An apology to RyanMcC

[The Observer]

Frm the closed thread, I understand that you were offended by my labeling you as a TP. If you are not a TP, then I do sincerely and heartily apologize.

Your supposition that I may be a bit jaded is probably on target as well. That particular state has developed over the years due to the fact that a number of TPs have come to this site and, having come up with a very cunning plan, pose "innocent" questions about their lack of knowledge of tax laws, request "explanation" of the tax laws, or make "observations" about the "unfairness" of taxes or claims about the "high amount" of taxes that they have had to "pay."

It was that latter position on which I judged your statement, in regards to you paying 40% of your income in income tax. On the face of it, the statement is incorrect and inaccurate, at least in terms of the current tax laws, not to mention the several posts that explained why your statement could not be accepted at face value. Your final explanation was that you were sending in 40% of your income based on your own estimate of the taxes you would owe. Which has nothing to do with the actual rate on which you will be taxed when you file your returns.

The bottom line is that your statement was inaccurate and was either based on your attempt at exaggerating your situation in order to make your point or that you simply do not understand the tax laws.

So to lump you in with the TPs was premature on my part. But I think you can understand why I didm, since you engaged in the same inaccurate posting that they do in trying to justify their silly theories.

I remember going to a MLM meeting once with my sister and brother-in-law. The speaker dragged out his whiteboard and began some laborious "calculations" on how much the audience was paying in taxes. By the time he had gotten to the point where he "proved" that the effective tax rate for most of these low to middle-income attendees, I was shaking my head. When the meeting ended, I went up and started questioning where he had gotten his figures. He got uncomfortable when I said in front of several other people that he had gotten the top bracket of the federal income tax wrong and that in any event nobody in this room had the kind of income to qualify for it. He first tried explaining that I was forgetting to take into account all the federal excise taxes, then backed off when I pointed out that he had listed the excise taxes separately farther down the board. He then said I just didn't get it and wiped his board clean.

So please excuse me for being jaded. I just have a hard problem swallowing inaccuracies at the price of intellectual honesty.

[LPC]

Frm the closed thread, I understand that you were offended by my labeling you as a TP. If you are not a TP, then I do sincerely and heartily apologize.

Your supposition that I may be a bit jaded is probably on target as well.

I have judgments about RyanMcC, but I like your gesture.

[RyanMcC]

Frm the closed thread, I understand that you were offended by my labeling you as a TP. If you are not a TP, then I do sincerely and heartily apologize.

Your supposition that I may be a bit jaded is probably on target as well. That particular state has developed over the years due to the fact that a number of TPs have come to this site and, having come up with a very cunning plan, pose "innocent" questions about their lack of knowledge of tax laws, request "explanation" of the tax laws, or make "observations" about the "unfairness" of taxes or claims about the "high amount" of taxes that they have had to "pay."

It was that latter position on which I judged your statement, in regards to you paying 40% of your income in income tax. On the face of it, the statement is incorrect and inaccurate, at least in terms of the current tax laws, not to mention the several posts that explained why your statement could not be accepted at face value. Your final explanation was that you were sending in 40% of your income based on your own estimate of the taxes you would owe. Which has nothing to do with the actual rate on which you will be taxed when you file your returns.

The bottom line is that your statement was inaccurate and was either based on your attempt at exaggerating your situation in order to make your point or that you simply do not understand the tax laws.

So to lump you in with the TPs was premature on my part. But I think you can understand why I didm, since you engaged in the same inaccurate posting that they do in trying to justify their silly theories.

I remember going to a MLM meeting once with my sister and brother-in-law. The speaker dragged out his whiteboard and began some laborious "calculations" on how much the audience was paying in taxes. By the time he had gotten to the point where he "proved" that the effective tax rate for most of these low to middle-income attendees, I was shaking my head. When the meeting ended, I went up and started questioning where he had gotten his figures. He got uncomfortable when I said in front of several other people that he had gotten the top bracket of the federal income tax wrong and that in any event nobody in this room had the kind of income to qualify for it. He first tried explaining that I was forgetting to take into account all the federal excise taxes, then backed off when I pointed out that he had listed the excise taxes separately farther down the board. He then said I just didn't get it and wiped his board clean.

So please excuse me for being jaded. I just have a hard problem swallowing inaccuracies at the price of intellectual honesty.

Not a problem, very big of you. I decided to point out the incorrect assumptions I should have probally just let slide.

I'm self employed and expect/hope for a 10 fold increase in income, which my quick estimation of federal, fica, and state taxes I estimate will be at 40%, I could be off (I'm not an accoutant), but that was somewhat irrelivant to the discussion.

No problem anyway, thanks for the apology, I in turn apologise for the namecalling when I pointed it out. There were so many assumptions laid out it just got on my nerves.

[webhick]

As a self-employed person, you will be paying 14.30% to Social Security (7.75% as employe and the other 7.65% the employer (you) pays). Fortunately, beyond a certain amount, that tax is greatly reduced.

I thought SS was 12.4% (6.2% Employee, 6.2% Employer) and Medicare 2.9% (1.45% Employee, 1.45% Employer).

IRS says that self-employment tax is 15.3% (which is SS + Med).

Good thing I don't do taxes. What am I missing?

Also, will you be a sole proprietor, S-corp, C-corp, LLC.

You forgot LLC filing as a corp. A client of mine is doing that now and not only is the separation nice...he can collect a "real" paycheck (even though he's a single-member LLC) - not just draw checks.

Unless you have already done so, avoid marriages and long term relationships while building your business.

Sound advice. And not just for business owners.

[RyanMcC]

Oh laddie, you have just made a few mistakes in your logic.

As a self-employed person, you will be paying 14.30% to Social Security (7.75% as employe and the other 7.65% the employer (you) pays). Fortunately, beyond a certain amount, that tax is greatly reduced.

However, you are forgetting one very important factor in your estimation of income tases owed - deductions. Deductions are your friend. Deductions are one of the cornerstones of modern businesses. Deductions saved my life in 'Nam.

Also, you are including FICA in your income tax rates. Traditionally, the income tax rate is just federal and state combined. To be in that area of 40% , you will be earning (net of deductions and such) $100,000 or more. Your mileage will vary by state.

If your business really begins to take off, screw trying to do it all, hire a good CPA, or a good CMA.

Also, will you be a sole proprietor, S-corp, C-corp, LLC. Talk with a tax pro, as well as a tax attorney to determine what best suits your neds now and is flexible enough to meet your future needs. Each has benefits and drawbacks.

Oh deary me, the wonderful things you are going to learn......

Finally, hook up with a local organization of retired executives who volunteer their time to help young entrepeneurs develop the various skils necessary to run a successful business.

Unless you have already done so, avoid marriages and long term relationships while building your business.

Good advice, I do plan on visiting a tax attorney to discuss those things. I'm sure my 40% sounded high (I did include social security taxes), nobody will be happier than I if I am wrong and they are considerably lower. As much as I had hoped to break the cap for paying Social Security taxes alas it looks like I won't quite make it.

I'm also not married and do plan to avoid it..

So far I havent put any more planning into it than a few internet businesses, programming knowledge, and a paypal account. Thank you for the advice I will look into everything you suggest.

And thanks again Observer, sorry I snapped at you, I do understand your position, and my 40% figure was hopefully wrong. I've learned quite a bit from your posts over the years and I do understand the reaction considering the people I have seen you deal with over the years (I couldn't handle it). I should have phrased a few things a bit diffrently taking into consideration where I was.

[Demosthenes]

To reduce that tax burden, sock away as much as you can into a Keogh or Individual K plan.

[Prof]

Mayhaps even a Roth 401(k)?

But let's not put the cart before the horse, he has to get the business up and running.

In the short term DI and medical coverage will be far, far more important to him.

Actually, these two forms of insurance should be the first things on his budget after food, shelter, clothing and (for most folks) automobile transportation to and from work.

Next, LIABILITY INSURANCE, to avoid that catastrophic mistake. Auto and home and job should be convered.

Since he has no dependants (?), a small amount of term life insurance to bury him, pay final bills, etc., would be advisable, but not necessary.

Next, and this is where I disagree with you and DEMO -- he needs cash savings as an emergency fund, just to insure that -- if business falls off, or so forth, that he can meet his minimal expenses for ____ months (you pick the months, since that's your area of expertise).

On the non-cash front, he needs to learn how to bill and collect; he needs to learn whether his business type makes down-payments, deposits, etc. advisable. He needs a good invoice -- one that provides for whatever his business needs are -- such as interest on unpaid balances, choice of law, choice of forum, penalties, liens, etc. For some of this, an industry group can provide forms, initially. Then he needs to see a lawyer.

REMEMBER, IF YOU CAN'T BILL AND COLLECT FROM CUSTOMERS, YOU ARE A CHARITY!

By the way, a older friend of my came back WWII, and decided to rent bikes and rollerskates to folks at the park. His uncle had a concession at the park for a hamburger stand, and he set up shop with his uncle and the permission of the Park Board.

One day, his uncle decided he didn't like the food business, and my friend took over the hamburger stand. He went to an acquaintance for advice, and the acquaintance told him to join the Texas Restaurant Association, read its materials, and go to meetings -- so that he could learn enough to make a living.

That hamburger stand is now a 50 year old chain of casual dinning resturants in South Texas (much like Denny's) and has earned this fine man and his family a decent fortune.

[iplawyer]

Mayhaps even a Roth 401(k)?

But let's not put the cart before the horse, he has to get the business up and running.

In the short term DI and medical coverage will be far, far more important to him.

Okay - I'm not a tax lawyer, but I am a savvy business owner. Don't let your business pay disability insurance before taxes because if you have to use it, it will be taxable when you get it. If you personally pay it with after tax dollars - then it is not taxable to you when you receive it. For medical and disability, I found professional organizations in my line of business that I was a member of had the best rates for quality insurance. You can get cheaper medical - but I've heard horror stories on getting claims paid. I had insurance through IEEE and it paid well over $100,000 on a surgery I had to get a few years back, and we never had any trouble getting any other claim paid. Of course, the price of medical insurance premiums can be deducted.

I'm with the Capt'n on the Roth 401K - taxes are not going down - they have to go up. Our infrastructure is old and falling apart and we are in debt. I put as much as I'm allowed into my employers plan and just eat the taxes now. I'll be smiling when I retire and the actually federal rate for my income level really is 40% or more.

When we started our business we went to an accountant. She gave us really good advice that we put to good use. We incorporated as an S-Corp. We paid ourselves rent for the room we used only as a business office instead of trying the depreciation route. We leased cars from the S-Corp with huge payments and short lease periods then personally bought them at the end of the lease for the almost nothing residual value. There are so many ways that you can take advantage of owning your own business - make sure you look into them all.

In terms of your sending in 40% now - recalculate. You can't possibly be right. Trust me - my income is well above the level you are talking about and my taxes - including SSN are not at 40% yet. There isn't any reason to loan good old Uncle Sam money you will just have to ask to have returned. I bought Quickbooks and their payroll service to calculate withholding. In addition, I did a running estimate all the time using TurboTax from the past year and the past year's deductions to make sure that we were withholding enough. I like Quickbooks for all kinds of reasons and recommend it to you.

Good luck to you.

[iplawyer]

On the non-cash front, he needs to learn how to bill and collect; he needs to learn whether his business type makes down-payments, deposits, etc. advisable. He needs a good invoice -- one that provides for whatever his business needs are -- such as interest on unpaid balances, choice of law, choice of forum, penalties, liens, etc. For some of this, an industry group can provide forms, initially. Then he needs to see a lawyer.

Agreed - and Quickbooks will set you right up on that.

[Evil Squirrel Overlord]

I agree with the advice given. Having lived on my own account in Alaska and many remote places for many years (read: very self-sufficient and independent). I will also underscore: if you are not a tax professional: hire one. Yeah, you pay out some money, but if they are good their advice will save time and money. (I've repeat this over and over to many friends and family members.)

Also, network, network, network and learn! The people who are most successful take the time to join professional organizations and continually seek improvement in their personal performance through continuing education and keeping up with the changes in their business environments (but not blindly following the herd).

[Quixote]

As a self-employed person, you will be paying 14.30% to Social Security (7.75% as employe and the other 7.65% the employer (you) pays). Fortunately, beyond a certain amount, that tax is greatly reduced.

I thought SS was 12.4% (6.2% Employee, 6.2% Employer) and Medicare 2.9% (1.45% Employee, 1.45% Employer).

IRS says that self-employment tax is 15.3% (which is SS + Med).

Good thing I don't do taxes. What am I missing?

You missed the deduction for 50% of self employment tax. The Captain's figure is a tad high. The effective rate for self employment tax is ~14.130% (92.35% of 15.3%)

[Weathervane]

To be fair, I was going off the top of my head, from work, on a subject that I normally don't deal with.

In SoCal we have SCORE - Southern California Organization of Retired Executives - which help young entrepeneurs, you rpart of the world has something similar I bet.

Are you sure that doesn't stand for "Schlerotic Codgers Opinionating and Rehashing Experiences" ?

[webhick]

Thanks, Quixote!

In SoCal we have SCORE - Southern California Organization of Retired Executives - which help young entrepeneurs, you rpart of the world has something similar I bet.

I don't recommend SCORE in my area. My boss went to them when first starting her business (which she was starting by herself) and they demanded to speak her husband, when she refused they said that she was going to fail. That was probably back in '96 or '97. Around '02 a female client who was heavily endowed went to see them. Again, they demanded to see her husband. When she told them she was unmarried, one said "Well, *someone* had to pay for those." And all started laughing. She was humiliated. More recently ('06), a male client went to them just looking for some direction to expand his business. He's in landscaping and has a pretty good snow-plowing business in the off season. He walked into the meeting with QuickBooks generated P&Ls, Balance Sheets, Cash Flows & Projections, and Budget Comparisons. Those reports were perfection. Principal and Interest split out, loan balances accurate to the day and everything. His CPA gave me compliments on them. Those bastards at SCORE said they were "no good", that if you want to know where your money is, you have to do it all by hand.

I should spike their ovaltine with shots of espresso....that'll show them.

[Imalawman]

Thanks, Quixote!

In SoCal we have SCORE - Southern California Organization of Retired Executives - which help young entrepeneurs, you rpart of the world has something similar I bet.

I don't recommend SCORE in my area. My boss went to them when first starting her business (which she was starting by herself) and they demanded to speak her husband, when she refused they said that she was going to fail. That was probably back in '96 or '97. Around '02 a female client who was heavily endowed went to see them. Again, they demanded to see her husband. When she told them she was unmarried, one said "Well, *someone* had to pay for those." And all started laughing. She was humiliated. More recently ('06), a male client went to them just looking for some direction to expand his business. He's in landscaping and has a pretty good snow-plowing business in the off season. He walked into the meeting with QuickBooks generated P&Ls, Balance Sheets, Cash Flows & Projections, and Budget Comparisons. Those reports were perfection. Principal and Interest split out, loan balances accurate to the day and everything. His CPA gave me compliments on them. Those bastards at SCORE said they were "no good", that if you want to know where your money is, you have to do it all by hand.

I should spike their ovaltine with shots of espresso....that'll show them.

The SCORE programs (they've all been named score too, weird huh?) that I have been around and dealt with have been excellent with their advice and recommendations. They are highly recommended by small business owners. So I guess it depends on where you live.

[webhick]

The SCORE programs (they've all been named score too, weird huh?) that I have been around and dealt with have been excellent with their advice and recommendations. They are highly recommended by small business owners. So I guess it depends on where you live.

Service Corps of Retired Executives. At least that's what I think it stands for in my area.

I just think we have a batch of crotchety old bastards that got rejected from the decent branches of SCORE. In any case, I don't recommend the one in NH. And just like anything else, you gotta take the advice with a grain of salt. Just because they're retired executives doesn't mean a) they weren't forced into retirement b) they weren't having their secretary do their job for them.

[Weathervane]

I don't recommend SCORE in my area. My boss went to them when first starting her business (which she was starting by herself) and they demanded to speak her husband, when she refused they said that she was going to fail. That was probably back in '96 or '97. Around '02 a female client who was heavily endowed went to see them. Again, they demanded to see her husband. When she told them she was unmarried, one said "Well, *someone* had to pay for those." And all started laughing. She was humiliated.

Are you sure she was in the right place? I think she went to the Surly Coots Offending with Repugnant Exclamations meeting by accident.