Tax Day is upon us.
OK, so maybe you did your taxes some weeks (or months) ago, and you’re kicking back and enjoying the frenzy created by those of us who wait until the last minute. No matter – it’s still tax day, so indulge me. I know that, thanks to a calendar quirk and the little celebrated “Emancipation Day”, it’s technically tomorrow. For me, however, it’s today. I guess I’m finally losing my status as a serious procrastinator by not holding off until the last minute.
You see, being a self-employed individual, taxes are rather different for me. While the majority pay into the system via payroll deductions, we must pay in on a quarterly basis. Or on Tax Day, if the total amount due is under a thousand dollars. As a result, the self-employed have a tendency to actually live by the credo everyone should, which is “do not allow yourself to get a large refund” (which amounts to allowing the government to use your cash through the year without paying you any interest). We also recite the mantra“owe as little as possible at the end of the year” regularly. So why is this a better way to be?
For starters, most accountants suggest that you strive to fall into a $500.00 “bubble” – either the government owes you $500.00, or you owe them $500.00. If that’s the way things turn out, you’re operating in a relatively “neutral” position. Achieving this means that, over the course of the year, you’ll actually get to bring home more of your dough. Seems like a good idea, right? Still, the majority of us like to get that cash windfall we call a refund. Why is that? Most likely, it’s because we have such a difficult time saving money. But think of it – if you were to have a small portion of that “extra” income you’d receive by setting up your withholding properly in the first place automatically deposited into a savings account, you’d find yourself in a slightly better position at the end of a year than you do by waiting for the government to send you the money it’s saved for you through taking too much from your check. And if you were to have that extra money deposited into a money market account, you’d end up better still. It’s all about interest. Which, I doubt, the government will ever pay us for the use of our overpayments.
You may ask what does a musician (let alone a drummer) know about all this stuff? Believe it or not, it’s because I read, research, and ask questions. I also happen to run Timm Biery Enterprises, and one of my endeavors has, over the years, evolved into a consulting firm for small businesses (read: self employed individuals) which focuses on maximizing income vs. expenses. As a result, I’m pretty comfortable discussing tax issues with accountants and the IRS. In all my conversations with “big brother”, I have to say that I’ve learned that they do not want us to fail in business. They want (in fact, they need) our success. Success increases the tax base, which gives the scoundrels in Congress more money to spend on their pet projects. But that’s another post.
I think it’s time that all of us, from government worker to record producer, store clerk to postal worker, to start thinking like a self employed individual when it comes to taxes. While you may not be able to write off the myriad things an officially self employed person can, it just may change your way of thinking about where your money goes after it’s deducted from your paycheck. After all, you may be paid for working at a company but, at the end of the day, you’re working for you. And that, to some extent, makes all of us self-employed.