So that was short lived….I recently posted about the thrill of making my first quarterly income tax payment. And now I just made my second (due June 15th). Honestly, this time around it was once again a thrill…but reality crashed a bit harder and the fun was very short lived. While it is awesome to be building a business that is already turning a profit, it quickly hit me I do not like paying taxes on it.
Welcome to the party sister.
Over the years I have always heard jokes about how to hide money – Swiss bank accounts – closets in the Caymen Island (remember The Firm?). So, during April, I set my sights on finding legal ways to stash cash. TG and I marched around getting advice from financial advisers, an accountant, tax accountant, and a large financial institution. Our goal is to find someone who resonates with us, we understand, appreciates where we are in our own financial relationship and my growing business. It isn’t easy, especially since we, both as individuals and a couple, need a whole lot of explaining.
Anyone who works with us also has to have ALL the answers and know every nook and cranny of any financial vehicle we may read about on the web. We like to know all options, analyze all angles, and we do not like making mistakes. Hence the research and the meetings.
Here are a few realizations:
- You have to pay taxes. At first I was under the grand delusion that I could sock away up to $50k (ish) per year into a SEP or Individual 401k regardless of how much money I was making. That sum would then significantly reduce my tax exposure. But this leads to point #2:
- You have to pay yourself a reasonable wage. You can only stash 20% of your income up to $50k (ish). So, if you are making $100,000 you can only save about $20k per year. Not chump change, but significantly less than what I originally thought.
- To be clearer, you can not sock all your money into a retirement account. If you have limited living expenses (and live well below your means – imagine that), you might have extra money sitting around. You can not just put it into a retirement account and then not pay taxes.
- Why… and this brings us full circle…because you have to pay some tax. A point that sucks and keeps smacking me in the face.
- And then on a recent Google searching expedition, I found another article stating I could sock away 20% + and additional $17k. Back to the experts I go I guess.
All of this is…well, very exciting. To be at a stage in my business where I am able to think about saving a bit and to have a partner who wants to sit next to me and hold my hand as I figure it out is all very exciting.
If you are sitting in my shoes and want to know what to do with your own money, I highly recommend starting to read and then start talking to experts…many of them. You will want to have a very clear picture of your financials right now and your projected tax exposure for this year. As they say, any small business owner needs to know their numbers inside and out.
Oh, and yes, as a joke during one of the meetings I did ask about the Cayman’s, after all in the movie The Firm it didn’t look all that difficult to stash money in a closet in a condo. Given the birth of the internet it has become a bit more difficult…turns out they can track you a little better. And honestly, that would make me a bit nervous and all.