The last time it snowed more in NE Wisconsin was March of 1888. That’s a long time ago.
My oldest daughter, Heather, was home from college when the storm hit. It was so bad they closed the college so she stayed with us an extra day. Our family bonding time consisted of shoveling wet, heavy snow a good part of the day. Such is the way of things in the Northwoods.
April snowstorms melt fast. The days are long and the sun is high in the sky. Cold temperatures fight a losing battle.
But when record snow falls it takes time to clean the roads and melt the piles. We should have the last of the piles melted by May 1st.
Heather’s car had to stay outside because the garage is full. With modest coaxing I got the AGCO tractor started and started moving most of the snow out of the way. Heather’s car was the last thing we dug out.
The next day the roads were plowed and it was time to head back to college. On the way back her car died for no apparent reason. The car was towed to a shop south of Neenah for repairs. The bill came to nearly $500, a princely sum for a college student.
As bad as Heather’s luck was, it could have been a lot worse. She saved and invested for several years before committing to college full-time. Still, she is determined to finish college without a penny of debt. (So far, so good.)
But that isn’t the reason why car problems were nothing more than a hiccup along her college journey. And her story can help countless others attain a college degree without cost.
Heather had grand ideas when she reached adulthood. She wanted to attend Full Sail University in Florida on dad’s dime for an art degree. I’ll save you the damage to your eardrums and refrain from my response.
At the time Heather was selling artwork and stashing it away into investments. She is quite good at a variety of art forms. What she struggled with was scholarships and dad wasn’t in the cooperating mood.
Then she got the idea she would go to college (art again) in Thailand. She got her passport (more on that later) and sent the school $500. The short story is she never went to Thailand. She did get one heck of an education for the lost $500 and the cost of a passport. Truth is she wasn’t ready to be alone in a foreign country. Yet.
Then she looked into a school in Missouri that was affordable, but it wasn’t what she wanted. Then she toyed with Japan and more seriously with South Korea. The only place she didn’t want to go to school was some of our affordable options right here in Wisconsin.
Seeing the Light
Dad made it clear he wasn’t paying for any college costs unless Heather found some scholarship money. It wasn’t that Heather didn’t try. She applied to a hundred or more scholarships without a nibble.
The first turning point came when Heather decided the local technical college was an okay place to start her formal education. She busted her tail working to fund her education so dad relented and provided a modest—around $2,500—of financial support. When my kid puts in the effort I’ll do my best to help them.
Choosing a local college and a career she could reasonably expect to earn enough at to calculate a return on her education investment gave dad hope. Heather likes to travel the way I like to nest on the farm. Heather wants to see Asia. She is in love with the cultures and peoples. The only thing missing was some scholarship money to grease the process.
Now that she was going to college close to home she was able to get some small grants and scholarships. Most of it was state or local government provided. Wisconsin chipped in $300 and the Department of Vocational Rehabilitation (DVR) invested around $1,000. (DVR provided support because she has her own tutoring business and she has some medical issues.)
Still, scholarship successes were scarce. I read a book by Ramit Sethi (I Will Teach You to be Rich) years before where the author claimed he had so much scholarship money when he attended college he was able to save and invest some of the funds since they weren’t all needed for college expenses. I was concerned Heather was unable to apply the same procedures to her college funding.
Sethi was slamming one scholarship after another while Heather couldn’t get them to open the envelope. Something was wrong. When something isn’t working it doesn’t mean you double your efforts doing the same thing. You just go nowhere twice as fast!
Dad had no solutions. College was a different animal back in the early 1980s. I had my own home (didn’t live on campus) and paid my own way. Scholarships weren’t necessary because $1,000 would cover a semester easily, including books, with a meaningful remainder left over for social activities.
Heather is like her dad: knuckle-headed. She wanted to go to college so bad it hurt and she wasn’t going to be denied. Mom and dad are supportive, but we will not give a free ride. Eighty percent of a college education is getting there. If you want to make it in the business world you better be able to figure out how to get an education without visiting bankruptcy court.
Money was tight her first year. She wanted college to be self funding; no dipping into long-term savings either. She studied hard and has a 4.0. And she never stopped researching scholarships and other college funding opportunities. She also clung to her dream of teaching English as a second language in China.
As Heather approached the first year as a full-time student (she was taking a class or two prior) opportunities she never knew existed were exposed to her. Since she has a tutoring business several organizations were interested in helping her. Her college started a Fox Trap Pitch Contest. (We live in an area called the Fox River Valley and the Fox Cities.)
Heather tackled this contest the way she did everything in school, with unrelenting effort. First prize was $1,000. Want to guess who won first place. Yup! My daughter! All I can say is, “Good genetics. Especially from the paternal side.”
The pitch contest did more than help her promote her business and raise capital. It taught her how to pitch an idea, like maybe to a scholarship. And this is where it gets interesting. In the last few months she finally figured out how to pitch her business and submit to scholarships in a way that works.
You can’t imagine how proud I am of my oldest daughter. She never quit no matter how down she got or depressing it was to work without results. (My youngest shares the same attributes so I’m proud of her, too.)
The best part is she knows how to do it herself. If dad wrote a check Heather would still be clueless on a good many things. I would have robbed her of the most valuable part of her education!
Remember how I said Heather wants to go to China to teach English as a second language? Well, her degree is for teaching. She is also leaving in a few weeks for China to teach for a month. She has been contacted for job interviews when she gets there. When her month is done it is back to Wisconsin to finish another school year. She will probably tutor via internet during the school year and head back to China for a much longer stay after she graduates. Her passport was a worthwhile expense after all. BTW, China instantly gave her a 10 year work visa.
China and the United States are two very different cultures. But as Warren Buffett has said all along, the United States has the “secret sauce”. In the last week he added China to the list saying China also found the “secret sauce” economically. With two great nations and cultures, with a heaping bowl of sauce bridged by my daughter and her efforts, the human race is destined for glory never seen before. (Yes, dad’s pride is swelling.)
Grabbing the Chance
Things were different when I went to school. Higher education is expensive today. Student loans are out of control. School counselors want to help students manage loans. Heather was quick to interrupt when the topic came up to explain she wasn’t interested in loan. God, that kid is smart. Mom had to have done something right because I’m not that gifted.
Scholarships are everywhere. Large numbers of scholarships go unawarded due to lack of interest or quality entries.
Heather was recently elected vice president of the Wisconsin region of Phi Theta Kappa. She gets to do more of that traveling she loves now and is guaranteed another scholarship. This one could be meaningful, if you know what I mean.
As a side note, Heather tried to convince me Phi Theta Kappa means “the smart ones” in Greek. Dad was suspicious and looked it up. Good one, Heather. And yes, I know you’ll be reading this. BTW, it means “wisdom, aspiration, purity.”
A Scholarship for Every Wealthy Accountant Reader
Some things I can’t do no matter how important they are. I’m not in the trenches when it comes to college funding.
Heather is getting an education on how to get an education. Therefore, I asked her to write a follow-up article to this post which she promised me in a week. If all goes according to plan I will publish Heather’s post next week on how she discovered how to write killer scholarship applications that work.
I think she will also include other resources she has used. For example, her college has a service called SALT. The SALT program has a massive clearinghouse of scholarships where the college helps you submit a quality application. And it’s FREE! Just be careful when they try to help you with getting student loans. Student loans are the last line of defense when all other options are exhausted. When you stand firm expecting scholarships to pay for your education, the counselors have to up their game to help you. Make it clear you want scholarships, not debt!
My opinion on college has been published before. Education is the most important thing you can do to improve your life. Most education happens outside the classroom! That doesn’t take anything away from a formal education. College is about learning and making contacts.
Next week, if all goes well, you will make a powerful contact with Heather.
Finally, remember Heather’s $500 car repair bill? She discovered there is a program at the college where they will help pay one major expense per year, in Heather case, up to $500. She kept her eyes open for opportunities removing a car repair bill from the budget.
Smart, girl, don’t you think?
Wealth Building Resources
Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?
Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to skyrocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.
QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. Quickbooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.
A cost segregation study can save $100,000 for income property owners. Here is my review of how cost segregation studies work and how to get one yourself.
Every writing conference I’ve ever been to has a breakout session titled: PANTSER OR PLOTTER?
Beginning writers flock to these things because they think it’s an important part of the writing process when the question is really a matter of personal work habits.
Many successful writers plant their tail in front of the keyboard and start pounding out copy while others need a detailed plan before the muse flickers to life. Plotters take the risk they’ll plan until infinity before rolling up their sleeves and working; writing from the seat of your pants can lead to rambling pros in need of heavy editing.
The longer the work the more need for at least a few details before you start. Novels need a plan (which usually changes several times before reaching the conclusion) while a short story can start as a vague concept and move to the page rather quickly.
Bloggers are desperate to get something published. Once upon a time you had to write until your fingers bled to improve your voice and acuity on the page. The only true way to master the writing craft is to write. A lot!
Traditional publishers want polished work. Polish comes from experience. Experience comes from practice. It takes heart to write endlessly perfecting your craft without much reinforcement.
The publishing world has changed tremendously over the last several decades. Self-published books were universally bad in the past. Today many of the best books on the market either are self-published or started as a self-pub.
Bloggers are like any other writer. They want to see their stuff out there as soon as possible. Rushed work looks, well, rushed.
I’ve received several requests to discuss my writing habits. Most people realize publishing a half million words a year on a personal finance blog is a lot of work. They want to know where I get my ideas, do I plot or write by the seat of my pants, when do I write and how fast do I write.
I imagine the Plutus Award for Best New Personal Finance Blog of the Year has something to do with it. Another part is my story telling. People expect boring facts when they see “Accountant” in the title. Surprising the reader with engaging storytelling mixed with useful information grabs them early and keeps them.
Some questions are hard to answer. One reader asked how I come up with such awesome post titles. I didn’t have an answer.
Writers have a difficult time explaining what makes a good piece of writing a good piece of writing. At first glance it appears I just sit down and peck out a story, hit publish and people get Ooooo lips.
Rather than give you stale, dry description on how to write an engaging blog post people will want to read and will keep coming back for more, I will show you how I do it. My way isn’t right for everyone, but it does give you an idea on how my creative process works.
How I Write
Ideas hit me all the time. Reading a book, watching a movie, talking with friends, thing jump out at me and demand recording. The working title of this post was the title of this section. Of course, if I want anyone outside my regular readers to become “engaged” in this post I had better come up with a better title.
When ideas hit I take notes. At home, at the office, on the road, I keep paper and pencil handy. Yes, even beside the bed is paper and pencil. I sleep on the couch about half the time and in bed the other half. On the couch I’m surrounded by books and papers. When my creativity is highest I wrap myself in the literature and recording utensils.
Rarely do I sit and write spontaneously. After a long day, writing a quality post requires some advance planning. If I had no previous ideas to mull you wouldn’t see a new post the next day.
There are 64 unwritten posts in my WordPress queue. You need a title to save the idea, but every title is accompanied with a few sentences outlining a theme I wish to address. Sometimes the notes are detailed and run several hundred words and links to resources. Most descriptions are short. This post has two sentences as the material for pumping my creative energy.
Most ideas die in my little notebooks. After thinking about them for a few days it becomes clear the idea doesn’t work or the project would be 20,000 words. (As an example: I had planned a post on climate change and why it doesn’t matter, plus how it affects personal finances. The material I gathered kept growing until I realized it would be a veeeeery long post. It would also cause people to throw things at me since it’s such a politicized topic. I had planned a second post on mass extinctions and why we are not in the sixth great extinction. The natural world is becoming more diverse even as people think humans are killing everything off. The work on both these posts would have ended up short books in their briefest form so I shelved the projects. I did get to read several really good books on the subject so all wasn’t lost.)
(Good blog posts also try to avoid long paragraphs.)
Three times a week I publish on a topic of interest in the personal finance community (I hope). On Saturday I give readers a glimpse inside my personal life.
Every day I am thinking about writing! When I take a break or eat I’m thinking about what I’ll write in an upcoming post. The thoughts are never more than a few inches away.
By the time I punch the first words onto the digital screen I’ve played the idea through my mind countless times. I start the story and then toss it when it goes down a dead end road. As I work around the farm or workout at the gym I’m playing with possible scenarios.
The Fun Part
Most days I have a good idea which posts I’ll be writing for at least a week out, including the “Stalking the Accountant” post on Saturday.
This gives me time to work the idea out in my head. Plotting is something I rarely do even when writing a long novel. (Eight years ago I wrote a 180,000 word science fiction novel from a three sentence note. I knew where I wanted to go and started building the story. It ended up someplace different and a better story that is now the first book of a trilogy.)
Pantser writing has a huge risk. Plotting is drudge work. I like to write. After plenty of time thinking the idea through (sometimes with and sometimes without notes) I set to work. Writing from the seat of my pants means there are times I write a post and get the dry heaves when reviewing. Yes, I have to start all over. The idea I regurgitated is dead and gone once that happens. Those are tough days when I have self-imposed deadlines.
Most of the deleting these days happens in the editing process. Maybe a dozen or so posts get completely rejected per year. Most can be salvaged with work. On good days (when the whisky is flowing freely) the necessary editing is light. Those days are rare.
What comes next is the part people seem most interested in. They want to know “how” I write.
Most posts, including this one, are written the night before they are published. The clock reads 10:05 as I type these words.
On a good night I can stamp 1,000 words of rough draft to the laptop’s memory banks per hour. On a bad night I start to wonder if I’ll get any sleep before sunrise.
Normally, rough draft takes two hour or so for posts on this blog. If more research is needed or if I want to add more links for readers to dig deeper into certain points I don’t have space to adequately cover in the post the time commitment increases.
It seems easy at this point. Some crazy guy from Nowhere, Wisconsin types for a couple hours and calls it a day. If only it were so easy.
Dozens of hours of thought entered the scene before the first word was typed. Sometimes I read entire books or pull information from several books to build a quality post. I don’t show books just to get an Amazon sale! These books really add to the learning process of the reader!
Writing rough draft appeals to beginning writers. I don’t know why. From the outside it must seem like that is all a writer does.
The hard work reignites the next morning. Editing also takes several hours as I rework the words until they communicate what I demand them to. Time constraints can be an issue.
I read every post out loud to Mrs. Accountant. Reading aloud is the most powerful editing tool I know of. If Mrs. Accountant will not sit still to listen to you read your work to her you can still read aloud to yourself. Trust me, it works.
Important note: Stephen King in his book On Writing tells a story of an editor who once sent him a note along with rejection letter stating: Final draft is rough draft minus 10%.
I don’t delete as much as I used to. As you build your writing skills you will delete less, yet still edit plenty. Sometimes you even add during the editing process. Remember the 180,000 word novel I mentioned above? In the editing process I highlighted 30 pages that needed to go and hit delete. I loved the story deleted, but it had no place in the novel. If you want engaging writing you have to do it.
Publishing a blog is more than words. I was never a picture taker. Now I’m always looking for possible images to add to posts. At least phones have cameras today and Google automatically downloads the things to “Photos” on my laptop. Don’t ask me how.
Formatting the post takes about an hour.
As soon as I finish I hit publish. Sometimes I finish a day or so early. In those instances I schedule the post. Most scheduled posts are written the day before versus the night before. This means Mrs. Accountant listens to the story at night. Before I hit the hay I format and schedule the post.
The information to this point is mechanical information. It tells you what you’ll see if you follow me around and read my mind. You see me mentally taking notes and planning. You see me writing and editing. My personal writing schedule will not produce engaging posts!
Engaging writing has a piece of you in it. Stories are vital! Most posts on The Wealthy Accountant have some element of story. A good writer knows which parts of the story to leave out. The same story can be told multiple times from different perspectives!
Your life is rich and full of stories. Your childhood, work, marriage, health and family are a cornucopia of stories to share.
No matter the subject, stories are important. Without a personal story the information is just rote formality. For crying out loud, kind readers, I write on taxes and personal finance! Story is the only thing I have to offer unless you think plagiarizing the stock quotes page of The Wall Street Journal is engaging material.
Stories from history or the news are interesting, but often told. Your story, told right, is one only you can tell and readers will find it near impossible to put down or stay away.
Stories are unique in communicating information. Story allows a message above the communicated information. Think of the power of Christ’s parables. They stood the test of time and are so memorable for a reason regardless your faith.
When you own the story the reader gets a chance to step into your world. That’s why a started publishing the “Stalking” posts every Saturday. Engaged readers want to know more about the person they are growing fond of!
Share a piece of you and readers will be engaged. Readers feel like they know you and in a way they do. Writing allows the author to share at a deeper, more intimate level than mere verbal communication.
Practice, kind readers. If you are looking to write an engaging blog you MUST practice. Practice is the only way to get good. Write every day. Never believe you must publish every word you smear across the parchment. The words aren’t that precious until you can string them together in a way that makes your readers swallow hard. They just can’t seem to get the lump in their throat to go down.
The clock now read 10:37. This post is coming to an end. I’ll read a bit before retiring for the night.
Tomorrow morning the hard work starts. If I do it right (or is it write) you’ll be thinking about these words for a lifetime.
Google has a neat feature called Alerts. This feature allows you to get a daily update on any topic you desire. The setup process is so simple even an accountant like me can do it without a problem. Once set up Google scans the internet, news and social media for mentions of your selected topic/s.
I follow a few topics which rarely get an update. I also have an alert of my tax practice: Tax Prep & Accounting Services, Inc.
The name of my practice is generic for a reason. I wanted something simple like General Mills or General Electric or General Motors. While most accounting firms want to spray paint their names across the logo, I wanted a name a buyer would feel comfortable purchasing without changing the name. You see, I was thinking about my exit before I even opened the doors.
Thirty years later I’m still holding on without a sell date in sight. I also get a daily Google Alert on a dozen or so items Google thinks fits my criteria of interest relating to my business name.
Accounting Today is an industry newspaper with a Tax Fraud Blotter. It usually tops the list provided by Google when an alert is issued.
On an alert received Saturday was the clickbait title: Look Ma—Phony Deductions!
The title bothered me because phony deductions, or more to the point, unsubstantiated deductions, are not always illegal!
I clicked to the Tax Fraud Blotter and discovered, as I knew I would, there was more to the story than the headline. The phony deductions were illegal. But the topic of legally claiming unsubstantiated deductions is real.
A Story from the Underground
If you were a tax professional, what would you do in a case like this? A regular client starts a business and has questionable recordkeeping from Day 1. Then he expands his business and has almost no records at all.
There are only a few things you can do. First, you can fire the client.
Remember, as a tax professional you sign the tax return under oath that the return is “true and accurate to the best of your knowledge” under penalty of perjury. If you sign a tax return as the paid preparer and the return doesn’t pass the sniff test you can face some serious fines, some as high as $25,000 a swing!
Second, you can throw up your hands and tell your client, “You can’t file an inaccurate return so I guess you don’t have to file at all.”
This is another really bad idea.
Third, you can prepare the return with the information at hand and hope for the best.
Each of these choices has issues. Firing a client because they’re stupid they didn’t keep accurate records doesn’t solve the problem.
It’s illegal NOT TO FILE your tax return by the due date, plus extensions. You are required to file even if you can’t pay. Lack of funds is not illegal; non-filing is!
If you refuse to touch the return somebody else will have to or the client is out in the cold. So if you don’t do it, somebody will or your client is heading for the hoosegow.
Telling a client they don’t have to file their tax return if they didn’t keep pertinent documents is also a bad idea. I don’t know the IRS penalty off the top of my head, but it includes a baseball bat and something about “behind the woodshed.”
And last, hoping for the best is not sound tax advice.
Super Accountant to the Rescue
If you’re a taxpayer reading this you might want to put your fingers in your ears for a few sentences.
There is an easy way to file the above mentioned tax return for a disordered client and you get to charge extra for the service. A lot extra!
Last summer I wrote about the Cohan Rule. Now with tax season racing straight for us at warp speed, it’s a good time to review an extreme case which will allow you to file an accurate return “to the best of your knowledge” and avoid preparer penalties.
The example client we used above for our thought experiment is a real client. He runs a liquor store. His records are a mess to be polite. When we ask for more documentation we get an annoyed, “We gave you everything. It’s in there.”
No it’s not!
Last tax season it was so bad I had to junk the entire return except for three things: the bank statements showing deposits and checks written, supplier printouts for cost of goods sold and property taxes paid by going to the county to get proof of what was paid and when. From these few items I had to reconstruct a tax return, avoid preparer penalties and stay out of jail.
What would you do in a case like this? The client is a good guy, just a bit light when it comes to recording business income and expenses. Dumping him on the street would almost certainly end in the return never getting filed for years until the IRS lowered the boom. Then it would hurt him really bad and certainly end his business, putting him and his employees on the unemployment line.
You already have a good idea what I’m going to do. I’m going to make up numbers. But how?
You can read the Cohan Rule post I wrote back in August. The Reader’s Digest version states you can deduct reasonable expenses ordinary and necessary to a business (Section 162(a)) with the exception of meals, entertainment, recreation, amusement, gifts and certain listed property (Section 274(d)) for unsubstantiated expenses.
In the case of our friendly client, we also had to reconstruct income!
Building an Elegant Tax Return
I will show you how I built this client’s tax return without triggering an audit. The odds of the client getting audited are slim as I told the IRS exactly what I did. Past experience leads me to this conclusion because I’ve never had a client audited when I disclosed what I am about to show you.
Our victim, ahem, client had a box of stuff to go through. I added the whole thing up once his retainer cleared the bank.
The numbers were well outside the expected norm. (Remember, a tax professional can’t just file a return based on client provided information. If the numbers are unusual the tax professional MUST quiz the client further to ascertain if the data is correct. Unusual items remaining on a tax return should be disclosed with the original return. The disclosure should include the item in question and how the number claimed was arrived at.)
I pay special attention to local clients. If they have a business I make a note when driving past their establishment if I’m in the area. Clients miss a lot of serious tax benefits I find from a simple drive-by.
Our client in question had a small shop. I expected that since it was a liquor store. The footprint of such establishments is generally small compared to sales.
I also had his prior year return to build from. The numbers were substantially different.
I plugged the numbers I had as a starting point. My software compares the current year to the prior year. It was a crazy mess.
To construct a return I’d be willing to sign off on I started with known variables. The client was slow to get me bank statements so I had him sign a power of attorney allowing me to pull his bank records.
With the whole year of bank transactions in hand I added all the deposits for the year to arrive at Gross Revenue. I asked the client if he had ever deposited personal cash or checks to fund company expenses. He said, “No, well, maybe once. Okay, but, yes. No! Now that I think of it, maybe.”
There is a price for bad records. It’s called double taxation. If you can’t prove any of those deposits aren’t business income you have to report it as income! My disclosure to the IRS will list my position as such for good reason. The IRS uses the same formula!
I also asked if any income wasn’t deposited. I got an answer identical to the last question. Facepalm.
The revenue looked reasonable compared to the growth in his company.
Next I used the power of attorney to get a printout of the cost of goods sold from his main supplier. This was another number I could hang my hat on with reasonable comfort.
The COGS allowed me to back out an expected revenue number. It was close so we will stick to what we originally calculated by adding all deposits.
Property tax records are easy to find online so that was one expense I was also comfortable with.
Now came the hard part. I had three months of rent receipts and the landlord wasn’t kicking him out so I multiplied one payment by twelve.
I asked the client if he ever took money from the business account for something other than a business expense. By the way his mouth was catching flies I took it as a “no”. I couldn’t add all the checks cleared and allocate between expenses. (Since some items are not allowed under the Cohan Rule I don’t use the bank statement for a total of deductible expenses when I have no substantiation unless I have no choice. That and I know how small business owners like to take cash here and there for personal expenses even if they say they don’t.)
Now we are going to get extremely scientific; we’re going to guess.
Advertising, utilities, office supplies, and other expenses still are allowed under the Cohan Rule.
For our client today I took his information from prior returns and compared the expenses as a percentage of revenue and COGS. Example: If in the past three years he has advertizing expenses of 12% of revenue and 27% of COGS, I will use the percentage that gives the lower number as a deduction.
I want two reference points whenever possible. I use the lower deduction because it’s not my job to put my neck on the line if you don’t care enough to keep good records.
I move to each deduction normal for the type of business involved.
As I work through the return I keep detailed records of how I arrived at the numbers I report and attach it to the tax return and keep a copy in our permanent file.
I’ve used the same process for clients who get audited but lose their documents between filing and the audit. A home or business fire or theft is an understandable reason for a client to lose their documentation, hence the need for the Cohan Rule.
We scan a lot of stuff in when preparing a return, but time is limited so we don’t copy every receipt for our records. That is the client’s obligation.
However, if we see documentation we note this fact in our records. Our contemporaneous record acknowledging we saw the paperwork and actual receipts are frequently enough for the taxing authorities to accept the numbers we report. Must be my honest face.
The Flower Girl
Virtually every number on the above client’s tax return is a guess. The IRS would have to use the same methodology to come to an estimated return. We just beat the IRS to the punch and documented each step we took.
And that is how claiming fake deductions is legal.
Now before you say a word, I can hear you thinking.
For any client willing to pay me a bit extra to see if my guess is a better result than the actual numbers, NO!
My guess will always be conservative and probably overstates your tax liability. The Tax Court has clarified what they allow and don’t when invoking the Cohan Rule. And they always lean in favor of the government. So do I in such instances.
But good try. I like the way you think.
More Wealth Building Resources
Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?
Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.
Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.
QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.
A cost segregation study can save $100,000 for income property owners. Here is my review of how cost segregation studies work and how to get one yourself.
Amazon is a good way to control costs by comparison shopping. The cost of a product includes travel to the store. When you start a shopping trip to Amazon here it also supports this blog. Thank you very much!
The recently passed tax bill signed by the President is the largest change to the way Americans and businesses are taxed in over 20 years. Starting January 1, 2018 the new rules take effect, but there are several considerations before we retire 2017.
The biggest issues involve the changes to itemizing and the limitations placed on deductions of state and local taxes (SALT).
The First Issue
The standard deduction has been increased while personal exemptions have been eliminated. This means itemizing will be harder to do until the temporary provisions (corporate tax changes are permanent while individual changes are in effect until the end of 2025 where they revert back to the old rules) expire, are extended or made permanent.
People landing in the “zone” could face a modest increase in tax or at least find their itemized deductions of the past worth nothing extra on their tax return. The “zone” is defined as the amounts between the old and new standard deduction. Example: a married couple itemizes $19,000 per year. Under the old law the additional deductions helped reduce their taxes. Under the new law, with exemptions eliminated and the standard deduction $24,000, the value of those expenses in less than the standard deduction and will not lower their tax burden any further.
The Second Issue
The biggest issue is the limitation of SALT to $10,000 annually. Again, considering a married couple, if you are limited to $10,000 in SALT, where do you have enough deductions to itemize? Mortgage interest is a big one, but even that is limited to $750,000 of acquisition indebtedness versus $1 million under the old law, plus a small amount for home equity interest. (You read that right. Home equity interest is no longer deductible on January 1, 2018.) At today’s low interest rates taxpayers in states without high real estate prices will see less opportunity to itemize.
Charitable deductions are an option if you are inclined to contribute. At least the new law allows a deduction for cash contributions of 60% of AGI, up from 50%. Excess contributions to charity are carried forward up to five years, same as with the old law.
Medical deductions are back to the tax law from a few years back where expenses above 7.5% of AGI are allowed.
Some taxpayers will feel real pain from the loss of miscellaneous itemized deductions. Traveling sales people and others with large amounts of unreimbursed employee business expenses will feel the pinch.
Without a large mortgage itemizing gets difficult. And the allowable mortgage interest is curtailed. No matter how you look at it, itemizing will play a smaller role in the future of tax preparation.
2017 Planning Strategy
There is a one-time window to deduct SALT without limitations (with the exception of the alternative minimum tax and phase-out rules).
Many taxpayers will benefit from paying their property taxes before the end of the year (you can thank me later for giving you plenty of notice (I’ll blame it on Congress when you do)).
Since SALT is limited to $10,000 per year starting January 1, 2018, paying property taxes now are an advantage in high tax states.
Also consider paying your 2017 state estimated tax payment due in January before the end of the year. You can also make a 2018 estimated payment (ES) prior to the end of the year. You only need to pay the state ES payments early because only state taxes are deductible as an itemized deduction on the federal return. Pay as much as possible in 2017 for 2018 to maximize the benefit.
The alternative minimum tax (AMT) didn’t go away, but is, ahem, minimized for 2018 and after. Prepaying taxes can cause issues that mitigate the benefits. As a general rule, if you already are paying AMT the strategy I’m outlining may not work. If you aren’t paying AMT on your latest tax returns you might be okay unless you were right at the line. Covering AMT is beyond the scope on this short post. Talk to a tax professional if you have any concerns.
More Good and Bad News
I intentionally avoid business tax issues in this post, opting for advice beneficial to individuals, including year-end strategies.
As mentioned above, AMT is unlikely to be an issue for many taxpayers after 2017 as the exemption amount has been increased to $109,400 for married couples filing jointly and $70,300 for single and head of household filers.
The phase-out of itemized deductions has been suspended until December 31, 2025. Considering all the other limitations individual taxpayers face in the new tax bill, phasing out itemized deductions would be rubbing SALT in a wound. (Yes, I intended that pun.)
529 plans, the college savings accounts, have been expanded. After December 31, 2017 you can withdraw up to $10,000 to cover tuition (and only tuition) expenses for elementary or secondary public, private or religious school. (I want to see the politicians putty knifed off the ceiling a year from now when somebody (perhaps me) publishes the amount of tax avoided to send kids to a Muslim school. These will be interesting times, indeed.)
Personal casualty losses are limited to federally declared disaster areas. Uninsured losses outside declared areas are not deductible under the new law.
Exclusion for qualified moving expenses: Gone.
Exclusion for qualified bicycle commuting reimbursement: Gone. (Mr. Money Mustache will not be happy when he finds out.)
Alimony is still deductible for old divorces, but a divorce finalized starting in 2019 does not allow a tax deduction for alimony. Alimony is not reportable income for divorces starting in 2019 either. (I recently concluded a massive alimony case against the IRS after fighting for two years. We kicked the crap out of Revenue for a very sizable refund for my client. There is an outside chance it’s my fault they included this in the tax bill as a result.) (You know I’m kidding? Right?)
The health insurance mandate is gone in 2019.
The inflation index has been changed to the chained CPI-U. All you need to know about this is that Congress wants a smaller reported inflation number for tax issues so more money gets taxed in the future. Old tax guys like me know why President Reagan introduced indexing to taxes in the first place. Reagan must be turning in his grave!
The child tax credit goes from $1,000 to $2,000 and can be claimed to age 17 instead of age 16. There is also a new $500 temporary tax credit for non-child dependents, like older children and dependent parents. The phase out of the child tax credit has been increased to $400,000 for married filers and $200,000 for singles.
Good news! Student loan interest is still deductible up to $2,500.
Many readers will benefit from paying their property taxes this year instead of the due date in 2018. Making ES payments due in January 2018 in 2017 will avoid the limitations of the new tax bill.
You can also make 2018 ES payments in 2017 to take advantage of the old tax rules. (See note below.)
The New York State Tax Department emailed to remind me Governor Cuomo signed an emergency Executive Order allowing payment of 2018 property taxes in full or part in 2017. (See note below.)
We finish with Wisconsin, a weird tax animal if there ever was one. Wisconsin has a $300 property tax credit. If you double up property taxes allowing you to miss a calendar year with a property tax payment you will lose the property tax credit worth up to $300. Wisconsin residents need to consider the property tax credit when planning prepayments of property taxes for federal purposes. (Taxes can be so fun. And crazy.)
For New York you need to contact your tax receiver to determine your property tax payment options.
Wisconsin already has their 2018 ES forms out. Check your state tax department for ES forms.
As you can see, the new tax bill doesn’t do a lot for individual taxpayers. If you are lucky you hit it right and benefit. If your luck is less than reliable you might even see a tax increase. Most individual taxpayers will see only modest reductions in tax liability unless they have a high income.
In the near future I will present additional ideas to optimize personal taxes under the new tax bill. Unfortunately, the best ideas will go to business owners in the new world order.
Then again, if you give me enough time I might figure something out beneficial to all parties involved. There are a lot of holes in the Swiss cheese tax bill.
Note: I no more than hit the publish button and went to work when the IRS issued clarification on pre-paid property taxes. The IRS released a statement saying property taxes may be deductible if they are assessed AND paid in 2017. That means my idea of following the states who were allowing the activity by extending the strategy to estimated payments will not work unless you want to take your chances in Tax Court (not recommended).
A clickbait title like above requires some quantification before we begin. It’s not what you think. Fewer than one in a thousand have a clue what I am about to reveal. And the personal finance ramifications are incredible. If you live the story the cost can be a million or more; it can even cost your life.
J Money from Rockstar Finance recently sold his site so he could focus on his blog: Budgets are Sexy. J’s work over the years is legendary. His work has helped countless people in desperate need. As he exited the building he had cash remaining in the community fund. I was contributing $10 per month and added $500 to the Debt Drop program in September in honor of Suicide Prevention Month. The community fund was ending as new management took over Rockstar.
J emailed bloggers asking any who would be willing to take $100 to do a good deed in their community and write about it. I answered I would, but didn’t need the $100; the $100 would be my contribution and the idea I had would require a bit more than $100. J’s original goal was to enlist 20 bloggers; he now has 21. Another example of how the FIRE (financial independence, retire early) community is making our world a better place.
Before we begin, would you hand me the box of tissues next to you. What I am about to write is very personal and painful. This is a story about how I almost sold my business and walked out on life. I had the pills in my hand as I contemplated ending it all. A moment that should have been filled with joy changed my perception of life and love forever.
And it started from my misconception of sex, or more accurately, gender.
The Gift of Life
I’ve become so numb, I can feel you there
Become so tired, so much more aware
By becoming this all I want to do
Is be more like me and be less like you.
—Numb, Linkin Park
Mrs. Accountant and I waited to have children. I wanted to be financially secure before bringing a life into this world. The truth is I never wanted children. Deep down I felt I’d be a terrible parent and the thought scared the wits out of me.
When we decided to have children Mrs. Accountant was so happy; I prayed to God the day would never come.
Finances were better than they ever were when I was growing up in the backwoods of Nowhere, Wisconsin. I remember our kitchen table when I was a young child consisted to two sawhorses with a piece of plywood laid across them. I was too young to know how poor we were. Then I grew up.
Now it was my turn to start the next generation. Mrs. Accountant had difficulty conceiving, not that I was complaining. For this crazy accountant it was all fun without a baby bump. I was happier than a pig in, ah, you know what I mean.
Then the inevitable happened. Our first child was on the way and I adjusted to the New World Order.
Regular doctor visits indicated everything was going smooth. We attended Lamaze classes. These sessions were designed to give the mother confidence in giving birth, as if she had any choice at this point. Dad was there to learn a thing or three, too. Unfortunately, fate would exempt me using the newly acquired knowledge.
It was right after the holidays when Mrs. Accountant didn’t feel well one morning. Within an hour her water broke and we on our way to the hospital. The baby was due February 28, over a month early.
The doctor suppressed labor to give the baby time to develop more before breathing air. Eventually the wait had to end. Our first daughter entered this world early and spent 19 days in intensive care at Theda Clark hospital in Neenah, Wisconsin.
In the end it was a minor problem modern medicine could fix. Life was good.
Until we tempted fate again, that is.
The Son of Cronus Awaits the Fool
My brother and I are five years apart in age. It’s only a coincidence my daughters are exactly the same number of years apart in age as well.
Waiting to have children is a double-edged sword. I was 31 when my first daughter was born. If we wanted another child we needed to make up our mind soon.
I wanted more time before we added to the herd; Mrs. Accountant felt her biological clock ticking. I’ll give you one guess who won.
Since it took time for Mrs. Accountant to conceive the first time we needed to get to work. (It’s good work, but the pay is, well, shall we say, awesome!)
We were prepared this time around. Medical issues with our first daughter meant we needed a specialist to prevent a repeat. We found an OB-GYN with ample experience with delivery issues. What could possibly go wrong?
The pregnancy went smooth. Soon the happy day arrived and it was time for baby number two.
Due to the emergency nature of the previous birth I wasn’t allowed in the delivery room. This time I would see the magical moment my child would enter the world with my own eyes.
Our first child came cesarean. The doctor decided it would be best to do the same this time around so no labor issues could ruin what was so far a picture perfect pregnancy.
As reluctant as I was to have children I was eager to see the process in action. Three doctors were working in the delivery room as I watched. The incision was made and then widened a tad before the doctor’s hands massaged my child’s head through the opening.
Once the head was out the rest of the baby slid out easy.
The OB-GYN said, “Congratulations sir, you have a son!”
Another doctor immediately said, “Look again, doctor. Sir, you have a daughter!”
All I remember is mumbling, “It’s both.”
I actually called my child “It.” I was so numb I felt nothing. It? What was wrong with me?
The delivery room was dead quiet from that point on. Mrs. Accountant kept asking what was wrong. For once in my life I couldn’t find words.
Boy or Girl?
The doctor closed the incision as I was shown to a waiting room. I was informed the doctor needed to make some calls to figure out what to do.
I was allowed to see Mrs. Accountant. I managed to explain what had happened.
The birth certificate read:
How could I face the world? My child, my baby, was a. . . A what?
The first question people ask when you have a child is, “Boy or girl?”
I had to answer, “I don’t know?”
People think you are pulling their leg when you say it.
It was the middle of tax season (no comments on my planning skills). Mrs. Accountant needed rest so I went home to pick up my oldest daughter from my parents. My office is between the hospital and home.
Bev was still working when I stopped. I couldn’t even enter the building I was trembling so badly. All I could get out was, “I’m not coming back.” I tried to tell her to sell everything; I was done. Bev feared the worst and I wasn’t in good enough shape to tell her what happened. Even driving was a stupid thing for me to be doing.
If you think this story has nothing to do with personal finance you’re going to see how wrong you are. This story is perfect for a tax and personal finance blog.
We had insurance; thank God for that. The medical bills approached a million dollars in the first few years and the out-of-pocket was substantial, too. My wealth at the time was working toward the second million. It is a blessing I had the financial ability to make sound medical decisions without considering money.
Our child needed several surgeries the first few months. The gonads were purplish masses and precancerous. It was, as the doctors said, a “medical imperative” they be removed immediately.
The gonads hadn’t dropped so they were deep inside in the position of ovaries. They were removed when she was three weeks old. That was surgery number one.
Our baby had ambiguous genitalia. There was a distended, though not fully formed, penile structure and a vaginal opening. The urinary tract exited both and was certain to cause infection soon if not corrected.
A decision had to be made in the gender of the baby. The University of Wisconsin Medical School in Madison did a genetic test. The results was X iso Yp.
In laymen’s terms it meant our baby was conceived male. After a few cell divisions the Y chromosome became isolated. Our baby, my baby, had ~15% of her cells with the XY chromosome, or male, and 85% X. XY is male; XX is female. When you only have X instead of XX it’s like have no sex chromosome at all! In such cases the human body tends toward the androgynous, or feminine. This explained the ambiguous genitalia.
In my mind X meant girl. 85% beats 15% so girl it is. The doctors also encouraged us to choose female for our child. One, it’s easier to make a female medically. Constructing male organs are usually less functional and our child would always tend to be more feminine in appearance. And two, the genetic test said girl and my analytical mind would have taken any result with greater than 50%. It’s how I’m wired.
That was surgery two. There were many more to follow.
Guilt took over. It was my fault our daughter was deformed! The Y chromosome only comes from dad and my genetics failed. The guilt was overwhelming. Get me in a corner talking about this and I still fight back tears. The wound cut deep and the pain never went away.
All the while the stuff above was happening I fell deeper and deeper into depression. One night I went out to the barn and put my head in a noose. A few nights later I emptied a bottle of pills in my hand. In either case I stopped short. Don’t ask me why. The pain was so deep there was no feeling left.
As this was happening I attended a support group from Reach Counseling. Only a few children are born each year in Wisconsin with such issues. I was told once an average of two babies per year in the state have what my youngest daughter has. A traditional support group wasn’t available.
This support group had every sex issue known to man in it. Victims of abuse and even a few sex offenders attended. (Many sex offenders are victims of sexual assault in their childhood and seek out support groups to deal with their issues.) And then there were the odd couples like Mrs. Accountant and me.
I thought the whole thing was stupid at first. There was a young woman dealing with a childhood of sexual assault while her dad was there due to assaulting his daughter. Several men were dealing with sexual assault issues from their childhood. Then there was a guy I affectionately called Dudeman. Every sentence he said ended with “Dude!” He was a good guy, just weird.
Every Thursday our group met and talked out our emotions and problems. I broke down every week. “My baby’s an abomination and it’s my fault,” I cried. It was an emotional roller coaster with the only ending a bad one. I shirked my parental duties for a pity party.
Shortly after my daughter’s second surgery I was in the support group crying when a young Asian man dealing with assault issues of his own turned to me and said, “In my culture you would be the most popular man in the village. Your daughter is special. Every man would want your daughter as his wife.”
He was from Laos. His childhood wasn’t easy. And here was this man who could only speak broken English telling me my child is a gift!
The pain and guilt have never gone away, but that was the day I stopped thinking about me and started thinking about my little girl. She is NOT an abomination! She is a GIFT! I was acting like an a$$. My daughter needed her dad and not some sanctimonious coward trying to find the courage to end his life.
The tears stopped instantly. I continued attending the support group for about a year. The young man from Laos eventually moved on. I doubt he even knows he saved my life and gave a beautiful young lady a good childhood.
My youngest daughter reaches the age of majority in a few months. She is a happy person filled with joy and dreams. Maybe I wasn’t such a bad dad after all.
Reaching for Help
Then I got an email from J at Rockstar Finance.
The moment I read the letter I knew I had to participate and I knew exactly what I wanted to do.
I hated Reach Counseling at the time. They symbolized my greatest failure in life, or so I thought. Now, almost 18 years later, I wanted to contribute to the organization that changes the lives of so many, changed my life.
Reach Counseling helps sexual assault victims in northeast Wisconsin. They also have programs to help sex offenders rebuild their life. The work never ends.
Even if you read the news poorly you know of all the women coming out in the #metoo movement. The Silence Breakers are Time Magazine’s people of the year. The number of people floating through my social media feeds raising their hand as also a victim of sexual assault is depressing. Most people knew back brain about the casting couch. Harvey Weinstein isn’t a total surprise.
The real surprise is the massive swell of victims silently suffering finally coming out to be heard. I’ve seen plenty in my days and know the devastation sexual assault causes. Almost from the beginning of this blog a woman reached out to me for help. She was sexually assaulted by her step dad since she was three or four years old. The assaults went on for years. She is in her forties now and struggles with the issues. She is intelligent and hard working. She is a survivor! Now I help her with personal finance issues so she can have the life she deserves, the life her stepfather raped from her.
I contacted Reach Counseling and showed them the email thread from J. I spoke with Kim Massey at Reach and explained to her what I wanted to do. Mrs. Accountant came with me. She said I was shaking as I told the story. The emotions are still there as I fought back tears. I haven’t evolved as far as I pretended.
The goal is to pay it forward. I can’t pay Reach back for what they did. Sure, I can donate money and I did: $500. But there was much more I had in mind.
I outlined a three pronged program serving victims of abuse, sex offenders and those at risk of abuse. I surmised if money is the number one reason for divorce, financial issues might pay a role in sexual assault and the healing process.
The issues people face when assaulted runs deep. Emotions run wild as the victim of crime tries to deal with what happened. And the kids still need food on the table.
Women are disproportionately affected. When I donated the $500 I had no string attached. I was informed a few hours ago by Kim Massey (I’m writing this the night before it’s published) some of the money was used to help a single mother with two children ages 9 and 12. They just moved into an apartment and have no furniture. The money was used for a Christmas tree and some gifts for the kids and even something for mom. The unspent money is in a fund for other families. I was told “. . .this gift filled their house with joy!”
J reminded me why I write this blog in the first place: to help people understand money better. I am working with Reach to build a program where I personally help people with serious financial issues. They need this advice more than anyone. I will use my experience and knowledge to make my community a better place.
In the past I’ve raised funds for Special Olympics. Now The Wealthy Accountant will adopt Reach Counseling, contributing a significant portion of its income to their cause along with my time and talent.
Please join me in this important work. Together we can do more than any person alone can. Support organizations similar to Reach Counseling in your community. Consider donating to Reach as well.
The workload is endless and demanding. You can read more about Reach Counseling and contribute here. No gift is too small. Consider an automatic monthly gift. This community is blessed with so much we can make a difference. You never know who you will help. It could be a woman fighting to survive after an assault; you might help a young girl break free from a violent and abusive environment; or maybe you’ll help a crazy accountant who needs a knock up beside the head to understand his child is a gift, a beautiful, wonderful gift.
Reach Counseling also has a crowd funding fundraiser going on right now. If you think men can’t be victims of abuse, think again. There is a moving video at this link of a man who found Reach after childhood abuse. It gave him a new lease on life.
Christmas Eve and Christmas morning I’m going to raise my glass in a toast to the single mother with two children struggling to survive.
May you have peace, my friend. May you have peace.
Note: I’ve attempted writing therapy on this issue in the past. I always cover with something different to get the true story out. You can read an earlier attempt here.
Earlier this week I had the opportunity to extend my Thanksgiving holiday by attending a few days of continuing education training. Northeast Wisconsin isn’t a bad place to get an education as long as you can get to Green Bay or the Fox Cities. But when you live in the middle of nowhere it takes planning and strategy to git er done.
Well, the plan was fine; the strategy could have used a bit more work. It’s been a while since I weaseled my way to Green Bay where the training classes were. The fastest way there was to take side roads the whole way.
My memory has started to slip these past years as the birthdays add up. Not having to visit Green Bay in a bit, I knew the trip was a straight forward drive with one exception; at Wrightstown I had to make a loop to get on the bridge to cross the river.
The first day I started early and relied on memory — you know, the thing starting to go with age. It was a good thing I started early.
If you don’t cross the bridge at Wrightstown you have to take a longer, slower route deeper into Green Bay before swinging hard west to head out to the casino where the class was held. Confident as only an American can be, I went off memory. It was a gamble I was willing to take.
Sitting in a classroom all day listening to tax law is grueling. As soon as class was over I wanted to get home. Now less willing to trust my normally reliable brain, I decided to use the phone’s GPS. The last thing I needed was to miss the turn at Wrightstown. Then I’d end up going all the way to the Fox Cites to get home and that would add twenty minutes or so to the ride.
The GPS worked swimmingly at Wrightstown. GPS loves highways and it loved the route turning off at Wrightstown. But it didn’t want to take the side roads the way I wanted!
I followed the GPS directions and knew I was going off course. The darn thing wanted me to take highways as much as possible so I ended up on Highway 32/57. It wasn’t a terrible distance out of the way, but added ten to fifteen minutes to the drive.
Such was Day 1.
I was ready for Day 2! I used the GPS to get to the casino for class in record time. I was even able to use side roads, too.
Day 2 is always brutal. Day 1 wears you out and Day 2 grinds you into putty. Sixteen hours of intense tax law review has that effect on normal humans.
I wanted the fastest way home and hoped the GPS would be as kind on the return trip as the morning drive. Once again things went swimmingly at the Wrightstown turnoff. Then the GPS wanted me to keep going east until I hit 32/57.
I was ready.
Suspecting the ruse from the GPS I took note of how the squirrely turn at Wrightstown fed to the side road I wanted to take. When the GPS said to go straight I made the loop I made that morning and found my true heading home.
Rather than turn the GPS off now that I knew the way home I decided to leave it on and focus on my driving. There are a lot of deer roaming and it gets dark early this time of time. I wanted to get home and was in no mood to tenderize some venison.
The GPS kept telling me to hang a left at every cross road until I was only a few miles from home. The GPS didn’t care the side roads were a faster route; it wanted to get to a highway, any highway, as quickly as possible.
The Day the Sun Went Out
This past August we had a total eclipse of the sun. A new friend from this blog, Bernie, invited the Accountant family to stay at his place only a few miles from totality in Kentucky.
It was an awesome experience and included a new friend. But that isn’t the interesting part of today’s story.
When the eclipse was over our plan was to head to the Interstate and back to Bernie’s. Except seven quadrillion other people had the same idea.
The GPS loaded where we watched the eclipse, but once we got on the interstate coverage died. And so did the traffic.
The highway was wall-to-wall cars and weren’t moving. It took an hour to move a mile! I don’t see stuff like that in the backwoods of Wisconsin. Where I live a car coming down the road is an event. Either one of the few neighbors I have is up to something, we have visitors or someone is lost. Now I saw cars as far as the eye could see!
After a few hours some people were getting in trouble as their gas got low. Good thing I was smart enough to fill up after the eclipse before we headed back. Okay, maybe luck had more to do with it.
Cars were pulling to the side and some were stranded. If emergency services were needed you were SOL.
I’d had enough. Mrs. Accountant wanted to drive back so I studied the map. Without GPS the map was incomplete. Sick of the traffic and with evening fast approaching I wanted an alternative before it got dark and our gas started getting low.
I told Mrs. Accountant to take the next turnoff a half mile ahead.
“Are you sure?”
Mrs. Accountant trusted my instinct. It took another hour to travel that half mile to the turnoff, but we eventually made it.
Some people had the same idea, but it was a serious minority.
Traffic on the side roads we light. We still had one problem. We needed to cross the interstate to get home. And like the crazy loop in Wrightstown, it wasn’t going to be easy.
Cell service was spotty but did click long enough to expand the map in the phone. As we traveled toward home we noticed every approach to the interstate was backed up for miles. Crossing the interstate could take half the night!
I searched the map for a side road crossing under the interstate without on-ramps. It was a gravel road, but there was only one other car on the road and we were moving just fine.
Once on the other side of the interstate we drove at the speed limit all the way back to Bernie’s place. It was dark by the time we got there.
Mrs. Accountant and I still think there are people out there on that interstate in Kentucky still waiting to move a few more feet.
The Best Choice Isn’t Obvious
The two stories above reveal the same lesson: the obvious choice isn’t always the best one. The GPS in Kentucky showed massive traffic issues and still demanded we stay on the interstate! I think people were staying on the interstate because they were preprogrammed to take the most obvious course home and their presupposed assumptions were affirmed by a piece of technology. If my GPS was giving bad advice; the same must be said for the rest of the crowd.
The interstate is frequently the right choice. Unfortunately it’s also the crowded choice. The side roads and lesser highways might be slower, but the traffic is generally lighter and the scenery better. The interstate doesn’t allow much opportunity to meet locals. State highways wind through small towns where you can get out and chat with folks. In my opinion it’s the only way to travel.
Other areas of life face the same dilemma. Technology wants us to always run for the nearest highway when that is the worst possible choice! People, unfortunately, react the same way the technology does.
Wealth experiences the same issues. Everyone is a genius right about now. The stock market has been straight up for nine years. Virtually every other asset class has also enjoyed heady gains. Bonds have been higher as interest rates declined. And now we get cryptocurrencies to add to the growing list of assets turning everyone into Einstein.
History is an important guide. Following the crowd doesn’t lead to riches. At best the crowd leads to mediocrity; at worst it leads to the poorhouse.
I don’t trust what technology always tells me. Right now technology (and the experts) tells us to pile into bitcoin and the stock market. Weeeeeeeee!
What could possibly go wrong?
Like the interstate in Kentucky after the eclipse, we might find it hard to move anywhere or even get off the crowded road. Before long we end up with real problems as night approaches and gas is running low with the kids in the back seat.
Heading for the highway sounds like the smart move. Sometimes it’s not! It can extend the drive a few minutes like my trip to Green Bay for a class or create serious problems like it did after the total eclipse in Kentucky.
The side roads are seldom crowded. Sometimes you get behind a tractor for a short distance or have to navigate twisting roads and frequent stop signs.
But at least you have the road to yourself and a whole lot less stress.
Cryptocurrencies are all the rage with bitcoin (BTC) leading the pack. As I write, BTC blew past a 1,000% return year to date and posted its first trade above $10,000. Experts claim BTC could increase another 400% between now and the end of next year to $40,000 or more! If that doesn’t make your eyes water, remember BTC traded at a $1 in early 2011. I don’t know about you, but this is nosebleed territory.
Bitcoin will continue growing until 21,000,000 BTC exist. Actually, the programming to mine BTC stops 3 bitcents shy of the 21 million mark, which at the current growth rate could be worth a few million dollars. It will take until 2140 to complete the BTC mining process. On June 1st, 2017 there were 16,366,275 BTC in existence, if that is the right word to use. (It isn’t.) More BTC has been mined since June 1st.
This means the total value of BTC is approaching $200 billion in value. If BTC climbs 400% in the next year, as some suggest, the total value of BTC will approach $800 billion and the market cap of Apple!* When all 21 million BTC are mined, if the price is $40,000 to 1 BTC the total value of all BTC will reach $840 billion. Then it gets absurd.
The Insane Logic
If you bought BTC seven years ago (early 2011) for $1 per BTC I salute you; you are a genius. Unfortunately, schmucks buying today will never see those kinds on return in seven years or a thousand! The starry-eyed fools jumping in today looking for similar returns will need BTC to climb another 10,000 times. Okay. Let’s add all the zeros. BTC is at 10,000. Add four more zeros and you get $100,000,000 per BTC!
Well, it could happen!
Of course when you multiple $100 million by 21 million BTC you get, well, more money than currently exists by a very large margin! ($2.1 quadrillion if I calculated it right. You have to forgive any errors. Other than my own investment account, I’m not used to playing with such large numbers.)
I can hear you already. It doesn’t have to climb another 10,000 times to turn a tidy profit. I agree. However, name anything that rose so far so fast without ending in tears?
I’ve seen this stunt several times in my short lifetime. As a child I watched the Nifty Fifty crash and burn in the 1970s. The dotcom bloodbath at the turn of the millennium should have provided lessons for today’s investors. The housing and banking collapse of 2008-9 should be fresh in everyone’s mind as it happened less than a decade ago. But memories are short when stupidity runs rampant, I guess.
This Time is Different
As with every bubble, this time is different. The tulip bulb mania of the early 17th Century (1636-7) was different. In all honesty, tulip bulbs always had value and best I can tell are still around. I can pick up a large bag at my local garden center for a few dollars. Tulip bulb prices ended up where they started. There was always value, just not the insane valuations. This is our first lesson. There is a grain (or bulb) of truth in every bubble.
The U.S stock market of the late 1920s is another example of value turning into a buying frenzy at any price.
Tears. Remember it ended in tears.
The stock market is a favorite vehicle for bubble creation. The Nifty Fifty of the late 1960s and early 1970s were stocks people felt could be bought at any price and held forever without worry. By 1974 there was worry. The only stock I can image did well was Kimberly-Clark, the maker of Kleenex tissues.
The stock market pump was over-primed in the mid-1980s ending in the biggest percentage loss for one day in market history on a fateful October day in 1987.
But this time is different.
Once again as the millennium raced toward the finish line stocks went insane. Dotcom stocks traded for hundreds of times revenue (not profits!) if they had any revenue at all. But many stocks (companies) did have real value so this time is different.
Then came housing in 2008. Fed Chair, Ben Bernanke, said housing prices would continue climbing only at a slower pace. Good call, Ben. And he was an expert.
For some reason people never learn. They go from one hot stock to another. People get killed in a bubble collapse, take a decade to rebuild reserves and go at it again with their battle cry, “THIS TIME IS DIFFERENT!” No it’s not.
Where is the Value?
In most bubbles of the past there was underlying value. Tulip bulbs were worth something. Not much, but something. Stocks (publicly traded “businesses”) certainly have value.
Today we have several expanding bubbles due to the massive money creation of central banks around the globe. Bonds are arguably overpriced. How else can you explain bond yields less than inflation?
We can go into other possible bubbles, but BTC is turning out to be a doozy by historical standards. Boys and girls, you might live through a bubble spike bigger than any other in recorded human history on an item worth absolutely nothing!
Stocks, bonds, real estate and even tulip bulbs have some intrinsic value. But what about BTC? Does BTC really have any value? Let’s examine.
What is a bitcoin? Some call it a pyramid scheme, but it really doesn’t resemble one. Is it a currency? Economists say a currency has three characteristics: a medium of exchange, a store of value and a unit of account. BTC doesn’t exhibit any of these features to any large extent. Yes, BTC is used in a small percentage of transactions, mostly involving nefarious transfers. The massive price fluctuations make BTC more a speculative investment than a store of value or unit of account.
Think about it this way. Why would anyone buy something with BTC? To do so when BTC prices are climbing triple digits or more each year is industrial strength stupid. Only a fool would do that! Using dollars to buy stuff and pay for services because your BTC will be worth more tomorrow seems the smart move when BTC is such an awesome investment. Just read the news, they’ll tell you.
Compare BTC to dollars. Yes, dollars are fiat money, backed by nothing more than faith in the government and the economy to give you value. No physical commodity supports fiat currencies. The U.S. government can tax more to pay back its debts if necessary. And currency IS debt. It says so right on paper currency: Federal Reserve Note. A note is a loan! (Ie. you have a mortgage note.)
BTC has no government or economy supporting it. BTC is fiat money**! No physical commodity backs its value. Scarcity doesn’t imply value as many buying BTC today contend. There might be a limited supply (intentionally) of plaid shirts. That doesn’t mean plaid shirts are worth more and more every day due to this limited supply!
BTC is supported by nothing and is fiat money. When BTC collapses who will want to accept BTC as payment for goods and services? When the price rises who in their right mind would use BTC to buy something; that’s a de facto sale.
There is no government or economy supporting BTC. BTC has value because people say it has value. Just like gold has value because people say it has value. (And because it’s pretty, useful in art and industry.)
When someone decides there is nothing but air underneath BTC the rush for the door will not be pretty. Most will not get out as the building burns. If you think the rush to buy is tremendous, just wait until fear sets in.
This is BTC’s Achilles heel.
Signs of a Bubble
I don’t want to dissuade anyone from investing in BTC if that is their heart’s desire. All I urge is caution.
Here are a few indications the party may be nearing its end. Over the preceding long Thanksgiving weekend here in the States over 300,000 new accounts were opened to buy BTC. BTC jumped over 10% during the long weekend. People are buying BTC with credit cards they are so desperate to get in.
Hedge funds are starting to invest in BTC, not use it as a currency. ETFs and futures contracts are ready to debut in the BTC arena. On December 10th when futures begin trading on BTC it could actually hurt BTC pricing! With a futures market you can play BTC without actually buying BTC. With such an easy vehicle to trade BTC without owning it could be a catalyst for problems. I’m not making a prediction, only offering insight. Like program trading in the 1980s, it might take a few years before BTC has its October 19, 1987. Or it could happen much, much sooner.
Taxes on BTC
This part of the discussion is for U.S. readers and those subject to U.S. taxes.
The IRS has clarified the tax treatment of bitcoin and other cryptocurrencies in Notice 2014-21.
Under tax law, BTC is NOT considered a currency! It is considered property. If you pay employees with BTC you still include the amount of U.S. dollar equivalent on their W-2. If a merchant accepts BTC as payment, the amount received at fair market value on the date of receipt is income. A miner of BTC includes BTC received as income and may be subject to self-employment tax.
Here is where it can get ugly. Most people are buying BTC to hold as an investment. If you buy something with BTC you may have a gain or loss on the transaction, technically a sale of BTC to buy said product or service. If you sell BTC at a gain you get either long- or short-term capital gain consideration.
If you sell BTC at a loss you can only claim the loss against other capital gains, plus $3,000 per year against other income. People buying into the hype could face serious losses and those losses may not be deductible for a very long time, if ever. You can carry unused losses forward. However, when you die, the capital loss carry forwards die with you. Ouch!
I’ve been in this business for a very long time. (The first one to leave a comment on my age gets one in the puss.) I remember the mess caused by stock options when the dotcom bubble burst. The Alternative Minimum Tax (AMT) issues were incredible. It took special action by Congress to offer relief to some of the victims. They suffered years before help arrived.
The good news is that this accountant sees no AMT issues (other than normal AMT issues) with BTC. The real issue with BTC is that losses could be strung out on tax returns for decades or longer. People who borrowed money will need to earn money, pay tax on the earned money and use the remainder to pay off debt lost trading BTC.
I am unqualified to call the future price of BTC. I could be wrong and this time could be different. Amazon was caught in the dotcom mess and did pretty darn well if I don’t say so myself. However, BTC is not Amazon. It’s not even a currency technically.
BTC has no real value. BTCs entire value is built on faith and faith has a habit of letting people down when they need help the most. At best BTC is fiat money; at worst it’s a fool’s game.
For BTC to continue climbing in price, more buyers willing to pay a higher price, need to step forward. The day will come when nobody wants to pay a higher price. That is the day we find out if BTC is for real or another chapter in the history book of insane bubbles. With no intrinsic value I have a bad feeling where this is going to end.
* Remember, more BTC are created every day so the supply keeps going up. If BTC continues to rocket higher, the total value of all BTC will climb faster as more BTC are available at the higher price.
** This isn’t really true. Fiat money is technically “from decree”. In this instance I use fiat as meaning a currency without the backing of any commodity or government taxing authority.
For thousands of years in the Western world the best way to be noticed was to have your book banned by the church. Intelligent modern authors would welcome such attention as it guarantees their work will be lifted from obscurity into the light.
Every year books are banned. Sadly, your favorite accountant has never made the list.
If I can help it.
Censorship doesn’t work well with me. If you tell me I can’t read something I’ll not only read it, I’ll buy it and keep it on my shelf. When a warning is issued to avoid knowledge my suspicion is raised as to the warning. The government and self righteous people are motivated by a personal agenda to hide the truth and it is a sure way to get people to look, including me.
Book banning isn’t something limited to the Dark Ages. Books are banned every year by various organizations for a variety of reasons. Personal bias may cause me to agree with the ban. For example, Twilight was banned back in 2010 by some groups. I think we can all agree the book was bad (play with me on this one) and should have been relegated to the dust heap of history. Instead, Stephenie Meyer enjoyed a bestseller as the hate erupted and grew.
Another book I should have saved my money on was The Satanic Verses. Salman Rushdie’s book was destined for the remainder bin until the Ayatollah, in his infinite wisdom, made sure the entire planet knew of the book with his banning and fatwa. The Satanic Verses went on to become a bestseller and Rushdie’s work is relevant because of name recognition. Rushdie’s work was likely headed into the abyss, known by only by the most dedicated of scholars until his work was banned. Rushdie now is a guest panelist on a variety of television programs such as Real Time with Bill Maher. Why couldn’t the Ayatollah keep his flap shut? Rushdie’s net worth is estimated at $15 million. I guess banning Rushdie’s book really showed him.
Oodles of years ago I was reading a news magazine when a small article listed a book used by man to murder was forcing the publisher to pull the book off the market. The book is called Hit Man by Rex Feral. The author used a pseudonym for obvious reasons. It was later learned the author is female.
I immediately purchased a copy of Hit Man before it was pulled. The book is a how-to guide on how to start a side gig killing people, aka, a hit man. Always keeping my mind open to all possibilities (one never knows when such information might be needed) I read the book. It’s not the worst thing I’ve read, but it is toward the bottom. The information is suspect but might provide a good resource when writing fiction.
I still have my copy of Hit Man. A few used copies still float around for anyone curious what all the ruckus was about. Used copies fetch $75. I’m still not selling mine.
Cory Doctorow is a science fiction writer who insists his work be available online for free. He makes it clear an author’s greatest risk to their work is not theft; it’s obscurity!
In the crowded field of fiction standing out from the crowd is near impossible and without sticking out from the crowd you are guaranteed a front row seat in the loser’s column of the obscure.
I would never have heard of Cory and his work if it weren’t for his digital policy with his work. As he expected, it lead to a certain someone, perhaps a certain accountant, who ended up separated from some of his cash for a hardcopy of the material.
What Doctorow did was tame compared to what one of my favorite authors did. Ryan Holiday is a bestselling author now, but he had to start somewhere.
Early on Holiday was an assistant to Robert Greene as he was writing The 48 Laws of Power. Holiday was indoctrinated in the Machiavellian methods employed by people serious about success. While not in agreement with every piece of advice offered by Greene, his points are solid and backed up with examples from history. You don’t have to like it as long as you are aware it does work!
Even this is child’s play compared to the work Holiday did for Tucker Max. Max’s work is vulgar, even by my standards. I have an extremely open mind when it comes to publishing. Attempts at censoring my work will not go well. That said Max really grosses me out. His work encourages (in my opinion) abusive behavior towards women. It’s one of the few things I couldn’t finish reading. I could only take a few pages before I backed down as I fought back the wretching.
Max’s first book was I Hope they Serve Beer in Hell. He later made the book into a movie. Max enlisted the services of Holiday. Holiday knew he had to pull out all the stops. Holiday orchestrated a reverse psychology campaign where he organized pickets against the movie and vandalized movie posters himself and then reported it to the media. What Holiday was trying to do was get the movie banned so everyone would have to see it to know what all the commosition was about.
The movie bombed at the box office, but don’t feel too bad for Tucker Max. The book sold over a million copies.
I was only banned (censored) once in my life. In the past I wrote flash fiction in the transgender genre. My youngest daughter’s medical issues introduced me to a demographic I never knew existed. Always wanting to conquer flash fiction, I rolled up my sleeves and started pounding the keyboard.
Flash fiction is stories of only a few hundred words. It’s harder than it sounds. Writing a story, a real story, in two hundred or so words is brutal. And each story had to have a transgender theme! Determined not to succumb to vulgar writing I made it a point to keep the stories uplifting. Many TG blogs sparked traffic with nudity. This wasn’t going to work for me. I had Google ads and Amazon on the two TG blogs I wrote so it had to be clean.
I was also motivated by something else. I laugh and joke about my TG flash fiction days and how every story had to end. But this was serious business to me. The cold hard facts are transgender people commit suicide in alarming numbers! Estimates range as high as 60% of transgender people attempt suicide and it’s the highest demographic of people who succeed in ending their own life.
This is not a world I wanted my daughter to grow up and live in! My stories were my way of making it normal for people to be different. My baby, my child, my girl was born intersex. She will be grouped in with the TG community because she MUST undergo the same medical procedures a transgender person does transitioning. The only difference is my daughter has no choice. She can’t “just live with it”. She either undergoes the medical procedures or she dies. What would you do?
Keeping material fresh when my average story was two hundred and some words grew more difficult each day. I wrote two TG blogs (double the blog, double the income) every day for about four years. That’s over 2,500 flash fiction TG stories! Even I find it hard to believe I produced so much material.
I covered every topic imaginable as I wrote the flash fiction. I, of course, wrote many stories to appeal to the erotic portion of the demographic. I also researched the genre looking for fresh material. And I found a whopper.
I discovered the sex change capital of the world is Iran! Yes, Iran! It seems homosexuality is a sin against Allah and sure to get you killed. But, if you get a sex change you are technically a woman and no longer an abomination to god. So Iran leads the world in sex change operations. Mostly due to the fact it’s chop it off or die. We can laugh, but for homosexual and transgender men reading this it’s no laughing matter.
Well, I used this information to write a very mild TG story based in Iran, Yes, I pushed 250 words together and caused a ruckus. TG flash fiction is generally captioned, meaning a picture is captioned with the flash fiction. I used a picture of a Muslim woman wearing a niqab. All you could see was her eyes and her feet.
I was immediately banned by Google! The offense? You could see the woman’s ankle and it would offend some countries around the world. I was not impressed. I removed Google ads and republished. Like I said, censorship doesn’t work well with me.
Ban This Blog!
I looked. There is no list I could find of banned blogs! That’s too bad. I really would have enjoyed making the list.
My marketing sickness has caused me to write some modestly controversial topics on this blog. Maybe I need to turn it up a notch. I once claimed I died and I begged readers to steal my stuff. It gave me great pleasure to write my obituary. (Maybe I am sick!)
As a masterful stroke of marketing genius I propose we use Holiday’s tactics to Tucker Max this blog. No misogyny or encouraging the abuse of women. I support anyone’s right to publish what they want; I reserve the right to not read or promote it. We don’t need to encourage the harm of others to get noticed.
If you haven’t found anything to feel righteous indignation about in who I am and what I write here you haven’t been paying close attention. No one is exempt. Everyone has something you can be offended with. Don’t waste a good opportunity. If you meet someone of impeccable character, make something up. The media and the government do all the time.
Traffic here has been growing nice the past year. But to get the numbers into the stratosphere we need people to start talking. And nothing spreads like juicy gossip! The more solicitous the better. To get banned by anyone or any group requires offending certain groups of people who will teach me a lesson by encouraging the media to call for my banning. These outraged folks will contact other bloggers to spread the rumors. They need to want to hurt me and I love it!
How can you start the rumor mill? How can you get the media to put this blog (and me) into crosshairs? How can you get the gossip flowing with a life of its own?
Well, I read naughty banned books listed above. I even own a how-to book on how to kill people for a side gig. Not good enough?
Tell them I’m a questionable person of questionable character! Ah heck, not good enough either. We elect people like that every year.
I know! Hit’em where it hurts. When with your Republican friends, tell them I think Sean Hannity is a weasel and Fox News is fake news. Tell your conservative friends I think Hillary Clinton would have made the best President in U.S. history. Heck, I even called Trump an idiot!
Still not enough? I agree! We still have close to half the population we need to offend. Gather your Democratic friends and tell them I think President Trump is the most productive President ever. Tell them I said Bernie Sanders is a light weight.
Now I understand some people have stepped off the political train long ago to retain their sanity. Well we can take care of them!
If you have an atheist friend, tell them I said atheism is a religion. Around your Christian friends say, I know this blogger who thinks you’re nuts.
Don’t worry none of it’s true. This is marketing! People will stick around if they like your stuff, but they come back more often if they hate you with a passion. They want to watch you fail. They want to slam your head (actually, my head) against a wall with every word I utter.
Nothing generates traffic like a zealot! And traffic means money. And since this blog is a business enterprise we like traffic for obvious reasons.
In honor of Buy Nothing Day (the day this post is published in 2017) you can spread the wild rumors. Contact other blogger and tell them to ban me. Get people talking behind my back and protesting I cease and desist! I demand it! It costs you NOTHING!
What? Wait, kind readers. I have a phone call coming in.
Uh-huh. A fatwa you say. Lynch mob? Really? Is it helping traffic? I see. Then I’ll be a martyr for a good cause. No?
Okay, I’m back. I’ve decided to take the day off and not publish since it’s the day after Thanksgiving (Black Friday).
But for the record, I did say that thing about the President.
This post idea was rolling around in the queue for a while. I started a few months back with the first two paragraphs. Later I fleshed the idea out a bit more and finally had enough material for a humorous post with serious implications. I double spaced between entries of this outline as I expanded it.
Readers may find my writing process entertaining. Bloggers and other writers may find it instructive. When my notes seem to add to the story I publish them below the corpus. Enjoy.
Bloggers hide a truth they may be wrong. It’s an occupational hazard.My tax advice includes limited situations. Facts and circumstances can change the outcome so additional thinking/research might be required.
And the post title is perfect for marketing. Tell someone not to read something and they will do it anyway.
Ryan Holiday marketing ploy of starting a boycott of his client to get attention. Cory Doctorow demanding his publishers allow him to post his stuff online for free (theft is not the issue, obscurity is), Hitman book when someone used it and it made the news (how I heard about it and bought it).
In honor of Buy Nothing Day I ask readers to find something around here to feel indignation about and spread the word. Demand a boycott. Don’t read this blog!!! Tell the news. Use Ryan Holiday tactics.
Then internalize the hatred, coming back often looking for any chance to jump down my throat.
Consider it your early Christmas present to me.
And it didn’t require you to spend a penny to give it!
Funny stuff: Talk about politics and religion a lot. People like that. When with Republicans tell them you heard I think Fox News sucks, Sean Hannity is a weasel and Hillary Clinton would have made the best President in U.S History. With Democrats tell them I think Hillary buys used pant suits, we are finally getting stuff done with Trump as President and liberal policies died with LBJ.
On religion, when with atheists, tell them I think anybody who doesn’t see the truth of God’s existence deserves to spend eternity in hell. Tell your atheist friends I think atheism is a religion. With your friends of faith expound my astounding logic on the lack of evidence for a god, any god. Tell’em I fish Sunday morning instead of going to church.
Don’t worry none of it’s true! This is marketing. People will stick around for a while if they like your stuff or hear good things about you. Get them to hate you and they’ll live on this blog waiting for any chance to jump down my throat. They’ll also glean every word I write looking for indications of misfortune in my life. Indignant people love to gloat. You get’em here and I’ll give’em a reason to stay. I’ll intersperse moments where I need to hammer the Jack as the biting liquid spills from my glass as I fall into a drunken stupor.