Can Any Small Biz Owners Explain Why I Should Retire if I Can Write Off So Much?

[Cheesehead]

I have had my own small video business for 33 years with a home office, I am 59 (DW is a 55 year old teacher and would like to retire ASAP) and thought I would "retire" in a couple of years just so I can enjoy more of life before the inevitable deterioration sets in. I love my work (although it's high stress), it's exciting, pays very well but much more importantly: I can write off a LOT, all legal. I was once audited so I know what I can write off.

I was thinking of taking far fewer projects at 62 and using my super powers to help charities and other worthy causes rather than help mega companies sell products, services or manipulate public opinion which is what I spent my career doing.

So I would like the opinion of folks that had or still have their own small business and ask what sense does it make to "close up shop" if we can still have all these legal write offs? For instance, one car and ALL it's expenses and gas, the land line, two smart phones, the high speed internet connection, a portion of the mortgage, most trips to Radio Shack and Lowes, cable TV, much of the parking downtown...they are all legally deductible and add up to around $700 a month.

Would love to hear from people in a similar situation. I understand if you don't turn a profit in 7 years the IRS gets upset...

 

[target2019]

My F-I-L is past 80 and still getting it done. Up until 75 or so he was very busy with volunteer groups, and made some pocket change for doing print publications. At 82 he has finally given up the bulk of the volunteer work. His business was not as profitable as yours, but it could have been.

I am not retired, but still consult, even with a full time job now. I will try to maintain this business throughout retirement, as it funds my technology upgrades, and allows me to throw additional monies at my SEP-IRA.

I would not give up anything that I love, and if it pays some bills all the better.

 

[Cheesehead]

Good points. Also, my biz is so much of my identity, who I am, it would be hard to just fold up the tent.

I read one book about retirement planning each week and I am presently reading The Number by Lee Eisenberg:

The Number: What Do You Need for the Rest of Your Life and What Will It Cost?: Lee Eisenberg: Amazon.com: Books

In it he makes a point I never considered: Execs living high on the hog with expense accounts at mega corps (usually sales and marketing types) take a big psychological fall when retiring because so much of the glitzy, fun part of their life is lost due to not being able to entertain clients for free. No more NASCAR infields, Super Bowls, steak houses, etc.

So, if us micro business owners keep the tent up and some revenue coming in every now and then, at least we can write many things off.

Thanks

 

[rothlev]

What the IRS will look at is " has your business turned into a hobby" in other words are you no longer in it to earn a profit. ( this if you show repeated losses) so be very careful to continue to conduct your business in a manner that shows that you are making every effort to make money. Bookkeeping, advertising, and that sort of thing.

 

[frank]

I have a small business and really enjoy the write offs. without something to level the playing field the irs will take everything.

 

[Spanky]

Cheesehead,
You seem to ask for confirmations to stay in business and not ready to close your small business. IMHO, you should continue to do what you love.

 

[Texas Proud]

Sounds to me that you got lucky in your audit....

IOW, having a car for business and using it for anything else means you do not get to write off the personal use...

Having a cell phone and using it for anything but business means you do not write off personal use...

If you go downtown and park for personal business.... guess what, you are not supposed to write it off...

I have no idea what you are writing off from Radio Shack and Lowes, but if it if for personal use, again, not supposed to write it off....




So, I do not think you are as legal as you claim...



As far as your original question.... why do something that is high stress to take tax write off you should not.... why not start a low stress business and do the same thing....

 

[foxfirev5]

Good points. Also, my biz is so much of my identity, who I am, it would be hard to just fold up the tent.

I read one book about retirement planning each week and I am presently reading The Number by Lee Eisenberg:

The Number: What Do You Need for the Rest of Your Life and What Will It Cost?: Lee Eisenberg: Amazon.com: Books

In it he makes a point I never considered: Execs living high on the hog with expense accounts at mega corps (usually sales and marketing types) take a big psychological fall when retiring because so much of the glitzy, fun part of their life is lost due to not being able to entertain clients for free. No more NASCAR infields, Super Bowls, steak houses, etc.

So, if us micro business owners keep the tent up and some revenue coming in every now and then, at least we can write many things off.

Thanks

That expense account is a major consideration. You don't need to be a high level exec to benefit greatly. I struggle to forecast my post retirement expense when I add in a car, gas, maintenance, meals for about 200 days a year, prepaid hotel stays for vacation, free flights not to mention buying my own health insurance.

 

[pb4uski]

I see the pros as being able to continue doing something that you love and has been part of your identity and the tax benefits (which can be easily managed IMO as long as you continue to do a certain amount of work).

The con might be still having certain implicit or explicit obligations and the consraints those cause. I worked 80% and 50% prior to retiring, and even at 50% I felt like I was "on call" all the time so I quit.

 

[cardude]

I closed our business back in 2008 after about 15 years. The business dad become a huge strain on me, I had made my "number", and I was just plain sick of it.

However, I didn't do enough research on the "what to do now?" question, so now I'm back in business, but on much better terms, low stress, and short hours (2-3 per day on average).

So my advice would be if you are having fun, it's not stressful, and you are making money don't shut down the business.

 

[Cheesehead]

Hi Texas Proud,

The car I write off is a van that carries equipment, totally business, beat to hell, I keep a mileage log of what job uses what miles. We have a separate car for our personal use. Parking downtown is $30 at least. We have a regular cell phone, the smart phones are all biz. Since I am in an electronics business most everything I get at Radio Shack is for work and justifiable. I need to build a lot of rigs and supports so I am in Lowes a lot. I keep meticulous receipts.

That's why I wanted just small business owners to respond...

 

[RunningBum]

Sounds to me that you got lucky in your audit....

IOW, having a car for business and using it for anything else means you do not get to write off the personal use...

Having a cell phone and using it for anything but business means you do not write off personal use...

If you go downtown and park for personal business.... guess what, you are not supposed to write it off...

I have no idea what you are writing off from Radio Shack and Lowes, but if it if for personal use, again, not supposed to write it off....




So, I do not think you are as legal as you claim...

.... why do something that is high stress to take tax write off you should not....

Jeez, you think you could make any more assumptions and accusations against the OP? Not only do you have a lot of "if you do this" statements, but you conclude for yourself that he does indeed do some or all of these things and is cheating on taxes. Nice. How can you possibly know these aren't all legit?

To the OP, sounds like you can pick and choose more worthwhile and low-stress projects and keep doing what you love. Maybe take enough paying jobs with the charity work to break even. Why give up something you love doing?

 

[target2019]

I keep meticulous receipts.

That is worth repeating. Also, if you have a number of years in the business, and reduce the amount of business intentionally, you are on strong ground in an audit. Of course the ratio of expenses to receipts is something to watch as you reduce billings.

To get back to the original post, how does your spouse feel about the p/t business strategy? As mentioned, my F-I-L did similar. He also got drawn into various volunteer activities, and as I'm sure you are aware, once organizations find out you are 'free' help, they turn on the fire hose.

 

[Cheesehead]

Hi Target 2019,

Yes I foresee the problem of just doing work for charities in retirement is that I will not have enough billable revenues to justify the write offs, since they expect it for free or give just a little money for some hard costs. I also know what you mean about the firehose, some non-profits then consider me the "Go To Guy" for any freebies and they are time consuming so I tend to choose small charities and do their one off yearly fund raising video.

My DW expects me to keep up the game because its also a hobby/passion and since it's quite physical it's good exercise. I just didn't know how others, one man bands and freelancers, continue into semi-retirement and still have their write offs. I suppose if revenues exceed expenses I'm OK, I'll check with my CPA but it's still two years off.

But I know what's legal and justifiable because I've been doing it so long. Records are what's important.

 

[rescueme]

Yes I foresee the problem of just doing work for charities in retirement ...

"Charity work" in retirement is not work, IMHO.

DW/me drive/deliver for our local Meals on Wheels organization, delivering life substaining meals for shut in's (physically/mental disabled) and those elder folks that don't have family around to see to their needs.

My DW partipates in a "Nobody Dies Alone" program with the local hospital, sitting with those that have nobody in their lives, in their last days.

She also attends sing-alongs in our local nursing homes to try to improve those that are there (and we may be there, tomorrow).

Yes, it cost us money to do all these functions (our time, our vehicle expenses - including insurance requried by the organization), but we don't do it as an "income scam", nor do we deduct our "expenses" against any income.

We do it because the need is there.

If you want to run a business in retirement (IMHO, you are really not retired), than so be it.

Just don't confuse those of us who look to the greater good as a "tax scam", as you are trying to portray it...

 

[target2019]

I know my F-I-L retired, and continued to receive a small pittance in return for many hours of volunteer work. There were also some miles on schedule A for volunteer work that had no basis in his business.

I think it is possible to be retired and still work in some capacity. If this doesn't fit everyone's definition, it is fine with me.

 

[Bestwifeever]

I can write off a LOT, all legal. ...

So I would like the opinion of folks that had or still have their own small business and ask what sense does it make to "close up shop" if we can still have all these legal write offs? For instance, one car and ALL it's expenses and gas, the land line, two smart phones, the high speed internet connection, a portion of the mortgage, most trips to Radio Shack and Lowes, cable TV, much of the parking downtown...they are all legally deductible and add up to around $700 a month.

I guess I don't understand what is the problem--if you would no longer be spending $700 on these business expenses, why will you be sorry to not have them to write off? I must be missing something (not unusual for me).

 

[rescueme]

I guess I don't understand what is the problem--if you would no longer be spending $700 on these business expenses, why will you be sorry to not have them to write off? I must be missing something (not unusual for me).

Sort of like paying $100 in mortgage/note intrest to get a $25 return/deduction?

I'm sure I'm missing something...

 

[Alan]

I guess I don't understand what is the problem--if you would no longer be spending $700 on these business expenses, why will you be sorry to not have them to write off? I must be missing something (not unusual for me).

+1

If they are business expenses and you no longer have the business...

If you really like having the business then I can fully understand not wanting to fully retire. Do what you want to do, you don't need to justify the desire to keep working, and it sounds like you understand the difference between a hobby and a business for tax purposes.

 

[samclem]

I agree that we seem to be talking about the fantastic benefits of having business write-offs--when there would be no need to spend the money in the first place if there were no business. Spending $700 to lower taxes by $173 (i.e. if you are in the 25% bracket) is no great deal. Lots of folks fixate on write-offs, losing sight of the bigger bottom-line picture.

I have a small business. If you've got one that is easily "throttleable", then I think one advantage is that it can somewhat reduce the need to keep cash in the retirement portfolio. When equities are down, you can increase the amount of work you do to avoid selling them at depressed prices. Psychologically, there's also some comfort to getting the money for luxuries and "nice-to-have" stuff from the biz rather than the nest egg. If I want to go on that nice vacation that's a bit above the spending I'd figured in retirement (and my withdrawal rate), I can do XX days of extra work and enjoy the trip with a clean conscience. I know it's just a mind game, but I never said I was rational.

Even charity stuff: If I work a day or two and earn a few hundred bucks after taxes, donating it to the local soup kitchen, I'm probably doing them much more good than if I volunteered two days and ladled soup myself. They can use the bucks to buy a lot of food at their discounted rate, and even pay a guy/gal that really needs the money to ladle the soup.

 

[ERD50]

I guess I don't understand what is the problem--if you would no longer be spending $700 on these business expenses, why will you be sorry to not have them to write off? I must be missing something (not unusual for me).

I was wondering the same thing.

-ERD50

 

[Cheesehead]

OP here,

Yes I see how I caused some confusion, poorly written at first. I wrote (wistfully) about losing write offs but I didn't put in why I'd lose them...Let me re-start:

I imagined myself in two years at 62 throttling down the commercial clients, mainly Fortune 500s. They require a lot of time, create cash flow problems, need intense hand holding and cause stress although are profitable. I fantasized I could do just worthy projects to improve the world (this is not to be confused with one of the posters Meals On Wheels volunteerism). The videos I do take about a week of time and require a lot of expenses. So it would be running the business at hopefully break even and and try to avoid a loss.

So my question to those that have throttled down their small service business: If I have expenses exceeding revenue from doing mainly non-profit work, then I can't even take the write offs correct? The IRS wouldn't even consider it a business, or is that after 7 years of no profit? This may be a question for the CPA? He has never allowed me to write off charity work. For me to even possess, insure and update all the equipment I need requires me to be able to write off.

Or perhaps I've answered my own question: If I want to continue past 62 I will need to generate revenue exceeding the expenses, which can't happen if I am doing mostly charity work. Therefore the IRS would not consider me a profitable business. So I guess I am looking at semi-retirement not a true FIRE situation because I will still need to maintain enough commercial biz to offset the non-profit projects. Or I can just fold up the tent...

 

[sheehs1]

OP here,

So my question to those that have throttled down their small service business: If I have expenses exceeding revenue from doing mainly non-profit work, then I can't even take the write offs correct? The IRS wouldn't even consider it a business, or is that after 7 years of no profit? This may be a question for the CPA? He has never allowed me to write off charity work. For me to even possess, insure and update all the equipment I need requires me to be able to write off.

Or perhaps I've answered my own question: If I want to continue past 62 I will need to generate revenue exceeding the expenses, which can't happen if I am doing mostly charity work. Therefore the IRS would not consider me a profitable business. So I guess I am looking at semi-retirement not a true FIRE situation because I will still need to maintain enough commercial biz to offset the non-profit projects. Or I can just fold up the tent...

Correct on most all counts. I'm not sure the IRS takes a stand on whether you are actually profitable or not. I know a lot of companies that show losses every year. Particularly the last 4 years. They are still in business but owners have had to go into their personal funds and loan their businesses money in the form of a loan. Most companies can not "stay" in business without enough revenue to support "operations". Most would not want to.
Sounds to me you have pretty much nailed the situation. Like others here I don't think you need to worry about write offs if you aren't in business because it becomes a wash . You don't spend the money on expenses so no need to deduct what you haven't spent. Good luck to you.

p.s. I am a small business owner. But it isn't run out of my house.

 

[Cheesehead]

Yes that make's sense. So if I can financially make it in the FIRE mode with the tree legged stool of SS, savings and the DW's pension, then if I just break even doing non-profit videos I don't even need to worry about write offs, or losing money that I don't have write offs.

But I will take this up with the CPA, it's more a tax question than this forum's sphere.

Thanks

 

[Amethyst]

Hi Cheesehead,

I'm curious about the 7-year rule you have mentioned, because of an experience we had some years back. I cannot address the charity-work aspect of your questions, as we have no experience with that.

We don't currently run a small business, but Mr. A. had a lawn-care business for a couple of years after retiring. Thus, my info is dated; however, I doubt the IRS will have gotten any more liberal.

1) We were allowed to deduct all his start-up and running expenses from our full income (not just the business's income) for 2 years. That was a nice benefit for us, although we were conservative with our deductions (for example, we didn't deduct for the truck he used, since we also used it for personal business, but we did deduct his work-related mileage).

After 2 years, our CPA told us, the business would have to show a profit against its own income, or else the IRS would consider it a hobby. A seven-years limit was never mentioned. So, when the business still was not showing a profit after 2 years, he shut the business down.

If he could have deducted expenses while not showing a profit for longer than 2 years, he might have kept up the business, although it was starting to get on both our nerves by then.

So my thinking is: In your shoes, I would go straight to the tax adviser. It would be interesting to hear what you learn.

Amethyst

OP here,

So it would be running the business at hopefully break even and and try to avoid a loss....

So my question to those that have throttled down their small service business: If I have expenses exceeding revenue from doing mainly non-profit work, then I can't even take the write offs correct? The IRS wouldn't even consider it a business, or is that after 7 years of no profit? This may be a question for the CPA?

Or perhaps I've answered my own question: If I want to continue past 62 I will need to generate revenue exceeding the expenses,......