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Sometimes I Forget We’re At War

By Frugaling 8 Comments

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Act Up on Berlin Wall - Cold War

We are spending all of this money for death and destruction, and not nearly enough money for life and constructive development…when the guns of war become a national obsession, social needs inevitably suffer.
– Martin Luther King

I leaned over to my girlfriend, and conspiratorially – by heart – recited the Pledge of Allegiance: “One Nation, under God, indivisible….” Even as I said the words, I was surprised by my own fluency. How could I remember this pledge? The answer was simple: I was a product of the American education system. Thus, I spent every morning of class – Kindergarten through 12th grade – up, at attention, and announcing allegiance to my country of birth, as if it was sensitive to my voice. Without my verbal confirmation of unwavering support, the class and country would look down upon me – not just because I’d be sitting down.

Amidst my puberty, horrible awkwardness with the opposite sex, and raging hormones displaced on parents, America fought wars. I vividly remember biology class in 6th grade, when the loudspeaker croaked alive – class would be cancelled. Then, teachers sobbed and kids went home. My parents hurried as fast as they could – to hug me and check to see if I was alright. Of course I was – this was Pittsburgh, mah! But we couldn’t stop watching the news for weeks. Over and over again, the World Trade Center towers fell.

I had stood atop those towers a year prior. My 12-year-old mind couldn’t compute how some of the tallest buildings in the world became shorter than our house – the great had fallen. I was more concerned and interested with rollerblading, biking, and playing videogames.

Our leader delivered rousing messages of revenge. They would pay. To us nincompoops, “they” was this exceedingly abstract term. Who were “they?” Could you be “they?” Could we be “they?” Then “they” became “terrorists.” The terrorists who would pay.

We were told the terrorists couldn’t accept our way of life. The terrorists couldn’t understand our freedoms. The terrorists couldn’t accept our Westernized culture where women could work, roam, and divorce as they please.

Across the Muslim-majority world, America aggressed. Afghanistan, Iraq, the Horn of Africa, Libya, and other sovereign nations felt the boot of U.S. military. We killed, slaughtered, massacred, bombed, shot, and burned. Thousands of service members and “enemy combatants” died. An unknown number of civilians also perished.

When I was 17, I almost enlisted in the U.S. Army. I wanted to be a 17X (“Seventeen x-ray”). This new position short-tracked enlisted folks into a Special Forces career. I idolized their bravery, willpower, and strength. But I backed down after considering what else I could do with my life – at least for the next few years. Nonetheless, I admired every other friend and neighbor that committed to this hard choice.

All these words – written in past tense – belie the reality of my childhood, adolescence, and early adulthood. Sometimes I forget we’re still at war even today. Fifteen years and counting, the War on Terror remains unresolved and unsolved. We cannot completely write these tragedies in history books and say we’ve moved onto a new chapter. We cannot say this will be last combat troop found blown up by an improvised explosive device or dictator that suffers our wrath. We’re not finished yet.

In 2015, the War on Terror was estimated to cost at least $1.7 trillion. No, writing that word – “trillion” – doesn’t do it justice. Let me write out every zero behind it.

$1,700,000,000,000.

The first three zeros are for a great day’s work. The second three zeros give you a lawyers’ salary. The third three zeros will buy you a fleet of Airbus aircraft. The next three zeros give you a greater gross domestic product than countries. And the next digit – the number for trillion – buys you a country or two or three.

This level of wealth could’ve bought us a lot of influence in the world, rebuilt our crumbling infrastructure, provided greater humanitarian relief for refugees, and more. But we didn’t think twice within this representative democracy to vote in representatives who would vote in favor of war repeatedly. Those votes were easy in comparison to providing safe bridges, smooth roads, clean water, affordable education, universal healthcare, and/or subsidizing clean energy. The initiatives that would’ve directly impacted our lives for the better – those were the partisan battles of my adolescence. And even if we enacted all those plans, we would still have money leftover to feed the impoverished, house the homeless, and have a roaring economy.

We chose war.

This choice cost us every year as taxpayers, too. About 18-20% of the federal budget goes towards “National Defense” spending. For every dollar, we burn 20% with the goal of keeping us safe. If I snatched away one-fifth of every paycheck from you, wouldn’t you do something about it? Would you let me siphon off your hard-earned dollars?

But I don’t hate all taxes. In fact, I love them! They pay for libraries, fire and police departments, National Guard troops, family members’ disability payments, and Medicare. They provide for those in need; albeit, they could do better. They provide grants and funding for disadvantaged populations to go to college; albeit, they could do better. They provide unemployment support if we lose our jobs suddenly; albeit, they could do better.

We’ve spent 15 years punishing the Muslim-majority countries without resolution. If bloodshed is not enough, are we not sick of war’s economic costs for those at home and abroad? Are we not tired of losing one-fifth of our work? Are we not tired of our worldwide reputation of war before diplomacy?

Years passed where I dreamt of serving my leaders. I wanted to take care of soldiers in combat as a psychologist. I used to take great pride in our flag, to stand with allegiance, and be a good citizen. I loved when I unwrapped my U.S. passport for the first time to flip through the pages of history and read our proud declarations of freedom. But I’ve been changed by a war more than half my life.

Filed Under: Social Justice Tagged With: America, Budget, federal, spending, tax, taxes, Terror, Terrorism, US, War

I Owe $4,000 In Taxes!?

By Frugaling 29 Comments

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Self-Employment Taxes Photo
Photo: Philip Taylor/Flickr

Frugaling my way out of debt

I’ve been a student of some sort nearly all my life. I never worried about ponying up extra funds for a tax payment until 2013. And honestly, when I created Frugaling, I had nearly $40,000 in debt from credit cards, a car loan, and student loans. There was no way the taxman would give me anything but a fat return.

Then, a financial miracle occurred. In the summer of 2013, I began to make thousands of dollars in affiliate/ad revenue from Frugaling. The money poured in, and I was giddy. Finally, I could begin paying off all the debt — in record time.

I dropped all of it into student loan debt, and paid off nearly everything (finished the rest in 2014). My nerves calmed, and I could suddenly see freedom and future. Cheesy, I know, but my loans had dampened my spirits. Suddenly, I was renewed.

Ugh, self-employment taxes

As this new influx of funds padded my wallet, I unfortunately realized that by the end of the year, the taxman would be knocking. All of these funds from Frugaling were coming in untaxed — no withholding. These are self-employment taxes. Ultimately, this income must be declared and taxed at a penalty rate to pay for social services (i.e., Medicare, Medicaid, and Social Security).

After calculating all the money made and entering the numbers into TurboTax, the hypothetical refund reversed to a payment. The government wanted about $1,000. I sat there dumbfounded for a moment. All these advertisements and campaigns suggested I would “Get the biggest refund ever.” Those pesky self-employment taxes obliterated my student status.

It was a lesson in the difference between income and net worth. That year I had made over $30,000 between graduate student work and the website. I had barely any savings and negative net worth. Yet, I was being penalized for making money that could pay off financial aid faster. To me, it seemed preposterous that I was being taxed at a higher rate for this side income — with no net worth.

I owe Uncle Sam how much?!

In 2014, I paid off my remaining debt and my net worth has been hovering at a few thousand dollars. My stress over debt is non-existent, and I feel better than ever about my financial situation. But I’m not done with the struggle to make wealth while in graduate school.

I made over $20,000 “on the side” for Frugaling/business-related self-employment (I no longer make that kind of money, as I removed credit card affiliate links for now). After inserting my income and expenses into TurboTax, a shiver went down my spine. The numbers catapulted up over $4,000.

I’m fortunate that I’ve been saving for this moment. My savings account has enough to cover it, but my net worth will be swept away come mid-April. It feels awful to work this hard to save, make, and write. I have no net worth, and yet the funds I made will be disappearing.

But instead of letting this payment dampen my mood, I am more focused than ever on writing for you all, staying frugal and minimal, and building some real savings.

Filed Under: Loans, Save Money Tagged With: federal, Government, irs, Self-Employment, taxes, Turbotax

Tax Inversions: The Most Unpatriotic, Selfish, And Shortsighted Decision Companies Make

By Frugaling 6 Comments

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Corporations Tax Inversion Evasion No Revenue

Tax evasion is persecuted heavily in the United States. If you’re caught keeping income away from the federal government, you could be looking at a hefty prison term and fine. This very crime that put Al Capone, the notorious mafia-gangster, behind bars. And yet, when companies dodge taxes, their shareholders rejoice. Nowadays, rapacious corporations are pushing the limit of U.S. tax laws by engaging in one of the sneakiest tax-dodging practices ever: tax inversions.

What are corporate tax inversions?

Bear with me as I try to explain a fairly complicated procedure. Essentially, corporations pay certain tax rates in America. Sometimes motivated by intrinsic greed — at other times by shareholders — corporate executives decide that moving their official headquarters to another, overseas location would be better for taxation. In switching to another country, with lower tax rates, they can pass on those savings to shareholders via greater earnings per share (via profit and revenue), larger stock buybacks, and more dividends. All they have to do is purchase another company that already has its headquarters in a tax haven.

When you own shares in a company like this, you can easily get swept up into this grand, wonderful idea. You’ll be getting more money for your investment and the company will be even more competitive. These are significant advantages — until you look at the dirty consequences.

When robber barons are more patriotic than today’s businesses…

Robber barons — 19th-century industrialists/capitalists — knew how to make money hand over fist. They could squeeze workers and make millions of dollars (billions when accounting for inflation). Many of these elite capitalists formed companies in finance, manufacturing, oil, and transportation. These industries were at the heart of American success; although, the robber barons made a lot more than your average, everyday peon.

There was a uniting factor to these antiquated moneymen: pride in country. They made their riches here, and much of the money flowed back into America. For instance, Andrew Carnegie, who started one of the largest steel manufacturers in the world, gave much of his wealth to schools (Carnegie Mellon University), museums, and libraries.

As America matured, tax laws and corporate structures evolved. Workers were offered more rights due to union memberships. Talk of a fair wage encouraged companies to pay more and protect workers. America became a booming economy, despite these new restrictions. Social welfare programs developed, as well, which sent people to college (affordably) and created Social Security. There was a respect for those who worked 40 years. The country believed they deserved to live safely after working so hard. Today’s businesses seem to have a different motivation.

How much do American companies have to pay in taxes?

Now, hardly a day goes by without a corporate executives complaining about excessive taxation. Steve Schwarzman famously compared the pressure for increased taxation to the invasion of Poland by the Nazis. Classy! Or, how about the Home Depot founder, Ken Langone, who said that increasing taxes, awareness of income inequality, and the Democratic agenda was “was what Hitler was saying in Germany.” Holy hyperbole! And the last one (that I’ll include in this article) comes from Tom Perkins, whose net worth is said to be around $8 billion. He said, “[there’s a] progressive war on the one percent…In the Nazi area it was racial demonization, now it is class demonization.” To put it simply, he’s saying that poor people clamoring for help is comparable to Nazis killing Jews. Better to bite your tongue, perhaps?!

Beyond the disturbing question of why some bigoted wealthy people freely invoke the Holocaust and its accompanying atrocities, I’m left wondering how bad it is in America for them. If people are that stirred up and eager to fight back poor people, tax increases, and basic rights for workers, these executives must be struggling. Alas, avoid the wellworks, the aforementioned Nazi-invokers are all billionaires. I trust they’ll find a way to pay their next meal.

Despite these clarion calls for tax revolution, American companies are doing well. In fact, corporations are seeing record profits year-over-year. How can this be happening in these awful, tax heavy times? Well, for large-cap corporations, they’re not. Armed with restless lawyers, accountants, and lobbyists, the largest companies march up to Capitol Hill and demand tax breaks. And you know what? It works.

Yesterday, CNBC reported on 20 (to name a few) companies that pay 0% in taxes. Take a look and see if you recognize any:

1. Merck
2. Seagate Tech
3. Thermo Fisher
4. General Motors
5. Public Storage
6. Iron Mountain
7. Newmont Mining
8. Eaton
9. Avalonbay
10. Kimco Realty
11. Prologis
12. Boston Properties
13. Apartment Investment
14. Plum Creek Timber
15. Citrix Systems
16. Crown Castle
17. Macerich
18. News Corp.
19. Essex Prop.
20. First Solar

These companies are likely benefiting from tremendous tax loopholes and writeoffs that are only available to them. From federal investments to research grants to special “one-time” discounts, they add up and suddenly the bill comes to $0.

That means that the preceding list doesn’t contribute a single dollar to our federal budget via traditional taxes. Moreover, they don’t properly fund our infrastructure that they rely on. Without the education, federal investments/breaks, transportation system, etc., these companies would have a devastatingly hard time finding success here.

Business-first media outlets such as the Wall Street Journal swiftly defend companies by saying:

“We’ve written for years about how the U.S. has the highest corporate income tax rate in the developed world, and that’s an incentive for all companies, wherever they are based, to invest outside the U.S.”

In this strange time when taxes are demonized, it’s important to realize that many companies aren’t paying their fair share. These claims that America has the highest corporate tax rate in the world don’t reflect the numerous benefits; after all, membership has its privileges and sometimes that includes sizable tax breaks.

How do corporate tax inversions hurt countries?

Despite this business-friendly reality, some companies still seek to lower their tax burdens — wherever they can find them. Tyco International, Fruit of the Loom, Ingersoll Rand, Transocean, and Eaton Corporation all successfully left the U.S. (for tax purposes), but they all still benefit from the infrastructure and development here. See, even after you leave a country, its people, and suck another $1 billion into your coffers because of the move, we welcome you to do business here with open arms.

It’s sickening. Companies vacate the U.S. for places like the Cayman Islands, Ireland, and Switzerland, where the corporate taxes are zero percent. Americans, again, lose all that tax revenue that would’ve gone to state and federal programs. This all contributes to widening budget gaps, shortfalls, and growing austerity measures. Then, the welcoming nation holds out open arms for the new company. But despite the new headquarters, they make zero percent from their new neighbors.

This is a brutal act that causes disruption for both countries. With zero percent coming in for either party, they both suffer the consequences of a newly globalized world.

Globalization was supposed to bring greater diversity and talent. Suddenly, the world is flat, right? Aren’t we supposed to be benefiting from a shared upward mobility? When tax inversions are employed, it’s hard to see how anyone could possibly benefit — except for a select few shareholders and corporate executives.

Filed Under: Social Justice Tagged With: Business, Companies, federal, Government, invest, irs, market, Robber Barons, stocks, tax inversions, taxation, taxes

Prepare For Your Biggest Tax Deduction

By Frugaling 1 Comment

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2014 Tax deductions preparation
My chicken scratch as I calculate and prepare my taxes for 2014

I owe how much?!

I used to love filing taxes. There was a generous reward and refund each year. As my income sources changed, so did the tax benefits. Nowadays, with the “business” of Frugaling and various self-employment taxes that result, the tax refunds have ended.

Last year’s tax filing led to a nearly $1,000 payment to federal government. That was the first time I ever owed money. I was a significant budgetary hit.

This year is shaping up to be another rough payment. I believe our tax system is flawed, but I want to do my part — my fair share. But there are various ways to ease that burden. I’m already beginning to prepare and save.

Accounting for 2014 taxation

Self-employment taxes

Based on everything from 2013’s taxes, there will be a steep tax for my business income. My business income — from Frugaling.org — is considered self-employment, and is taxed as such. Essentially, it is paid tax free (medicare, medicaid, and social security taxes are not withheld initially) by companies and then I must report the income to the federal government. This year, I’ve estimated my total earnings to better save for the payment.

Tax deductions and credits

Along with business income preparation, I’m looking at current education expenses with a critical eye. Despite being a graduate student with an assistantship (aka, “job”), there are various student fees that aren’t covered.

With tuition and fee inflation/increases, this total will soon reach nearly $5,000 per year for my doctoral education. Thankfully, the federal government subtracts this value from my income — considered a tax deduction for the adjusted gross income (AGI).

Investment contributions

The last piece is where I’m spending increasing time: retirement accounts. I’ll be able to significantly reduce my tax burden this way.

Before this year, I had a near-dormant IRA that was underfunded forever. Unfortunately, I didn’t understand the traditional IRA contribution benefits. I deposited $1,000 into a Roth IRA, which doesn’t benefit from the contribution.

The best thing I could’ve done would be to open a traditional IRA — seek a contribution deduction and retirement savings contributions credit. Now I know! Since then, I’ve deposited about $1,000 into a traditional IRA, which will will net me $1,000 in deductions to income, and an estimated $100 in contribution credits. That will seriously reduce my tax burden and get me saving faster.

Preparation pays off in the end

I spent the last 6 hours calculating how to reduce my tax liability (legally — come on people!). Based on my initial calculations, I’ll save about $2,000 on my final tax payment by contributing more to my traditional IRA, realizing all business deductions and expenses, and saving everything I can. That’s about $333 of savings per hour! Not too shabby.

It’s difficult to save money from the tax man. Preparation and prevention doesn’t necessarily feel as important as making more money, but without taking serious action, you won’t be saving much. There’s no sense working like a dog and not being able to take advantage of the tax code.

Filed Under: Save Money Tagged With: Credits, Deductions, Education Credits, federal, Income, Investments, Self-Employment, Stock Market, tax, taxes

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