Lower Income Higher Taxes

Whew. I paid my taxes, again, of course. I’m glad that’s over, though the costs will linger. My income taxes continue their inverse relationship with logic. The less I make, the more I pay. I suspect I’m not the only one. At least this year I was almost able to pay them.

This year held an improvement.

Last year’s filing ended with;
$4,000. That’s more than my bank account. Maybe I can scrounge enough to pay it, but then there won’t be enough for things like the mortgage and my healthcare premium.
Out comes the credit card, which I recognized was an option. (Cue the groans, lamentations, critiques, and offers of help from many friends. I hear you…)

This year’s filing ended with about a 5% drop in revenue and a 25% increase in what I owe; $5,000. The good news is that this year I had that much in my bank account. The bad news is that I need that cushion because of an expected dip in revenues. I could pay the IRS in full, but if my business doesn’t fill in the gap I’d be living too risky of a life. In this situation, I would’ve preferred to pay the majority with cash and make up the rest with the credit card; but that wasn’t an option. It all goes on the card, and next month I’ll make a very large payment – or even pay it all off if the right job/gig(s) come by.

The total time to collect all of the records, shuffle them into a spreadsheet, and run through TurboTax was one calendar week and about five hours. That doesn’t sound like much now that I’m done, but it was grueling while I was in the middle of it.

When I was semi-retired and living from money I made investing in stocks, my tax rate was effectively zero. That was possible because I lived a frugal life (so I didn’t have to sell much), invested for the long term (which has about the lowest tax rate), and tended to have a few losses to balance the gains. While that can sound like I was losing as much as I was making, that wasn’t the case. Watch a stock rise from $3 to $45, and peel off a slice big enough for one year’s living expenses while leaving the rest to grow. The sell produces cash, not just profits; but it is only the profits that are taxed. Watch a stock fall from $3 to $0 and notice a limit to the losses. Play the game right (and it is effectively a game to many) and don’t worry about paying much in taxes until the portfolio is so large that any taxes become relatively small – as long as the sales fund a frugal not a flagrant lifestyle.

The other thing about living off a portfolio is simplicity. Live a simple life. Fill out simple forms.

Tax laws change. Rates change. Keeping track is tough enough that people devote their careers to keeping up, and that’s not easy. They’re worth their money.

Now, my life is complicated. My portfolio is a collection of seeds in ground that I think is fertile, yet the shoots aren’t sprouting – yet. Maybe they’re more like mushrooms that take years to mature and pop out seemingly overnight. My business is primarily consulting and communications. I help people plan their projects or provide a fresh perspective on seemingly intractable issues; but I also make money from writing, photography, speaking, and teaching. Business revenues are a mix of retail, wholesale, royalties, commissions, and contracts. The numbers for many of the categories are small, but the IRS requires that they all be accounted for. Fortunately, TurboTax handles that complexity readily. I don’t know if TurboTax is best, but it is convenient, relatively inexpensive, and familiar.

I’m an optimist. Every year since I’ve been relying on my business instead of my portfolio, I remind myself that next year can be completely different and better. Maybe I can simplify and do them myself. Maybe I can afford to have someone else do them. A portfolio that recovers, word-of-mouth leading to increased consulting business, a good job, or maybe even one of my books becoming rediscovered and becoming a best-seller. Hey, I can dream.

Whether next year is different or not isn’t the issue. Conventional wisdom holds that the more you make the more you pay. I know that’s not true. As my fortunes have dipped my taxes have risen. I suspect I’m not the only one. Tune in again next year and see what changes – to me and all of us.

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About Tom Trimbath

consultant / entrepreneur / writer / photographer / speaker / aerospace engineer / semi-semi-retired More info at: https://trimbathcreative.wordpress.com/about/ and at my amazon author page: http://www.amazon.com/-/e/B0035XVXAA
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One Response to Lower Income Higher Taxes

  1. Pattie Beaven says:

    Well, I liked this, mainly to show support. Of course I don’t like the idea of you paying so much in taxes…

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