Taxing Decisions

Anne's lifetime of credentials and contacts landed another Blue Hills job in my lap: Editing a 60,000-word young-adult novel. The flat rate that we're charging is lower than I would have liked because Anne works a lot faster than I do. She figured it would have taken her 35 hours; it looks closer to 60 to me. But it will still work out to around $18/hour even at my pokey pace, and that's 10 times what I make working for Curio City. The client is a home-based publisher, so there could be more jobs ahead. Editing fiction is an interesting challenge. English clearly isn't the author's first language, so I'm struggling to correct her grammar without unduly Anglicizing and changing her voice, or introducing words too advanced for youngsters. I hope that she'll be satisfied with the result. She's going to get back a better book. Turning it into a good book would require at least twice as much of my time and the result would barely be recognizable...so she's not getting that.

Curio City is mostly a distraction nowadays. It won't even provide most of my income this year, and it's way too needy. I still need it, too, and thinking about the process of shutting down saddens me. But I begrudge it my time. I have even started thinking of orders as an imposition.     

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Without getting too specific, each new Blue Hills assignment has tax implications. You are required to issue a 1099 to any individual, partnership, or LLC to whom you pay $600 or more in a year; the internet tells me that payments to corporations don't carry this requirement (which might be a good argument for keeping Kraken around after Curio City closes). A check made out to Kraken Enterprises or Blue Hills Editorial goes through QuickBooks and my Blue Hills bank account and comes out as payroll, so the IRS gets its share. If that same client writes the check to me or to Anne personally, I could gamble that s/he will not ask for a W-9 or issue a 1099-MISC, making the unreported money unofficially tax-free. In that case it won't show up as Blue Hills income or contribute to my Blue Hills salary, and that offends my bookkeeping sensibilities. Worse: If the client realizes his/her accounting obligation and requests a W-9 at the end of the year, that income is suddenly official and taxable, and since I didn't withhold and submit the appropriate taxes in the quarter received I risk interest and penalties for late payment (assuming that I can even scrape together the amount due next April). Escrowing the tax portion off the books would cover that contingency, but that's both messy and shady. 

Will an individual or corporation be paying me? Will they pay me more than $600 a year? Will they make a single payment, or several small ones? Will they ask for a W-9? Will they mail a check, use PayPal, or transfer bank-to-bank by ACH? Will they issue a 1099-MISC to Blue Hills (i.e., report it to the IRS), even though Kraken Enterprises is a corporation? Should I ask that their check be made to myself (or my wife), to Blue Hills, or to Kraken? And, finally, will they follow those instructions properly or not? 

Untaxed income is, of course, worth 15 to 25 percent more than taxed income, and that could add up. The odds that little low-profile Kraken Enterprises will ever be audited by the overworked and underfunded IRS are comfortably close to zero, so the risks are low. But because I'm an honest and risk-averse person, I intend to stay clean unless I'm very confident that the client won't hit the $600 trigger and/or won't report the payment. I'm also more inclined to keep the income under the table if the client was undercharged.

Incidentally, I did NOT just admit to tax fraud. Philosophically, I believe that taxes are the price we pay for civilization, and (being fond of civilization) I always pay my fair share. Corporations and wealthy Americans are chronically undertaxed for the level of services we demand. So far all of my clients have been companies whose paperwork is in order. Sooner or later, though, a handwritten check with my name on it is going to be tempting.  

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Speaking of escrow: The bank problem that I wrote about in my last post week turned out to be more complicated than I had thought. I ended up having to phone CapitalOne after they sent an email to the wrong address. Long story short...they needed to officially locate Kraken Enterprises at my home address because the stupid PATRIOT Act won't allow a business to locate at a drop box. Apparently I could be laundering terrorist money, or something. It took me a couple of hours to figure out and supply exactly what they needed. Then it took another week for them to officially open the account, and another several days for me to link it to the proper checking account. But I think it's finally up and running, FWIW.

Calling In Sick, and Certifiably Existing

After torturing the proclamation of Curio City's eventual end from myself last week, I got a nasty case of the flu that confined me to bed for two days and kept me dragging through the rest of the week. Curio City used my sick-out to deliver its best two-week performance of the year. Jackite's long-anticipated pole shipment finally hit and a dozen backorders shipped all at once. The record-keeping was...delicate...and my head was not in a good state to handle it. 

That ought to take a big bite out of the ol' debt, huh? Yes and no. All of those dropships have to be paid for next month, and most of them came in below the 50% margin that I need to eke out a profit. I've whittled it below $7,000, and I hope to break the $6,000 barrier next month. Remember that, whatever else I decide about my store's future, nothing can happen until the debt is gone. 

I half-wonder if I should keep Curio City going just as Kite City. That's essentially all I sell now anyway. But Jackite has a chronic history of supply problems, and when they run out of something, they're often out for months (or even years) at a time. Formally slaving my fate entirely to theirs would be frustrating, at best.

Next week I'll take a first pass at defining some milestone decision dates. Closing my store will be a long, delicate process that has to be done in the right order to squeeze out as much money as possible while curtailing costs. Fortunately, that's the kind of management challenge that I'm good at.  

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In 2009 I hit on the idea of escrowing my payroll taxes in a little savings account. Earning a few pennies in interest is fine, but socking the money away for my quarterly payments is the real point. Now I need to do the same thing for Blue Hills. After mulling it over I decided to open a second account to keep things neatly organized, rather than transferring Blue Hills taxes in and out of the Curio City savings account. It's all just Kraken Enterprises as far as the IRS is concerned, but I'm compulsive.  

Wrong decision! Capital One not only declined to activate my new account, they also froze my seven-year-old account. They did not bother telling me this; I only found out when the transfer that I had ordered two weeks ago didn't take place. When I followed up yesterday, their website told me that my accounts would be activated as soon as they received the "necessary documents"; as you might guess, they didn't tell me what those documents might be. Since there's no way to email them a question, I finally concluded that they want their own authorized signer form filled out, plus a "certificate of existence" from the state...which Massachusetts will email for the low low price of $10. After the requisite printing, signing, and scanning, I emailed those two pointless forms yesterday. Naturally, I have received no response. It would not surprise me to find out that they'll want some other random forms. 

These accounts will never earn even enough interest to recoup that $10 fee, but at least now I have a certificate that I exist. That's oddly validating. I wonder how I got through 12 years without one.

Capital One used to be ING Direct, one of the earliest web-only banks. I liked ING. I have never liked Cap One. But inertia keeps my Roth IRAs and household savings there, so they'd have to really, really piss me off to make me move my tiny business escrow accounts. They're off to a good start, but they aren't quite there yet.    

Make Curio City Great Again. Or Don't.

Pressure to decide Curio City's future is growing. I had said that I don't need to make the call about investing in another Christmas until September, but some optional expenses are already starting to pile up. For example, the USPTO wants $400 if I'm going to own the name for another 10 years. Turnkey has put out two Sunshop updates: One that specifically addresses the scammers and thieves who hijacked my checkout page, and one that adds new templates that could update my site's look and feel. Turnkey will install those for just $75, but in reality I need to pay my developer $200 to preserve all of the customizations I've accumulated over the years. Should I reorder merchandise that sells out? Replenish shipping supplies? Try any new merchandise? These questions come up regularly.

So let's run through some pros and cons, shall we? 

CONS

People: Curio City faces the public in a way that Blue Hills does not. A typical month might bring 75 sales, each representing one customer. Most of them are faceless and routine, but if even 5% have problems and complaints, that's three or four people that I have to mollify or avoid each month. Blue Hills involves only a few people, and they're professionals. So far (and it's early, I know) I've gotten only praise and encouragement from my few clients.

The Phone: Because my customer demographic skews older, I get a disproportionate number of people who just don't trust the Internet or know how to use email and insist on phoning me, despite my Contact page's attempt to gently discourage them. Putting one's phone number on the Internet generates a huge volume of junk calls, and removing it isn't an option because Google punishes businesses without phone numbers. I shudder every time I see the blinking blue LED that means I missed a call (I never answer the phone anymore). I cringe when notified that I have a new voicemail. One of the only ways I identify with young people is that they neither leave nor listen to voicemails. I ranted at great length about hating the telephone in the first draft of this post, but you get the idea. So far, Blue Hills has required exactly one phone call.  
  
Products: I'm not a consumer and I have never cared about buying and selling. Once I thought that viewing the marketplace with skeptical and disinterested eyes was an advantage. Not really. Trying to figure out what people will buy -- and, more importantly, what I can conveniently and profitably advertise and ship -- was an interesting challenge for the first few years. Gradually, I learned that it's an ever-moving target, and every time tastes change (or I just read them wrong), I end up with more unsalable stuff in my cellar. Once upon a time anything with USB was hot. Then it was LEDs. Before the Great Recession, when online retail was still something of a novelty, people would buy damned near anything. Now they're smarter about comparison shopping, and not so fast and loose with their money. 

Sometimes, even vendors let me down. They become unreliable, or they cut me off because they don't like online sellers, or they sell to discounters who undercut me. Losing Switchables (my second-best product line) while sales are already contracting was a hard blow to take. And I just don't have the fire in my belly to seek out a replacement. 

Promotion: The topic labels to the right show that I've written 48 posts about marketing, so today I'll just say that it's been my weak spot since the beginning, and it will ultimately be my downfall. I don't like it, I'm not good at it, and I can't afford to hire somebody who does and is.

Prospects: Sales have declined every year since 2012. Unless I invest in some new inventory pretty soon, they'll go down again this year, too...and I can't do that until I get out of debt. Without a major infusion of time and money, even just bumping along at my current depressed level is ambitious; continuing a long slow slide is more likely. That feels pretty pointless.  

Perils: Our cellar, a.k.a. Curio City's warehouse, floods every few years. All of my stock is raised a couple inches off the floor, and that's usually enough to spare it...but I invariably lose some packing supplies and face a multiday cleanup. A bit of water on the floor this week ruined some old (empty) boxes and hinted that the heavy rain coming this weekend might bring a full-scale flood. With that warning, I've picked up everything that I can, but there's still going to be a mess. Insurance is a luxury that I've never been able to afford, if I could even get it -- applying would almost surely reveal that my home business is "illegal" on some level. 

Technology: Like products, this is an ever-moving target, and one that I lack the expertise to follow. I used to care about it. I don't anymore.

Scammers & Thieves: The Russians who hacked my checkout page last month were kind of the last straw. Even though they did no actual damage, they pissed me off and reminded me that Curio City is always vulnerable. Blue Hills doesn't collect money, so it's immune to this kind of crap.

Workload: Blue Hills is brain work. Despite having a lot of facets, Curio City's routine is comparatively mindless...but it's "always on." It can demand my attention at any time, 24/7/365. Blue Hills will demand more time and intellectual involvement when it gets going, but it will happen mostly on my own timetable. Curio City also forces me to take on roles from management to marketing to shipping/receiving to accounting to IT, and more. I'm competent at some of those things, but not others. I enjoy, or at least tolerate, some of them, but not others.

Perhaps more to the point...I just turned 60. I can retire in six and a half years. Either Blue Hills or Curio City can scale down to a retirement job -- and everybody needs a retirement job, right? But Curio City is physically demanding and less portable. As my lifespan ebbs, I don't want to keep running two marginal businesses. Curio City has been shrinking for years, while Blue Hills is just getting started. Curio City is tied to inventory and shipping/receiving facilities; Blue Hills works wherever I have a laptop and an internet connection. 

PROS:

Financial: It might not bring in very much money, but Curio City consistently brings in at least something every week, and customers pay in advance. Blue Hills is still highly irregular, and payment can come months after I do the work -- I'm sitting on one invoice for work completed in February, waiting to hit the company's minimum billing threshold. Every couple of weeks, they dangle an assignment in front of me, but it never comes. Blue Hills pays me $50 an hour or more when I pays me at all; Curio City works out to around $2-3 per hour. Blue Hills will obviously win hands-down when I develop a few more clients, but in the meantime, advantage Curio City.

There are also some benefits beyond the paycheck. Curio City currently contributes $90 a month to our phone and internet bills; without it, I'd have to replace that money somehow. In better times, it bought me a smartphone and two laptops, not to mention consumable office supplies.  
   
Systems & Statistics: I'm not much of an entrepreneur, but I am a pretty good manager. I enjoy running a well-designed system and crunching the numbers it generates.

Taxes: For the past five years, Curio City has reliably lost money, and that makes a nice deduction. Even though it threatens to show an operating profit this year in the wake of my 50% pay cut, I can write off enough old merchandise to push it comfortably back into the red. Blue Hills, OTOH, has almost zero expenses, so I need Curio City to offset some of its pure profit. 

Workload: Curio City's chores aren't enjoyable or rewarding, but they do get me up and moving every day, which keeps me in good physical condition for a 60-year-old. Also, Curio City's task list is highly diverse, whereas writing and editing are just sitting and typing. Blue Hills has more potential for boredom.  

Writing this post made me realize that I just don't care enough about Curio City to want to keep doing it. I dedicated 12 years of my life to it, and it's sliding. Best-case scenario is that I get out of debt, put major time and effort into rebuilding, and eventually recover to the glory days of 2009-12. Even if I did manage to pull it off, the most money I ever made in one year was $16,700 -- that's a fortune compared to the $4,000 that it will pay me this year, but it's not a huge motivator. I can comfortably afford beer and smokes and occasional meals out on $10,000 a year. I think Blue Hills has the potential to pay me more than that, but getting Curio City back up there would be a long, hard slog. 

It's not a question of whether I'll close Curio City or not, but how and when. Now I need to work through those questions and come up with some kind of timetable.