Give me a road map!

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Topic Author
WriterGen
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Joined: Tue Oct 21, 2014 3:31 pm

Give me a road map!

Post by WriterGen »

I'm seeing a CPA on Thurs but would like some advice first.

I'm 34. Hubs is 37. Husband is an employee making $190k per year after a big raise he just got. Good benefits--we're on his health plan, etc. We max out his 401k (and get an extra $8k in employer matching).

I'm currently netting $1-2k per day. Starting next year, I expect that will change to $2-4k a day. I started my own business in February. There is no overhead. There is no inventory. It's PERFECTLY scalable. It's strictly a digital world. It's a beautiful, beautiful thing. :) No employees--only contractors.

I won't have any income on paper this year. If I'm allowed, I'll dump $17.5k into a solo 401k and take a paper loss.

Right now, we have debt on the house ($350k), which we are refinancing. At our current rate of payment, it should take 12 years after the refi. No other debt. I'm planning on putting another $36k extra on the house per year. That would change our payoff to about 6 years.

The 3 kids have pre-paid college funds. They're 2 year funds right now. Thinking about increasing that to 4 years--but only the first 2500 per kid is deductible from state taxes, though I can roll it indefinitely forward.

I'm also thinking about a trust, in which we give the maximum we can to the kids every year that escapes the double-whammy gift tax. If there were a way to give them money to be taxed at their rates, maybe by giving them a share in the company, that would be great.

I'm going to put $52k into the 401k in 2015 and going forward. I'm also considering the merits of taking myself off my husband's insurance (maybe once we're sure I'll have no more kids) and going onto a high-deductible + HSA to try to shelter a little more money. It doesn't seem to make sense to take the kids off his plan, though.

I have a friend who's making probably $10k a day doing this. She's got a Defined Benefit Account and is an S-Corp. I'm still and LLC, and I'm a LOT younger than her, so I'm not sure that's a great idea. But I might be able to issue my kids some shares so they get taxes at their rates?

We donate a lot, so I'd like a good way to shelter our donations from the AMT. That didn't used to be a problem. Trusts? Donate first as S-Corp, then as an individual? How?

My income is officially all as book royalties, which are all active income according to the IRS. Is there a way to make part of it passive by filtering it through the S-Corp?

Also, I want a new kitchen. Mine is 50 years old. The doors on the cabinets have fallen off and hit me on the head. So I want some part of my income as spendable cash for the dream kitchen that I've dreamed of for the past 15 years. I also am paying for all the help I need/want around the house. :)

So, anyway, if you were me, expecting an income of $60-120k per month as a pass-through entity starting next year...what would you do?

BTW, I LOVE MY JOB and have no plans to retire any time soon. :D This is the job I've wanted since I was eight years old.
Grt2bOutdoors
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Re: Give me a road map!

Post by Grt2bOutdoors »

You need a tax attorney, not so much a CPA unless the CPA will handle the business accounting end of it.
Next, whatever investment schemes they cook up (and believe me, they will cook up quite a few of them) - AVOID the following - Whole Life Insurance, Variable Annuities, Partnerships.

Trusts set up for children can be good, until it begins generating more than $12K in annual taxable income per trust, then the trusts (not UTMA or UGMA titled, but outright irrevocable trusts) get taxed at the highest of rates 39.6% (yikes!).

Do you have business liability insurance? How about personal umbrella insurance to the tune of about $5MM - with the income levels you are generating, you will make attorneys salivate if you were to get sued for one reason or another.

I trust you already have a will in place with appropriate levels of term life insurance that you can drop if you don't need it later on or not (you can have life insurance trusts established to be used to pay estate taxes, given that it sounds like your income levels/asset levels will make your estate be subject to those taxes at some point down the road).

Be mindful of expenses for your accounting services and suggested investment plans. You are a potential gold mine or whale, for some sales guy. Don't sign anything, until you've read it.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
pshonore
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Re: Give me a road map!

Post by pshonore »

WriterGen wrote:I'm seeing a CPA on Thurs but would like some advice first.

I'm currently netting $1-2k per day. Starting next year, I expect that will change to $2-4k a day. I started my own business in February. There is no overhead. There is no inventory. It's PERFECTLY scalable. It's strictly a digital world. It's a beautiful, beautiful thing. :) No employees--only contractors.

I won't have any income on paper this year. If I'm allowed, I'll dump $17.5k into a solo 401k and take a paper loss.
Not sure what you mean by "no income on paper". You definitely need some net earned income to contribute to a solo 401K. Talking to a CPA/tax Attorney is a good start
Alex Frakt
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Re: Give me a road map!

Post by Alex Frakt »

Several posts questioning the OP's legitimacy have been removed. The OP is what she says she is. Amazon Author Rank shows her as highly ranked in multiple popular categories. If you are not interested in helping her with the issues she has presented, then don't post.

A reminder from the forum policies:
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Alex Frakt
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Re: Give me a road map!

Post by Alex Frakt »

WriterGen wrote:...I won't have any income on paper this year. If I'm allowed, I'll dump $17.5k into a solo 401k and take a paper loss...

I'm currently netting $1-2k per day....

My income is officially all as book royalties, which are all active income according to the IRS.
Your post raises a bunch of issues, but I think we need to start here. These cannot all be true unless you have a half million or so in business expenses or deductible losses. Since you are an author, your book royalties are treated as business income, whether you file your taxes as an individual, partnership, or corporation - any of which are possible with an LLC. You can offset this business income with business expenses, but you will owe taxes on the remainder. You'll also owe employment taxes on all of the remainder if you are reporting your business income via 1040 Schedule C or 1065. If you have incorporated and the IRS has accepted your election as an S-corp, you'll only owe it on the portion paid out as salary (as opposed to ownership distributions - essentially dividends, but you can't call them that in an S-Corp).

No matter how you slice it, unless you are paying out in business expenses as much as you rake in from royalties, you will have taxable income. You will also have a hefty amount of self-employment taxes to pay.
Topic Author
WriterGen
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Re: Give me a road map!

Post by WriterGen »

I began doing extremely well this month. Before then, I did okay. I did $1k in all my first month, $2k in the second, etc., and plateaued at $8k for a few months before figuring out better how to reach my readers.

I will not get any money from these sales until Dec. 30. Because of the money that's coming in, I'm choosing to incur short-term advertising, editing, production, assistant, etc., debts, but I can see net receipts at the end of the day even though I'm on net 60+.

But this level of income is not only just about as secure as ANYTHING is in the writing world, it's also growing steadily.

My CC closes on the 2nd and is due on the 27th. I'll be able to cover all of October on Nov. 27th. On Dec. 27, I won't be able to cover all of Nov's debts. On Dec. 30, I will, but I PROBABLY won't be able to do it and take $17,500 in a 401k. So the plan is, if it's allowed, to do a 401k and carry a loss on the credit card. I don't know whether this was allowed.

I was out of work for a number of years and was a SAHM. I have no life insurance. None at all.

The CPA is also a certified financial planner. He does small business tax advising. But as you say, he may be the wrong person. Thank you. I will most certainly look up a tax attorney.

The CPA won't be doing the books. They're actually stupidly simple. I put all business expenses on a business credit card or PayPal account. I have 1099s on my four contractors--and YES, they are 100% contractors by any sense of the word. I also have a friend's dirt cheap accountant to use if needed for doing Quickbooks. I'm using Freshbooks for expenses only right now.

For investments, I don't like anything actively managed. Index funds are my baby.
Last edited by WriterGen on Thu Oct 23, 2014 1:02 am, edited 1 time in total.
Topic Author
WriterGen
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Re: Give me a road map!

Post by WriterGen »

I missed all the drama because I was working. LOL. Sorry--I'm always working now. I did get a heads up of the general tenor.

I don't blame people for not believing me. The short version is that I've been a writer a long time and I'm very, very, very good. I researched the market and wrote a best-selling series. Legacy publishers didn't believe it would be a best-selling series because they're idiots. I self-published...and it was a best-selling series, and now I get to keep more of the money, even though I have to pay for cover designers, editors, assistants, social media managers, etc., etc. I also work 80 hours a week.

The story does sound a little crazy. I'm still pretty amazed by it.

Don't worry. I won't be PMing anyone about my "secret methods." I'll probably be doing a panel at NINC next year because I'm too cheap to want to pay the fees, but I'm much more likely to say "GET OFF MY LAWN" than "BUY MY SYSTEM," frankly. I won't go into high-rise commercial construction or brain surgery, and you won't "write a book." And we're all good, mmkay?

No hard feelings! :sharebeer
Topic Author
WriterGen
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Re: Give me a road map!

Post by WriterGen »

I don't have a will (I know! I know!) or liability insurance.

Yikes.
mlipps
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Re: Give me a road map!

Post by mlipps »

Do you have to keep writing to keep the money coming? If so, maybe you need life insurance. If not, what's the point? Your family will keep getting the royalties for your books if something happens to you and it sounds like your husband earns more than enough on his own.

That aside, you need to see a CPA if you think ending the year with a balance on your CC will permit you to show an loss on your taxes. It's slightly more complicated than that.
Topic Author
WriterGen
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Re: Give me a road map!

Post by WriterGen »

Without my constant active management and additional books, my income would plummet very quickly. I work 80 hours a week. I have for the last 6 months, and this isn't going to change next year. Not 1% of people who try to self-publish have the grit to make it work. And only 1% of them can ever develop the skill. Every time someone who thinks they know something about publishing/writing comes up to me and chirps, "Ooooh, that must be nice passive income!" I have visions of violence. :mrgreen: MUCH violence. But I'm mean, so I just tell them that they should write a book, too.

I am a publisher, and I do everything a publisher does as well as write.

I figured it would be more complicated. :P It ALWAYS is, isn't it? I am talking to the CPA/CFP in about an hour and a half, so there's that.
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Re: Give me a road map!

Post by Alex Frakt »

WriterGen wrote:I figured it would be more complicated. :P It ALWAYS is, isn't it? I am talking to the CPA/CFP in about an hour and a half, so there's that.
How did it go? I'm always wary of using one person for tax advice and investing advice. If they manage money, it gives them too much of an incentive to suggest setting things up to maximize their management fees at the expense of your long-term returns.
Topic Author
WriterGen
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Re: Give me a road map!

Post by WriterGen »

I REALLY like this guy. He doesn't do management, but he recommends several managers. He strongly recommends ETFs and index funds and to avoid active trading. I got a rubber stamp on my plan for this year (which I spelled out in more detail), but I need to get a 401k ASAP.

He advises that I talk to a for-fee retirement/investing guy (versus on commission) and a tax attorney for next year. The CPA has got a bookkeeper who will do the books at her rate--he predicts 2 hours a month--and will do taxes, etc. His office is in a good location but is small and has cheap furniture--which is actually a point in his favor. :D He's a retired partner from one of the big 4 accounting firms, and he does this because he's not quite ready to be fully retired and because it gives his daughter a job with a good income and benefits on part-time work--she's the bookkeeper.
Topic Author
WriterGen
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Re: Give me a road map!

Post by WriterGen »

Hmm. Talked to the financial planner. They want 2%. I think that's pretty rich given how little they'll do. And that will cost me WAY more in total growth. That's ridiculous.

BLECH.

Talking to tax attorney next. I want someone to find the right financial instruments for me, not charge me to watch my money grow!!!!
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JDCarpenter
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Re: Give me a road map!

Post by JDCarpenter »

2% is bonkers. My wife and I are comfy, but nowhere near your likely asset category (so YMMV!), but would recommend that you follow the refrain of this site. Go to Vanguard and keep it simple. Select your index funds (e.g., three, see http://www.bogleheads.org/wiki/Three-fund_portfolio. Or, merriman's Ultimate Buy & Hold portfolio, http://paulmerriman.com/the-ultimate-bu ... tegy-2014/) Put money into your funds (or ETFs), rebalance annually, repeat ad infinitum. You, especially, don't need nitroglycerin in your accounts.

This doesn't address the boxes that you put the funds in (i.e., 401k with profit sharing, trusts, etc.), just the asset allocation across all boxes. Consult with a pure fee planner as needed--with your level of assets anything set as a percentage is shafting you. BTW, beginning with 1,000,000, and especially with 10,000,000 at Vanguard (like anywhere, of course), they really treat you right: https://investor.vanguard.com/what-we-o ... t-services

I'm not even going to try dealing with tax implications. Beyond my present knowledge and you are best served with expert tax and estate planning advice, which you appear to be covering.

(Edited to add phrase in red)
Our personal blog (no ads) of why we saved/invested: https://www.lisajtravels.com/
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Re: Give me a road map!

Post by dbCooperAir »

WriterGen wrote:Hmm. Talked to the financial planner. They want 2%. I think that's pretty rich given how little they'll do. And that will cost me WAY more in total growth. That's ridiculous.

BLECH.

Talking to tax attorney next. I want someone to find the right financial instruments for me, not charge me to watch my money grow!!!!
I would say Rick Ferri would be a perfect financial planner for you, you at least have something in common and its not going to cost you 2%.

Congrats on your success!
Neither a wise man nor a brave man lies down on the tracks of history to wait for the train of the future to run over him. | -Dwight D. Eisenhower-
Topic Author
WriterGen
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Re: Give me a road map!

Post by WriterGen »

Talked to tax attorney. YAY!!!!! THIS is what I want. :D He knows all the different thises and thats to legally shelter as much as possible, beautiful man. LOL. And we'll get it all set up to take to Vanguard (which was actually WHAT HE SAID because that's what he does) and handle estate planning and everything.

He suggested that I would want a CFP if I want active investing, and I said NOPE, and he said, good, cuz most of them are pretty shady in his opinion.

2%??? Ahahahahaha.

Yeah, not happening.

Our assets aren't impressive at all. A few hundred thousand in retirement. But I want to put in WAY more than 10% next year.
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WriterGen
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Re: Give me a road map!

Post by WriterGen »

Thanks for the congrats! I love this, but it's exhausting. I've got 4 assistants, 2 editors, and 3 graphic designers I juggle, all on a PT basis. I also have just ENORMOUS amounts of admin-type work to do. And I write 200 to 400 pages a month--I NEED to write 400. This is not a job for pansies.

I need easy with investments. That doesn't mean paying through the nose, though. :)
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JDCarpenter
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Re: Give me a road map!

Post by JDCarpenter »

WriterGen wrote: [snip]

Our assets aren't impressive at all. A few hundred thousand in retirement. But I want to put in WAY more than 10% next year.
Sounds like a great visit to the tax Attorney. :-)

Your present assets may be moderate, but you already know that you need to set the structure up for substantial assets (assuming you continue to enjoy putting your nose to the grindstone). Those Flagship numbers at Vanguard won't be as distant as they now appear if you continue on the projected trajectory.

Good luck, and I hope your planning and hard work pay off.
Our personal blog (no ads) of why we saved/invested: https://www.lisajtravels.com/
PatrickA5
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Re: Give me a road map!

Post by PatrickA5 »

WriterGen wrote:Talked to tax attorney. YAY!!!!! THIS is what I want. :D He knows all the different thises and thats to legally shelter as much as possible, beautiful man. LOL. And we'll get it all set up to take to Vanguard (which was actually WHAT HE SAID because that's what he does) and handle estate planning and everything.

He suggested that I would want a CFP if I want active investing, and I said NOPE, and he said, good, cuz most of them are pretty shady in his opinion.

2%??? Ahahahahaha.

Yeah, not happening.

Our assets aren't impressive at all. A few hundred thousand in retirement. But I want to put in WAY more than 10% next year.
I would suggest getting a good idea of what "tax shelters" the attorney is talking about and running it by the CPA/CFA just for a second opinion. I'm sure it's all legit, but might want to start out carefully.

The fact he suggest to go through Vanguard is a good sign.
Topic Author
WriterGen
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Re: Give me a road map!

Post by WriterGen »

JDCarpenter wrote:2% is bonkers. My wife and I are comfy, but nowhere near your likely asset category (so YMMV!), but would recommend that you follow the refrain of this site. Go to Vanguard and keep it simple. Select your index funds (e.g., three, see http://www.bogleheads.org/wiki/Three-fund_portfolio. Or, merriman's Ultimate Buy & Hold portfolio, http://paulmerriman.com/the-ultimate-bu ... tegy-2014/) Put money into your funds (or ETFs), rebalance annually, repeat ad infinitum. You, especially, don't need nitroglycerin in your accounts.
Bookmarked! THANK YOU!!!
Topic Author
WriterGen
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Re: Give me a road map!

Post by WriterGen »

PatrickA5 wrote: I would suggest getting a good idea of what "tax shelters" the attorney is talking about and running it by the CPA/CFA just for a second opinion. I'm sure it's all legit, but might want to start out carefully.

The fact he suggest to go through Vanguard is a good sign.
Going S-Corp with a reasonable salary, more college investments, solo 401k, defined benefit acct after the house is paid off, etc.
Topic Author
WriterGen
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Re: Give me a road map!

Post by WriterGen »

JDCarpenter wrote:
WriterGen wrote: [snip]

Our assets aren't impressive at all. A few hundred thousand in retirement. But I want to put in WAY more than 10% next year.
Sounds like a great visit to the tax Attorney. :-)

Your present assets may be moderate, but you already know that you need to set the structure up for substantial assets (assuming you continue to enjoy putting your nose to the grindstone). Those Flagship numbers at Vanguard won't be as distant as they now appear if you continue on the projected trajectory.

Good luck, and I hope your planning and hard work pay off.
We'll see if I have a highly public meltdown in 5 years. LOL. But really, that's what the assistants are for. The more I can pass over to them, the less stressed I am.
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