Tuesday, April 15, 2008

What a Difference a Lifetime Makes

Welcome to the IRS’s version of ‘Thanksgiving’
In case you didn’t know, today is April 15th — not that it makes that much difference to me. I filed my return in February and my refund is already in the bank. Not trying to gloat, just sayin.’ However to be fair, it really does matter to a lot of other folks, and not too long ago I was one myself, so I’m honestly not without my due empathy.

But anyway, this morning I was on my way out the front door, my backpack and gym bag draped over my right shoulder and my left hand on the doorknob. It was then that my left leg began to throb.

“Who the hell is calling me this early?” I thought. Y’see, my cell phone generally sleeps in most mornings and issues neither a peep nor a shudder until at least noon.

The notable exception to that rule is when Michelle calls. She leaves for work a half-hour before I do, so if there’s an accident or a cop staked out with a radar gun somewhere along the path she and I share in our morning commute, she’ll give me a hollar to let me know. She’s really good about that.

So I immediately thought that might be the case, but when I fished the cellphone out of my pocket and checked the display, I was surprised to see that the caller was someone else who hangs out on my branch of the family tree: our son Shawn.

He was calling to ask about which part of the form he received back from his tax preparer to send in along with his check, this of course being the most sacred of national holidays, Tax Deadline Day.

Last summer we told both of the kids after their respective college graduations that we would still be there to help them in certain areas, but only in a pinch. They gladly accepted being nudged out of the nest, but to be sure, this would be a new experience for them.

One of the things that they both have been taking care of on their own now for the past two years running is seeing to the filing of their own federal income tax returns. Amy has filed the 1040-EZ form online, and Shawn, due to the fact that he too has followed in his Pop’s footsteps as a self-employed individual, has been forced to go out and find someone else to do the work, what with the potential difficulties of doing a business tax return on one’s own.

So as I answered his questions I’ll have to admit to simultaneously feeling a sense of pride that my boy was getting his feet wet in the goings-on of the ‘real world,’ right alongside a slight pang of guilt for suddenly realizing that I had brought into the world yet another man who just like me is completely incapable of doing his own taxes.

But after we ended the call and I continued out the front door, the chilly April morning air collided with bright warm morning sunshine and I reflected on how much different my life is now, especially in relation to the way I myself used to face April 15th each and every year.

I smiled and thought to myself, “Wow. What a difference a few years makes.”

Still the same…but different
I suppose it wasn’t really that long ago, but it feels like a lifetime ago; and perhaps it was. Perhaps I really was a different person back in the days when I used to avoid April 15th like the plague.

I knew I couldn’t really give it the slip, but I sure gave it the ol’ college try.

Being a freelance graphic designer for fifteen years, I knew that nearly every year we would have to ante up to Uncle Sam, so every year I waited until the last minute to prepare my taxes and never sent in my return (and that all-important check) early.

In fact, I was usually one of the guys who had to scramble just to get to the post office before it closed — despite the fact that they always stay open late on Tax Deadline Day

Many times we either got our money in late or not at all, and were forced to throw ourselves at the mercy of The Service, to accept installments. What was even worse, on three occasions we had to work through the millstone-around-the-neck experience of an IRS tax lien — the last one of which we were forced to pay off to become eligible to buy our first home here in Tennessee.

And as one might guess, it was a fairly hot-button issue between Michelle and me. Enough instances had passed in which my slothfulness had indeed bitten me in ‘da tush, forcing us to pay even more in interest and penalties to the IRS.

The subject of tax season always brought with it a predictable tension. “Have you gotten started on the taxes yet?” she’d ask repeatedly. “Nope, not yet. Soon, though,” I'd respond matter-of-factly, knowing full well that I had no intention of doing anything until no sooner than April 5th — which may seem like a plenty sufficient timeframe in which to get our return in, but it’s really not.

Anyone who has ever caught the famous comedy act of the ‘long form’ (Form 1040 and its lovable sidekick, Schedule ‘C’) knows that when you own a business or even itemize personal deductions, backup is everything. The IRS has certain things that are automatic ‘red flags,’ and one of those is a deduction I took annually that opened me up for scrutiny each and every time: the ‘Home Office’ deduction.

Home office deductions have to be carefully documented. The reason they’ve fallen under so much scrutiny in recent years is because so many people have abused the privilege. Too many have counted too much of their home as ‘used’ in their home office allocation — and in turn, too high a percentage of rent/mortgage cost, utilities, etc. And going overboard with the dollar amount is a big no-no — intentional or otherwise.

Consequently now, according to my former tax professional, bad home office deductions are one of the chief reasons someone may be audited. It’s vital that if entitled, a person does it right, with proper documentation and a realistic percentage of how much of their home and its expended resources actually went into the day-to-day cost of running the business.

Do it wrong, or worse, do so with the intention of pulling a little som’som’ over on the IRS, and you can be reasonably sure you’ll become a much more popular person. However when an auditor shows up at your door, they usually aren’t wearing party hats.

And I don’t know about you, but I’ve been audited once before (not by the IRS, but by the State of California for state sales tax discrepancies) and I can assure you it is NOT something I want to experience ever again. So I made the decision a long time ago to do whatever it takes to keep my nose as clean as possible. I’ve since always erred on the side of caution, and if I didn't have a receipt for something, well too bad, Chuck, that's a deduction that simply got away.

I’ve always used CPAs to do my taxes — probably to my own detriment, financially — but it’s money well-spent, in my opinion. I’ve never been a numbers guy, and given my history, I’m scared to death of screwing it up. Therefore I’ve never done my own federal return — ever. Even now, as it’s been two years since my last freelance side job, we still use a tax preparer. Until recently I always had at least a grand or two of annual income from freelance graphics or web work. I kept doing it for as long as those usually longstanding clients continued to feed it to me.

However as the work dwindled, so did my desire to pay our CPA nearly $200 per year for working my ‘other business’ income into his tax prep for what seemed to be so little ultimate benefit derived from it.

Then Michelle discovered through the grapevine at work that there was a retired IRS agent who did taxes as a side job. The guy is GREAT! Does the whole deal for $75.00, which is about half what we used to pay the CPA. And even though I no longer deal with saving receipts and breaking down utility costs into a room-by-room usage cost, Michelle still does for her Longberger basket business. And as I’m concerned, that’s what makes his service such a bargain.

My wife’s own freelance business income doesn’t do much more than support her ‘basket habit,’ so the deduction figuring doesn't amount to much work on her part, but now it’s she who must spend time recording and figuring out all the various nuances of business expense deduction.

It’s just nice for me to be able to ask her for a change, “Hey…have you gotten started on the taxes yet?”

Gone Corporate
I really never thought I’d say it — or further, honestly even think it — but I really don’t miss freelancing. Sure, I miss having the option of occasionally playing hooky and going to the beach on a nice summer’s morning instead of working; or working all day in the same get-up I rolled out of bed in. But I don’t miss the all-nighters, and the artificial deadlines imposed by clients who thought that all you had to do was ‘press a button’ to realize fully concepted and laid-out artwork. That was especially true in the early days of web design. People had no idea what went into creating a web site and sometimes had some pretty unrealistic expectations.

However I do miss having the radio on all day long, especially back in the mid-90s, when we’d just gotten into our first house and I was really beginning to discover the richness of my favorite radio station, Lightning 100.

I also miss the feeling of satisfaction and the heady sense of power that comes with being your own boss, and relishing the fact each and every day. Those are feelings that were made even more poignant in the mid-1990s, when our finances were in shambles and my world seemed to be collapsing about my shoulders, yet somehow, with a lot of hard work we came through it all.

Yep, I miss all those things, but there are a few others I don’t miss.

I don’t really miss the isolation. Yeah I know I’ve said on more than one occasion, that I’ve honestly never ‘felt’ lonely. And while it’s true that despite being very much by nature a social person, and have always been content to be by myself if necessary, I now believe that my dearth of daily human interaction that was at least partially responsible for my perceived need to seek out someone who would fill a space that my friends couldn’t fill (because, hello, I didn’t have any), or that my wife seemingly didn’t want to fill.

I like the people I work with here at The Company. I like being with and feeling like a part of a team.

Yeah, as much as I always said I’d never ‘go corporate,’ right now, I really can’t imagine doing anything else.

Slow pay? No way!
But the one thing I by far miss the least is slaving away on a project for three weeks and then waiting another 30, 60, 90, or 120 days to get paid for it. Slow-to-deadbeat remittance is the bane of all freelancers; it’s what puts the ‘starve’ in the ‘starving artist.’

It’s the one thing that, try as you can to accept it, never ceases to get under your skin. It’s emotionally draining, and unless you are extremely disciplined as a budgeter, it can be financially devastating.

And that, finally, brings me back on point: why today is different from so many Tax Deadline Days past; why I feel so different now versus ten years ago.

I can now finally afford to pay my taxes. That was always my problem. My cash flow was just never such that I could afford to make the quarterly payments to the IRS like you’re supposed to. And if you don’t, not only are you looking at a penalty for said lack of prepayment, but much worse, you’re usually looking at a mountainous single-check payment — one I was never prepared for.

Just like any other endeavor in life, there is both cost as well as reward to the reality of being self-employed; tradeoffs. Things can truly be great, but there is no free lunch. And while I do miss the freedom I once had, I much more appreciate the security in knowing that I’m actually gonna get paid every two weeks.

Funny how a crazy little fact such as that can affect one’s outlook. It’s totally changed mine with respect to financial responsibility.

And by osmosis, hopefully, with regard to my son, Shawn, it’s now affecting his.

I’m especially proud of the way he hasn’t followed in his old man’s footsteps, although getting him to see the wisdom of doing right by Uncle Sam was something we had to work hard to illustrate.

From the time that we moved to Tennessee to start a new life, Michelle and I have been firm in our attempts to educate Shawn and Amy to not make the same mistakes that we had previously made with money. I was determined not to allow the sins of the father to be re-visited on the son and daughter.

As I’ve mentioned before, in recent years, Shawn has plied his trade as an arborist. Someday he wants to have his own company. He makes great money in his position, not only because it’s a dangerous job, being the designated treetop man in the outfit he works for, but also because he’s good at it, and is rapidly becoming an artist in his own right.

However one reason the money he makes is so outstanding is because he gets paid straight off the top (cue rimshot). Despite the fact that he’s been with the same company for over three years, he as well as everyone outside the owner is an independent contractor — or in my terms, a freelancer. The good news is, he’s not a middleman like I was in my line of work. He gets his money or the work doesn’t get done. So in that regard, he’s already on the plus side. Nevertheless there is one malady that befalls all freelancers, and it can really become a problem when tax season rolls around.

Freelancers get their full wage with no taxes withheld, because they’re contractors, not full-employees, and their employers aren’t held responsible to supply that service. From day one I explained to Shawn what that meant to him as a wage-earner. He was going to have to assume the responsibility for his own tax withholdings — and that’s a pretty tall order when you’re an early twentysomething college kid. I made him go right down to the bank and open a passbook savings account with no ATM access, just so he could bank the 20% of every paycheck he’d need to pay the government when April 15th rolled around and not be tempted to spend it by having easy access to the money.

And at first he did really well. Then a couple years ago he wrecked his car and had to buy a new one. Guess where the money had to use came from?

Oh…I dunno…maybe…the tax account?

And because he didn’t have the dough to pay his taxes when the time came, he had to file for an extension and had a ringside seat to watch just how much interest and penalty can accrue on a couple grand in six months’ time.

So he saved up and paid his taxes in August. That cured him.

Since then he still may not have quite the sense of urgency in getting his taxes ready that I’d like to see (but then, who am I to cast stones?), but he has always had the money when he needed it, and that makes me very proud indeed.

We’re trying our best to acknowledge the mistakes we made to our kids, so that they can spare themselves of the heartache and out-and-out dire consequences that poor planning and/or judgement can cause.

It’s taken a lifetime, but I think, maybe, I’m beginning to believe it myself.

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