Posts Tagged ‘side hustle’

Pricing Your Product in Your New Business or Side Hustle

Finding the right price to charge for your product or service will determine the success of your business. Learn how successful businesses find the price that maximizes profits.

Finding the right price to charge for your product or service will determine the success of your business. Learn how successful businesses find the price that maximizes profits.

“Start a side hustle or small business” is a common refrain when working to reduce debt or retirement planning is involved. It all sounds easy on paper until you realize most businesses fail within a year or so.

The problems with starting a business are myriad. Most businesses fail because they either have too little or too much business and the problems begin with the price or fee charged the customer.

Yes, some businesses fail over financing and other financial issues, but price frequently is the destroyer of small businesses. Charge too little and you end up with too much work and no profits to show for the effort; charge too much and nobody will even waste their time kicking the tires to see how good you really are.

The type of business also plays a role in pricing. A cheap attorney or doctor (or accountant!) is never a good idea. Even if it is a good deal you are unlikely to trust a cheap attorney. But what if you have a side hustle dog sitting? Is cheaper better then?

Then we get the loss leaders. Using our dog sitting example, do you offer a free trial to get clients in the door? It might work, but it costs the business owner money and time to promote in such a fashion. Research also indicates it is a poor way to promote your business.

Too Good a Deal

When I started my practice in the 1980s I subscribed to the “cheap is better” promotional school of thought. I was the first guy in town offering free e-filing for federal and was the only guy who could offer state e-filing the first year it was available because Wisconsin wanted to test their program with firms that offered the service for free and had no fraud cases. I fit the bill and the rest is history.

The free e-filing is a good example of giving something for free to grow your business. I still was paid for preparation services; only the e-filing was free. The benefit cost me nothing and saved time. My software provider only charged me a dollar and I saved that in toner and paper not printing copies to send to the government. This also saved time so I was a net winner. The best deal around town outside my office was $25 for e-filing. By the time other firms caught on it was too late. I was well established and well known for my progressive business ideas.

There was still one small problem. I prepared tax returns for a low fee. The goal was to grow the business fast and large. This is a massive problem when the service provided frequently required I personally work on or review most tax returns. I was providing value added service but not charging for it. That led to long hours and lower profits. Something had to change.

Quality or price, you can't have both. When you provide high quality service you deserve a higher price. See how professionals set price to maximize profits.

Quality or price, you can’t have both. When you provide high quality service you deserve a higher price. See how professionals set price to maximize profits.

By the time my practice reached 2,000 returns I was exhausted. Sure, anyone in the office can prepare a return. So can any other tax office. But not many can reduce a clients tax liability legally the way I can. That takes experience, skill, research, and most of all, time.

Around the year 2000 I was preparing about 1,600 individual returns  with another 400 business returns, amended returns and returns from prior tax years. Many clients walked in the door when I was giving my services away and I wasn’t bringing their fee to a reasonable level fast enough to regain my sanity. That, and attempts to increase prices brought loud complaints. It was exhausting. People wanted more and more without paying for it. Worse, clients didn’t take my advice seriously! What was it worth anyway? I gave the consulting away for fee and clients treated it as worth exactly that much.

The first year I decided to make a draconian cut. The tax software I use allows me to pull reports based on time spent preparing the return and the fee charged. I ran a report showing the least profitable to most profitable clients. To my surprise I had almost 400 clients that were money losing accounts! (I know, I know. I’m not proud of it either.) Those 400 clients were send a letter kindly asking them to leave.

That was the best tax season in years. Prices were not increased much, but the money losing accounts were out so I had time to breath and profits actually climbed because expenses dropped faster than revenue.

The next year I raised fees significantly. My real clients stayed. Fewer people left than I anticipated. Something else also started to happen. Clients, especially business clients, started saying it was about time I raised my fees so people would start respecting my work. Clients saw what I was blind to! People actually wanted to pay me more because they saw value and all the bottom feeders were sucking me dry, hurting the serious clients. In hindsight, I’m feel great gratitude these clients were willing to wait until I regained my sanity.

Perceptions of Value

How much do you value the endless supply of news online? Do you trust it? What if you pay for a newspaper? If you are like most people, paying for something causes you to value it more. It may have something to do with the sunk-cost fallacy businesses fall prey too. Regardless, we understand “free” does not bring out the best. A free report is valued lower than a report you pay for and for good reason. When a payment is made/received all parties expect a certain level of value to be provided.

But free works so well! But not really. In my line of work I see plenty of businesses. I know what does and does not work. The “free” thing has been done to death. The philosophy has destroyed more businesses than any other policy I know of. Free meals mean nothing to a restaurant if the food is no good. All free does is sink your boat faster.

Back to our dog sitting example. Giving away a free day when you have no way of creating more time is a rabbit hole you do not want to fall down. Instead, a free doggie treat might be a better way to promote the business. You still charge your regular fee, but you give something extra of value. The perception of value remains intact. The people who would turn their pet over to a free service are not the kinds of clients (and dogs) you want.

 

Finding the Right Price

Over the years I tried many methods of pricing my services. Checking the competition and pricing comparatively is the most common method of pricing I see and used it myself in the early days. It’s also the worst, except for the free or super cheap thing we talked about above.

Setting your prices/fees similar to or a nickle below competitors means you get paid nothing for any added value you provide. Here we are again at the trough of free stuff. If you charge what the other guys charge what is the incentive to use your product or service? If you provide greater value there is a reason to patronize your business, but you don’t get paid for the superior product if your only pricing method is to undercut competitors.

All these pricing issues lead to two problems: 1.) you are either too busy (or people don’t trust you’ll do a good job) due to your under-priced goods and services which leads to poorer quality as you are run raged, or 2.) your fee becomes over-priced compared to what competitors are selling due to market changes before you differentiate your product.

You can’t win if you do not differentiate your product or service. The differentiation is where the value is created and where clients are happy to pay your fee even if it is high.

There is a better way and I learned this trick from two men I highly admire: Seth Godin and Tim Ferriss. Seth Godin is well known from his numerous best-selling books; Tim Ferriss from his books and podcast.

Recently Tim invited Seth to join him on his podcast. It may have been the most important podcast I ever listened to.

Seth shared his method for setting prices for his speaking engagements. He said he only has two prices: free and full price. If Godin really wants to do the gig and if it is for a good cause he will sometimes do it for free. Otherwise his fee is full price, no discounts.

Wonderful! But how does Seth Godin find his price? Simple. He started by setting his price so a few people would hire him. Once someone—anyone—offered him more that was his new price. As simple as that.

However, this is simple theory, difficult in practice. Godin admits it’s tempting to take a gig when your calendar is empty. It takes time to learn the skill of saying “no” when you have lots of white space on your calendar. But if you don’t stick to your principles you dive head first down the aforementioned rabbit hole. And it is going to hurt really bad.

Higher is Better for Everyone

It may sound crazy, but a higher price is frequently better for the business and the customer! People will pay for quality and those who will not are not the kinds of people you want to serve. Remember, you’re a business, not a slave! You solve problems, fill a need. And do it well! You should get paid for that and paid well. If you don’t it is only a matter of time before you either quit or sacrifice your ethics and provide cut-rate products and services.

The fear business owners have when raising fees is the worry clients will leave. Well, I hope so!

Not everyone wants or needs the higher level of service and quality. Your choice is to produce crap and sell a manure spreader load full of it or to sell a respectable amount you can comfortably provide  at the highest quality money can buy. Either way is fine. But, crap gets old fast while quality instills pride and that carries you a lifetime and makes you feel proud of the work you do.*

Last year my small tax firm prepared around 550 tax returns in total. This is a long fall from the heady days of 2,000+ returns annually. It was the best tax season in years as I worked hard to adjust to my new worldview of a tax office with national exposure. This is easily the most difficult transition I ever went through. There were times I didn’t know if the firm would survive.

Here it is mid-January and I’m nervous. One of my preparers thinks I committed to around 650 returns for this tax season. (Was it that may?) If it’s true I have a real problem. I spent heavily on increased automation and productivity enhancements. However, the clients I serve now are of a different caliber than of the past. These are large returns with serious issues and I’m one guy. (Yes, my team does most of the heavy lifting, but I need to be in the final review process for virtually all returns so clients get maximum value.)

Finding the right price to charge is as important as the service you provide.

Finding the right price to charge is as important as the service you provide.

Fees have steadily climbed. As fees climbed some clients left. Revenue still climbs because fewer people leave than the fee increases. The higher fee allows me to add more value to each return. This means lower taxes for clients so my fee is really free after tax savings are included. But, Dawn, my ace tax preparer, and I will sit with every client this year. The last few years we allowed other team members to handle this. I hated it because I need to know my client better and the new system will allow for it as long as I don’t grow the business too large. (Clients living further away will have more phone time with us.)

The goal is to always provide a better experience for the client. Quality is important as long as the client feels respected. Doing the best work and ignoring the client is still bad form.

And don’t worry about losing all your clients. I’ve experienced that emotion all too often. Let me sooth your nerves with a story: This blog has produced an excessive flow of consulting clients. I love the work and with rare exception the client walks away from the consulting session with thousands or even tens of thousands in tax savings. There is a reason for the high demand.

I consult with new clients from June to December on Tuesdays and Thursdays. The max, I discovered, is two consulting sessions a day. Any more and the research and face time exhausts me too much. (Regular clients can have consulting sessions any time of year, even tax season.)

The past year I charged $275 an hour. When the new consulting season starts in June the fee is $350 per hour. Still a good value when thousands in taxes are saved.

You would think the fee increase would slow things down. It didn’t. June is already filling up six month in advance! Kind readers, please understand. People are hungry for top-quality service and products! They are sick and tired of junk. The more I raise my fee the more people know I’m focusing on increasing the value even more. And they want this even higher value product more!

Let me make one thing clear as we wrap this up. This is not about bilking the client. This is about serving the client at the highest level possible and pushing higher from there. You are good today; you’ll be even better tomorrow as you learn and accumulate more experience. People want that!

The increased consulting fee means I will work slightly fewer hours and, of course, will make more. But cutting the hours just a bit allows me to learn and grow more as I have the time to research ideas and strategies. This makes every hour of my time purchased worth significantly more.

Tax preparation fees are the same. Cheap is NOT better. Cheap means a shortcut was taken. You can’t do it profitably any other way. What you save in accounting fees is lost to your least favorite uncle in Washington. I’m not close to the cheapest. I played that game before. I’m embarrassed to say it because that means my clients were screwed by my lack of experience in those days. If I’d have raised priced I might have done a better job earlier in my career.

As for the dog sitting side hustle: People love their pets and want the best for them. Charge more and include a doggie massage and doggie treats. The dog and the human will thank you for such kind consideration.

As a bonus, you’ll have a profitable and successful business you enjoy running ever day. No retirement for you; you’re already living the dream.

 

* If you work at a job and hate it there is a good chance you work for a company peddling as much crap as they can flush out the door. People who work for companies that provide high quality products or services are almost always a pleasure to work for also.

 

More Wealth Building Resources

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

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

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

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

PeerSteet is an alternative way to invest in the real estate market without the hassle of management. Investing in mortgages has never been easier. 7-12% historical APRs. Here is my review of PeerStreet.

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

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

Amazon is a good way to control costs by comparison shopping. The cost of a product includes travel to the store. When you start a shopping trip to Amazon here it also supports this blog. Thank you very much!

 

Micro Business and Side Gig Tax Guide

Enjoy all the tax benefits allowed for owning your own micro business or side gig.

The reason for starting a side business are legion. Maybe early retirement left you with more free time than you know what to do with. Maybe you took early retirement a bit early with the intentions of earning some side income. Or, personal or family issues limit the hours available for gainful activities.

Micro businesses are a great way to earn more money without a massive expenditure of time. You can enjoy the best of both worlds: reasonable income and freedom.

But there is one factor that causes more headaches than any other: taxes. Micro businesses/side gigs have special tax rules that can cause serious problems, or, if done correctly, virtually eliminate your tax bill.

I’ve published on this in the past, but new tax rules require I provide an entirely new guide. Several notable changes require your attention. A misstep will cost you hard-earned tax dollars; a well thought out plan allows you to keep most or all of your side gig income.

 

Highlights of the Changes

First we need to define what I mean by a micro business or side gig. For this discussion I consider a business micro if profits (not revenue!) are less than $30,000 annually and are expected to remain so in the future. This profit level is confined by economic and personal factors. You still have a micro business if you elect to remain small.

By eliminating businesses with over $30,000 of profits we also limit the choices when we plan for taxes. That allows for a detailed analysis of the issues without concerns for larger side gigs.

One of the large changes to the micro business environment involves hobbies. In the past (2017 and prior) hobby income was reported on the front page of Form 1040 with expenses deducted on Schedule A as an itemized deduction. Hobby expenses could not exceed reported income from Form 1040 and the expenses were combined with multiple other deductible items (job search expenses, safe deposit boxes, tax preparations fees, et cetera) and then 2% of adjusted gross income was subtracted.

Starting in 2018 hobby expenses are no longer deductible in any amount while income is still required to be reported. The revamped Form 1040 also means you need Schedule 1 to report hobby income (see inset).

Where to report hobby income on a tax return.

Where to report hobby income on a tax return.

 

The other big change for micro businesses comes from §199A, the Qualified Business Income Deduction. This new animal allows for a 20% deduction on certain business income (profits) without an out-of-pocket expense. We don’t have to worry about limitations since we are focused on businesses/side gigs with under $30,000 of annual profits.

 

While tax code changes didn’t affect LLCs, S corporations or regular corporations (the C corporation), there are considerations for micro businesses when it comes to entity formation.

 

The Hobby Decision Tree

Even without the possibility of deducting any hobby expenses, there are times being a hobby might be advantageous. Before we begin this part of the discussion you should review this article to refresh your memory of who can and cannot report income as a hobby.

Why would anyone want to report income as a hobby? First, you may actually have a hobby rather than a sole proprietorship (a small business for tax purposes). Second, there is still a possible tax advantage to hobby income over small business income.

Hobby income does NOT incur self-employment tax on the income. A hobby with few expenses will be taxed less as a hobby than over a sole proprietorship.

Enjoy all the tax benefits allowed for owning your own micro business or side gig.

Enjoy all the tax benefits allowed for owning your own micro business or side gig.

Example: Fred has a hobby building model ships. He sells a ship every 4 or 5 years without a profit motive; he just likes building model ships in his free time. He meets all the criteria of a hobby. If Fred sells a model ship for $5,000 and reports it as business income he will face income tax at ordinary rates (determined by his income level), plus a 15.3% self-employment tax. Reported as a hobby Fred would not pay around $750 in SE tax. He would still pay income taxes on the hobby income at ordinary rates.

Once the self-employment tax issue is understood (or experienced), smart taxpayers start pushing their tax professional to list income as hobby versus small business income. However, you are automatically considered a business by the IRS anytime you turn a profit in 3 of any 5 year period. 

There are ways around every problem. First, you don’t have to conduct the same hobby every year. If you report hobby income every year, but from significantly different hobbies you should be prepared to explain to Revenue your position. (I would actually explain it with an attachment to your tax return every year you report hobby income in 3 or more of any 5 years.)

Second, you can enjoy your hobby like Fred. Fred loved the process of fleshing out a detailed ship from times past. He would spend a year or more on each masterpiece. Fred doesn’t have to sell a ship every year. He can sell his growing cache once every 4 or 5 years. (His wife might require Fred to divest in his some of with hobby creations due to space limitations. She might get sick of cleaning the growing horde of ships decorating every corner of the house.)

Because Fred has few expenses (perhaps $500 or less per ship) most of his income from the sale is profit. However, since he is a hobby he avoids paying self-employment tax on top of income taxes.

How do new tax rules affect your hobby decision? While avoiding self-employment tax can be enviable, hobby expenses are no longer deductible, meaning your income tax will almost certainly be higher. Your other income determines your tax bracket. High earners might be better off as a business than a hobby once expenses are considered.

Finally, don’t succumb to temptation to cheat. The IRS watches hobby income and gets irritable when the line is crossed. Yes, if Fred had a model ship hobby where he completed and sold a ship every 5 or for more years for $80,000 he could avoid SE tax. But he better be prepared to explain why he isn’t really a business. Be sure to read the article from the link about to gather a better understanding of where the line is if you plan on reporting income from a hobby.

 

Business Deductions

Business deductions that are “ordinary and necessary” and that are reasonable are allowed. This is a very wide road to travel.

Your business structure doesn’t change what can be deducted. A sole proprietorship, regular corporation, S corporation and partnership can all deduct reasonable ordinary and necessary business expenses.

Let’s talk about common deductions first. Anything related to your business is usually deductible. Advertising, rent, utilities, office supplies and bank fees are just a start. A painting to decorate a wall at your business or home office is ordinary and necessary because it creates a better profit producing environment. (A Picasso would not be reasonable and would be disallowed for all but the largest of businesses and even then might be a problem. Remember the expense needs to be reasonable.) Desks, computers, chairs are also business expenses, though they may need to be depreciated over a number of years.

There is a sweet spot in business deductions, too! While cash going out is easy to record and deduct, non-cash deductions are easily forgotten. You may qualify for an office in the home. With the standard deduction much higher now the office in the home might be a way to benefit from some of your mortgage interest and property tax expenses.

Explore all the tax benefits of a side hustle with this Micro Business and Side Gig Tax Guide.

Explore all the tax benefits of a side hustle with this Micro Business and Side Gig Tax Guide.

Mileage is another expense without an easy correlation. The mileage deduction can exceed actual cost, creating an additional non-cash deduction.

Meals and entertainment offers a choice when traveling. You can use actual expense or a per diem. The per diem can exceed your actual outlay providing another non-cash deduction. The beauty of this method is that you can choose which method you use for each business trip. High meal expense trips can use actual expense and low meal expense business trips can use the per diem.

Bonus depreciation is 100% this year for most new assets. The de minimis election to deduct rather than capitalize tangible property with a class life of 20 years or less and with an initial cost of $2,500 or less also allows for faster expensing of most business assets purchased.

You can even estimate some expenses! If receipts are lost or destroyed you can use reasonable numbers for expenses, except for meals & entertainment, travel, auto expenses and listed property. Advertising, supplies and postage can be estimated if records are unavailable. Be sure to review the rules with the link at the beginning of this paragraph to avoid problems.

And here is a final deduction nugget frequently overlooked. If you have a customer appreciation event, Christmas party for the office or other business event at your home you can charge your business a reasonable fee (deductible) and not report it on your personal return (tax-free) if you rent out your home for 14 or fewer days per year. To determine “reasonable”, check around locally for the cost of renting a similar facility. As always, document ad nauseam.

 

Retirement Planning

Even the owner of a micro business can reduce or eliminate income taxes.

We turn now to deductions that amount to moving money from one hand to the other and receiving tax advantages as a result.

There are a host of retirement plans available to micro business owners unless the income is classified as hobby income.

SEP plans are probably not the best choice for a micro business due to contribution limitations based on income. (20% of a $20,000 profit is only $4,000).

401(k) plans, including solo plans, allow for larger deductions ($18,500 in 2018 and $19,000 in 2019) but can have higher fees than other options.

If other income doesn’t preclude an IRA contribution you then have a choice: Roth or traditional. The maximum contribution allowed for either is $5,500 in 2018 and $6,000 in 2019; folks 50 and older on the last day of the tax year can add an additional $1,000.

If the traditional or Roth IRA are not allowed or not enough for your needs you should consider a SIMPLE IRA. SIMPLE IRAs are just the way they sound: simple. They are simple to setup and maintain with low fees, if any. Investment houses like Vanguard and Fidelity will help you with the process if you have issues. The best part of SIMPLE IRAs is the higher contribution limits: $12,500 ($13,000 for 2019) with a $3,000 additional catch-up provision for those 50 and older on the last day of the tax year. Also, you can contribute 100% of your business profits up to the contribution limits! This means if your micro business earns $10,000 per year you can contribute the entire amount, avoiding income tax on your business income (SE tax is stilled owed on business profits regardless of retirement plan contributions).

 

§199A: The Qualified Business Income Deduction

This new and unique deduction is in the news a lot lately. The Code is vague on certain issues at it pertains to the §199A deduction. While vague may sound like a problem, tax professionals deal with vague tax issues all the time. It comes with the territory.

We can avoid many of the complicated issues because we limited our discussion to micro businesses of less than $30,000 of annual profits.

Owning a micro business/ side gig/ side hustle is rewarding and profitable. Use this guide to pay the least amount of taxes with your venture.

Owning a micro business/ side gig/ side hustle is rewarding and profitable. Use this guide to pay the least amount of taxes with your venture.

Real estate investors of income property can also benefit from the 199A deduction. (Generally an income property investor must meet the definition of a “trade or business” (undefined as of this writing) before taking the QBI deduction up to the level of profit or 2.5% of the original basis before adjustment, whichever is less.)

Regular corporations saw a massive reduction in their marginal tax rates, except for the lowest bracket which was increase from 15% to the flat rate for regular corporations of 21%. Unlike partnerships, S corporations and sole proprietorships, the §199A deduction does not apply to regular corporation.

Revenue issued some guidance on the QBI deduction. One thing is certain, the deduction is allowed for all business entities, except regular corporations. Partnerships that pay guaranteed payments to partners (the paycheck portion paid to owners of a partnership, in a manner of speaking) will reduce the QBI deduction.

Example: Sally and Mark form a 50/50 partnership to sell widgets. They have one part-time employee. The employee receives a weekly wage and a W-2 at year-end. Sally and Mark agree to pay themselves $100 per week. They do not get a W-2! Instead, their payments are considered guaranteed payments to partners. If profits are $20,000 after all expenses, including guaranteed payments to partners, they use $20,000 to calculate their QBI deduction of $4,000.

S corporations generally require more than $30,000 of annual profits to be a viable choice for tax reductions. If you have an S corporation you must pay reasonable compensation to owner/employees which reduces the QBI deduction.

Sole proprietors do not pay themselves a wage or receive a W-2. Instead, they take draws. QBI is generally the reported profit of the sole proprietorship without regard to self employment taxes. Once again, multiple by 20% and deduct.

The QBI deduction is not taken at the entity or business level. The deduction is claimed on page 2 of Form 1040, Line 9 (2018 tax forms).

Claiming the Qualified Business Income (QBI) deduction(Section 199A) on your tax return.

Claiming the Qualified Business Income (QBI) deduction(Section 199A) on your tax return.

Caution! My journals have some conflicting advice on reasonable compensation to S corporation owner/employees and guaranteed payments to partners. Before Revenue released guidance on August 8th some felt guaranteed payments to partners and reasonable compensation to S corporation owner/employees would be added back before calculating QBI. Sharp readers called me on this. The reason for the assumed (by some people) add-back before guidance was released is so high earners couldn’t play with reasonable compensation to qualify for the QBI deduction in certain service businesses. Guidance now indicates QBI is profit after reasonable compensation or guaranteed payments.

Planing tip! Because S corporations require reasonable compensation to owners/employees, micro businesses probably do better as a sole proprietor since there are no wages to the owner to reduce QBI.

 

Entity Selection

I preach LLCs treated as S corporations a lot. However, micro businesses rarely benefit taxwise from such a structure. In most cases S corporation treatment does not lower taxes enough to offset costs of organizing as an S corporation until profits consistently exceed $30,000. Even $30,000 is really low! I prefer to see $50,000 or more before deciding to switch to an S corporation and only if it appears profits will remain north of $50,000 in future years.

We are discussing micro businesses of under $30,000 of annual profits so organizing as an LLC is fine for legal purposes, but electing to be treated as an S corporation is a questionable move if taxes are the reason why.

Your S corporation may have started as something bigger and withered over the years as you downsized. Keeping the S corporation may be more convenient than moving to a sole proprietorship.  For these reasons we’ll touch on S corporations.

S corporations generally pass all their profits to the owners on Form K-1. The QBI deduction is not lost! Rather, as stated above, owner’s wages are added back with 20% of this higher total deducted on page 2 of Form 1040.

We already discussed partnerships above.

While I focus on tax considerations, entities serve a legal purpose as well. I encourage you to discuss the legal ramifications of entities with a competent legal professional.

While the sole proprietorship is easy to organize, it also pays the most tax of any form of conducting business. Sole proprietors also face a highest federal audit risk, around 4% per year. Corporations (regular and S) and partnerships are audited at well below 1% per year. For this reason  alone you may wish to organize even a micro business as an S corporation, regardless of the tax ramifications.

 

The Best Tax Choice

Here is a step-by-step guide to deciding how to manage your micro business:

  1. Are you a Hobby or business? It makes a difference. A hobby is by far the easiest way to report income. But no expenses are allowed while SE tax is avoided.
  2. Choose an entity structure. An LLC provides legal protections and takes on the tax flavor you want. A single member LLC defaults to a sole proprietorship and if there are two or more owners to the business, partnership is the default. These are called disregarded entities (disregarded for tax purposes only, not legal purposes.)
  3. Make sure you don’t miss any deduction.
  4. Take advantage of the QBI deduction.
  5. Consider retirement plans.
  6. Enjoy! It is a micro business for a reason. Your goal is a bit of extra money while engaging an enjoyable activity.

 

Note: Technical corrections were made to this article. The complexities of the Tax Cuts and Jobs Act have caused serious issues when tax planning. The IRS issued some guidance on August 8, 2018, but more issues remain. Tax professionals are encouraged to contact the author if they disagree with a statement here. I have attended several training programs this year on the new tax rules and there are areas of disagreement between programs. I’ll make additional technical corrections as they are discovered by readers (or me) or further guidance is provided by Revenue.

 

More Wealth Building Resources

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

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

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

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

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

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

Amazon is a good way to control costs by comparison shopping. The cost of a product includes travel to the store. When you start a shopping trip to Amazon here it also supports this blog. Thank you very much!

If You Love Spending Money This Will Make You Rich

5 spending habits that can make you wealthy. How you spend your money determines how rich you will be. Right spending habits increase your wealth. #wealthyaccountant #spending #spendinghabits #investing #debt ##indexfunds #incomeproperties #rentalproperty #guilty #guiltyfeelings #buyersremorse“Should I feel guilty when spending money?” It’s a common question when I consult with clients. They are so tuned into frugality they sometimes start associating negative feelings with money. It’s a bad thing to start feeling.

Spending money is NOT an evil activity! In modern society we have it so easy that we tend to either overspend (the vast majority) or become hyper-frugal (a significant percentage of the demographic reading this blog). Both lifestyles are unhealthy. Overspending leads to serious problems when the bills come due and income might not keep up. Debt is a serious issue I ask clients (and readers) to consider purging. The opposite of overspending is the hyper-frugal drive. This can suck the pleasure out of life as fast as a heavy debt burden.

I tend toward the frugal side of the equation and get called out on it periodically, too. Sometimes I do things just because it’s the cheaper choice. If I were as smart as I think I am I would reconsider such decision-making. Frugal isn’t always the best answer.

Frugality for me is more about my hate for shopping. When I spend I know exactly what I want and side purchases are never a distraction.

Buying a good or service feels good even for a frugal accountant like me. I needed a longer breaker bar (torque bar) to get the lug nuts off a tractor tire so I can take it in for repair. The breaker bar I have is only 14 inches; the one I bought is 30. By the time you read this I might have that tire off with my new piece of equipment. Yes, I’ll save money on a service call by getting the tire to the shop, but it still feels kind of good knowing I have a shiny new tool in the garage.

But spending is a problem for many people. Frugality is a forced habit at best for the majority. Economically enforced austerity gives way to bad spending habits when normalcy returns. The cycle is familiar and we know it while we do it. If only we could stop.

Since most people enjoy spending money I thought I’d share 5 ways you should spend because this kind of spending makes you richer. In fact, if you don’t adopt these spending habits I outline below you will suffer serious personal finance issues. Those who have money will realize they were already spending this way. For the rest of you, please come along. I’m going to show how you will want to spend that money burning a hole in your pocket.

Maintenance

This may sound like common sense, but too many people defer spending to their detriment. Every so often you should change the oil in the car. It runs better and lasts longer when you do. When the roof needs replacement frugality is not your friend. The structural damage follows shortly after and gets very expensive. Then you get to spend a lot of money for no additional value. That is not a good spending habit.

5 ways spending can make you rich. Spending habits can lead to debt or wealth. Here are the secret spending habits of the wealthy.. #wealthyaccountant #secrets #wealthy #spending #spendinghabits #habits #debt #moneyDo-it-yourself (DIY) projects are a good opportunity to spend. One of the cables broke on my garage door recently. I bought new cables and discovered I didn’t have tools or the recommended bars to loosen and tighten the spring. I broke down a bought a pair (you need two) to finish the job. Now I need to keep them safe for a distant future event when I need to work on a garage door again. The cost was only $15, but it is spending. The spending saved me the cost of a service call which would have been significantly more. Some spending is good spending and increases your wealth.

The same situation occurred at the office this summer when I wanted to do some light landscaping. The place really needed it. Clients have a better opinion of an establishment with appealing décor. I acquired several quotes which all came in over $10,000. (And it wasn’t that big of a job!) I decided to do the job in-house. The cost of dirt and river rock and some seed money for some extra helping hands was under $2,000. I have several huge rolls of felt in the barn I used and unused treated fence posts from a previous farm project so that cost nothing extra. In the end I spent a couple thousand, assuaging my spending itch, and created over $10,000 in value; more if you count the added business an attractive building can bring in.

Maintenance and DIY projects are a perfect way to spend money in a way that creates value. If I would have written a check for $10,000 to landscape the office it wouldn’t have felt as good. I got the satisfaction of a job well done and the opportunity to order 10 yards of top soil and two orders of river rock. There were multiple spending opportunities for the same job. For people with an itch to spend, this might be a good way to kill two birds with one stone.

Pay Down Debt

I’ve preached this line often before. Loan payments are not completely new spending. The interest is, but it doesn’t feel like fun spending. You get nothing for the interest spending: no pretty baubles or service or vacation. Nothing. Your wealth just disappears.

The act of spending is addicting to many. Rather than spend on more stuff and putting it on the credit card at 18%, consider tricking your brain into spending the right way. Here is what I propose. Spending is about wanting something. Some people enjoy the shopping experience. Either way, turn these desires into a wealth creating machine. For the shopping addict, lay out all your debt and obsessively review your balances. Create an aggressive spending payoff habit. Set your payments up on automatic, but also send in extra whenever an extra nickel crosses your path. Turn it into a game! Have fun with this. Instead of building debt, turn debt elimination into an exciting adventure.

If shopping doesn’t trip your trigger then you probably spend just to have something new. I have something shiny and new you’re going to want: a debt free balance sheet! I mean it. Instead of a new boat, roll up your sleeves and butcher those bills. Remember, it is easier to enjoy a new toy when you don’t have to work to pay off the toy, plus interest.

Investing

Once you pay down debt you might be tempted to return to old habits which caused the financial problems. I say, “Nyet!”

The newfound habit you used to eliminate debt is a good behavior for proper future spending habits. Turn investing into an automatic wealth creating machine. Automating investing doesn’t always satisfy the itch to spend. There is a solution.

It may be hard to believe, but there was a time when I enjoyed spending a bit more than I tend to nowadays. Money was rolling in and times were good in the 1990s. I was smart enough to know good times don’t last forever so I devised a plan to satiate my spending desires with intelligent cash allocation.

These are the 5 things you need to spend on if you want to be rich. The 5 secret spending habits wealthy people use are available to anyone. Frugality isn't the entire game. The wealthy spend. They spend right. #wealthyaccountant #frugality #frugalliving #wealth #money #passiveincome #spending #spendinghabitsTax season was always a good time of year. My mutual funds were automated, but I needed a home for my excess cash so I wouldn’t be tempted to spend it. My solution: dividend re-investment plans (DRIPs). I wrote checks to all my DRIPs. It gave me great pleasure to finish my day with a spending splurge. I’d write a check to JNJ, Aflac, Phillip Morris, Wrigley (damn you, Warren) and more. As fast as it came in I sent it out. I don’t know what you spend your money on, but I have a nasty habit of buying as much stock as I can get my hands on. For the record, it’s a good habit to have.

DRIPs aren’t what they used to be. Brokerage accounts generally automate re-investment of dividends and many DRIPs now have fees. There is still a solution. Set a minimum amount you can easily invest every month. Automate the process. Then either write a check every time money comes in or log in and set up a transfer. Trust me, you’ll have so much fun spending on your index fund. The best part? Instead of paying interest on your purchase you’ll be paid dividends instead. Oh, the joy!

Turn investing into a game. Real wealth creation is built on the proper allocation of capital. The bank is fine for short-term and emergency funds. But your serious money needs to be working hard building a better world and the only way to do that is to own a piece of great businesses.

Another spending game to consider is investing funds you planned on spending foolishly. Excessive dining out or drinking in bars can be swapped out for an index fund investment. I’m not telling you to forgo a pleasurable life. God forbid! All I’m suggesting is that you switch some consumer spending for investment spending. And besides, you know as well as I you will enjoy those dividend checks more than interest payments.

Income Properties

If you have an itch to spend, income properties are for you. Many moons ago I owned a city of real estate in my portfolio. From personal experience I can attest you get plenty of spending opportunities when you own real estate.

Your primary residence is different from income property. Money you spend on your primary residence (or second home) comes from another source and can run dry. Income properties have—wait for it—their own income stream to fund expenses. If you have a serious spending itch, real estate done properly can scratch that itch raw.

You still need to buy properties right! Stupid income property purchases will force really bad spending even when you discover how bad the spending is and want to stop. Sometimes you can’t. But a small portfolio of investment property can give you plenty of opportunity to shop and buy. Researching the right property should be a priority. Once you own the property there are always things that need to be paid for: property taxes, utilities, insurance, repairs and maintenance. A property manager can do all this for you, but you can write the check yourself if you insist. Even still, you can review your monthly statement from the manger which will show all the spending. It should serve as a powerful ointment for your spending itch.

Small Business/Side Hustle

Okay, hustlers! Nothing beats spending opportunities than a small business or side gig. Even a frugal guy like me still manages many hundreds of thousands of dollars in annual spending just by owning a small accounting practice. Every two weeks payday comes around and I get ample reminders on how to spend my money.

These smart spending habits can put serious money in your pocket. Spending on the right things can increase your wealth rather than build debt. Spend your way to riches! #wealthyaccountant #smart #spending #happiness #dreams #frugality #frugalA side gig or business is an easy way to alleviate the desire to spend. Maybe too easy. While I can brag I spend $250,000 in my business, it needs to be brought into perspective. I’ve seen too many people over the years start a business, spending like mad to get it up and running. It soon becomes apparent my client isn’t ever going to make a sale. He’s going to keep spending until he’s broke without ever actually starting the business. Then he asks if it’s deductible. (Not if it was a hobby or you treated it as such.)

Still, business owners are spending daily. At home my wallet has moths. At the office money is moving constantly. Office supplies are replenished, utilities are paid, property taxes come due, employees get paid, IT needs money. The list goes on and on. A frugal habit goes a long way toward profitability in a business. It’s easy to spend; not so easy to bring it in.

Spending/shopping addiction is a serious problem with many consequences. Shopping is a waste of time compared to time spent with family and friends. Shopping has its place as long as it doesn’t rise to addiction. Business has a natural built-in need to allocate money. If you can run a “real” business or side hustle you have my blessing. Before long you will lose that desire to spend. Take it from a three decade business owner. Spending gets old real fast when it becomes a job. (You know; a job. That thing you want to take early retirement from.)

Coda

Spending in and of itself is not wrong! Overspending is a bad habit and even a sickness. Excessive frugality is a bit of a sickness too. Careful readers may have noticed that from a certain unnamed accountant over the past few years.

I’m not here to tell you to never spend. What I want for you, kind readers, is a healthy relationship with money and spending. Reducing debt to background noise is important. Investing for your future and that of your family is imperative.

Spending easily becomes a job! Money is a powerful tool to help you live a quality life. Too much or too little is a problem. Using the 5 ways to spend listed above will make you wealthier. That is what we are about around here: quality of life which is the true meaning of wealth.

Finally, can you do me a favor? If you think this is as important as I do, go back to the top of this post and use the buttons to share on social media. You can pin the placards to Pinterest, as well. Help me spread the word. Let’s make the world a better place where people control their spending and build powerful, nurturing money habits.

Thank you.

 

More Wealth Building Resources

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

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

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

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

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

Amazon is a good way to control costs by comparison shopping. The cost of a product includes travel to the store. When you start a shopping trip to Amazon here it also supports this blog. Thank you very much!

Forensic Accounting: The High Paying Part-Time Business

Looking for a side hustle that is profitable and fun? Consider forensic accounting; a side gig where you help people find money they lost. Unclaimed money is big business if you know where to look. What was lost is now found. #sidegig #sidehustle #unclaimedmoney #lostandfoundFifteen years ago a client who has since passed away had a complaint. He explained his uncle had died and the family was having a difficult time finding his money. The family knew his uncle had money, but he hid it everywhere, kept no records and refused to reveal his secrets to anyone.

The family decided to hire a forensic accountant who took six months to find around $280,000. My client’s complaint was they knew the uncle had a lot more than $280,000, but had no idea where to start looking.

This was during the my early days as a hedge fund manager. The hedge fund didn’t buy stocks or businesses; we bought charge-off receivables and collected on the debt.

When banks have bad loans on the books they sell them for a fraction of the face value. (Banks never really lose. It blows the mind how they every have financial trouble. It takes a new level of stupid to fail as a bank.) Once we took possession of the accounts we sent our legal teams around the country to locate and collect, even in court if necessary. (I authorized over 22,000 suits over the years. Yeah, I was one of those a-holes. But I was good at it. Stick with me here. This is all going to work to your advantage this time.)

Running the type of hedge fund I did (I eventually was hired to run two) provided me with the resources, connections and experience in finding people and their hidden stash. Finding money is something I got really good at.

My client was awed when I started to explain how I would have handled the case versus the forensic account they hired. In 30 seconds I gave them one piece of advice and found over $300,000 more than the forensic account they hired did in six months. Before I was done we collected seven figures of cash from around the United States and even found an account with serious cash tucked away in Ireland.

The family promptly hired me.

 

Finding Money as a Side Gig

This is a story of finding stuff no one else can. Most side gigs people pick up in retirement earn a modest income. A forensic accountant can earn six figures part-time without breaking a sweat. With the story above in hand we will walk through the simple process of finding old or lost accounts for people.

The resources in this short post will be enough to find the vast majority of assets. To get the fine edge in your performance I will share some resources at the end.

A forensic accountant doesn’t need to be a CPA, enrolled agent or attorney to do the job. In fact, the best people at this are as far away from these professional designations as you can get. This is a job you can do on your laptop in your BVDs without any problem. (I recommend putting on your shorts when meeting with the client.)

The pay is excellent. $300 an hour and up is common in this field. Some forensic accounts change a percentage of what they find while others charge by the hour. People are reluctant to go the percentage route because they all think you’ll find a gazillion dollars and they don’t want to share. Fine! That’ll be $300 per hour, plus expenses. Oh, and I need a $5,000 retainer. Are we having fun yet?

Who Are the Clients?

Over the years I hunted down lost treasures for estates on a regular basis. However, some of my best clients (repeat clients even) are insurance companies looking for answers on an embezzlement claim. Business owners have hired me to do the same. Attorneys sometimes hire my forensic services also. I never had to testify in court on one of these cases, but it wouldn’t bother me if I had to.

The fun cases revolve around helping a family find the belongings of a deceased loved one. For them it is like finding an unknown insurance policy. (I have found a few unknown life insurance policies as well though the insurance companies are much better today than two decades ago at knowing when one of their policy holders is pushing up daises.)

The ugly cases—the ones that also pay very well—involve businesses. Money goes missing or the business owner can’t figure out why business is so good and she is still losing her tail. Hint: The most valued and trusted employee, close friend or family member is the embezzler the majority of the time. I could tell stories.

For several years a local insurance company called me in on any case over a certain value. I reviewed a lot of books back then and it kept the doors open over the summer when tax work was slow. I also liked the work. The down side is you are not a loved visitor when you stop by the business. They know your job is to hang someone. (And I always kept a new rope in the truck for just such an occasion.)

Finding the Goodies

Back to our story. My client knew there was more money. I casually mentioned pulling a transcript from the IRS. This will show any 1099-DIVs and 1099-INTs issued to the person in question. Banks are required to issues 1099s when the amount is $10 or greater. For some crazy reason the forensic accountant they hired never took this step. My client was instantly $300,000 richer and I was hired with a generous retainer.

I now need to introduce you to skip tracing. Skip tracing is a process of finding the whereabouts of an individual. An impure use of the word also includes searching for all the assets, including income sources like a job, of a person or business.

A treasure chest of wealth awaits you in the ultimate side hustle helping people find lost and unclaimed money. This high paying side gig is perfect for people enjoying early retirement. *earlyretirement #personalfinance #sidegig #sidehustle #unclaimed money #lostandfoundSkip tracers generally hunt for debtors or fugitives. We are interested in debtors. In our example we are not looking for debts. But if you have someone who owes you money you want to find their assets and income sources. This is highly beneficial talent if you are searching for a deceased person’s stuff.

The best skip tracers come from the wrong side of the track. Some are clean cut, but in my experience the ones who are really good at it have tattoos and are rough around the edges. These people know how to find a body no matter how deeply dug in. Perhaps from personal experience.

You can learn skip tracing yourself, but there is a short cut. Go to your local debt collection agency and hire their best skip tracer and let’em loose. It’s your way of spreading the side gig economy around. (You are only hiring the skip tracer for the job, not full-time employment.)

Most attorneys already have resources to do this also. But we are not technically looking for the person; we are looking for the goods. Our skip tracer has another skill we need.

If you are serious about a side gig as a forensic accountant you will need LexisNexis. LexisNexis is a powerhouse of personal information. Once you see this thing you will be scared. They know things about you and everyone else you didn’t think anyone knew. In your search for lost accounts they will bring a deluge of results.

LexisNexis is expensive. If you are friendly with a collection agency you can usually hire them to do the LexisNexis search for you. There is so much information it is good to have someone familiar with the platform help you acquire and interpret all the information you get. A deep drill down will uncover just about anything the mark ever did since the first computerized records began and even a fair amount of stuff from before the Computer Age.

An IRS transcript and a LexisNexis search will be 99% of your job. If you suspect the client has money in another country (my client did) you use the same procedures in that country. Western Europe is as straight forward as the U.S. and Canada. Just find a debt collector in the target country and expand from there.

It doesn’t take long to uncover virtually every asset. There are some costs so you need to remind your client of this upfront.

The Problems with Embezzlement

Finding malfeasance can be trickier. In these instances you are not always looking for assets or hidden account (though that frequently is part of your job description later), you are looking for accounting irregularities. We are usually not talking about an accountant cooking the books. The issue is either money stolen (which could be the accountant) or stolen merchandise.

The issues tend to be complex here and if you don’t have an accounting background you will need to at least have a fundamental understanding of the accounting process.

Finding unclaimed money is the best way to make friends. It's also a profitable and fun side gig. A side hustle should be fun. The lost and found just became a piggy bank to the small businessperson looking to grow profits for clients and self. #sidegig #sidehustle #unclaimedfunds #money #freemoneyMisappropriation of funds generally sticks out like a sore thumb in the accounting records. What you are looking for is a discrepancy between revenue and certain expenses. For example, a restaurant will have a cost of goods sold within a relatively narrow range depending on the type of restaurant compared to sales. Payroll also falls within a certain parameter or revenue, COGS and tips.

The issues become too complex for a short blog post. Here is the take-away. There is always a relationship between items in the financial statements. Deviation of these ratios (between sales and COGS or sales to wages as an example) is a telltale sign of something wrong.

The timing of the deviations frequently correlates with the hiring of the instigator. You will always review multiple years of records looking for inconsistencies, i.e. COGS changing significantly from one year to the next. Most of my work is done on an embezzlement case before I even get out of my chair and visit the establishment.

The easiest way to see this is with an example. This is a real client with a restaurant.

My office manger one day came to my office concerned about the client in question. She couldn’t understand why the client had growing sales but was going broke. A 30 second review of the financials and I knew an employee was embezzling. The cost of goods sold was waaaay out of whack for a restaurant of any kind and I could see the progression.

My first thought was a waitress was guilty. The client was brought in and I questioned her about the waitresses and how they handled money. It was quickly apparent a waitress wasn’t the culprit. Waitresses had few opportunities alone with the cash in this establishment.

I started to question the business owner about other employees. When we reached the cashier she said it couldn’t be her as it was her close friend of decades. The search was over. The friend did it.

It wasn’t a guarantee at this point, but I knew where this was headed. The business owner did not have cameras. I told her to inform the employees her accountant was concerned about embezzlement and demanded cameras be placed in the building. The cashier quit on the spot. Uh-huh.

We weren’t done. The ratios between COGS, sales, and waitress payroll and tips was still off even after accounting for the embezzled funds. I suspected more than few cases of steaks and seafood were wandering out the back door of the kitchen. Fed up, I had the client place cameras at the kitchen doorway leading to the parking lot without informing employees. A week later the entire kitchen staff was fired.

The sad end to this story is that the restaurant did not survive the assault. The damage was too great. We caught the malfeasance relatively early even though we weren’t hired to do that job. But the business owner stalled, certain her friends were innocent. The wound was too deep and the victim died. And all the jobs along with a great restaurant were gone. I still kick myself for not insisting more action be taken sooner.

Resources

In 2,000 words I actually gave you a good template for a basic forensic accounting side gig. You will find more than the average accountant for sure with these methods. If you want to hone your skills to a fine edge I recommend you continue your training. Your local technical college may have courses on the topic. There are also plenty of seminars and conferences, of course. Look for conferences specifically for collection agencies. They are the masters at finding The best side hustle ever! Helping people find money. Billions of unclaimed money are lost every year. A family member dies and the family doesn't know where the money was kept. Forensic accounting is a fun and profitable side gig. #fun #sidegig #sidehustle #unclaimedmoney #forensicaccountingassets. Or, you can start with some really good books on the subject. The books can get pricey, but these are the books used in colleges many times and the books are cheaper than college itself. One gig can pay for the whole thing and more.

Forensic Accounting for Dummies (This is the lowest cost basic education on the subject you can get and also a good place to start if you are new to the game.)

Below is a selection of high quality books on forensic accounting. These books are high quality and cost a bit more. They are worth it if you are serious about forensic accounting as a side gig and tax deductible if you are in the business.

Forensic Analytics: Methods and Techniques for Forensic Accounting Investigations

Forensic Accounting and Fraud Examination

Forensic Accounting and Fraud Investigations for Non-Experts

The Forensic Accounting Desktop: A Practical Guide to Financial Investigation and Analysis for Family Lawyers

Forensic Accounting and Fraud Examination (Irwin Accounting)

I hope this article and resources are an awesome opportunity for you to earn a nice income in a side gig or even as a career.

And remember, no matter where you are, no matter where you go, I will find you.

And you stuff, too. So pay your bill so you don’t end up a client of my hedge fund. (Hint: I sold out the two funds a few years back so you are probably safe. Probably.)

 

More Wealth Building Resources

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

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

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

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

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

Amazon is a good way to control costs by comparison shopping. The cost of a product includes travel to the store. When you start a shopping trip to Amazon here it also supports this blog. Thank you very much!

 

Perennial Seller, Part 1

Have you ever wondered why Gone with the Wind and The Wizard of Oz continue to thrill audiences nearly a century later while the box office leader three years ago over Christmas weekend can’t be sold by Wal-Mart for less than a dollar from the remainder bin? Why does The Shawshank Redemption still perform well after more than two decades?

Closer to home, why do some personal finance blogs find a massive and growing audience while others languish? Mr. Money Mustache publishes a few times a month and still generates 5 million page views or more per month. What characteristics do perennial sellers have? More important, can we replicate their success?

Last week one of my all-time favorite authors, Ryan Holiday, published Perennial Seller: The Art of Making and Marketing Work that Lasts answering the above questions. Holiday has ample experience to draw from in his work with companies such as Google and cultural icons like Tim Ferris.

You can reinvent the wheel or you can learn from the best. Perennial Seller breaks the process of creating long-term success into four parts: The Creative Process, Positioning, Marketing and Platform. We will touch on each of these before we end with a real world example from our personal finance (PF) community.

The Creative Process

Before something becomes a long-term successful seller it has to be created. Too many people want to jump ahead to marketing. They want money and they want it now. Unfortunately they will not like what the marketing section has to say if they do.

Creating a blog with a growing audience and dedicated fans willing to support the blogger, you first need to create the product. Books need to be written before they show up at the bookstore.

Holiday spends most of the book talking about creating a perennial seller in the arts: books, movies, music. He does expand the discussion to his days working for American Apparel before the CEO went off the rails. His advice can easily encompass business models for goods and services, too.  The PF community will find the process valuable for their side gigs.

Creating a product, writing a book, composing a song is all hard work. The tendency is to follow a hot trend or create a knockoff of another successful product. It rarely works. You might get some success, but it never lasts. The original has the advantage when it comes to standing the test of time.

When I started this blog I wanted to follow in the footsteps of Mr. Money Mustache. And why not? His readers would be my readers. Working with an icon of the early retirement community meant people would find me by reading MMM. At first.

I knew I would be different, but I always found myself apologizing for the differences, especially the idea of retiring early. Read my early work here. It drips with desperation. Slowly I moved into the open prairie where I felt most comfortable. I started writing my stuff my way. No apologies.

I always told storing which is my hallmark. But the idea I’d be a successful follow-on of the MMM crowd gave me a momentary boost the first few weeks before curling up in submission. My traffic has since exceeded anything I managed those early days.

I stopped apologizing and started doing what I needed to do. I was different and knew it. When I allowed the differences to show through I found my audience. And good thing.

A recent reader emailed to let me know he reads over a thousand PF blogs and never saw one with a picture of Hitler on the front page above the fold. Yeah, I knew it was different.

Readers beg me to publish a book (it’s in the works) of blog posts. More on that in a bit.

The creative process is hard work. You need more than one idea, one book, one blog post. No matter how brilliant you are you need to create more.

Positioning

As you think about your product, service, book, blog, or song, you need to know who it will appeal to.

Ryan Holiday has provided excellent guides to determining what your work is about and whom it is for. Positioning within a genre is vital if you want to produce a perennial seller.

Success of any kind, long- or short-term, almost always is classified in a category or genre. Nothing appeals to everyone! Too many bloggers, writers, singers think they are serving everyone. Bull!

You can make a comfortable living with a mere 1,000 dedicated fans who buy everything you produce. (Holiday said it in the book and shows how.) Imagine a humble blog, like, ah, this one. Selling t-shirts, ad revenue, third-party affiliates, and Amazon can provide a nice income stream. A thousand dedicated fans buying your book or program can add up. A simple $100 from a thousand dedicated fans gets you to a six figure income.

The trick is getting to a thousand “dedicated” fans. Part II of Perennial Seller is dripping with information on how to position your brand, You, Inc., to acquire those thousand dedicated fans. In all likelihood you will end up with many more as your cult grows.

Marketing

Now we get to the section everyone wants to talk about. Well, forget about it.

Ryan Holiday is a smart young man and he knows he can’t tell you to do this and do that and you will sell a million copies of your book or get a million page views.

I’ll talk about marketing more in Part 2 of this post to be published on Wednesday.

So no one ruptures an internal organ I will share a taste before moving on.

You do not need a publicist, Google or Facebook advertising, or any other expensive promotional activities to sell well. Most money spend on advertising is useless.

You know what might work? Giving away free copies of your book to the right person. A certain tax guy might want to provide free tax preparation or advisory services to a mustachioed gentleman from Colorado. Or the same tax guy might speak for free at conferences and help attendees gratis as a goodwill gesture.

Doing these things and a few similar gestures will give you more work than you can handle. Then you need to go back to the creative process and create more and develop the brand You Inc. further. It is also time to move toward building your

Platform

You can (and should) start building your platform even as you begin the creative process. Gathering followers is how you will generate buzz and early adopters of your book, blog, song or product. I’ll share an idea Ryan Holiday used (mentioned in the book) and that caught me early in his career.

Before Holiday had a product he knew he needed a platform from which to sell his books. He tried blogs/web pages, but eventually settled with the idea of building a mailing list of his monthly book recommendations. By the time his first book came out he had 5,000 people on his email list he could recommend “his” book to. The list has since grown to over 80,000.

As you can imagine, the mailing list is a powerful tool Holiday used to sell his books. And it worked. His books continue to sell better and to a wider audience as the mailing list grows.

Before I include a personal story not in the book I want to share a special gift Holiday gives to his readers. At the end of the book he includes a web address for additional case studies and interviews not in the book. The web address is: perennialseller.com/gift. Or you can email Holiday at hello@perennialseller.com. He will email back the bonus information.

Before you consider me a lout for sharing this information before you even buy the book or borrow it from the library, know that Ryan Holiday is building his email list as you take him up on the offer. He is building his platform while you get additional free information. A bit of quid pro quo.

In the Real World

Well, who in the heck is this Ryan guy anyway? You may have never heard of him until now. How about we use a live example from our own community: Jim Collins. (If you are reading this Jim, sorry. I needed a guinea pig and you were an available victim. Should sell a couple of books for you though if it is any consolation.)

Last year Jim published The Simple Path to Wealth. You probably heard me extol the virtues of the book. It is pulled from the Stock Series of his blog.

When talking to Jim you will hear him say there is nothing new in his book; it’s all in the blog. It’s a lie. (Sorry to rat you out like that, buddy. Somebody had to expose you.)

Jim’s book is all in his blog, of course. What he doesn’t tell you is he reworked the entire set of blog posts, fixing grammar errors and tightening up the text.

Then he sent the finished product to qualified first readers who promptly pulled the whole thing apart, exposing massive (several hundred) problems. Jim fixed them all. Then he sent it out to another qualified first reader confident he fixed all the boo-boos only to learn a few hundred more were missed the first round.

This went on for a while until the book was as clean and tight as any professionally published book from a major publishing house. As an end user I can assure you The Simple Path to Wealth is better edited than 95% of the stuff from the professional houses. That is saying a lot.

And it’s a self published book! It was the reason I delayed reading the thing. I know how self published books can be. Then I made the mistake of reading a few pages. I was hooked.

My good friend, Mister Collins, has had excellent sales figures on his book. A high quality work, well edited, well created, is a masterpiece. Here is how he did it using Ryan Holiday’s formula.

Jim wrote (the creative process) the blog and later edited part of that into the book, polishing to a bright shine. He positioned his blog and book right down the middle of his genres: personal finance, early retirement and financial independence.

Jim marketed his book through his blog and asked Mr. Money Mustache to write the forward, which he did. Jim already had an awesome platform with his blog and mailing list. People were buying Jim’s book to give as gifts! Camp Mustache SE in January 2017 gave a free copy to every attendee. Nothing beats word of mouth as a marketing tool (also in Holiday’s book).

One Last Thing

Normally I tell people they can either buy the book or pick it up at the library. This book is different. If you write a blog (many readers do), run a business (many readers do) or have a side gig (many readers do) then you want to own Perennial Seller. If you do not fall into one of these categories feel free to visit the library on this one.

If you are a writer, blogger, musician, artist, business owner or have a side gig you will want to hold this one in your hand and keep it within arm’s reach in your personal library. Better bring your highlighter too. You’re going to need it.

Starting a Successful Seasonal Tax Preparation Business

Readers of this blog are always looking for a side hustle. Seasonal tax preparation is a perfect fit for many early retirees. A small tax preparation business allows for an earlier retirement as the side income can easily be enough to live on for even a modestly frugal person. Another large reader demographic involves the accounting industry. There are plenty of blogs talking about tax issues, but few discuss the realities of starting, promoting and maintaining a tax practice.

I touch on the subject of practice building periodically, but my email folder is filled with requests for a more detailed post. A recent email from someone called Speed (I love it!) asked a series of questions that encompasses the bulk of practice management requests.  Much of what I discuss can be applied to most other business ideas with only slight modifications.

Rather than give a play-by-play on starting and managing a tax practice, I will take each of Speed’s questions and answer them. The reason for avoiding the play-by-play is because there are many ways of starting a successful business. I don’t want to give the illusion you are locked into one pattern to win. Life is rarely that neat.

How exactly did you start preparing tax returns for others? Recommendations for someone wanting to do the same?

Preparing taxes as an occupation came by accident. You see, back when I graduated from high school the economy was really bad in NE Wisconsin. Not only were businesses not hiring, they wouldn’t even waste the time or paper allowing you to fill out an application. It was a good thing since I never intended on working for the man anyway.

What I did have was a work ethic instilled growing up on a farm. The family farm went bankrupt a few months after I graduated high school, however. My dad suffered but refused to quit. He started a business repairing bottom unloaders in Harvester silos, the blue silos you see around the country. Without any other employment options I took a job working for dear ‘ol dad. As fate would have it, dad hated bookkeeping and taxes so he left the task to me. Well, sitting in a nice warm office pushing numbers sure beat the hell out of busting ass in a dark silo room.

Things were tight back then with the economy and all. I worked long hard hours and came home from a long day of ball-busting work to balance the books. I was paid as you would expect an old farmer to pay his son. When employees asked me to prepare their taxes I agreed to do so for $20. As small as that sounds, it was a fortune compared to what my dad paid me per hour. Then vendors asked me to prepare their taxes. (Vendors paid more than $20.)  Spring was a joyous time of year with all the extra cash flowing in. My first paid tax return was in 1982 when I was a senior in high school.

I hated the silo business so I quit a few years later. Investments and zero spending turned my nest egg into a tidy sum. It was 1986 by now and part-time tax work coupled with investments was enough to live a very Spartan lifestyle and I did. Then I met Mrs. Accountant. (Don’t laugh!)

A year later we were married and I was working as a custodian at her church for $7.85 an hour. (A respectable husband works, you know.) A year of that and I quit and went taxes full-time out of my home. I figured it was still respectable to work 2 ½ months a year and do what I want 9 ½ . Five years later I had a store front and more employees than I ever imagined.

My recommended study course for the enrolled agent exam.

For normal people starting today I would recommend working for an experienced tax professional for a few years and studying for the enrolled agent (EA) exam. You could also open shop out of a spare bedroom, accepting only basic returns until your skills improved which is what I did. After two full-time tax seasons I passed the EA exam and moved to the next level. I was beginning to learn how much I did not know.

Either a few years working for an established firm or starting with basic returns on your own will increase your tax knowledge and help you understand how tax returns flow. Tax preparation is a great side hustle or career. It is what drew me to the professional. That and my love of numbers.

Wondering if you can offer advice on how to start prepping tax returns for others (seasonally)? I have a similar philosophy as you regarding the role of finance and the tax code and would like to both learn more and maybe monetize this interest. Hypothetically speaking, if someone approached your company wanting to work for you, what strategies and know-how would they need to have expert knowledge of? 

Starting a seasonal tax practice out of your home is easy. The initial investment is much smaller than in the past with the cost of computers much lower today. You will need a computer, printer and professional grade tax software. I recommend Drake Software for tax professionals. (Dear Drake Software: Please institute an affiliate program so I can get paid for all the business I am sending you. Thank you.) I recommend Drake because it is very user friendly and their support is awesome.

If I were starting today from scratch I would focus on a niche. I would focus my studies in one area and kill it. Rental real estate is a perfect example with the relatively new repair regs and cost segregation rules. You can impress landlords with stuff they probably didn’t hear before so you look like a god to real estate investors.

Someone approaching me for a job should have the following attributes: outgoing and friendly attitude (clients trust people they like); proficiency using basic software like Word and Excel; a working knowledge of tax software; a working knowledge of the tax code and how to apply it on a tax return. Tax knowledge and application are two very different animals. I know people with massive tax knowledge who don’t know where stuff goes on the return. A tax office deals in application. Learn it. You don’t need to know everything about the code. Get good at one area and expand from there. If you are a master at individual returns, you are hired. If you are a genius at business returns, you are also hired. Get good in at least one tax area and be willing to take direction.

Where/how do you train them from there? Specific resources you require or recommend? Can you offer any more details in your own education of working towards being an accountant (but not going back to school for the degree)?

I train differently than most. Once you have the basics down I make you review the work of other preparers and work with said preparers to improve their performance. Reviewing the tax work of others gives you a different perspective and grows your skill sets. Then I review your review until you can walk on your own.

Whether you intend to get your EA or not, I expect you to study for the exam until you have it down. The IRS EA program is exceptional. If you can master the EA you will be well on your way to being a top-notch tax professional.

Every part of the country has continuing education courses for tax professionals. Search engines will give you plenty of options. Most of the classes are one day with some going two or three days. These are power-packed programs. You will not absorb it all. Take the workbook that comes with the course and keep it next to your desk. CPAs need 40 credit hours of CE per year (none has to be in the tax field) and EAs are required to take 72 credit hours every three years with no year having less than 16 credit hours (an average of 24 hours of CE per year). All EA continuing education classes must be in federal taxation. Don’t take online courses! Sit in the classroom! It is important. The online programs are fast and easy credits but all too often provide no real increase in tax knowledge. You want to get good, not slide by on the minimum.

For the record, I have no college degree. Does that blow your mind? Enrolled agents do not need any other education degrees to have a constructive career, full- or part-time. Study for the EA. Study for the EA. Did I say that yet? You must study and pass the EA exam! Then you keep learning until the EA exam is old hat. Study. Then study some more.

Buy a Quickfinder (will any of these companies start an affiliate program so I can turn some coin referring them?) every year and read it. Use it as a reference whenever needed. It is a good start. When you use the restroom you have reading material. (Stop laughing! I’m serious.) When you want to watch TV, either read EA study materials or your Quickfinder.

If you do all these things you will not need me to tell you where to study next. You will know. You will have new questions all centered on complex tax issues where even the Tax Courts around the country don’t agree with each other. Then you should ask me for a job. Please.

Have All the Clients You Want

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Clients are stacking up.

There is an interesting stream of questions hitting my mailbox. My recent suggestion to cut back and retire early has led to one interesting question. I recommended cutting back to a part-time seasonal job and enjoying all the free time. I used tax preparation as a business idea perfect to live the relaxed lifestyle. CPA’s and other tax professionals came out of the woodwork with the same question: How do you get clients?

Getting clients has always been the easy part for me; finding qualified people to help me with the abundance of clients is a different story. What I am sharing today is something I charge a minimum of $3,000 for a personalized plan to increase your clientele. For free I’ll share my business growth story and few example businesses to help you create your own growth plan.

In the Beginning

Starting a business is always the riskiest time. All the start-up costs strain working capital while you have the least community recognition and the fewest clients or customers. Advertising can be a budget killer which leads us to:

Keith’s Rule # 7: If somebody is selling you on a great advertising idea it rarely works and costs plenty, while your own cheap promotional ideas frequently work.

There are plenty of salespeople and companies willing to tell you how to promote your business. They are all expensive with no real thought on how it will drive business in your door. If I had a dime for every time I was told I’d be out of business if I did not advertise with their company I’d have, well, about thirty seven and a half bucks by now. It is still a lot of predictions of my demise and after 30 years of hearing it I am coming to the conclusion they don’t know what they are talking about.

We will start with my tax practice as an example of how to do it right. In all the examples I will assume a small to medium sized city for business location; the rules could change a bit for businesses in major city centers. If you understand my thought process I am certain you can duplicate the results anywhere.

My original intention was to retire before I started working. (More in a future post.) Tax preparation appealed to me due to the seasonal nature of the work. I prepared taxes for a few people part-time for years before going full-time so I understood the business in the way only a greenhorn can be confident in his expertise. I also worked for a year at the church where my wife went and where we got married. After a year of doing the Lord’s work I gave my tender for January 31st. Here it was, February 1st and I was in business as a real tax preparer.

51E+0IRE81L._SX348_BO1,204,203,200_My plan was simple, everybody needs their taxes prepared and I have experience so if I hung a sign outside my house and put an ad in the paper so I was good to go. As I would explain to business clients decades later, “Everybody has to eat, but not at your restaurant,” I learned a valuable lesson. Here it was, April 15th, and all was quiet. I had a total of 48 clients, mostly simple, low-fee, tax returns. I stared out my bay window on April 15th and thought, Oh sh . . .

Let me share how bad it was. My revenue was $3,000. Sure, it was 1989, but $3,000? I had money packed away and was not in fear of starving. Still, I needed more income or I would eventually run out or my spending would stay permanently low. It was in this moment I learned a skill that has served me well. I learned failure is the best teacher in the world and desperation a hell of a motivator.

Expensive advertising was too much of a risk and hit working capital too hard. I decided I would spend the summer building a client base and even considered working during the summer doing bookkeeping, payroll or other accounting work. Several low cost ideas helped (business cards with my puss on it, business card magnets) brought in a few clients the following tax season and a few late filers over the summer. There was one more thing I did. I created a flyer on my own computer and printed out 2,000 copies. The local newspaper I noticed delivered the paper in these neat plastic baggies. The newspaper was willing to sell me a box of 10,000 for about $50.  Over the New Year’s holiday I stuffed 2,000 flyers into the baggies and over the next week Mrs. Accountant and I walked the street hanging the flyers on the 2,000 closest doors.

The efforts paid off. The next tax season saw a tripling of business to a few more than 150 clients. The average prep fee increased too. My revenue approached $12,000. Better, but not enough. I rolled up my sleeves and decided I needed a new approach. I owned a few rental properties at the time (how do you think I was living?) and joined the local apartment association. Each month the association brought in a guest speaker. Well, I had the perfect presentation for my fellow landlords. It was then I learned a massive number of organizations are hungry for speakers, the perfect venues to ply my trade.

For some strange reason apartment association members did not flock to my door when I sat with them in the audience. A few were clients, perhaps five. I researched and rehearsed my presentation for over a month in advance. I must have practiced that first speech 100 hours. It paid off. In less than an hour I had the audience eating out of my hand. I fielded question after question and answered like a pro or offered to find the answer after the meeting. That night I went home with over thirty new clients and they all owned rental properties, a higher fee tax return.

Speak Up

Speaking in front of a group does not bother me in the slightest because I think I have something important to share. Some people get the jitters when faced with public speaking, not me. The trick to speaking to a group is to treat it like you are talking with a group of friends that need your help. After that it is a piece of cake.

I searched out more speaking engagements the remainder of that year. The following tax season ended with over 500 tax returns and I had to hire Mrs. Accountant to help out. I hired a tax preparer for the following tax season and have been a job creator ever since. By my fifth full-time tax season I was knocking out over 1,000 returns and was forced to move to a commercial building I bought near my home. A few years later I pushed past 2,000 tax returns, and payroll, bookkeeping and consulting took over my life. Business was too big. By the year 2000 I started pruning the client list to keep my sanity and now enjoy a 900 return practice. The returns are usually much bigger and include a full line of business services.

There are a lot of ways to promote your business with a small investment. Speaking engagements are the cheapest and best. Sometimes you even get paid to talk about your business. Sweet! When I speak to a group I focus on an area of tax law that affects the group. Taxes are boring until is puts a bigger refund in your pocket. It is rare to speak and leave. More often I am surrounded by an eager group of people looking for answers. My business card is always handy and I encourage them to call my office and set an appointment.

But how do you use the speaking idea if you are a car mechanic? Or a restaurant? I would recommend talking to groups around town about better gas mileage or increasing the value of your car for resale. A restaurant can give a presentation about healthy eating or organic food. Never talk about you. Don’t treat it like a sales call. Talk about them! Give them value! When you do that they will ask to be your client. Talk about the ultimate soft sell.

51Cu7cH19PL._SX332_BO1,204,203,200_Keith’s Rule # 7: Never try to create opportunity; take advantage of the opportunities already there.

If someone is happy with their accountant I tell them, “Why change?” If they are unhappy with their accountant I am more than happy to welcome them into the company. There is no need for a hard selling style when you use my method. My way is easier, fun and people and businesses ask to be my client; much better than putting on a full-court press to snag one.

A Few More Ideas

Every business is unique in how it must be presented. Speaking works for most businesses, especially service businesses. I helped a small restaurant triple sales in less than three months with one simple idea: coupons. Not any old coupon, mind you. I had him get 250 flyers printed at a local print shop for under $100 and hand them out to the closest businesses to his restaurant. Each flyer had a coupon for a free cup of gourmet coffee and a simple $1 off a lunch item. The employees of the nearby businesses started to come in for the free cup of coffee. I told the restaurant owner to keep breakfast sandwiches on hand and breakfast sweets. When people got their coffee they bought a sweet roll, cinnamon role or egg croissant sandwich with it. The best part was his restaurant could not handle all the business, but since so many were carry-out it did not matter.

Then came lunch.  Think about this for a while. Employees are always looking for something good to eat for lunch. A dollar off a pizza or a sandwich is all you need to draw people in. Employees need something fast so they can get back to work. The restaurant was not only full for lunch, but take-out orders were massive. People don’t just buy lunch for themselves when they have a flyer with $1 off, or some other special, they buy for the whole office. Think of it. Here is a small, struggling restaurant with an average ticket sale of $10 and he now has people ordering over the phone with tickets sometimes over $200. Another bit of advice: Don’t take the coupon. Give the customer the discount and encourage them to reuse the coupon. People love it!

Do It with Passion

One final thought. Business is hard, we all know that. If you start a business I’m going to assume you love what you do or you are playing our Chump’s Game. And if you love what you do, do it with passion. Act like your clients are long lost friends. Have an up-beat attitude; share stories; make your clients feel welcome. When people think you care you will have more clients or customers than you can serve. And really care. No faking it. Remember:

Keith’s Rule #8: Too many customers is a good problem to have.