Friday, December 31, 2010

Zen Meditation Rituals

Tax season starts early for tax preparers. Catching up on all the new tax laws keeps my crowd busy from October on, sometimes sooner. By December 1st, preparations for the new tax season are in full swing: the new tax program is set up and tested, year-end tax panning extends the work day, and pre-appointments are set and mailed.

January brings the heavy workload of payroll reports and the first tax returns. Stress escalates as the demands on time rises; due dates loom around every corner make for long days at the office. And don't think performing at 95% will cut it. A 95% is an A in college, but a failing grade in the real world. Tax season is twelve weeks of final exams six to seven days a week and you are expected to get a 100% every day, every time.

Over my 27 years in practice I noticed a lot of tax professionals die young. Some live to a ripe old age, but all too many die in their 50s or early 60s. It also seems to me that many tax professionals die in early April when the biggest due date of all presses forward without mercy.

I attribute this unusual demographic to the building stress of tax season and the months spent locked in a room in a chair in front of a computer. If an animal were treated the way many tax professionals treat themselves someone would end up in prison.

The more vocal accountants seem to live longer; tax pros that beat the odds tend to exhibit a crankiness. Another type of tax pro that survives longer than the average is the one that learns to manage their time; no allowing the tail to wag the dog. I use several techniques to keep my sanity year round. Most days I take a walk in the park next to my office. If I have a ten-hour plus day, I take a walk.

Wisconsin can have nasty weather during tax season and a leisurely walk in the park is out of the question. I have a couch in a side room for a power nap, but power naps are difficult when a lot of things occupy the mind. This is where my secret weapon comes in.

Stress is the issue and sleep is not always the answer; reduction of stress is. I use Zen meditation rituals to reduce stress and get away from work for a while. Tax season or not, I use meditation. It relaxes and refreshes. Let me show you how I recharge with Zen meditation in ten to fifteen minutes.

Without any help from the boss (if you are not self employed like me) you can get a deep meditative break right in your office chair. Here is how: Sit up straight. Your back must be straight. Hunched over will not work. Your feet should be flat on the floor. Put one open hand in another and lay hands on lap. Touch thumbs to form an O with your hands. Close your eyes. Focus on your breathing. Count each breath in and out as one, counting to ten breaths.

Racing thoughts want to intrude. Do not push them away. Acknowledge the thought, then set it aside. The breathing and counting are not a contest or a speed race. When you count ten breaths, start counting from one again. Read detailed Zen meditation instructions here.

No matter your job, or even if retired or unemployed, stress is a cancer to a pleasurable life. Take a moment out to relax and experience pleasure.

For the tax professionals that frequent this blog, I know some of your concerns. How can I take a break? I'll lose clients if clients catch me taking a walk in the middle of the day when I should be working?

To these arguments I relate a story from the mid 1990s. While attending a convention in Dallas circa 1996, Nick Murray, author of Serious Money, made it clear for me. He said that no one client is worth your business. The client is NOT always right, especially if the client is asking you to sacrifice your integrity, disengage your family, or put your health at risk. The biggest client you have, Murray related, is not worth suffering over. Life is too short for such foolishness.

Tax pros should take note. Clients want us to work twenty hours a day without a break and do it for a smaller fee. No sane person would subscribe to such stupidity. Over the years a few clients have left because I demanded a short break. Good riddance. My sanity, family, and well-being are more important than another hour of work.

Everyone needs a quiet moment, especially in stressful situations. Practice simple Zen meditation techniques. The other option is to die young.

Wednesday, December 22, 2010

Four Smart and Effective Ways in Which You Can Get Tax Debt Relief

Today I have a special treat for you; Angela Brown is my guest blogger, providing solid information on IRS debt issues. Angela can be reached via the link in her bio.

Author Bio: Angela Brown is a contributory writer associated with a US-based debt consolidation non profit community and has written several articles for various financial websites. She holds her expertise in the Debt industry and has made significant contribution through her various articles.

4 Smart and effective ways in which you can get tax debt relief

If you have incurred a huge amount of taxes, it can soon get stressful for you to handle. It is not that you are the only person who has incurred tax debts with the IRS. There are many people who could not pay their taxes and have accumulated a huge list of tax debts. If you owe a huge amount of tax debts, your primary aim should be to pay them back and become debt free. But what would you do if you’re unable to pay off your debts on your own? Is there any solution to your IRS tax debt problem? Well, if these are the questions that are bothering you, you must read this article to gain some knowledge on paying back your IRS tax debts.
  1. Request for extension of limit: If your personal finances are in a state of haywire and you’re unsure about whether or not you will be able to pay your taxes, then you must request the IRS to extend the time limit of your debt repayment period. But always make sure that you apply for this request before the last date of payment or else your request might be rejected. The extensions may vary from 30 days to 120 days according to the kind of financial condition you are in.
  2. Penalty abatement: As you default on your IRS tax payments, there are various penalty fees that are added to your already existing tax amount. This may add up your tax to a huge amount and if you think that there is any mistake in the penalties that are added, you can legally request the IRS to remove them. However, before you ask for penalty abatement, make sure that you have all the documents at your hand so that you can give a proof of the suggested mistakes.
  3. Request for installment agreements: If your total tax amount is large and you are finding it difficult to pay it off at once, make sure that you ask the IRS to allow you to pay in installments. With an affordable installment agreement, you can pay off your taxes without straining your wallet. Let the IRS devise a payment plan according to which you can repay your debts affordably and become debt free.
  4. Offer-in-compromise: Offer in compromise is very much similar to a debt settlement policy that a consumer carries out with a creditor. The only difference is that this request is made to the IRS instead of a debt settlement company. This is a formal agreement where the tax payer offers to pay off an amount that is within his financial affordability. The IRS will accept your request only after reviewing your financial situation and checking whether or not you’re really able to pay off your debts.

Thus, if you’ve incurred huge amount of IRS tax debts and are looking for smart ways to becoming debt free, follow the ways mentioned above. Pay off your IRS tax debts and secure your financial life.

Friday, December 17, 2010

Wisconsin Jobs

Shhhhh! Here that sound? Do you know what it is? It is the sound of Wisconsin jobs getting sucked out of Wisconsin and ending up in Florida and Ohio.

Wisconsin has fared well in this recession compared to the rest of the United States but may do much worse in the ensuing economic expansion. Here is why.

Former Governor Thompson (R) wanted high-speed rail in Wisconsin and started the process to make it reality. Later, Governor Doyle (D) liked the idea and continued efforts to bring high-speed rail to Wisconsin. Since the Democrats decided they like the idea, the Republicans changed their mind; they no longer like the idea.

Governor Walker (R) has sent back the $810 million Washington gave to Wisconsin for high-speed rail. Instead, Walker wants to spend $1 billion of Wisconsin taxpayer's money turning a four-lane highway into a six-lane highway between Madison and the Illinois border. Wisconsin is a high tax state and it is about to get higher.

There are pitfalls to slapping Congress in the face for sending you money. Congress needs to cuts spending and you just volunteered. As a result, Congress just dropped a bill that contained a $5 BILLION contract for Marinette Marine. The contract could still be awarded in another bill later, but for now, the funding and Wisconsin jobs, are on hold.

I hate to say it because I love Wisconsin and the people here, but if you need a job, check out Florida or Ohio. The taxes are lower there and they have job creation right now, courtesy of the federal taxes you paid.

I bet the folks in Florida and Ohio don't even send us a Christmas card.

Tuesday, December 14, 2010

Second Chances

It looks like we the people will get a second chance to get our finances in order. Before year-end the tax bill that extends the Bush tax cuts for two additional years plus a payroll tax deduction of 2% should make it into law. This provides a massive opportunity for all of us to shore up our financial position.

The proposed tax bill will keep things like the child tax credit at $1,000 per child and lower tax brackets for income, qualified dividends, and long-term capital gains. In addition to the long list of extended lower taxes, the payroll tax will be reduced 2%. The payroll tax consists of Social Security (6.2%) and Medicare (1.45%). Your employer pays another 7.65% as well. The payroll tax deduction is a reduction of the Social Security portion from 6.2% to 4.2% for the employee only. This is a $1,000 tax deduction for someone earning $50,000 per year. You will see the additional money on each paycheck. If passed, the payroll tax deduction is for 2011 only.

Your Social Security benefits will not change due to the reduced payroll tax. The government will fund the Social Security Trust Fund from the general budget which means they will borrow the money to pay the trust fund.

Many Americans still have a personal finance mess on their hands. Years of overspending lead to a negative savings rate and high debt levels. The current low tax environment coupled with low interest rates is the perfect opportunity to pay down debt as fast as possible. It is only a matter of time before interest rates climb. Taxes must go up eventually to balance the books in Washington.

The debate about higher taxes is just that, a debate. The government is not taxing enough to cover Social Security, Medicare, Military, and interest. Defaulting on the national debt is out of the question as it would turn the U.S. into a third world country; Social Security and Medicare are sacred cows; and you can cut the military only so far before national security is at risk. Ergo, taxes will rise at some point in the future, whether they be income taxes or a value added tax.

It is easier to pay down debt when tax rates are low. When you keep more of what you make there is more available to reduce debt.

It is easier to pay down debt in a low interest rate environment. Payments apply more to debt and less to interest in such an environment.

If you have little or no debt, now is the time to build reserves for the day when interest rates rise. Tax policy can help you build that reserve faster and bigger.

Opportunity is knocking once again. It is wise to take advantage. The opportunity will not last forever.

Thursday, November 25, 2010


From my family to yours, all the best.

Sunday, November 21, 2010

Brett Favre is the Ultimate Packer Fan

There is no longer a doubt; Brett Favre is still on the Green Bay Packers' payroll. It was sneaky, but what better way could Favre serve his loyal fans in Wisconsin. To make it look legit, Favre takes off for the Jets and when things go too well he has a minor injury that cuts performance. Favre and the coach both end their tenure in New York.

This opens the opportunity, the real reason Favre left Green Bay, to join the Minnesota Vikings. Favre builds up all the hopes and dreams of the folks on his new team only to rip out their soul with a last second interception. No Super Bowl for the purple guys.

Now Brett Favre has cut the soul out of Green Bay's toughest adversary, the Minnesota Vikings. Vikings moral is gone, the team is demoralized, and the coach will be unemployed at season's end. The Vikings had a great team, they just needed a quarterback. Favre's efforts should keep Minnesota a minor opponent for several years.

Thanks, Brett. We knew we could count on you. Your heart is green.

Monday, November 8, 2010

Political Promises and the Value Added Tax

The election is over and democracy did its job. Whether you agree with the outcome or not, there is new leadership in Congress. History shows that President's can do a better job when forced to work with the opposition party in Congress. President Reagan and President Clinton both saw the economy improve after the opposite party took control of one house of Congress. Things work best when ideas from both sides of the isle are employed.

The high voter turnout for the midterm elections show how polarized the electorate is over issues of taxes, government spending, and social programs. What got lost in the coterie of attack ads and promises is a cold hard truth: taxes will go up. I hate to say it because I hate taxes as much as the next guy, but the numbers do not lie.

Taxes have declined on a nearly steady pace for thirty years. With the exception of a few years in the nineties, the federal government has run a sizable budget deficit. And more tax cuts are on the way. The promise of fiscal restraint will die now that the votes have been cast. The deficit is here to stay for a very long time.

Raising taxes is difficult at any time and the tax increase required to balance the federal budget deficit will make a balanced budget impossible. Taxes would need to increase nearly 100% to stop the red ink flowing. That kind of shock to the economy makes it unlikely the deficit would be erased under such a scenario.

Cutting spending is always popular. Cut waste and balance the books is a recurring political promise. There are only three programs large enough to make a difference: Social Security, Medicare, and the military. The cuts required from these programs would have to be massive to stop the red ink. It is political suicide to even suggest cuts of the size needed.

Another option is raising taxes and cutting spending. Again, the size of the tax increase and spending cuts would shock the economy and would be impossible for any politician to swallow. So what options remain?

Everyone knows that President Reagan orchestrated the largest tax cut in history up until that time. What most do not remember is that Reagan also increased taxes. While income tax rates were reduced, the payroll tax was increased to the level we still have today. The payroll tax is the Social Security and Medicare taxes, referred to as FICA, that is paid on all wages and self employed income. Everyone pays regardless of income level at a flat rate. The demise of Social Security and Medicare were pushed out decades. The problem is now rearing its ugly head again.

Politicians today will take a page from President Reagan's playbook. Income taxes are a difficult sell, but increasing other taxes is very doable. So in comes the Value Added Tax (VAT). You only pay the VAT when you buy stuff. Don't spend and you don't pay. It encourages saving and makes cheap goods from China more expensive. The VAT works in a similar way to state sales taxes. The concept is different, but consumers will see it as a sales tax.

The VAT will be sold in the following manner: Income taxes will be cut in half or more, the Alternative Minimum Tax will be eliminated, the standard deduction will increase significantly so fewer people pay income tax, and the estate tax will have a higher exemption or will be eliminated. In exchange for massive income tax cuts a VAT of 12-15% will be instituted and could rise to around 20%. Food, shelter, and medical will enjoy exemption from the tax.

There is good news and bad news with the Value Added Tax. The good news is that a VAT reduces the amount of fraud so the government collects more of what it expects; VAT tax collections produce massive additional revenue to balance the budget; and foreigners traveling here also pay the tax.

The bad news is that it is a tax increase; if it were not the budget will not get balanced. More people will pay, especially lower incomers. The added revenue will provide a temptation for politicians. Consider President George W. Bush. He entered the White House with a large budget surplus and spent the entire thing for 10 years at the stroke of a pen. Then reality (terrorist attack) set in and the only way to defend ourselves was with borrowed money.

Right or wrong is not my point. I think we have a VAT in the United States within 10 years. Handled correctly it should be no problem. Still, history is not encouraging when it comes to government management of money.

Tuesday, November 2, 2010

Vote Today

Let your voice be heard. VOTE!

Monday, October 25, 2010

The Death of Professional Tax Preparation

This past week Jeff and I discussed the future of the tax profession. Jeff was very concerned as I laid out where I think the industry is headed, mostly for job security reasons. The conversation started as I updated the stats for the past tax season ended October 15th, the extension due date, and the new reporting requirements and costs the IRS has imposed on tax professionals.

H&R Block is closing over 300 offices in 2010 due to fewer tax returns lost to online filing and the increased costs imposed by Revenue. Additional requirements will be rolled out over the next several years further reducing the number of tax professionals that wish to remain in the industry.

To better understand why I think the industry is headed in the direction it is requires a step back in time.

30 Years of Tax Prep History

As every child needs to hear how things were when mom and dad were growing up, so to should you hear how things were when I entered the tax profession. It all started in 1982. I worked for my dad in his agriculture repair related business. My dear old dad was/is a great salesman, but a terrible bookkeeper. He hated taxes, payroll reporting, and bookkeeping with a passion. Therefore, after a 12 hour work day in the silo room I was required to fulfill my additional office duties. It was tough back then with a major recession dug in deep in 1982. The family business was in its infancy after generations spent as dairy farmers.

Money was tight so my duties were great, my income weak. The only way to turn a few extra dollars was to moonlight preparing taxes. So I did: for employees of the family business, suppliers, and a few neighbors. I charged $20 for most returns. In 1982 this was big money for a country boy working the family business circuit. And so it goes.

I hated working in agricultural repair with a passion. My eyes were open for any way out. In 1987 I met my bride; in 1988 we married. I quit the family business and spent 9 months working as a janitor, keeping my side gig preparing taxes in 1987. Once we married, I dumped the job and went both feet into tax preparation. I had 48 small clients as I took the plunge.

Forty-eight clients paying $20 each is not enough to start a family. I needed a hitch to jump-start the tax business. In 1988 electronic filing was just starting to become a big thing. The IRS wanted more people to file electronically and encouraged taxpayers to efile and jawboned tax preparers to offer the service. Most firms charged $15 to efile a tax return. I researched every tax software program I could which included all the major players and an armload of minor players. Drake Software allowed me to efile for only $1 a return; therefore, I offered free electronic filing, the first in my area.

The IRS loved the idea and promoted firms that provided free efiling. I put a business card sized ad in the local paper and went from 48 clients to 379 in one year. I had a real business that paid some of the bills now. I say this because I charged a very low price to build my client list. My gross revenue in 1988 was just under $10,000. When I look back I sometimes question my sanity.

In 1989 I continued to offer free efiling and expanded my promotional efforts to include flyers to the nearest 2,000 homes. My bride and I hand delivered flyers evenings over several days. More clients graced my services. I remodeled the basement of my home and hired more staff. By the mid 1990's I moved into my current commercial location and prepared 1500+ individual tax returns plus businesses.

Over the next decade and a half I transformed the company from a predominately individual tax preparation house to a stronger business services firm. Business tax returns now make up over 30% of the work we do with accompanying payroll, bookkeeping, consulting, and audit services.

Back to the Present

Looking back to how I started in the 1980's is nostalgic, but no longer a viable business plan. When I placed an ad in the local paper I competed with several pages of ads from other tax preparers'. Today, no one puts an ad in the newspaper. The local shoppers are gone, the newspaper read by few. The local newspaper has not had a tax preparation ad for years. Back then an ad brought in new clients: today, nobody notices.

Running flyers to the nearest 2000 homes might still work today. Bringing in crowds with the promise of free efiling is history. Everyone offers free efiling today.

If I were starting out today I would not make it. Most of the folks that started a tax prep business back then have failed by now. Several national firms sucked up a lot of tax prep work and now they are failing too. The national firms have lost ground for several years.

H&R Block's bread and butter was refund anticipation loans (RAL). The fees were large and covered the large prep fees they charged. This year the IRS will no longer provide a debt indicator to electronic filers. This means the banks have no way of knowing if the IRS will pay the refund, hence the loan. Anticipating massive fraud, the banks are refusing to offer RALs. As of this writing, H&R Block still does not have a bank to underwrite their RAL business. If this remains unresolved, Block will take a major hit to earnings. They will lose clients.

Tax Prep & Accounting Services, Inc. is lucky. We never relied on RALs. Instead, I focused on business returns. Businesses do need professional tax services and probably always will. (I better hope so if I plan on working this industry till retirement age.)

The average age of accountants is approaching retirement age. Around 80% will be retirement age within 10 years. Still, I would not recommend a career in accounting or tax preparation. The hours are long and stressful while the accountant's paycheck is under pressure. The future is uncertain for the industry.

The small guy is gone. I am one of the last survivors. The big guys are gobbling up little guys at a furious pace. If you enjoy working for a big firm or in government, then consider the accounting field; if you want your own community practice, think long and hard before taking the plunge.

The Future

The future is always clear after we get there. The national tax prep chains will continue their decline as will small firms like Tax Prep & Accounting Services, Inc. My business model will replace lost individual returns with more business services, consulting, and audits. As more folks prepare their own return they still need help with audits and other snarly tax issues.

The easy tax prep work is gone. What is left will require experienced professionals. Small firms will continue for a while, especially in small towns where the big guys don't have pull... yet.

One of the H&R Block offices closing is down the road from me. I guess I win this round. For now. The winds of change blow hard and I am not immune.

If you prepare your own return, consider using my online service. The program is run by Drake Software, a professional tax program used by over 30,000 tax offices. If you get an IRS letter or audit, let us to help you resolve the issue. Or at least read up on it.

If all else fails I can go into the shredding business. I know a lot of firms that need paper turned into fluff for security purposes.

Wednesday, October 20, 2010

Free Tax Audit Protection

Did you know that if you have a professional tax preparer prepare your tax return that you get automatic audit protection? If you get an IRS audit the preparer must defend you at no cost all the way to the Supreme Court. Since it costs you nothing you may as well go the distance. If you do owe additional tax from an audit the preparer must pay the tax. In fact, you should withhold information from your accountant and let him pay the tax if you get caught. You should also encourage your tax pro to take an aggressive stance since you have no risk. All this for a couple hundred dollars in prep fees.

The above paragraph is not true, but many people think it is. I pick up several clients each year from other accounting firms because the client expected free audit protection. The real kicker is when they expect the accountant to pay their taxes for them. So it goes.

I am lucky. My clients get audited at a lower rate than average. But audits still pop up from time to time. And every couple of years I get a client that thinks I should pay their audit costs and taxes. Today is the day.

When you win 99% of the audit, have zero penalties and only $40 in interest you should be happy. Unfortunately, this is not the case. It is even worse. The client wants me to pay him for his time. It does not work that way, folks. Not in this fantasy world.

This post is about how I handle the client that thinks a tax preparation fee includes audit protection and payment of their taxes. In a simple phrase: I fire them. Sound mean? Not really. I do not want to serve a client that expects me to pay their taxes. No one is really so dumb as to think anyone will pay their tax bill for them.

Let me make this clear. Tax preparation fess pay for tax preparation services. Audits cost extra. Your taxes are your responsibility under all circumstances.

I am writing this early Monday morning but will post this Wednesday. Thursday I will fire a client for wasting my time, expecting me to pay taxes he never owed, including costs of the audit. Too bad, really. I liked the guy. But if trust is lost why waste time. He will be served better elsewhere.

And just so you know, you can purchase audit insurance where some or all of these costs are covered.

Monday, October 18, 2010

There are Two Sides to the Paper

Once a year I clear out files that are out of statuette. Our office went paperless several years ago, but the hangover from pre-paperless days fills several rooms of filing cabinets. Slowly the old documents get shredded and recycled and the paper mound declines.

Going paperless does not mean we use no paper. We keep many documents in electronic format with certain working papers and signature pages kept in hardcopy. Some would say we are not fully paperless as a result. Still, if we scanned these documents into the computer and shredded the originals immediately we would still have used the original piece of paper.

Our paper usage has declined 48% from 10 years ago. We still provide a paper copy of tax returns to clients. Few ask for a pdf copy of their return and the few that do also want a paper copy and we are happy to oblige.

The shredding of old documents is spread out over several weeks. The process for this year is nearly finished. As I feed the hungry maw of the shredder I am taken aback by the amount of white I see. So many pages have only a small amount used and only one side of the page.  What a waste. The frugal accountant hates waste. Actually, it makes my blood boil.

If both sides of the paper were used I could cut paper usage by about half from current reduced levels. Paper drains the coffers by thousands each year and pushes up prices to handle this additional cost. In the past I checked into getting a printer that automatically uses both sides of the page. The cost was prohibitive and would not save much as the tax software does not support this conservative approach to paper use. At least in the past.

With new vigor I am revisiting this possibility of reducing paper usage and hence, cost. The tax software supports printing on both sides of the page now and printers that duplex print have come down in cost. I bet the cost of a duplex printer is paid for in a year. Tax returns will look smaller, but I have never been about impressing clients with thick tax returns; I am about preparing an accurate return.

Most tax offices still leave the back side of the page blank, wasting half the paper. This is a phenomenon of the wasteful United States. Americans have a habit of wasting too much. This lowers our lifestyle without any benefit. Plus we have the effort and cost of disposal. I am turning back this wasteful habit and using the whole page from now on. The investment is small and will save money.

The printer will cost several hundred dollars I estimate. With paper running over $30 a case the savings add up quick. No matter how frugal I am I always seem to find ways to reduce waste/costs more.

The effort to simplify life, reduce costs and wastes, minimize environmental impact is ongoing. The effort is small. It only requires and open mind and ready eye to spot opportunities. Besides, the landfill is full enough.

Thursday, October 7, 2010

Morning Rituals

It amazes me how often people want to know more about my personal life. I can understand the desire to know something about famous people like actors or politicians, but accountants? Why would anyone want to dig deeper into the lifestyle of an accountant?

On a daily basis during tax season and at least weekly during the rest of the year I am asked questions that dig deeper than I feel comfortable answering. Frequently asked questions include inquiries about how I raise my children, am I married (yes!), what do I do in my free time, hobbies, where I live, where I grew up, who I dated in high school (who cares?), when do I get up in the morning, what I read, etc. Uncomfortable inquiries into my private life are one thing, but sometimes folks ask me how to cheat on taxes. Those conversations are short. And the answer is no.

I am willing to open up on a few personal items of my life. Since lifestyle seems to be the biggest area of interest, I thought I would lay out my morning routine in print.

My pedigree derives from agricultural stock. In other words, I was raised a farm boy. Got up every morning at 4 a.m. in high school and milked cows till 6:30 when I showered and ate breakfast before hopping on the bus. Still have a farm. Nothing fancy mind you, and no milking cows for me anymore. A few chickens and steers are enough to keep me satisfied. Clients that see me the first time dressed in farm clothes have a double-take. I guess it is difficult visualizing a bean counter in farm clothes shoveling the brown stuff, the real brown stuff.

So here goes. My morning routine:
  • 4 a.m. Yes, I still get up at 4 a.m. Sometimes earlier. The good news (for me at least) is that I no longer milk cows when I get up. Start coffee. Most mornings I read or write until 5:30 when my daughter gets up. My other daughter gets up at 6.
  • 6 a.m. The added activity of the kids preparing for school disrupts my reading/writing so I spend time with the girls. We pack a lunch for the girls (The school lunch is more expensive and less healthy. Sad. I know.)
  • 6:30 a.m. Sue takes the girls to the bus stop about a mile down the road. I head out and feed the steers. (Or is that steer. I use steer as a plural, but got chewed out by a grammar fanatic, so "steers" it is. But I still say "steer."
  • 7:00 a.m. Shower (remember, I was just out in the barn), breakfast, brush teeth, and any other family matters that need attention.
  • 8:30 a.m. Off to work I go. By now I may have logged into the office from home and planned out part of my day.
  • 9: a.m. I arrive at the office. The phone rings. My plans for the day are shattered. (Only kidding. I plan time for phone calls and emergency work.)
There are times I get the feeling folks ask about my rituals is so they can emulate them. They think I have some sort of gilded life they want to be a part of. In reality, I am not all that exciting. Is any accountant's/tax preparer's life exciting? You should not use my morning routine as a guide to your life. For one, I change things up often. Sometimes I watch the sunrise with a cup of coffee in hand or meditate for an hour. I always take a few moments for quiet time. Four a.m. is a good time to get quiet and think.

I started writing this at 5 a.m. after reading a back issue of National Geographic. It is a little after six and I need to do a quick review and then post. I plan on reading until seven or so and then preparing for work. See you there.

Tuesday, September 28, 2010

Stress, Clutter, and the Mail Box Indicator

Twenty-five years ago a real estate agent informed me that my importance to society was is large part gauged by how much mail I received daily, including junk mail. I never bought into this line of reasoning. With email and spam today we are all much more important than we aught to be compared to the the mail flow of the mid 1980's.

Most folks receive a significantly lower volume of snail mail today than in the past. Bills and bank statements are all available online. Access is instant and it saves money for all involved.

What got me thinking about this is that I went three days last week without any mail at all: no bills or junk mail. My utility bill comes via email and I have no credit card or car loans. As a result, advertisers must think I am not a good person to promote to. Or maybe I am not that important anymore.

I cut back on magazine subscriptions and opted for the library instead. It is more than a matter of cost; it is a matter of space and clutter. Over 99% of the magazines I read I read once. Of course, I keep them around just in case. I let the local library handle storage for me now should I ever really need to check out a back issue.

Without magazines or bills the mailbox is empty. Maybe I am unimportant. Maybe nobody cares about me anymore. Or not.

My email still comes in rapid fire. So, I am important after all. Too bad I use a mail service that scrapes (as opposed to skims) all the crap junk mail before it gets to me. Now I am back to unimportant again. And it is by design.

As my mail flow slowed, my clutter declined, and so did my stress. A full mailbox, snail or email, is stress inducing. Reduced clutter increases free time for other more important things you want to do.

You may wish to consider a goal of stress/clutter reduction by paying off debt, thus lowering the mail flow. Do the important things in life. Opening the bills does not rank on this list. Simplify your life and live better. Have fun.

Wednesday, September 22, 2010

Are the Rich Taxed Too Much?

The age old debate is hotter than ever: What is a fair level of taxes for the rich? The answer is simple. People making more than me should pay more. I should pay less.

No one likes to pay tax, even IRS auditors. But you cannot run a country without some sort of tax revenue. So the debate is all about who pays what. Recently there has been an argument against allowing tax cuts to expire for higher income folks. The massive federal budget deficit has Washington looking for tax revenue and allowing Bush tax cuts to expire would raise a lot of cash, about $800 billion in 10 years.

I am not arguing for a tax increase for anyone. I am just saying that if Washington is serious about balancing the books they (Congress and the President) need to reconsider taxes and spending. It is impossible to cut $1.5 trillion from spending so taxes must go up for someone. Taxes on the middle and lower levels of income will hurt the economy as they spend every dollar they make and higher taxes will lower their spending. Higher income folks do not spend every dollar they make so a tax increase will raise funds for Washington and slow the economy less.

Unfair as it is, folks with income over $200,000 must plan for higher taxes. They are coming, no way around it. Tax planning can lessen the burden. But tax planning takes time and money as well.

I wish the news were better. Most of my tax prep career taxes were falling. Now I need to shift gears and help clients deal with increasing tax rates. More than ever it is important for high-incomers to have a serious talk with their tax professional.

As a conclusion to this depressing post I leave you with some IRS data that will only encourage a tax increase for the $200K+ crowd:
  • Tax returns with $200,000 and higher adjusted gross income (AGI) paid 52% of total income taxes in 2008, the most recent year available. This is down from 54.6% in 2007.
  • AGI's of $100,000 and higher paid 74.5 % of federal income taxes, also down from 75.1%
  • AGI's of $50,000 and higher paid 92.4% of federal income taxes, up from 92.2%
The tax burden has decreased the more you make in 2008. This will only add fuel to the flame that certain people owe more.

Taxes are never fun and they are about to get a lot less fun. Start planning today and never stop. We are going back to the 1970's where tax rates were well over 50% for upper-middle class earners. The only way to keep a piece of your pie is to plan. Use the tax code to your advantage.

Wednesday, September 15, 2010

Zen and the Secrets of Wealth

This week I want to share a thought experiment with you. You need to read the entire blog post before beginning the experiment as it requires you to sit back and close your eyes. The Zen moment I outline will show you the pathway to the highest levels of wealth you can ever attain.

When you finish your Zen moment you will know what wealth really is to you. Most people jump to the conclusion that lots of money is wealth, but for most people this in untrue. Money allows you to experience your real wealth or at least buy it. Wealth is a lifestyle. If money is the only thing that determines wealth then a fist full of Confederate money would make you wealthy in your mind even though it has no buying power.

It is time. Sit back in your favorite easy chair and close your eyes. Clear your mind, relax, and steady your breathing. Think of your life as if you have no debt; you owe absolutely nothing: no mortgage, credit cards, or auto loans to pay each month. Your only bills are normal day to day living expenses: phone, electric/gas, food. Now look at yourself in this new light without debt. How do you act, feel?

You also have enough money invested in government bonds to handle any expense you will ever have. The amount is unimportant. You just need to know you have enough money to buy all necessities and extra for personal entertainment and enjoyment. How will you live now that money is no longer an issue? Feel the contentment.

You no longer need a job in this worldview. You can work if you want or undertake other endeavors. What will you do? This is the point of this entire experiment. If you had enough so you did not have to think about money all day long, earning it, paying bills, spending it: What would you do? How would you live? What really excites you?

Not easy, is it? It takes time and a thorough self-examination to find what really makes you tick. Your true interests take time to rise to the top. We spend so much time earning and spending money we forget what makes life worth living. Too many of us do nothing unrelated to money and the transfer thereof.

It took me several attempts to really find my answer. You may find it takes more than one session to find your true answer as well. Your answer, like mine, may change and evolve with time. That is natural. We are all growing and our deepest interests will modify with time, too.

Your discovery will be different than mine. I will not pollute your process by sharing my answers. What gives your life real meaning is personal. I can't tell you what you should want, be, or experience. All I know is that you need to undergo this exercise on a regular basis. Why? Because the final step in this process is to become what holds the deepest meaning for you. You need to focus on this goal of higher living and meaningful life.

After a session or two, when you find your true bliss, develop a plan to go there to that place of purpose. See it in your mind on a regular basis. Work to adjust your finances to meet your highest need. It will take time. But life is a journey, not an arrival. It is the journey that makes the effort all worth while. Become what you value most.

And remember: If life is worth living, it is worth living well.

Wednesday, September 8, 2010

Frugal Weight Loss

America is the most overweight society in the history of the human race. Even the military has a hard time finding enough personnel in good physical condition.  Americans also spend more on diets than anyone: diet programs and diet foods. Sugar and fat are removed from every item on the grocery store shelves and we are still fat.

Overpriced TV dinners hawked endlessly by washed up football players and other celebrities from the past are not the answer. For most people the answer is not in what we eat, but in how we live. The diet advice is endless.

This blog post is not a substitute for medical advice. Your doctor can help develop a safe and effective diet program. Your personal health must be considered when building a weight loss program and your doctor is the starting point.

First, get a skinny doctor. If your doctor does not believe in good health it is unlikely he can provide an effective and lasting weight loss program. Second, I think most people will be told by their doctor to exercise more. This is the hard part. Eating certain foods in certain quantities is hard, but exercise? Are you serious? You mean, like walking, running, and that kind of stuff?  Do not cuss out your doctor just because he says you need to move a little. I will show you how to get free exercise without any effort and there is no fee. Heard that one before, haven't you?

The real problem for most folks is daily physical activity. As a frugal accountant (friendly, too) I don't like the idea of coughing up a thousand dollar hairball every year for a gym membership. Without any cost you can get your walking and weight training in without a gym. The swimming and steam room might require a membership, but that is a different matter.

A brisk walk is about the most perfect exercise there is. Here is an easy way to get your brisk walk in: park as far away as possible when shopping. No more jockeying for the closest parking stall, you now park waaaay over there at the other end of the parking lot.

Now for some weight conditioning. Carry your purchases. No cart. If you buy too much stuff, take several trips. The more you buy the more exercise you get. With the extra grand in cash savings from the gym membership you can shop more. (The frugal accountant recommends you save the money.)

Look how easy it is to save money and lose weight. Life is more enjoyable when you can get around. Studies show that a proper diet and exercise lowers risk of several diseases like diabetes, heart disease, and stroke. Shedding excess pounds also reduces stress on your bones and joints.

Look for creative ways to walk and carry more. It all adds up. Calories burn off when you walk and muscles tone when worked.

Here is to the good life.

Tuesday, August 31, 2010

Why I Fire Clients

Over the years I have become more particular about who I take on as a client. Because of my choosy nature I rarely need to tell a client I can no longer serve as their accountant. That said I fired a client last week. In my defense, the client was long-term and from my pre-picky days.

What causes me to fire a client? Foul language, verbal abuse, and non-payment for services rendered top the list. The recent firing came about because she wanted a staff member to perform services without charge. She then made a scene at the office and also used her home and cell phone to call rapid fire. Very childish behavior in my opinion. At this point there was nothing she could say to remain a client.

She returned to pick up her papers the same afternoon and requested she be taken off the mailing list which I informed her was already done. Then she used foul language and refused to leave until I demanded she do so 4-5 times.

I bring this issue up because it highlights several issues. Any tax/accounting professional worth their salt will not work with people that disrupt the office, risking other clients due to the disruptions. The most important point is attitude. Blowing up at the tax office will never help you. The issue she had was minor and quickly remedied. If she would have asked politely, there is a good chance I would have done the work pro bono. Once she tossed an attitude, a discount of any sort was out.

Remember, no one wants to work without pay. And who wants to eat crow without pay? Some clients are not worth it, so they are fired. A smile goes a long way.

Tuesday, August 24, 2010

Kids, Money, and the Frugal Lifestyle

Living a frugal lifestyle is difficult as it is; add kids and it turns downright challenging. It is back-to-school season and the schools have the longest list ever of stuff kids need to bring the first day. No wonder teachers complain they make too little. Most seem to lack basic money skills to get, keep, invest, and manage their money.

Once the school has your wallet open it is time for peer pressure from fellow students and their parents to encourage more stupid spending.
  • Did you drive your kids to school in an over-priced, gas-guzzling SUV? Then you are a mean mommy. Your kids will be scarred for life.
  • Did you buy your children the latest electronic toy, gizmo, cell phone, iphone (i anything), or gadget from Apple? Then you are a mean, good-for-nothing daddy. Your kids will be scarred for life.
  • How much did you spend on the summer vacation? Not enough. Did you even go on a summer vacation? No? What will the other students, their parents, and the teacher thinks when the class shares their summer activities? Your kids will be scarred for life.
  • Is your home over 3,000 square feet? Flat screen TV? No? What is the matter with you? Now nobody wants to be your child's friend. Only a low-life would treat their kids in such a manner. They will be scarred for life.
  • Please tell me you bought your kids the latest and trendiest cloths for the first day of school. No? What is the matter with you? Child Services should be called. That is child abuse. Your kids will be scarred for life.
And the litany goes on. Your self-worth and -esteem are hinged directly to how much you spend beyond your means if you believe the media and the folks at school or the coffee shop. Why?

The reason is clear to me. Advice given is meant to serve the person giving the advice, not you. The government wants you to borrow and spend more to help the economy; the financial planner says to NOT pay off your mortgage and invest the money; the banker says to borrow for a car or boat. All that advice is wrong. The elected government official wants to get re-elected; the investment advisor wants a commission; the banker, interest.

Even I am not immune. The amount of time I grant toward convincing you to live debt-free is small. I am your accountant. If you really think paying the bank $10,000 in interest is worth the $3,000 you get from the government is tax savings is a deal, go for it. I can point out the extra refund I got you, charge you $300, shake your hand, and go home. Of course, I will use the $300 to pay off my mortgage of fill my bank account.

The day you find pride in living a frugal life; the day you grin ear-to-ear because someone points out your strange frugal ways is the day you are truly free from the rat race.

Think about the pressure you get to spend money. Ask yourself: What is in it for the advice giver? Ask yourself: What is in it for you?

Bowing to peer pressure and refusing to teach your children fiscal responsibility IS child abuse. By withholding these basic needs in managing money you condemn your children to a life of servitude to money.

Money problems lead to crime, alcohol, child, and spousal abuse, stress, insomnia, divorce, and a litany of other health and social problems. Teach your kids by example. Live within your means and really enjoy life.

This is the greatest gift you can give your children and the lesson is never taught in school.

Tuesday, August 17, 2010

How to Declutter Your Life For Fun, Sanity, and Profit

For the last six months clutter has been my enemy number one. The accumulation of crap junk things in my life sapped my sanity and productivity. The effort is slow, but progressing. Each step taken improves my peace of mind and reduces stress.

No one will accuse me of a clutter-free life. The goal is to reduce a little bit of clutter each day. Yesterday I took a huge step. At the office there is a side storage room that leads to the basement. The closet/hall is lined with shelves of old tax journals, tax code, and other junk accumulated over 27 years of business. The storage space is less cluttered today.

There were some real beauties in there: two complete volumes of the tax code with regulation and explanation from 1988 and 1992, a Wisconsin unemployment handbook from 1994, binders, Who's Who for 1996, practice builder sales literature from who knows when, and an old Section 105 administration guide.

The shelves under all that weight were stressed to the max and an accident waiting to happen. The shelves no longer groan. All paper is in the shredding room and the binders were either recycled or burned. Office paper is cross-cut shred and ends up a fibrous mass good for bedding my animals at home. The office feels better for the effort. The shredding room should return to normal in a few days.

My desk and office floor were recently covered from end to end with stacks of papers and works in progress. My office is still cluttered and requires more drastic action, but in the last several months I have been complimented with comments like, "Keith, I can see your floor," and ""You have a desk!"

Yes, most of my floor is clear. Most. You can actually see bits and pieces of my desktop most days. Vigilance is required daily. The clutter bomb is always waiting to reassert itself.

If you desire your life back (as I did), peace of mind, less stress, and a better quality of life, declutter. Here are a few tips I used to declutter:
  • Think Small Clutter takes a lifetime to build, it will take less time to dispose of, but it will take time. Dealing with a lifetime of clutter is overwhelming. Start with one room or closet and get the low hanging fruit first. Worn out clothes should be sent to recycling or the thrift shop, depending on condition. Old magazines and junk mail are easy choices for most of us.
  • One Thing a Day Schedules are tight. If you don't have hours, or even an hour or fifteen minutes, commit to one thing a day. Get rid of one thing, one piece of clutter, and don't replace it.
  • Focus on the Important My desk and floor required immediate attention. Perfection never entered the equation. My focus was to get papers off the floor and clean my desk so the desktop could be seen. Sometimes decluttering life means ending procrastination. A lot of little jobs can reduce productivity when working the big jobs. I like to take one-half day a week and dig into all the little projects that accumulated and clean them up.
  • Electronic Clutter In my line of work electronic clutter is an issue. I turn my email off for most of the day. I deal with email, correspondence, and phone calls at selected times. This allows for greater productivity. Since I get more work done this way, it frees up time for things I prefer to do. Take steps to reduce email. Make good use of the junk mail folder. Turn off the interruptions of cell phones and other devices that sap your lifeblood.
  • Tough Decisions A large number of items are difficult to throw out. My back issues (20 years worth) of Science News and science fiction magazines fall into this category for me. I never know when I might need to review a copy of the June 23rd 1987 issue of Science News or when I might want to reread a short story from the January 1993 issue of Isaac Asimov's Science Fiction Magazine. There are even tougher issues to decide when throwing stuff out. I give myself permission to keep things for later consideration. But seriously, those issues of Asimov's would get great use at the local jail. Someday. Someday.
  • Enjoy the Moment There is no feeling like the feeling of freedom. As you clear out a little each day the cumulative effect becomes real. The open space feels super. Cleaning the house is easier and unrealized stress is reduced. Enjoy each room or closet as you free it from the albatross of decades of stuff.
Decluttering your life can save you money. You will come to appreciate an uncluttered environment and will reconsider purchases that only reclutter your life. Many of the things you no longer want/need can be sold on eBay or rummage sales for some extra cash. This extra money can reduce or eliminate debt, the biggest clutter and stress in a large number of lives.

Now you can breathe.

Tuesday, August 10, 2010

The Not So Big Problem of the U.S. Budget Deficit

One and a half trillion dollars in added debt per year seems like an insurmountable problem, but is it? The red ink pouring out of Washington has so many people up in arms that our economy may falter or sink into a double-dip recession. Our leaders should review the 1930s before embarking on such austerity.

After World War II, the United States had a national debt of around 120% of GDP. The United States never paid any of that debt down... ever. Okay, there were two years with a small budget surplus, but that was so small it was only a fraction of a percent and the next year it was spent. So what gives? The national debt was huge in 1945, never paid down, and became a small, manageable debt in subsequent years. Why? And more important, how?

We need to fast forward to the 1990s and the largest budget surpluses our federal government ever had. (On percentage terms President Andrew Jackson paid off 100% of the national debt. It did not last long.) How did President Clinton run so many and so much surplus? It was simple really. President Clinton understood that the budget deficit can be eliminated by increasing spending slower than economic growth. It takes a few years, but it always works and keeps the economy humming.

Let me illustrate. If your national economy is $1,000 and the government takes in $90 in taxes and spends $100, you have a budget deficit of $10. If the economy grows 5% the next year to $1,050 and tax revenue collected remains the same in percentage terms, you collect $94.50. If spending increases 2%, your government spends a total of $102. The budget deficit for the year is $7.50, a decline of 25% in your budget deficit.

When using really big numbers, like the size of our real economy and government finances, the numbers are compelling. The federal government can spend more and actually be financially in a better fiscal position as the debt is a smaller percentage of the economy. Running a budget surplus can injure a national economy, especially in weak economic times. The real trick is to increase the total national debt less than the economy grows.

During a recession the economy shrinks so the debt burden grows fast and scares politicians and guys on the street. It shouldn't and here is why. Economic performance is measured in inflation adjusted terms. If the government reports 3% economic growth and inflation is 2%, the economy grew 5%. The government adjusts the numbers to reflect real growth. However, the economy grew 5% in dollar terms. If the national debt grew less than 5%, not he 3% reported, the deficit is easier to manage than the year before.

With all this said, $1.5 trillion deficits are not something we want to repeat each year. However, the sky is not falling. The national debt of the United States is well below all-time highs compared to GDP and is currently under 100% of GDP. The concern is how fast we are increasing the debt burden.

Congress does not need to irritate the President into lowering spending. Just increase spending slower than the economy grows and in a few years we are back in the black.

Now you can smile and enjoy the day.

Wednesday, August 4, 2010

Lower Stress, Simplify Life, Get Something Done: Turn Off Email

Life is filled with stress. Constant demands and nonstop interruptions cause stress to build until life twists into a swirl of nonproductive and unfinished work. One of the most disruptive tools in the office and daily life is email.

Stress is a cancer that eats you from the inside out. The best way to lower stress is to finish projects or at least make serious progress every day. The way to get good work done each and every day is to eliminate interruptions during work time. Three to four hours of quiet time a day allows you to accomplish more than 98% of people in a day.

The only way to get this uninterrupted quiet time is to turn off all electronics, especially email. Nothing disrupts concentration and a good work habit than email. Cell phones, iPods, and similar devices come in a close second.

If you want a happier, less stressful, more productive, fulfilling life, turn off the cell phone and email. Any electronic that barges in and demands your immediate attention rapes you of your life. It could even cost you your job.

I turn off my email for several hours each day. I need the block of time to get work done. If I don't respond instantly to an email, I am not ignoring you, I am getting work done. You should try it. The stress reduction alone is worth it.

In an always on, always demanding world, something that simplifies life is worth its weight in gold. By lowering your stress your medical costs could go down and you could live longer. Regardless, your life will be more worth living.

This rat is out of the race, yet still in the game. How about you.

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Sunday, August 1, 2010

Wealthy Neighbors

The lesson I am about to share took 20 years to sink into the frugal accountant's skull. I see a couple thousand people per year on a professional basis. This provides me the opportunity to see what works for others; it also makes painfully clear the things that do not.

About 225 of my clients are wealthy, defined as $1 million or more in liquid net worth. The remaining 1800 clients want to be wealthy, defined the same.

There is a striking similarity to the 225 wealthy clients rarely shared by the non-wealthy list. The striking difference is in the investments they make. The wealthy clients follow Warren Buffet's two rules:
  1. Never lose money.
  2. Refer to rule one.
Wealthy clients are married to these two rules and you cannot pry them away from this philosophy no matter how good the salesman is.

Popular media only solidifies the minds of the wealthy that their way is right. The media says the stock market returns on average 10% per year in the long run. The wealthy say, "In the long run we are dead." When it comes to stocks, the wealthy know "figures do not lie, but liars figure."

If you pick the right entry and exit points you can justify any position you want. One lie is using 1928 as your starting point. When the stock market is at an all time high and calculated from 1928, a non-high stock market entry point, you get very nice returns. However, if you look at the true long term results of the Dow Jones Industrial Average from January 1, 1900 to today, you have a hard time breaking a 5% return.

The S&P 500 is a broader based stock average and has been with us since 1950. The stock market has enjoyed the greatest gains in history for the last 60 years. The 1950s was the best decade for U.S. stocks ever and the 1980s and 1990s were pretty good too. Still, the S&P 500 total return since 1950 is only 7% with 2 of the six decades experiencing a negative return.

Wealthy clients know the stock market at best produces 7% returns with lots of risk and downside. They also know that 5% is the best you should hope for with stocks if you know what is good for you. The 10% stock market returns are a lie and the wealthy know it.

So what are the wealthy doing? CDs and Treasuries.

Shocking. Isn't it?

It should come as no surprise that the wealthiest individuals in a community take little to no risk on a large portion of their money. A typical client with over $1 million in liquid net worth has no debt and does not look wealthy. Farmers, that high paying job we all want to get into, are a perfect example. Not every farmer is rich. But those that are save like no tomorrow. They frequently tell me they "never take off the pile."

Wealthy people invested in 30 year Treasury bonds back in the year 2000 when they locked in 7% or better. Interest from Treasury securities are state tax free. Interest rates are lower now, but the wealthy Treasury bond holder received $700,000 in interest in the last 10 years state tax free. The government still owes them another $1.4 million over the next 20 years plus the return of the original $1 million.

Remember the old articles about how much it costs to buy a home with a 30 year mortgage. Well, Treasury bonds work the same way in reverse. It is like the government paying you taxes. I like that. If you buy a $100,000 home with a $100,000 mortgage with a 30 year term at 7% you will pay the bank a total of $239,508 if you make no early payments. Treasury bonds work even better to your advantage. When you make a mortgage payment a portion is principle. With Treasury bonds the government only pays interest. A $100,000 30-year Treasury at 7% interest will pay you $210,000 in interest over the term plus your original $100,000. The government pays you $310,000 over the life of a 30 year Treasury bond. And the wealthy know it.

Interest rates are lower today. So what are the wealthy doing now? CDs. More accurately, long-term CDs; the 4 and 5 year kind. You see, the wealthy know that 4-5 year CDs pays around 3% with a small penalty for early withdrawal. If rates go up, they pay the fee and reinvest at the higher rate. They win at every turn.

When interest rates go higher for 30 year Treasuries, they will make the switch.

As I conclude this post I want to share what I see from my side of the desk. I have never seen a client in tears because they have a low interest rate on their bonds or CDs. They want higher yields, but are willing to wait. Stock and mutual fund investors at least once a month come in for help. They sufferd a large loss and the money will no longer carry them through retirement. In some cases they need to go back to work. The stress is clear on their faces and body language. I want to help, but the damage has been done.

Consider what the wealthy do. Invest in boring. It is safer. Besides who wants the kind of excitement risk implies. Only use excess money for mutual funds and stocks. You will sleep better.

Tuesday, July 27, 2010

The 3 Hour Workday

My first exposure to the concept of the three hour workday comes from the book Your Money or Your Life by Joe Dominguez and Vicki Robin. I have read similar articles on the subject over the years and it makes total sense to me.

From the beginning of mankind (ladies included) the amount of work required to secure the necessities of life (food, clothing, and shelter) takes about three hours a day. This has held true from Stone Age to modern man. Before the modern era, man would hunt for a few days and then cure the meats acquired. Gardening complimented gathering. The time needed to build shelter, hunt, garden, process and cook foods, and produce clothes took about twenty hours a week per adult. Some days and weeks required longer hours of labor, but over a year, the work required to survive averaged about three hours a day. The remaining time was spent with friends and family playing games, talking, sharing and other pleasurable passtimes.

Then we got civilized. Then we decided that anyone that worked less than 10-12 hours a day is lazy. Now we admire those that work 14-18 hour days. All this insanity started around the beginning of the 20th Century. Only the task of nonstop labor was appreciated.

Working longer than 50 hours a week in unhealthy and leads to all kinds of nasty diseases. Lack of sleep has brought humanity some of our greatest disasters. Is it really comforting to know your surgeon hasn't slept in eighteen hours as you go under for bypass surgery? Do you feel safe knowing your airline pilot only slept four of the last 30 hours? Are you a better driver when sleep-deprived and high on coffee?

Where did we go wrong? Can we get sanity back into our lives? I believe we can.

The basic necessities of life took three hours of labor a day on average in the past. Today, with machines and other time saving technologies, we can support our needs on 10-15 hours per week. "Needs" need to be defined to understand how we can live comfortably working only 15 hours a week.

"Needs" include food, clothing, shelter, and in our modern world, transportation. Food costs very little if prepared at home. In 1970, food consumed about 12-15% of our income, depending which study you read. Today we spend 6-7% of our income on food and that includes meals out. Preparing food at home easily reduces the expense to 2-3% of the average household income.

Clothing is also inexpensive unless you need a closet choked full of trendy threads you only wear a few times if at all. Transportation costs will depend on your location. If you live in a large city, public transportation is available and the cheapest route. If you live rural, you will need a car. You do not need a $30,000 gas-guzzler. You need a reliable vehicle that gets you from point A to point B economically.

I saved shelter for last. Housing costs have risen significantly in the last 40 years; some argue even faster than inflation. However, when comparing apples to apples, housing costs are affordable. You see, in 1970, our society (I am talking the United States here) lived in homes of around 1100 square feet. Today we live in homes over 3000 square feet and fewer people live in each home. The price of an 1100 square foot home today is the same as it was in 1970 adjusted for inflation, maybe less than inflation with the housing market problems of the last several years.

Now we come full circle. How can we live a decent life without working ourselves to death? I am not asking anyone to try living on three hours of works a day. You could, but if you want other things, you will work more. The questions is: How much of your life do you want to sell in the form of employment to someone else to get more stuff? Understand there is nothing wrong with wanting and/or having stuff. I am asking you to consider balancing your wants with the selling of your life energy, as Dominguez and Robin call it, and the real pleasures of living your own life your way, with friends and family.

We work 40 years in the workforce because we want to, not because we have to. Most of the stuff we buy ends up in a landfill in less than a year. We work countless hours to satisfy these fleeting desires. If we balanced our real needs with modest desires, we could all easily retire by age 50 or earlier. We choose to work ourselves to death.

Is it really worth it?

Friday, July 23, 2010

Inflation, Deflation, Double-Dip Recession...Ahhhhhhh

I scared myself.

Current media outlets are suffering a schizoid embulism when it comes to the economy. Half the commentators say we are in for massive inflation with all the government spending; the other half say we are in for crippling deflation, where prices decline for an extended period of time.

There is a call for a double-dip recession similar to 1980-82. Another group says we will have prolonged subpar growth with a few radicals calling for a rapidly overheating economy in the near future.

Everyone is wrong and I'll tell you why.

This is not 1980. In 1980 the economy suffered from high unemployment, high inflation, and not enough supply. President Reagan gave us "supply-side" economics. The term has been run through the mud over the decades, but Reagan was right. Lower taxes and less regulation were the exact ticket the economy needed to increase production, hire more labor, and reduce inflation. The problems of today are different.

Government spending does not cause inflation, the imbalance of supply and demand does. The opposite imbalance causes deflation.

Prices will remain stable with inflation starting a few years down the road. Not high inflation, some inflation. Demand is present, but fear is high. Banks are not lending to allow pent-up demand to push prices higher. At the same time, additional supply is waiting for work. Idle factories can fill demand when demand is able and willing to purchase. All these factors will keep prices bouncing around breakeven. There will be months of price declines followed by months of price increases. Mixed together, prices will go nowhere for the next several years.

Energy is the exception. If you review the oil bell curve you will notice a disturbing future event rapidly approaching: declining supply. I have no confidence in the American people to conserve oil until it really hurts; like 20% unemployment with $20 a gallon gas. When the world passes the United States as a low-cost, high efficiency producer, then Americans will get serious. That means Americans might as well get used to a declining paycheck and standard of living. And I'm an optimist. But there is hope.

Oil prices will rise as oil production begins to decline and then accelerates even lower. Oil prices will rise, but energy costs will not. At least not as much as oil, and eventually, energy costs will decline. Countries that cling to oil as an energy source will suffer the consequences.

China and Europe have decided on a different course. Wind and solar production  soar faster than demand, lowering their need for carbon based fuels. In less than 10 years, China wants 15% of all their energy needs filled by renewable production. Wind and solar will fill nearly all this need. To date, China is ahead of schedule.

The United States has chosen a carbon course. Policy in Washington is for energy independence from domestic natural gas and coal with a little help from solar and wind. China spends double what the U.S. does on renewable energy production each year. This is why in under five years the U.S. gave up its leadership possition in wind and solar to China, where over 50% of worldwide production now resides. Just think all those high paying jobs, and the U.S. exported them to China. Good move.

China understands that wind and solar have long-term benefits that pay back for extended periods of time. Solar panels and solar water heaters continue producing for decades at a very low cost once installed. China, and any nation that invests with the same wisdom, will enjoy an economic advantage that could last generations. China produces over 90% of worldwide production of evacuated tubes used in solar water heaters. Buy China or burn coal.

But all is not bad for the U.S. China will be the world leader and we can follow wherever they lead. China will want to cash in all those U.S. bonds they have been buying. As I write, China has nearly $1 trillion is U.S. Treasury securities. Just think of all the jobs Americans will have filling Chinese orders. We work, they consume, so we can pay our debts. All work and no play folks. American work ethic at its finest.

So you see, there will be no real deflation; there is too much money in the system ready to go to work propping up prices. Inflation has little chance because a large tract of North America will consume less than they produce for 30 years to pay for the sins of the father. No double-dip recession either. China stands ready to put us to work... at a lower pay rate.

China can even help us rewrite our Constitution. They can help us serve their values. Isn't that nice? And if we refuse, they dump $1 trillion of our debt on the market, pushing up our interest rates to 30%+ and we become a third-world nation.

Ahhhhhh. I'm scaring myself again.

I don't know about you, but I am hungry for Chinese. At least they want to speak English.

Thursday, July 22, 2010

The Stupidity Rolls On

The economic news is grim. Unemployment is near 10% and the meager recovery appears to be stalling. There is good news, however. Auto sales are picking up. Well, certain vehicles are selling well. The big gas-guzzling ones.

Sales of SUVs and trucks are up 24% this year. As long as the vehicle burns a gallon of petroleum every 14 miles or so it is selling well.

It has been 2 years almost to the day since fuel prices rocketed to over $4 a gallon. You would think Americans would have learned a lesson from the warning shot over the bow. But I guess not. Americans want big honking, gas-guzzling vehicles even if it destroys thier finances, puts the economy and their job at risk, or causes another spike in fuel prices.

To understand the depth of stupidity involved here we need to review some facts:
  • Since 1981, worldwide consumption of petroleum has exceeded discovery of new reserves every year. Think about this sobering fact for a moment. If it doesn't run a shiver down your spine you have other issues to address.
  • In 2008, worldwide consumption of petroleum was 31 billion barrels; new reserves discovered were 9 billion barrels. Do you feel that shiver again?
  • Oil production peaked in 2005.
  • To get the oil that remains requires very deep water drilling. How is that working out in the Gulf of Mexico?
  • Oil prices are double from a decade ago while we are mired in a deep worldwide recession. How can oil run upwards of $70 a barrel when demand is so low due to the economy? Could it be...
  • When the economy improves, and it will improve, demand for oil will climb. Without additional reserves available gas prices could soar higher than ever.
Is it just me or do the above facts, coupled with SUVs, sound like a really stupid idea?

I am making a prediction, so remember, you heard it here first. When the economy really starts growing, gas prices will race past $10 a gallon, and will probably hit $16 - $18 a gallon... before 2015.

Then we head right back into a recession. My only hope is that the people that squandered the resource are the ones that lose their job. Why should the responsible pay for the actions of idiots.

I am not hopeful.

Tuesday, July 6, 2010

The Right Way to Own a Certificate of Deposit

I have noticed a form of capitulation in my office over the last few years. Due to low interest rates on savings, businesses and individuals have frequently decided to accept the lowest return possible and in many cases, zero.

Savers should not accept the short-term rates in today’s market. It is possible to double your rate of return without any additional risk.

Individuals and business frequently allow funds to languish in checking, savings, or money markets accounts earning under ½%. Short-term money has a habit of lasting longer than expected. Businesses that keep a cushion of funds available almost always have this cushion in place. Individuals keep an emergency fund at a steady level most of the time.

Other investments offer higher returns with additional risk. Even if you have funds in the stock market, you also have money in the bank or credit union. You can settle for ½% or less on this money or earn up to 3% if managed correctly.

As I write, one-year CDs are paying 1.2% at local credit unions; four-year rates yield 2.6%. Four-year CDs are down from over 3% only a few short weeks ago. Still, 1.2% is better than ½% or nothing and 2.6%, while still a meager return, is better than 1.2%.

Using the above information, money that is saved for 1-year or more should be invested in the highest rate CD possible, regardless of the term. Here is why: If you buy a 4-year CD with a 2.6% yield and decide to cash it in prior to maturity, you will pay a six month interest penalty. Running the math illustrates this principle better:

Example 1. You buy a 4-year CD at 2.6%. One year from now you either need the money or have the opportunity to invest it at a higher rate of return. You cash in the CD and pay a six month penalty. For 1 year you earned 2.6% minus the penalty of 1.3%, leaving you with 1.3%. This beats all one-year CDs; most 2-year CDs, too. If you keep the money in the CD longer due to continued low interest rates you still earn at 2.6% while you wait for higher return opportunities.

Example 2. You buy a 4-year CD at 2.6%. A year from now interest rates climb. The math is the same as the above example. You will earn 1.3% after penalty if you cash in the 4-year CD. You can now invest in the new, higher rate CDs. If interest rates stay low longer, you get the best yield while you wait.

The lesson learned: Do not fear early withdrawal penalties on CDs in low interest rate environments. The lower interest rates are, the cheaper it is to cash in a CD early and reinvest in the higher yielding CDs of the future.

Short-term money you must use in less than a year can still make a little return in a money market or CD. Rates are under ½%, but this is better than nothing. Take the ½ %.

Sunday, May 23, 2010

IRS Audit Report

The IRS is focusing their attention on the heavy fraud area of the First-Time Homebuyers Credit. The IRS is auditing every First-Time Homebuyers Credit by reviewing documents attached with every credit claim. These audits are considered letter audits, where the IRS sends you a letter if they see something they don't like or want more information. My experience is that the IRS asks for more information or verification in about half of all claims regardless of the documents sent with the original return.

Do not get lax, however. The IRS is still conducting field audits, where the audit is done face-to-face, as usual. Revenue has hired 18,000 additional auditors recently and we will see a steady upward trend in field and letter audits over the next several years.

There are no bullet-proof ways to avoid an audit. Therefore, it is more important than ever to keep accurate records. Small businesses must keep written logs of their meal and entertainment expenses in addition to other receipts. Individuals should pay special attention to charitable contribution records.

You can read more about preparing for an audit here: Preparing for an Audit, IRS Audit Procedures, and The IRS Audit Process.

Friday, May 7, 2010

Buy a Honeywell Weather Station Online

Buy a Honeywell Weather Station Online

I write about a lot of different things over on HubPages. Use the link above to read my latest article. If you want tax articles, I have over 50 published on HubPages.

Thursday, May 6, 2010

Economic Growth Rate, Development, and Indicators of the Next 50 Years

Politicians have had a singular mind when it comes to economic growth rates and development over the last 150 years. The common man has used these political indicators as a personal guide toward economic success.

Since the mid 18th Century, economic growth has been defined as a growing Gross Domestic Product (GDP). The common man understands this as having more and more stuff as each year passes by. All this growth has been carried on the back of cheap energy, and more to the point, cheap carbon based energy: oil, natural gas, and coal.

The Industrial Revolution gave us mass production and the resulting wild swings in economic performance. By the 1920s, production grew so rapidly that demand could never keep up. The economy faltered and then collapsed as the machines produced more than people could possibly buy. WWII sopped up the excess production and the economy started humming again.

Since WWII, worldwide debt has exploded. The excesses of production ramped up each year and debt and mild to moderate inflation, mixed with crude oil, fueled the near straight line advance of Western economies.

The end of the era of cheap oil will create a paradigm shift in economic growth thinking. Growth rates are unsustainable. Oil is getting harder and harder to find as we see by the deep ocean drilling around the world just to keep up with demand.

The concept of more disposable stuff every day to amuse us will turn out to be a blip on the historic map. When one car was not enough, we bought two, then three, then Hummers and SUVs. A one thousand square foot home gave way to fifteen hundred, then two thousand, then three thousand square feet of living space. Many of us live in museums or grand cathedrals today.

More flat screen TVs, computers in every room, cells phones, iPods, are now the must have lifestyle. There is no more time in our lives to enjoy what we already have and the Earth cannot tolerate the abuse any longer.

Economic growth in the future will look much different. Occupations of tomorrow do not even exist today, but soon. A stable GDP will be the new successful economic norm. Living within our, and the planet’s, means will be the only acceptable way to live.

Some future jobs are here today with alternative energy. But the real jobs will come from zero energy homes, homes that produce more energy than they consume, while providing all the comforts of life. We already know how to build homes like this, even in cold climates. We got so used to cheap energy that we built our homes any way we felt and forced the interior environment to our liking by burning more oil.

Transportation has been a solitary event. We drive in our cars, alone. We build more and more highways. The more roads we build, the more we drive. In 2007, in the U.S. alone, we consumed over 22,000,000 barrels of oil a day, just shy of 1 billion gallons every day, day after day. We have come off the 2007 peak consumption year numbers, but not by much, and only because of a recession.

Future good-paying jobs will produce products that consume less. Future jobs will include consulting with businesses and the common man to do more with less. It is certain we will drive less. Once we stop running the rat race of more and focus on better, our lives will become less cluttered and hectic.

Think of some of the real benefits to our society when we produce more of what we consume locally. Electricity transmitted long distances from coal power plants lose a third or more of the electricity produced from transmission, and coal fired power plants are less than 50% efficient.

Think of it: local food that requires less shipping; cars that run on electricity produced by your own home, your home producing more electricity than you personally use. We will do less and get more in the form of a less anxiety-driven, hectic lifestyle. The engines of production will allow the entire human race to live a comfortable life.

We don’t need to work 40 hours per week. We work so much so we can buy all the gadgets, extra TV’s, SUV’s, 5,000 square foot homes, and all the trinkets we are told we must have. We need to work longer hours to pay for the extra car we need to get to work. We dine at restaurants because we are too tired after a long day at work; we work to pay for the added expense of dining out. The cycle never ends… unless you step off the hamster wheel yourself.

And oil, no longer easy to find, will not bail us out. Now we will work smarter or suffer the consequences. The old answer to every problem, “just burn more oil”, will no longer work.

It is a better world we will become. The environment will get a rest, heal, and then nurture us. We can live better by burning less. It is the new economic growth and development paradigm. If we know what is good for us.

Friday, April 30, 2010

Did You Miss Me?

It has been about three weeks since I wrote a blog post. Tax season took over my life as April 15th approached. Afterwords, I played catch-up with all the work I've been putting off for months. Now, all I want to do is sleep.

I have been writing on a much lighter schedule over on HubPages. You can catch all the articles I have published and other news on my profile.

I am off to the Wisconsin Regional Writers' Association spring conference. The board meeting is today. Since I am the treasurer, it might be a good idea if I show up, head cold and all.

The spring conference is one day this year: Saturday, May 1st. They have some very good speakers lined up. Hope to see you there.

If you see a balding, middle-aged guy sleeping on the lobby couch, that is me.

Friday, April 2, 2010

Happy Easter or Passover

I hope everyone has a pleasant weekend.

Since everyone is different, I wish you:

Happy Easter
Happy Passover

or, if you prefer neither:

Happy Spring Break.

The keyword here folks is: Happy.

Wednesday, March 31, 2010

Form 1127: An Extension of Time to Pay

A surprise tax bill can be more than inconvenient, it can be impossible to pay. Few people are aware of the IRS extension to pay. Form 1127 offers taxpayers the time needed to pay their taxes without a failure to pay penalty. You can read more here.

Tuesday, March 30, 2010

Form 4868: Your Ticket to an Automation Tax Extention

If you are not able to file your taxes by April 15th, file IRS Form 4868, Application for Automatic Extension of Time to File.

For Form 4868 to be valid, you must:
  1. File by April 15th.
  2. Estimate your tax liability with information you already have.
If you are out of the country on April 15th, you have until June 15th to file your extension.

Form 4868 is an extension of time to file, not an extention of time to pay. Interest, late payment, and late filing penalties still apply.

I published an in-depth article on this subject on HubPages. You can read the article here.

Sunday, March 28, 2010

Amending a Tax Return

It happens to everyone from time to time. You file your tax return and a W-2 shows up in the mail or you realize you forgot to deduct your property taxes. All you need to do to fix the problem is amend the return.

There are times when you make no mistake, but still need to file an amended return. Foreign tax credits and deductions, net operating losses, bad debt, and worthless securities may require an amended tax return.

You have a limited time in which to file an amended return. In most cases, an amended return must be filed:
  1. Within three years of the due date, including extensions, of the original return, or
  2. Within two years of paying the tax.
You use form 1040-X to file an amended return. More details are available here.