IRS Estimated Taxes Due Dates 2016

irsclipIf you have self-employment or other income outside of your W-2 paycheck this year, you may need to send the IRS some money before the usual tax-filing time. Here are the due dates for paying quarterly estimated taxes in 2016; they are supposed to be in four equal installments. This is for federal taxes only, state and local tax due dates may be different.

IRS Estimated Tax Payment Calendar for Individuals

Tax Year / Quarter Due Date
2016 First Quarter April 18, 2016 (Monday)
2016 Second Quarter June 15, 2016 (Wednesday)
2016 Third Quarter September 15, 2016 (Thursday)
2016 Fourth Quarter January 17, 2017* (Tuesday)

 
* You do not have to make the Q4 payment due January 17, 2017, if you file your 2016 tax return by January 31, 2017 and pay the entire balance due with your return.

Who needs to pay estimated taxes?
In general, you must pay estimated tax for 2016 if both of the following apply:

  1. You expect to owe at least $1,000 in tax for 2016, after subtracting your withholding and refundable credits.
  2. You expect your withholding and credits to be less than the smaller of
    • 90% of the tax to be shown on your 2016 tax return, or
    • 100% of the tax shown on your 2015 tax return. Your 2015 tax return must cover all 12 months.

If you forget to pay (like I’ve done before), then you should make a payment as soon as possible even though it is late. This will minimize any penalty assessed.

How do I pay? When does the payment count?

  • By check. Fill out the appropriate IRS Form 1040-ES voucher (last page of the PDF) and snail mail to the indicated address. The date of the U.S. postmark is considered the date of payment. No fees besides postage.
  • By online bank transfer. You can store your bank account information and pay via electronic funds transfer at EFTPS.gov or call 1-800-555-4477. It takes a little while to set up an online account initially, so you’ll need to plan ahead. For a quick one-time payment, you can also use IRS Direct Pay (just introduced in 2014) which does not require a sign-up but it also doesn’t store your bank account information for future payments. Both are free, there are no convenience fees. The date of payment will be noted online.
  • By debit or credit card. Here is page of IRS-approved payment processors. Pay by phone or online. Fees will apply, but the payment will count as paid as soon as you charge the card. You may also earn rewards on your credit card. Check if there is a discounted fee available via limited-time promotion.

How much should you pay in estimated taxes? You’ll need to come up with an expected gross income and then estimate your taxes, deductions, and credits for the year. The PDF of Form 1040-ES includes a paper worksheet to calculate how much in quarterly estimated taxes you should pay. You can also try online tax calculators like this one from H&R Block to estimate your 2016 tax liability, and divide by four quarters.

Someone Is Doing The Thing That You Decided Couldn’t Be Done

bbootWe are currently planning a 4-week European trip with our young children (age 1 and 3). The most common reactions are “Cool. Wait, you’re not bringing the kids, are you?” followed by “You’re nuts.” At first, we didn’t think it could be done either. It does take a lot of additional planning for car seats, cribs, kid-friendly itineraries, and so on.

While doing some research at a site called My Little Nomads, the author shared a quote by Seth Godin:

One of the under-reported stories of the internet is this: it constantly reports on what’s possible. Somewhere in the world, someone is doing something that you decided couldn’t be done. By calling your bluff and by pointing out the possibilities, this reporting of possibility changes everything.

You can view this as a horrible burden, one that raises the bar and eliminates any sinecure of comfort and hiding you can find, or you can embrace it as a chance to stretch.

That is a great quote that encapsulates why I love the internet. If you want to start your own niche business, pull off home-cooked weeknight meals, take your house entirely off-grid, semi-retire at age 40, or just take your tiny kids on an adventure – someone out there has probably already done it. You may even find an entire online community ready to help you reach your goal. There will be doubters, but all you need to know is that it’s possible.

Teaching Kids About Money: Bi-Rite Market Owners, Father and Son

brite_marm

This Narratively “longread” about the history behind the hip Bi-Rite Market in San Francisco’s Mission District was an intriguing father-son story.

Part of it involved entrepreneurial parents trying to pass on important financial skills to their children, like this excerpt involving the father Ned:

Every day, a group of homeless would line up outside the store, and Ned would feed them a sandwich and soda. No questions asked; no thank you needed. He was generous to his kids, too, but not without strategy or purpose. He’d pay them twenty dollars a day for their work at the market, a decent wage in the ’70s. If the kids agreed to save their earnings in the bank, Ned would double it. If they didn’t, that was all they got. Over the years, each child managed to save $20,000, thanks to Ned’s matching practice. “That’s how I encourage them to work and save money,” Ned says. “Sometimes you have to do your tricky things if you love your children.”

I found it amusing that when his son Sam decided to start his own small business, instead of worrying about him going broke, that actually made him feel more at ease.

“He was excited that I was going to be in control of my own destiny, even though it was a restaurant,” says Sam. “Pursuing entrepreneurship was following a path that he knew, that he was comfortable with.”

I would think most parents would rather their kid go the “safe” route of relying on a professional degree like lawyer, doctor, finance, or engineer.

I enjoy collecting anecdotes like this. Here are past related posts:

How To Start Your Very First Business by Warren Buffett’s Secret Millionaires Club (Book Review)

startbiz_180While I don’t expect my kids to be the next Warren Buffett, I do plan on encouraging them to start and run their own tiny businesses someday. I’ve previously shared an online cartoon series called Secret Millionaires Club that teaches financial literacy and is supported by Warren Buffett. As an extension of that effort, there is a new book called How to Start Your Very First Business.

I accepted a free review copy of the book and here are my notes.

I think the best question to start with is – why do you want a kid to start their own business? The primary goal is not to make them rich. It’s about helping them to be successful at life in general. Both Warren Buffett and Charlie Munger think this way. Consider the many character traits and interpersonal skills involved:

  • Reliability
  • Honesty
  • Social skills
  • Attention to detail
  • Patience and tolerance
  • Failure and perseverance

The book does a good job of covering the different aspects of starting a business. For example, there are worksheets for figuring out your per-unit profit and your equivalent hourly wage. One area that has light coverage is business licenses, taxes, and legal permits (understandably I suppose). Here is the table of contents, nabbed from its Amazon page.

startbiz2

Lots of good examples and ideas. There are several case studies of other young entrepreneurs along with additional business ideas in the book. A few examples:

  • Hart Mann started Man Cans, candles that smell like sawdust, bacon, or coffee. (Started at age 13.)
  • Jake and Lachlan Johnson invented and sell customizable bow-ties at Beaux Up. (Started at age 14.)
  • Greyson Maclean sells reusable stickers and cling decals for Lego products at BrickStix.com. (Started at age 9.)

Lots of Warren Buffett quotes and quips. Oldies-but-goodies include:

Protect your reputation. It takes years to build a reputation but only minutes to ruin it.

Decide early in life to make your money by selling things that you really believe are good for the customers.

The book understands that it can’t teach you everything. They really have to go out and do it themselves. There are so many intangibles in real business, this book is just a starting point. Hopefully the book can give them a base, and parents can support their efforts (but also let them fail, and hopefully get back up).

Overall impression. This book would make a great gift for the motivated tween or teenager. I enjoyed the mix of approachable advice, Buffett quotes, and real-world examples of young business-owners. The book says it is intended for ages 9 and up, but you’ll have to decide yourself if the recipient is ready. It won’t be much use if they aren’t ready to take action.

If you’re a parent, you’ll have to look up any legal requirements in your area. The book comes with a free Square reader for accepting credit cards, but the parent will have to sign up for an account first.

Owning a McDonald’s Franchise: Purchase Cost vs. Annual Profit

mcfranchise_logoDespite their negative media attention, the McDonald’s franchise that I drive past every day is packed all the time. I rarely eat there (especially since my diet bet), but I used to think to myself that if I were going to buy a franchise, I’d buy a McDonald’s. My impression was always that McDonald’s were always pretty clean with consistent food (even if you consider it consistently unhealthy), while Burger King’s were often dirty with inconsistent food.

A common knock against purchasing a franchise is that you are “buying a job”. A recent Businessweek article broke down the gross sales, gross profits, and net profits of the average McDonald’s franchise in the US. I found the numbers very interesting:

mcfranchise_income

Average annual profit per franchise: $150,000 a year, roughly. Okay, but how much does this franchise cost? From the official McDonald’s franchise website:

Initial Costs
$45,000 Initial Fee paid to McDonald’s

Equipment and Pre-Opening Costs
Typically these costs range from $944,352 to $2,172,045. The size of the restaurant facility, area of the country, pre-opening expenses, inventory, selection of kitchen equipment, signage, and style of decor and landscaping will affect new restaurant costs. These costs are paid to suppliers.

Average cost of new franchise: At least $1 million roughly, with a minimum of $500,000 in cash and non-borrowed resources. Other sources state $750,000 minimum in liquid assets. You must be able to cover 40% of the costs of a new franchise location. You must be able to pay cash for at least 25% of the cost of an existing franchise, with the rest financed over at most 7 years.

Average hours of work per week as an owner/operator? I could not find reliable statistics, but here is an excerpt from a Reddit AMA from a businessperson from New Zealand who has owned a total of three McDonald’s franchises and recently sold the last one.

How much work was required of you per week on average? If my goal were to own one McDonalds and do the minimum amount of work possible, while also running it well, how low do you think I could get that weekly number of hours? And what would I be doing in that time?

I would work 9am – 5pm, 6 days a week. Mostly I’m at my office sorting problems remotely from there. I liked to pop down to my couple stores at least a couple times a day and check on them – make sure they’re clean, and to check on the Restaurant Manager about any issues. Typically I used to work hard for 4-6 hours a day, with the rest out in the stores just checking on them.

Exit / Selling price? One would imagine that if your franchise is doing well and churning out good numbers, someone else would readily buy it. If your business is struggling, then both your annual income and total business value will drop. The same Reddit user above reported selling for “just above” NZ $1.4 million, or US $916,000. I’m a bit confused by the purchase price, but it appears that he paid NZ $550,000 via business loan, 12 years ago.

In the end, owning a McDonald’s franchise is still a business which means you take on risk for potentially significant gains or losses. But if you spend 40 hours a week and only keep tabs on one location, it might really feel like you bought a job. These statistics help explain why most franchisees own multiple locations; Businessweek says the average is six.

Teaching Money Management Skills… Without Using Money

valuesandmoney

spoiled160In the book The Opposite of Spoiled by Ron Lieber, there are a number of tips and tricks presented to help teach your kids to be good with money:

The foundation of the book is a detailed blueprint for the most successful ways to handle the basics: the tooth fairy, allowance, chores, charity, saving, birthdays, holidays, cell phones, checking accounts, clothing, cars, part-time jobs, and college.

As I read through them, most of them were never found in my own childhood. I was never given a wad of money to buy my own school clothes. I didn’t have a fancy save/spend/give jar system. I had chores, but was never paid for them. There was no forced or guided philanthropy. My parents didn’t pay me interest on my savings. When confronted with the fact that all my friends had allowances, my parents eventually relented and gave me… a dollar a week. This was sometime in high school.

I’m not saying that all these clever little schemes don’t help to create financial skills. I plan to use some of them myself. But we should also focus on the core values and character traits that lead to good behavior in general. Indeed, this is also acknowledged in the book:

Finally, I want to help all of you recognize that every conversation about money is also about values. Allowance is also about patience. Giving is about generosity. Work is about perseverance. Negotiating their wants and needs and the difference between the two has a lot to do with thrift and prudence.

So I took many of the topics in the book and tried to connect them with the corresponding character traits in the big graphic shown above.

There are many other ways to encourage your kids to learn traits like patience, perseverance, curiosity, or delayed gratification. Many have been part of cultures and/or religions for centuries. The first way kids learn is by watching their parents, so we must be good examples as well. (I know, can’t I just buy an app or something instead? I mean, thanks Mom and Dad!)

Teaching Kids to be Entrepreneurs: Jack’s Cosmic Hot Dogs

cosmicHere’s a follow-up post to The Best Advice For A Teenager Looking For a Job. One of the podcasts I regularly listen to is the Alton Browncast (of “Good Eats” fame). Many topics are food-related but often it boils down to him talking with really interesting people. In one of his earlier episodes, he did an interview with Jack Hurley, who is the owner of Jack’s Cosmic Dogs near Charleston, South Carolina.

Jack Hurley has started 6 restaurants and a few other businesses. Early in the interview, he discusses the creation of his popular, retro hot dog stand. It turns out, Jack wanted to start a simple business so that he could give his kids a job and teach them how to run a restaurant. His two sons were a freshman and sophomores in high school at the time. Here’s my transcript of that part of the podcast:

…We had to make it simple for high school kids to do… I told my sons, now watch this, your mom and I are going to create this place in one month, we’re going to paint it, do the logo, do the recipes, in one month. I want you to understand, that if at some point in your life you are tired of working for The Man, that you have this creative gene in you. We’re going to do this so fast it’s going to shock you.

Obviously not every parent will have the means or ability to do this, but I thought it was a pretty cool idea (and their hot dogs look yummy). From what I can tell, Cosmic Dogs has been around now for over 10 years, so I wonder if his sons indeed took to the entrepreneurial path?

The Best Advice For A Teenager Looking For a Job

mistakesI really enjoyed this article by James Altucher called “The Best Advice Ever To A Teenage Daughter Who Needs To Make Money“. His kid is considering taking an $8 an hour job, presumably in either the food or retail industry. Why not? The first three items on my complete job history were certainly along those lines, along with nearly everyone else including these comedians. But he has some alternative advice, here is just a snippet:

I said to her, instead of that: why don’t you go to Lynda.com or CodeAcademy.com and learn basic WordPress skills. You can make blogs for stores.

It would take you ONE DAY to learn the basics.

Then go from door to door to every store in town.

Say for $1000, plus $50 / month maintenance, you’ll make their blog or basic website for them and help them upkeep it. If they require a “shopping cart” then charge them $2500.

She frowned a little and said, “They will say No. They don’t need it.”

She doesn’t want anyone to say No to her. I can relate to that. I don’t like it when people say No to me either.

I said, “Ok, we have about 40 stores on this street. Let’s say only 2 say yes. That’s $2000. It will take you ten hours to do the work.

That’s $200 an hour instead of $8 an hour.

Now, a lot of people seem to think learning coding = rich kid these days. But I think his point is more about getting out there and “making something out of nothing”. Right now, a WordPress blog is probably the easiest way to do that (ahem). Also, it’s about just getting out there, trying some stuff, and seeing what works and what doesn’t. If you start a self-employed business, you will pick up most of the subsequent skills he talks about – accepting rejection, dealing with failure, salesmanship, communication, customer service, creativity, competitiveness.

If either of my daughters has that independent wrinkle in her brain like her old man does, I’d like to nurture it.

Here are some other money-making options that I’ve though of, although the environment may be different when they finally become teenagers.

  • Buy things at garage sales or local stores and then resell them on eBay or Amazon Marketplace.
  • Make your own crafts and sell on Etsy.
  • Start a stand at the local farmer’s market or weekend flea market.
  • Design or invent something and figure out how to get a factory in China to build it for you.
  • Start a YouTube channel (learn video production and editing skills).

On the other hand, I actually think a menial $8 an hour job is still working taking on, if only to experience firsthand how tough it is.

Successful iPhone App Developer Actual Income Numbers

applogo2Apple announced that during the first week of January 2015, over $500 million was spent on app and in-app purchases. Apple takes a 30% cut, so that means $350 million was paid out to developers that week. Since inception, Apple iOS developers have earned over $25 billion. Many computer programmers idly dream about quitting their day job and making apps for a living. Marco Arment, creator of Instapaper, has decided to share his revenue stats for the newest app, Overcast (I use both apps regularly).

He also links to four other apps that shared revenue numbers, and I dug around for a few more. Here are all the links to app-specific stats:

It’s hard to generalize these numbers, as the revenue can be very bumpy and some apps are developed by teams instead of individuals. Based on this Forbes article, on the Apple App Store developer, the average app takes in $4,000 of revenue. I don’t know how useful that number is, given that according to this different iOS game revenue survey, the median lifetime revenue for participating developers was $3,000 while the arithmetic mean was $165,000 (only a relative few make the big bucks). The NY Times profiled a couple who would have made $200,000 from their old jobs, but instead spent the time creating apps which made less than $5,000. Then again, lots of people are just dabbling.

I certainly wouldn’t expect the average developer to reach Marco Arment’s numbers as he definitely has well above-average skills, but as with most entrepreneurial pursuits you’re going to have to take some risks to try and make it. I definitely understood the sentiment behind the last part of his post:

Overall, I’m very satisfied with Overcast’s finances so far. It’s not setting the world on fire, but it’s making good money. For most people, the App Store won’t be a lottery windfall, but making a decent living is within reach for many.

After the self-employment penalties in taxes and benefits, I’m probably coming in under what I could get at a good full-time job in the city, but I don’t have to actually work for someone else on something I don’t care about. I can work in my nice home office, drink my fussy coffee, take a nap after lunch if I want to, and be present for my family as my kid grows up. That’s my definition of success.

IRS Estimated Taxes Due Dates 2015

irsclipIf you have self-employment or other income outside of your W-2 paycheck this year, you may need to send the IRS some money before the usual tax-filing time. Here are the due dates for paying quarterly estimated taxes in 2015; they are supposed to be in four equal installments. This is for federal taxes only, state and local tax due dates may be different.

(Note: January 15th, 2015 is the last day to make an estimated tax payment for 2014. See bottom of post for fast payment options. This will prevent any penalty for late payment of the last installment. You do not have to make this Q4 payment if you file your 2014 tax return (Form 1040) and pay the tax due by February 2nd, 2015. If you miss these dates, file your return and pay as soon as possible to minimize penalties.)

IRS Estimated Tax Payment Calendar for Individuals

Tax Year / Quarter Due Date
2015 First Quarter April 15, 2015 (Wednesday)
2015 Second Quarter June 15, 2015 (Monday)
2015 Third Quarter September 15, 2015 (Tuesday)
2015 Fourth Quarter January 15, 2016* (Friday)

 
* You do not have to make the Q4 payment due January 15, 2016, if you file your 2015 tax return by February 1st, 2016.

Who needs to pay estimated taxes?
In general, you must pay estimated tax for 2015 if both of the following apply:

  1. You expect to owe at least $1,000 in tax for 2015, after subtracting your withholding and refundable credits.
  2. You expect your withholding and credits to be less than the smaller of
    • 90% of the tax to be shown on your 2015 tax return, or
    • 100% of the tax shown on your 2014 tax return. Your 2014 tax return must cover all 12 months.

If you forget to pay (like I’ve done before), then you should make a payment as soon as possible even though it is late. This will minimize any penalty assessed.

How do I pay? When does the payment count?

  • By check. Fill out the appropriate 1040-ES voucher (last page of the PDF) and snail mail to the indicated address. The date of the U.S. postmark is considered the date of payment. No fees besides postage.
  • By online bank transfer. You can store your bank account information and pay via electronic funds transfer at EFTPS.gov or call 1-800-555-4477. It takes a little while to set up an online account initially, so you’ll need to plan ahead. For a quick one-time payment, you can also use IRS Direct Pay (just introduced in 2014) which does not require a sign-up but it also doesn’t store your bank account information for future payments. Both charge no convenience fees. The date of payment will be noted online.
  • By debit or credit card. Here is page of IRS-approved payment processors. Pay by phone or online. Fees will apply, but the payment will count as paid as soon as you charge the card.

I usually pay online at EFTPS.gov for both convenience and to avoid fees. However, right now the lowest fee for a credit card payment is 1.87% from providers like PayUSATax.com, which I’ve used. Meanwhile, you can earn up to 2% cash back from a credit card like the Citi Double Cash card. So you can actually clear a small profit by making your tax payment with the right credit card, and it will officially count as paid to the IRS immediately.

Sources: IRS Pub 505, IRS Pub 509, IRS Form 1040-ES [pdf].

Stat of the Day: Kindle Unlimited Author Reimbursement

kindleu2Amazon’s Kindle Unlimited is an eBook subscription service that lets you “borrow” an unlimited amount of books from their catalog for $9.99 a month. You won’t find many personal finance and investing books from major publishers on KU, but the service appears targeted more towards high-volume fiction readers that otherwise might upwards of $100 a month on books.

Kindle eBooks have allowed many self-published authors to gain a readership and income stream that they may not have pursued or achieved otherwise, so I’m always interested in this marketplace from an entrepreneurial point of view.

The NY Times recently published two articles about author reactions to this new-ish program (it started in July 2014) here and here. Inside, there were a couple of notable tidbits:

  • In November 2014, an author got paid $1.39 for each qualified eBook borrow. October 2014 was $1.33. July 2014 was $1.80.
  • An author only gets paid if the Kindle Unlimited subscriber reads at least 10% of the book as measured by the Kindle device or app.
  • For a normal eBook purchase, the author gets 70% of the price paid, for example a $5 eBook would net you $3.50. (But you get to keep the book digitally forever.)
  • An author gets credit towards their Amazon popularity ranking as soon as a book is downloaded by a subscriber. They don’t have to read a word.
  • Kindle Unlimited is an optional program, but authors fear their books won’t get promoted as much if they don’t join.

This changing of the incentive structure has resulted in authors pushing out a higher number of shorter books. That makes sense – you’ll get more borrows and it’s easier to reach the 10%-read hurdle.

Alan Watts: What If Money Didn’t Matter?

Alan Watts was a “British-born philosopher, writer, and speaker, best known as an interpreter and populariser of Eastern philosophy for a Western audience.” I actually stumbled upon his readings via a trailer for Days of Our Youth, a movie about people who grew up to be professional skiers.

Anyhow, he turns out to be pretty popular but if you haven’t heard of him before, I think listening to his voice is the best way to experience it:

Here is a transcript of the YouTube video above:

What makes you itch? What sort of the situation would you like? Let’s suppose, I do this often in vocational guidance of students: they come to me and say well, we are getting out of college and we haven’t the faintest idea what we want to do. So I always ask the question: What would you like to do if money were no object? How would you really enjoy spending your life? Well it’s so amazing as the result of our kind of educational system, crowds of students say ‘Well, we’d like to be painters, we’d like to be poets, we’d like to be writers’ But as everybody knows you can’t earn any money that way! Another person says ‘Well I’d like to live an out-of-door’s life and ride horses.’ I said ‘You wanna teach in a riding school?’

Let’s go through with it. What do you want to do? When we finally got down to something which the individual says he really wants to do, I will say to him ‘You do that! And forget the money!’ Because if you say that getting the money is the most important thing you will spend your life completely wasting your time! You’ll be doing things you don’t like doing in order to go on living – that is to go on doing things you don’t like doing! Which is stupid! Better to have a short life that is full of what you like doing then a long life spent in a miserable way. And after all, if you do really like what you are doing – it doesn’t really matter what it is – you can eventually become a master of it. It’s the only way of becoming the master of something, to be really with it. And then you will be able to get a good fee for whatever it is. So don’t worry too much, somebody is interested in everything. Anything you can be interested in, you’ll find others who are.

But it’s absolutely stupid to spend your time doing things you don’t like in order to go on spending things you don’t like, doing things you don’t like and to teach our children to follow the same track. See, what we are doing is we are bringing up children and educating to live the same sort of lives we are living. In order they may justify themselves and find satisfaction in life by bringing up their children to bring up their children to do the same thing. So it’s all retch and no vomit – it never gets there! And so therefore it’s so important to consider this question:

What do I desire?

Alternatively, Gavin Aung Than of Zen Pencils turned the quote into a very cool comic:

alanwatts_zenp

Stuff like this is always controversial. Too dreamy? Too hippie? My current opinion is that it all depends on the person. Some people don’t have a strong affinity towards anything, they may value safety or prestige other things. (Is that really wrong if that’s what they want?) But to some people, they do have a latent desire, and reading such stories is like a wake-up call. Yes! That thing that you always think about in the shower, or right before you go to bed? Yes you should try that!

In the end, I think if you are going to spend a huge chunk of your life doing anything, then it should be at least be aligned with your personal beliefs. Only you can decide if that is currently the case, or if a change must be made.