Fighting Past Wars

Well into my adult life I continued to have dreams that I was in High School. When I would get in trouble I would say “I don’t care I’m 56” but I kept returning. These dreams continued and advanced to college but the underlying theme was the same, I had outgrown the problems.

Now I’m retired and don’t need to work to help pay the bills but I still find myself thinking about job interviews. I would be happy to have some employment if it was fulfilling and didn’t interfere with travel, but there is no way I would submit a resume or sit through a typical Interview and be asked “Tell me of a situation where you went above and beyond to provide good customer service”

I posted on FB asking if anyone could hook me up with a Sinecure but I didn’t get any responses.

Let’s face it, I’m checked out. My main interests are my morning Latte’, watching my Portfolio, reading tons of books on my Kindle and telling my wife I adore her. This is interspersed with finding places right on the water to go and chill or spending time with my grandkids.

When the weather is good I like to take long walks or ride my bike along the river. But when it’s the freakin’ dead of winter I just stay around the house.

Another way to look at it.

For me, determining where people were on the political scale was a matter of how they felt about the poor. At one end we had “people are poor because they are lazy”. At the other end we had “there are a host of circumstances that can lead to and perpetuate poverty that are beyond the hands of the poor”.

I have recently been looking at it in somewhat different way. I am now considering a sliding scale of “Us” vs “Them”. This might be a ‘subtle’ point. Some might consider it ‘Trivial’. (this is why I keep most of my ideas to myself).

I imagine that for some people there is a very small group of “Us” and a large group of “Them”. Accepted behavior for dealing with “Us” is very different than dealing with “Them”. Consider the phrase “F*ck them”.

It’s ok to cheat them, to lie to them and to let them suffer and die.

At the other end of the scale are people who have a very inclusive group of “Us”. But consider how much that can vary. “Us” could be everybody in the United States, It could be everybody in the world. It could include all the animals or all living things on Earth. And then there are Extraterrestrials.

I have a mental construct of concentric circles which I use to explain how much I am affected by tragic events. This construct is based proximity.

If a three year old girl falls on the sidewalk outside my house and breaks her nose and is bleeding all over, that is a big deal. If a three year old dies in Mumbai it is less so. This may seem cold hearted but consider this thought experiment where there are billions of planets, each with billions of people. If an entire planet is wiped out but it’s so far away that it takes 100,000 years for us to find out about it, how affected are we?

I personally believe that we as a people need to have compassion for the poor. If you are not contributing to help poor individuals then I strongly encourage you to consider making micro loans through KIVA

A line on a piece of paper

Take a piece of paper and draw a line horizontally across the middle (side to side like the horizon).

This is your financial success calculator. If you have enough income that you can pay your food, housing, transportation,and medical expenses and save some money then you are above the line. Think of it as being afloat on a river.

If something goes wrong with your car you fix it, if you get sick you go to the doctor. You have money for emergencies and eventually you will have enough to retire.

If you made twice as much money you could have a bigger house, drive a newer car and go to fancier restaurants but your like wouldn’t be fundamentally different.

If you are below the line things are totally different.

You don’t have enough income to pay all your expenses so you pay bills late. This hurts your credit rating.

If something goes wrong with your car you miss work which lowers your income.

If you need a “new” car you are going to pay much more in interest on a car loan. You might even have to buy from a Buy here Pay here dealer whose business model is based on repeated repo-ing of a car and reselling. Not only are the interest rates VERY high but the prices on the cars are well above market.

If you can’t pay your bills then you might have a problem with Taxes which could lead to a tax lien, further complicating your situation.

You might be able to borrow some money from a PayDay Loan establishment but that will cost you dearly.

The Monty Hall Problem

This is a probability problem which most people get wrong. Monty presents three doors. Behind two doors there are Goats. Behind the other there is a New Car.

You are instructed to choose one door. After you choose, Monty opens one of the remaining doors to show you a goat and then asks if you would like to trade the door you originally chose for the remaining door.

Most people believe that the probability of winning the car are the same whether they trade or not. Please give this some thought before you continue reading.




In actuality the odds are twice as good if you make the trade.

There have been lengthy discussions by many intelligent people. The problem finally being put to bed by running a computer simulation which show that trading is the correct choice.

My view on this is simple. This problem is a sleight of hand which confuses people. The sleight of hand is showing that there is a Goat behind one of the remaining doors. Here is why.

How many doors would you have to open to guarantee that you would find a Goat? There is only one car so if you open two doors there has to be a goat behind one of them. Therefor opening one of the two doors to show a goat is MEANINGLESS. It changes nothing in the problem. It is just the same as if Monty had said “behind one of these doors is a Goat”.

Since exposing the Goat is meaningless let’s dispense with it and revisit the problem.

This time you chose one door and Monty asks if you would like to trade your door for the remaining two doors. At this point nobody should have a problem reaching the correct decision. By choosing two doors out of three you are twice as likely to find the Car as you would with only one door.


Now you can all sleep at night.

Why do people owe the IRS? Identity Theft.

Identity Theft is a Big Deal with Billions of dollars per year being paid out in fraudulent refunds.

So you file your tax return and everything seems fine. What you don’t know is that someone already used your Social Security number and filed a tax return requesting a large refund. They fabricate the income and withholding amounts.

This is what happens next.The IRS compares the income that is reported to them (W-s & 1099) with what was reported on the tax return (The fraudulent tax return since it was filed first).

The IRS accepts ALL of the income claimed on the return but disallows the withholdings. Then they add all of the income and withholdings that were reported to it and send you a form CP-2000 pointing out the discrepancy and showing how much you would owe if the information is correct.

How much will you owe? Let’s assume that you had correct withholding and wouldn’t have owed any money. The CP-2000 will show you owe taxes on the fictitious income declared on the fraudulent tax return. Then you will owe the amount of the Refund. Then you will owe penalties for not having paid them amounts their records show you owed.

Why do people owe the IRS? Failure to file

What happens when you fail to file your tax returns?

Every year the IRS receives W-2s and 1099s representing wages and other incomes which you have received. The IRS can use these income amounts to prepare a Substitute for Return.

If you are single, receive a W-2, use a use a Standard Deduction and have no Capital Gains then the Substitute for Return might agree with the return you should have filed. However…

If you have kids, if you would itemize your deductions, if you have sold property or stocks, your return will show you owing substantially more than you should.

To explain…If you sold your home and don’t file your tax returns, the IRS will count the sales price as Net Income! There will be no cost basis or exemption.

Why do people owe the IRS? Under Withholding & Retirement Accounts

If your employer is withholding money for income taxes from your check how do you end up owing the IRS.

Your employer withholds based on the information you provide on your W-4. I have had clients who have claimed up to 99 exemptions on their W-4s. This means that not enough money is being withheld and so you owe the IRS.

Another big problem area is retirement accounts. Many people don’t understand that tax deferred accounts are taxed as regular income when the money is distributed. On top of that up to 85% of your Social Security benefit can be taxable depending on your other income.

Why do people owe the IRS? Self Employed part 2

So the Self Employed can owe the IRS because they didn’t make sufficient Estimated Tax payments.

The Self Employed use a Schedule C to declare their income. Users of Schedule C are more likely to be audited than people who are paid with a (W2).

When your Schedule C is audited the IRS wants documentation to prove your business expenses. If you haven’t kept good records then expenses will be disallowed and your net income and tax liability will go up.

This means the IRS will think you owe them money that you really don’t, but if you can’t prove it they will take steps to collect.

Why do people owe the IRS? Self Employed

I am an Enrolled Agent and have represented hundreds of people with Power of Attorney before the IRS. This had led me to think about why people owe. Today we’ll talk about the Self Employed, Self Employment Tax and Estimated Taxes

There are two types of self employed: Those that know they have a business and those who think they have a job but get paid with a 1099.

When you are employed (W2) your employer withholds money for income tax (W4) and they withhold 1/2 of your Social Security & Medicare. The contribute the other 1/2.

When you are Self Employed you must make your own Income Tax payments and since you are the employer and the employee and must pay both 1/2s  of your Social Security and Medicare (Known as Self Employment Tax this comes to 15.3% of your net income).

You make all of these payments as Estimated Taxes and the IRS expect them 4 times per year.

So one way people end up owing money is that they don’t even know that there are such things as Self Employment Tax or Estimated Taxes