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Archive for October 2019

Cashing in at Camp Accountant

Camp Accountant is officially in the books and there was money to be made and taxes to be cut.

There were lots of smiling faces and new friends made. It goes to prove you do not have to be a tax professional to enjoy this stuff. (Anything that keeps money in your pocket automatically generates interest.)

Randy Lappla and Chris Dudley were our guest speakers; I talked (and talked and talked and talked) all afternoon. Let’s break down some of the day’s events.

 

Outlining the best retirement plan for you.

Turning Real Estate into a Cash Cow

 

Randy started us out with a powerful program involving real estate. 

There are many ways to build passive income. Real estate can be one of the best when handled properly. Randy showed us how you can supercharge deductions with income property. 

I’ve published on cost segregation studies in the past. Most people’s eyes gloss over when the topic arises, but that is a huge mistake. That is why I invited Randy to speak with the group.

There are several ways cost segregation tax rules can cut your tax bill. First, you can get outsized deductions up front. If you have owned the property a few years you can catch up past deductions in the current year. Second, with a cost segregation study you can deduct more when you improve your property. We even had an example of how a $100,000 new roof can lead to $150,000 in deductions. Legally, I might add! And third, cost segregation sometimes allows for some tax arbitrage. 

The tax code has changed a lot when it comes to real estate. The advantages are becoming so great you might want to consider adding real estate to your investment portfolio. Real estate was always a powerful wealth creation tool. Now you keep more of your gains than ever.

Randy Leppla’s contact information:

randy@rjl-equitysolutions.com

608-852-6772

 

Sharing ideas at TWA world headquarters.

Taking Your Side Hustle to the Next Level

 

After a short break and snack we had a short presentation by Chris and me. What I wanted people to know is when they need to transform their side hustle into a tax savings tool. 

I talked about when you want to switch from a sole proprietorship to an S corporation and the taxes saved. That requires you get paid a wage instead of just drawing any and all earnings.

Chris is a payroll specialist from ADP and provided details on how ADP can help facilitate the options I suggested. If you think this may benefit you, I can help iron out the process. I’ll help you determine what you want to be paid to maximize tax benefits.

Chris Dudley’s contact information:

Christopher.Dudley@adp.com

414-502-9884

 

Nature walk at Camp Accountant.

Fun Stuff

 

After the morning sessions I broke out in song for the group. Or maybe not. (Had you thinking for a moment, didn’t I?)

All work and no play is really bad for the soul so we filled the middle of the day with a pleasant nature walk to The Wealthy Accountant’s tax office. You could not have asked for a better day to walk the Northwoods of Nowhere, Wisconsin. For the record, it has snowed twice in less than a week since Camp. Yes, that would make it a record snow total for the month of October in these parts.

We got bogged down at the office as people asked questions about how I live in my natural habitat. A photo op ensued. 

I shared future plans for the blog and courses soon to be announced. 

We took a shortcut back to Camp for nourishment..

After a long walk and tummies full it was my turn to speak while others slept. (Not a single soul nodded off.)

 

Choosing the Best Retirement Plan for Maximum Tax Benefits and Wealth Accumulation

 

The keynote address was a play on a recently published blog post where I said investing in a traditional retirement account is like taking out a loan. I felt the topic needed deeper discussion.

I started with a word and number play from the book Thinking, Fast and Slow (Amazon affiliate link) to prove how we frequently make poor financial decisions. Once we saw how psychology affected our thinking we were able to see the same mistake/s played out in our retirement plans.

The reason we make financial mistakes is because it seems so simple while it is really complicated.

Where should we put our money first? It was decided the pecking order for investing is as follows:

  • HSA
  • Roth 401(k)
  • Roth IRA
  • Traditional 401(k)
  • Traditional IRA
  • Non-qualified accounts

We gave deferred compensation plans a short hearing, too. 

Then I showed why the ordering is wrong, especially on the last three entries. 

The math proved out, which is always good if you are an accountant. Just as we saw at the beginning of class, we sometimes think “fast” and make the wrong choice. My hope is the room left with a better understanding of when retirement accounts are the right and wrong choice.

 

Wearing an awesome Wealthy Accountant t-shirt in the hot seat (while standing) for Q&A.

Q&A

We ended the day with a Q& A session where attendees could ask anything they wanted about yours truly. 

Tax and money questions soon turned to more personal issues. Folks wanted to know what happen with the Mr. Money Mustache thing. (There really wasn’t much more to add.) People wanted to know why I have distanced myself from the FIRE community. (There wasn’t much more to add to what I have already published.)

I shared several projects I am working on. Then we wrapped it up and called it a day.

I was exhausted. Whew!

 

Housecleaning

 

Many people wanted to attend but could not. All the sessions (and some open mic moments after some sessions) were recorded and placed in a private Facebook group. Attendees get free access. I will be adding several short videos over the next week or so to the Facebook group, providing a short synopsis of each session. (The internet was slow at the venue so video quality is poor. The new videos loaded in the next week or so should remedy that.)

It was decided that anyone could view the sessions, but that would be unfair to those who paid to attend. Therefore, I am granting access to the private Facebook group for $20 for non-attendees. Use the link below. Proceeds go to charity. 




Wealthy Accountant t-shirts.

Finally, I bought extra t-shirts (intentionally). I will use t-shirts as a promotional item in the future with courses offered. Every attendee received a t-shirt. If you can’t wait you can also get an awesome Wealthy Accountant t-shirt for $15 while supplies last. Tax and shipping are included. My total cost for the t-shirts is $9.44. If shipping and sales tax does not bring the cost to $15, the remainder will also go to charity. (The three charities I love to support are: Special Olympics, Bethesda and Doctors Without Borders.)

 


Size

 

I hope all had a good time and learned a lot. This was special for me too. You are all the greatest.

Here is a photo of our alumni.

 

 

Camp Accountant 2019

 

More Wealth Building Resources

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

cost segregation study can reduce taxes $100,000 for income property owners. Here is my review of how cost segregation studies work and how to get one yourself.

Worthy Financial offers a flat 5% on their investment. You can read my review here. 

Financial Horror Stories II

Some are ready for some football. Readers of The Wealthy Accountant blog are ready for some FINANCIAL HORROR STORIES! #Halloween #horror #horrorstories #football #Money #disasters #scarystories #fear #goblinsIt all started innocently enough. Stories were rolling around in my head so I decided to publish financial horror stories from my office for benefit of the readers. It turned out to be one of the most popular posts of the year. People, you see, love a good horror story. And now that Halloween is upon us it is time for another set of financial horror stories. So hide beneath the covers and read this with a flashlight. 

Horror stories are always fun. Everyone loves a good scare. There is a biological reason we need these scary stories so much. It’s because we learn the most when things are worst. Success breeds arrogance. Soon we mistake luck for skill. It is at this point where we get our head handed to us.

Smart people are eager students of the fallen. Over the years I shared many of my personal failures. In the previous “horrors” post I shared a few to make your hair stand on end. Today I will make your blood curdle.

But this time we at least get one good ending.

 

Audit Nightmare

Letters from the IRS scare the bejesus out of taxpayers. Unless you can see a check through the envelope window it is doubtful it is good news.

Office policy is straightforward. When a client comes in with the nasty-gram from the IRS (or state taxing authority) we immediately get a power of attorney (POA). Once the POA is signed we contact the taxing authority to get what they have and determine what they are looking for.

Income tax audits are most feared. However, the real audits that require a fresh Depends are the state sales tax audits. Sales tax has so many moving parts and is so complex it is virtually impossible in many states to avoid running afoul of the rules. Wisconsin is one of those states.

A longtime bar owner client received a special letter from the Wisconsin Department of Revenue (WDOR) for a sales tax audit. Bars are pretty straight forward so I didn’t expect many surprises. 

WDOR loves to visit establishments prior to sending the audit notice. The skunks, ah, I mean very professional and nice auditors gather information for an accurate audit assessment in advance.

Tax audit horror stories. Don't be afraid of the dark; be afraid of the IRS letter. #Halloween #audit #taxaudit #horror #horrorstoriesIn Wisconsin there is a special gambling rule. Bars (and certain other establishments) can have up to 5 slot machines (video gambling machines). Most bars and restaurants in my area use Amusement Devices out of Green Bay. Amusement Devices provides the machines, collects the money and pays out the profit share to the business owner. The business owner does have to report the income and pay sales tax.

Unfortunately, my client somehow ended up with 6 machines. This is really, really bad.

To make it worse, the sixth machine was owned by the bar owner (ahem) and the income was not claimed, nor sales tax paid. 

WDOR had my client by the throat. They threatened to pull his bar license. 

They tallied the damages and penalties. It ended up around $40,000, payable yesterday.

WDOR was not impressed by my POA. My reputation preceded me. The auditors from Madison did not possess a sense of humor. They informed me my client needed to pay the balance due within 30 days or face closure. My client was scared for good reason.

I pulled my client to the side and asked if he could pay at least $28,000. He said if he cleaned everything out he could just make that payment.

I turned back to the auditor (there was actually three big ugly, ah, professionally dressed guys handling the shakedown, I mean audit) and said, “My client is a cash basis taxpayer. He hereby elects to be treated as an accrual basis taxpayer going back to the first year sales tax and penalties are assessed. He will also elect the same on his federal tax returns. The refunds on the federal and state income tax returns will leave approximately $28,000 after refunds. He will pay that amount immediately.”

Were the goons professionals from the state tax office mad! If looks could kill I would not have been identifiable at my funeral. They wanted to make an example out of my client in the worse way and I cut 30% off the top with a single sentence. 

They huffed and puffed, but backed down as they knew they must. (I’m not against filing a court petition if the government steps outside the letter of the law.) They left.

With severe words from me I impressed upon my client to have his payment in the mail TODAY! He did and all went well. He is still a client to this day.

Let me explain what happened under the hood with this financial nightmare with a somewhat happy ending.

Most small businesses are cash basis taxpayers. This means they report income when received and deductions when paid. An accrual basis taxpayer reports income when earned, regardless if received, and expenses when owed, regardless if paid. 

Businesses with an accounts receivable higher than their accounts payable always want to be a cash basis taxpayer. If the payables are higher than the receivables then you want to be an accrual basis taxpayer. 

Taverns are cash and carry businesses. They might have some accounts payable, but rarely do they have any accounts receivable as patrons pay as they drink. As a result, changing from cash to accrual was a non-event, except for this little audit issue going on.

WDOR was so irritated because by changing the accounting method both the tax AND penalties were reduced. I caught them with their fly unzipped and they had no recourse.

This is a one-time trick. Switching to accrual from cash is automatic and IRS (or WDOR) approval is not needed. However, if you want to switch back to cash basis you need permission and really good reason for doing so. Sometimes I can pull a rabbit out of my hat. And sometimes that trick is a one-act show. You go to the well again at your own peril.

For the record, my client has 5, count them, 5 slot machines in his bar, all run by Amusement Devices. I am pleased he was a fast learner.

 

Enough to Make You Sick

It is hard for me to even comprehend this financial horror story. 

In the early 1990s a client who worked as a janitor at a local hospital made two trades in his mutual fund and destroyed almost all of his gains from the preceding 15 years.

This young man was a long-time client. He started investing in Fidelity’s Magellan Fund, managed by the investing legend Peter Lynch.

Lynch managed an impressive 29% average annual return while he managed the Magellan Fund from 1977 to 1990. 

Financial horror stories can teach us lot. Prevent disaster before it strikes. Learn the lessons of those who failed before. #horrorstories #horror #financialhorrorstories #Halloween #scary My client started investing around 1980. When the stock market crashed in 1987 he panicked and sold. Once the market recovered he bought back in. 

I reviewed his decisions with him when I prepared his tax return, encouraging him not to sell when the market sells off. 

In the early 1990s the first Iraq war gave the market a jolt. Once again my client panicked at the market bottom. When the market recovered he felt it was time to buy back in.

Again I reviewed these decisions with my client over his tax return. He should have enjoyed at 20+% average annual return (if he did nothing), but because he sold twice in a panic his return averaged just over 2% per year on average. Money market accounts at that time did better. 

I did my best to deliver the news (and lesson) with gentle hands. But I must have been too harsh. The client never returned.

To this day I remember vividly the actions of this client. It has always been a reminder to never time the market. And never get scared out of a market when it declines, especially if you are in broad-based index funds (or even actively managed mutual funds). 

A stellar performance was turned into a return worse than money markets produced back then. The lesson always stayed with me: two simple mistakes over 15 years can wipe out decades of wealth. 

I lost a client and gained a valuable lesson. I had to try to help my client; it was my duty. The client left. That was his choice. I made more money from the lesson he provided than my business has produced in profits since that time. The lesson is that powerful.

 

No Horsing Around

This financial horror story will be told in videos. I’ll give some details, but the videos give more details.

It is possible to commit no mistake and still suffer from a financial horror story as the story of Rita Crundwell shows. 

Here is the trailer to the documentary of her embezzlement:

 

 

Crundwell was the treasurer and controller of the small town of Dixon, Illinois. Over 22 years she embezzled around $53.7 million. She used the money for her horse business.

The damage was extensive as the link in the above paragraph shows. Services were cut, wages froze, budgets cut. Money was borrowed to cover the budget shortfall. All this will be paid, plus interest, by the people of Dixon regardless the fact they are innocent victims. The damage will last far longer than the 22 years the embezzling took place. 

A major accounting firms signed off on the municipalities finances. Taxpayer protections were nowhere to be found. Never feel comfortable. Hold your government accountable. (Yes, I take affirmative action in my townships finances. We also have a really big nest egg, too. You can do this by reviewing the published financial reports and calling out inconsistencies.)

Some money was recovered as this video shows:

 

 

All the Queen’s Horses is a fascinating documentary covering the story in detail. You can purchase the documentary from Amazon (affiliate link) or borrow from your library. 

Rita Crundwell may have pulled off the largest municipal fraud in history. Local residents didn’t even know it was possible to misappropriate that much from such a small community. The fine people of Dixon will pay for Crundwell’s crime for a very long time.

 

Financial horror stories come in all flavors. It can be as simple as one or two foolish market timing trades over a decade or an attempt to pull a fast one on the government and getting audited. Some are hard to avoid. When a local government suffers a loss the whole community pays the price.

In the case of Crundwell the warning signs were there, yet nobody took notice for two decades. Even those close to the situation didn’t notice until the very end things had gone so wrong. You might be in a position to protect your community. Do not abscond your duties.

Breaking the law never ends well as we saw with our bar owner. Audits are a pain. Giving the government ammunition to disrupt or even destroy your life’s work and finances is insane.

 

Stephen King has made a career out of scaring people. It is all fun and games until someone pokes an eye out. Learn the lessons from those who made poor financial decisions and lost. Don’t let their horror story become your reality.

Happy Halloween. Spend, save and invest safe.

 

 

More Wealth Building Resources

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

cost segregation study can reduce taxes $100,000 for income property owners. Here is my review of how cost segregation studies work and how to get one yourself.

Worthy Financial offers a flat 5% on their investment. You can read my review here. 

Should We Soak the Rich Into Oblivion?

In 1971 the band Ten Years After released their only hit, I’d Love to Change the World. The song was a protest of the Vietnam War, but also a lament on all the ills that had befallen society. 

Many took exception to the lyrics:

Tax the rich, feed the poor

‘Til there are no rich no more?

As we head into another presidential election season here in the states we are hearing more about taxes. While rhetoric about taxing the rich more is fun, it misses the point. Tax rates don’t cause social ills.

I don’t know anyone against feeding the poor. People of faith and of high ethical and moral fiber consider it a duty to help those in need. Feeding the hungry is good policy.

But will taxing the rich into oblivion actual end hunger? History says no! 

Bernie Sanders (I promise this is not a political post) has gone on the record as saying a wealth tax should be instituted until there are no more billionaires. Now I think Bernie Sanders is a heck of a nice guy and I like him, but he is wrong on this. By a natural extension, if the very rich should be extinct, should not rich nations be similarly penalized until there are no more rich nations? We’ve tried that before. It’s called communism and it did not work!

The refrain of our song in question continues:

I’d love to change the world

But I don’t know what to do

So I leave it up to you.

I accept that challenge. 

In this article we will discuss what the correct level of tax is to maximize government revenue without harming the economy, cutting government spending and the wealth tax proposed by several presidential candidates.

 

Laffer Curve

The Laffer Curve estimating maximum government revenue at 70% , as estimated by Trabant and Uhlig in 2017.

The Laffer Curve is named after Arthur Laffer who popularized the idea that levels of taxation and government revenues are interconnected. The idea is that anytime tax rates deviate from this optimal level government revenues will be negatively affected.

The top tax bracket has been declining in the U.S. since the early 1980s based upon the promise from the Laffer curve. 

The Laffer Curve is simple to graph and explain. It makes sense. If you lower taxes the spur to economic growth can actually increase government revenue. It’s almost like people advocating tax cuts want the government to collect more taxes! 

Another easy to understand part is when taxes are at the extremes. A tax rate of 0% obviously raised no revenue for the government. The is true of a 100% tax rate. After the first year there is nothing left to tax.

In the early 1920s the top tax bracket stood at 73% in the U.S. Then Secretary of the Treasury Andrew Mellon made the argument the high tax rates were harming economic growth and that lowering tax rates could actually increase government revenue. It wasn’t call the Laffer Curve back then (Art Laffer was still in the future). But the theory was the same.

Art Laffer has been discredited recently with alarming failures of his principle. He pushed states to lower taxes under the guise it would actually increase government receipts. Instead the state governments ran massive budget deficits and had to cut critical services, gut education and layoff teachers and increase taxes.

The Tax Cuts and Jobs Act of 2017 offered the same promise. A massive tax cut was passed by Congress and signed by the president. But government receipts barely moved. As spending increased the budget deficit exploded and now hovers around $1 trillion per year while the economic expansion is now at record length. Should there be a national crisis there could be problems. Funding a recovery from a natural disaster or military event will be more difficult if even possible, not to speak of necessary government stimulus needed during an economic slowdown.

Top historical tax bracket in the U.S. Source: https://bradfordtaxinstitute.com/Free_Resources/Federal-Income-Tax-Rates.aspx

 

The Right Level of Tax

Nobody wants to hear they need to pay higher taxes. I certainly enjoy a lower tax rate and work hard to help my clients pay the least tax possible legally. 

However, there is a problem. Lowering taxes no longer increases government revenue. Corporate tax revenue declined nearly a third  after the Tax Cuts and Jobs Act of 2017. 

I disagree with Mathias Trabandt and Harald Uhlig (see graph above). A 70% top income tax rate seems excessive to this old accountant’s eyes. 

Source: https://www.cbo.gov/about/products/budget-economic-data#2

As you can see from the above chart, personal income taxes receipts grew at about the nominal rate of GDP growth. Corporate taxes declined massively.

Some would argue corporate taxes are paid by people anyway so the lower rates helps everyone. But that begs two questions.

First, shouldn’t tax cuts increase government revenue as promised by the Laffer Curve? Individual tax collections increased about the same amount as corporate collections decreased. So the expected increase in revenue didn’t materialize and the added government spending blew a hole in the budget.

Second, if corporations are “persons” in the eyes of the law, as we are told every time a corporation want to make a political contribution, shouldn’t they be taxed as like every other person? Asking for a friend.

The truth is we have focused too much on the Laffer Curve. Most people never pay taxes at the highest rate. The level of taxes everyone else pays also plays a role. The top bracket also contains at least two lies. Taxpayers with earned income are slapped with an additional payroll tax (Social Security and Medicare tax, aka FICA or self-employment tax). Wages up to $132,900 in 2019 are hit with a 6.2% tax (double that for the self-employed) for Social Security. Medicare adds another 1.45% (double again to the self employed) on all wages and self-employment income. (Additional Medicare taxes can also apply in some instances for higher incomers.)

The point here is lower taxes will not solve the government’s budget problems. We need to cut spending if we are ever to gain sanity in Washington.

I don’t know the exact “right” level of tax. The “right” level is not always the level we should tax people at either. Milking taxpayers for maximum tax payments seems a bit obtuse to me. Less tax creates the opportunity for more wealth. That is good for any nation in the long run. In the short run, too.

 

Cutting Government Spending

Whenever I make a suggestion on government tax policy I always get a comment (many comments actually) about cutting government spending. This is where I’m glad I can sit in my easy chair and a mutter endlessly, “Lower Taxes. Lower Taxes. Lower taxes.”

Fixing government spending is easy to say and near impossible to accomplish. Social Security, Medicare, the military and interest on the debt consume virtually all federal government receipts! If we cut everything else to zero we still have a problem. 

The 2018 federal budget: outlays and revenues Source: https://www.cbo.gov/system/files/2019-06/55342-2018-budget.pdf

When the government has $1.4 trillion in discretionary spending and a $1 trillion budget deficit you need to cut more than just a bit of fat; you need a cleaver to sever arms and legs of government spending. Thank God I’m not an elected official who really has to figure this out before it is too late. 

Do we cut one of the Big 4?

We could cut Social Security and Medicare, but the government also collects a load of tax revenue from this source so this one is a non-starter unless you think we should keep collecting the tax while refusing to pay the benefits. Some fat can be trimmed here, but the pickings are slim. Not enough to make a large dent in the budget deficit.

We could default on the debt to save interest, but good luck ever borrowing money again at a reasonable rate. The next recession or military conflict we would be on our own.

And talking about the military. . .  Maybe a bit could be trimmed from national defense. There might be real savings if the military cut waste. But that is an ongoing battle that is never won. We need a strong military so meaningful cuts here will be difficult.

What remain are the discretionary items. So what do we cut here. We only need $1 trillion of reductions.

How about the TSA? Transportation? Agriculture? Maybe we can reduce infrastructure. The roads are pretty good. Right? 

If you are like me you can find waste to cut. Also like me, I bet you struggle with finding $1 trillion in cuts.

So if we are ever to balance the federal budget we are back to taxes; our favorite hated topic.

 

Wealth Tax

And this is where we came in. Bernie Sanders wants to tax the rich ’til there are no rich no more. Elizabeth Warren also advocates a wealth tax, albeit a smaller rate.

If we can’t tax income anymore then a wealth tax might be a reasonable suggestion. Sanders wants an 8% annual wealth tax. I feel the acid rising in my throat every time I hear this.

Warren has a smaller wealth tax. She also has a “Medicare for All” plan. In a few weeks I’ll be discussing a workable “Medicare for All” plan that actually cuts taxes while covering everyone if that is what people want. Stay tuned. You will like my solution to America’s health crisis. 

In either case a wealth tax is levied on the wealthy (not income, but actual wealth/net worth). I do have a problem with the wealth tax, however. 

Let’s use The Sanders plan because it illustrates the negative consequences easier. An 8% wealth tax would be paid by those with say $50 million or more in net worth. You can go to a billion net worth if you want; the problem is the same.

The assumption of a wealth tax is that rich people only do stupid or irritating stuff with their money and don’t deserve it.  I mean, thing about it. Elon Musk is building new businesses and technologies with his billions. How rude. Those created jobs are not worth it if we as a society must look at a billionaire like Musk.

Yes, I’m being facetious. That is the point. How can Musk create the technologies of tomorrow that will benefit the nation and environment, create jobs, and provide better products without the resources to do so? I don’t know if anyone has noticed, but it takes serious cash to start an electric car company, solar company and a space travel company. Without the super rich these dreams would go unfilled along with all the jobs.

I’m not saying a wealth tax is wrong or off the table. I’m saying treating a wealth tax like a punishment for being stupid enough to believe in the American Dream is really, really bad policy. 

Have you ever read the stories (or saw the documentaries) on how some of these super rich got rich? Bill Gates worked non-stop at Microsoft for decades. He licked Tang out of his hand while working. Yes, without the water! Just so he could stay at his computer a few minutes more writing code. 

Steve Jobs was tireless in his pursuit of creating excellent products. Jeff Bezos is still busting tail at Amazon changing the world. The stories go on endless. A few inherited their wealth. Most busted their tail growing a business. They gave up their life to create something magnificent. And they got really rich along the way. So what did they do? Started yet another company to provide us with still better goods and services. 

Musk built his fortune from his share of ownership in PayPal. That sale funded Tesla and all the rest. A wealth tax would take Musk and Tesla out. You can either tax the rich ’til there are no rich no more or you can have environmentally friendly products like solar power and electric cars. Not to mention the leaps made in battery storage technology. Last I checked the folks supporting the wealth tax guys are also concerned about the environment. You can’t have both. You choose.

 

Once again I thank God it isn’t my job to fix the budget mess in Washington. I do not like the idea of higher taxes. No matter what solution is used there will be many unhappy faces in the crowd. If nothing is done the problem will continue to spiral out of control until a government collapse. Then we will cut spending while taxes skyrocket; the worst of all worlds.

From a historical standpoint income taxes are low in the U.S. That doesn’t mean taxes should be meaningfully higher. In the 1990s we balanced the budget in Washington. Perhaps that was the point where we maxed out the Laffer Curve. 

Who knows for sure? It was a different world back then. The internet was in its infancy and promising the world. The dotcom bubble filled government coffers. Fears of Y2K (remember that?) spiked business spending. The stock market kept Washington flush with cash. Today is a different world.

I laid out the issue. I leave it to you, kind readers, to decide the best course. A lively debate in the comments is my dream. Politicians read this blog and if we can come up with workable solutions, maybe, just maybe, we can make a difference while keeping the American Dream alive.

 

 

 

More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

cost segregation study can reduce taxes $100,000 for income property owners. Here is my review of how cost segregation studies work and how to get one yourself.

Worthy Financial offers a flat 5% on their investment. You can read my review here. 

Finding Solitude in a Life of Success

End stress the way successful people do. Find solitude in the chaos of life. Reduce debt and achieve financial freedom without stress. Find solitude, stillness. #stress #stressedout #successfulpeople #success #stillness #solitudeIt’s hard to miss the train of articles flowing through the news feeds of some young person retiring after paying off a pile of debt or a gazillion dollars in student loans. 

Personal finance has turned into early retirement, world travel and extreme frugality. These things are not always compatible. Putting these goals into hyper-drive can lead to serious levels of stress. And when debt is more stubborn than indicated by the news feeds it can play with the mind.

Life is fast paced as it is. Increasing the pressure in the pressure cooker of life can have negative health consequences. We run faster and deny ourselves more in an attempt to pay down debt and reach financial independence at a young ago. The FIRE community promotes this more than any other group.

None of these things are wrong in and of themselves. Paying off debt is always a good idea and student loans are especially toxic. I understand why people want to unload the burden of debt. A future of 30 years digging out from student loans is not motivating.

Digging in for the long slog messes with the mind. Getting rid of clutter and every discretionary expense is a serious burden in Western societies where affluence is everywhere. The mind wanders to the horizon looking for a way out. World travel is very appealing and certainly beats the daily grind required to achieve lofty goals set by personal finance bloggers. 

The worst part about this is “others” setting your goals. Mr. Money Mustache (MMM) retired at 30 and the bar is now set at that level.*  I remind you that was his goal and he started early enough to accomplish it. Don’t be Pete (Mr. MMM)! Don’t be any blogger or personality! Be you.

Keeping your thoughts straight and your goals reasonable is hard. And once again my favorite author, Ryan Holiday, has delivered an important package to accomplish your goals while retaining sanity. 

 

Stillness is the Key

Holiday’s latest book hit the bookstore shelves October 1st. By October 2nd I had devoured the entire text. 

Stillness is the Key (affiliate link) is Holiday’s finest work to-date. For some reason the guy keeps getting better and better. 

Ryan Holiday is about as far outside the FIRE and personal finance communities as you can get, yet he delivers a message that sounds mighty familiar to the crowd this blog runs in.

This post is a review of Holiday’s latest; it is also a message on how to live a better life.

Life is filled with stress. Since I’m one of the few in the FIRE and PF communities taking consulting sessions I get to hear a lot of stories first hand. People have real challenges and they hurt, deep inside. They want so badly to unyoke themselves from student loans and debt. So badly want to reach financial independence so they can pursue their dreams. The ones feeling wanderlust to travel the world are the minority. So many want to start a business or explore their creativity. They have beautiful minds.

Ryan Holiday has always been a fan of slowing down and experiencing life. It is a lesson this author struggles to learn (or at least heed). In Stillness Holiday gives us 34 stories to motivate us to stillness, that peaceful calm where we are content. 

The stories resonate. Readers of this blog and others in the FIRE and PF genres are familiar with advice on “Enough”, “Beware Desire”, “Get Rid of Your Stuff”. We are attracted to minimalism. Stuff is the beginning of suffering because we know:

We don’t own stuff; stuff owns us.

Where this blog has stopped short Holiday has pushed forward. Learning to “Say No” is a good first step and one this accountant struggles with. Our lusts are not always stuff. But you can’t help anyone else unless you first take care of yourself. That is why airlines warn you to put on your mask before helping your child in the event of an emergency. It works that way in all areas of life.

 

Highlights From the Book

I hope a few highlights will whet your appetite for this incredible book. Once you are done with this post I hope you run to your library to check out a copy or pick up your own copy from the bookstore or Amazon. 

The whole point of this book is to get you to slow down and enjoy life. Stillness is the Key has three sections: Mind, Spirit, Body. For a full, satisfying life you need to attend to all three.

Find peace and quiet in a stressful world. #stress #peace #quiet #stillness #success #stressedout #stressed #stressIn these pages you will see how Churchill kept his poise while fighting against bad odds in World War II. We pay a visit to Tiger Woods as he hones his craft to be the best his sport ever saw, followed by a humiliating and public collapse; as Tiger Woods works to bring his life back with the cameras always rolling.

We also visit President Kennedy during the Cuban Missile Crisis when the whole world was at stake. Is there something we can learn from a leader during this time of ultimate challenge and risk? It is doubtful anyone reading this will ever make a decision of such importance. Yet Kennedy found a place of quietness, solitude and stillness during the crisis. It may have saved the world. We can learn from that.

Ryan Holiday is cautious with his time. He practices what he preaches. It shows. His work is not rushed. The writing tight and concise. He feels no need to puff up the size of the book. Tell and show what needs telling and showing and move on. 

Are you tired? I know I am. Often. Ryan Holiday suggests we get some sleep. The advice sounds so simple, yet so many don’t listen. Holiday shares the fall of American Apparel. He had a front row seat in the demise of this once popular brand. It was American made clothing that actually sold! But for a variety of reasons the company failed. I’ll allow Holiday to explain how lack of sleep destroyed this once great company, along with all those jobs:

When Dov Charney founded American Apparel, he had the notion that he would be a completely accessible boss. As the company grew from a dorm room operation to a global retailer and one of the largest garment manufacturers in the world, he stuck to that. In fact, his ego swelled at the idea of being at the center of every part of the business.

This “ego” Holiday speaks of we are all subject to. It is the reason we have a difficult time saying”no”. (I’m notorious at saying no, but getting better. Holiday has been a powerful guide in helping me limit demands on my time so I can focus on the important stuff.) We think we are so all-mighty important. And yes, there is a chapter on dealing with your ego.

The issues at American Apparel got worse as the company grew. Charney was under tremendous time constraints due to his always open-door policy. Ryan Holiday advised Dov Charney at the time to no avail. Again we listen to Holiday:

It was this extreme, cumulative sleep deprivation that was the root of so much of the company’s catastrophic failure. How could it not be? Research has shown that as we approach twenty or so hours without sleep, we are as cognitively impaired as a drunk person. Our brains respond more slowly and our judgement is significantly impaired.

 

Think Week

There are too many topics from the book to cover in a short blog post. An important one I heard before I want do want to share. 

Bill Gates, the founder of Microsoft, has what he calls a “think week”. A few times a year he removes himself from all the distractions of life to read and think. Gates has this place in the woods where he brings a load of books and his thoughts. 

Gates spends almost all of think week deep in thought and reading material applicable to the challenge he is working on. This is not a vacation. This is hard work digging through the issues of a problem. He only takes time off for a walk and sometimes to play bridge for a short while.

At the end of his “think week” Gates is recharged and energized. The quiet time, while technically work, recharges his batteries. He now has a well thought out plan to deal with the problem he retired to his cabin in the woods to solve.

Neither you nor I need to rise to the level of Bill Gates to find value in a think week. I find myself over scheduling (something Ryan Holiday warns against often in his writings); struggle with saying no. When life is packed so full there is no time to think problems through. If Dov Charney could have learned to turn off sometimes American Apparel might still be a brand we talk about.

I’ve committed to my own think week. As Gates, I will stowaway to a place of quiet and solitude to immerse myself in deep thought. Twice a year is a good number of think weeks. If you notice I stop posting on social media and a blog post is suddenly missed or late you will know what happened.

Gates has enough money to have the kind of “think week” he wants. You and I are more economically challenged. I suggest a quiet hotel in some out of the way small town as a good possibility. On the way to a conference this past spring I took four extra days to sit in a hotel in southern Indiana. I read and thought. Each day I took a walk to clear the mind. It was refreshing.

Think week needs to be alone time. That may not be possible for you. Money might be tight. A hotel or cottage might not be in the budget. Is their a spare bedroom in your home or apartment? Basement? Attic? Maybe you need a friend with a spare room to let you bow out of life for a week to refocus your efforts. Be creative. This is important.

 

Final Sale

This is my final chance to make the sale. I have to do it because it is so important. Because you will benefit so much from this information.

Here is a quick rundown of a few more topics covered:

Stillness is the Key to a life a happiness and contentment. Shut out the noise of modern living and enjoy the stillness of true happiness. #happy #happiness #RyanHoliday #stillness #peace #solitude #quiet #stress #stressedoutFind stillness (quiet, solitude, rest) by being present. Live in the moment. Slow down enough to know what the moment is, experience it.

Limit your inputs! Radio, TV, and social media in moderate doses only. We hear this all the time on personal finance blogs. We hear it so often because it is important. Learn to tune out the noise.

Slow down, think deeply, empty your mind. Cultivate silence. Learn to enjoy solitude. In the quietness we discover who we really are.

Seek wisdom. Start a journal. Avoid ego. And most of all, let go. Let go of all the things hurting you or holding you back. These roadblocks become apparent in the stillness. 

Choose a virtuous life. Beware desire as this is the path to pain and suffering. Bathe in beauty. Experience the gift of life and all the wondrous things around you. You can travel the world sitting still in one spot. 

Conquer your anger, hate and thoughts of revenge. Accept a higher power. Cultivate relationships that are nurturing. 

Take a walk every day. You will enjoy this chapter. It is so important to step away and collect your thoughts daily. A casual walk does magic. 

Build a routine. Seek solitude. Find a hobby. Routine provides framework to your life. Once again we use the word solitude. It is an important word to remember. A hobby allows your mind to expand and think while you create. What a wonderful gift!

Finally, act bravely. In the stillness you will find courage; in the stillness you will find meaning. 

I highly recommend reading Stillness is the Key. It is well worth the investment of your time and money. It is a book you will return to often for guidance. 

Now close your eyes and feel the silence, the stillness, the solitude, the freedom from stress. 

 

 

* About 20% of my consulting sessions come from people following the FIRE community and feeling like a failure because they are approaching 40 and haven’t retired yet. Even had a few struggling emotionally in their late 20s as they realize they will not be retired or financially independent by their 30th birthday.

 

 

More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

cost segregation study can reduce taxes $100,000 for income property owners. Here is my review of how cost segregation studies work and how to get one yourself.

Worthy Financial offers a flat 5% on their investment. You can read my review here. 

Reading Financial Statements for Profit

How to give a powerful speech or presentation. Move the crowd. Create engagement and interest. Get more sales. Turn your speaking gig into profits. #speech #sales #motivation #engagement #presentation #speaking #publicspeaking #profitLast Monday I attended a one day seminar on Reading Financial Statements. While I am not a CPA, I am an enrolled agent (tax professional). Working in business my entire adult life in the tax field means I have a working knowledge of financial statements. I also took accounting, business and economics courses in college.

Having a strong background does not always mean you are good at it. Sometimes we fall into bad habits or forget some of the more esoteric details of the craft. My hope was to learn at least one new insight into reviewing financial statements that would give me a better or clearer view of the report.  

Financial statements are the lifeblood of business and investing. Running an efficient company requires solid recordkeeping and the ability to understand what basic financial reports tell us. Without a firm understanding of the financial reports you are guessing when making important decisions in your company. 

The same applies to investing. Warren Buffett said that accounting is the most important class he took in college. Buffett feels business classes are important, but accounting gives you the knowledge you need to run virtually any business. A firm understanding of financial reports means you understand details about the firm. You don’t need a world class business school to acquire a firm grasp of accounting. A local tech school or extension college is just as valuable.

Even in personal finance financial reports are important. If you don’t understand your own financial condition (the balance sheet) you are at risk or serious financial error and loss. The same can be said if you don’t understand where the money is all going (cash flow statement). Tracking your income and expenses (income statement) is a powerful tool for building wealth. Guessing is not a substitute for knowledge when money is involved.

 

Train Wreck

Last Monday promised to be a day of review with a few additional insights. The promise took a left turn quickly.

I was the first to arrive at the class. (I am like that; teacher’s pet, showing up early.) About 20 students filled the room. Kimberly, a fine young lady from Florida, was our instructor.

From the beginning she looked nervous. I was quiet, yet attentive as she struggled to deliver the message. 

A small class of 20 student should not shake a speaker. At first I thought she might have personal issues or feel ill. 

Then she interspersed light comedy pieces between sections. They didn’t match the curriculum and were very out of place.

 She decided not to follow the workbook, instead, using a PowerPoint of her own design as her teaching tool. 

There were several glaring errors. At one point she had the accounting equation on the screen and proceeded to  explain how the equation worked on the balance sheet. This is what her slide showed:

Asset=Liabilities-Owner’s Equity

Can you see the problem? The formula is really:

Assets=Liabilities+Owner’s Equity

Some people call Owner’s Equity Capital or just Equity. The point is that liabilities and equity are added, not subtracted, to equal assets.

Kimberly went on to explain why her equation was how accounting worked. Nothing added up. Something was very wrong!

I bit my tongue. It isn’t my place to embarrass her. However, it did bother me the other students were getting bad information. Some of the other students were drinking it in because they really didn’t know the right answer.

 

Some Education is Better than None

By mid-morning it was painfully obvious Kimberly was in over her head. Situations like the formula above and statements like, “accounts payable should never exceed accounts receivable” were blatantly false. 

The course provider (name withheld to protect the innocent) had a workbook we did not use. By going off on her own PowerPoint Kimberly was reinventing the wheel. I still has not put the pieces together as to what was really wrong with our speaker. She has 17 years experience in bookkeeping. You don’t survive that long (and get hired to teach a course) if you are that bad at it.

The few questions asked by the class I answered. To help the group move in a more appropriate (and hopefully more accurate) direction I asked a few questions and guided the responses. I decided to gently mention accounts payable (AP) can, and in many instances should, be higher than accounts receivable (AR).

It was time to drop a golden nugget to return interest to the class. I went back to an earlier discussion on cash versus accrual accounting and asked: When should a small business use accrual accounting instead of cash accounting?

The room looked like a herd of deer in the headlights. Small businesses can use cash accounting for taxes by default. You can elect to use accrual if you choose. (The upcoming Halloween post on  Financial Horror Stories II includes a story where a client made a big time mistake I fixed by understanding why accrual accounting can be a powerful tool. Be sure read it.) 

Most small businesses have an accounts receivable. Not all, but a large percentage do. If your receivables are larger than payables you want to remain on cash accounting, especially for taxes. However, if your AP tend to always be larger than your AR you will want to consider accrual accounting. 

The reason for this is clear. If AR are larger you don’t want to pay tax on money not yet received so cash accounting is better. If AP is larger you can deduct the expense before it is paid under accrual. 

With this it was time for lunch (fifteen minutes early). Thank God.

 

Time for a Break

Kimberly did not join us for lunch. As some of the students ate together we talked. One student was a retired CPA from a large CPA firm. He was not happy.

I admit I expressed concerns over lunch. It is my policy to never denigrate another person pouring out their soul to a group. I am by no means always innocent myself. In this instance I was reasonably true to my policy, and as will soon become clear, I am glad I was.

A third of the class never returned from lunch. Kimberly looked worse than in the morning. 

From what I gathered, she ran out of material in the morning.

The afternoon session was worse than the morning. We returned from lunch at 1:00 and by 1:30 it was getting ugly. The material was all over the map and did not make sense. Most was a glossing over of the morning material. 

Either I had to take action or the class would be over on the spot.  

I interjected, “I read the workbook over the weekend and would like to review some of the material there.” 

Everyone, including Kimberly, was happy for me to provide some direction. 

“On page 32 of the workbook there is an income statement. What is wrong with it?”

A good discussion on fraud prevention ensued. In a short period of time I was able to pry from the financial statements many details of the company presented.

What glaring problem do you see with this balance sheet?

What glaring problem do you see with this balance sheet? I’ll answer in the comments in a few days after publication. Hint: The company is in trouble.

I will not give a play-by-play of the remainder of the afternoon. What I will say is the discussion picked up and for the few that remained for the afternoon we had a good discussion with value.

Class ended early.

 

The End was the Beginning

When the curtain came down the remaining students left. Many grabbed my card (I didn’t bring my business card so I handed out my card for this blog).

The first to arrive I was to be the last to walk out with another student, a retired teacher.

Kimberly walked behind us and said, “Thank you for asking questions and moving the class forward.”

I replied it was no problem. I mentioned I could tell something was wrong.

“This is my first class,” Kimberly said. She was nearly in tears. It was a long, hard day for her.

The pieces all fell into place. 

“I can’t understand what went wrong,” Kimberly continued. “I spent two weeks planning this class and practiced.”

The school teacher and I stayed for about an hour helping Kimberly improve her game and good thing. Kimberly was headed back to Illinois for two more presentations of the same program before heading home. The reviews from today’s class were brutal. If she didn’t make a comeback she was at serious risk of losing her job.

I recommended she dump the PowerPoint. The school teacher said she might want to use a meme.

I gave an example of how I would conduct the class: Use the workbook, ask students questions, get the students thinking. Tell stories. Engage the class. Find the reason they came and work it. 

Kimberly recorded some of my remarks on her phone for review as she drove back to Illinois. She wanted to listen to it again and again. In less than an hour I outlined how I would conduct the class. It would be impossible to finish it all in a day. That makes for a good, fast-paced class.

Mostly, I told Kimberly, she needed to have confidence. She has almost 20 years experience as a bookkeeper. Yes, she is not a CPA, but she is very familiar with financial statements. There is plenty of material to engage and peak the interest of any group. Focus on what is relevant to the attendees. Each presentation, as a result, will be slightly different.

Kimberly looked very tired when we left. She also looked like she had hope. The company had a workbook with plenty of material to easily fill a day. Mixing in personal stories would keep the group awake and engaged. 

 

For the Sake of One

I made it clear to Kimberly she had nothing to lose. It is unlikely she will ever see any of these students again in her life. Just give the best darn presentation you possibly can, I suggested. Give a piece of you. Make it real. Go in with the goal of helping everyone present learn at least one new thing this day.

The knowledge doesn’t have to come from you, I continued. You would be surprised how often the best insights come from other students as they ask questions and debate answers. 

As I said to Kimberly, it is unlikely we will ever cross paths again. There is nothing to lose. Nothing to be embarrassed about. This was not about personal gain; it was about paying-it-forward. It is the only thing that gives life meaning; helping others find meaning in their’s.

Kimberly did not contact me afterwards. I have no idea how it turned out in the Illinois classes. 

Steve Jobs asked John Sculley if he wanted to change the world. Well, I haven’t changed the world at the level of Steve Jobs.

But I may have changed the world for one. And it was worth the effort.

 

 

More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

cost segregation study can reduce taxes $100,000 for income property owners. Here is my review of how cost segregation studies work and how to get one yourself.

Worthy Financial offers a flat 5% on their investment. You can read my review here.