7 ms·

I read these reports from Patrick with interest, but feel like he inhabits a different universe than I do. Pinboard made $256K last year, so I operate in at le

• biot 10y ago
  I imagine your taxes are fairly straightforward as a result. Have you considered spending $X,000 on an accountant to see if there are ways of structuring your income to minimize taxes?
  • idlewords 10y ago
    Structuring income to avoid taxes seems like a jerk move to me. But a bigger reason is that as long as my income is over some threshold, I'm happy. Dealing with business minutia reduces my happiness, so I avoid doing it.
    • arkitaip 10y ago
      I have no business telling you how to run your life but you would be surprised how much an accountant can help you in totally legal and ethical ways.
    • nodamage 10y ago
      I hope you are at least contributing to a tax-deferred retirement account? A solo-401k is a very good option for solo entrepreneurs, and I'd be surprised if anyone considered it a bad thing to take advantage of.
      • idlewords 10y ago
        Oh, yeah. I do it every night right after I floss.
    • cityzen 10y ago
      avoiding taxes vs. running your business in a way that is fully legal that allows you to not be penalized for being self employed are two different things. For example, if you paid 30% (self employment tax, roughly) on 250k, you're paying $75k in taxes. If you set yourself up as an LLC filing as an S-corp which brings zero minutia with it beyond the setup, you could pay yourself a salary of, say, $80k, pay your $12k in taxes and the other $170k would be taxed at 15%, saving you roughly $37,000 in taxes. Putting $37k a year into a retirement account and investments wouldn't be so bad.
      • nodamage 10y ago
        > the other $170k would be taxed at 15% Huh? Where did you get 15% from? The other $170k would be taxed at ordinary income rates, so most of that income would fall in the 28% or 33% bracket.
      • elsewhen 10y ago
        self-employment taxes are only applied to a capped part of your profits ($118,500 in 2015) [0] s-corp distributions are taxed as ordinary income (not capital gains) [1] even though long term capital gains rates don't apply in this case, you cited an incorrect number. they peak at 23.8% not 15% [2] [0] https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes https://www.irs.gov/businesses/small-businesses-self-employe... [1] https://turbotax.intuit.com/tax-tools/tax-tips/Small-Business-Taxes/How-an-S-Corp-Can-Reduce-Your-Self-Employment-Taxes/INF22938.html https://turbotax.intuit.com/tax-tools/tax-tips/Small-Busines... [2] http://www.taxpolicycenter.org/briefing-book/how-are-capital-gains-taxed http://www.taxpolicycenter.org/briefing-book/how-are-capital...
        • cityzen 10y ago
          Fair enough. I'm not an attorney or an accountant and the comparison of tax liability for self employment vs. LLC filing as an s-corp may or may not be significant. It really depends on each person's situation in terms of income, expenses, etc.
          • 10y ago
    • charlesdm 10y ago
      Two things: 1. Personal experience: businesses and products don't always last. Your product that is pulling in great money might last, or it might not. You could be down to $100k next year, or 50k, or $0. Tech moves fast. You are almost certainly overpaying taxes significantly, say, $50k+ a year. I've had a product that pulled in $100k a year for many years on autopilot, and it just died one year. 2. $50k a year could be invested and compounded annually for many many years. Life isn't about income, it's about net worth. Having a higher net worth is like borrowing years from the future. You don't need to (just) build income, you need to build up net worth and income from different sources. That will allow you to build a new product, or just keep enjoying life once your income stream shuts down. Maybe I'm a jerk for minimising my taxes, but I'd prefer more money in the bank now vs later.
      • ryanwaggoner 10y ago
        Assuming he's deducting expenses, I'd love to hear the magic method that will save him $50k on taxes. Solo 401k is likely the biggest potential savings and that would save (defer actually) less than half that. At his income level, the S-corp salary/distributions split is either risky or not very big. Might save $5k-10k. Any more than that and you're really just asking for an audit.
        • charlesdm 10y ago
          I was basing that assumption off of what he wrote in a post above: "I pay about $1.5k/month for colocation and the amortized cost of hardware, and that's the major expense.". He's probably not claiming every deduction he can. I'm not US based, but given he does everything himself there's no reason to assume he has everything optimised. Every country is different, but most tend to have similar tax concepts to some extent. I'm based in Belgium, and if I wouldn't optimise anything on $200k income, I'd be paying close to 50% tax. If you do, you can comfortably get away with legally only paying a fraction of that, say, 15-20%, if not less. His easiest way to save on income tax would probably just be to sell his business / product, so that he can book a capital gain. Capital gains are taxed lower than income. But that isn't exactly an optimisation unless the difference is significant enough. Definitely worth doing if you don't see it growing much from this point though, or if you're bored with it. That capital (for a business doing $225k a year in profit, maybe $500-650k after tax?) can then be reinvested tomorrow in other assets generating capital income, i.e. stocks, which is preferred to income taxable at income tax rates.
• buzzybee 10y ago
  This is such a great comment. I found myself thinking something similar while writing up a business plan recently: "This is actually just another act of design." You design how you want the business to function and what risks you want to take and which resources you want to leverage. The only thing businesses definitely share is that money flows through them, as such, financial statements are at their core. Everything else is taken up as necessary.
• graeme 10y ago
  What are your expense categories like? I was running my business without external accounting help. But I grew my business in the last year, and had a wider variety of expenses as a result. Keeping track of it all was eating too much time and mental space, so I'm handing off bookkeeping to a local cloud accounting firm. I haven't incorporated, but past a certain income threshold, I would, as that would save taxes and let me make investments pre personal tax within the corporation. I've also spoken to a lawyer for a visa related to the business, and about a copyright issue. Is pinboard mostly "finished", and you just have to maintain it? I imagine that would greatly simplify accounting and overhead. If so, that's a great situation!
  • idlewords 10y ago
    I pay about $1.5k/month for colocation and the amortized cost of hardware, and that's the major expense. The site isn't finished so much as frozen. I.e., I have a lot of stuff I plan to do, but it's been a suspiciously long time since I've done anything at all.
    • graeme 10y ago
      Probably simpler accounting then. I have a lot of individual invoices to keep track of + multiple revenue streams, some of which have sales taxes, some don't. (You have been keeping invoices, right? You need those in case of audit, which will almost certainly happen at some point). I'm assuming you are declaring all expenses which are business expenses. If you're doing that and the number of invoices is small, then you probably have a fundamentally simpler business than most businesses. Might still be worth a one off conversation with a good tax lawyer or accountant to see if you're making any business-101 level errors. If you've never had that sort of conversation, it's somewhat likely. Example: in Canada, most entrepreneurs I know have no idea that health insurance is a business deduction, and that they can get group health insurance through a chamber of commerce. This usually pays for itself due to the tax deduction plus reimbursements. So there may be similar no brainer, no maintenance changed you could make, once.
    • patryn20 10y ago
      If you don't mind me asking, how much of that cost is colocation and bandwidth respectively?
• ufmace 10y ago
  A few guesses: Partick lives in Japan, and mostly does business with US companies. Complying with international tax regulations is probably complex. Are you incorporated? Do you have any type of business insurance? You can probably get away without much of that stuff if you're running a social bookmarking site, as your customers are very unlikely to ever sue you. If you're handling appointments for medical institutions in the US, being sued is a very real possibility, as is running afoul of legal regulations, and you'd better structure your business properly to handle it. Meaning both knowing exactly what the rules are to stay in compliance with them, and being incorporated and having the right kinds of insurance so that any mistakes or accidents don't bankrupt you personally. Partick also sold his businesses. If you ever did, it would probably go a lot better to have well-organized finances and tax info set up by a proper accountant. I'm guessing you have no desire to ever do so right now, so it makes sense for you to not bother, just another reason for some of the differences.
• joshkaufman 10y ago
  There are three primary differences between your situation and Patrick's situation: 1. Patrick is a US citizen who lives and operates his businesses in Japan, which automatically makes accounting and filing taxes several orders of magnitude more difficult than filing taxes for a business that operates in the US. 2. Appointment Reminder, as an entity, operates in regulated industries, most notably medical care. That requires HIPPA compliance, which carries legal and financial risks if compliance is not accurately implemented, maintained, and insured. Patrick's conscientiousness in terms of business process is very much to his credit, and the consequences of Appointment Reminder going down, losing customer information, being hacked, etc are much higher vs. comparable issues with Pinboard. 3. Patrick engages with large companies as a consultant on a somewhat regular basis, with contract values that are substantial, and with counterparties that have legal departments that are also substantial. The level of legal and process overhead required to close these deals, execute on the project, and collect payment is comparably substantial. In summary: you and Patrick have very different lives and run very different types of businesses. He's not "overcomplicating" his business operations - he's being smart and diligent in ways that benefit him greatly in terms of both revenue and risk mitigation. Also, for what it's worth: I would highly recommend against operating as a sole proprietor. LLCs are inexpensive, easy to set up, easy to maintain, and mitigate significant personal legal/financial risks. Insurance would also likely benefit you - a basic computer systems / PII policy would mitigate your (generally small) risk in this area: without insurance, getting sued by anyone even moderately persistent would likely put you out of business. Think of it as the business equivalent of earthquake insurance: you can save a bit of time/effort/money by going without it, but as soon as an adverse event occurs, you REALLY wish you had it. Likewise for accounting - we probably have similar businesses in terms of overall complexity (that is, not much), but Bench + my accountant save me so much time and effort it's silly to do accounting and bookkeeping myself any more. Hope this helps. (Happy Pinboard customer.)
  • forgetsusername 10y ago
    >LLCs are inexpensive, easy to set up, easy to maintain, and mitigate significant personal legal/financial risks. Not sure what it's like in the US, but in Canada this isn't some magical easy way to escape liability. The accounting, tax burden and how you draw a salary changes significantly when you incorporate. Not to say it isn't worth it, but it isn't as simple as "do it". >Insurance would also likely benefit you Sage advice for any business.
• thaumaturgy 10y ago
  Patrick is a business consultant who also builds software; you are a writer and social critic who operates a site that lets you do the other things you want to do. It's two different approaches to life and business and it affects all of your decision-making.
  • idlewords 10y ago
    Patrick is a Stripe employee! More seriously, he is primarily a writer just as much as I am, just on a different topic.
• tptacek 10y ago
  I've had an accountant do my taxes since I was 19, and feel like I've probably saved a pretty substantial amount of money --- not by doing elaborate things to structure my income (there are accounting tricks that do that, and I agree with you that exploiting them feels skeezy), but simply by ensuring I'm doing them correctly and, more importantly, on time. Legal expenses are, as you say, a question of personality and risk tolerance. After we sold Matasano, I talked to people who'd been operating other large consultancies, and was shocked to learn that there are big firms that just sign every contract their clients give them. We got every contract reviewed, one by one, at significant expense. They just signed and started working. Our outcomes were comparable! We still get everything reviewed at the new company. It costs money, but not so much that it changes the economics of the work, and I've had enough close calls over 20 years of working that it's worth it just not to worry. But reasonable people disagree about this all the time. I do think you're wrong about the sole proprietorship thing, though. An LLC is extremely cheap (you don't even need a lawyer) and protects your personal assets from business liabilities. On the other hand, your legal strategy probably just involves fleeing the country to hide amongst the penguins along the 70th parallel.
  • ahh 10y ago
    > I've had an accountant do my taxes since I was 19, and > feel like I've probably saved a pretty substantial amount > of money...simply by ensuring I'm doing them correctly > and, more importantly, on time. Can you give one specific example of something you wouldn't have been able to do correctly and on time yourself, that has at least $1000 in value to you? I've been doing my own taxes (with a six figure tax bill and often 15+ 1099s) for ten years; I'm pretty confident I've not made any meaningful errors other than typos or transposing labels on the odd stock entry, a mistake that would cost me $0 even if audited. I--at least for a W2 worker who is a US citizen living in the US--have a uniquely bad tax situation, and I'm pretty confident that I'm not missing any major tax breaks, short of doing absurd accountancy.
    • iakh 10y ago
      The first time I used an accountant, they immediately found that I had not been taking advantage on a SEP-IRA. Which immediately saved me several thousand dollars in taxes that year. While it's not something I couldn't do myself the next year, it was admittedly something I never knew about beforehand.
• throwaway1892 10y ago
  Not on the current subject, but is it normal that this page is empty : https://pinboard.in/features/ https://pinboard.in/features/ ?