There has never been a conference I didn’t learn something from. Camp Mustache IV in Seattle this past weekend was the best ever for learning. Others may have had a different experience. Where you are on your journey determines how valuable a conference like Camp Mustache is.
Two years ago I attended my first ever Camp Mustache. My goals were simple. I wanted to meet Pete, Mr. Money Mustache himself, and make a business proposition. It went better than expected which is why I am here and you are reading this.
Unfortunately, my mind was on business so I missed most learning opportunities save one: humility. I went into Camp overconfident in my abilities and had no clue how smart Mustachians are. My thought was to offer my services in a breakout session on taxes. This was the highlight of my first Camp Mustache. I achieved something I hadn’t planned on and it was a whopper. Mr. Money Mustache was now my client! How awesome is that?
Later I carried out my original goal and shared the business proposition with MMM. He didn’t care enough for the idea to take it on, but graciously offered to promote the idea on his site for me. Once again, how cool is that?
Then the worst part came. It would be easy to blame my actions on not knowing most other bloggers there, but it would be a lame excuse only. The Mad Fientist was there and was scheduled for a tax break-out session, too. The MF was gracious enough to invite me to share the stage during his presentation. Right out of the gate I took over the session like an ass. Good thing the MF is even tempered or I’d have been backhanded. Only later did I realize how much of a dick I was.
You have to give the MF a hand. He never gave me what I deserved. He always treated me with respect, including the following year at the next Camp Mustache. For the record, he is a better man than me. ‘nough said.
Last year at Camp Mustache I was a bit more prepared and willing to learn. Whereas, the first Camp was productive, my second Camp was filled with relationship building. There was plenty of learning, too, but the relationships were the most powerful outcome of that Camp for me.
Let’s recap. My first Camp was about business. My second Camp was about making friends and relaxing a bit. This year I shut my mouth a tiny bit more than usual and listened, and boy did I learn. Do we have a minute so I can share?
Big Mouth Strikes Again
Nervousness and doubt causes some people to blabber non-stop. The nervousness was gone and my doubts were seriously curtailed. I still talked plenty, but the domination of every conversation was not part of the weekend.
Listening and learning were the only real goals for this year’s Camp. I had no idea how much I would learn for these highly intelligent people if I just closed my mouth and opened my mind. I was two years behind. It was time I sat back and accepted the gifts others were willing to share.
The information digested was immense. Two things percolate to the top for me. The value of these two pieces of information are easily worth more than $50,000 per year for life. The first was completely new to me. Joe Olson (his wife, Ali, writes books on the side in her retirement) is a retired teacher (age 31, I think) talked about a new idea he was working on called trade lines. Rather than bog you down on what this is I will save it for a future post when I am more versed in the matter.
Joe worked trade lines for the past year and came out of retirement (still financially independent, he reminded me) three weeks ago to start a business involving trade lines. With his prior experience he is certain to build an awesome company in a field filled with potential issues. I would never touch trade lines with my level of knowledge. But, knowing Joe, I will jump as soon as he is willing to add me as a client. Besides, if a firm is going to make some coin it may as well be someone I know and like.
The second nugget of knowledge that blasted into my thick skull and rattled around is multilayered. Later this year I will attend FinCon in Dallas. A man I admire greatly gave me advice from his ample experience of past FinCons. His name is Doug Nordman (affectionately called Nords by his friends). He reads this blog religiously so I better get this right.
He said I should skip the sessions at FinCon (I can watch the videos later on YouTube) and instead should focus on meeting people and sharing ideas. It’s all about relationships again. Much of his advice was specific to me so I will save your eyes the drudgery of what interests me. What I can say is I am certain I will get significantly greater value from my first FinCon because I shut my yap and listened to somebody with experience.
More Camp Mustache Highlights
There are several additional important points I’d be remiss if I left them out. Most revolve around breakout sessions and additional forms of entertainment. I did not attend every session because two tracks ran simultaneously.
Your favorite accountant had a session on Anti-Mustachianism. I had a feeling Pete would show up. He did. Took a chair and sat straight in front of me in the middle of the isle. There were no warning looks. My heart couldn’t have taken it.
The goal of my session was to point out the areas of Mustachianism where my opinion differed from Pete’s. By the end of the session Pete made it clear he agreed with me with rare exception. What I communicated was that Mustachianism is a foundation for everyone to build on, but you don’t have to be a carbon copy of Pete.. If you don’t like DIY, then don’t
As a side note, I am very defensive of Pete. He gave me a massive chance two years ago with modest information about me. Even when I don’t always agree with Pete, I still trust him so much I would do as he asked because he has never been unreasonable and the guy is all common sense. I made it clear at the outset, my session would not devolve into a “complain about Pete” session. There was never any risk. I think everyone left the room better, including Pete, than when they came in. Goal accomplished.
Hunter Post gave us another awesome session on Decision Making. As a former NCIS agent, Hunter has stories to illustrate his advice. Few readers will ever experience the high-level decisions Hunter made in his career. Remaining cool under pressure requires training. Everyone benefitted from his advice.
Back to my good friend, Nords. Doug had a session focusing on a simple point with massive ramifications: an individual’s savings rate. As he outlined the major market events of his adult life and the financial mistakes he made, it became clear you don’t have to hit the stock market perfect to succeed. There is a direct correlation between the percentage of your income you save/invest and wealth/financial independence. The message is so simple it is frequently missed. You must save a significant portion (50%ish) of your income and invest in index funds. The rest takes care of itself.
The Mount Si climb this year was hot! In the previous two years I drank only a small portion of water on the climb. This year I guzzled water, ran out, and became dehydrated. It was a painful slog and I wasn’t alone.
I mention the Mount Si hike because your favorite accountant offered to do a comedy skit this year and I performed after the hike. Camp Mustache facilitator, Joe (a different Joe from above), loved the idea. It was a lot of work and a tremendous amount of additional planning than a breakout session. The good news is they only threw tomatoes three times before they called the police to haul me away.
Ah, you know I was joking. The skit went well. It was my first ever standup comedy routine. I never attended, nor performed, at an open mic before. A few jokes were dudes; to be expected. But there was also some hysterical laughter which made my night. (You were awesome, Marla.) Mission accomplished. I was also glad when it was over. The hike was brutal and I was in pain while I performed. I was also nervous. Then it was over and all went well. Whew!
Final notes: Camp Mustache is getting bigger every year. This year attendance was by lottery of those registered. There are Camps starting up all over now! Florida had Camp Mustache SE this January. Yes, I was there and delivered words of wisdom. CMSE for January 2018 is already filled so they are doing two Camps in a row so more can attend. The second weekend has a few spots left, I think. I have been asked to speak at both. It is a large commitment so close to tax season so I am uncertain as of this writing if I will do one or both weekends.
If you must absolutely, positively see me, I will be at FinCon in Dallas. There are no speaking commitments as of this time, but I am open to the idea if asked, but will not pursue. I am on a relationship and fact finding mission for my first FinCon. No more stupid, take over the show, showing off. I understand the Mad Fientist will be there. He might actually backhand me if I pull that stunt again.
Today The Wealthy Accountant has been exposed in his first ever podcast! (Why am I talking in third person about myself?) In January at Camp Mustache SE Jonathan asked me if I would do a podcast with ChooseFI. Brad loved the idea too. I agreed. A month ago the podcast was recorded. Then, through the magic of editing, Jonathan and Brad made me look good. Thanks guys!
Today is Memorial Day in the States and my intention was to take a day off from my publishing schedule, but with the podcast out I wanted my kind readers to have a chance to enjoy the podcast.
Enjoy, everyone. I’ll be back Wednesday with a Camp Mustache IV roundup.
P.S. I enjoyed doing the podcast and am open to doing more for other podcasters too. (Brad and Jonathan nailed me down for additional podcasts for ChooseFI.)
Just when you find someone really good word gets out and they get busy/popular/semi-famous or some other bullshit. A great tax guy stops taking new clients and is slow as hell because he has too much work to do. An awesome blogger is discovered by the world at large and is inundated with requests until she burns out. The story is repeated again and again. They get good, then discovered and then wore out.
The worst part is what fame and fortune does to these people. They lose touch with reality as the world builds a wall around them, built with bricks made from the flesh of living and breathing human beings. They get callous because it becomes impossible to respond to every request, none the less, honor the request.
Or maybe it isn’t them. It could be you! Maybe these people are seeing the world for what it really is for the first time. Maybe they have always had a firm grasp of reality. It might explain why they are where they are and why you are where you are. Think about it.
Everybody Wants Some
Ah, fame! The stuff we dreamed of as a child. If people would only know my name. Only the unlucky few who realize (notice the choice of word) this dream understand how fucked up it is. Fame and fortune are not fun. That is the reality of it! Of course, fame is sometimes required to reach fortune.
If you are good enough you soon accumulate a fortune. It doesn’t take folks long to know what you have. True story. Reality, writ large!
Then the gold-diggers show up. They want what you have without the work or the headaches. You do the bull work; they hitch a ride.
Nice people turn into asses once they get popular. A sociable blogger once had time for all her followers now says “No” more than “Yes”. How dare they? They owe society (read: you). It’s people like you who made them what they are!
You promise to turn away, but you keep looking back. They are famous, successful, for a reason and you can’t figure out why. You can’t look away for long. What do they have that you don’t?
I Can See Clearly Now
The clarity of thinking, the clear view of reality, starts before you achieve important things. The important local business person had a vision when no one was watching. Only after she has reached the top do people finally notice. And they can’t figure out how she did it. Luck? A massive inheritance? What! What does she have that I don’t?
A clear view of reality, perhaps.
Steve Jobs was famous for his reality distortion field. Jobs had a clear view of the real world other people could not see. He forced these seemingly normal people to do things science fiction writers couldn’t dream up. A thousand songs on a device smaller than a credit card? Get the fuck outta here! A phone where you could touch a screen to do things Mr. Spock would have had wet dreams over? Get outta here again.
Now we have Elon Musk telling us cars will drive themselves. What is the matter with these morons? Do they have a name for what afflicts them? Yeah, they do. It’s called: Reality. Only lesser folks call it a reality distortion field. There is no distortion if it really can be done. Somebody could see reality better than you or me.
The list is endless. Seemingly normal people are doing extraordinary things. Geeks like Bill Gates create the products that now run our lives; geeks like Warren Buffett make normal people salivate over his investing prowess; ordinary Pete’s (Joe didn’t do it) write blogs that change an entire demographic in our society.
They seem so normal (except for that crazy accountant guy from Wisconsin pretending he knows what he is doing). Actually, they don’t seem normal. They all tend to be a bit geeky. They are unassuming. The well dressed man with a fancy car earning a boatload of money is broke because he spent it on the frigging boat! Idiot!
There is no way to tell these people apart from normal folks, unless you consider they are generally weird and tend to keep to themselves. Like the serial killers before they snap. (You have to watch out for the quiet ones.)
The quiet ones. Hmmm. There might be a reason why they are quiet. (Except for that accountant guy, once again.) They might know something you don’t.
Enter the Accountant
Success does not cloud reality; poverty does.
Periodically I am accused of writing a business-centric blog. Guilty as charged. The reason is simple. This blog is about You, Inc. You have income and expenses like any business. Good investments help the company grow and to realize certain goals. Without a business mindset you will spin your wheels.
But personal life is not a business, you demand! It isn’t? Really? What have you been smokin’?
Working a job is a business, just not yours. You invest excess capital (savings) into either bank deposits (stupid) or investments like index funds (smart). Just like a business invests in its future!
When you retire, whether early or late, you find you need to do something with your time. Enter the side gig. Looks an awful lot like a business.
The truth is I have to find a way to get you to think like an accountant. All your decisions count on it. If your accountant skills are weak, so will your decisions be. Buying a car? Think like an accountant to get a quality deal on a terrible expenditure. Looking into a home? Might I suggest accounting skills would do you some good? Kids going to college. Marriage. Divorce! Death of a parent, spouse, child. Estate planning. Legacy planning! Very few things in life are better without “accountant” thinking. And don’t get me started on taxes. That is what accountants do; reduce tax burdens legally.
Or you can throw “accountant” thinking out the window and see what happens. (I bet you already know what happens from personal experience.)
Look Into My Eyes
I always thought I saw reality clearly. I achieved financial (seven-figure net worth at age 32), business (very profitable accounting firm with several employees) and family (married 29 years and going strong) success at an early age. Then I discovered there are various levels to reality. Mine was the lowest level.
I was lucky. I was born lucky. My parents loved me and cared for me. I was born in an age and time where people live with tremendous opportunity. The heart defect I was born with was an easy fix for modern medicine. If I were born twenty years sooner I would be dead before the age I have reached. And I was born in a nation leading economically. Success was easy. I was lucky. How can anyone fail in such a land and time of opportunity? But many do.
People fail because they either can’t or refuse to see reality. Steve Jobs says, “Yes, it can be done and in short order.” Everyone moans. Then Jobs extends his vision, the bubble of reality, to encompass those around him. Then, and only then, can they climb to the top of the mountain for a clear view of reality, a reality Jobs introduced them to.
I was not voted “Most Likely to Succeed” in high school. If you asked my teachers or parents what they expected me to accomplish back then I doubt they would have expected much of anything out of me. What can you say about a lazy farm boy who wants to sit around all day reading? To top it off the schnook wants to be a tax preparer. Not an accountant (CPA). No! He wants a seasonal part-time job before he ever works a real, full-time, year round job. Not much was expected at all, kind readers. Not much at all.
So who saw reality clearer? The blogger accused of focusing too much on business issues or the normal people? Do celebrities see the world as it is? Sports stars? Uber successful business people?
What about the guy writing this blog? As my traffic grows, so does my reach. The aura begins to shine around me like it does for those who went before. Each step of the way I see reality as it really is. The view is from a higher level and clearer as a result.
People want to be like me now. Are you nuts! You can learn from me. You can open your eyes and see reality as I and other successful people do. But you do NOT want to be me. The world has a hard enough time with one of me the way it is!
There is no reality distortion field. There never was. It was part of your illusion and yours only. You created it. A few of us have opened our eyes and work frantically to help others do the same.
Or you can keep doing what you always have. Me? I’m just going to sit here admiring myself in the mirror and counting my money.
It had to happen. Reading personal finance blogs finally paid off. Your side gig or business idea exploded to the upside. Maybe you decided it was time to hire a household employee (nanny or groundskeeper).
Worse, you started reading this blog and finally pulled the trigger on your own accounting/tax firm. Now you have clients with payroll issues and you don’t want to spend the time or deal with the headaches of payroll. Your goal was a side gig, not an albatross.
You might have your own small business turning a tidy profit, but the taxes are killing you. You stumbled into this room and discovered there is another way, a way where you can earn the income and pay only a small portion in taxes.
There was more work involved than originally anticipated. It was all worth the effort. I have a major national payroll service with dedicated staff trained in my tax and wealth building philosophy.
You can do it yourself and take a chance you get it wrong; you will. Or you can cough up a hairball buying payroll software that is more expensive in many cases than hiring a professional team to do all the work for you. Time value of money, folks. Time value of money.
Don’t get me wrong. You can do it yourself correctly if you spend enough time at it. QuickBooks and similar software has made the complexities of payroll easier than ever. The problem is payroll is best handled by people who do it all day long and are on top of payroll law changes as they happen.
In my office I could not handle everything so I sold my payroll department to the company I will introduce shortly. The transfer was smooth except from my end, once again. (You either do a lot of payroll with dedicated staff or farm it out so it gets done right.)
No more delay, it’s ADP. I have been hard at work training a team inside this awesome payroll service company so they understand the FIRE (financial independence/retire early) community. This team understands maxing out retirement accounts and optimizing small businesses to reduce taxes to the lowest allowed by law.
Wouldn’t it be great if you could hire this same team? At a discount! And that is what I did. I have a lead at ADP, the largest payroll service in the nation, who will handle your personal payroll and even payroll for larger businesses, (and tax offices wanting to focus on tax only) with a 20% discount just for mentioning The Wealthy Accountant. This means your side gig tax prep firm doesn’t lose high fee clients with payroll because you don’t handle payroll. Problem solved!
If you want to engage the same team at ADP I work with, call Chris Dudley at 414-502-9884 or email at Christopher.Dudley@adp.com. Tell Chris you are from the Wealthy Accountant blog and you will receive a 20% discount based on your circumstances. (Payroll can vary between companies so work with Chris. He is awesome at getting you the best deal.)
As an added bonus, if you use Chris you will also have me as a backdoor. I can review your situation with your approval. No more guessing if you are paying yourself correctly to pass IRS scrutiny. (This involves the LLC and S corp issues for those wondering.)
Don’t worry if you live far from my office. I worked with ADP to extend our reach into every section of the country. A qualified rep from ADP near you will help you with your payroll needs. You do this all through Chris so he can orchestrate the process and contact me if there are any issues.
That’s it. No long winded post from yours truly today. Hard, honest, straight to the point information. (That and I leave for Camp Mustache today and time is tight. I speak twice at Camp this weekend.)
Note: I have a surprise for you in next Monday’s post (Memorial Day here in the States). You don’t want to miss it and a Camp Mustache IV roundup is scheduled for next Wednesday. Now all I need to do is decide what I want to share on Friday’s post.
Enjoy the gateway weekend to summer, kind readers. If you have any ideas to improve the payroll service offered, be sure to leave a comment below. There is no doubt this strategic alliance will evolve as more businesses and accounting firms join the train.
Note: Updated information will be provided on TWA Recommends page. Check there for any additional contact information
There are two kinds of stories people like to read in the personal finance community: personal finance reports and “What am I doing” stories. Pete over at Mr. Money Mustache released his spending report for 2016 this past week and Jim at jlcollinsnh provided us with a report on life in the comfortable Wisconsin south woods.
Spending reports/progress reports toward financial independence interest me, too, even though my financial situation has been solid for a few decades. Spending reports motivate me, giving me ideas to cut consumption without sacrificing quality of life. Progress reports are always interesting. The writers of such reports usually express an emotion with where they are at on the scale of financial independence. From my viewpoint it seems so obvious they are in much better financial shape than they imagine. It is intoxicating watching these good people make their way to the Promised Land.
It’s been a while since I offered my own spending report. Sorry. Spending is so boring to me. God willing, I will get my 2016 report out before the end of 2017.
Kevin has started the redesign of this blog (I’ll pay him a soon as my new bonus credit card arrives).
Collins shared his life these past few weeks on his blog. I enjoyed his story and I was there part of the time! Such are the simple pleasures of life.
Your favorite accountant has a few interesting tidbits in his life you might find of value, too. Whereas, a lot of people in this community talk about their sedentary or retired life or world travels, I am busy acting like a mini Elon Musk. Call it a sickness.
Brain Storm and the Plaque on the Wall
I was invited to attend an online training class Saturday. A vendor paid my way. A large part of the course was tax related (there is so much to learn about cost segregation) with markets and finance rounding out the day. And I could do it all from my couch.
It was my whole day. The online class was 8 hours. Continuing education credits were offered for CPAs and attorneys, of which I am neither. As an enrolled agent I received no credit for participating in the course. So why did I spend a whole day of my life listening to deep tax issues?
First off, it never felt like a waste of time to me. It was a productive use of a day! I expanded my understanding of cost segregation and the Research & Development Credit, an area I am interested in helping clients with.
Learning is never a waste of time. I have a cute piece of paper on the wall that says I am Smarticus when it comes to taxes. You can wipe your ass with it. It’s just a piece of paper. The only time that piece of paper means anything is when I represent you before the IRS. That’s it! No more.
What clients are interested in is if I can help them. They do not care if I have a fancy piece of paper hanging on the wall. They want to know if I can help. Most people don’t even know what an EA is. (BTW, a CPA is an accounting professional who may or may not focus on tax issues; an attorney is a legal professional who may or may not focus on tax issues; an enrolled agent is a tax professional who may or may not engage in light accounting or bookkeeping issues.)
Learning is the most powerful thing any human being can engage in. Much learning is gained from reading; more from experience. Conferences are places where people can apprentice for a day or three with people with massive experience they are willing to share.
Not all gain is geared toward helping others. Learning helps me in all cases. Sometimes I can share that knowledge in my practice or with readers here; sometimes it is for personal consumption only.
Tuesday I am at it again, except this time it is all for me, me, me. I like me! Google has a one-hour online seminar focusing on improving results and traffic on this blog. No credits offered. The focus is on Google Analytics. In an hour or so Google will help me understand my traffic better so I can get more. Since traffic is a major stroke to my ego it is worth an hour of my life. It also educates me; worth much more than an hour of life.
Well, when somebody wants to help me grow and succeed I am all ears. I’ll find time to attend. It’s that important.
All this learning is neither selfish nor altruistic. Learning is about improving self, but also about sharing skills and experiences. Clients need my experience and skills to serve them. (And yes, serving can be fun. It’s not servitude or slavery. I serve of my own free will. There is a difference.)
After spending Saturday and part of Tuesday in formalized education, I hop on a plane Wednesday for Seattle, where I will share stories at Camp Mustache IV. My newfound knowledge, decades of experience, and finely honed skills will come into play as I serve the attendees of the Camp. It all goes round.
A Valuable Life
Why do so many people who reach financial independence early have a burning desire to write a blog on the subject? The answer is simple. Learning something is worthless until it is shared.
People like to give Mr. Money Mustache BS from time to time. The argument is he is not retired if he does a construction job on the side or writes a blog. The whiny pants don’t get it. Pete writes his blog to share his story and his experiences so others can join him. There is no value in creating a world where you are then locked in solitary confinement because you refuse to share information and experience so others of like mind can join you. None!
Most bloggers make peanuts. If you are doing it for the money I have a surprise for you. Don’t get me wrong, some make large amounts of money. Most do not earn enough to cover their costs, none the less compensation for their time. I wouldn’t be here if it was only money. I expect to do well (don’t we all), but money is not the motivator. Sharing is.
GoCurryCracker has one of the best—if not the best—personal finance/early retirement/financial independence blogs on the net. Here he shares his tax return for 2016. He’s not doing it for the money! And he is at the top of the pile. Sure, MMM earns more, but plenty earn less.
You can trust me when I say this. (Nothing good happens when somebody tells you those words.) I am one of the few tax guys in the genre writing like a Wildman. As a result I get to see (and prepare) a lot of tax returns for said bloggers. I know what they make! And it ain’t pretty. If you don’t love writing, blogging is not a place to earn some easy money.
Life is only worth something when you share it. Dick Proenneke lived alone in the wilderness of Alaska for 30 years. Yet his life only had value when he shared his story by recording his life for Public Television. Millions of people have heard Proenneke’s story and gained powerful insights on how to live life better all because he shared his story. This accountant’s life has been improved immeasurably by his story and life.
What a Waste
Learning can improve your life; teaching improves your life more. The teacher always gets more than the student. You owe it to your family, friends, community, the species, and yourself to learn every day. You are also required by an unwritten code to share this knowledge far and wide. It does not create competition; it creates a vibrant community.
Read widely every day. It is as important and eating, sleeping and breathing. Share. I write a lot on this blog. You are not required to go to such extremes.
You must share to increase your own learning! Never be selfish with your knowledge and experiences. Life is wasted by never engaging; you can also waste your life by learning everything and sharing none of it.
Smart people take every opportunity to learn. True leaders learn at every opportunity. If you want financial independence, if you want early retirement (any retirement at any age for that matter) you must focus your life around learning. And sharing.
Wednesday I get on a plane and head to Seattle and return the favor by teaching some of the most intelligent people walking the Earth. No credit; only lots of learning and fun. Sharing my story with friends new and old. I am Smarticus.
There is an old Looney Tunes cartoon where Daffy Duck is portraying Sherlock Holmes. Daffy is seated at a desk stacked with papers vigorously working the calculator. Porky Pig, portraying Watson, walks in and asks, “Whatever are you doing, Holmes.” “Deducting, my dear Watson. Deducting,” came the frantic reply.
Deductions come in a variety of flavors. We are all familiar with deductions matched with an expense. Donations to charity are deductible on Schedule A. Business owners deduct marketing expenses dollar for dollar.
There is another elusive deduction taxpayers only dream about: the non-cash deduction. The appeal of the non-cash deduction is the large write-off without a matching real world expense. Capitalizing on non-cash deductions can supercharge your retirement or debt reduction plans. The list of non-cash deductions is long. We will explore several ways you can reduce your taxes without spending a penny or taking a deduction significantly higher than the actual expense and stay out of jail in the process.
It’s All Legal
Accountants mentioning non-cash deductions frequently mean things like depreciation. We are not. Depreciation is a non-cash deduction, but it required the full cash investment at some time in the past to achieve the deduction. What we mean here by non-cash deductions are those expenses claimed on a tax return where the deduction allowed is greater than the cash outlay.
The weak of heart sometimes get nervous about these deductions, worried they might not be legal. I assure you they are. The IRS has even codified many of these strategies.
Most non-cash deductions affect business owners and folks with a side gig. Individuals sometimes think they are getting a special deduction when they have non-cash charitable deductions, but once again, there is a greater cash outlay at some time in the past to get the deduction. The exception is donations of highly appreciated assets. Individuals get special tax treatment when they donate artwork, property, stocks, et cetera, to a qualified nonprofit organization. If the asset has increased in value, the non-cash donation fits our description of non-cash deduction for this post. Therefore, your friendly accountant likes it.
Taking Care of Business
Business owners and those with a side gig have ample opportunity to deduct things they never spent money on. A required receipt is not the deciding factor. For example: A receipt is not needed for a meal expense if the expense is under $75. You still need a record of the expense and that makes it deductible, but an actual receipt is unnecessary. That said, you still only deduct the actual cost of the meal unless you are cheating. And there is no reason to be here if you are cheating. We only use legal methods around these parts to lower our tax liability.
Miles: Talking about receipts, mileage is a non-cash deduction worth more than the actual expense unless you are driving a big-ass, gas-guzzling SUV. The 2017 mileage rates for deductions are as follows:
53.5 cents per mile for business miles driven;
17 cents for medical or moving miles; and,
14 cents a mile driven for nonprofit organizations.
A few qualifiers are required. Business miles are straight forward. If you drive for business (or for your employer) you can deduct 53.5 cents per mile. Sole proprietors deduct on Schedule C, landlords on Schedule E and farmers on Schedule F. Employees claim non-reimbursed business miles for an employer on Form 2106 which flows to Schedule A. There are additional limitations on the deduction for individuals.
Business miles can be paid to the employee by the employer even if it is your own company. The employer takes the deduction and the employee does NOT claim the reimbursement.
Medical miles are claimed on Schedule A, but are also allowed for Health Savings Accounts. Schedule A has serious medical deduction limitations. But your employers Health Reimbursement Arrangement might allow the expense, putting additional tax-free cash in your pocket. Medical travel is an allowed distribution from Health Savings Accounts.
Moving miles only apply to those claimed on Form 3903. This means the move must be work related and of a greater distance. A move down the street does not count; a move across country probably does if it is for a new job.
The mileage rate for nonprofit driven miles is smaller, but does add up if you enjoy helping out. Miles driven to church do NOT count, even if you are a Sunday School teacher or an usher. Similar, miles to council meetings are not deductible. What miles ARE deductible? If you drive to church to do maintenance work or repairs. Miles driven to a work site for Habitat for Humanity. Miles driven to a national conference for your church would also count. Only the routine miles probably driven anyway do not count.
Office in the Home: The office in the home for your business, side gig, or even your employer can turn into a nice non-cash deduction. The home office must be regular and exclusive for the business/side gig. That means a spare bedroom used as the office and for nothing else counts; a corner of the living room does not. The home office for an employer must be for the convenience of the employer in addition to the regular and exclusive rule.
I consider the home office a non-cash deduction because you get to deduct something you were spending on anyway. And there is a way for certain taxpayers to get a real non-cash deduction above actual expense too!
For easy figuring we will assume a 1,000 square foot home with a 100 square foot qualified office. In this scenario 10% of the home is office. You use Form 8829 to claim home office expenses. Ten percent of mortgage interest, property taxes, utilities, homeowners insurance, et cetera count toward the home office expense. Additional deductions are allowed for expensed directly related to the home office. Office furniture and office remodeling are fully included in the amount allowed for the home office expense.
A few years ago the IRS offered a simple way to claim the home office by providing a safe harbor or $5 per square foot up to 300 square feet, a $1,500 maximum home office deduction. Your personal circumstances will determine if the safe harbor is a better deal than actual expenses.
The home office is complicated. Daycares, for example have significant additional rules. A short blog post only provides the concept. I have added links where I feel additional reading is required. The links allow this post to remain modest in size while retaining flow. You can research deeper into subjects affecting you.
Meals & Incidental Expenses: Meals and incidental expenses are deductions for businesses and for employees in limited circumstances.
Normally you claim the actual meal expense. But when you are traveling the rules change and for the better in most cases. Rather than keep loads of receipts while traveling, you can use a per diem instead. The per diem is allowed if your travel includes an overnight stay.
There are two methods available when using the per diem instead of actual expenses: High-Low and CONUS/OCONUS rates. The high-low method is easiest. Except for a few high costs areas of the U.S., the meal per diem is $52 with an additional $5 added for incidentals, for a $57 per diem.
If you love keeping perfect records you can use the CONUS (continental U.S.) table for U.S. travel and the OCONUS (outside continental U.S.) rates set by the Department of Defense based on each city traveled to. You can use only one method on your tax return. No cherry picking between methods. You can change the method from a prior year if desired. I included several links so you fully understand this non-cash deduction, including calculators for finding your per diem rate.
This is not a full non-cash deduction, but for people reading blogs like The Wealthy Accountant it is a way to receive a larger deduction than the actual expense. Frugality pays when the IRS has a per diem.
Renting Your Home to Your Business: There was a time I thought I was the only guy doing this. Then reality set in. I was in a continuing education class a few years back when the presenter talked about this. Now I will share it with you.
There is a little section of the Internal Revenue Code which says you don’t claim rental income if you rented the property less than 15 days in the year and you used the property personally at least 15 days per year (IRC Sec. 280A(g).) There is a planning tip in there.
A vacation home can be a powerful tax-free cash generator in these instances. I’ll let you research that subject with the links. What we are talking about today is non-cash deductions and I have a whopper for you.
Business owners frequently have a summer picnic for clients or employees, Christmas parties, et cetera. You can always have the event at the workplace, but it still feels like going to work when it should be a time to unwind from work. You can also rent a banquet hall. Or, better still, have the event at your home!
As an example, assume you decide to have the Christmas party this year at your home rather than at a local hotel or banquet hall. You can do a quick search of rates around town of what it would cost if you did use the outside venue. Now you decide to have the event at your home. Here is what happens:
The cost of the event is still a business expense. Let’s say a reasonable fee for such an event is $1,500 in your area. Your business writes you a check for $1,500 and takes the deduction along with the cost of the food and any other related expense. YOU DO NOT CLAIM THE $1,500 AS INCOME! Since you rented your home less than 15 days during the year you do not claim the rent income, but the business does deduct the expense.
Before you salivate too much, let me remind you reasonable rent is required. You can’t say rent for one day is $20,000 unless you have a mansion and a large enough company to justify such a rent rate. In my business I make a few calls to get an idea of rates around town and use that as my guide. I keep a record in case the IRS comes a knockin’. I want to keep my tax-free income and deduction!
As we finish up I want to make one more point. When I write tax posts I usually get plenty of email telling me I am wrong. I know I am wrong! I can’t possibly include all possibilities so I provide concepts here with plenty of links for deeper research. It also keeps tax posts moving forward at a reasonable clip. (Of course, you are more than welcome to expand on these topics in the comments section below.)
There are plenty a juicy non-cash deductions out there. The ones I included here should give a majority of readers at least one way to line their pocket at IRS expense. Use this as a starting point. Don’t stretch the rules; it isn’t necessary. Follow the rules and you will enjoy the fruits of non-cash tax deduction loopholes.
The best way to learn is by studying the best. Experience has value as long as it also has a foundation in knowledge. Reinventing the wheel again and again is a fool’s errand and not conducive to personal development.
Studying the best takes many forms. Working for someone at the top of their game is the best way to learn, but the opportunities to do so are limited. Formalized education communicates facts without always presenting the best in your selected field. The number one way to learn from the masters is to study them through intense research of their work. The greatest minds are available like never before. YouTube videos of their speeches and books and news articles on their practices give us massive quantities of material to learn from.
Today we will focus on a simple story shared by Charlie Munger, Warren Buffett’s friend and right-hand man at Berkshire Hathaway.
Tell Me a Story
Munger gave a talk to the USC Business School in 1994 where he shared a story Buffett told when lecturing at business schools. Here are the exact words Munger used:
When Warren lectures at business schools, he says, “I could improve your ultimate financial welfare by giving you a ticket with only 20 slots in it so that you had 20 punches—representing all the investments that you got to make in a lifetime. And once you’d punched through the card, you couldn’t make any more investments at all.”
He says, “Under those rules, you’d really think carefully about what you did and you’d be forced to load up on what you’d really thought about. So you’d do so much better.”
Buffett’s story is about more than investing; it’s about life. People buzz around trying to do everything and end up doing poorly in each endeavor. Investors trade stocks like baseball cards; people buy home after home believing they are moving up with each new personal residence; employees keep moving from job to job looking for more . . . ; business owners search for new clients endlessly.
Around here we encourage index fund investing. It’s a perfect way to set it and forget. That counts as one punch on the 20-slot card. I have a mad money account where I invest a small portion of my liquid net worth. The account only has a handful of stocks. By limiting how many companies I own I spend more time researching those companies and evaluating their prospects.
I also make incredibly stupid mistakes and pay the inevitable price for such mental lapses. In the late 80s and 90s I was in a partnership with my dad and brother. We bought real estate. A lot of real estate. By the time we were done we had 176 properties to consume our lives. Actually, my dad and brother were not involved so “I” had 176 properties to consume “my” life. I punched my 20-slot card 176 times!
Lack of focus hurt results. I had properties spread out over a 200 mile radius. Multiple property managers were involved. We had the money so we kept on buying. And selling.
Eventually I experienced burnout. The fun, even the desire for profit on it, was gone. The buying stopped and the selling accelerated until there were no more properties. The partnership was done. Countless hours yielded a good, but not great, return. The lust for more for more’s sake cost dearly. Lesson learned. Kind of.
What could I have done better? The money was there and so were the opportunities. Burnout could have been avoided. If I would have heard Buffett’s advice back then it would have saved me from plenty of pain.
The 20-slot rule applies to more than stock investing. Rather than buy so many single-family homes I should have bought fewer multi-unit properties. I toyed with the idea at the time. I reviewed a serious number of apartment complexes and commercial properties. The numbers were compelling. In many cases the profit potential was higher than anything I could earn with my current mix of investment properties. The reason why I decided to pass on multi-unit buildings was because it would be harder to sell such properties and would likely take longer as well since fewer buyers were in the multi-unit market.
If Munger were standing beside me he would have smacked me up behind the head. I can hear him say, “Idiot. Think like an accountant!”
Warren Buffet says you should buy a stock as if the stock market will be closed for five years. The point again is to focus on the investment and invest for the long haul. I didn’t buy fewer large value buildings because it would be harder to sell them. I acted like real estate should be day-traded. SMACK!
The missed opportunities are only talked about now. My choices when I ran LuK Enterprises cannot be changed. It’s in the history books. At least I learned my lesson. Right?
Thinking like an Accountant
This blog is about teaching people to think like an accountant. You would think an accountant with decades of experience could communicate such a message with clarity. You would also think said accountant would walk the talk. Welcome to my fantasy world.
I share my failures in business (and sometimes in life) because that is where the opportunities to learn exist. Plenty of successes brought me to this place. Bragging about the times I knocked it out of the park would waste both our times.
Sometimes a 20-slot card is too many slots and other times too few. For example: In my practice I have more than 20 clients. Most businesses require more than 20 clients to be viable and to reduce risk. One client should not determine the success of a company.
As my business has grown over the years and with this blog, I find myself saying “no” to new clients more often. My practice is small for a reason. I enjoy the work. Expanding to additional locations would not make me happier. Quite the opposite. More locations and more clients would reduce the relationships I have with my current clients. A thousand clients is too many at times already.
My 20-slot card has only one slot when it comes to marriage. Two slots would be too many for me. Even my dating card had fewer than 20-slots. I dated fewer than five women in my life. Two received more than one date and only one became my wife.
I never understood the idea of dating a large number of people to find Mr. or Mrs. Right. The answer is obvious when speaking with a potential mate before it ever gets to the first date. If the answer is obvious, why invest the time? You are not dating to see if this person is right for you; you are dating for the opportunity for a piece of ass. Be honest. You know it’s true.
There is no guarantee a mate will work out. Divorce happens for a variety of reasons. If a young lady doesn’t fit my vision of a life mate we can still talk and be friends. All the emotional baggage is eliminated before it is ever created.
Most people take whatever comes their way in interpersonal relationships. I am no fan of luck. I actively sought out Mrs. Accountant. I would come to the table with a one-slot card and was darn careful about punching that slot.
None of this guarantees success. Limiting the number of stocks you buy, researching to the nth degree an investment does not guarantee it will work as planned. But you do increase the odds by magnitudes of order it will.
Buffett has owned more than 20 stocks in his life. The 20-slot rule is not hard and fast. It is a metaphor to remind you to spend more time focusing on fewer projects.
Focusing on a narrow group of projects is the only way to maximize profits or pleasure. When I find a good company I keep adding to it. Index funds should be the bulk of more people’s investments. It’s an awesome idea so you can comfortably keep adding to the pile whenever funds are available.
In my practice I add clients selectively. Opening new offices and expanding rapidly might work as long as I accept the greater risks of growing my type of company to such proportions. When there is room I add to an already successful business model. It works and it is profitable.
Even in my marriage I keep adding to the one investment I have made. Having an affair or spreading it around is of no interest to me. There is no doubt I would NOT be happier playing the field or searching for something better.
At the risk of sounding cold, I am not looking for the absolute best stock on the exchange; I’m looking for one I can live with for a lifetime.
My marriage is the same way. I never intended to find the perfect person I would be most compatible with. Heck, she probably lives in Timbuktu. It’s not going to happen. I found someone, Mrs. Accountant, who I knew I could enjoy a lifetime with. No need to punch 8,304 slots on the dating card to come to that conclusion.
Or you can keep chopping your 20-slot card to bits in an attempt to find the ultimate investment or mate. But be warned; you will not be happy with what you get.
Earlier this year Mrs. Accountant and I attended Camp Mustache in Gainesville, Florida. We were offered a ride to the Camp, but we also had several additional days planned around the event. Renting a car in such a situation is expensive since the car would just sit there for days while my wallet was financially abused.
My youngest daughter rolled her eyes when I mentioned I needed the phone number to the Gainesville taxi service. She grabbed my phone and started working on it. This is an unusual event for anyone who knows me. I use my phone as a phone. Period. I don’t care about, nor do I want to know about any of the other things smart phone can do. I make my own breakfast, thank you.
In a few minutes my daughter completed her assault on my virgin phone. She added an app to my phone. (To this day I have no idea what an app is. Whenever the kids talk about apps I joke that we are living on The Planet of the Apps.)
I told her it was nice of her to put an app on my phone, but I’ll never use it. Another eye roll. “Here, dad,” she said pointing to the Uber icon now conveniently located in the middle of my screen. “All you do is touch the icon and tell the phone where you want to go.”
Well, my fingers don’t work well with all the small letters and stuff on a phone so I have made a habit of avoiding the issue. Now I find out I can talk to my phone and it responds. Awesome!
I know, I know. You readers are rolling your eyes like my daughter. This stuff has probably been around for a long time. Somehow I missed it. I refuse to blame my stubbornness on “missing it” even though it is probably the reason why.
The Sickness Spreads
The money I saved by using Uber rather than renting a car was significant. Better still, I didn’t waste time figuring out how to get anywhere in town; the Uber driver did that. I discovered they have apps to. (Welcome to The Planet of the Apps. Sorry, couldn’t help myself.) Once I told my phone where I wanted to go the screen showed me where the car was that would take me there. Who thinks of this stuff?
When the Uber driver arrived he knew where we wanted to go and he had neat stuff on his phone telling him the shortest way to get there.
Okay, I still don’t know how to use apps, but I can touch an icon and speak. The best part is I don’t really have to know where I’m going! This is a more common issue than you might imagine. For example, Mrs. Accountant and I wanted to go to the museum by the college. I told my phone just that and lo and behold the Uber guy took us there. It seems technology has advanced to a level where knuckle dragging Neanderthals can use it. And I have calluses on the back side of my fingers to prove it.
Later this year (October) I will be headed to FinCon in Dallas. This time we used Airbnb for the first time. There are no apps I am aware of for this. The same daughter (the older one might be a slacker) helped me sign up for/rent (whatever you call it) an apartment/room for the time we will be in Dallas for the event. Once again there were savings involved.
Before you laugh too hard at my ignorance, I want to share a story that proves I am not alone. A few years ago I was talking to the sole judge in my county. It was election season and I sometimes get involved in the process in unusual ways. As we talked I mentioned how my business has expanded by magnitudes of order and in profitability by using social media. This happened without expanding the size of the building I operate from.
The judge smiled as he told me he has no clue about social media and look how far he rose in life. Without missing a beat I said, “So you want me to take your job because I’m more qualified?”
I got the dumb look.
I am not alone in my ignorance with large portions of modern technology. Truth is I don’t do social media either. As a businessman I am fully aware the old methods of promoting a business don’t work or work poorly today (i.e. newspapers). I am also aware of the power of social media to spread a message. Rather than spend my days horsing around on Facebook or Twitter (you need to be President of the United States to have time for that foolishness) I hire the work done for me.
Employees seem to be happy to keep my public persona on social media alive and well. When it comes to bigger projects my firm hires third parties to manage the process. I know what I want. Then I hire the people to actually do it. I can be blissfully stupid to the issue while abstaining from ignorance. There is a difference.
Sure, you can be successful without using modern technology tools. The judge is still a judge and I still grow my practice without social media. But the judge is on social media; so am I. The county has professionals plastering the judge’s puss all over the internet and the county’s web page just like I have people doing the same for me in a the business setting.
I don’t encourage stupidity. The judge and I are not your go-to guy for high levels of intelligent IT planning. Heck, it was only a few years ago when somebody explained to me why it was called IT (information technology). It seems I was too caught up in being a top-notch tax guy that I forgot about learning things most people consider common knowledge.
You don’t have to understand surgery to know you might need a surgeon. Without ever placing my hand on a hot stove I instinctively know it would hurt like the devil to do it.
The same applies to many new forms of technology. Ignorance is one thing; stupidity another. Ignorance is refusing to accept the technology as a part of modern life and society. Stupidity is just not understanding how to use it. Time is a factor. So is desire. I don’t want to fondle my phone incessantly as many people do. I have Mrs. Accountant for that. You will never catch me texting and driving because I don’t text. I have kids for that.
Before I come across as a real ignorant fool, understand I use technology more than many people do, including accounting firms. While most people are playing with the latest app, I am hard at work reading about how certain apps and other technology can be used efficiently and productively in a business. It explains why I have one of the highest margins in the industry.
I’m in business to make money. When I am not working the business I want to spend my time with people I care about. Technology is background noise in life when it works and is utilized best. There is no reason to finger your phone so much. Put it down. You will survive. For the first 300,000 years of human existence the species did fine without a smartphone or an app. You can make it fifteen minutes without such a crutch.
This blog is currently under a major redesign. Kevin will bring this blog into the Twenty-First Century. Good thing because I don’t have a clue of how to design and program a web page. I write and hit publish. After that I call in the troops.
Does this mean Kevin will be the only creative design behind the new look out later this summer? In part, yes. But only in part. Kevin and I spent serious time discussing what I wanted. I can see the final product in my mind. The problem is programming it. I have leverage with Kevin. I have the idea, he improves on it, I provide more feedback and then he creates the product. The whole is better/more than the sum of the parts, as it should be.
Not So Dumb After All
The local judge may not understand social media. I hope if he ever presides over a case involving social media he educates himself so he can do his job. It is arrogance to think you understand all the facts when you don’t understand the basics. You can’t trust your own team either. They feed you what they want you to hear and what they think is important. Without knowledge you are at their mercy and less competent.
The same applies to me and my business. I extend outside my sphere of influence when making decisions. Kevin and his awesome talent are the result of my stretching beyond my normal circle. Knowing everything is not the goal! You can’t—and don’t want to—know everything. The greatest skill is learning to use the talents and knowledge of people around you for the greater good. It takes time to hone this ability. Knowing when you need additional input from a qualified expert is more art than science.
If you don’t master this skill you will have the same dumb look the judge had when I asked if he was proposing I take his job.