Amazon stash. I wish I could tell you something more exciting on the gift card front, but I don’t spend much. Maybe if I traveled more. Hopefully you can do better.

Crazy, Wild-Assed Spending

There is one exception to my spending habits. I like books. The library and I have been having an affair for the better part of a century (my first library visit was when I was a wee little tyke, or so I’ve been told) and I have serious concerns Mrs. A has been having an affair with the same library behind my back. (Well, actually, she does in front of my face.)

Some books I want to own. I know, I know. It’s free from the library. But I use my books for research when I write; they make me happy; they feel so warm and soft; I love them; please don’t take my friends from me.

So, yes, I frequently tell people to go out and buy books. Sometimes I am chided; but they didn’t cost me a cent. And I get to hold them all to myself. Nahhh! The library still lends me most of what I read. Yet I treasure the volumes in my home.

If I recommend buying a book from Amazon, know two things: 1.) I probably did not spend a dime to have the book delivered to my office the next day, and 2) I get paid a commission from Amazon as an affiliate when you use an Amazon link in this blog. (Man’s gotta eat.)

I don’t encourage spending. The library has every book you can ever want and much more. They buy the book if they don’t have it and you ask!

Many of you are like me, you want to own some books and sometimes spending does happen. I get it. I always find an Amazon affiliate link from a blogger I like whenever I buy from Amazon. I want to support their work. Don’t use any of this information, however, to justify unnecessary spending. This blog is about responsible financial living.

With some planning (and maybe a Mrs. A in your household testing products) you can also amass a nice sized Amazon account for future needs (and even a few wants). It’s a real bitch having so much money you can’t spend it. You can’t invest Amazon gift card balances in an index fund. If you could . . .

A few weeks ago I wrote about the massive tax benefits to investment property owners and business owners who also own commercial real estate using a cost segregation study. Some of you took me up on the offer and now are up for a significant tax reduction. Then the problems started. I didn’t anticipate the large number of tax professionals who didn’t know how to handle cost segregation studies on a tax return.

Before you call your tax preparer bad names, know most tax professionals rarely, if ever, see a cost segregation study in their office. When the rules changed a few years back I doubt 1 in 100 accountants handled their client tax returns correctly as it pertained to the repair regs and tangible property rules. The good news is the changes only required certain actions in the first year of accounting method changes. The bad news is that most tax professionals don’t know how to handle a cost segregation study on the actual tax return when a client comes in with one. Not to worry. Your favorite accountant will spill the beans on how to get it done right.  No picking on your accountant either. This is advanced tax planning and tax law can be miles from tax application at times.

Tax professionals will find this helpful; taxpayers should find value, too. Knowing of a tax advantage is only worth something if you can apply it. There are two major issues surrounding cost segregation studies: tracking the components/elements listed by the study and taking full advantage of the additional depreciation allowed.

Reading the Cost Segregation Report

When you get your report it will list the building components by item and class. In most cases you will see components listed under 5-year, 15-year, and either 27.5- or 39-year property, depending if it is residential or commercial real estate. Sometimes a component will also fall under 7-year property.

It is important to add each item separately to the depreciation schedule, even the 27.5- or 39-year property. The 5- and 15-year property accelerates the current depreciation deduction. But even the long end of the depreciation schedule has value. The roof, doors, electrical, plumbing and painting eventually need upgrading. When you upgrade any component you deduct the remaining undepreciated basis left in the replaced component.

The same applies to short end of the depreciation schedule. The parking lot, sidewalk and landscaping are 15-year properties. A replacement of any of these will trigger the remaining basis for deduction of said component.

The original estimate of tax savings from a cost segregation study underestimates the benefits as it assumes only the increased depreciation expense related to the 5- and 15-year property. There are only a few components that are not replaced prior to the component being depreciated. The foundation is one such item. But even things like plumbing and electrical are likely to need an upgrade before 39 years!

The advantage of the cost segregation study is the separate listing of components. The additional deduction from the old component (when replaced) helps offset the cost of the upgrade. Coupled with the repair regs, investment property owners and businesses with commercial real estate are better able to match deductions with the outlay of capital. A difficult issue in business and with landlords is the outlay of cash to improve a property only to wait up to 39 to get a tax benefit. Without a cost segregation study the cash is spent on the improvement and also taxed currently, increasing the cash needs to undertake a project. Cost segregation and the repair regs help eliminate some of the problem, allowing more projects to move forward.

Preparing the Tax Return

The concept of the cost segregation study is easy to understand. Then you run into the issue of application. Accelerated depreciation causes problems unless you make certain elections on your tax return.

Investment property owners need to consider passive activity rules. Once income reaches six figures, passive activity rules suspend some or all losses until the passive activity has a gain or is disposed of.

The normal structure of many small businesses makes passive activity rules an acute problem. It is common for small businesses to conduct business as an S corporation or an LLC treated as an S corporation. Real estate should never be held inside an S corp. Therefore, real estate is usually held in a second LLC treated as a disregarded entity by the same owners. In many instances this real estate does not generate enough rental income to handle all the additional depreciation from the cost segregation study. Passive activity rules kick in and undo all the cost segregation advantages.

This is where grouping comes in. The IRS says you can group activities using any “reasonable method”. This is a wide road to travel. It isn’t a free-for-all, but as long as the group of activities constitutes an appropriate economic unit the grouping should be allowed. The implications to passive activity rules are significant.

There are five factors in determining if a group constitutes an economic unit: 1.) similarities and differences in the activities; 2.) extent of common control; 3.) extent of common ownership; 4.) geographical location; and 5.) interdependencies between the activities. Once a grouping is made it cannot be changed unless the original grouping was inappropriate, the facts and circumstances change, or the IRS disallowed the original grouping.

Because of the interrelated nature of the real estate used by an entity to conduct business, grouping of the two activities is a reasonable step to take. Landlords can also group activities in a similar fashion.

Grouping allows the business and the real estate profits to be combined. The real estate fair rental value paid by the business may not be enough to generate a gain and passive activity rules then limit the loss. By grouping the business with the real estate used by the business, the accelerated depreciation resulting from a cost segregation study is now possible to currently deduct.

One final note: A disclosure is required when grouping activities. The structure of your business determines the type of disclosure required. Partnerships and S corporations already have rules in place requiring a disclosure attachment to Schedules K-1.

Form 3115

There is one more monster in the room: Form 3115, Change in Accounting Method. Form 3115 has been revamped over the last few years and is now down to 8 pages. Not to be afraid. You only fill out the portions of the form applicable to your situation. If time permits, I will write a post this summer with a filled-in Form 3115 as it applies to cost segregation studies. The best news of all is that if you do the cost segregation study the first year the property is owned there is no need to file Form 3115. You only need to file Form 3115 to catch up on depreciation you should have used all the prior years.

This is a complex area of tax code. I recommend hiring a tax professional to handle grouping issues. Your accountant may not work with grouping often, but she has all the books and resources available to prepare the tax return properly with all regulations considered. And they will are more likely to make the required elections and disclosures, protecting you in an audit.

UPDATE! I no longer recommend Calyx over poor service quality and the high price. You can get a better deal with better quality Best Buy. Starlink and similar services are coming online in late 2020 and early 2021. Those will be an even better deal if the pricing I’m hearing is accurate.

Internet service in the U.S. can be spotty for people living out in the boondocks, like your favorite accountant. Travelers need to hunt for an open Wi-Fi hotspot to stay in touch. Even worse, internet is frequently bundled with cable, forcing you to buy both or face wildly overpriced stand-alone internet service. They got you where they want you and your pocketbook is the victim. There has to be a better way. There is. And since I’m an accountant I want a big tax deduction too.

Internet service can cost $50 a month and more for high-speed broadband. (Please sit for this next part. I don’t want anyone falling and getting hurt.) How would you like fast internet (I’m talking 10 Mbps and higher with 10 people on at the same time) for $41.67 a month, paid annually? That works out to $500 per year. After the first year the cost drops to $400 per year or $33.33 per month. You can take this little gem with you on vacation, too. Your fast and low-cost internet is as small as a cell phone, has a 10 hour battery life and is very portable.

Okay, enough of the baiting. Time to get down to facts, get a tax deduction and details on obtaining this money-saving, tax deductible gem.

Where It Started

Back when I was writing about library millionaires I ran across a device my library lent out. (Actually, my youngest daughter saw the library was lending a new Wi-Fi hotspot and she was hungry for internet that worked.) We checked the device out and were amazed by the quality. The backwoods of Wisconsin never saw internet work like this.

All good things must end. Our new Wi-Fi hotspot was everything we wanted, but everybody else wanted the darn thing too. After we were the first to get the thing from the library, a waiting list developed. Quick as a lick I sprung into action (actually, it was my daughter springing again) looking for more information on this little gizmo.

Turns out a non-profit organization called The Calyx Institute issues the device. The best part was that it was free! All you had to do was become a member. Okay. But what does Calyx do with my membership dues? They are a non-profit dedicated to education and internet privacy. They are also the company that got the first Patriot Act warrant unsealed.

My research unveiled the reason why this LTE/4G is available. Spectrum was set aside for educational purposes. Calyx, as a non-profit, gets a sweetheart deal on the service and passes along the savings to you. Membership is $500 and includes the Wi-Fi hotspot pre-loaded with one year of unlimited use and a t-shirt. (Hell, they had me with the t-shirt.) The cost is $400 a year afterwards because you don’t need to buy new hardware.

Before you rush out and join Calyx for the free Wi-Fi hotspot, check the coverage map to verify it works in your area. The hotspot uses the Sprint network. Be sure to check the “Data” tab as Sprint coverage is different between voice and data.


Now you can take your Wi-Fi with you on vacations and business trips. No more searching for open Wi-Fi or using an unsecured hotel or airport hotspot to view girly videos, ah, I mean stock quotes and catch up on email.

Many readers here retire early due to intelligent money management. (They save half their income and invest in broad-based index funds.) These people like taking a year or so off and traveling the country. Now your Wi-Fi can come with you at no extra cost. You can thank me later

Tax Deduction

Calyx is a 501(c)3 non-profit. This means your membership dues, which include a t-shirt and the Wi-Fi hotspot, are deductible on Schedule A.

Just a minute as I wipe a tear from my eye.

Final Note

This is not an affiliate program where I get revenue if you join Calyx. This is all them, not me. I’m doing it out of the love of my heart. (Awwwwwe!) But if you insist on helping me financially you can use the DIY tax software link in this post. Or, when you are planning an Amazon buy you can start with this link. (Remember, no spending for spending’s sake. I like more money, but my waistline tells me I am eating just fine, so crazy spending is not allowed. Now, if you were going to purchase that thingie over there anyway . . .)

Update: is no longer available. A reader reported in the comment section about and I decided to go that direction based on cost. My original recommendation of Calyx seems to have been the smarter move. There are several smaller companies doing the same thing, but the risk is we end up with another

The ever talented Kevin Clack is at it again. He put together an awesome forum here on The Wealthy Accountant. Now you can share ideas, get help and help others with the most pressing problems in your life as you move toward financial independence and beyond. I can’t answer every question or meet every demand, but as a team we can solve anything. Don’t be afraid of subjects outside the tax and accounting field. I talk tax in maybe a third of the posts at most for a reason. Taxes are a fun hobby to keep more money in your pocket. But the important stuff is learning to live right, to live the good life. That is where we are all most valuable. Money is great; friends better.

Finding the right professional is easier than ever now that you have a resource on your favorite blog. (I wonder why they let me in the place. Hmmm.) Have fun and be nice. Kevin and I will moderate the forum in these early days. As traffic grows I will ask for a volunteer or two to keep peace in the forum. You never know when a Hummer driving, spendaholic will show up. I trust you guys can take care of any unruly guests.

When life is good the revenuers have a way of raining on the parade. A large year-end bonus, mutual fund distribution, or large year-end sale at your business can crimp your tax situation in more than one way. A quick call to your accountant gives you the answer: Make an estimated tax payment.

But making an estimated tax payment can hurt you! A quick payment at the end of the year to eliminate a tax liability still subjects you to an interest penalty in many cases. What you need is a quick and dirty guide on estimated tax payments to avoid nasty surprises, and even better, a way to game the system. (Who doesn’t like gaming the tax system? It’s this accountant’s favorite pastime.)

Our goal today is to pay as little as possible for as long as possible. There are two reasons for this: 1.) The longer you keep your money the longer it keeps working for you earning interest, and 2.) When you know you owe money you start thinking of ways to reduce the liability you have to eventually pay. I understand interest rates are very low as I write this. Still, keeping you money invested longer in your account is better than paying the government. If you are in the “digging out of debt” phase of your wealth building, keeping your money longer means less debt for longer. Since debt interest is significant, the later you pay the better for you.

A looming tax liability provides plenty of incentive to reduce the overall tax liability in the first place. Never paying a tax or delaying the payment indefinitely is the best possible outcome. Writing checks to the government puts the matter to rest, but you no longer have a strong incentive to hunt for legal ways to reduce your tax bill.

Safe Harbor

Estimated taxes (or increasing your withholding) are not necessary in certain cases. Current tax law (I am writing this in early 2017) provides a safe harbor to avoid the underpayment penalty:

  • If you owe less than $1,000 there is no underpayment penalty as long as you pay in full by the due date without extensions. States with an income tax usually have a similar safe harbor with a $500 cap.
  • If you had no tax liability the prior year (the tax year covered 12 months (Don’t ask, it’s a long story.)) the underpayment penalty doesn’t apply to the current year.
  • You avoid the penalty if you paid the smaller of at least 90% of the current year’s tax liability, or 100% of the prior year’s tax liability (110% for taxpayer’s with an AGI over $150,000/$75,000 for marrieds filing separately).

The safe harbor creates an air cushion which can set you up for penalties two years down the road. I always tell clients the first year is a gimme. The safe harbor rules provide an out for the first year of an income increase causing higher taxes. It’s the second year that gets you. Unless you owe less than $1,000, the last point of the safe harbor rules above come into play. It is easy for people to get lulled into a false sense of security. Then the tax bill in year two adds some serious interest to the balance due. We will deal with that issue in a bit.

When to Pay

Before we seek solutions to avoid the penalty we need to understand the due dates. (To reduce taxes so you never have to pay the tax, read the remainder of this blog. We are only talking tax liability today.) Many years ago Congress came up with a great idea to sock it to the American taxpayer without admitting they increased taxes by playing with the estimated tax due dates.

Since most people make equal ES payments during the year, Congress made the due dates a month early for payment two and three. Nice group of guys, don’t you think? Good for ruining a great party. ES payments are now due April 15, June 15, September 15, and January 15 the following year. If the due date falls on a weekend or holiday, the payment is due the next business day. If you look close you will notice your payments are due from the beginning of the year at 3, 2, 3, 4 months. The IRS bumped the second quarter payment up a month, then followed with three months, and finally allowing four months at the end of the year.

We’re Not Going to Take It

NOOOOOO! We ain’t going to take it. We’re not going to take it, anymooooooore!

Sorry. Good song. (To my young readers: YouTube it. Kids these days. When I was growing up . . .)

Well, we have a problem if the rules above apply. What about those year-end mutual fund distributions or windfall profits showing up at your business in December? How can you pay tax on something you don’t even know you will have? Glad you asked.

First, you can request a waiver in cases of casualty, disaster or other unusual circumstances. Disability and retirees (after reaching age 62) may also receive a waiver if they have a reasonable cause. Willful neglect is not a reasonable cause. Once again, the first year of underpayment is frequently a gimme. Year two will bite you in the tail without planning.

Second, you can beat Congress and the IRS at their own game. You only owe tax when it is due. The IRS assumes income is received equally throughout the year. However, you only owe tax for each ES payment as it is due. This means when you have only two months between the April and June payment there is also probably less income which can reflect in your payment. It’s called the Annualized Income Installment Method. This method allows you to calculate your tax liability on actual income, not an estimate. You need to file Form 2210 with your tax return stating your income and when it was earned.

Third, if you get to the end of the year and discover a problem, you can include the actual dates withholding from wages were withheld. This might reduce the underpayment penalty if you had high withholding early in the year. Retirees, especially early retirees, can run into this problem. The sudden shift in your tax situation might mean you owe, but plenty was withheld early in the year, eliminating or reducing the penalty. Form 2210 is used to report this situation as well.

An Easy Out Using Withholding Tax

This is where the IRS gets sneaky. They treat ES payments differently than withholding. Nice, huh? Estimated tax payments are considered paid when paid while income is annualized. This works to the IRS’ advantage. But, withholding tax is considered paid equally all year, regardless when actually withheld! This works to your advantage. (Sic’em, boy!)

An example illustrates how this works. Let’s say you have a side hustle that did much better than anticipated and you made no ES payments during the year. Or, suppose you own a tax office (ahem, we will not mention any names) and you make a lot of money early in the year but like holding your money for a little bit before transferring it to your rotten, good-for-nothing uncle. (Yeah, I’m talking to you, Sam.) As the year-end approaches it dawns on you a tax penalty is in your near future. Thankfully, you read that crazy accountant guy’s blog.

Remember, the IRS says withholding is annualized. If you make as estimated payment at the end of the year, you still get a penalty for not making payments earlier in the year. But, if you increase your W-2 withholding at the end of the year, the IRS says you made those payments equally throughout the year, avoiding the underpayment penalty.

The fix is easy. You visit the HR department of your employer and change your W-4, increasing your withholding to the level needed by year end to meet the safe harbors at the beginning of this post, thus avoiding penalty while keeping your money as long as possible. Remember to change your W-4 back when the New Year begins.

If you own your own business you can easily do the same thing. Increase your withholding to meet the safe harbor rules. As a business owner you can also give yourself a December 31st bonus check that is mostly withholding to cover the tax issues.

Special Situations

If 2/3 of your gross income in 2015 and 2016 was from farming or fishing, instead of using the 90% listed in the safe harbor at the beginning of this post, you use 66 2/3% of the tax shown in 2016. Also, estimated taxes for farmers and fishing can made only once on January 15th, or the next business day if a weekend or holiday. Better yet, file and pay your taxes by March 1st and no estimated taxes are due and no underpayment penalty.

Marital Status Change

Single to joint return: Estimated tax payments are calculated using the sum of both prior year returns. The prior year combined income determines 100%/110% threshold.

Joint to separate return: You will need to recalculate the tax you would have paid using the current year filing status. Then you multiple the tax shown on the prior year return by the following fraction:

Individual’s tax on 2015 income based on 2016 filing status/Sum of the spouse’s separate 2015 liability

Better yet, just owe less than $1,000 or hire a tax professional is this situation. The underpayment penalty you save could more than her fee.

There is a ritual the accounting profession goes through every autumn. Eager tax professionals attend continuing education programs to hear all the latest tax law changes with interpretation. Large hotel venues fill with CPAs, enrolled agents, and even attorneys eager to learn. The room is filled with tax professionals all from within a hundred miles.

It amazes me how small the accounting profession is. Tax professionals are an even smaller crowd. A handful of conferences draw nearly the entire industry in each geographic region of the country. Smaller programs abound, but the annual refresher courses with tax law updates bring out the vast majority of the industry.

The same people attend year after year. We know each other. Sometimes personally, sometimes we are only aware of each other’s existence. Many times we talk and share ideas, talking taxes, clients and business management. There is respect in the air. We have something in common and feel comfortable together.  Some of us worked in the same office or worked together on a client’s file. Few members of the crowd feel we are competition.

A Long Way from Home

Back in 1993 I was still wet behind the ears. I went full-time in the tax field a few years prior and the ink on my enrolled agent license smudged to the touch. Mrs. Accountant worked in the office which was my remodeled basement at the time. (Ah, the good ‘ol days when I worked from home.) Always eager for a good tax deal, Mrs. A and I planned a tax deductible trip to New Orleans. The National Association of Tax Practitioners (NATP) had a tax class I was interested in at a Baton Rough venue. The plan was to swing past New Orleans on the way back home. (Not on the way home, exactly, so a few miles were not deductible.)

Anticipation of attending a tax seminar with people I never met before would be an experience. My goal was to learn something new. Tax preparers from so far away should be willing to share their ideas with a tax office well outside their circle of practice.

As I picked up my materials the instructor came to the table outside the conference room. Our eyes met. Both our faces lit up in recognition instantly. Renee Otto (since retired) was the instructor. Her tax office is about a mile from mine in Wisconsin. We had a wonderful talk before class started as we reminisced on how small the tax industry is.

I traveled a thousand miles for a new experience and ended up getting training from a local tax professional. Life is strange.

Who Did Your Taxes Last Year?

When new clients walk in the door the first thing I ask is who did their taxes the prior year. It sounds unimportant, but it is information I must have. The firm and the preparer in the firm tells me a lot about the quality of work performed in the past. It also tells me approximately how much you paid for tax preparation in the past.

Sometimes people are sheepish about sharing the information. Since I require a copy of the previous tax return I will find out soon enough anyway. People worry I might use the information to determine price. I do. Not that I charge more if you paid more in the past, but if the past quality was low I will have more work verifying and fixing past problems.

Kick’em in the Knees

There is a tendency for the new tax professionals (and the less savory) to bash other tax professionals to get new clients. (Hint: It doesn’t attract the kind of clients you want.) In my office that behavior is frowned upon. Even if we know the previous accountant overcharged or did poor tax work, I demand professionalism from my team. It’s hard sometimes. I get it. But it has to be that way. Remember, we all see each other in a few months as we refresh our skills and review the new tax laws.

What gets said comes round. Bad-mouthing people reflects badly on the person bad-mouthing, not the person being bad-mouthed. Even if the person deserved the bad-mouthing. As Clint Eastwood said in The Unforgiven, “We all have it com’in.”

Talking nice when it is undeserved takes time to master. You will burn more bridges than you can imagine learning the skill. People make mistakes. So do you. Gutting them for being human only sets you up for loss later. People talk. People remember. Every profession, every group, every genre gathers frequently to share a common love. You don’t want your name running rampant as someone not to work with.

The Art of the Bad Review

Many years ago when I was still learning to push nouns up against verbs in a way people would read, I discovered bad reviews sold well. At least they were read more often and pageviews turn ad revenues. Content farms, like HubPages, were the perfect place to hone writing skills. I could try different styles of writing and experiment with multiple ways of increasing traffic and increasing Google or Amazon revenues.

Product hubs did best before the Google slap (the Panda update) of seven or eight years ago. In less than six months I generated north of a thousand bucks a month on HubPages with revenue rocketing higher fast. This could turn into real money if Google didn’t change their algorithm.

Product hubs sold lots of stuff on Amazon, but product reviews were awesome. Bad reviews generated more traffic, however. While my compadres were busy writing hubs selling piles of Amazon products, I started steering away from the crowded field and into negative product reviews. Since negative reviews drew more readers, my traffic was significantly higher than other writers on HubPages trying to sell Amazon products. I still sold Amazon merchandise, but I also made a killing from Google, and later the HubPages Ad Program. Then Google took my toy away by changing the rules. But the lessons were learned.

Or were they? I have since removed most negative product reviews. It sent the wrong message. Sure, I made money. But I had to be an ass to earn it. My goal was to find everything wrong about a product or service. People read those articles, clicked through to my business website and sometimes became clients. And they were the wrong kind of client for me.

The clients I attracted complained and whined insistently. They focused on the negative in every facet of their life. They were miserable and sharing the misery with me!

Today I sometimes still write critical reviews. I make an effort to tone down the negative. After several million published words I would like to think the edge has been moderated. It is a fine line to walk. It is possible to be critical without being an ass. Pointing out a flaw is acceptable; character assignations are not. It also speaks volumes about you.

Just Deserts

A few years ago my business was turned upside down from a surge in new traffic. I was unprepared for the force the internet could assert against a small firm like mine. My business is a service which takes time for each client served. If I sold a product, ramping production would be easier. But training people to meet new demand takes time and people are rarely patient. That is why doctors knock you out when you go in for surgery. It’s not a good idea to have a patient demanding you hurry up while doing bypass surgery.

I started getting a few negative reviews online. Most people complained I was slow. I was. Too much work and I needed to learn the word “no” better. Just because I can do something, doesn’t mean I should.

If someone tells me about a negative review I rarely seek out the review. Why bother. It only ruins a good day. I was getting a taste of my own medicine. Many reviewers did not have my desire to improve communications skills so they went straight for the ax and started swinging.

Some businesses work hard to hide, remove or cover up negative reviews. I don’t. If someone posted a derogatory comment on this blog about me I would let it publish. Unless a comment exposes personal information on someone (think: Social Security numbers, et cetera), is hate speech, or would encourage violence, the comment stands. Think hard before pushing the “Post” button. Once published, it stays. Even if it shows me in a less than awesome light.

Free speech is most powerful when we think about what we intend to communicate before we publish. Of course, a blog writer would hold freedom of speech in high regard. Self-censorship is also important. It’s not encouraging less freedom of speech; it’s called editing.

A Bloggers World

There are a gazillion blogs out there. Probably more. The blogs with real traffic is small however. Take the personal finance genre. PF bloggers are everywhere. But we all read each other’s stuff. We visit at conferences. We communicate behind the scenes. When you bad-mouth a blogger to another blogger, you might want to be careful. You never know the relationship between the blogger you are speaking with and the one you are complaining about. And they might know more than you do about the subject you are so upset about.

Let’s take two examples. Kevin Clack attended a conference in Florida earlier this year. Pete (aka, Mr. Money Mustache) asked Kevin to do some work on his blog’s forum. Taking my cue, I asked Kevin to do some work on this blog. (Kevin has since taken over most of the work on The Wealthy Accountant.) Kevin later asked me if I would give a testimonial for his business. I agreed. Reading the other testimonials surprised me. Kevin also did work for Joel over at Financial 180. I did a consult with Joel and his wife at Camp Mustache SE.

It really is a small world when you think of it. We talk about six degrees of separation. In most fields, anyone you talk to is one or two degrees of separation only from every other person in the field. Three at most. What you say will get around. And remember, negative reviews reflect far more on the reviewer than the reviewed. It all comes full circle.

Final story. A few posts back I mentioned why I refused to buy Jim Collins’ book. Once I finally read the book I confessed how good it actually was. What caused me to hold back was I didn’t want to read another PF self-published book. And the picture of Jim struck me wrong. We have all been there. But I kept my flap shut and never said a word. Good thing, too.

Once I read The Simple Path to Wealth I discovered it was one of the best of the genre! Mister Collins promptly contacted me about my comment. Can you imagine if I would have flapped my lips before I knew anything about Jim or his book? Over a picture? And because I didn’t want another book on my to-do list?

The great news is Jim found the comments funny and entertaining. I found a way to air my thoughts without ruining a potential relationship. I think Jim likes the idea I gave his book a high-five. If I didn’t have high remarks for his work I would have said nothing publically. After all these year, I may have matured some.

Speed Dial

Would you be surprised if I told you Jim Collins and I email now, planning a get-together in May or June? In a small world it is good to have friends. The ideas we will share, the knowledge I will gain by keeping my mouth shut and listening, is something I look forward to.

Jim has a powerful PF blog of his own. His traffic exceeds mine by a good margin. It is an awesome feeling to have the relationship with the influential PF bloggers I do. In a small word people communicate. Accountants communicate with other accountants and bloggers talk with other bloggers. The same people keep showing up at all the finance conferences.

There is nothing wrong with having an opinion. There is nothing wrong with disagreeing. Doing so in a professional manner increases the odds you will be an accepted member of the community. There is an old saying around these parts: If you see a turtle on top of a fence post you know he had some help getting there. Good accountants got that way by working with other accounting professionals. Sometimes you travel a thousand miles to find a teacher living a mile from your office. And successful bloggers didn’t get there without a little help from other very successful bloggers, either.

Always talk nice. You never know who your best friends will be two years down the road.

An old nemesis has returned to the United States and other nations around the planet: protectionism. These leaders, and the voters who bought their snake oil, falsely believe protecting their borders by building walls, taxing imports, claiming currency manipulation and threatening to dissolve trade agreements will bring jobs back home. They’re wrong.

What these well-intentioned people forget are the lessons of history. They forget about The Tariff Act of 1930, also known as the Smoot-Hawley Tariff, the one piece of legislation that hastened, accelerated and prolonged The Great Depression. People forget about the jobs created that did not exist before due to current trade agreements and the lower prices consumers paid for goods and services.

The misguided perception that jobs will be created for nations with trade deficits by preventing trade does not work. And we are dangerously close to poking the sleeping giant again. Once a trade war begins it is hard to stop the cascading effects. The damage is swift and painful with few options available less painful. Best to leave the sleeping beast where she is. But politicians sometimes have an agenda we all pay the price for.

But why do trade barriers cause job loss? If the U.S. has a massive trade imbalance, curtailing imports should bring the jobs home to create those products, right? It’s not that simple. Today we will explore why curtailing trade destroys jobs in all countries involved. Open trade is beneficial to everyone.

The Truth of Trade Wars

Conventional wisdom says if you deny products from entering your market, local businesses will begin producing those products to meet demand. If conventional wisdom were correct, countries with trade surpluses would suffer the most in a trade war and countries with trade deficits would actually benefit from restricted trade.

But history is clear this is not what happens. Restricted trade hurts all economies involved. The 1930 tariff in the U.S. hurt domestic businesses and foreign. Foreign nations instituted their own trade barriers to protect their local markets. It didn’t work. Even countries with trade surpluses suffered economic decline and significant job losses. It took World War II to really kick production back into high gear. Unwinding the devastating trade barriers were too difficult for any nation to handle unilaterally. Voters demanded trade barriers decline in tandem or that the other guy go first. The fear open trade would do additional harm to local economies froze everyone in their tracks. The lesson is clear: It is easy to set up barriers through unfounded fear and nearly impossible to tear down the barriers once erected.

Open trade took decades to develop. Large numbers of trade agreements fueled economic growth, jobs, and lower prices over the preceding decades. Decades of work with all the accompanying advantages are now threatened. Decades of work can be undone in a few months or even days, requiring additional decades to return to previous levels.

What is so amazing is how Americans cheered President Regan when he said, “Mister Gorbachev, tear down that wall.” are the same people cheering as America plans to build its own wall on her southern border. The same political party screaming FREE TRADE 30 years ago is the same party screaming PROTECTIONISM today. It is a dangerous time.

#trade wars #tariffs #trade #freetrade #deficit | trade wars | free trade | tariffsWhy Restricted Trade Never Creates Jobs

The logic jobs will come home if trade is restricted is wrong-headed. The reason production went to another location is due to costs or other considerations. Restricted trade reduces competition, thus increasing prices as supply is reduced or eliminated.

Think of it this way. Suppose Japan was sick of paying for imported oil. They decide to slap a massive tariff on oil imports or restrict foreign oil entering their market. What would happen? Would the oil industry expand in Japan? It might. But Japan is oil poor and no amount of investment will bring much additional domestic oil to their market. Alternatives would be explored. Solar, wind and nuclear could make up for some of the losses.

Still, with any amount of investment, Japan would struggle to bring additional energy supply to their market to offset the trade barrier losses. Even if Japan reached energy parity it would takes year, or more likely, decades, to replace the losses and at significantly higher costs. All Japanese products would suffer a competitive disadvantage as higher input costs would make all Japanese products more costly. Japan, in our example, would put an end to the trade deficit they have in the oil trade, but at a massive cost to the local economy. Higher energy costs would reduce demand for goods domestically and for export. Jobs would be lost from the trade barrier even though they eliminated the huge oil trade imbalance.

I use Japan as an extreme example. It is easy to see how Japan would have a hard time offsetting self-imposed oil import restrictions. It is easy to see how jobs domestically would be lost by such a strategy.

The same applies in other industries in other nations. The idea restricting trade with Mexico would bolster the U.S. economy is idiotic. Don Quixote had more sanity when he chased windmills.

What will happen if the North American Trade Agreement were scraped and trade between the U.S. and Mexico curtailed? Production of automotive parts and accessories would be brought home. But the reasons (efficiencies) for outsourcing the production would be lost. Price would be higher and it would take time to build the production facilities so the production jobs would be at minimum temporarily lost. Higher prices would shrink demand. That is the simple law of supply and demand. Higher prices, even if consumers demand more, will reduce demand consumers can actually afford. Their pocketbook will run dry before the same number of items is purchases. Therefore, fewer jobs are neded.

Worse, Mexico will now have fewer jobs and fewer resources to buy goods and services from the U.S. Even with a trade imbalance, the country with the surplus will suffer job losses and economic decline! The market for all parties involved is smaller since they are limited to their local market which is smaller than the world market.

Fewer domestic jobs slows the economy. Fewer foreign jobs due to reduced trade will reduce international trade, which means less demand, which must lead to fewer jobs and a declining economy. The idea of a trade barrier to protect a domestic industry will do exactly the opposite.

Fair Trade

The problem starts when one country feels as if trade between them is unfair. Regardless the care taken to create a trade agreement, one side will have an advantage, even if slight. In most trade agreements there are multiple areas of trade that favor one side and other areas of trade favoring the other side. As time goes on and economies evolve, disparities can become acute.

Trade agreements work. This is not the time to scrap free trade policies; it is time to review trade agreements and make modest changes so all parties win. And trade is like that. Everyone can win! Yes, some industries will see job losses, but more jobs (usually better paying) will develop. Guarding your job like a mouse defending his stash is short-sighted and self-defeating.

Of course, you can always buy domestically produced goods and services whenever possible. It’s not always possible. But do you really want to do every darn thing yourself? I personally find no issue with Mexicans (in Mexico) producing auto parts or legal immigrants working in the U.S. I love doing many things myself, but I also have no problem with non-white middle aged men doing the work. My eye doctor is black and he is darn good at what he does. I’m not changing doctors due to his skin color. Are you nuts? Racism hurts the racist most of all.

We need to be careful our desire to erect borders is not really jealousy somebody else might be improving their life and their skin color, or religion, or gender, et cetera, et cetera is not the same as ours.

These are dangerous times. We need to tread carefully and think before we step. This is NOT an “us versus them” situation. Trade agreements do need adjustment. Immigration is an important issue for many countries. Planning is needed.

We can make our world, our nation and our local community a better place if we think as we move forward. Building walls are an unproductive use of resources. Regardless your nationality or political affiliation, President Regan was right, “. . . tear down that wall.”


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?

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.