Frugaling

Save more, live well, give generously

  • Home
  • Start Here
  • Popular
    • Archives
  • Recommended
  • Contact
  • Save Money
    • Lifestyle Downgrade
    • Save Money with Mindfulness
    • Save at Starbucks
    • Psychological Trick To Reduce Your Online Shopping
    • Best Freebies
  • Minimalism
    • 8 TED Talks To Become A Minimalist
    • We Rent This Life
    • Everything Must Go
    • Lifestyle Downgrade
    • The Purchase Paradox: Wanting, Until You Own It
    • Nothing In My Pockets
  • Social Justice
    • Destroy The 40-Hour Workweek
    • Too Poor To Protest: Income Inequality
    • The New Rich: How $250k A Year Became Middle Class
    • Hunter Gatherers vs. 21st Century Desk-sitters
  • Make Money
    • Make $10k in 10 Months
    • Monetize Your Blog
    • Side Hustle for Serious Cash
  • Loans
    • 5 Rules To Follow Before Accepting Student Loans
    • Would You Marry Me?
    • Should I Have a Credit Card If I’m In Debt?
    • $50k in Scholarships in 70 Minutes

I Owe $4,000 In Taxes!?

By Frugaling 29 Comments

Share This:

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

Share This:

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

Account For Depreciation, Save Your Budget

By Frugaling 7 Comments

Share This:

Broken Computer Flickr Creative Commons Tech Devices
Photo: flickr/youngthousands

The 21st century doesn’t seem to prevent technology from aging rapidly and becoming obsolete after a couple years. A couple of my devices recently died, and I’m on the cusp of another big tech failure. I just don’t have the money to replace anything. This could spell trouble for my precariously balanced budget.

My devices are failing me

Three months ago, my Amazon Kindle broke. I traveled the globe with that device and read hundreds of books over its lifespan. After four years of heavy use, the screen died and the internal motherboard stopped working properly. It probably didn’t help that I spilled a glass of orange juice in the keyboard of this device (watch out for this theme). Rather than simply throw it away, I auctioned it off on eBay and recouped about $25. Not bad considering it was broken and about four years old.

Amazon’s Kindle costs about $120.

I just chucked my Apple headphones in the trash. After nearly two years of intense use and travel, they’re broken. I don’t go a day without listening to music on my iPhone, and most of the time I used those headphones. I had tried extending the life by using electrical tape and trying to reseal certain areas on the headphones. For a while, that worked. Unfortunately, they worsened. They’ve been answering/ending phone calls automatically and starting/stopping music at random. Not a pleasant surprise when you begin answering phone calls to telemarketers.

Apple’s in-ear “earpods” cost about $30.

What if my computer breaks?

I bought my 13″ Macbook Air in mid 2011. It’s my favorite computer I’ve ever owned, and I’ve avoided an upgrade. While I still yearn for a newer model, I can’t afford to buy one right now.

Like my other devices, it gets exposed to some serious travel and abuse. After about a year of owning the laptop, I spilled a full glass of chocolate silk in the keyboard (notice the theme?). It fried the top assembly. I brought it to a repair store to try and save it — the cost was about $400 to fix. I remember looking at that price and thinking, “I could buy a brand new Windows laptop at that cost.” I decided to go ahead with the repair, as the system could be saved.

Now, about three years old, my trusty laptop is starting to slow down. I can tell that the cooling fans aren’t working properly. This is likely damaging important processor components and could threaten my data. It’s a recipe for disaster. At some point, my laptop will likely overheat and fry itself. Until then, I work on nearly everything in the cloud and save frequently.

Apple’s Macbook Air costs about $1000.

Account for losses, use depreciation schedules

When you purchase a computer, like a new car, it immediately loses a bit of value. Over time, the depreciation continues. The Internal Revenue Service (IRS) has specific tax depreciation rules that can be used for the following:

Most types of tangible property (except, land), such as buildings, machinery, vehicles, furniture, and equipment are depreciable. Likewise, certain intangible property, such as patents, copyrights, and computer software is depreciable.

These properties can be deducted from income schedules, but are only to be used by businesses. You cannot deduct for physical product depreciation as an individual. Luckily for me, my computer is primarily a business tool — seeing as I use it to write.

Modified Accelerated Cost Recovery System MACRS
Screenshot of a Modified Accelerated Cost Recovery System calculator

Irrespective of whether you can claim a tax deduction, it’s important to learn to account for depreciation in vehicles, electronics, and intangibles (i.e., software). But this is where calculations get sort of complicated. Essentially, depreciation is a governmental science that averages your losses on a product, which is based on your cost basis (the original price paid). If I bought my computer in 2011 for $1000, then the depreciation expense that can be deducted from my taxes is $58. That’s a loose estimate from this calculator.

Even if you don’t claim business tax deductions, calculating depreciation through this method and then including the $58 loss in your budget for 2014 is very important. If I had properly accounted for the further losses of my headphones, the Kindle, and my Macbook Air, I would be in a better financial situation.

Eventually, things fall apart. It’s a known truth. After losing my Kindle and headphones to failure, I looked at about $125 in losses. If my computer goes, too, I’m in trouble. In the future, I’ll be looking to account for depreciation to avoid budgetary surprises that could leave me reeling.

Also, I’ve learned that I need to keep liquids away from keyboards.

Filed Under: Save Money Tagged With: Amazon, Apple, Budget, Depreciation, Devices, Earpods, Headphones, irs, kindle, Macbook Air, Tech, Technology

Paying Off Student Loans? Don’t Forget This $2500 Deduction!

By Frugaling 1 Comment

Share This:

1098-E Tax Form Student Loan Interest Paid
Click to Enlarge – Form 1098-E

As a student and recipient of student loans, I’ve been collecting huge sums of debt. Before I started Frugaling.org, I had amassed about $37k between car, credit, and financial aid. Thankfully, that recipe for disaster was turned around when I began writing about my new, frugal life.

Student loan interest is deductible!

I saved and made more money than ever in 2013. Despite being a full-time graduate student (at around 60 hours per week), I started making enough money to pay back my student loans. By the end of 2013, I paid off $1,785.46 of interest (just interest) owed on my student loans.

The IRS and tax code stipulates that a recipient of student loans is granted up to $2,500 in deductions from the payment of student loan interest. Again, this is only the interest that has been gained on the loans – not the principal that was originally lent. Moreover, if you make over $75k ($155k if married) in adjusted gross income (AGI), you do not qualify for this deduction. You can find out whether you qualify for the deduction here.

Golden Ticket Charlie Tax Write Off Deduction 1098-E

The use and importance of Form 1098-E

Every year that you are paying student loans, you end up contributing a certain amount in interest. In return you will receive a little golden ticket (Form 1098-E) that allows you to deduct some income tax. All you have to do is enter the corresponding boxes on a program like TurboTax and you’ll magically see a sizeable refund add up.

Pair a nice deduction with Amazon’s TurboTax bonus of 10% on this year’s refund, and you’ll be flush with cash come return season!

Here’s a link to this year’s official IRS Form 1098-E.

Filed Under: Loans Tagged With: 1098-e, debt, Form, irs, Student Loans, tax, tax forms, taxation, Turbotax

Follow

  • Facebook
  • Google+
  • Pinterest
  • RSS
  • Twitter

Subscribe

Best Of

  • The New Rich: How $250k A Year Became Middle Class
    The New Rich: How $250k A Year Became Middle Class
  • 8 TED Talks That Will Inspire You To Become A Minimalist
    8 TED Talks That Will Inspire You To Become A Minimalist
  • 5 Tricks To Save Money At Starbucks (Updated)
    5 Tricks To Save Money At Starbucks (Updated)
  • Going Green Is A Scam
    Going Green Is A Scam
  • Mark Cuban's Horrific Student Loan Debt "Solution"
    Mark Cuban's Horrific Student Loan Debt "Solution"
  • Ownership Isn't Real, We Rent This Life
    Ownership Isn't Real, We Rent This Life

Recent Posts

  • How to Pay Off Medical Debt
  • 5 Ways to Save Money Before a New Baby
  • 4 Ways to Save Money on Streaming Services
  • 5 Ways to Save Thousands in Mortgage Interest
  • Why Professional Maintenance on Your Vehicle Saves You Money in the Long Run

Search

Archives

  • January 2023 (1)
  • March 2022 (3)
  • February 2022 (2)
  • November 2021 (1)
  • October 2021 (2)
  • August 2021 (4)
  • July 2021 (5)
  • June 2021 (3)
  • May 2021 (2)
  • January 2021 (2)
  • December 2020 (2)
  • October 2020 (2)
  • September 2020 (1)
  • August 2020 (3)
  • June 2020 (1)
  • May 2020 (2)
  • April 2020 (1)
  • February 2020 (2)
  • January 2020 (1)
  • December 2019 (1)
  • November 2019 (5)
  • September 2019 (4)
  • August 2019 (1)
  • June 2019 (1)
  • May 2019 (1)
  • April 2019 (1)
  • March 2019 (3)
  • February 2019 (1)
  • January 2019 (3)
  • December 2018 (1)
  • September 2018 (2)
  • July 2018 (1)
  • June 2018 (2)
  • May 2018 (1)
  • April 2018 (5)
  • March 2018 (6)
  • February 2018 (4)
  • January 2018 (1)
  • December 2017 (10)
  • November 2017 (3)
  • July 2017 (2)
  • June 2017 (5)
  • May 2017 (2)
  • April 2017 (8)
  • March 2017 (4)
  • February 2017 (3)
  • January 2017 (2)
  • December 2016 (2)
  • November 2016 (4)
  • October 2016 (2)
  • September 2016 (1)
  • August 2016 (4)
  • July 2016 (1)
  • June 2016 (3)
  • May 2016 (3)
  • April 2016 (4)
  • March 2016 (5)
  • February 2016 (2)
  • January 2016 (2)
  • December 2015 (3)
  • November 2015 (5)
  • October 2015 (5)
  • September 2015 (4)
  • August 2015 (6)
  • July 2015 (8)
  • June 2015 (6)
  • May 2015 (14)
  • April 2015 (14)
  • March 2015 (13)
  • February 2015 (12)
  • January 2015 (15)
  • December 2014 (10)
  • November 2014 (5)
  • October 2014 (6)
  • September 2014 (7)
  • August 2014 (12)
  • July 2014 (11)
  • June 2014 (12)
  • May 2014 (16)
  • April 2014 (13)
  • March 2014 (13)
  • February 2014 (9)
  • January 2014 (20)
  • December 2013 (9)
  • November 2013 (18)
  • October 2013 (15)
  • September 2013 (11)
  • August 2013 (11)
  • July 2013 (27)
  • June 2013 (18)
  • May 2013 (16)

Best Of

  • The New Rich: How $250k A Year Became Middle Class
  • 8 TED Talks That Will Inspire You To Become A Minimalist
  • 5 Tricks To Save Money At Starbucks (Updated)

Recent Posts

  • How to Pay Off Medical Debt
  • 5 Ways to Save Money Before a New Baby
  • 4 Ways to Save Money on Streaming Services

Follow

  • Facebook
  • Google+
  • RSS
  • Twitter

Copyright © 2023 · Modern Studio Pro Theme on Genesis Framework · WordPress · Log in