Posts by Keith Taxguy

$20 Million “Change the World” Giveaway

This blog post is part of the 4th Annual Suicide Prevention & Awareness Month blog tour*. If you are feeling suicidal, please call the National Suicide Prevention Lifeline at 1-800-273-8255 or text HOME to 741741.

 

Eliminate old debt problems with this $20 million giveaway. Stop debt collectors in their path. No more annoying calls and harassment. #debt #giveaway #debtreduction  #debtcollectors #reducedebt #debtproblems #suicide #helpSeptember is National Suicide Prevention Month. Each of the last three years I participated in a Suicide Prevention & Awareness blog tour. Last year I published on the tragic story of a young woman who changed her life forever in an attempted suicide gone wrong. I pointed out how this is important even for the FIRE community, a group of people that accumulates wealth and avoids debt.

In 2016 I shared my personal struggle with depression and seasonal affective disorder (SAD)

Two years ago, in 2017, I outlined how I got into the hedge fund industry buying charged-off receivables. And that is where our story begins today.

 

Trouble in Paradise

Money problems are a leading cause of suicide. Debt is usually the culprit, but medical bills also play a meaningful role.

You can read the 2017 article for more details, but the short story is I got into the debt buying business many years ago. When I bought a package of debt I ran a LexisNexis report to screen the accounts. 

Debt was parsed into categories and then sent to collection agencies and law firms. Most of these firms worked within the law, but some were fired when it was discovered they used inappropriate tactics to collect. 

Each file would have a LexisNexis report pulled once or twice per year in addition to what the collections firms did. And one of the disturbing trends was the high rate of divorce, job loss, medical issues and suicide. It was hard to work within an industry doing so much harm.

Monthly reports were filed by each collection agency and law firm with a remittance of what they collected the prior month, minus their fee. 

At this point it would be a good idea to review the John Oliver video on how the debt buyer industry works so understand how evil some of these people are.

 

 

I had to wash my hands. Unfortunately I had a fiduciary obligation to investors. 

To sooth my conscious I started sending copies of personal finance books to debtors who made any payment toward their delinquent debt. Dave Ramsey’s The Total Money Makeover was reasonably new so it was the go-to gift. 

The hedge fund’s attorneys soon caught wind of my behavior and warned me against sending the personal finance books. They felt it added litigation risk so I stopped as it put investors at risk.

Soon after I made my exit from the industry. Emotionally it was too much to handle. I could not push people over the edge to line my pocket.

 

Putting Experience to Work

Both debt buying hedge funds I managed did well; the first significantly better than the second. More important than the money was the experience I gained. I know the intimate details of buying, selling and collecting debt.

And I have contacts. 

When I ran across the John Oliver video I had to watch. Nothing much has changed since I ran those halls. 

As a debt buyer I could buy debt for pennies on the dollar. In many cases I could buy for less than a penny on the dollar! (You read that right. I could (and still can) buy massive packages of debt for a fraction of a cent on the dollar. One quick email or phone call and I can have a $20 million package of debt on my desk before the day is out for a mere $50,000.)

Debt kills. My actions within the debt buying industry, while always legal, was still part of the problem. Of course I was a small fish in the debt buying industry. However, the raindrop never blames itself for the flood, but they all play a role. 

It still bothers me all these years later. My legal team collected a lot of money from a lot of people. Most got into debt with their eyes open and really owed the money. Still, everyone does stupid stuff. There has to be a way to start over—an out, if you will. 

And more than I want to count, we forced too many people with medical debt to the edge. (Do you push a parent over the edge just to collect on a debt caused by their child’s medical bills?)

 

The Plan

John Oliver gave me an idea. What he did was buy a package of old medical debt and then wrote it off (didn’t collect on the debt) to the tune of $15 million. 

There are some tax issues with this, however. to solve the tax issue Oliver found an organization that handled the debt so the debtors didn’t get socked with taxes when the debt was forgiven.

However, I think Oliver got the tax issue slightly wrong. 

In the debt buying industry we don’t give anyone a 1099 for cancelled debt unless the debt is settled for less than full value. If the debt is never paid, no 1099 goes out! (The debt buying industry has good lobbyists.)

Also, a large percentage of these debtors have a negative net worth so even if they were to have cancelled debt it is not added to income to the extent the debtor is insolvent (Form 982).

This is where my plan comes in.

 

$20 Million Giveaway

End debt problems with this giveaway. It's raining money! Check if you qualify. No signing up. If you make the list your debt is automatically deleted. #debt #bills #collectors #billcollector  #deardebt #debtdrop #olddebtDelinquent debt keeps sloshing around, even when it is out of stat (statuette of limitations), getting sold again and again. When a new debt buyer takes over the collection actions ramp up again. The phone call are a serious distraction to the debtor.

The out of stat debt is really uncollectable. In some states—like Wisconsin—it is illegal to attempt to collect an out of stat debt. 

This is the dirty part. If a crooked debt collector can convince you to pay even a small amount the debt is then considered fresh and the clock starts all over again. In other words, you take a debt worth a half cent on the dollar and make it worth 10 cents on the dollar since it is now considered a debt with a recent payment. A simple $5 payment is all it takes to restart the clock and open the option the legal action.

The debt buyer can now go to court to collect the rest, plus interest! Or sell it for 10 times what he paid for it. The debtor can never get away from a financial bad spot, even debt older than a decade. The merry-go-round of debt selling never stops.

 

This blog has done modestly well. There are funds in the checking account looking for a good purpose. 

John Oliver (and I guess Oprah, too) bought $15 million of old medical debt and had it eradicated. 

The Wealthy Accountant had an opportunity to buy a $20 million package of old mixed debt, mostly credit card and medical. 

And that is exactly what I did. Most of it is out of stat and technically uncollectable. The only way to stop the debt buyers, however, is to stop the selling of the debt which is exactly what I did here.

I know it is a spit in the ocean. There are hundreds of billions of this charged-off debt floating around out there. This $20 million gesture will not even make a ripple.

Unless you happen to have an old debt in the package purchased. Then you will get a reprieve from the harassment.

The debt will sit in a desk drawer in my office gathering dust. No 1099 or tax issues because I will not officially retire or write-off the debt. It will just age. And unlike a good wine, it will stink up the office for sure.

 

Dreams

Your debt is forgiven. Wealthy accountant has a $20 million giveaway reducing debt so people can have their life back. Reduce stress and money worries. Has your debt been forgiven? #debtforgivness #debt #stress #worry #moneyproblems #suicide debthelp Packages of this old debt are always large. I have seen some small packages when I ran the hedge funds, but it doesn’t allow me the chance to game the system.

You see, I buy this debt for almost nothing. The $20 million package cost just under $50,000. Could you imagine if you could buy your old $20,000 credit card or medical debt just one account at a time for a half cent, or $100? 

If thousands of accounts were not packaged together you could pull yourself off the conveyor belt.

Most debt buyers also sell their debt. If they are selling a package of debt for 2 cents on the dollar, they usually allow you to cherry pick for maybe 3 cents on the dollar. 

If I ever get time I will build a course showing people how to track their old debt down (see who owns it) and buy just their own old debt for next to nothing. 

Until then, I did what I could.

 

 

 * The Annual Suicide Prevention & Awareness Month blog tour is technically over. Melanie Lockert sponsored the blog tour from her Dear Debt blog for three years. Her publishing schedule has become Spartan this year as her interests and focus seem to have changed. I decided to continue the blog tour solo this year. There is so much work still to be done. Money problems are a leading cause of suicide. My experiences and skills allow me to make a difference few have the opportunity to do. So I present this post in hopes that at least one is saved.

 

 

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. 

Frugal Exotic Dining

3 frugal dining options the whole family will enjoy. Home cooked meals under $5 prepared with a variety of home grown food. Even expensive meals like salmon are very low cost. #food #meals #frugalmeals #frugal #dinner frugaldining #dining #qualitymealsIt is easy to get spoiled living in the backwoods of Nowhere, Wisconsin. Cool, crisp mornings and fresh food straight from the garden. Food we don’t grow ourselves is frequently purchased from neighbors who do grow it. 

As you can imagine, the cheap quality fast food peddled in urban areas these days does not live up to the bill. Even the so-called high end (and expensive) restaurants just don’t compare to what we grow and prepare ourselves.

Going out to eat is not a treat; it is something we do when home cooked meals are not an option. 

The cost is what really bites. Dining out is expensive and rubs my frugal nature wrong. I can’t help thinking They charge that much for this! as I chew the cardboard.

There is a solution. Good food is available at a rock bottom price if you know where to look. In some cases you can’t prepare at home any cheaper. And they use high quality, real food in their preparations.

My delicate palate has found three sources of excellent value when dining out that are cheaper than virtually any other venue, save self-prepared.  

So put on your bib and start licking your lips. We are going on a culinary journey.

 

Hospital

Hospitals don’t always have edible food. However, when they do you might want to fake an illness. 

Years ago when my oldest daughter was born I made a discovery at least as important as sliced bread. Mrs. Accountant was having a difficult time of it and even under stress, I eventually knuckled under and went to the hospital cafeteria. 

And was it good! 

Once the stress of child birth passed and we settled in, Mrs. A and your favorite accountant had a discussion. Mrs. A was all for going for a meal periodically. (Yes, Mrs. A is an awesome cook, but she needs a break now and again.) 

St. Elizabeth’s Hospital in Appleton, Wisconsin is the place you want to go for lunch. Trust me. They have a variety of food to choose from, all of it prepared like grandma used to and right in front of you. 

The best part is it cost less than a fast food stomach pump meal. Most restaurant food is barely edible and here we were enjoying REAL! food for under $10 for the two of us at the hospital where they can afford to serve terrible food because medical care is really close.

There is one more best part. You don’t need a sick friend or family member to eat at the hospital. Though you sometimes have to answer questions if you see someone you know. I just tell them the truth and they always agree; it is worth visiting the hospital when you’ve worked up a powerful hunger.

Caveat: I found St. E’s by accident. I tried the other hospitals around town and found them wanting. (Note to everyone: If I ever get ill I want to be taken to St. E’s or just let me die.) Even St. E’s had a dry spell several years back. But they soon returned to top form to my delight.

I suggest you do some medical culinary research.

 

Culinary School

I hear you already. “I don’t have a culinary school near me.”

Oh, yeees yooou dooooo!

My oldest daughter (yes, her again) exposed mom and dad to this one. She was attending the technical college and made a new friend which happened to be taking classes in culinary arts.

Well! What do you know about that?

Heather (the big kid) explained to Mrs. A one day that she needed to visit her at college. Heather took Mrs. A out for lunch at the school. 

Looking for reasonably priced dinner options? Look no further. Here are 3 frugal dining out options most people don't know about. So now you know the secret! #diningout #food #dinner #lunch #secret #meals #inexpensivemealsThe real risk—if I would have known in advance—would have been to warn Mrs. A to NOT eat college food. It could make me a widower. 

That night Mrs. A bragged to me about how good the food was at the college. I checked the calendar to make sure it wasn’t April 1st before taking her seriously.

Not to let a good meal pass, Mrs. A and I made a point to visit Heather shortly thereafter. 

Heather made sure we took the correct lunch line. You see, some food is the normal college rot gut, but, if you went over here to this line is was the creations of the culinary class today. 

So we stepped into the right line.

I filled my plate (as I am wont to do, evidenced by my waistline) and figuring it would set me back $10. 

Mrs. A was in front of me. The friendly student on work-study rang up Mrs. A’s plate. $5.50!

“Five dollars!” I said a bit too loud. 

“Oh, no sir,” the kind work-study student said. “Your meal is $6.50. You have the salmon.”

Here, just take my money.

Once again, I was pleasantly surprised by the food. It looked, smelled and tasted delicious! And both of us ate for a bit more than $10! Yes the fish was slightly more, but who is complaining when it tasted this good. 

Since then I’ve had to take back all the things I said about my daughter and apologize for not paying more than a token amount of her college cost (and here to learn more).

Periodically you will hear in the nether regions of the Wisconsin backwoods, “Maawwww! I got the buggy hitched to the the horse. Want to ride with me to town to visit the yung’en?”

I highly recommend the Fox Valley Technical College in Appleton, Wisconsin if you are hungry. You probably have a similar option where you live.

 

Church

Before you say one word, bite your tongue.

From a young age on I always knew a good meal was coming when church put on a feed. It was the one thing I missed (along with the fellowship with awesome people) when I lost my faith.*

The ladies** at church know how to cook. In our parts a meal is frequently served after a funeral. On Election Day in November St. Martin Lutheran Church (Chilton, Wisconsin) has a Chili Supper each year. Easter morning is a brunch after Sunrise Service. There are many other event when a meal is also served.

 The food at church is the best of all three options I have shared here. (Yes, I saved the best for last.)  

Here are 3 budget friendly diner option the whole family will love and cost around $5. Dining out doesn't have to break the budget. Home cooked meals with real food! Bet you never thought of dining at these 3 places. #budget #budgetfriendly #meals #dining #lowcostmeals #goodfood I understand some readers don’t have faith in God, yet I never saw our church turn anyone away from the dinner table for any reason so you don’t need faith to eat. Church people are like that. Very welcoming.***

The churches love to advertise their upcoming events with meals and usually encourage the  public to attend. Keep your eyes open for these excellent dining opportunities.

I have enjoyed meals at other churches around town when they served. Even other denominations! And never once did I get a lifted eyebrow. The Catholics fed this Lutheran as hastily as any of their own parishioners. 

A church setting is about fellowship. The food is excellent. What more could you want. There is nothing to be embarrassed about. Just bring an appetite.

Next Sunday (September 15, 2019) is Bring a Friend to Church Sunday. After the service St. Martin in is having a brunch. You are all invited!

You will love the cost. Many times it is a freewill offering. Sometimes they have a token fee, but it is always so low I feel guilty and donate a bit more. I’m willing to pay for a good meal.

Looks like a certain backwoods accountant is hooking up the buggy to the horses again.

 

I hope you enjoyed my unconventional list of great places to dine at a very reasonable cost. I don’t dine out often so I’m sure I missed a bunch of great ones. Share your favorite places to eat where the food is excellent and the cost family friendly.

 

 

 * I’m working on a TEDx talk on my darkest hour that led to my loss of faith. 

 ** I say “ladies” because the ladies do most of the cooking. The men sometimes help out, but the women deserve the credit for their labor. No offense is meant, nor should it be taken.

 *** My journey back to faith is a long and arduous one. When this blog started I was still clinging to atheism and if you read closely you could tell. But I was far enough along to know lack of faith had as many issues as faith. I was coming home even if I didn’t know it. I’m busy writing a book on my journey back to faith. There is a lot to it and it isn’t all religious. Once the book is finished and ready for publication I will be giving a presentation. My hope is I can convince Valparaiso University in Indiana to allow me to make my debut public presentation there. I promise to take you to hell and back. There will be no dry eyes at the end. It will be the most emotionally draining 90 minutes of your life, I promise. I’ll share details on this blog when this happens.

 

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. 

Financial Horror Stories

PROTECT YOUR CASH!!! Investments too good to be true are. Learn the language of business before investing. #accounting #investing #Buffett #WarrenBuffett # money #cash #realestate #stocks #alternativeinvestmentsMy office manager, Karen, sat with a new restaurant client. Ten minutes later Karen was in my office with the financials of the client.

“She doesn’t understand why she is losing money, boss,” Karen said. “She says business is good, but she loses money every month.”

I looked at the profit and loss statement for less than ten seconds when I asked Karen, “Is this correct?” 

Karen named the bookkeeping firm the client used. It was a reputable firm. Karen said the client reported all income daily and reported it to the bookkeeper. The bookkeeper paid all the bills and provided a statement each month.

If the P&L was correct there was only one explanation. “One or more of her employees is embezzling.”

“Can you talk with the client?” Karen didn’t know what to tell her.

I went to Karen’s office and explained to the client she had at least one employee embezzling. 

“How do you know?” she asked.

I held up the P&L. “The cost of goods sold compared to wages compared to revenue are off. Someone is either walking out the back door with steaks and seafood or someone is stealing cash receipts.”

The client assured me she had honest employees. With only a glance at her financials I was certain there was malfeasance. 

“It might be a waitress. Do people leave money at the table or take it to the checkout person?

“Checkout person.”

“Okay, it probably isn’t her because the amount is too large. And while steak and seafood might be walking out the back door, the cost of goods sold is somewhat in line with employee wages. It is revenue that is off. 

“So tell me, do you have a security camera on the cash register?”

She told me she had no security cameras. 

“The employee at the cash register might be the problem.

“No,” she said. “That employee has been a friend since we were in kindergarten.”

That was all I needed to hear. With rare exception, embezzlement comes from people you trust the most. Either a family member, close friend or the faithful employee who hasn’t taken a vacation in eight years. There is a reason accountants demand business clients require anyone in their business handling money to take a two week vacation every year. You would be surprised how much embezzlement is uncovered when someone is on vacation.

“Your friend is robbing you blind,” I confirmed.

She still insisted her friend would never steal from her.

“Okay. This is what I want you to do. Go back to your restaurant and call a meeting with your employees. Tell them your new accountant is a real a-hole and demands a security camera be placed over the cash register.”

She did as I asked. Her friend since kindergarten quit on the spot. And profits arrived for the first time at her restaurant.

Unfortunately the theft had gone on for too long and the financial damage too great. A year later she closed her restaurant, deep in debt.

 

Warning Shot

A few weeks ago I published on the Fleecing of the FIRE Community. Some readers were irritated while others were concerned. I wrote things like:

Since you managed to acquire a respectable nest egg you think you are an experienced investor. It is doubtful you are!

and

Buying into an unconventional investment, which these bike communities are, should never happen unless you are very experienced financially and have the ability the lose 100% of your money without changing your lifestyle one iota.

and

You have no idea of some of the people on my desk I’m helping. These are serious issues; small fortunes completely destroyed unless I can find a way to preserve their wealth. I don’t always win.

When I published:

To keep this short I will close with one last suggestion. If you can’t read and interpret financial statements like a seasoned accountant you have no business being in any kind of exotic investment, real estate included. Stick to index funds and money market accounts.

You might not shoot the moon, but you will not suffer a catastrophic loss sending you back to square one, as a neophyte in the FIRE community once again.

people wanted to hear some of the horror stories, hoping to learn from other’s mistakes. 

I stand by my original advice: Don’t invest in things you know nothing about. If you can’t read a financial statement how will you understand if a rental property is a good buy? Or a business?

The next time you are tempted by a slick sales pitch at a conference (this is being published while FinCon is running in D.C.) or camp, come back and read a few of these true stories. Names are changed to protect the guilty (yeah, I think I’m funny); the stories are all true.

 

Supper Club

I have a group of clients that own several businesses around town. Two from this group with several outside investors own a supper club near my office. They called me in to handle taxes and consulting. It was bad from the start.

Once they bought the supper club they hired a manager. This was a guy they knew from running some income properties they owned. 

The manager and his wife handled the books.

The club was open for a bit before I was called in. I would review the books monthly and consult before preparing the annual corporate tax return.

I was to meet with the manager. When I arrived it didn’t take long to know something smelled bad. From the front door to the bar was all it took for me to know embezzlement was rife.

The bartender game me a cold attitude. There is no reason an employee of a business client should ever give the accountant an attitude. This told me the employees knew or suspected the malfeasance. The environment was bad.

I was shown to the office where I waited as the manager was running late.

I noticed a gap in the security cameras between the back office where I was and the safe. 

When the manager arrived he was livid. He made it clear I was never to touch the books unless he or his wife were present.

After the meeting I called one of the owners. I told him he had serious misappropriation of funds issues. I told him it was the manager bleeding him dry.

I was assured the manager was a good guy. I pointed out:

  1. The bartender’s attitude was unusual to see. Employees should care less if the accountant shows up. They should have been more interested in serving me a drink, hoping for a tip.
  2. The security camera gap between the office and safe was a serious issue.
  3. Any manager who is that adamant the accountant not see the books without supervision is practically an admission of guilt. There is only one reason to control what the accountant sees.

I knew who was embezzling (manager), where they were doing it (security camera gap near the safe), when they were stealing the funds (at closing the manager or his wife handled the money with no oversight) and how much (I estimated between $100,000 and $150,000 based on revenue).

When I was not taken seriously I said I was not interested in the account and hoped it would not affect my work on their other accounts. 

A year later one of the owners was in my office. It seems I was wrong. The manager was embezzling just as I said he was, except he misappropriated at least $300,000.

I reminded my client he probably did the same when he was managing their rental properties which always seemed to lose money, too.

 

Fish Farming

The moral of the first story is: If you can’t read a financial statement you have no business being in business.

The moral of the second story is: When your accountant’s BS alarm goes off, listen.

Invest in what you understand. Know your circle of competence. It is better to pass on a good investment than to invest in a bad one you don't understand. #stockmarket #business #sidehustle #sidegig #investmentsIn the second story the business survived and even later thrived. (Though I never got the account, but never lost the accounts of their other businesses.)

Now we turn to an income property story.

This didn’t happen to my client. I was a member of the Fox Cities Apartment Association many years ago when I owned a massive amount of real estate when I heard the story.

It seems a neophyte watched late night TV when he discovered he could be a gazzillionaire buying income property no-money down and cash flow right out of the gate. 

This guy bought an up/down duplex, filled the unit and enjoyed his new-found cash flow machine. 

As winter approached the tenant called and said the furnace was not working. The landlord went over to see if he could fix the problem without calling an expensive technician. 

When he gets to his property he finds the problem right off. The basement is filled with water!

It seems the tenant wanted to raise fish. Thank God he didn’t fill the basement to the electrical panel.

The foundation of the building was shot. Insurance didn’t cover the damage because it was the tenant’s fault. The landlord sued the tenant and won, but the tenant had no money and later disappeared. 

The city condemned the property and the bank foreclosed and socked the landlord with the shortage when the bank sold at a fire sale price. The landlord later declared bankruptcy. The stress destroyed his marriage. He lost his easy money investment, wife and had to pay 29% of his gross income in child support. I have no idea how he ever recovered.

The morals of this story are:

  1. Income property is NOT easy money,
  2. Always screen your tenants (his tenant had prior litigation with landlords),
  3. Always check your property, even if you have a property manager. An annual (or more often) personal inspection is a requirement in my opinion,
  4. Alternative investments, including income property, require a reserve to handle maintenance and excess damages, and
  5. No-money down deals are rarely a great deal. They are desperate deals.

This guy did everything wrong. He bought a crap property which attracted crap tenants. He put no money down and had no reserve, He never screened his tenants or inspected his property. What did he expect would happen?

 

Bad Advice

Some readers might notice I have no hair. It’s because I pulled it all out.

What non-bloggers might not understand is that bloggers can see when other blogs link to their site. Usually I’m curious to see what is said; usually I’m sorely disappointed.

For example, a blogger once published she never has an LLC for her income properties and linked to this post of mine as her reasoning. It was a 100% misunderstanding of what I said!

I have no problem with, and even recommend, income properties be held inside an LLC. What I also say is that you should never place real estate inside an S corporation or LLC electing to be treated as such for tax purposes.

The post this blogger linked to is about small businesses and not real estate so she read it all wrong. Which leads us to our last example so I can take an aspirin to dull this throbbing headache resulting from pounding my head into the corner of my office.

 

When it rains, it pours. I’m not talking salt either.

Last summer I had two consulting appointments with the exact same issue: income properties inside an S corporation. 

Since I could kill two birds with one stone I tried my darnedest to find a solution. I even hired a law firm in California to help. Alas, nothing could be done. Once real estate is inside and S corp it stays there, regardless the negative consequences. 

No-money down real estate is rarely a good deal. Usually you are buying something with lots of problems that is hard to sell. These steps can point out the ones that are really a bargain. #realestate #investing #nomoneydown #investment #goodinvestments(If you transfer real estate from an S corp to an owner of the S corp it is still treated as a sale at fair market value, triggering a capital gain (or loss). )

There are several reason why you should never, ever, ever put real estate inside an S corp or LLC electing to be treated as an S corp. 

First, if the S corp spent any time prior as a regular corporation (C Corp) it probably has accumulated earning. An S corp with any C corp accumulated earnings and 25% or more of the S corp’s earning are passive (rent, interest, dividends), the S corp is taxed at the highest C corp rate.

I know that is a mouthful and a lot of details are disregarded. (It’s actually more complicated than that tongue twister indicates.) Regular corporations now have a flat 21% tax rate so it might not be as bad as it once was. Still, it causes an S corp—a vehicle for managing a business with fewer taxes—to be taxed at the regular corporate rate.

It also adds complexity to the tax return. Good for the tax professional (if he can keep his sanity); bad for you.

This problem is easily avoided by going straight to an S corp which many do.

The real problem—and this is a big one—involves basis.

I know basis is hard to understand, but it is of vital importance here. 

Most people understand they have basis in their S corp if they invest money into their business. What is harder to understand is how loans affect basis.

S corps are unique in that loans by the corporation do not add to the shareholder’s basis unless the loan is from the shareholder. Even if you guarantee a loan taken out by the S corp it does not add to basis!

We will not bog ourselves down today on S corp basis nuances so don’t take my next statements as complete answers; they are not.

The two clients I consulted (and latter prepared their tax returns) have serious S corp basis issues because they had real estate in their S corp and the S corp took out loans. 

When this happens it is possible to show a loss (real estate depreciation can cause a loss while still cash flow positive) and use up basis. When that happens it is possible in some circumstances to pay a capital gains tax on distributions when the S corp shows a loss. 

Accelerating depreciation can really complicate this issue. Current tax law allows faster depreciation in some instances. Repairs and improvements are deducted easier now. And cost segregation studies can super charge depreciation deductions.

When real estate is in an S corp you always have to keep an eye on basis from the corner of your eye. 

Nothing is worse than paying taxes on losses! And it can happen in an S corp when the rules are not followed.

The clients’ intentions were never to break tax laws either. They did what they thought was correct or might have even read some tax articles and misunderstood the complex issues surrounding S corp taxation.

To fix this problem I’m working with the client to verify all loan are from the shareholder. Loans are structured so the shareholder takes out the bank loan and lends the funds to the S corp. That does add to basis! (This is the opposite of what banks do so they have to be told the consequences. If they don’t listen, get a different bank!)

The moral of this story is: Always seek the counsel of a competent legal and tax professional before buying real estate and/or starting an entity.

I know people around here love saving money, but you don’t save when you make a serious tax error. A small investment in an attorney and tax professional can yield massive returns and peace of mind. 

 

Coda

Warren Buffett once recommended you focus less on business school and more on taking a few accounting classes. I couldn’t agree more.

You can’t make an investment or run a business optimally without understanding the language of business: accounting. 

While business classes are great, a fundamental understanding of accounting will serve you in every facet of your life: personal finance, investing, work, side hustle, small business.

You would be surprised at how many people doing their own books record loan payments as an expense. (The interest portion of the payment is an expense; the rest is principle which is recorded against the liability on the balance sheet.) If something as simple as this is not understood, how can you possibly trust your judgement in running the business or in any investment decision?

My original comments are correct: People have no business making investments in things they don’t understand! My buddy Warren has said at least a googolplex times. 

All these crazy ideas brought to conferences and the various FI camps are accidents waiting to happen. You can make informed decisions when you understand the language. You, like me, might enjoy making small investments in strange products just to see how it works and plays out. Nothing wrong with that as long as you understand what you are doing.

Making large investments without understanding the investment is insane. Index funds and bank deposits are what you should limit yourself to if your accounting knowledge is limited. In fact, you shouldn’t even listen to any investments offers. All that could happen is you get sold and then God help your net worth because no one on the earth will. 

It is also never too late to learn. Colleges and tech schools around the country have superb accounting classes.The great news is accounting has been around a long time is and virtually unchanged in that time. You don’t need a prestigious college for a good accounting education. Even local night classes will make you a better investor.

 

It is temping to think you know more than you do when your stash grows. Success gives the illusion of intelligence. When the crisis arrives the illusion evaporates. 

Please, kind readers, use common sense. If you don’t fully understand the concept and the financials then take a pass. Better to miss a deal than to go all-in on a scam.

 

 

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. 

Your New Mission: Plan For the Future

Image via Pixaby

 

If there is one thing I don’t understand it is the military and the unique financial challenges facing active military personnel and veterans. Lucille Rosetti has provided another post helping fill the gaps in my experience.  She has provided several valuable resource links helping veterans plan their future. She is part of the Wealth Legacy Institute, has graced the digital pages of this blog before and elsewhere on the web. Enjoy

 

 

Your New Mission: Plan For the Future

by: Lucille Rosetti

 

As a U.S. veteran you have served your country, but now more than ever it’s time to serve yourself and your family. As you get older this means making a plan to ensure your finances are in order. Avoiding this can harm you financially and could leave your family struggling later down the road. Here are some practical tips to help you complete your most important mission yet: taking care of yourself after you retire. 

 

Utilize VA Loans to Refinance or Buy

 

Even if you don’t have perfect credit you still have to have a place to live. As a veteran, you may be eligible for a lower-interest VA loan, which can save you a significant chunk of money each month. If you qualify, a VA purchase loan doesn’t require a down payment or private mortgage insurance like a conventional or FHA loan. Refinancing can also help you save money by lowering your interest rate if you already own your property. Keep in mind, however, that the property appraisal must be higher than the selling price.

 

Discuss Your End-of-Life Wishes

 

Thinking about your own death isn’t pleasant, but making plans in advance is important. If you haven’t already, one of the first things you should do is have a conversation with your family about your final wishes. Do you want to be buried or cremated? Do you want a formal funeral service or a casual end-of-life celebration? While it will ultimately bring everyone peace of mind and allow you to begin making financial plans for final arrangements, know that it will still be a difficult conversation for you and your loved ones. Approach the subject with sensitivity, and be ready to have multiple discussions with anyone who can only talk about a few details at a time.

 

Supplement Your VA Burial Benefits

 

In order to offer some support to your loved ones during what will already be a traumatic time, you also need to make a plan about how to pay for your final arrangements. Military.com explains that the VA offers a small stipend to help your family pay for your funeral. At most, this is $2,000, a sum that only applies if your death was directly related to service. A funeral can easily cost $8,000 or more. Consider supplementing your VA burial benefits with a funeral insurance policy, which can also provide your family with a small injection of cash to help cover outstanding debts. Before you decide how much coverage you need you’ll need to know the kinds of arrangements you would like and how much money should be left over for other needs.

 

You Can Still Save Money

 

When you enrolled in the Armed Forces you likely had the opportunity to open a Thrift Savings Plan. Even if you had matching contributions this might not be enough. This is especially true if you had to make withdrawals to cover your living expenses as you transitioned from military to civilian life. If you are still working you have the option to add funds to an IRA up until you are 70. There are special rules, however, and if your only income is from an annuity, pension, or disability, you won’t be allowed to contribute to an IRA. There is nothing stopping you from putting money into a high-yield savings account or, under the guidance of a respected financial advisor, a low-risk investment vehicle

 

VA Medical Benefits Offer Broader Coverage Than Medicare

 

You’ll become eligible for Medicare when you turn 65, but it may not be enough. If you have significant health problems or are considered low-income VA medical benefits may be a better option. This coverage, which is explicitly set aside for veterans goes beyond Medicare benefits by providing dental care and long-term residential nursing home care. You may be eligible for lower co-payments and deductibles. Reach out to the VA by calling 877-222-8387 and ask for VA Form 10-10EZ. This is the Application for Health Benefits and is the first step in understanding what you may qualify for. You can also apply online at VA.gov. 

 

Although you’re no longer on active duty, it’s still your duty to take care of yourself and to protect your family’s financial future. You can do this by paying close attention to your benefits. Some, such as a VA loan, can help you save money. Others, like VA funeral reimbursement, aren’t enough to cover your needs. Knowing what you have and what you don’t is the best way to make a plan that will allow you to defeat the enemy of time and live out your golden years without the weight of financial woes.

 

 

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. 

The Fleecing of the FIRE Community

The con artists have a new target loaded with cash: the FIRE community. They are walking in, head held high, when they make their offers. It might look like the investment of a lifetime. Here is how to protect yourself. #protection #risk #investments #scams #fraud #FIRE #financialindependence #independence #retireearly #retirementThey call us snowbirds.

Every year as the the temperatures turn south, so does the traffic from the northern climes, bleeding into the sunny south on the latticework veins of varicose highways. 

Mrs. Accountant and I have enjoyed warmer weather in January with a trip to the land where summer never ends for many years now. Some years we miss, but most years we take a pre-tax season gander south before the pace of a busy tax season sets in.

For several years we made the trip south dual purpose, mixing business with pleasure. The last time we did this we were walking the streets of Gainesville, Florida waiting for one of the various FIRE (financial independence/retire early) camps to begin. 

The camp was outside town a few miles. These gatherings generally are a reasonable mix of fellowship and education. But this one was going to have a surprise.

One of the presentations had a slick offering of real estate. A small community was planned with narrow street for bikes only. Each house was small so everyone was forced to spend more time outdoors. Home was for sleeping and not much else.

A large centrally located community building had a community kitchen. Each night members of this community would dine together. Families would take turns preparing meals for the entire group.

I turned to Mrs. Accountant and she knew what I was thinking instantly. This project didn’t have a snowball’s chance in Hades.

It was a nice presentation, but what part about the “I” in FIRE don’t you understand? These people value independence highly and this was the exact opposite of “more” freedom. These people would never think of buying a non-conforming home with massive community rules and a requirement to feed the town periodically.

Then I turned to view the reaction of the room. After I winched my jaw back into place I understood what had just happened. 

The FIRE community had reached a critical mass and was prime for a fleecing.

 

Baa, said the Sheep

A few weeks back I published a critical review of the FIRE community. As expected, many readers agreed with my assessment, while a few disagreed. The disagree camp didn’t have a lot to stand on because their argument (in one comment) boiled down to ‘I was wrong because I made a spelling error.’ Of course, those who follow on social media knew I hid Easter Eggs in the post, noting there were several layers to unravel. (I needed certain letters!)

Ya also know ya hit the nail square when the arguments take those kinds of turns.

However, I was wrong on at least one account. My allegory of these communities as ‘communistic bike towns’ were off base and it wasn’t the message I wanted to convey. My connection to mid-19th century Russia was a stretch for sure.

But I wanted people to think about what they were doing! I saw a slick developer looking to pluck a relatively naive groups of potential investors.

Non-conforming homes will have a harder time holding value, especially in weak markets. The number of people willing to live in these communities also reduces the number of potential buyers.

And what about conflict resolution?

Well, they had an answer for that. The problem again is that this group of people looking for more ‘independence’ would lose a large part of that independence with a serious amount of their time and assets if they invested. 

The old adage: Good fences make good neighbors, was forgotten by this crowd.

 

Two Problems FIRE Must Address

I saw a seasoned developer carefully carve the group.

The willingness of so many to embrace this concept without serious thought made me nervous. The only relevance we got from the developer was, “They are doing it in Europe with great success.” And since we are in Florida, I have some land I’d like to sell you, too.

One thing was clear. The FIRE community, the FIRE movement, has reached critical mass. There are enough people with cash available to fleece. The old Microsoft Support Scam and IRS Scam are peanuts to what can be pried from the fingers of this group.

Many who follow FIRE bloggers are quick to crack their wallets when a leading blogger thinks an investment is a good idea. This is a terrible idea! You understand many of these bloggers have something in it for them and even if they don’t there is no guarantee they know what they are doing. They might be retired, but they still line their pockets with blog revenue. 

And I’m no exception! Everything I say or do should be questioned! I throw out ideas and tax strategies non-stop. My record of wealth creation is solid, no doubt, but I have no lock on smart investing. Remember, good ‘ol Warren Buffett is taking a shellacking on his Kraft-Heinz investment and he is probably the best investor of all time. The lesson: do your own research.

If the FIRE community is ever to survive it must address two serious issues. 

Scams are hitting the FIRE community at a torrid pace. FIRE is now a large enough movement that scammers are focusing on the group and their large pile of savings and investments. #savings #investments #scammers #risk #FIRE #FIREcommunity #FIREmovementFirst, many in the FIRE community are relatively new to the movement. They had their come to Jesus moment, crucifying debt and massively funding their retirement accounts. Then they start building their non-qualified accounts. And don’t think the shysters of the world haven’t taken notice.

The acolytes are fresh from foolish financial decisions and with a small amount of knowledge built serious wealth. Most are not millionaires, but sitting around with $300,000 incubating inside an index funds is a ready source of cash if you can offer the right deals these suckers, ah, fine young people take a fancy to. 

The second problem is the neophytes now as a group command a serious amount of money. The old ‘invest in an index fund and forget it’ advice isn’t going to cut it.

FIRE members love buying real estate. Several bloggers act like it is all easy money. Well, it isn’t.

I have well over $40 million in real estate transactions in my own account. This is more than some real estate sales professionals ever sell. My stories include the good, some really bad and the down-right ugly. I live this stuff.

Real financial education is lacking. I know this because I get more consulting requests than I can handle. Maybe 10% get a hearing and I charge $350 an hour. People in the FIRE community are digging some deep financial holes and some are creating massive tax and legal problems for themselves. 

 

What YOU Must Do

Neither you nor I can fix all the problems in the FIRE community. I can preach from my small perch of this blog, but in the end it is up to you.

The FIRE movement is such a desperately needed movement. People are so lacking in basic financial knowledge. 

The illusion of saving half your income in index funds salves all financial woes is misleading. 

The seasoned hucksters have noticed our quaint little group. They know exactly what to say to get your money. They will not peal a couple hundred dollars from your stack; they want six figures!

Scams are tricking even experienced investors. Take these steps to avoid being scammed. #scam #experience #investing #thewealthyaccountant #assetprotectionSince you managed to acquire a respectable nest egg you think you are an experienced investor. It is doubtful you are!

What you MUST do is step back from any new investment. If the deal needs immediate action you MUST take a pass. Don’t worry. Another deal will always come along. The hurry-up deals are all too often scams anyway.

Buying into an unconventional investment, which these bike communities are, should never happen unless you are very experienced financially and have the ability the lose 100% of your money without changing your lifestyle one iota.

I’ve been publishing more on investing lately. (It is outside tax season so I wanted to write about something else for a bit. More tax posts are coming soon.) The reason for this is the number of readers crying out for help.

You have no idea of some of the people on my desk I’m helping. These are serious issues; small fortunes completely destroyed unless I can find a way to preserve their wealth. I don’t always win.

To keep this short I will close with one last suggestion. If you can’t read and interpret financial statements like a seasoned accountant you have no business being in any kind of exotic investment, real estate included. Stick to index funds and money market accounts.

You might not shoot the moon, but you will not suffer a catastrophic loss sending you back to square one, as a neophyte in the FIRE community once again.

 

 

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. 

 

How to Analyse a Stock

What if you could buy Juul for a fraction of its value before it goes public? You can with this one simple trick. #Juul #Altria #stosks #investing #stockinvesting #indexfundsThere is a hunger for more information on my thought process when considering an investment in an individual stock. Index funds are still the best choice for most people as they are low-cost and are easy to set up and automate. Yet, the questions still come in.

Investing some of your liquid cash into a promising business is not only exciting, but offers the opportunity for outsized gains. Catching Microsoft or Amazon before they started their assent to the moon would increase the returns of any portfolio. Buying a good business increases the chances your returns will be higher than mere index funds.

Recently I published a review of the financial statements of Altria (MO) and why this might be a good company to invest in. However, I go much deeper than just the financials before plopping down my hard cash. Management needs to be assessed; how the company treats shareholders is important; is there a competitive advantage? 

It is still possible today to find stocks trading at incredible values. Apple (AAPL) has loads of cash. A large portion of AAPL’s stock price is the cash they hold. The enterprise value reflected in the stock is compelling even as the price has climbed and U.S./China trade issues abound.

MO will be our guinea pig again today as I lay out my investment thought process. The reason for this is I own MO and have recently added to my position so my reasoning is fresh. I recommend you read the first post linked two paragraphs above first. You can get a clear idea of why MO is worth considering from the financial statements before continuing. It is a good idea to bookmark these two posts so you can review the process before buying your next stock.

But there is so much more. Like AAPL, MO has hidden bonuses for owners of the company and risks to consider.

 

Money in the Drawer

Back in the 1980s when Peter Lynch was the name you listened to when it came to expert stock advice a unique situation existed.

Savings & Loans were going public at a torrid pace. Once it was discovered how much money could be made, every S&L couldn’t covert to a bank and issue public shares fast enough. Lynch made a killing for the fund (Magellan) he managed at Fidelity.

The biggest problem was getting enough shares. Non-customers of the S&L were frequently locked out of the offering. Even depositors of the S&L could only buy a limited number of shares.

Most S&Ls were small. But there were thousands of them! 

Shares usually went public at $10 or thereabouts and almost always saw a sharp increase the first day of trading. Gains of 60% and more in the first month of trading were not unheard of. 

Lynch clued this accountant into the secret early on. Since the S&Ls had no current shareholders technically all the money from the Initial Public Offering (IPO) went back into the bank to grow the business or pay out dividends, usually both.

Lynch said it was like buying a company and finding your payment in the desk drawer after the purchase. Whatever the bank was worth before was now worth the same, plus all the new monies. 

I like finding money in the desk drawer! 

 

More than Cash

The S&L days are history now. Without mentioning names, a certain accountant opened accounts in every S&L he could find in NE Wisconsin. 

Interest rates were higher then so tying up money still enjoyed a return. Usually a $1,000 or so in a savings account of some sort qualified you for the maximum allotment. 

When the announcement was made I would sign up for the maximum amount of shares and wait for the day it began trading (usually six months or so at most). 

I didn’t sell as soon as the bell rang. All that new money meant the bank was worth around double the IPO price and if management invested wisely returns could be even larger. Most $10 S&P IPOs traded in the mid-20s a year or so out. I sold when full value reached or close to it. 

Selling wasn’t the first priority. Sometimes rumors of banks looking to consolidate the industry added to profits. (Remember, the prior S&Ls had a lot of cash on the books, making them prime takeover candidates.) I sold many, but also kept a select few. Some didn’t pan out the way I wanted so I sold (usually at only a 100% profit). 

These new banks that did get bought out could generate over a 500% return for the original investors in a few short years.

One important point to clarify. I never bought more shares of these prior S&Ls after they started trading. What I was allotted of the IPO is what I got. Any additional shares purchased would not be cash in the drawer. With so many banking institutions it was obvious this was a smash and grab. 

 

MO Money

The #1 Stock to consider for safety in a bear market and massive profits in a bull market. This could be the best performing stock of the next 10 years! #stock #investing #cash #bullmarket #bearmarket #bull #bear #market #stockmarket #1What does the demutualization of savings & loans have to do with Altria (our stock in the spotlight) or any other stock investment?

While it is true the massive profits from S&Ls is over, plenty of lessons can be learned. IPOs are a risky venture and not for most investors. (I don’t recommend IPOs because the good ones are bought out by the large funds and the poor ones you don’t want.)

Many companies have hidden treasures buried in their financials. Reading the balance sheet will not reveal these gems. For that you need to read company SEC filings like the 10-K (annual report) and 10-Q (quarterly report). 

 

Risks

MO is in the tobacco business even as they work hard to transform into a smoke-free company.

Transformation usually has some pain. Couple that with a large number of funds and investors refusing to invest in tobacco for ethical reasons and you have a unique environment. 

Tobacco use is down. A lot! Cigarette volumes are dropping around 5% a year now as vaping is gaining ground. This cash-cow of the industry is facing serious threats. 

Constantly raising prices dulls the pain, but eventually a limit will be reached where the negative elasticity from price increases turns positive*. Cigarette usage peaked in 1952 and has declined slowly since, only to accelerate with other alternatives.

No matter how positive a picture I paint the remainder of this post on MO does not subtract from the issues facing MO as tobacco use decreases.

Every investment, even those juicy S&L demutualizations, had risks. 

 

Know What You Own

Some businesses have loads of cash sitting around, like AAPL. AAPL has something like $47 per share in cash in its accounts. AAPL closed the day I’m writing this at $200.48 per share. That means about 23% of your investment in AAPL is buying the cash in the checkbook. Looked at another way, the $200 price minus the $47 cash per share means investors are valuing AAPL’s enterprise at about $153 per share currently. 

Unlike AAPL, MO doesn’t carry large amounts of cash per share on the books. Compared to normal operating expenses, MO generally uses most of its cash in operations and returns the rest to shareholders in the form of a dividend and share buybacks fairly quickly.

However, Altria has some very interesting assets under the hood. MO owns 10.1% of Anheuser-Busch Inbev NV (BUD). BUD is one of the largest brewers in the world with over 400 beer brands. 

BUD closed with a market cap today (August 12, 2019) of $163 billion. MO, for comparison has a market cap of $85.9 billion at today’s close. In other words, MO owns $16.463 billion of BUD, or just over 19% of the price MO is trading for at today’s close. 

Put another way, almost $9 of each share of MO is really BUD! (MO has just under 1.9 billion shares outstanding.)

With MO closing today at 45.98 and BUD nearly $9 of that price means everything else MO owns and does is valued by traders (hard to call them investors) at ~ $37 per share.

 

Holy Smoke!

The cigarette business still brings in the bulk of profits used to pay those juicy dividends. This year marks 50 straight years of dividend increases.

Investments like BUD pay a dividend to MO each year so MO has cash flow while BUD grows its business. 

Not all of MO’s investments pay dividends. . . yet. Late last year MO opened the checkbook (added debt) to buy 35% of Juul (vaping) for $12.8 billion and another $1.8 billion for 45% of Cronos Group (CRON) (weed). MO also purchased 80% of on! (oral nicotine)for $372 million in early June this year.

on! is a small investment and not large enough for this discussion. 

CRON is a very long-term play in the expanding marijuana market. I don’t expect CRON to make an equity contribution to MO for at least 5 years, probably longer.

To keep this simple let’s assume on!, CRON and other minor investments held by MO are worth zero. They do have value since MO could always sell the CRON shares they hold. $1.8 billion of a $85.9 billion market cap is only 2% of the stock price, or less than a dollar per share.

 

Growth Engine

If you can swallow your ethics and see your way to ownership of some MO it might be worth your time. While other cigarette companies are facing the same sales declines, only MO has a real plan to live, even thrive, another day. 

Find hidden assets owned bu public companies. Find the secret stash some companies hide from investors. Unlock the wealth. #unlock #wealth #stocks #secret #hidden #income #investmentsMO has always made investments in its future. The company also thinks long and hard about their shareholders. (Maybe because nobody else will be their friend.) Dividends at the company have always been rich. Spin-offs in the past (Kraft and Phillip Morris International come to mind) have also unlocked shareholder value.

All that aside, I think Juul has the possibility to be the best investment MO has ever made. At the beginning of this year Juul was expected to generate $3.4 billion in sales. On the latest earnings conference call, Chairman and CEO, Howard A. Willard III, said Juul sales grew 194% in the first half of 2019! And this is a slow down?

By this accountant’s calculations, the current growth rate pegs Juul for $3.8 billion in sales for 2019. To top it off, Juul is expected to make an equity contribution (sorta like a dividend) to MO later this year! Willard said it would be an immaterial amount, but an equity payment to MO only a year after purchase! Material equity contributions might be sooner than anticipated.

Juul has plenty of issues domestically. Regardless the outcome in the U.S., Juul is set to have a massive international business as well. There are certain to be setbacks, but Juul is set to be a massive player in the nicotine market. And MO is the perfect partner with experience handling these issues.

Juul sales growth rates must come down in a few years.  At these growth rates Juul would have over $100 billion in sales in 5 years. MO had just under $20 billion in sales last year. 

Juul cannibalizes MO’s cigarette business while doing the same to every competitor domestically and increasingly internationally.

I do not believe MO’s investment in Juul is worth only $12.8 billion. I think it is more. Someday MO may absorb all of Juul or spin it off. I don’t know the future. Regardless, MO will see the value of Juul climb a lot higher in an unnamed accountant’s opinion. 

It is not inconceivable for MO’s ownership in Juul to be worth more than the rest of the company combined. Juul has the promise of a fat dividend stream in the near future.

Within a few years MO will be growing faster than they have in memory as BUD, CRON, on!, Juul and other investments add to profits. Dividends are currently safe and still growing. It is easy to see where future dividends will come from.

 

Final Sales Pitch

MO is a steal because too many don’t consider investing in tobacco. That is a shame. Reasonable values are hard to come by at current market prices. I invest to make a profit and expect you do as well. Therefore MO should be a consideration. 

Altria is changing. Once a cigarette company, is now transforming into a better company. Vaping isn’t a perfect solution, but it is better than smoking. Beer isn’t good for you and I doubt weed is either. Good for you or not, people keep buying things they want and they want nicotine.

MO has a solid management team willing to work for the shareholders. That is hard to find these days. MO buys back stock, but gives the bulk of profits to owners in cash (dividends). While MO has risks there is a lot to like about this company. It’s a business I want to own and do.

MO also has a serious competitive advantage. Regulations and limited advertising opportunities keep upstarts at bay. MO’s commanding lead allows them to control the market. Juul has a similar lead in vaping. Now you know why MO bought 35% of Juul. The closest competitor will be a very distant second. 

Warren Buffett once said about tobacco companies: the product costs a penny to make and is addictive. What’s not to like? 

I think Buffett never bought MO because he wants to keep a clean reputation. Coca-Cola was as far as he could go with an addictive product.

And remember this: People risked (and in some states still risk) going to prison for a decade or longer to smoke weed, a non-addictive drug according to many. 

Nicotine is addictive. What are the odds people will stop using it?

Exactly.

The market is open tomorrow. All those who don’t like tobacco are selling. You might want to pick some of that up while you can at a reasonable price.

Oh, and the dividend is slated for an increase in two weeks. Nothing like getting a raise the first month on the job.

 

* Price changes have an element of elasticity. If sales drop 10% when prices are increased 10% we say it is elastic. If sales drop only 2% when prices climb 10% we say it has negative elasticity. When the opposite happens (10% price increase causes sales to decline 12%) it has positive elasticity. Economics students will note price elasticity of demand is always negative because the demand curve slop is leftward. A better way to say this is tobacco price are currently inelastic (sales drop less than the price increase). However, a  point will come when they are elastic (sales drop faster than price increases). You can read more here if you want a technical review of price elasticity

 

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. 

 

Commingling is Killing Your Wealth

Commingling of funds (mixing business and personal funds) is one of the riskiest things you can do, causing serious legal and tax problems. 

The issue is less acute from a legal standpoint if you are a non-LLC sole proprietor. There are still plenty of tax issues, however.

LLCs and corporations are at extraordinary risk when funds are commingled. Treating your business as a personal fiefdom instead of a separate entity—which it is—can cause serious legal and tax issues down the road. We will deal with both issues in this post.

 

Legal Issues When Commingling

The real reason you should incorporate or organize an LLC is for legal purposes. Taxes come along for the ride. 

The tax code treats certain incorporated businesses punitively: notably attorneys, accountants and doctors. When people in these professions want the liability protection of a corporation they are considered a personal service corporation (PSC). 

Commingling money can cost you big in taxes. The best tax professionals refuse to work with clients who commingle. Don't overpay your taxes. Never commingle! #commingling #comingling #taxes #taxplanning #IRS #sidehustle #smallbusiness #businessA PSC is not entitled to the graduated tax rates of regular corporations and therefore pay tax at the top corporate rate on all profits. New tax laws lessen the tax issues a bit now that the top corporate tax rate is a flat 21%, but other issues still abound. 

For these reasons we saw large partnerships form for doctors, attorneys and accountants. (Making partner is something every CPA and attorney aspired to.) 

The problem with large partnerships is that legal liability can be massive in these professions. The tax hit was so large that insurance was a cheaper route than the higher taxes of a corporation, However, it was a serious disadvantage.

And with attorneys taking the hit it was only a matter of time before a solution was devised. (The first LLC was allowed in 1977 in Wyoming when the state passed legislation allowing limited liability companies.) The limited liability corporation (or partnership) was created. 

The good news is that LLCs are superior to corporations in many respects. Organizing as an LLC and then electing to be treated as a regular or S corporation is quite common. 

Before I outline how dangerous commingling of business and personal funds are, let me first outline the legal difference between an LLC and corporation.

Legal Difference Between an LLC and Corporation

LLCs and corporations are organized at the state level so the rules can vary between state. I practice as a tax professional (enrolled agent) so what I am about to share is how I understand the difference between LLCs and corporations as told to me by attorneys. Always consult a competent legal professional prior to organizing a legal entity (LLC or corporation).

This is the one difference, of many, between the LLC and corporation I consider the most important. It is best illustrated by using two almost identical firms facing a legal challenge.

Example

Two groups of twenty doctors join together to start a practice. The first group of doctors organizes as a corporation. It does not matter if they are a regular or S corporation as those are tax designations and we are only considering legal protection in this example. The second groups of doctors organizes as an LLC. They can elect to be treated as an S corporation, but they are still legally an LLC.

A doctor from each practice face a lawsuit. In the corporation practice all doctors are liable for the acts of each other doctor (all-acts). The doctor sued in the LLC is the only doctor liable; the other doctors are not liable for the acts of other doctors in the LLC (own-acts).

 

This is a huge advantage to businesses with multiple owners. Not only is there a legal wall between your business and personal wealth; there is a wall between you and the other LLC members and their actions!

Serve yourself a big, juicy tax cut by never commingling. Lower your taxes and reach financial independence sooner by following this one simple rule. #taxcut #commingling #financial #financialindependence #retirement #business #smallbusinessEach state has their own laws governing how this will work in their state. The state you organize in is the state laws you follow. (You can organize an entity in any state even if you don’t do business there.) 

Limited liability, whether from an LLC or corporation, can be pierced. You may have heard the term “piercing the corporate veil”. What that means is certain actions can cause your personal belongings and wealth to be at risk even though you have the protective entity structure.

 

I don’t know if I can shout this loud enough. If you commingle personal and business funds you almost certainly lose all the asset legal protections provided by the LLC or corporation!

 

So, when you commingle you lose the single greatest advantage to having the entity structure.

Here are two simple rules to consider when contemplating commingling:

Rule 1. Commingling invalidates your LLC and all your personal assets are at risk: lake house, mountain retreat, boat, kids college fund etc are at risk in a lawsuit or asset seizure. 

Rule 2. No commingling. If confused, see rule 1.

But it gets worse!

 

Tax Issues When Commingling

Losing all your legal protection is a disaster, but then you face tax issues.

Commingling is the bane of every tax professional. Poor recordkeeping is time consuming to fix when time is at a premium during tax season. Bad records are so common virtually all accountants charge more to deal with poor, incomplete or missing records when preparing a tax return.

An informal survey on social media shows many tax professionals refuse to take clients with poor records and even break the engagement if poor records are turned in more than a few years. (It’s low margin work with lots of stress when time is in short supply. Top level tax professionals don’t have time for this foolishness.) The author has disengaged many clients over the years due to commingling.

Cathy Bryant, a former IRS revenue agent told me, “The fastest way to get into tax and money problems is to commingle funds.”

What does Bryant mean by this? Well, when you commingle funds you really have no idea what your real income and expenses are. The mixing of business and personal funds means the IRS can run over you, causing you to pay more taxes, and you have no recourse because you have no idea what your numbers really are. 

If you are a corporation or partnership (or LLC treated as such) you have the added issue of basis. There is no room in this post for a detailed review of basis, but know this: If you don’t know your basis there can be some very nasty tax surprises in your future.

Also, the IRS can revoke your S election if you commingle funds because you are not treating the S corporation like a separate entity. This means you could face serious additional taxes in an audit without recourse. Re-read this paragraph again S corp owners until this sinks in. If the IRS discovers commingling in an audit it could bankrupt you!

 

Avoiding Commingling

I hope I put the fear of God in you with the warnings above. Every tax professional should keep this post and show it to clients who commingle or are contemplating it. Remind the client the next step is ending the engagement. (Most tax professionals require an engagement letter be signed prior to working on an account. The engagement letter outlines the services provided and fees.)

Your legal protection is gone when you commingle. 

The IRS has you when you commingle. The IRS auditor will assess more tax and get away with it due to your poor records and commingling of personal and business funds. Revocation of your S election will be a financial disaster.

Avoiding commingling is actually very easy. If you don’t want to handle the bookkeeping yourself, hire it out. It is cheaper than overpaying your taxes and losing legal protections

Here are the rules you should follow when you have a business, no matter how small. Even a side hustle treated as a sole proprietorship should follow these rules.

 

Rule 1: Use separate bank accounts and records. The easiest way to keep personal and business monies separate is to have separate bank accounts for business use only and records dedicated to the business. Use any bookkeeping software you want, even an Excel file works.

When the business needs money you can invest money into your company by moving money from your personal account to the business account. This will show on your Balance Sheet equity accounts as a contribution or investment. It will add to equity basis for tax purposes; a good thing, especially for S corporations.

Once your business is profitable you can distribute money to the owner: you. Record the transaction as a distribution. You may also have a wage from your business if you are an S corporation. The distribution is the profits paid you (think of it as a dividend on your invested capital) after your wage is paid.

 

Rule 2: Treat the business like the separate entity it is. If you were the CEO of Apple you would not mix your personal funds with the corporations. I know, I know! You are not Apple. But you should still treat the business, even if 100% owned by you, as a separate entity (which it is).

There is no problem with you investing in your business or distributing excess funds. To do this you just transfer money into or out of the business account. The transaction is recorded on the books of the business accordingly.

Never deposit a business check to your personal account! The business should never pay your personal bills, either! (Transfer the money from the business to your personal account if you need business funds for personal expenses. This will leave a clean paper trail sure to please your tax professional and thwart a zealous IRS auditor.)

 

Rule 3: Consider a loan to/from shareholder account.  You can also lend money to and from your business.

When you have a small business it is hard to always separate all expenses. For example: you might have one mobile phone for business and personal. Having two phone would not make sense for such a small business. Since the phone is in your name you can pay the bill and have your business reimburse you for the business portion, currently a 60% safe harbor.

The same applies to mileage, meals or any other hard to separate business expenses. Your business can reimburse you for personal payment of business expenses. This is called an accountable plan and acceptable to the IRS (and distinguished tax professionals everywhere).  

Don't let the IRS tax your credit card rewards. If you commingle business or side hustle money with personal funds the IRS can tax some or all of your credit card rewards. #creditcardrewards #rewards #creditcard #taxes #IRS #comminglingI understand many small businesses frequently transact funds with an owner. Rather than record each of these transfers in an equity account, consider using a loan to or from shareholder account. If you take many distributions during the year treat it as a loan to shareholder. On the last day of the year convert the loan to a distribution. It is cleaner than running numerous transactions through equity accounts.

Credit card rewards also cause many business owners to commingle funds. I understand you want the most cash back so you want to run personal and business on one card. 

This isn’t a problem as long as it is one card and not credit card churning. If you want to churn, don’t involve the business; it becomes a mess really fast with the legal and tax consequences listed above.

However, you can have one credit card for business and personal. Reconcile the business portion of expenses on the card. If you pay with a business check make sure you list the personal spending as a loan to shareholder. If you pay the credit card bill with a personal check either get a reimbursement from the business or record as a loan from shareholder.

 

Commingling is the bane of the accounting, bookkeeping and tax preparation businesses of the world. Keep business accounts and spending separate. 

Good tax professionals will either charge for fixing your books during tax season and are likely to disengage. Then you are left with a second tier professional, if you can even find one willing to deal with such a mess.

In a tax audit you don’t want a revenue agent to see you commingled funds. They will have a field day with you if you have. 

Most of all, you want clean books so you know where your business stands financially and can make better business decisions. 

And if your tax professional asked you to read this it means you either comply or are gone. Life is too short and tax professionals are under a lot of stress. Help them help you pay less tax. Never commingle funds.

Ever!

 

 

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. 

Unique High Interest Savings Accounts Few Know About

Interest rates continue at historically low levels. These savings accounts offer high returns with low or no risk. #interest #bank #rates #savings #moneymarket #savingsrate #interestrate #earningsInterest rates have barely lifted from ground level and are already headed lower. In the U.S. short-term interest rates are at least positive. My EU and Japanese readers are not so lucky, facing negative rates.

Low interest rates are bad enough, but watching your bank balance decline is a downright nightmare for savers. If you are close to or in retirement this can cause great financial harm.

Because rates are likely to stay at these low level for the foreseeable future and there are many safe alternatives paying more, I will publish a special report each month highlighting one of these short-term, money market-like investments. Every effort will be made to address opportunities available to as many readers across the planet as possible.

Because these special reports will be in addition to regular publications you will want to subscribe using the button at the beginning of this post so you get the reports as soon as they are published. I will also discuss short-term interest investment options on The Wealthy Accountant Facebook page as well. 

Today I will share over a dozen options to earn more interest on your short-term savings. I will link to posts where I discussed some of these in detail in the past and will indicate if I am an affiliate of the program. The remaining options will get a short bio. If necessary, I will publish a complete report on the investment later.

Many investments are in U.S. dollars. Some investments allow investors from outside the U.S., but require the investment be made in dollars. This adds currency risk to mix and is something you need to consider before investing.

Finally, before we begin, many short-term investments are not guaranteed. Money market accounts are almost never a guaranteed investment. However, they are considered extremely safe. As always, research the choices I list before committing funds. No one investment is right for everyone. My goal is to provide as many choices as possible so the most readers benefit.

 

Alternative Short-term Investment Options

 

First Class Demand Notes

There is a unique investment too few people consider offered by Mercedes-Benz Financial Services called first class demand notes. For qualified investors this can be a powerful financial management tool. There are no minimums and you can withdraw funds at any time.

However, you must be an accredited investor which means you need either a $1 million net worth excluding your primary residence or a $200,000 income the past two years and expect to earn over $200,000 again this year.

Pros: Easy access to funds without waiting and a relatively high interest rate, currently 3%. I could not find anything limiting the investment to Americans only and since Mercedes-Benz is a German company it is possibly available in the eurozone as well. Highly liquid.

Cons: The program might be available outside the U.S with different terms. Only qualified investors can invest and all investors are verified to assure they are qualified before the account is opened.

 

P2P

Many peer-to-peer options exist. Once upon a time I was a big fan of these investment options. My personal experience and several issues in the news involving some P2P companies has raised concerns.

Here is a list of the highest interest rate savings accounts few are aware of. Earn high interest on your short-term savings. Some have high yields and are FDIC insured. #bank #savings #interest #rates #savingsaccount #bankaccount #interestratesI still mention P2P because it is a viable option for some willing to take the added risk. I have personally invested in Peer Street, Prosper and Lending Club. My Prosper and Lending Club accounts are nearly wound down to zero and I made a reasonable return. I don’t think future investors will fare as well as it appears returns have fallen sharply. My Peer Street investment is still in limbo. Fingers crossed I turn a respectable profit.

I am in the affiliate programs of some of these companies, but no longer use the links. If I missed an affiliate link to a P2P investment, please do not use the link as I can not in good conscious recommend any of these investments. I list them here as a warning only and for the most risk tolerant readers.

Pros: Very high interest rates. Many promise 10% returns and higher.

Cons: Liquidity. Once invested, getting out quickly is difficult until the loan your money is placed in makes payment or pays off the loan. There are too many P2P companies cropping up for me to vet them all. Since the P2P company profits by making loans and servicing them while you take the risk of default, my concern (and a well-founded concern at that) is the quality of underwriting.  

 

YieldStreet

This is the riskiest investment on the list and is NOT guaranteed by any means. YieldStreet is unique enough with potential promise for certain investors I felt it needed a mention. 

This is similar to P2P investments above with the exception these are very illiquid with 5-7 year minimum time horizons. But the returns are juicy in the low double digits.

YieldStreet invests in some unique projects. Commercial real estate is about the most normal thing in their portfolio. Other investments include art, lawsuits, large ships and more. You get to choose which projects your money is invested in. Serious due diligence is required before investing with YieldStreet.

Pros: Very high returns. 

Cons: Extremely illiquid. Very high risk. Only for investors with a high risk tolerance. 

 

Vanguard Prime Money Market Fund

Vanguard has always run a solid investment house. Money market accounts might be boring, but they offer liquidity and are very low risk (about as low risk as you can get without saying guaranteed). I used Discover Savings and Capital One 360 for many years before moving to Vanguard Prime MM Fund. I switched when Prime paid a higher rate.

Pros: Low risk of a money market fund with a relatively high interest rate currently. Very liquid.

Cons: The interest rate in Prime follows market rates and has been falling recently due to lower rates in the broader market. If rates continue falling other alternatives may perform better. It is a good idea to bookmark this page to reference back as interest rates change and different investments provide superior returns.

 

Treasury Direct

I used Treasury Direct to hold the working capital of my tax practice for many years. When Treasury securities dropped to near zero other investments were a better choice. 

While Treasury Direct might not be the best option now, it is worth noting for future reference. 

Safe, high yield savings accounts are available. Here is a list of secret accounts you want to consider. #secret #investments #bankrate #bank #interest #interestrate #savings #savingsaccounts #savingsratesTreasury Direct is the portal for investing in U.S. government securities. You can buy bills, notes and bonds along with savings bonds and TIPS. Securities are held in the account.

T-bills have maturities as short as a few days up to a year. You can set your account on automatic, rolling over maturing securities until you need the funds. Cash is usually direct deposited back into your bank account. (Treasury Direct has a tool to hold funds awaiting investment in certain instances that I don’t like and therefore don’t recommend. Money awaiting investment is best in your regular bank account.)

Pros: Guaranteed by the U.S. government. Reasonably liquid. You can sell securities prior to maturity, but it is somewhat difficult to do. By laddering your short-term investments you can maintain reasonable liquidity.

Cons: Mildly illiquid in some cases. Rates tend to be fairly low except when the Fed is trying to slow the economy. Historically Treasury Direct was the best investment in town until ultra-low interest rates became the norm. You will want to review Treasury Direct for future use should the interest rate environment change.

 

Wealthfront

Wealthfront is one of many similar investment options for short-term money cropping up and worth considering. Their rate as I write (July 29, 2019) is 2.57% and is FDIC insured up to $1 million. 

The rate is relatively high for a short-term vehicle that is guaranteed (FDIC insured). There are no minimums (okay, they require at least $1) and you can get your money out at any time. Best of all, there are no income or net worth requirements. 

Pros: Liquid, low minimum, reasonable good rate. Easy to open an account.

Cons: Rate lower than Mercedes program above, but still reasonable in today’s interest rate environment. Rate likely to decline if the Fed lowers rates.

 

Betterment Everyday

Betterment is an investment company with some interesting new products to consider. The minimum is a mere $10 and is FDIC insured. There are two levels. The first level is a simple savings account paying 2.43% as of this writing. However, if you sign up for their wait list for their fee-free checking account your savings earns 2.69%.

Pros: Liquid, FDIC insured, excellent rate if on the Betterment Checking wait list.

Cons: Not much to dislike. The rate is likely to change over time so keep an eye on it. If another investment vehicle become superior you can easily move.

 

Ally

Ally is a favorite among readers of this blog. The rate is about what the Vanguard Prime MM fund pays (2.1% currently for Ally’s online savings account). Brand recognition provides comfort. Ally has more features than many other short-term investments listed here, allowing you to structure your account as it serves you best. 

Pros: Liquid, recognizable brand, numerous features to manage your account.

Cons: Lower rate than other options listed in this post. Only available to U.S. legal permanent residents or citizens.

 

Worthy Financial

Worthy is a unique investment I fleshed out a few months back. The main selling point is the 5% interest rate paid on Worthy bonds. 

Before you rush to invest, a few disclosures first. The link in the resources section after this post for Worthy and the link in my previous post on Worthy is an affiliate link. You and I both can get an extra $10 for using the link, just follow the rules.

Also, Worthy bonds are NOT FDIC insured or guaranteed and is not similar to money market accounts. They invest in business inventory. This could work well, but there is no guarantee of success. Worthy is a new company so you need to consider this before investing. Regardless, I would only put a portion of your short-term funds into Worthy due to the heightened risk.

I currently have $2,000 of my own money invested, plus all interest earned to date and all $10 affiliate payments received to date. That does not mean it is safe. I like to test things. A couple thousand is a nice way to test a product of this nature. Review the Worthy site and your temperament before investing.

Pros: It pays 5% with a $10 minimum. Liquid.

Cons: Higher risk compared to other savings vehicles on this page paying 2 1/2 to 3%. 

 

Cit Bank

We finish with the Cit Bank Savings Builder. Cit Bank pays up to 2.3%. Notice I said “up to”. You only need $100 to open an account and there is a introductory rate, however, you need a higher balance to receive the top rate. 

There are a lot of moving parts to this one. If you add $100 or more each month you get a better rate if you have a low account balance. Read the details to see if it fits your needs.

Pros: A basic savings account with reasonable interest rate.

Cons: Too many moving parts considering the rate offered as of this writing.

 

Final Notes

The facts and circumstances are sure to change over time so you must be willing to move your funds periodically to earn the best rate on your short-term  money. As interest rates decline again it will be more important than ever to stay vigilant. 

The list above is by no means exhaustive. I intentionally left many products I researched off the list. Some were outlandishly risky (as if YieldStreet isn’t risky enough). Some I left off to keep this post brief. 

I will address some of these investments in greater detail in the future and add to the list. In time I will publish a post for each geographic region of the world (eurozone, Japan, et cetera). The goal is to offer all readers at least one option that pays well for their location.

Short-term money was never meant to yield large returns. But it should at least grow some and safely.

Be sure to share investment vehicles you like but not listed here in the comments. We all benefit when we work as a team.

Thank you.

 

Bonus

I no more than hit the publish button when an article from CNBC on Green Dot crossed my desk. It is important enough to add this bonus after-the-fact.

It seems Green Dot is currently offering 3% on their savings account to encourage new customers, plus 3% cash back on their debit card! That is so massive it makes this accountant’s eyes water. There are limits, of course, so be sure to do your due diligence.

 

 

 

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.