Retirement for the self employed

[calmloki]

I'm very content with my life right now, but I'm worried about the future. I see all these elderly homeless people everywhere, and I'll think, "wow, that could be me someday." I've never felt like that in the past. Time is just moving so fast now.

I think a lot of guys go thru midlife crises because they get married young, start a family, and gring for 20 years. When the smike clears, they're still telling stories about stuff they did in HS.

I feel like I'm having a midlife crisis myself but for very different reasons. I look back at all the cool experiences and life that I've lived, but I'm staring onto a future with no security, no family, and no sense of purpose. It's like I'm in a consulate of "well, what now."


What's crazy is that I've noticed that a lot of women in my past aren't facing this because they've simply partnered up with someone that can provide. As a guy, that's not a card I can really play. The whole "sugar mama" thing is fun to joke about, but the truth is that very few women that have their ducks in a row, want to deal with a guy that doesn't in middle age.

Anyways,
If I really put my mind to it and got motivated, I could probably make another 20k a year without killing myself. I feel like I have issues with time management. I'm a bit of a procrastinator. Like I'll show up at a job an hour late and not get it finished that day because I want to go to the gym before it's crowded.

I also lack patience or any sort of tolerance with people from being self employed. Like, I'll do an estimate for some lady on what would be a pretty lucrative job and still turn it down because they seem like they might be a pain in the @$$. I know guys in this business that are really successful, and they can somehow deal with these types without losing their minds. I don't know how they do it. I just don't got that gift. I can't deal with customer blowing my phone up all day and asking a million questions. I'll just find ways to not deal with about 10% of the human population, which isn't good if you run a business.

OK. Lots of ways to live a life. Everyone makes their own choices. Keep doing what you are doing. Be assured, with no changes odds are the future you envision is very probable.
Want something different? Do something different. All choices cost., now or later.

 

[North80]

So you say that you are making $100k gross income and $60k net income after $40k of "legit deductions" but are also taking another $35k of additional deductions to end up only reporting $25k of income on your Schedule C?

What are these additional deductions? Inquiring minds want to know.

How much time you got lol

If you were sitting next to me in a bar, I'd be more inclined to be an open book than on a public forum. .

Anyways, that game is coming to an end because you eventually run out of things you want that can be legally written off as a business expense.

As others have said, eventually you can't hide your money if you're legit playingby the rules, which is were ill be next year when I get murdered by taxes. Probably for the best considering all this talk of ss, and the fact that I'll never get a mortgage these days on a stated income or bank statement without grossing a whole lot more than I do.

 

[pb4uski]

Ok, but what are the largest 3?

 

[Time2]

We had a small business, in 2017, in rounded numbers we had gross sales of $159,500, our cost of goods was $80,000 leaving $79,500, from that we had $3000 of deductions, electric, Van tags, insurance, repairs and supplies, leaving $76,500 as profit. To that we added $12,400 interest and $24,600 dividends and subtracted a $3,000 capital loss for a Total income of $107,500.
Then after the standard deduction,an HSA deduction, Two SEP deductions, a Self employed health Ins. deduction and the deduction for the other half of the FICA payment, that $107,500 was whittled down to $70,500.
The Federal tax was $5041 on our $107,500 or 4.7% tax on our net income.
The point, you can make more, then you can save more, with those savings you can add more to your SS account, fund an HSA, fund a SEP, and pay for your health insurance. 3 of those are adding money to our future and one was paying for something we needed, health ins.
I'm curious, all these things you write off, are they things you actually need, or could you go without them and invest the money, rather than going for a tax deduction that saves you 12%.

 

[ivinsfan]

I want to say that I got some letter a few years ago from the social security office that said if I retired that day, I'd get like $900 a month.

Maybe I'm not understanding what it actually was though.

Yes, I definitely need to login and find out where I sit with ss at this point.

As far as writing stuff off, I'm still pretty confused if the 10k or so I don't pay in taxes would do more for me investing in something different than ss because of the whole bend point thing you're talking about.

I mean, I could litterally write off construction materials to be stockpiled (totally legal i would assume) and save thousands of dollars that could be invested. Then i could sell the stockpiled building materials that actually greatly outpace inflation at this point when I get out of the business. It seems like that would build me more wealth than paying the taxes. It would just have to be materials that can be easily liquidated, like copper. Obviously, that's something one would want to run by the ol accountant first though ��

That's not how it works if you buy something and write it off as a business expense if you need to sell it, you will owe taxes on the money you receive.

there's no getting around it. Well you could not claim it but you'd be liable for some serious penalties if it gets discovered. You can write items off but if they aren't used in your business you will owe taxes when they are disposed of.

 

[ivinsfan]

I guess.

I mean, if of you consider not claiming construction supplies sold a decade after you're out of business tax fraud, you're definitely more on the straight an narrow than anyone I know.

You can write off silver bullion and wire as a construction supply, it's just industrial grade stuff used for electrical, not bars from a mint. I believe it's junk silver, but it's still easy to liquidate just like copper wire. In fact, copper tubing actually outperforms copper bullion. It's just a matter of storage.

Say what? It is tax fraud the way the law is now...what the heck kind of construction supplies are you going to hold and store for 10 years and then recoup your money on? So now you are saying you buy silver bullion as construction supplies? , good luck with that one.



Dude just pay your taxes....use your IRA and possible HSA contributions to lower your taxable income for ACA.

 

[Gumby]

....
I mean, if of you consider not claiming construction supplies sold a decade after you're out of business tax fraud, you're definitely more on the straight an narrow than anyone I know....

Believe or not, a great many people don't cheat on their taxes. The ones who do evade taxes are not harming some mysterious creature called "the government" that lives out in the desert, they are harming their fellow citizens who actually do pay their taxes in full and on time. If all of us paid without cheating, the marginal rates could be lower for everyone.

 

[ivinsfan]

Gumby as someone who's had a business for over 50 years the rule with the IRS is you can pay me now or you can pay me later ie, when you liquidate. Tax laws for business are intended to make it easier for you to cash flow your business, not make your taxes vanish.

 

[North80]

Say what? It is tax fraud the way the law is now...what the heck kind of construction supplies are you going to hold and store for 10 years and then recoup your money on? So now you are saying you buy silver bullion as construction supplies? , good luck with that one.



Dude just pay your taxes....use your IRA and possible HSA contributions to lower your taxable income for ACA.

I'm not saying I do that, I'm saying one could do that. They use silver for industrial purposes just like copper.

There's people that create businesses that aren't even profitable just to write stuff off.

As others have said, stockpiling construction supplies is not a good idea for multiple reasons, and there's better ways to invest.

This is why I'm on this forum, to learn. It's just interesting to talk about stuff like this because you get to interact with some very knowledgeable people that will tell you why such and such is not a good idea, which is what we're seeing in this thread.




With all that said, it some landscaper working as a sole proprietor buys an excavator for his business and liquidates it after he's out of business years later, that's not getting reported most of the time.

 

[North80]

Believe or not, a great many people don't cheat on their taxes. The ones who do evade taxes are not harming some mysterious creature called "the government" that lives out in the desert, they are harming their fellow citizens who actually do pay their taxes in full and on time. If all of us paid without cheating, the marginal rates could be lower for everyone.

Very true

 

[RetiredHappy]

I am unclear about how much you are paying yourself through self-employment. Since your income is low, I would want to make sure that I report correctly (higher) because every dime that you are paying into social security is going to become back to you plus MORE when you start social security benefits. Don't under pay yourself.

 

[North80]

Ok, but what are the largest 3?

Biggest one this year is a machine I use for a personal hobby and possibly fir another business down the road that I would have purchased regardless that has barely been used for my current business.

I didn't need it for my business, but being able to legally write it off was a heck if a selling point.

The thing is, you can't do this stuff forever if you're not growing, which means, it's not a long term strategy to avoid getting killed by taxes.

I think some of these posters have really opened my eyes up to not avoiding the taxes with unnecessary purchases and using the money for said purchases to invest with while putting more into ss. That really is what I should be doing.

 

[North80]

I am unclear about how much you are paying yourself through self-employment. Since your income is low, I would want to make sure that I report correctly (higher) because every dime that you are paying into social security is going to become back to you plus MORE when you start social security benefits. Don't under pay yourself.

My eyes have really been opened to this from some of these responses.

 

[pb4uski]

Biggest one this year is a machine I use for a personal hobby and possibly fir another business down the road that I would have purchased regardless that has barely been used for my current business.



I didn't need it for my business, but being able to legally write it off was a heck if a selling point.



The thing is, you can't do this stuff forever if you're not growing, which means, it's not a long term strategy to avoid getting killed by taxes.



I think some of these posters have really opened my eyes up to not avoiding the taxes with unnecessary purchases and using the money for said purchases to invest with while putting more into ss. That really is what I should be doing.

If you get audited, one of the things the auditor is likely to focus on is business expenses vs personal expenses so DON'T explain it to the auditor as you have above [emoji16] but I understand now and appreciate your candor.

 

[Calico]

OK. Lots of ways to live a life. Everyone makes their own choices. Keep doing what you are doing. Be assured, with no changes odds are the future you envision is very probable.
Want something different? Do something different. All choices cost, now or later.

+100

 

[427Vette]

North80, Having been a self employed contractor most all of my adult life I understand the angles you are playing with your “legal” write offs. However you will be incredibly startled the day you have to sit across from the IRS agents and justify all of your deductions. They don’t really have much of a sense of humor when it comes to hiding income in buying equipment that you don’t need or excess materials to liquidate later. We ran a very clean business and paid our taxes and I was sure glad we did when the auditor showed up. Pay your taxes, play stupid games and win stupid prizes….

 

[North80]

North80, Having been a self employed contractor most all of my adult life I understand the angles you are playing with your “legal” write offs. However you will be incredibly startled the day you have to sit across from the IRS agents and justify all of your deductions. They don’t really have much of a sense of humor when it comes to hiding income in buying equipment that you don’t need or excess materials to liquidate later. We ran a very clean business and paid our taxes and I was sure glad we did when the auditor showed up. Pay your taxes, play stupid games and win stupid prizes….

Very true

At the end of the day, my accountant is who says what can be written off.
I don't do my own taxes for that reason. She's found deductions for me that I would never have thought of, but also has advised me on things that cannot be written off or are red flags. I play it much safer than I'm probably coming off as to people that have never run a business.

I do know guys that live dangerously by doing their own taxes and just assume they'll never get audited when they do stuff like claim 100% of their mileage on a personal vehicle. Just seems like a very bad idea these days.

I've read that audits for small businesses are going to greatly increase with artificial intelligence. I mean, it makes sense now that pretty much every business owner does their books with an accounting program even if they don't do their own taxes. I think that type of technology is going to force pretty much every business to be on the straight and narrow eventually. The good part about all that is that it will get rid of a lot of low-ballers that aren't running a legit business.

 

[North80]

If you get audited, one of the things the auditor is likely to focus on is business expenses vs personal expenses so DON'T explain it to the auditor as you have above [emoji16] but I understand now and appreciate your candor.

If you're using a tool for your business and have proof that you've made money with said tool, it's pretty hard to not be able to justify it as a legit expense even if it's used for personal stuff as well unless we're talking about a vehicle or something.

I think the golden rule with stuff like that is let your accountant decide what can be written off and consult with your accountant before a large purchase.
Always better safe than sorry with all that.

 

[North80]

I'll just add, don't buy crap you don't need.

This is something that really applies to me that needs to change.
I definitely am not the most responsible when it comes to wants vs needs. I'm much better about it than I was when I was younger, but improvements could be made that will pay off for me in the future.

 

[North80]

I am unclear about how much you are paying yourself through self-employment. Since your income is low, I would want to make sure that I report correctly (higher) because every dime that you are paying into social security is going to become back to you plus MORE when you start social security benefits. Don't under pay yourself.

Truth 100%

 

[CRLLS]

Interesting discussion. I know guy who ran his own business. His accountant has "approved" or even "suggested" doing things that he knows are not quite Kosher. The accountant says, you are a small business, and this or that won't raise any flags. It sounds to me like you accountant is of the same cloth.

I couldn't live with that. And I didn't. Together, he and I do have a small business together. I was for a while, president of said company. The same accountant said I should send invoices to the company instead of for work I've done instead of pulling a salary in order to reduce the company tax burden. i.e. I should work as a consultant while being an officer. The laws say officers are "deemed employees" and as such, cannot be 1099 workers for the same company. While the accountant said don't worry, it won't raise any audit flags, I didn't bite.

Perhaps you might run your scenario thru another tax accountant to see how much yours is "bending" the rules. Maybe I'm wrong, but your accountant is not the one who will be called in to explain your tax filings by the IRS.

 

[North80]

Interesting discussion. I know guy who ran his own business. His accountant has "approved" or even "suggested" doing things that he knows are not quite Kosher. The accountant says, you are a small business, and this or that won't raise any flags. It sounds to me like you accountant is of the same cloth.

I couldn't live with that. And I didn't. Together, he and I do have a small business together. I was for a while, president of said company. The same accountant said I should send invoices to the company instead of for work I've done instead of pulling a salary in order to reduce the company tax burden. i.e. I should work as a consultant while being an officer. The laws say officers are "deemed employees" and as such, cannot be 1099 workers for the same company. While the accountant said don't worry, it won't raise any audit flags, I didn't bite.

Perhaps you might run your scenario thru another tax accountant to see how much yours is "bending" the rules. Maybe I'm wrong, but your accountant is not the one who will be called in to explain your tax filings by the IRS.

Huge difference between what you're talking about and a contractor with no employees asking a very black and white question like "can I write this off" to an accountant that works for a chain accounting firm.

My accountant would have nothing to gain and everything to lose by not going by the book. I'm not some big business shelling out big money to have some private accountant help me find loopholes. If I ask her a question, it's a matter of fact answer before we move on. Who on earth would use an accountant that openly claimed something was not kosher, but that it wouldn't raise a red flag?

The whole point of having and accountant for guys like me is to make sure things are done correctly.

 

[CRLLS]

Huge difference between what you're talking about and a contractor with no employees asking a very black and white question like "can I write this off" to an accountant that works for a chain accounting firm.

My accountant would have nothing to gain and everything to lose by not going by the book. I'm not some big business shelling out big money to have some private accountant help me find loopholes. If I ask her a question, it's a matter of fact answer before we move on. Who on earth would use an accountant that openly claimed something was not kosher, but that it wouldn't raise a red flag?

The whole point of having and accountant for guys like me is to make sure things are done correctly.

FWIW, the accountant I mentioned is not part of a large firm. He has many decades of experience.

I really don't see there is much difference. While our situations may be different, I think my example shows how one accountant may have a different take than another. Any accountant works for their client, not the IRS. There are always gray areas where interpretation by both parties is necessary. Whether that accountant openly says an action is questionable or not, they are often making those choices. I do get having an accountant to ensure things are done correctly. If I were in your situation, after reading some of the above responses, I would definitely seek at least one alternative professional opinion, if only to confirm I am doing things right.

 

[Surewhitey]

I'm self employed for 5 years now & take few risks in writing off a lot. Taking mileage vs actual, % of home office deduction (simple write off). Reducing expenses from gross accounting records. Simple keeps me doing my own taxes (less expense). Do some small tool write offs, but probably less than 2% of net annually.

Point is, simple is good for us and taxes are not a huge problem imo vs buying crap for a write off. Even @ 24% federal, it's less than the amount you're spending for the write off. I just don't want the hassle.

Back to the basic question, Roth IRA is the best thing for your tax bracket. HSA is another. Starting small may motivate you to become a saver. I didn't get that bug until I got married and she was a saver. Now I'm the crazy saver of the 2. Having a partner to be accountable to & help assist you too is a huge plus too. If they have a job to get health insurance, even better.

Moving is a big jump, but may help with the home ownership. TX still has affordable prices and a decent construction economy. Getting a name is easy if you are just mediocre.

 

[ivinsfan]

I'm not saying I do that, I'm saying one could do that. They use silver for industrial purposes just like copper.

There's people that create businesses that aren't even profitable just to write stuff off.

As others have said, stockpiling construction supplies is not a good idea for multiple reasons, and there's better ways to invest.

This is why I'm on this forum, to learn. It's just interesting to talk about stuff like this because you get to interact with some very knowledgeable people that will tell you why such and such is not a good idea, which is what we're seeing in this thread.




With all that said, it some landscaper working as a sole proprietor buys an excavator for his business and liquidates it after he's out of business years later, that's not getting reported most of the time.

OK sure if you say so...you ignored the most important part of my comment which was buy less stuff for your business and fund a HSA and IRA to lower your income for ACA purposes because those items are still your money.