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.
The easiest way to invest in equities is with a mutual fund. The surest way to match market performance is to use index funds. Then there are times we get the urge to do things the hard way.
Of all investment classes the broad market has performed best. The stock market, for all its fits and starts, has outperformed over long periods of time without the need or risks of leverage to accomplish the goal.
A simple strategy of consistent investing in index funds has plenty of adherents in the FIRE* demographic. The reason for this is simple: it works! Depending on where in the market cycle you start, a decade to decade and a half if all that’s needed to fund your retirement. Start saving half you gross income at age twenty and by 35 you are ready to either retire or carve your own path in life.
The plethora of blogs in this demographic are a testament to the successful strategy of wealth building with index funds. What is often forgotten is that you are investing in real businesses even when using an index fund. And it’s business, not stocks, which create the real wealth.
If it takes a decade or so to create an adequate net worth to retire, business can get you there in a few years.
Buying an index fund is a sure way to enjoy average growth. Average is good in this case because the economy grows, always has grown and will continue growing into the foreseeable future. As productivity and other advances and new technology come online you are in for the ride because your index fund owns just about every winner in the crowd. You also own old school companies still growing and/or throwing off massive dividends. There are also a few stinkers in the crowd as some former success stories are headed for the exit.
With this in mind, intelligent people sometimes want to strike out on their own with a small percentage of their portfolio. If you possess the mind of an accountant and the discipline of a saint you can ferret out opportunities with the potential of outperforming the market.
And armed with this knowledge it becomes clear the pickings are slim when the market has been straight up for eight years. There are plenty of great companies, but most sell for a dear price, unworthy of additional investment unless available at some future date at a better price.
A Clear View of the Future
Exotic securities have been devised over the years to hedge various investments. These very same tools are easily used to gamble, ah, speculate.
Farmers have had futures contracts available to them since before the beginning of time. It makes sense for a farmer to use futures to protect their investment in an uncertain world. Agricultural products have thin margins and farmers know it. A small shift in commodity prices between planting and harvest can destroy a farm financially.
To limit the risk of prices changing, a farmer can sell his future corn crop in advance. It works like this: A farmer probably knows his input costs of fuel, seeds and fertilizer. He also knows if it makes sense to drill the seeds into the ground in the first place. If the input costs are more than he can expect at harvest he either needs to allow fields to lay fallow, plant a different crop or hope to Mother Mary prices turn around.
Even if the farmer sees current corn prices are higher than his input costs there are no guarantees prices will stay favorable. A drought can devastate his crop and prices tend to decline into harvest as more of the commodity becomes available.
To limit risk the farmer can sell his expected corn crop coming off the field in autumn before he even plants in spring! If prices go up the farmer loses on his hedge, but wins on the actual crop. In prices decline he loses on the actual crop, but profits from the futures hedge.
Futures contracts are a necessary part of farm living. Without the ability to hedge farmers are one, or at best two, bad years away from bankruptcy.
The same tools can be applied to almost any asset.
You Have Two Options
Before we start this part of the discussion I want to give a warning. This is more a case of do what I say, not what I do. I use some very advanced methods when protecting my investments and when buying them. This discussion is on options. I do NOT recommend options except to the most knowledgeable and astute investor! Consider the remainder of this post informational only.
If you are unfamiliar with options and how they work, here is an article on Investopedia and another from NotWallStreet. Do NOT let anyone, me, a broker, a TV talking head or internet article, talk you into options unless you know what you are doing. You don’t.
There are two options in the world: calls and puts. Like futures for a farmer, an investor can hedge her investments against the price on some future date. The market has been rallying hard for years. If you are worried about the market declining, you can sell your stocks or index funds and pay taxes on the realized gains or write covered calls or buy puts. Each action has its own associated risk.
Selling causes tax issues, but at least the damage is known. Covered calls only provide limited protection and if the market keeps climbing you are likely to lose out on future gains. A covered call might provide a few points in premium only. If the market decline is larger you will suffer paper loses. Buying a protective put is a cheap hedge and frequently the preferable route. If the market declines you gain on the put option; if the market rises or stagnates your only risk (loss) is the put premium.
But that is not what I use options for. I’d buy a LEAP call option on the S&P 500 if I got the same deal Warren Buffett did nearly a decade ago. (Buffett paid a small premium for an at-the-money S&P 500 index call with a 10-year time frame with the market off nearly 50%. I wanted the same deal but they showed me the door.)
I rarely use covered calls to generate premiums as the market likes to steal your stock when you do. I don’t speculate or gamble with options either.
The one time I love to use options is in a market like we’ve had the last several years. The market has been doing well for a long time and when I’m looking to buy an individual stock I sometimes use options. (You can use the same strategy with index funds, but I never do. I still invest excess capital into the index fund and wait like a good boy.)
The problem with today’s market is good companies are selling at too high a price. Now if I could pick up some Facebook (FB) at 100 or Apple (AAPL) at 140 I’d be excited. (FB last closed at 179 and AAPL at 170.15.)
Most stocks don’t have much of a premium for short-dated options way out-of-the-money. Some stocks do. The best way to show you how I spike my returns using options is to list what I have in my current portfolio.
First, when I sell naked puts I consider them long-term buy orders in companies I want to own more of when the price is too high. If the price comes down enough the options will execute and I’ll get my extra shares. If the stock doesn’t drop enough or advances I keep the premiums. I never use this strategy in a down market as I can just buy the stock without waiting.
Here are my current naked put holdings:
Company Sold Date # Sold Option Date Strike Sold $ Current $
AAPL 11/15/17 -2 Jun 15, 18 140 3.04 2.87
FB 6/9/17 -4 Dec15, 17 120 2.05 .01
FB 6/29/17 -2 Jun 15, 18 100 2.00 .30
MO 7/31/17 -2 Jan 18, 19 65 8.03 5.90
NFLX 5/25/17 -2 Dec 15, 17 130 4.05 .05
PM 10/30/17 -2 Jan 18, 19 90 4.33 5.25
TSLA 5/25/17 -1 Dec 15, 17 220 6.68 .26
If every stock declined to the strike price or lower I would be on the hook to buy $175,000 of stock! As you can see most transactions will expire worthless before the end of the year and I keep the premiums.
MO is the outlier. Option premiums are low for MO so I sold a LEAP out in January of 2019. I also bought more MO in the low 60s recently.
I am willing to buy each one of these stocks at the strike price should the market decline to those levels and probably will even without the naked puts.
There are two risks to consider. The first requires self control. You only sell naked puts in the amount you have current funds available to buy.
The second risk you can’t control. If the story changes and the stock crashes, you will end up buying back the put at a loss or owning shares in a company where the story is no longer compelling.
Simply put (pun intended), there is no risk free investment. Just wanted you to understand the two risks in this scenario.
The Cash Hoard and the Friends I Keep
Whenever I mention I use this strategy people ask why I don’t stay 100% invested all the time. My answer is, for the same reason Warren Buffett’s Berkshire Hathaway has around $100 billion in cash currently.
The truth is I like to keep my powder dry. I never have 100% of my money invested. There are a few nickels in my pocket when I walk around town to avoid vagrancy charges. As a business owner I need liquid working capital so I always have something tucked between the mattresses. I also like keeping some money available in case an unbelievable opportunity arises.
You do the same thing on a smaller scale. You might have an emergency fund. If so, it’s probably earning a whopping 1% while it waits for work to arrive.
Another brutal truth to why I keep a larger amount of cash laying around is because I am different than you. The higher your net worth the more liquid cash you will tend to accumulate during certain times of the year and during market overvaluations. I consider the current market overvalued.
Does my opinion of the market conditions change my core investing style? No! I max out all my retirement accounts (Mrs. Accountant’s too) and put it all in index funds. Those suckers keep getting filled.
When it comes to individual stocks I need to build a reserve to buy companies when they are on sale.
I’m not alone in using this strategy to generate income. Back in the 90s Intel (INTC) sold massive quantities of put options with the intention of using a down market to buy back shares. (I’m not sure if INTC still does this or not.)
Over the years INTC had such a large income stream from the naked puts they listed the income separately in their earnings reports and annual report. INTC’s intention was to structure the naked puts to force execution so they could buy back the stock and keep the premium. There was serious money in this for INTC.
I owned INTC for a few years back then. It wasn’t my favorite investment, but it had potential until my research discovered a terrible truth. I went back and reviewed over a decade of financials for INTC and discovered they bought back more stock than their entire earning over the previous decade and still had MORE shares outstanding. Such is the world (and risk to shareholders) of employee incentive stock option.
We’ll leave that discussion for another day.
A Steaming Pile of Schmoo
This was harder than I thought. Novices will be left bewildered and experts already understand the program. How do you present a complex idea like options in under 2,000 words? You don’t! I feel like I left a mish-mash of information. The information is accurate! The issue is communication. Did I get my message across?
There is so much more to this discussion than I could pack into one post. Naked puts are a viable investment strategy if used in a limited fashion, even if INTC used it to the nth degree.
Options in and of themselves are not bad. They do have the potential to cause great harm however and they are easy to abuse. Consider options the opioids of your investment portfolio. They reduce pain at first, but can do lasting damage when abused.
So why do I do it? Because if the market doesn’t decline I keep over $6,200 in premiums. The extra cash, added to an already growing stash, will come in handy when the market does decline and some companies become a steal.
Or I might be an addict beyond help. You decide.
* Financial independence, retire early.
Over the last few weeks and months I’ve added secret messages in plain view on this blog. The easiest cipher (I thought) was on the Where Am I page. Over the last few months nobody said a word. When I finally added the easier cipher on the Where Am I page only one person contacted me shrieking, “Is it true? Is it true?” I’ll let you hunt for other clues. Hint: They are buried within posts.
To answer the question, “Is it true?” the answer is a firm “Maybe.”
For a year or longer I’ve been asked if a Camp Accountant was in the works. I generally shrugged my shoulders because I didn’t think enough people would be interested and I wasn’t sure I needed more commitments in my life.
As time went by it became more obvious people were hungry for material I offered. The guy on the street wanted more personalized service and my days can only service so many people before I exhaust. Tax and accounting professionals visit often looking for my latest method to game the tax system. (Yes, I am working on more posts leveraging the Tax Code. Those posts take more time and I can only publish so many if I want to maintain quality.)
A podcast I was on earlier this year led one of the podcasters to call later with an idea. His thought was to create a whole program for accountants to massively promote my work and experience. His idea was one I already had. The biggest problem was time.
But if there is a Camp Accountant it would be easy for me to give presentations he could record for a full-fledged program worthy of the time invested.
Problems with All the Camps
Four or five years ago a Camp Mustache was started in Seattle in honor of Mr. Money Mustache. It was a phenomenal success!
Success breeds copycats and Camp Mustache was no different. Last year a Camp Mustache was started in Gainesville, Florida and this year they seem to be sprouting like weeds.
Success also breeds jealousy. Earlier this year we needed a pow wow at Camp Mustache in Seattle to discuss how those terrible people in Florida might turn a profit from their camp. Egads!
If there is one thing I abhor it’s drama and this was pure drama. It was a waste of time whining about somebody else’s behavior which affected nobody adversely. It was thinly disguised jealousy. In my office I would fire an employee for such a wanton waste of time.
The same person who started the drama in Seattle pulled the same stunt at FinCon, paying me a late night visit with reinforcements to put me in my place as I stood to win a high honor for this blog. Nothing breeds jealousy better than success.
I was uninvited to the newly named Camp FI in Gainesville this January. Some people will be upset as several emailed over the last months saying they saved hard to afford Camp FI to meet with me and review their tax and financial issues. I was thanked when I supported Camp FI after the drama unfolded in Seattle and the Camp needed to rename to satisfy demands. Once the new drama unfolded I was out.
To be honest I was deeply hurt by the attack from the small number of people I respected. My initial response will not be my final response. Stress and lack of sleep make for poor decision making. Regardless, the deed is done and you, kind readers, are the winners.
It Starts with a Plan
I will endorse any Camp Accountant (as long as there is no drama) which holds true to my philosophy. There is room for plenty of other opinions. If somebody likes spending like a Wildman or prefers actively managed mutual funds over index funds; no worries. If someone doesn’t like a certain tax strategy; I’m okay with that. Preach or encourage bank fraud or tax evasion and we will not need a pow wow as I’ll lay down the law. This friendly accountant is very easy going, but do not confuse that with not having a backbone. I’ve survived a lot of challenges in a difficult industry. I survived for a reason.
What we need now is someone, or someones, to organize and facilitate the program. I will share my vision of what the first and branch Camp Accountant’s should look like. These are only suggestions. I don’t have a corner on good ideas so you must be willing to put something of “you” into the program. Each Camp should have its own flavor so people who attend more than one always get their money’s worth.
Many of the other Camps are on the U.S. coasts. There is heavy demand, gauging by me inbox, for gatherings in the center of the nation. I’ve been begged to do something in Wisconsin or northern Illinois. Many people are familiar with my hatred of travel. A Camp Accountant in Wisconsin is tolerable even for an old guy from the backwoods of nowhere to travel to.
Though not a demand, I have several suggestions on itinerary and venue.
Several years ago (2014) I attended a Novel in Progress BookCamp in West Bend, Wisconsin. There is an outside chance you may know this guy. Don’t worry about Renee, our transgender student, sitting next to me. I behaved myself. She is now a published author.
Dave Rank runs the BookCamp. It was his brainchild when he was president of the Wisconsin Writer’s Association. I was treasurer at the same time. I haven’t seen Dave in a while; it would sure be nice catching up. I left WWA several years ago with plans of moving to Colorado. Dave left his position as president of WWA a few years later. WWA didn’t want to be involved with the BookCamp so Dave set it us as a separate non-profit. (BTW, Dave can spin a helluva yarn.)
I attended as a student the first year the BookCamp opened. The second year I taught one day before racing to Seattle for Camp Mustache. (I do run a bit hot at times and it’s hard on this old man’s body.)
My recommendation for someone willing to facilitate a Camp Accountant is to plan the Camp either the week before or after the BookCamp. The Cedar Valley Retreat Center is a beautiful venue. The grounds are gorgeous and the meeting center and rooms are equivalent to the Camp Mustache facilities in Seattle.
An annual Camp Accountant in West Bend would be awesome. Other camps around the Midwest would also be nice. I am willing to attend one and only one Camp Accountant in Alaska and/or Hawaii. As much as I will love the setting it is a long trip and once I do it once; I’m done.
Other appropriate venues would include Ohio, Colorado, Texas, or anyplace central. The coastal cities already have plenty of camps and the center of the country is underserved. A camp on the coast is okay if someone wants to facilitate. The center of the country keeps the travel time shorter for many people, however.
Another consideration is distance. The further from my home, the less I will look forward to the travel.
I have zero interest in international travel. A few years ago Mrs. Accountant and I enjoyed out trip to Costa Rica. My parents invited us. (They almost had a coronary when I said yes. My opinion of travel is well-ingrained within my family and neighborhood.) I’ve been to Canada many times and don’t want to go back. Mrs. Accountant and I took our honeymoon in Jamaica. Once is enough. You get my drift.
My life is busy and I’m okay with it as long as it doesn’t turn hectic. I will attend a maximum of three Camp Accountants per year with a near certainty I would attend a Wisconsin Camp. FinCon, for now, is probably an annual event as long as this blog breathes new material. That leaves me with one floater for the year to keep my traveling to five times per year. World Domination Summit is a possibility. (That amount of travel will cause me to bleed from the eyes and break out with boils.) I make no guarantees how long I will keep such a massive (for me) travel schedule. I think people should take advantage of my offer before my sanity returns.
Setting up a Camp Accountant is work. The one area I will be involved in (if wanted) is the itinerary. Camp Accountant is NOT just about taxes. Like this blog, it is to get people to think like an accountant without actually being an accountant.
There should be one or two classes for advanced tax issues suitable for tax professionals and knowledgeable non-accountants.
There should be (as a suggestion only) one class about an hour and half long strictly for tax and accounting professionals looking to build their practice or add services similar to what I do in my practice. In essence, create a bunch of mini-mes. (The world doesn’t know what to do with one of me.) Other attendees are welcome to listen in.
Plenty of time should be kept free for socializing, sport and hiking the venue grounds. Exercise is healthy and good.
Regular classes should be short, preferably 30 minutes. Most topics are easily covered in that time if the presenter is prepared. A few classes —maybe two —could be 45 minutes or an hour. The goal is fast and to the point.
I am willing to present more than one class. The presentation to tax/accounting professionals is something I will do if in attendance. I would love the opportunity to flesh out one or two ideas besides. If I speak once per day that’s enough. Other people have important information to share, too. People enjoy listening to the guest of honor speak so I’m willing to prepare more material if needed.
I think it would be valuable for attendees to have one round table each full day of the conference (probably Saturday and Sunday if you use the Friday to Monday schedule). This is an opportunity to share ideas and ask questions.
About 30,000 unique visitors grace this blog monthly. For this to be viable other bloggers in the FIRE community will need to be asked to spread the word.
If you want to facilitate a Camp Accountant, contact me. I am willing to share ideas and endorse, but I never facilitated anything like this myself so I don’t have either the experience or the time. You also want to contact me before setting a date so it doesn’t interfere with other responsibilities. Tax season is out. A winter Camp Accountant is something the other guys aren’t doing and could be a lot of fun as long as it is before February 1st. (Many people enjoy winter sports, you know.)
I will not attend other camps for other bloggers in the future. At this stage of the game it doesn’t make sense for me to promote somebody else’s brand. For my vision to see the light of day requires events dedicated to the Wealthy Accountant’s brand. I have a broad vision on how you can take what I teach back to your community and make a difference. I’ll talk more about some of the things I do and plan on doing if you contact me for running a Camp Accountant.
I hope you are excited. I sure am. Other camps are fun and light. I joke around in my writing and real life. But I’m as serious as a heart attack, dear readers. I joke to entertain in a difficult subject. Money and taxes can be fun while remaining serious. The laughing stops when the file opens and it’s time to super charge your tax and financial life. We are talking real money here. Every person who attends a Camp Accountant should walk out wealthier than when they arrived. That’s how important I want the weekend at Camp Accountant to be.
You might have noticed the next Novel in Progress BookCamp is May 20 -26, 2018.
It would sure be nice to see Dave again.
Note: A reader left a comment asking if CPE for tax and accounting pros will be offered. I haven’t applied for that yet, but will do so once I have a program to submit to the respective organizations. I would like CPE of enrolled agents, CPAs and, fingers crossed, attorneys.
Remember awhile back when I said I was taking November off? It’s not going well.
My first day back from a conference and people were lined up for my attention. And, of course, everything’s a crisis. Do people think I’m a machine without a need for rest?
My intentions were never to completely bow out of life. I’m not the kind of person who takes a month and does nothing or travels or other such leisure. Curiosity was breed in me and I can’t help myself. I’m like the mischievous kid who is always in trouble. Curiosity killed the cat and unfortunately I’m limited to one life. (Who wants to live forever anyway?)
The list is growing, too. An old friend from the blogger community asked me to Skype and I missed the Monday tentative appointment. I need to rectify that. (Please, God, let Skype work for me this time.)
The most important issue is hiring more qualified help for the office. Over the last week I hired one new full-time employee and think another candidate will work out in the tax preparation arena. It’s hard finding good people who want to work. I changed tactics in my hiring process and finally saw some positive results. I might even open the gate enough to allow a few new clients in. We’ll see.
Hiring takes time and I should finish the process in the next week. A few projects needing my attention in the office are front and center, plus required continuing education is slated for the 29th and 30th of this month in Green Bay.
Don’t Cry for Me, Argentina*
Before you shed a tear for my misfortune, understand hiring additional team members will free more of my future time. By training a bunch of mini-mes should produce benefits in short order. Some of the process can be handled by team members while I focus on reviewing final product.
I see you’re still chocked up. Don’t be! Conferences are hard on me as I try to give every ounce of energy I have. (Actually, I overdo it.) The recovery time takes longer as I age and this time is no different. I’ve slept more those first few days of recovery than I have in a very long time.
My days are normally short by normal working standards. I visit the gym Monday, Wednesday and Friday each week for a workout and the steam room. Gym days mean I spend about five hours at the office.
Non-gym days I get to the office about 9 and frequently leave by 3 or 4. Tax season is a bit more, of course. (Okay, a lot more.)
Then comes the reading and writing. As you know I write here three days a week, too. I cut back other writing due to the pace I keep here and the constant office workload nonexistent in the past. There was a time summer and autumn were light work schedules. What the heck happened?
Frequently people accuse me of prolific writing. Though it is true I love writing and the writing process, my favorite love (outside Mrs. Accountant) is reading. My taste in literature is catholic (notice the little c). I’ve yet to find a topic I wasn’t interested in for at least a short period of time. Believe it or not, twenty or so years ago I read a romance novel by Danielle Steel (this is the novel that did me in (damn books in the checkout line)) and was blown away. It took 80, maybe 90 novels to burn that one out of my system. (Can you see your favorite accountant on the beach reading To Love Again? Yes, I read that book. It was the second novel of my illness years.)
Novels were a large part of my reading material back then. As the years went by novels lost their grip on me. I still read fiction, just not at the same levels. The books I read now can get, well, shall we say, bulky.
Novels can teach as well as entertain. Tom Wolfe wrote A Man in Full. The story has a strong Stoic message which is why I read it from the library.
Most of what I read now is nonfiction. Once again, my tastes run catholic. As you might imagine, I read plenty on finance, economics and business. If my nose isn’t glued inside a book I’m reading similar material and news online.
Currently I still have a fetish for environmental books, especially relating to human history, climate change and how societies collapse.
Old books hold a special interest for me. An Outline of History by H.G. Wells is on my to-do list. It’s a thousand pages of deep reading from a century ago, but still good stuff. I found a copy in very good condition on Amazon for $22.99.
My primary goal when reading is satiation of my curiosity. Learning is important, but I don’t think of it that way. For me learning is entertainment. If my body were not riddled with restless anxiety I would read non-stop every moment I’m awake.
Writing helps you focus a thought as you express it in clear terms. Reading allows you to digest condensed information more quickly than from any other media. Successful people read.
November is my month off and while business has consumed much of this time, I still manage an excess of hours for additional reading. In short, November has turned into a reading vacation. The best part is I will probably extend the vacation into mid-December to make up for my inappropriate behavior working during a vacation. My schedule to the end of the year will be light to make room for the many books I want to pour into my skull.
Reading makes you a better writer. Writing is the most important form of communication. Documentaries and seminars all teach. But reading is faster and incorporates into your mind better than all other forms of learning. Even teachers speaking in front of a room want you to read the material, preferably before class.
My road has never been easy or straight. Reading has given me the edge over the years to win against long odds. No one has an excuse to fail! No one! In the past I would tell clients I’d make an exception for people in prison and quadriplegics. However, need I remind you of Nelson Mandela, Christopher Reeves and Stephen Hawking? Like I said, no excuse.
The common thread among winners is their thirst for knowledge and hunger for learning. People will beat you down because they are jealous while basking in the rewards of your production. Steve Jobs was both loved and hated, but no one disputes his tremendous contribution to society. Even if you don’t use Apple products, you still benefit from the children born of Jobs’s mind.
And what about your mental children? Will they ever see the light of day? Have you even given yourself permission to dream such dreams? People will take every chance to cut you down. Get used to it. It is possible to do everything right and still lose. That is not a character flaw; it is life.
The best mentors I ever had are dead. Plato, Seneca, Will Durant and H.G. Wells have taught me how to live a joyful life. On my shelf is the Autobiography of Andrew Carnegie, perhaps the richest man to have ever lived, adjusting for inflation.
My favorite books are about successful people. Benjamin Franklin, Steve Jobs, and many Presidents of the United States have filled my time over the years. When I start to feel down or treated unfairly I read about people who rose above the turmoil. They provide lessons through the mists of time reminding me I’m not alone; it’s all happened before. Need I remind you Isaac Newton lived in turbulent times and wasn’t universally loved? He was known to carry a grudge to the grave. Regardless, everyone of these great minds have something to teach me in good times and bad.
How I Read
Most novel I read come from the library these days. I still buy five or so novels a year if I think they will make good reference material for future writing projects. I borrow another ten or so nonfiction titles from the library annually. However, the bulk of my reading is material I own.
Books are important to me. Tim Ferris says you should just buy the book. Ramit Sethi says if he sees a book and thinks there is only a slight chance he will benefit he buys the book. According to Sethi, twenty dollars is incredibly cheap for even one idea. I agree.
One of my favorite authors, Ryan Holiday, sends a monthly email with books he recommends. At the end of each email he encourages people to buy the book. Holiday says he will find a way to own a book he wants even if it means skipping a meal. Once again, I agree. (Holiday is thin, unlike a certain accountant we will not mention. This is living proof he walks the talk. )
I know, I know. It’s self serving for me to ask you to buy the book even when it is to your advantage. Libraries are important and borrowing books from the library is a good idea. Owning books is equally important. There is a certain satisfaction with owning a book and holding it in your hand.
Every book listed in this post I’ve read with the exception of those I mentioned I own and plan on reading over the next four to six weeks. The links to Amazon are affiliate links. I do get paid if you buy the book using the affiliate link. The new commission schedule Amazon brought out a few months ago assures I will not get rich off your purchase. Physical books pay a 4.5% commission and ebooks pay 4%.
You can always go to Amazon outside the links of this blog if you are opposed to commissions on religious grounds. Or, better yet, I’ll buy you a beer the next time our paths cross.
Trust me, the beer will cost more than the commission I earned.
You keep all the knowledge.
* Remember, I hide messages and references within posts.