Tuesday, February 1, 2011

Paying the Bills

I think the universe decided that today was the day we were going to pay for our exponentially lovely weather of late. Not only is it windy and sluicing rain with a cold front waiting in the wings, but we also went to the accountant's office this morning to find out that the tax man is coming and apparantly he'll be carrying a scythe and riding a black horse.

Apocolyptic signs aside, I'm really not happy about this year's huge tax bill. The biggest problem is that we're getting heavily penalized for paying for all our capital improvements in cash. Amortization rates vary on capital improvements, but typically they amortize and/or depreciate over 10 or 15 years. In layman's terms what this means is that for every $100,000 in cash flow we spend on capital improvements, we're only allowed to write off $ 7500 to $ 10,000 and we're stuck paying income tax on the balance despite the fact we've already spent the money on legitimate business expenses. It's a good problem to have, but it is, nevertheless, a real problem. As Dave Ramsey so aptly says, our system is not set up to reward financial prudence and conservatism.

I really don't mind paying income tax, so long as what I think I'm paying is reasonably fair, but thanks to the aforementioned scenario the amount of money we've had to cough up the past two years has been ridiculous. As much as I don't want to do so, I've begun looking at the cost of borrowing money to finance at least some of our capital improvement projects so that I can more closely match our cash outlay with our depreciation/amortization schedule and make some moves to reduce our tax bill at the same time.

This last part is going to be a bit of a vent, I'm afraid.

When politicians stand up in front of groups of people and say that we need to tax the wealthy harder, lots of folks jump up and cheer. After all, taxes are nothing more than a redistribution of wealth (to the state, and through them, back to us), and wealthy people have lots more money than the rest of us to redistribute, right ? Besides, spending someone else's money...money we didn't actually work for....is kind of fun. And of course we aren't wealthy and nobody we know is wealthy so nobody in our world gets hurt out of this, right ? Besides, those wealthy folks probably inherited their money and spend their days eating bonbons while driving to the bank in their Mercedes to count their money.

Well folks, hang on to your hats. According to our government's tax system, Melissa and I fall into the category of "wealthy". Please be jealous of us. And please send us some bonbons and a Mercedes, because I'll be damned if I can find the money to fund them. We work seven days a week, upwards of 12 hours every day in every kind of weather and when we come in the house we are filthy dirty and dog tired. Our last day off was May 27th, 2010. That's not figurative. That's literal. We live in a tiny apartment over my in-laws workshop and our personal vehicle is 11 years old with 200,000 miles on the odometer. This year, we'll pay considerably more money in taxes than we took away from our business to live on. While taxes are necessary and I don't mind paying them, I grudge every single mis-spent and mis-appropriated tax dollar our government spends. I can't help but believe that the mis-spent dollars would be a whole lot better spent if they were back in the pockets of the people they came from in the first place.

End of rant ! That wasn't so bad, was it ?


Funder said...

Being self-employed sucks. I think that's why there are so few "middle class" self-employed people - if you do ok you get killed on taxes, so you have to "get big or get out." Most people either go bankrupt or make it big.

You guys have great financial discipline, and that's your saving grace.

Run the numbers on paying interest to a bank versus losing the depreciation credit. If it's cheaper to borrow money - well, nobody says you have to borrow more than you already have. There's nothing noble about the tax code - it's just a complicated monolith, and you should game it as best you can.

SmartAlex said...

You and Melissa may be among the wealthy, but don't forget that Hilary Clinton defined herself as "middle class". And wasn't it John McCain who had no idea what the price of a loaf of bread was?

Politics needs to get a real grasp on the theory of economy and the worth of a dollar. My favorite presidential joke after our deficit surpassed the trillions of dollars:

The Chief of Staff is giving the president his daily briefing. He concludes by saying: "Yesterday, 3 Brazilian soldiers were killed."

"OH NO!" the President exclaims. "That's terrible!"

His staff sits stunned at this display of emotion, nervously watching as the President sits, head in hands.

Finally, the President looks up and asks, "Tell me again....How many is a brazillion?"

Jason said...


I can't hear what you're saying. When the windows are up the Rolls tends to drown out "noise" from the masses. ;)

SmartAlex; I'll trade ya a snowstorm for a tax bill and check back after awhile to see which fiddlesticks you prefer. I've missed your colourful commentary of late. I figured you were digging out or hibernating ! It's been my experience that it's time to lock up the guns when you can't see out the first floor windows any more.

Jack said...

Sounds like you have learned about the difference between capital expenses and repairs and maintenance!
Look on the brightside - you had the cash flow to do what you did and the future should be bright after you get over this speed bump!
We are waiting for a significant snowfall here, it has had more billing than the super bowl!

Jason said...

Jack; You're right ! I learned it a long time ago but I wasn't in the position to do anything with cash so it didn't matter very much. But it does now ! With age comes wisdom.

If you think your snowfall got some press you should have seen it down here. I think a lot more Americans ought to live in the lee of any of the Great Lakes for a winter and they wouldn't get so worked up about a foot or two of snow.

Funder said...

Heeey now! In defense of the South - it's economically stupid for towns and cities to have fleets of snowplows because they get used so rarely. So nothing CAN get plowed.

I was telling G a couple weeks ago that the entire population of Tennessee should be switched with Michigan for a year. Michigan should have to put up with a Tennessee summer, and TN should have to suck up and deal with a real winter.

(Also, Southerners all complete idiot drivers and it's a great excuse to stay home.)

Jason said...

Funder; You're right. And it isn't going to snow here this time anyway...it's 52 degrees and the precipitation has stopped.

But this time places that ought to know better...states like Wisconsin and Michigan.... where it actually snows every winter and they have equipment to deal with such events on a regular basis... have this storm hyped all out of proportion, IMO. It's crazy ! But maybe not as crazy as hyping a snowstomr in Ontario. Having grown up in a place surrounded by four out of the five Great Lakes, asking whether it's going to snow in Ontario is like asking whether you're going to keep breathing in Nevada.

Funder said...

Oh I'm definitely on board with picking on the Midwest! You're totally right, they should be blase about this little snow event. ;)

I'm surprised it's so warm in middle TN. It's below freezing where my parents live near Memphis - just cold and windy, at least it's not icing on them or something. What a massive storm system!

Jason said...

I think the cold weather is coming later tonight, although thankfully it's going to be short lived....just a couple of days.

We made it to 68 again today which is pretty easy to take on Feb 1 !

RuckusButt said...

As an Ontarian in the middle of a snow storm - you must forgive the hype, even if we should be used to it. The rest of the world gets snow days, we just want one once in a blue moon too! Besides, the driving really is pretty snarly out there. I didn't "walk" the dog today, I "skiied" her ;)

As for your rant, I couldn't agree more. I will never understand how the more financially responsible you are, the more screwed you get. Though I wouldn't say that every low-or-middle class person thinks the way you portray when it comes to taxing the wealthy (such as thinking spending other people's money is kinda fun).

Jason said...

I don't know about the rest of the plebian masses, but *I* think spending other people's money is kinda fun ! :)

Jason said...

I meant to add that I was talking to a friend earlier who is an AI breeder for Eastern Breeders in Kemptville. Those guys NEVER get a day off for weather. He shared with me just how bad it was as he made his rounds in a small 2WD pickup. I sure didn't envy him his day in the Valley, that is for sure ! :)