The risks associated with day trading extend beyond the actual investment. Before the trade is placed consideration needs to be given to the tax implications. 

Profits and losses for day traders can be taxed under the rules for an investor, trader, mark-to-market trader or dealer. There are pros and cons to each method.

Facts and circumstances prevail. Yet, the rules are not always clear. 

 

Investor vs. Trader

The factors you need to consider when determining if you are a trader or investor, include:

  1. Holding period.
  2. Frequency of trades and dollar amount of those trades.
  3. Does the taxpayer pursue the activity as a livelihood?
  4. Time devoted to the activity.

On the surface this may sound straight forward, but as Endicott vs Commissioner, TC Memo 2013-199 shows, it is not.

Endicott used a strategy of selling covered calls. He did not trade every day and usually allowed the options to expire.

Most people would consider Endicott an active trader. He had 204 trades in 2006 and 303 trades in 2007. The court concluded this was not substantial trading. However, in 2008, Endicott made 1,543 trades, which the court said was substantial.

Endicott had purchases and sales of around $7 million in 2006; nearly $15 million in 2007; and about $16 million in 2008. The court agreed these were all substantial amounts. But the court couldn’t keep it simple. They went on to say “managing a large amount of money is not conclusive as to whether a petitioner’s trading activity amounted to a trade or business.” The court is saying large amounts of money being traded is not enough. This is why tax professionals say “facts and circumstances” so often.

You can use this chart to help you make a determination for your situation.

Characteristics of Traders and Investors

 

Cryptocurrencies

Remember, these rules apply to taxpayers who buy and sell securities or commodities only. These rules do not apply to cryptocurrencies. The IRS considers all crypto as property. The SEC clearly states wash sale rules only apply to securities.  This means wash sale rules do not apply to crypto. Significant tax-loss harvesting is possible as a result.

 

Tax Implications for Investors, Day Traders, MTM Traders and Dealers

The chart at the end of this post provides a guide on how taxes apply to investors versus day traders. The advantage of being a trader is the deductibility of margin interest and other business related expenses on Schedule C. Both investors and traders still face the capital loss limits, but traders get the additional deductions of related expenses and margin interest. (Long-term capital gains are taxed preferentially. As a trader, all the LTCGs get the favorable treatment while expenses can be deducted against other income, usually taxed at ordinary rates.)

(The capital loss limit allows the taxpayer to deduct losses of up to $3,000 ($1,500 if married filing separately) against other income.)

To avoid the capital loss limits you can elect to be a mark-to-market trader. Wash sale rules also do not apply to to MTM traders.

Dealers are required to follow MTM rules. (Dealers have a place of business where they engage in the buying and selling of securities for customers. )

A trader can elect to use mark-to-market rules [IRC Sec. 475(f)]. Most tax software has an elections page where you can check a box and the election is automatically populated.

Mark-to-market rules:

  1. All securities gains and losses are treated as ordinary income or loss.
  2. Securities held at the end of the tax year are deemed sold at FMV.
  3. Basis of securities deemed sold at year-end are adjusted accordingly.

The biggest advantage of making the MTM election is to avoid the wash sale rules and to sidestep the capital loss limitations.

The MTM election can be revoked, but you must wait at least 5 years before you can elect again. Since the mark-to-market election has limits, you need to consider the election carefully.

Other issues to consider if you are thinking of making the MTM election:

  1. The MTM election must be made on a timely filed original return, without consideration for extensions, for the taxable year immediately preceding the election year. 
  2. You can attach the election to a timely filed extension.
  3. You also must attach Form 3115 (Change of Accounting Method) if you do not make the election in your first year as a trader (Rev. Proc. 2019-43).

Investors, traders and MTM traders do not pay SE tax and earnings cannot be used to fund IRA/SEP contributions. However, a dealer does pay SE tax and can use gains for IRA/SEP contributions.

Taxing Individuals Who Buy and Sell Securities

 

As you can see, this isn’t the easiest area of tax code to navigate. I strongly recommend you consult with a competent and qualified tax professional when dealing with the trader/investor classification and before you make the MTM election.

May all your trades be profitable.

 

More Wealth Building Resources

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

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

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

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

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.

 

Before taking the plunge into retirement, early or traditional, you need to consider factors that will reflect the rest of your life. Handled correctly, early retirement can be a fulfilling blessing. Without proper planning you risk a return to employment you wanted to get away from.

Retirement means different things to different people. Some want to sit back and enjoy a life of leisure. Others wish to travel extensively. And there are some who consider retirement the grand opportunity to start the business of their dreams (maybe not technically retirement, yet still fulfilling), write a book or engage in charitable work.

The path you choose is up to you; there is no right or wrong answer as long as it suits your temperament. There are considerations with right and wrong answers. Get these wrong and retirement can be less than the blessing planned.

Money and taxes play a large role in when you retire and what activities you engage once in retirement. Meaningful activities and family are also serious considerations. 

To help you prepare for retirement, I will discuss 10 things of vital importance to smooth the transition. I provide a starting point. You need to prepare from the starting point I provide so retirement plans are retirement realities.

 

1.) Meaningful Activities

Money gets all the attention. What you do with all the extra time available to you is even more important.

The planning takes on heightened significance when a spouse, significant other or children enter the picture. Will you travel or be a homebody? Where will your travel plans take you? World or domestic travel? And what activities will travel involve? Hiking? Mountain climbing? Tourist areas or off the beaten path? Tours or on your own? These and other questions need to be addressed.

Travel duration also needs consideration. Some people are wired for long duration trips, with the itinerary stretching months to even years. Other folks start feeling anxiety after a week or so on the road.

Between travel you will have time to explore things you may have wanted to do in the past. Charitable work now becomes more than just a small donation periodically. You can put serious work in at the food bank or homeless shelter. Animal lovers might consider animal shelters.

When working on retirement issues I remind clients, “Retire to something, not from something.” Don’t turn retirement into an empty shell. Make it the most exciting time of your life. So exciting you wonder why you didn’t start retirement sooner. That requires moving to something better than you have right now.

 

2.) Dream Business

There is always that one thing you wanted to do, that business you wanted to open. Early retirement is the perfect opportunity. Not that you can’t start your dream business if you retire at an older age; you just have more years to explore and evolve your business if early retirement is on the menu.

The time to start planning your dream business is before you punch the clock the last time. Every business idea requires research, and the time to start that research is now. You might discover your dream business pays better than working for the man, which means you get to retire to the life you want as a business owner a lot sooner.

The business ideas that excites you will determine your course toward and in early retirement. Many businesses are full hands-on operations. Restaurants, for example, are not a side hustle, while forensic accounting can be.

 

3.) Share Your Knowledge

Retirement is not death. If you look up the definition of retire in the dictionary it isn’t something you want to aspire to. Who wants to be “used up”, “obsolete”? When you don’t plan your retirement it can end up that way. Not you! The most important part of your life is about to begin.

You have a story and you need to tell it. You have acquired skills and experience from years of work and living. Don’t let it go to waste.

A large part of life outside formal work, what we call retirement, is sharing. You never know when an opportunity to help someone arrives.

Retirement should offer a comfortable pace in living life. This means you have time to notice things and help as needed. 

You can also create the opportunities to make a difference. Consider mentoring a child or even an adult. 

Write a book. I mean it! It doesn’t have to be an 800 page doorstop. It doesn’t have to find a home with a traditional publisher either. It should be a long as it needs to be and not a word longer or shorter. Offer it for free as an e-book if your story doesn’t fit traditional book categories. Your personal experiences are a story you need to tell. Your experiences in your profession are another story. You may need to write several short books or maybe a long one will do. Regardless, get your story, knowledge and experiences on paper. Let your story continue on with all your readers. Let your readers grow from the base you built. I call it the pay-it-forward revolution. Join the greatest army ever envisioned.

 

4.) Where Will You Live?

As you consider your options in retirement be sure to think in three dimensions. Planning your finances are important. Planning life activities are important. Where you live is of vital importance.

Your favorite accountant lives in the backwoods of Nowhere, Wisconsin. I love it here and will spend my remaining days on this hallowed ground. You may feel the same about where you live. Or, maybe not.

Thinking in 3D means opening your mind to options. Living in a home bolted into the ground is traditional, but not required. I know many people who took to the road in an RV once they retired.

Challenging vacation destinations are still on the table since you probably still possess the vigor of youth. (Note: Never grow old. It’s a trap!)

Little pink houses might be the traditional course expected of you. Instead, living in the mountains might fill you with the juice of life. Then you should do it! Maybe you want to live in another country, enjoying a new culture, people and language. If that is you, then do it! 

And remember, you are not wedded to any choice you make. You might have an itch to RV for a few years before settling down. No problem. While on the road you can open your horizons and start planning where you will live as you enter the next phase of your life.

Planning your early retirement is planning your future. Who you travel with makes all the difference.

5.) Manage Assets

We started with the fun stuff to consider as you prepare for early retirement. Now we need to get serious and talk about money and {ugh!} taxes. 

First, debt in retirement is an unacceptable risk. Paying off the credit card in full each month is not considered debt in my book. Credit cards used this way are a money management tool. Some debt isn’t the kiss of death. Still, if you enter retirement, early or traditional, with debt, you need to have a firm action plan to reduce and eliminate that debt.

Your investments now need attention. The current economic environment will determine the stock/bond/cash mix. As I write, I do not consider bonds a viable option for most investors. Maybe a few bonds in the right situation, but when interest rates are low, bonds will not do the job. And long-term bonds have high risk if interest rates climb.

Having all your money in stocks (index funds preferred) isn’t a smart move either. Instead, you need the right mix of index funds and cash. How much you need in cash takes some explaining. Good thing I fleshed out the details in a previous post. I highly recommend you read, bookmark and re-read that post. It is vital information.

 

6.) Taxes: Overview

Like it or not, you need to spend time considering tax consequences in retirement. Taxes take a serious bite out of your wealth. Retirement does not change that.

We will spend a few minutes discussing the more important issues surrounding taxes in retirement. Nearly every consulting session I have in my office involves the issues I discuss below. 

Taxes are complex. Even the Tax Court disagrees with itself on what the tax code means in certain instances. You might think you understand tax law. You don’t. No one human can understand the entire U.S. tax code. That is why I strongly recommend you build a relationship with a competent tax professional. Pay them for consulting! My wealthiest clients demand 2-3 consultations per year on taxes alone. That is why they are the wealthiest. Read and study tax issues that apply to you. Then bounce it off a tax professional with the experience to show you the cause and effect over all tax years involved.

 

7.) Taxes: Converting Traditional Retirement Accounts to a Roth

A common issue I have in consulting sessions is the client’s focus on required minimum distributions (RMDs) from traditional retirement accounts. While it is a tax issue, it usually should be third or fourth on the list.

A primary concern as you plan for early retirement is using low tax brackets. Unless you have a high income from a side hustle, business or investments, converting traditional IRAs to a Roth is a primary concern. Over your working career you built a retirement account. The non-Roth retirement monies will be taxed at ordinary rates when they are distributed. Using your lower tax rate once you retire allows you to move money from traditional retirement accounts to a Roth with little to no tax pain. Under current tax law, the 0%, 10% and 12% tax brackets are where you want to play. Your facts and circumstances will determine your course. For most, utilizing low tax brackets is a powerful wealth retention tool.

I want to toss another tax planning tip into this section. Long-term capital gains (LTCGs) and qualified dividends are taxed at preferential rates. On a joint return in 2021, for example,  LTCGs and qualified dividends that fall under the $80,800 threshold are taxed at 0%. Knowing this, you now have an interesting interplay between converting traditional IRAs to a Roth and maximizing the LTCG 0% tax bracket. A tax professional can help you maximize the benefits of converting to a Roth while considering the LTCGs preferential tax treatment.

 

8.) Taxes: Social Security Benefits

Early retirement has benefits few consider, but should. Social Security benefits might be in the distant future. But time counts and before you know it you will actually be retirement age. (Good thing you were practicing all the while.) 

In Point #7 we discussed the interplay between tax rates for ordinary income and LTCGs. Here is why it is so important to use those lower tax brackets when you can.

Social Security benefits are sometimes tax-free. There are income levels where Social Security benefits start getting taxed. For example, on joint returns, combined income (see link for calculating combined income) over $32,000 can see up to half of benefits added to taxable income and 85% of benefits for combined income over $44,000. These numbers are low so it is getting harder each year to stay below these limits because they are not indexed to inflation. Early retirement changes that! You might save serious taxes currently and down the road with proper planning. Utilizing low tax brackets optimally can reduce taxes even more once you start collecting Social Security benefits.

 

9.) Taxes: Required Minimum Distributions

The Secure Act raised the age where you must take required minimum distributions (RMDs) from 70 ½ to 72. As I write, Congress is working on the Secure Act 2.0, where RMDs will gradually more to age 75. Both sides of the isle like the higher RMD age and passage is likely.

People worrying about RMDs at a young age might be focusing on the wrong issue, as a result. Yes, contributions into a traditional retirement account feels like taking out a loan sometimes, since you later have to pay tax back on all the distributions, your original money, plus gains. With RMDs getting pushed to higher ages, you have more years to maneuver your finances for lower taxes. 

As easy as the RMD concept is, it is really very complex. The interplay between LTCG rates and traditional IRA distributions taxed at ordinary rates, requires a seasoned hand in the planning process. This is where your tax professional comes in. Your facts and circumstances will determine your optimal tax and financial course. 

 

10.) Legacy Planning

 

Early retirement means you are still young. Thinking about your legacy doesn’t always cross the mind. It should.

As you review early retirement considerations, commit time to legacy planning. Are there charities you would like to support? How much do you wish to leave the kids (enough to help, but not too much to spoil)? Are there family members that could really use financial help? Friends?

Planning your legacy means seeing an attorney. You need a will and a durable medical power of attorney. Consider a living will. Your legal and tax professionals team can help you determine which tools are best for your situation. There are so many vehicles out there to accomplish your goals. Who know? You might end up with a NIMCRUT

 

11.) Bonus: Dealing with Medical Issues

I write for an American audience primarily. That doesn’t mean incredible people around the globe shun your favorite accountant. For my friends around the world, you can sit this first bonus tip out, since this is solely an American problem.

Early retirement has once serious flaw, health insurance. Prior to age 65, when Medicare kicks in, you need to have a budget that includes medical insurance and out-of-pocket medical expenses. I wish I had a magic bullet that serves all readers. Instead, I have a few options to consider. 

There is medical health sharing to consider. However, these are Christian based and not all readers are of the Christian faith. I published previously several choices when it comes to health care coverage. Having a side hustle or small business helps. If you are looking for health insurance options, be sure to read the linked post.

 

12.) Bonus: Loneliness

No matter what age you retire, time will keep counting. Friends will move on to different things. Family and friends may not retire when you do. Health issues may change your best-laid plans.

And worst of all, couples need to talk about the inevitable. The odds are one of you will leave this world first. The crushing pain can become unending loneliness.

Talk with your significant other, children and friends about life when one of you is gone. Build a network. 

The best time to start planning for loneliness issues is yesterday. You never know when the Good Lord will call. I have ample examples in my small tax practice of people dying at a young age. It will be a difficult time regardless the age the Reaper comes knocking. By planning ahead you give ample consideration to your options. There will still be times of loneliness, but they can be kept to a minimum.

As you discuss with your significant other about life where one of you is gone, topics to discuss include: travel plans, activities, support, living arrangements and friends. 

 

Coda

Retirement is a major lifestyle change. This accountant would like to manage his business forever, but reality suggests that is not the best plan. The earlier you retire the more financial resources you will need. Your health plays a powerful role. 

Early retirement isn’t a solo journey. Many will travel with you, if only for a short distance of the journey. Have a team. Family and friends, of course. But seasoned professionals, experienced in working with people on a life journey.

Remember, you only come this way once.

 

 

More Wealth Building Resources

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

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

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

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

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.

 

The excitement of bitcoin and other cryptocurrencies has risen to the height of the casino run. The house holds the odds, but for the moment, the card gods are looking kindly upon the gambler.

Some say the run has just begun. As I write, bitcoin is north of $50,000 with at least one large investor feeling bitcoin is going to somewhere around $500,000 per bitcoin! Mark Cuban was not interested in plastic wristbands that promised more energy (a scam), but has no problem with owning cryptocurrency. Interesting. 

Then we have the other side of the, ahem, coin. Black Swan author, Nassim Nicholas Taleb, calls bitcoin and other cryptocurrencies a “game” and “gimmick”. He has a point. While fans of cryptocurrencies consider the digital currency the future medium of exchange, no cryptocurrency is considered legal tender anywhere on the planet.

Then we have the touted benefits. Bitcoin is safe, secure and anonymous. You don’t have to be up to no good to want your personal information private. And most feel strongly that the government should not have detailed financial information on its citizens. Facebook and Google, either.

The downside is that cryptocurrencies are not that safe. People lose the key or password to their crypto wallet and there is no way the retrieve the money. It is gone forever, like cash left in a burning house. And if you are diligent about safeguarding your password, the are stories of people losing serious money in stolen cryptocurrency.

I am not here to judge. Whether you love, hate or don’t care a lick about cryptocurrencies, they are here to stay for the foreseeable future. At some point you will be tempted to either invest in a cryptocurrency or accept it as a form of payment.

The pros and cons have been shouted from the rooftops by traditional media and trumpeted on social media ad nauseam. And all that shouting forgets to mention two very serious issues with bitcoin and other cryptocurrencies.

The first risk involves lost opportunity costs coupled with the realization more and more supply of cryptocurrencies will continue as long as there are buyers. This eventual realization will drive home the fact that nothing of value supports the price of any particular cryptocurrency. Most currency on the planet is fiat, or by decree of the government issuing the currency. Some would argue nothing backs this form of money either. But at least fiat money is usually legal tender, which means they must be accepted in the country of issuance as a form of payment for a debt.

The second rarely discussed risk is taxes, Yes, plenty has been said about the reporting of cryptocurrency transactions on your tax return. What I am talking about goes much further. There is a final endgame that must be reached and when it does there will be a taxocalypse for many people and businesses. 

The list of virtual currencies is growing. Supply is not limited. Bitcoin.

The list of virtual currencies is growing. Supply is not limited.

Risk #1: Interest on Bitcoin and Other Cryptocurrencies

Interest rates have been scraping the floor for a decade and longer. Still, if you save money you have the possibility of earning interest on that savings. You can be even more certain you will pay interest if you borrow money. 

The interest rate a borrower asks covers risks of nonpayment, inflation, lost opportunity cost (could the lender earn more lending elsewhere) and the change in the value of the currency the money is lent in. 

Inflation and risk of nonpayment predominate almost all lending. The less financially sound the borrower, the higher the rate of interest changed to offset the risk. If inflation rears its ugly head you can be sure lending rates will go up for all borrowers. 

Lost opportunity cost plays a very small role because borrowers rarely consider alternative investments. They are in the business of lending money and lending money is a reasonably exact science. Credit scores, for example, allow all lender to see the same information when making a decision on lending funds. Different lenders have different rates. All loans from that particular lender will have the same interest rate (or reasonably so) for loans to borrowers with a similar financial makeup.

The value of the currency and its rate of change also play a small, if nonexistent role in lending rates. Most currencies change in value against other currencies by insignificant amounts on a daily basis. Periodically a currency will go into free fall. This is caused by high inflation which is caused by a government out of control in the money printing business. We saw some countries in Western Europe require bailouts recently due to loss of confidence. The rate of interest these countries had to pay was extremely high compared to other developed nations. The currencies suffered as a result. With uncertainty in the currency, few wanted to lend or borrow in that currency.

Now let’s relate this to cryptocurrencies. Bitcoin, as our example, can change in value more than the currency of a failing state. It is not uncommon for a cryptocurrency to change in value more than 20% in a single month. 

With such volatility in the currency, the risks to the lender and borrower are massive and go beyond the normal credit-worthiness of the borrower and the current and expected inflation rate. If everyone believes the cryptocurrency is going to continue climbing, lenders will be reluctant to borrow, except at extraordinary rates. Lending out their bitcoin would cost them the opportunity to benefit from the continued rise in the value of bitcoin. It would take a very high interest rate to seduce the lender to lend out their digital currency. 

Borrowers will have the opposite attitude. They will not be willing to borrow at such high rates with the risk that the cryptocurrency does not change in value as assumed. If bitcoin doesn’t climb in value enough the borrower is stuck with an even higher interest rate as compared to other currencies.  

Update: I was reminded you can deposit your virtual currencies and receive interest here. That means you can earn a return on your savings in cryptocurrencies. As a comment introduced me to this, I decided to sign up for the affiliate program. You could turn this accountant into a massive liar if you sign up with BlockFi using the link, as they pay $10 in bitcoin. (I said I would never buy a cryptocurrency. As for owning, well, that could be a different story.)

When was the last time you heard anyone worried about the change in the value of the dollar playing into their lending attitudes? When inflation ran high in the 1970s and and early 80s it was an issue. Inflation was killing the dollar, causing higher interest rates, and rates climbed to adjust for the currency devaluation (inflation) risk. High interest rates carry a higher risk. If the asset purchased with the borrowed funds does not appreciate at least as fast as the loan interest, the borrower is effectively paying a higher original price for the asset. 

Who wants to borrow 10 bitcoins to mortgage a home purchase when those same bitcoins might be worth $500,000 per bitcoin later? Unless you think you will see high inflation increasing your income, the risk is phenomenal. (Yes, if you are paid in bitcoin it affects the numbers.) Of course, you could borrow the bitcoins and hedge it against another currency like the US dollar. But that is the point. If everything goes back to legal currency, the cryptocurrency is just a high stakes gamble. Only when people start converting dollars to cryptocurrencies because the cryptocurrency is the overwhelmingly preferred mode of exchange, will cryptocurrencies replace legal tender. And that is unlikely because governments do not like to lose control over money within their borders.

There is a reason why opportunities to lend out your bitcoin are scarce and options to earn a return on saving in fiat money are numerous. At what rate would you lend out your bitcoin, knowing bitcoin could appreciate 50% or more over the next year? 

Until cryptocurrencies have a stable value will they be a serious form of exchange contender. That means lending out your cryptocurrency for a return is an unlikely option and one that could easily backfire. That leaves you with cryptocurrency appreciation or you will lose.

Bitcoin, cryptocurrencies, digital currency, virtual currency. The ultimate fiat money.

The ultimate fiat money? By decree of blockchain.

Risk #2: Taxes on Bitcoin and Other Cryptocurrencies

This one is easier to explain even though it is rarely discussed.

Cryptocurrencies are a pain in the tail to account for on the tax return. If held as an investment it in not a serious matter. If you use bitcoin to purchase goods and services, each transaction is considered a sale of bitcoin and needs to be reported on the tax return. 

If the cryptocurrency exchange gives you an annual printout the problem is muted. Drop the bottom line numbers on the tax return and scan and attach the printout. That is the easy part.

Since cryptocurrencies are pointing skyward, nobody asks about the consequences if bitcoin started to slide for a prolonged period of time. It is inevitable! Eventually the climb will stop and there will be times where the currency declines in value.

The IRS has provided guidance in Notice 2014-21. All virtual currencies are property according to the notice. That means each exchange of the virtual currency is a taxable event. We discussed that above.

What it also means is that if you are using bitcoin or any other cryptocurrency and you suffer a loss due to sale or purchase of a good or service, the loss can be limited. 

Under current law, capital losses are allowed to the extent of capital gins, plus up to $3,000 per year against other income. In laymen’s terms, all gains are taxable immediately while losses in excess of gains of more than $3,000 are carried-forward to future tax returns instead of being currently deducted.

At first glance this might not be such an issue. But once you consider the large changes in value many cryptocurrencies are experiencing, it is easy to see a taxpayer with large losses that will take decades or centuries to deduct. 

Why do I consider this such a serious risk? First, at some point virtual currencies will suffer a prolonged downturn. It is inevitable. When that happens, people who bought bitcoin with dollars already taxed will be unable to deduct the losses for a very long period of time, if ever.

Then we come to divorce. Where you live determines the rules. Regardless, it will not be fun.

We end with your end. When you die (as inevitable as bitcoin dropping in value some day) your unused tax losses are lost. Married couples living in marital property states might find a way to preserve half those losses.

Even worse, upon death there is a step-up in basis, or step-down! If your cryptocurrency appreciated then the step-up in basis to the value on the date of death will be a tax benefit. But if we are in the midst of the inevitable decline at the time of your demise, there will be a step-down in basis. Yes, that means it is possible to be double taxed if the virtual currency starts to climb again. (If you buy $100 of bitcoin (bought with money already taxed) and it declines to $50 on the date of your death, the basis is adjusted to $50. If bitcoin then climbs to $100, your beneficiaries will have a $50 gain if they sell at that time. $50 is double taxed!)

Is bitcoin the future of money?

Parting Notes

I have never owned any cryptocurrency. I’m an investor, not a gambler. The risks are too great for this country accountant. Knowing the risks outlined at the beginning of this article coupled with the less often discussed risks listed in the heart of this article make virtual currencies unenticing to me. 

The tax issues surrounding cryptocurrencies add complexity where none is needed. As an investment, these virtual currencies rely upon the greater fool theory: you are counting on a greater fool to pay you more than what you paid for the virtual currency. I’m not trying to be rude. These digital currencies are backed by nothing. Blockchain is not a backing, only a security and anonymity feature. Like any currency bought and sold on the futures markets, you are either hedging or speculating. Businesses might consider hedging virtual currencies if they become widespread in use in trade. Everyone else is a speculator and needs to know it.

Again, I am not here to judge. It matters nothing to me if you invest in bitcoin or not. It’s actually good for my business, all those transactions to report.  If it is what you want to do, I have no problem with it. If someone is trying to talk you into buying a virtual currency, consider that you might be the greater fool.

And remember, the greatest fool is the last one holding the bag.

 

 

More Wealth Building Resources

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

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

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

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

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.

The backbone of financial wealth is built on hard work. Yet, physical, mental, spiritual and financial wealth cannot coexist with uninterrupted labor. Every business owner knows, or should know, the power of a vacation. And if you want optimal health and wealth, you better know, as well.

There is a misunderstanding in society of what a vacation really is. Americans think of it as a two week power getaway. (As an American I admit my culture burns at a higher heat and needs to slow down, at least when we take time off. Much of the world already understands this.) The Continent shuts down for August.

Many countries around the world have extended holiday opportunities for employees. Yet, we idolize the hard working business owner that never takes a day off. 

The employee who never takes a day off is not only less effective, but also the employee most likely to embezzle from your firm. (You can’t take a day off over fear of being discovered.)

Vacation time is a great time to read and relax. Enrich your mind while your body destresses.

We idolize those perceived as working endlessly. Who can forget the dedication to detail of Steve Jobs? Does anyone work harder than Elon Musk? Or Bill Gates in his younger days?

While some can work for longer at higher levels of efficiency and creativity, that is not the default for most people. As much as we idolize the accomplishments of Jobs and Musk, each found time to get away and relax. From Albert Einstein to Bill Gates to Jobs and Musk and every other great accomplishment prodigy ever created by the human race, it was the moments of quiet where the magic happened. 

Elon Musk is famous for saying he hates vacations or even the idea of vacations. Yet, Musk steals away when he can to focus his thoughts and increase creativity. Bill Gates has “think weeks”. Einstein would think quietly and alone. This is how he imagined such wonderful things that help us understand our world better and is the basis of so many of our modern technologies.

 

Long time readers of this blog are quick to point out my disdain for travel. The truth is I don’t mind traveling. I much prefer a quiet retreat, unrushed, so I can focus on ideas and creative endeavors. Still, I know deep inside when it is time to pack my bags and visit folks outside the backyard.

So why does a guy that limits his vacation time write a blog post on vacations? Well, it is personal and I would like to share the story.

There are five distinct types of vacation. Each type can be sliced and diced into smaller and smaller components, but in the end there are really only 5 to choose from. 

Where you are personally will determine the most appropriate vacation for you at this time.

My youngest daughter, Brooke is heading for her fifth surgery since early December. (For people reading this much later, I am writing in mid-April at 4 a.m. the Monday before the surgery.) She heads UW Health in Madison late Wednesday for a very early surgery Thursday morning.

Brooke had a series of strokes the past few years and she had very serious strokes last autumn. What started as two surgeries opening her head turned into six due to complications. This week they are replacing the large piece of skull removed from an infection that set in from two surgeries ago. You can read more of the background here.

It is these personal events that have me taking an unscheduled vacation and where we will begin our discussion of each type of vacation and when each is most appropriate to take.

The best vacations avoid the tourist traps. The out-of-the-way places can satiate the spirit more than any other vacation destination.

The Five Types of Vacation

The Long Weekend Vacation

Needless to say, time off daily is a necessity. A good night of sleep is vital to good health. And since fatigue does not bring out our greatest productivity, time off, rest and a vacation can actually help you get more work done than if you never took a minute of rest.

Tax season is brutal for me. Long hours with few days off take a toll. I often get to the office at 4 a.m. and go all day, and sometimes even work into the evening. 

Outside tax season is a different story. I work the early morning hours from home as often as possible. The office is closed on Friday, for a 3-day weekend. 

Just because the office is closed for a 3-day weekend all summer doesn’t mean I can’t think about work. I still read books that educate, answer emails and talk with clients. There are fewer interruptions and the pace is slower so my mind is settled. Just as time off should be.

 

A subset of The Long Weekend Vacation is The Unplanned Vacation. That is where I am at this week personally.

The Unplanned Vacation usually involves the unexpected. A death, illness or other unplanned event surprises us. 

In my case, we knew of, and planned, Brooke’s surgery. It still falls under the “unplanned” column because we have no choice in the timing and the time off is not voluntary.

I will be in the office Monday through Wednesday, probably with shortened hours. Thursday will begin my weekend this week. The early week in the office will keep my mind distracted and Thursday I will be unable to focus while my family awaits news from the surgical theater so I’ll sit and wait. 

 

The Long Weekend Vacation, planned or not, is a short-term break from the routine. It doesn’t have to be every week, or seasonal, as it is in my business.

The important part to remember is the power of the pause that refreshes. When you can walk away and clear your mind, the best ideas will bubble to the surface. The extra day or so of down time can super charge your effectiveness and efficiency the following week.

Vacation time is an opportunity to discover your history and make new friends.

The Two-Week Vacation

Let’s call this the American style of vacationing. Two weeks crammed full of as much as you can stuff into it as you can. Maybe it is a power job around the house or a hyper-planned vacation. In either case, it is filled with as much as can be packed into it, plus a bit more. 

The week-long, 10-day, and two-week tour package fits nicely into this category. Several years back my parents invited Sue and me to a 10-day tour of Costa Rica. It was very nice, but waaaay too rushed. You really can’t really see an entire country in 10 days! I prefer to bed down deep in a community and really get to know a few people.

The Two-Week Vacation doesn’t have to be rushed. Too many Americans use some hectic version of this type of vacation, in my opinion. 

Two weeks is long enough to start to unwind and relax. If you fill too many spaces it becomes your new job, stress and all, for a few weeks before you are happy to be back to the old grind.

Work should never be a grind! The Two-Week Vacation can offer plenty of relaxation and recharging. It is a real opportunity for undivided family time, reading and reflecting.

Don’t underestimate The Tw0-Week Vacation. Just slow it down a bit from the American Style.

 

The European Vacation

My friends across the pond really know how to take a vacation. The Continent comes to a stop during August (except for those in travel, food and entertainment) as people of all ages take a collective deep breath. 

Correct me if I’m wrong, but in Europe, August, or any vacation time for that matter, is at a much more relaxed pace. While The Long Weekend Vacation and Two-Week Vacation have a lot going for them, a full month at a slower pace does more to revitalize. 

This brings up a good point. Short vacations are important, but a longer, deeper vacations periodically are also a requirement. 

The American Style vacation wasn’t always so rushed in America. My grandparents took extended time in Hawaii and Europe in their younger days. And we were farmers where cows had to be milked every day! If there is a will, there is a way. My frugal grandfather proved you can slow down, enjoy, without breaking the piggy bank. American need to get back to this.

It takes time to enjoy an exotic vacation. Extended vacations allow for discovery of true delights.

The Australian Vacation

I hope I am not crossing a line with something stereotypical. Many years back I made the mistake of identifying a man as Oriental (as he also introduced himself as) in a blog post. The outrage was swift and deafening until I asked what I was supposed to say? “Asian!”

Oh! 

When you live in the backwoods you sometimes don’t understand or know what the rest of the world thinks about phrases used “when I was growing up.”

No offense is intended if this is one of those cases.

 

I was told on more than one occasion that when you travel the world you will meet a lot of Australians. I don’t know if it is true or not, but since I heard it more than once from different people I think there might be something to it.

My understanding is that the fine folks from down under take vacations and travel seriously. As in 6-weeks or longer serious!

What I like about the extended (my term for what I consider really long vacations) time off is that you can really settle in. This allows you to really get to know people on a more personal level. With time, people share more things about themselves and their communities. The slow pace has massive advantages.

My oldest daughter, Heather, enjoyed a full summer in China. She stayed with a host family as she taught their daughter, Dora, English as a second language. It has been years and Heather still talks with her host family and Dora on a regular basis. There is a connection between our families that runs deep. Sometimes our eyes wander to the East as we contemplate friends far away.

 

A subset of the Australian Vacation is the Gap Year Vacation. This extended vacation runs to a year or longer. 

When people in high stress jobs burn out they frequently take one of these Quasi-Retirement Vacations, only to discover they miss the excitement of the battlefield and head back to the mosh pit after extended time off to gather their thoughts.

A Gap Year (or three) is valuable for young people, too. Immersing in a culture or a personal project for a few years brings life-long benefits. Traveling the world, if that is what excites you, gives you multiple perspectives and worldviews. (Might I suggest to my American friends you don’t only hang with Americans. If you bring home with you, some of the benefit is lost.)

Rekindle love or build on a new relationship. A vacation offers plenty of time for you.

Retirement

The ultimate vacation is retirement, where you leave and don’t come back. I know too many people that rush this type of vacation. Unfortunately, it is a one and done. (Unless you made a mistake and it was only a Gap Year/s.)

There is an American flavor to retirement, as well, where you rush to get there as early as possible only to rush to travel the world only to rush to. . . 

You get the point. Slow down, take a break and enjoy. Retirement is overrated. Desires of retirement usually mean you are in the wrong profession or just need one of the vacations listed above. 

Don’t get me wrong. There is nothing wrong with the long walk (retirement). Just make sure it is what you really want. 

 

Now my mind drifts to personal issues again. The surgeon is opening Brooke’s skull for a fifth time with a guaranteed sixth time in a few months. Of course my thoughts as distracted. 

I will enjoy many three-day weekends this summer. I will read and write and plan and work around my farm and. . . 

I’ll have fun, is what I’m saying.

This weekend will be a 4-banger, four days filled with a lot of sitting, waiting and praying. It is an important vacation, if you can call it that.

 

And you, my kind readers, all vacations are important. Make sure you don’t skimp. It is as important, or more so, than the work we fill our time with.

 

More Wealth Building Resources

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

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

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

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

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.

Frugality is the animal that must be bred to achieve financial goals. There is no amount of income that can’t be spent, and then some. If you don’t believe that, take a long look at the U.S. government to get a view of an amount of money that can be spent with ideas to spend more.

The seed of wealth is the money you didn’t spend and instead invested. That is the only course in building a steady stream of income to enjoy the life you want. 

The investment isn’t the problem; the seed is. You can generate a generous income stream from real estate, index funds or a business. In each case it is the excess cash you didn’t spend that is the seed that grows to satisfy your dreams.

The more frugal the lifestyle, the less you need to retire. 

Image a man with a million dollars invested. Is he rich? Could he retire? Well, the questions are impossible to answer. If he spends $300,000 per year the million isn’t so much. If he spends under $40,000, he qualifies under the 4% rule to retire because he is unlikely to ever deplete his nest egg. 

 

We have all seen short lists of frugal things we can do to cuts costs. Those lists tend to focus on daily actions that can save a few dollars. This list will have some of the same advice, but will also include actions that are long-term in nature and build serious financial wealth. Coupled together, the long and short term frugal behaviors, lower your cost of living without giving up anything that you value in life.

Frugality sometimes gets a bad rap because it is perceived as depriving yourself of things you want. Nothing could be further from the truth! Frugality is discovering what you truly value and focusing on those things that give you the greatest pleasure. Nobody ever found nirvana in being a buying unit. (Well, except for that one guy in Tupelo, but I have it on good authority he doesn’t read this blog so I am safe.)

This list of frugal tips and tricks will not ask you to give up anything. I will ask you to reconsider your behavior, as in, how to acquire the things desired.

Epictetus gave us words to consider close to 2,000 years ago:

Demand not that things happen as you wish, but wish them to happen as they do, and you will go on well.

For our discussion, this means that we can’t gain the maximum benefit from these frugal tips and tricks if we refuse to make even the most minor of changes to our behavior. In other words, you can still enjoy a pot of coffee every day, but every cup doesn’t have to cost $5. (I might ask you to consider a more modest caffeine intake over health concerns if you consume a whole pot every day, however.)

As we begin our list, know that these tips are in no particular order. I am not going from smallest savings to largest or shortest term to longest term tips. I mix it up because that is how life comes at us, in bits and pieces. It is how our billfold gets crushed, too. Rarely are our financial woes the result of one decision (and even if it is, these frugal tips will get you back into the game quickly); it is usually financial death by a thousand cuts.

Let’s begin with our morning cup of coffee since the topic has already been broached.

 

1.) The Best Coffee You Ever Drank for Pennies a Cup

The morning cup of coffee is something many people cannot give up. I understand. Office coffee can be nasty so stopping at Starbucks along the way has become a routine. At 5 bucks a cup (price depends on geographic location) that adds up over a year. 

You can have coffee equal in quality or better with the right coffee machine and coffee beans. Many years ago I wrote a series of short articles on getting a really good cup (or pot) of coffee for a fraction of the price at a coffee house. Fill your coffee mug before you head out the door and you keep $1,825 in your pocket each year, assuming you only imbibe with one cup per day. 

Here is the list of articles I published on coffee:

Gourmet Coffee for Less

Kona Coffee: The Drink of Heaven 

The Best Coffee Machines

Choosing the Best Brew Coffee Machine

The best cup of coffee you ever drank does not have to cost a fortune. Gourmet coffee for less is easier than you think. It’s the frugal thing to do.

2.) Trains, Planes & Automobiles

I never saw the movie, but the title is catchy. 

This tip is a biggie. So big that it can single handedly make you rich! 

I know, I know. There are bloggers that say you should never drive. Bike and walk everywhere. Awesome idea, but not for everyone. 

Your car can drain your finances more than any other purchase! It is a depreciating asset. The speed at which it travels to zero is determined by make, model and condition. But make no mistake; it will end up in the scrapyard like every other vehicle ever made. 

People all too often focus on the depreciation of an automobile. There is another vehicle cost that digs nearly as deep: transaction costs.

I have only owned 3 cars in my life and I’m on the wrong side of 50. I tend to buy used vehicles and keep them for 20 years. (Most vehicles come to their natural life expectancy around 20 years.) 

Depreciation still hurts. Fortunately, I don’t have that accelerated depreciation newer vehicles suffer. The best news is that I have few transaction costs because I don’t do a lot of transacting. Every time you buy a car the state wants a piece of the action. With the exception of 5 states (Alaska, Delaware, Montana, New Hampshire and Oregon) you will also pay a sales tax. 

Used car prices are out of line as I write this. I probably would buy a new car if I was in the market at this time. Regardless, I buy a vehicle when my current vehicle is close to the grave and then keep it for a really long time.

This one tip can save you enough to fund your retirement account if you funneled all those payments you didn’t have to make. And you would trade title, transfer and sales taxes for a tax deduction! Easy choice, I think.

 

3.) Grow a Garden

I’m lucky in that I live in the backwoods of NE Wisconsin. Gardening is easy for me. 

If you have the ability (space) to grow a garden I would encourage you to do so. It doesn’t have to be big. A few tomato plants, carrots, beans and anything else that pleases your palate can make a difference.

Living in an apartment limits your ability to do this. You can still grow a few plants by windows that get sun. There is nothing like enjoying your own fresh tomatoes.

It isn’t the food you grow that saves a lot of money. There are savings, but the real advantage is spending a few more meals at home with your family enjoying a home grown and cooked meal. And that is priceless compared to the $500 or so in savings over the course of a year from avoided dining out.

Might I also suggest planting a fruit tree if you have the room. There is nothing like picking your own fresh apples/peaches/pears/plums . . .  The flavor from tree ripened fruit is nothing like you find in a grocery store.

 

4.) Adjust the Temperature

I know I’m a bit more extreme on this than most.

Living in a northern climate (in the Northern Hemisphere) allows me the luxury of rarely using air conditioning. The winters are another story. 

I have found that my entire family can enjoy a cooler house in the winter comfortably (low 60s F). Yes, we wear clothing in the winter, as in a flannel shirt or other such comfy warm garment. The wife and kiddos cover with a blanker when watching TV (me when I read). The cooler house means we sleep better at night, too.

During the summer we adjust to the warmer temperatures. When it gets hot in July we draw cool basement air into the house. Rare is the year when we kick on the AC. (I actually have a geothermal heat pump for space heating, water heating and AC.)

 

5.) Use the Library

It is well known that I sin when it comes to buying books. I love owning books. It is my one non-frugal habit.

However, several local libraries still know me on a first name basis. Some books I borrow from the library. But the library is so much more than books, books on tape, music and so forth.

I encourage you to read this post on all the surprising things you can get for free from the library. (Did you know your library might offer free college courses, tutoring and more? Some libraries have fishing equipment and one I interviewed even had a sewing machine they borrowed out.)

 

6.) Down Time

One of the most frugal things you can do is give yourself down time. Bill Gates has a “think week” several times per year. Albert Einstein and Steve Jobs both scheduled “no time” where they had no duties or interruptions so they could focus on just thinking creatively.

While it might be hard to understand how down time is a frugal activity, it is time where you are not spending money and instead are focused on making good decisions in your life, finances and business. 

Creativity happens during down time. When I write I close the door. This is “me time”. I’m actually talking to myself and letting you listen in. 

Time spent with the door closed and the internet and email off is vital to mental wellbeing and financial wealth. Your best ideas will come from the quiet time where distractions are not demanding your attention.

 

7.) Write it Down

Along the same line as down time, writing notes, a journal, a blog, a to-do list and any other things you want to think about later during down time is important to a frugal lifestyle. Frugality is not only about money. You can always make more money, but you can’t make up for lost time! 

Slowing down and writing notes is the best way to reduce expenses! You are not buying the best goods and services when you are fighting the clock. 

Notes allow you to slow down and make better decisions. I can give you a million ways to reduce costs, but only you know what things you can reasonably cuts costs on. 

The goal of this post is to provide ideas and spark ideas in your mind. Don’t just do it because some crazy accountant from the backwoods of NE Wisconsin told you to do so.

Write it down. Record your thoughts in a journal and review those thoughts later. Use a grocery list. You will be amazed at how your thoughts change and the money you save. 

And always be willing to revise. Editing your notes and lists is required. The first draft is always junk. That is why you need to review and edit, preferably with the door closed.

 

8.) Health Insurance

This tip only applies to my American readers. Virtually every country on the planet has a single payer healthcare system. In the U.S. getting sick is a major crisis that requires work on your part at your lowest moment of health.

Serious savings can be had by comparing your options. If your employer offers health insurance be sure to review what is and is not covered. Be sure to review the health reimbursement features if your employer offers one.

For everyone else, you need to review the Affordable Care Act options, private insurance and medical health sharing. 

I personally settled on the Christian health sharing options. It was the best value. My worry was it would not deliver if claims were made. A serious illness in my family has put those concerns to rest. You can start your health sharing research here.

And here is a medical health sharing option.

 

9.) Read

Read voraciously! Reading is the acquisition of knowledge. Knowledge is power! 

Don’t read only one source. Not even this blog! (Please, continue reading my blog as a starting point. Thank you.) Dig deep into a topic from multiple sources and come to your own conclusions. It’s important.

Learn to think. Reading builds your thinking muscle. 

Read good books. Even a pleasurable novel now and again.

Read blogs.

Read.

Very few have built serious wealth without serious reading. 

 

10.) Cut Cable

Are you the last person on the planet to cut the cord? Cable is so 1990s. And expensive!

You do know that the local networks broadcast over the airwaves 30 or so channels now? You can watch about as much for free from broadcasts as you can with cable and at no cost.

Then you have YouTube and Netflix and Hulu and Amazon Prime and many more. YouTube is mostly free. Netflix is still pretty cheap. If you have Amazon Prime you already have a streaming service at no additional cost.

You can also check out the library tip above for even more free programming, including the expensive stuff on HBO, etc. Yes, your library has many of these programs, available at no cost to you. Check it out.

 

11.) Cell Phone

Cell phone service can be out-of-this-world expensive. I (my whole family) switched to Visible Wireless a few years back. You get unlimited data, messages and minutes. Visible Wireless is owned by Verizon.

All this for $25 a month!

Since I live in the boondocks I have few options for internet. I use my Visible phone as my internet as well. They even have 5G in areas where available. I am writing this post over my Visible Wireless data using the hotspot.

Visible Wireless is the best deal for cell service I could find. Be aware the link in this tip is an affiliate link. Also know that I went to check to see if they had an affiliate program if I refer them. They did and I signed up just now because, well, I may as well get paid for my referral if I was going to make the referral anyway.

 

12.) Buy a Freezer

When a food item goes on sale it is time to stock up. . . 

. . . if you have the space.

A freezer can cut 20% or more off your food bill. A meat special can be maximized. You can prepare larger quantities for later consumption. 

For the best meat quality and price, check your local butcher shop. Many sell the whole animal (already in the familiar cuts) for significantly less than buying piecemeal over time. A freezer is required is such a situation. 

A freezer is a must if you have your own garden or fruit trees. Nature produces more than you can consume before it spoils. A freezer pays for itself quickly.

 

13.) Can and Dehydrate Your Excess Food

Canning is a lost art. It used to be that folks in the backwoods canned their food. I only know of one other person that cans their own food now. That is a shame since it is such a money saver.

Mrs. Accountant cans and dehydrates like crazy. Fruits and vegetables fill our cellar. When a semi bringing fresh Georgia peaches to Wisconsin arrives, we stock up. A lot. We eat peached until we had our full and can the rest for later. 

The wholesale trucks are hard to find so keep your eyes and ears open. The prices are super low! A box of peaches can run a few dollar at most. And they are better than we can find in the grocery store. 

Consider canning as a hobby. One that pays you in more than one way.

As long as you are at it, you should consider dehydrating food, as well. This is easier than canning. And your food will taste incredible.

Frugal living is easy with dehydrating and canning food. And your food will taste incredible!

Dehydrating and canning are powerful ways to preserve food. Buy on sale and preserve for all year round.

14.) Cut Your Electric Bill 80%

A watched pot never boils, it is said. I’m not so sure about that. When I was a kid I kept my eye on a pot on the stove, and sure enough, it boiled.

Electric bills are out of control. There are so many phantom energy drains in the average home that half or more of electricity consumption goes down the drain without any benefit to the homeowner. 

Read more about recording your electricity consumption here. This one simple step can lower your energy costs significantly. 

 

15.) DIY, Except When You Shouldn’t

The mantra is getting old. The frugal tip of doing everything yourself is a double-edged sword. 

Sure, you can save money doing it yourself. Sometimes. If you know what you are doing.

When I owned rental property years ago I learned quickly I was not cut out for carpet laying. It was cheaper to hire it done. (Really, I was bad at it. One job was so bad all the carpet had to be ripped out and tossed.)

Where you are able to handle the repair or maintenance, doing it yourself can save a lot of money. Changing the oil in the car, sharpening lawn mower blades, light appliance repair, changing a faucet and other tasks might be under your purview. If so, by all means, consider it a DIY job. 

However, knowing when to hire the professional is important. A DIY job when you don’t know what you are doing can lead to disaster. 

If you want to increase your skills, consider volunteering at Habitat for Humanity. A summer of free time spent learning several crafts of the trade is a powerful education that will pay off the rest of your life.

 

16.) Consider a Spending Fast

Sometimes the best way to accomplish a goal is to go all-in. This is where a spending fast comes in.

A spending fast is exactly what is sounds like. There are 5 levels to the spending fast. Each level teaches new financial skills and supercharges your frugality muscle.

You can read more about conducting a spending fast the right way here.

 

17.) Manage Your Taxes

Taxes will cost you more than any other thing in your life, including your home. It may not feel like spending, but taxes are a massive expense everyone can do better at reducing.

I see people in my office all the time that had prepared their own tax return. In nearly all cases they overpaid the government.

Since income, sales, excise, property and other taxes consume over half of the national income, you will need a two-pronged approach in applying frugality to your tax spending. 

First, most people need a tax professional to assure they are utilizing as many tax benefits as possible. The tax code is complex and getting more so every day. Even the pros struggle to keep up with the changes. What chance do you have? And the over-the-counter DIY software can’t do everything for you either. 

Second, even with a tax pro in your corner you need to keep yourself informed on tax issues. Read about tax breaks that apply to you. Question your tax professional. Don’t be afraid of paying for some consulting with your tax pro. When I consult with clients I have in excess of a 10x return for the client. That means for every dollar they spend they benefit over $10. We call that hyper-frugal!

 

18.) Stay Healthy

Easier said than done. 

Illness is expensive and the cost goes beyond the medical. Lost wages and a lower quality of life are two huge costs of poor health.

Staying healthy is easier for some and harder for others. Regardless, you need to eat quality food in proper proportions. Exercise is vital.

Because everyone reading this will be in a different place with their health, I encourage you to consult with your doctor in building a plan to improve your health. Get on the right diet for you. Find the best exercise program for you. 

Don’t forget your social life. Family and friends play a large roll in your health. If you sit in taverns with friends that drink too much and smoke, you might have a problem. Consideration for your lifestyle is an important part of your frugal lifestyle. Choose who you associate with well.

 

19.) Make Your Own Laundry Detergent

Laundry detergent in the box stores have so many fillers just to make it look like you are getting a lot for your money when you are not.

You can cut your laundry costs up to 98% by making your own laundry detergent. It is easy to do and it cleans better than store-bought detergent. 

Consider the detergent-making process a family project. It is fun and teaching your children the low-cost way of living is priceless; a gift that never stops giving.

 

20.) Stay Put

As discussed above with vehicles, transaction costs add up fast. The same applies to where you live.

It is expensive to move. It takes time and requires helping hands and/or a moving truck, etc. If you are renting there might be some damages that get deducted from the security deposit; the new place will also require a security deposit.

Owning your own home can be a very frugal move! But take a page from Warren Buffett’s book. Buffett is one of the financially wealthiest people on the planet. He bought the home he lives in back in 1958 for $31, 500. His home is worth over $650,000 now. 

Buffett mentioned many times he would not be happier living in a bigger or newer home. He is happy right where he is. And good thing. The money he saved in Realtor fees and other selling costs would have come from the seed money he used to build his fortune.

Fees generally are things you pay that give you next to nothing in return. Cutting fees is the surest frugal step you can take. Stay put. Move only if you have to (i.e.. job change).

 

21.) Use a Clothes Drying Rack

Everyone loves the smell of clothes dried outdoors. 

We saw in Tip #19 how to save money on laundry detergent. How about cutting the cost of drying your clothes to zero?

If you are able to hang clothes outdoors, do so. If not, you can use a clothes drying rack. They are inexpensive and pay for themselves many times over. 

As a bonus, you add moisture to the air during the dry winter months. That means your frugal clothes drying habit will also make your home more comfortable.

You can read more about the clothes drying racks I use here. There are some links to Amazon to help in your search for the best clothes drying rack also.

 

22.) Get a Free Bike

You can save the world and yourself one frugal act at a time. Whenever possible, bike to work, the grocery store, the bank or anywhere else you might be going.

There are bloggers who think you should live close to work to be frugal. I personally love living in the backwoods where I grew up. It is 15.1 miles from my driveway to my office. And I bike it many times every year. 

I had an old Huffy bike I rode forever. I decided to get myself a new flashy set of wheels and pulled out my pencil and paper to calculate exactly what it would take to get a free bike. You can read that story here. It is about halfway through the linked post.

 

23.) Dispose of Disposables

How full is your recycling bin each week? How about the garbage bin? 

All the stuff in those bins is filled with stuff you paid for only to throw it away.

Want to inject frugality into every purchase? It is simple. Buy stuff with the least packaging. 

Packaged foods are the worst. Processed food is a bad health choice, as well. All that packaging is paid for by you. But did you want the food inside or the box? The food, of course. Yet you paid for the box, too. (There is no free ride. The box has a cost and it is added to the price of the product.)

When you purchase something, be aware of the packaging. It is costing you a fortune. 

 

24.) Watch Your Water Consumption

Water isn’t an expensive commodity in my part of the world. That isn’t true everywhere. Water can be an expensive purchase. Heating the water adds more to the cost.

Shorter showers and a low-flow shower head is an excellent way to reduce water consumption. Turn off water when not in use. Turn off the water while brushing your teeth.

So much of frugality is common sense. Examine all water use. It should be easy to see where you can reduce consumption in your household.

 

25.) Clean Filters

Filters make a difference. 

I have an open-loop geothermal heat pump in my home. The filter where the water comes in needs to be cleaned periodically. If it gets dirty the efficiency is reduced. If dirty enough, the heat pump trips off. 

The air filter also needs changing a few times per year. I have a reusable air filter I clean and then put back into the unit.

Filters on your vehicle, lawn mower or any other item in the house, need to be charged or cleaned on a regular basis. Forgetting this reduces the life of the item and increases energy consumption.

And clean the grill behind your refrigerator! And under the darn thing, too! Stressing the compressor on your refrigerator can cause the compressor to fail. Have you seen what refrigerators cost? Yes, it is very frugal to clean and replace filters often.

 

Knowing when to do-it-yourself or call in the professionals is the smart way to save money. Sometimes the repairman is the cheaper choice. And the frugal one.

26.) Insulate Your Living Space

A sure way to save money is to keep the heat (or cold) where you want it. Insulate the attic. Wrap your water heater and the hot water pipes. Weather stripping around windows and doors offer serious energy savings. 

Many communities have low-cost services to help with your insulating needs

If doors and/or windows are deteriorated it might be advantageous to replace them. Tax credits are available to reduce the cost. 

 

27.) Dump the Landline

Is there anyone left with a landline? Everyone has a mobile phone today. There is no reason to have a landline as well.

And as long as we are talking about it, stop paying for AOL!!! Or any other unnecessary service. It blows my mind when I see people still paying for dial-up service or other such nonsense.

 

28.) Cancel Recurring Payments

Companies love to set customers up on recurring payments. The customer is later either too lazy or doesn’t remember to cancel the service.

Recurring payments are a cancer on the family budget. It is also low hanging fruit when it comes to frugality. And some subscriptions are outright scams! 

These recurring payments are financial death of a thousand cuts. They drain you dry a few drops of blood at a time. 

You must review all your credit and debit card statements each month. The same for all checking and savings accounts. Highlight the little buggers nickle and diming you to death each month and exorcise them. Be merciless! Your frugal reputation is on the line. You can probably retire 10 years sooner if you avoid these vampires.

 

29.) Review Insurance Annually

Insurance is a necessary evil. At least for home and auto coverage.

The insurance they sell to protect a $100 purchase at Best Buy or Walmart or Amazon is worthless, in my opinion. 

Insurance is a commodity. The insurance company hopes you don’t see the relentless climb in the premium. 

Your best defense is to review and shop your insurance annually. This is the only way to ensure the best insurance for you at the lowest cost. 

Also be sure to review that you have adequate coverage. Especially liability. Lawsuits can take out just about any nest egg.

 

30.) Get All the Rewards You Deserve

Just about everything today has a rewards program attached to it. Credit cards have offered cash-back rewards for a long time and debit cards have also started adding rewards programs.

If you enjoy playing the game, you can find inconsistencies inside rewards programs. You can game the system for profit. Doctor of Credit is a good place to start playing the game. Sign up for their newsletter and get a weekly email on all the deals and specials on rewards programs. There are juicy deals each week. It can even be a profitable side hustle.

Paying with a credit or debit card also comes with hidden perks. Many credit cards offer free extended warranties of products bought with their card. Purchase protection guarantees the lowest price or the card will refund the difference. Roadside assistance, delayed or lost luggage, trip cancellation, auto insurance are all free perks found with many credit cards if you know enough to ask. Even if you have an item stolen, many credit cards will replace the item!

And don’t forget about local rewards programs. A local gas station created so many moving parts to their rewards program that I will pay under $2 a gallon for gas for the next year and a half.

More details about utilizing all the hidden perks on credit cards can be read about here.  

 

31.) Have Fun

Frugality only works if you are having fun. Deprivation is not a long-term solution. Make it easy. Make it fun. 

Your financial goals are closer than you think if you can get rid of all the dead weight spending. 

And it is even okay to be silly about frugality. Here is a post on 10 Ridiculous Ways to Save Money.

Life needs to be fun. Frugality is a way of life, a way of living. There is no need to give anything up! Quite the opposite. You can actually have more while being frugal. And so much of it allows for high-quality family time. It is fun to see how things work. It is not about yelling at the kids to turn off the lights. 

 

I hope you enjoyed these 31 tips and tricks to cutting spending. Frugal seems to be a dirty word until money is tight. I think good money habits are best applied at all times so money stress is reduced or even eliminated. 

And please, don’t let me do all the heavy lifting. My back is sore as it is. Share your favorite frugal tips and tricks in the comments below.

 

 

More Wealth Building Resources

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

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

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

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

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.

This past week an old story returned to the surface. A tax office that handles mostly simple tax returns for a very low price and gets paid mostly cash might not be claiming all that income. A previous employee of that firm informed me over $300,000 in cash was kept in a safe in the money cage. 

The final response (and I was thinking the same thing) was, “And I’m sure all that cash was reported.

Cheating on your taxes is as American as apple pie, but a whole lot dumber. If this other tax firm really has that much cash on hand and does not report all their income they lose a lot more than most people expect. 

First, if they get audited and the unreported money is found you can expect more audits. This is a tax on your time and I can’t think of a more usurious tax.

Next are the penalties. Here is a sampling of the penalties that could apply:

1.) Accuracy related penalty (§6662): 20% of the assessment.

2.) Fraud (§6663): 75% of the amount attributable to fraud.

3.) Willful attempt to evade or defeat tax (§7201): Up to a $100,000 fine, five years in prison, or both. This is a felony! If they are a corporation the fine can climb to $500,000.

4.) Willfully making and subscribing to a false return (§7206): Also a felony with a fine up to $100,000, three years in prison, or both. Corporations face fines up to $500,000.

Even worse, with underreported income at those levels it is likely the IRS will seek to bar the owners from ever preparing taxes again. And my guess is they would find a few more penalties to apply to make the financial pain even worse. 

He would probably make the local evening news. Clients would bolt. Clients would face greater scrutiny. There isn’t anything I find acceptable about the risk of underreporting income in their situation.

The odds of getting caught are small, however. And even if they get audited, the IRS may not find the underreported income. 

And none of that matters because there is another cost to cheating on your taxes that costs more than the taxes saved even if you don’t get caught.

S&P 500 10-year chart

Why Cheating on Your Taxes Costs More Than the Tax Avoided

The first time I heard the rumor was at least a decade ago. The firm files a lot of returns. I mean a lot. 

Their fee is the lowest of any firm in their service area of any size. I imagine a few guys working out of their home might do a return for less, but this firm is the lowest fee of any major player locally.

Probably 80% of the firm’s revenues are in cash with the firm pulling around seven figures of revenue annually. The owner could siphon a cool $100k off the top with no problem. 

Cheating on your taxes has a hidden cost. You can’t just deposit the unreported cash into a financial institution. The IRS might be slow, but they ain’t stupid. They will find that quicker than a starving mule finds a load of oats.

If you can’t deposit the money you are left with spending it. (You could launder the money, but that has a cost, too, which is nothing more than a tax paid to a different entity.) And when you spend it you can’t look like you are spending that much. Buy a car with cash and the IRS gets a report. 

I guess you could save it up for retirement, spending some here and there as not to look conspicuous. 

Yet, that isn’t the real problem. The real problem is lost opportunity cost! 

Let’s say the tax on this $100,000 is 40%, federal and state taxes combined. That would leave the business owner with $60,000 after tax.

Yet, if that $60,000 was invested 10 years ago in an S&P 500 index fund it would now be worth nearly three times as much! Even if we take a bit off the top for spending we still have more than $120,000 and in reality closer to $150,000! The best the unreported income can do is maintain $100,000, unless you want to risk some prison time.

Cheating on your taxes never pays! It always costs you more in the long run with serious risks in the short run. If you underreport income by up to 25% the IRS can audit you on that return for up to seven years after you file or from the due date, whichever is longer. This is up from three years when you play it straight. If the underreported income is over 25% that tax return is open for audit forever!

Cheating Uncle Sam costs more than the tax even if you don’t get caught.

Wink, Wink

There is a way to profit from people who do cheat on their taxes. 

When a client offers to pay cash they sometimes do so with a wink. I assume they mean that since they paid me cash I will not report it. Unfortunately, I invoice each client separately so I create a paper trail. It all gets reported. It is how a real business operates. (I’m a real business.)

It has been a long time since I was asked for a discount if I am paid cash. When I was the answer was always no. I use the Seth Godin plan: full price or free.

When purchasing a good or service I might ask for a discount if I pay cash. I remind the business owner they don’t have to pay bank transaction fees. It is a win/win for all parties involved. I never make it a tax cheating issue

Several years ago I was coming home from the office during tax season when a deer attacked my car. Hit the from wheel well. A rural body shop quoted me $800 to fix the damage. It was a really good deal.

I brought cash when I picked up my car, concerned he might not want to accept a check. Without asking, the business owner offered me a $200 discount for cash.

That was a whopping $200 discount; 25%! It was accompanied by the ol’ wink-wink. I took that to mean he would not be reporting the income. (Hey, I’m not here to judge.) 

He traded his tax bracket for a 25% tax paid to me. And my savings were tax free!!! (You don’t pay tax on money you didn’t spend on a service.) By the looks of the place I don’t think his tax bracket was much higher. I enjoyed the discount, but it was still foolish on the business owner’s part if he did so just to not report a small amount of income.

The choice is clear. Cheating on your taxes destroys your wealth even if not caught. Honest pays better!

Tax season is heading into the final stretch as I write this. I hope I made the case for not cheating on your taxes. It isn’t too late to file a superseding return if you left something important off your tax return, like some income.

The risks are too high for anyone serious about accumulating wealth. The math doesn’t add up. Cheating on your taxes will bite you in the tail regardless the outcome. Audits waste a lot of time and are not fun. (You can make more money, but ya can’t make more time.)

The lost opportunity cost of wasted time hiding money from the government and the lack of ability to invest all your money optimally make it real clear: cheating will always cost you.

Worse, you could have enjoyed a few posts around this blog and saved as much or more legally than you potentially saved cheating. (What are the chances traffic to this blog will spike now?)

I know you will do the right thing.

 

More Wealth Building Resources

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

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

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

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

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.

 

How much are you really paying for tax preparation?

What if I told you there was a hidden fee in your tax preparation bill. This hidden fee costs you serious money every time you file your taxes. This hidden fee shows up even when you prepare your own tax return. And it is totally avoidable. They sneak the fee in because you never see it and therefore never complain about it.

The hidden fee is hard to identify. It doesn’t show up as a line item on your accountant’s invoice or the online software payment page. Yet the fee digs hard into your wealth.

This same hidden fee looks different when you prepare your own tax return than from a professionally prepared return. The best way to expose this usurious fee is to handle it separately from how it is applied to DIY tax preparation and professionally prepared return.

 

DIY Tax Preparation Hidden Fees

There are numerous online tax software packages to help you prepare your own tax return. Some are very expensive, charging more than low-cost tax offices. And they still have the same hidden fee the expensive software charges! 

Your money, your rules.

By now you might have figured out the hidden fee is overpaying your taxes. While it is understandable a DIY tax preparation can have problems because you don’t understand the tax code as well as a professional, it is good to know what it is really costing you when you file your return. Before you toss in the towel and hire a tax pro you will want to read how this hidden fee applies to DIY tax preparation and how even seasoned tax pros can be hammering your wallet with you none the wiser.

Should you prepare your own tax return? It depends. If your return is simple, you are comfortable with the computer and filling in tax forms, you are probably okay. Most DIY tax software has ample Q&A to help you file an accurate return. 

However, no software in the world can point out every issue. Sometimes the issue deals with money outside the tax return or affects multiple tax years. Software is no substitute for tax knowledge and experience.

There is a simple way to determine if you need a tax pro. If you have a small business or own income properties you probably should hire the professionals unless you can answer these three questions:

1.) Do I understand the tangible property rules and know when to deduct rather than depreciate? At what level must I depreciate? And, do I know what election to make so I survive an audit?

2.) Do I understand the repair regulations? What is the limit? And the rules surrounding this juicy deduction? Do I understand the election allowing me to deduct, rather than depreciate, up to $10,000 of improvements per building? Do I understand when a roof or other major repairs can be deducted rather than depreciated?

3.) Do I understand the Qualified Business Income Deduction? Do I understand the rules surrounding the definition of a “trade or business”?

If you can intelligently discuss the above questions you can prepare your own tax return with a business and/or income properties. If not, you need a pro. (Might I suggest you become a tax pro if you can intelligently discuss these issues.)

Since many elections that save you massive amounts of money require the election to be claimed on an original and timely filed tax return, it is important to get it right. There are no amended returns to fix some problems, you just pay the extra tax.

Wages, itemized deductions, interest and dividends have fewer issues. Tax software handles most issues revolving around these items well. If you have complex interest expense issues and don’t understand interest tracing you might want to try a tax pro until you do understand the issues.

Before we leave the DIY arena I want to talk about which tax software to use. The big names have become so expensive while you do all the work you would be better off going to the cheapy deluxe tax offices because they are cheaper (and at least they do the work). There is one DIY software I recommend.  This software is used in over 64,000 tax offices and had a hand in the original software the IRS used when e-filing was starting out. It is the same software I use in my office. The best part is they have a flat $25 fee, including as many states as you want. That is by far the best deal in DIY software currently. And for full disclosure, the link in this paragraph to 1040.com is an affiliate link.

 

Tax Professional Hidden Fees

It is understandable when a lay person doesn’t understand the tax code well enough to get all her deductions. But when you pay good money to a pro it is downright insidious! 

Let me give an example from my tax office earlier this very tax season:

A conversation with your tax professional can reduce or remove hidden costs to your tax preparation. Increase your wealth and cut your tax bill by working with your tax professional.

A new client this past week had her tax return prepared by one of those $95 preparation fee outfits last year. My fee this year bumped up against $300, but I was cheaper.

 
How is that!? Are my math skills off on the Saturday I’m out of the office?
 
Nope.
 
Said client had nonemployee compensation last year and this year. This should be treated as business income on Schedule C. There were no business expenses so the previous preparer dropped the amount on the front of Form 1040 as other income (that is really on Schedule 1 the past few years) and on Schedule SE to pick up the self-employment tax. In short, the preparer was too lazy to fill out a simple Schedule C.
 
Can you see the problem with the prior preparer being too lazy to fill out Schedule C?
 
First, dropping the nonemployee comp on Schedule 1 and Schedule SE is not the proper way to report the income, even when there are no expenses.
 
Second, the previous preparer forgot to adjust for the Qualified Business Income Deduction (QBID), costing the client over $500 in extra tax.
 
I didn’t make that mistake this year so I was the lower cost tax professional even though my fee was higher.
 
Them: $100, plus a $500 mistake of extra tax.
Me: $280 without the screwup. (It was a very simple tax return.)
 
I was less than half the low fee preparer at the end of the day.
 
Moral of the story?
1.) Experience matters.
2.) The lowest fee isn’t the lowest cost to you.
3.) Don’t hire people who take shortcuts.

This story begs the question: How do I know I have a good tax professional? 

First, you can’t prepare a quality tax return for under $200. I know, I know. I can hear the vitriol already. But it is true. Low cost returns are prepared by data processors. They have the same skill sets as someone preparing their own return. In other words, they plug numbers and hope the computer got it right. Again, for simple returns this might be fine. But, as we saw above, as soon as even a modest complication enters the scene issues can arise that the data processor can’t handle. 

The next step is finding a tax professional who can handle your tax issues and has a reasonable fee. A good tax professional, in my opinion, spends time with you AFTER the return is prepared. The before the preparation meeting is more about data processing; the meeting afterwards is about saving you money. Probably more money than you paid said tax professional. In effect, really good tax professionals are actually less than free since they return more tax savings and wealth building advice than you ever pay her.

So, where do you find these unicorns, tax professionals that know what they are doing with a reasonable fee? I have some ideas to increase your odds.

I have published on this topic before. These are two articles I strongly recommend, if I can be self-serving in the recommendations:

 

7 Questions Rich People Ask Their Accountant, and

 Finding a Good Accountant.

 

Not every tax professional is good at every aspect of tax law! For example, I avoid ex-pat returns like the plague. It’s not that I can’t do them; it’s that I don’t want to and don’t do enough to be good at it. Good tax professional are honest and admit their limitations. A tax professional too eager to get your account without first knowing the client (you) is guilty of one of my favorite saying:

Prescription before diagnosis is malpractice.

And it is.

Time with your tax professional can reduce your preparation fees, lower your taxes and increase your wealth.

Before you start your hunt for a tax professional I have an added suggestion. People with simple tax returns and older people (many times with simpler tax returns) might want to consider the Volunteer Income Tax Assistance (VITA) program. This tax preparation service has no cost to you for preparation of your return. They handle simple returns only, but many of the preparers came from the professional ranks and are retired now and don’t want to sweat as hard as they did in their traditional working days. If your return is too complex for the VITA program they will tell you. Then you are back to finding a tax professional on your own.

When looking for a tax professional you need to ask questions. Price is not the first question! It is the last one. You want to know if the supposed tax professional can push a 1 up against a 2 in an accurate way.

A good place to start your accountant search is by asking people in a similar situation as you are. If you have income properties, ask other income property owners who they use as a tax professional. Business owners should do the same. If you have multiple state issues you certainly need to find someone in the same boat you are because not all tax professionals handle out-of-state or multiple state tax returns.

This blog also has a list of tax professionals accepting new clients. It might be a good place to start your search. If you are a tax professional looking for more clients, use the contact page of this blog to see if we can include you on the list. 

Always ask questions? If you feel uncomfortable, leave! You are going to spend serious time with your tax professional if they are good because they are going to save you a pile of money AND help you grow your wealth.

 

You can’t avoid the risk of the hidden tax fee. Whether you DIY or hire a tax professional, the risk is the same. My hope is that this short guide removes the bulk of that risk and puts serious cash into your pocket.

Tax professionals and clients, use the comments section to share successes and failures related to tax preparation. Your story is important in helping the entire group (our tribe, if you will) crowdsource the problem and solutions. 

Until next time, keep your cash in your wallet.

 

More Wealth Building Resources

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

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

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

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

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.

People pay me a lot of money for advice. It’s called consulting. Questions on taxes and money are what start the conversation. But once we get under the hood it becomes clear there is another motive. The real questions involve medical issues, raising children, starting a business and retirement.

It would be easy for me to give a short pat answer. It wouldn’t do much good, but I could do it. Instead, I ask a series of questions helping the client to come to her own conclusions. Some crazy tax guy from the backwoods of northeast Wisconsin will never have clever enough words to convey the right message. I have to help the client find there way there  on their own. If I say “Yes” to the best business idea ever and the client is not ready or in the right mindset, they will fail. 

And it always comes around to the finish line, aka, retirement. When can I retire? Should I retire? 

I could give you a simple formula if you want. Better yet, skip the whole post and scroll to the bottom for the quick and easy answer, for all the good it will do you. 

However, it might be better if I share a story and ask a few questions first.

 

Old Man Take a Look at My Life

I’m feeling old this tax season. At 56 years of age my eyes stray to the horizon. I’ve seen a lot over the years and this tax season is already one for the record books. 

I entered the profession full time in 1989. Since 1982, my senior year in high school, I have been stenciling in numbers on tax returns for side hustle money. I am at a total loss when I look back and realize I have nearly {gulp} 40 years into this career. There was no clue when I planted that first number on a 1040 for a quick twenty bucks how much it would dominate the remainder of my life.

After 40 years it might be time the cleats get hung up. There are entire communities dedicated to early retirement. I was nearly sucked in all the way 5 or so years ago when I met Mr. Money Mustache, a guy whose claim to fame is retiring at 30. The falling out is totally my fault. I found nothing familiar in the lifestyle presented so we had nothing to talk about. We came from different worlds.

So, if I’m going to help people reach retirement, shouldn’t I have a clue about my own? Well, I think I am more than qualified to help people attain and transition to retirement without ever planning on doing so myself. The best sports coaches are not always pulled from the greatest players of yesteryear. Sometimes, but not always.

If my retirement plans are a fantasy, why do I feel so old? Is it the clock and its incessant ticking? Do I think my skills are waning? All good questions. 

Tax professionals are a unique crowd. I belong to several Facebook groups dedicated to tax professionals only. The crowd is quite friendly until mid-February when things take a left turn. Normally quiet individuals start complaining about clients and their behaviors. Mid tax season changes by Congress and the IRS adds to the stress, and don’t think the folks with pocket protectors don’t let the rest of the crowd know about it.

To the best of my ability I do not complain about the tax code and especially clients. This tax season, only half over, has provided ample reasons for complaint. But it doesn’t help so I focus on what does; the things I can change.

You don’t live long in my profession before you notice strange things. Things most people never think about. 

You can’t imagine — unless you’re a tax professional — how many clients die every year.

It is rare for a tax season to pass where I don’t hear of a client that has lost a child. If not their child, a nephew or niece. I have at least two clients with a child that committed suicide. Clients that had a child drown, killed in an automobile accident and one that died playing a choking game. 

I prepared two decedent returns (a person’s final tax return) this year already. The first was for a 26 year old woman. I never know what to say to the client. The pain must be unbearable.

The second decedent return was picked up last night late. He was 38 when he died. 

In both cases medical issues were involved. They were sudden issues so no one had a chance to prepare or even say goodbye. The wounds are deep.

When should I retire? Reflect on your life and what matters to you. Do the things you most love. Never give those thing up.

Love Lost, Such a Cost

You can’t understand how much I love my work. This morning I was at the office at 4 a.m. Instead of knocking a few more tax returns out I decided to write and publish this post after a few months break due to medical issues in my family, still ongoing. 

With the exception of one tax return stalling me out, everything on my desk is fresh. I’m getting my work done and in a timely fashion so I had the luxury of writing for a few hours. Lucky me!  

I often get to the office early. It allows me more family time later in the day. I have the great fortune of satisfying both my great loves as a business owner.

But there is a cost for not retiring! Every time I walk in the door I take the chance the news of another dead client will reach me. So many of my clients from the early days of my practice have left this world.

A few weeks ago an elderly client came in with her son. She couldn’t get out of the van easily so we took her papers, prepared the return and brought her a copy of the return and signature pages to the parking for her to sign. She is 81 years old. She doesn’t need to file anymore, but worries so we file for her anyway.

We charged her $25. She has no money and was struggling to put food on the table. She asked for time to pay and we granted the offer. When Dawn, the preparer, brought this to my attention I told my assistant to delete her invoice. Dawn called to inform the client. The client cried. You see, people are good; all of them. They have pride. They are okay with a discount, but free makes them feel like they have taken advantage. It hurts no matter what you do. 

I am feeling very old.

A former employee is good friends with Dawn. The former employee visits a Feeding America food bank weekly to bring food to people shut in. Dawn asked for two packages. She delivered the food to the client. She cried again. 

I don’t know how long before the client will no longer need my services (dies). She has a son. Her husband died long ago. All I know is it makes me feel old.

 

Beyond the horizon of the place we lived when we were young
In a world of magnets and miracles
Our thoughts strayed constantly and without boundary
The ringing of the division bell had begun

 

When you practice as long  I have something else happens. I prepared taxes for young people back in the 1980s and 1990s. They got married, had children and sometimes retired themselves by now. Their children are now old enough to file a tax return and are having children of their own. Those children are starting to grow up. If I last much longer I will have filed tax returns for three generations in some families, if I haven’t already! 

And this is the part that hurts.

A husband and wife have been clients since about 1990. They worked with me many years ago when they and I had rentals. They were more than clients; they were friends. The husband’s health has deteriorated for years. He was admitted to hospice and was given less than six months. He is down to just over 100 pounds. It breaks my heart. The wife is suffering from dementia. 

Their daughter brought the news when I prepared (actually Dawn prepared) the return. A few days ago they had a fire at their home. It made the news. I don’t watch TV so I missed it. Dawn informed me the next day. I’ll never complain about bad luck ever again.

Ambition to reach the dreams of your life. Know what you are retiring from and retiring to.

When Should I Retire

The answer is different for everyone. There is no disgrace in wanting to keep doing what you do to fill your days. There is no disgrace in retiring, at any age.

I ask you these questions: What are you retiring from? And what are you retiring to? 

If your job is a drag it might be time to move on. Maybe a different job, one that fulfills you, or retirement. 

Before you take the long walk, consider this. Have you thought about an extended vacation or gap year? Do not confuse tired or exhausted with being ready for retirement. 

Maybe you are ready to retire, maybe not. 

For me, retirement is a hollow promise. The faces in my office are changing. Clients so familiar all these years are disappearing; first one-by-one, now in droves. With each passing minute I become the old guy with lots of crazy stories from history. 

I am desperately afraid of the night. This is what I do and what I am. I will not complain about complex tax law changes or clients sending me unreadable photos of their tax documents. I will gently nudge them in the right direction. They meant no offense and do not understand what it is like on my side of the desk. Age has granted me more patience; an example of a blessing from growing old.

Whatever path you choose, know you can always make additional changes in the future. You are not wedded to what you are doing now. Plans should be changed when things don’t work as planned. 

Most of all, do what you love. Life is too short for anything else.

 

We close with a few more words from Pink Floyd.

Encumbered forever by desire and ambition
There’s a hunger still unsatisfied
Our weary eyes still stray to the horizon
Though down this road we’ve been so many times

 

I have High Hopes for all of you.

 

More Wealth Building Resources

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

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

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

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

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.