Another Crappy Year Is Over

2017 was one of the worst years ever on so many levels. I've already said that Curio City had its worst December by a large margin: I only booked $1,690, compared to LY's previous record low of $4,637. For perspective, December 2008, when I was at the top of my game, brought in $16,163 -- 10 times what I made this year. 

Remember that the following numbers include Blue Hills, and the payroll line includes a couple of checks that went to my wife. I won't have "clean" Curio City numbers again until February.

December

Total income: -64.1%
Payroll: +37.6%

Marketing: -62.8%
Net Income (Profit) vs LY: -206.3% (-$1,585)

Actual Profit/Loss: -$816

2017 (Almost) Final

Total income: +41.9%
Total COGS: +2.3%
Payroll: +218.9%

Marketing: -44.2%
Net Income (Profit) vs LY: +258.4% (+$4,784)

Actual Profit/Loss: +$2,934

Annual sales were down by 5% from last year; that's my sixth consecutive decline. 

Profit is a bad thing at tax time, so I'm glad that fell from last month. Technically, Kraken owes me that bottom-line number, which is going to add roughly $735 in federal and state taxes to my personal 1040. In reality, Kraken can't really afford to pay even the anticipated taxes. I insist that it do so anyway...so I just transferred $800 from the company to myself a few moments ago in the guise of a "shareholder loan repayment", which is somehow preferable to a "shareholder distribution". I don't know why. Kraken still owes me $12,625 of the roughly $21,000 that I put into it in 2005.  

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Speaking of taxes (again)...I still don't know if Kraken Enterprises is, legally speaking, a pass-through entity in the eyes of the IRS. Logically, of course it is; each year's profit or loss goes onto my personal 1040. But tax policy is only ever accidentally logical. This story only sowed more doubt: 

The new pass-through provision is designed chiefly to aid capital-intensive companies, like a factory or a bakery, while excluding certain service industries such as accounting and medicine. But for some kinds of solo workers it could mean savings of hundreds or thousands of dollars, if they incorporate as a pass-through business. 

Details of exactly who might be able to claim these lower rates are still a bit unclear, even to specialists, and probably will be hashed out over the coming months as tax advisers and their clients test the limits of what qualifies as business income. 

Curio City could arguably be considered capital-intensive, since 80% of its revenue covers costs. Blue Hills, OTOH, is a service business with very little overhead. I might have to keep Curio City alive indefinitely just so that Blue Hills can qualify for the pass-through rules. But who knows? Not the experts, apparently. I'm sure I'll get a memo.

Massachusetts considers me a pass-through, but I'm exempt from withholding because all of my stockholders (me) are Massholes. I'm supposed to issue myself a form stating that that's true every January. Anarchist that I am, I don't.

I had wanted to file my tax returns early, but I spent most of this week fighting my dying laptop. Its performance started degrading a couple of weeks ago, and by yesterday it was all but unusable. All I'll say about that is that CHKDSK may be >30 years old, but it still saved my bacon. I had really feared that I would have to rebuild Kraken Enterprises from the ground up on a new machine, but now I'm tentatively confident that I can keep this three-year-old Dell going for another year.

(For some reason, I can't upload any images to Imgur via any method today and I've wasted way too much time trying. Today's hotlinked pic might not work.

Only the Little People Pay Taxes

The last time I looked into the tax bill that Republicans were still jury-rigging through Congress, I was among those whose taxes will probably go up because we are losing the home office deduction. For years, that has sheltered most of my wife's teaching income. I  learned a few days ago that we can't deduct the interest on the home equity line of credit that replaced our mortgage several years ago, either, so that's another big hit. Between those two things, we almost surely can't itemize anymore. (If that's true, I'll save a few hundred bucks by buying TurboTax instead of hiring a CPA, so...silver lining?)  

Now that the corporate bonanza is almost law, I'm sure you're wondering how it affects Kraken Enterprises, so I ran some numbers to see if being a corporation and a small business owner might offset those losses. As an S corporation, Kraken's profit or loss goes on our personal 1040 as non-wage income. For the past several years Kraken delivered a nice, fat loss that gave us a nice, fat deduction, but this year it's going to show a  profit. I think that passing its profit through to its only shareholder makes Kraken a pass-through entity, although I'm still a little hazy on that definition. Massachusetts has a special tax form for pass-throughs that I determined a few years ago doesn't apply to me, although I can't remember why. If Kraken is a pass-through, then 20% of the profit should be excluded from taxation. 

The first draft of this post was dense with numbers working through different scenarios. Mercifully for you, I just deleted two pages of that and skipped to the conclusion: Kraken doesn't make enough money for the new rates to have much effect. Kraken's profit this year (actually Blue Hills' profit tempered by Curio City's loss, but the IRS only sees Kraken, not its operating companies) is going to be around $5,000. That means $1,000 of that should be non-taxable. A $1,000 exclusion is nowhere near what the home office and HELOC deductions were worth.

If I reduce my Blue Hills paychecks from 90% of income to 75% next year, thereby exchanging some salary for profit, I will pay less payroll tax throughout the year and get a bigger K-1 payout at year's end (and hence a larger exclusion). But Kraken would need to make at least 10 times as much money as it does, or cut payroll to a tiny fraction of income, to come anywhere near offsetting the deductions that we're losing...and I can't realistically survive on smaller paychecks while I wait for that year-end payout.  


In other words, the new tax regime was written to benefit bigger businesses and richer people. Surprise! But accountants and lawyers are just beginning to find new loopholes, so it might ultimately be a matter of just learning some new gimmicks. For example, if we could somehow change my wife's W-2 teaching income into 1099 income, and funnel that through Blue Hills, we'd be golden. I can't imagine the universities who employ her going along with that, but over the next few years we'll surely learn all kinds of new legal fictions to game the system. Maybe the corporation can pay some of the expenses, such as a percentage of our utility bills, that used to go into the home office deduction. 

With a little political luck maybe this train wreck will be cleared before it forces us all to change tracks.   

Thanks for Nothing, Santa

Unsurprisingly, this is going to be the worst December ever by a large margin. The volume of orders crept up to five or six a day from the usual one to three, but their average value fell from $40 to under $15. Just looking at numbers, you wouldn't even know that Christmas had come and gone. 2017 entered December with a comfortable lead over LY's annual sales and it's going to close with a loss. Those not-awful December paychecks that I was looking forward to? Yeah, didn't happen.

I didn't expect good numbers, although I did hope they'd be better than they were. I had modest success clearing out old stock. As usual, people didn't buy the stuff I wanted them to buy -- I was surprised that they didn't snap up marked-down Panther Vision products, and the usual brief Christmas rush on Metal Earth models didn't happen at all. But I did get rid of a few big boxes. If I consolidate some leftovers, I'll get rid of a few more. Write-offs will eliminate a few more. But my fantasies of being picked clean remain fantastical. There is still a lot of stuff downstairs and it is, by definition, the stuff that people want least. 

Well. I held costs close to zero, so I'll finish with money in the bank and no debt. Now I face the more pleasant chore of deciding what to do with that. That's going to depend upon (1) how much money there really is, and (2) my intentions for the future of Curio City.

Despite this month's drop, Kraken Enterprises is still showing a profit for the year (thanks mostly to Blue Hills, which has nearly zero costs), and that means I'm going to have to pay taxes on it. I can reduce it a little by writing off some dead, bulky stock that won't move at any price because it costs too much to ship. 

It looks like I'm going to end up with around $2,200 in the bank.

Kraken's first obligation is paying me enough to cover the taxes on a $5,000 profit. That's going to jack up my personal income taxes by $1,000, so I'll have to pull that much out.

Its second obligation is to cover the annual costs of being a corporation: Excise tax, my CPA's tax return preparation fee, and whatever the hell the Secretary of State gets $109 for. Together these add up to $1,200.

Oh, look: There goes $2,200. There's no need to think about my intentions for the future unless that cash hoard grows and/or the profit shrinks meaningfully. so I'll leave planning for a future post.

Taxing Circumstances

Seven orders awaited my ministrations on Tuesday morning. Seven would be fine and dandy if they were $100 orders, or even $50 orders. It's considerably less dandy when they're all $10-15 orders, and that pattern held up all week. When last I checked*, this week stood at 32 orders (fair) worth just $375 (awful). Small orders usually indicate that people are done with their Christmas shopping and down to filling in gaps. It seems early for that, but I don't celebrate holidays myself and I don't know much about how ordinary people do. Television leads me to believe that they're furiously buying up smartphones, cars, and prescription drugs.

As I merrily marked down most of my old stock, I forgot a lesson that I'd learned years ago: bargain hunters are also bottom feeders. They won't load up big boxes of low-priced goods; they're just going to buy one thing, and they're probably going to complain about it. Now that almost everything I sell has been reduced to $15 or less, the tiny average order should not surprise me.

*I said "when last I checked" because I couldn't update that this morning. My website is down. Remember how I downgraded my IP address from dedicated to shared? Turns out that my Sunshop license is keyed to my IP -- Turnkey has to update that to get me back online. Ticket opened; waiting for response....

My IP address changed on 12/2 and my license renewed on 11/29, so I have no idea why it waited until 12/8 to fail. It's always something.

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The constant stream of bad news out of Washington probably isn't affecting sales; the tax debacle won't take effect until next year, it's mostly benign in the beginning, and nobody really understands it yet anyway. From what I can tell, the initial damage will hit home businesses, 1099 income, and the working poor.

We're going to lose our home office deduction and a lot of related Schedule C expenses related to my wife's teaching jobs. Curio City and Blue Hills should be okay because they're under Kraken Enterprises. As I understand it, corporations can still deduct most of the costs of doing business -- only individual small businesses are getting reamed. I don't understand the "pass-through entities" provisions yet. As an S corporation, Kraken's profit goes onto our personal 1040 and gets taxed as ordinary income (albeit without payroll taxes), so I guess that makes me a pass-through. That might turn out to be a reason to keep Kraken going even if I kill Curio. But my understanding is that the new tax system was written primarily to benefit C corps, so I honestly have no idea. 

I do know that losing the deductions for state income tax, charitable contributions, medical expenses, tax preparation, and especially Anne's home business expenses is going to hurt us, and probably everybody else who runs a home business. I'm tentatively expecting a modest tax increase next year. Buying TurboTax instead of hiring a CPA to do our personal returns will save a few hundred bucks, so maybe that will neutralize the tax hike for the first year or two.   

The damage to the economy stemming from middle-class tax increases should be two to three years out -- I think I read that the tax hikes snowball in 2021, conveniently after the next presidential election -- so it shouldn't be depressing sales this Christmas except insofar as uncertainty is always bad for business. In fact, holiday sales will probably be robust as people mistake the stock market's performance for the economy.

The middle class has been stagnant or shrinking since the Reagan administration; the Republicans are merely accelerating a decline that they set in motion in the 1980s.

It's definitely a good time to get out of retail, though. Retail depends on middle-class spending. Billionaires aren't going to use their newfound millions to buy more of my stuff. 

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Minor milestone: I passed order number 115000. That means that 15,000 transactions have gone through Sunshop over the past 12 years. Some of those were tests and some were canceled orders, so the number of actual sales is something lower (QuickBooks is on order 14,685, and even that number isn't entirely accurate).

Let's Get This Show On the Road

November sales were lackluster. Lackluster is good, considering that I've done nothing to support Christmas.  At this time last year, I was $8,000 in debt and ramping up my ad spend. This year I'm not taking on any expenses at all. Well, I did make good on my threat to return payroll back up to 20% of sales after getting out of debt, so I should get a couple of slightly less laughable paychecks in December, and that will increase costs a wee bit.

Here's what Quickbooks says:

November

Total income: -38.9%
Payroll: +53.7%

Marketing: -79.8%
Net Income (Profit) vs LY: -108.6% (-$412)

Actual Profit/Loss: -$992

2017 YTD

Total income: +57.3%
Total COGS: +8.4%
Payroll: +240.1%

Marketing: -38.4%
Net Income (Profit) vs LY: +243.4% (+$6,375)

QB says revenue was down by $1,984, while Excel says it only came up short by $864. I don't know why the discrepancy is so huge.

December should come in way below LY, but again, without any expenses. LY's anemic sales came at great cost.

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Remember that Sunshop support renewal bill that I mentioned in my last post? The $125 payment was due on 11/29. I was leaning toward downloading the current version and then canceling the contract, since the odds that I will actually upgrade next year are low. Then Turnkey made the decision for me by charging my card on 11/24. I was displeased. I was even more displeased when I got a "Cyber Monday" discount offer on 11/27. I asked for a $25 refund. They gave it. So I've decided to keep the contract for another year.

Meanwhile, MDD Hosting decided that the price of my dedicated IP address is going up to $60/year unless I want a "free downgrade" to a shared IP. Yes, please. I don't even remember why I bought the dedicated IP in the first place.

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I spent four hours on MailChimp remembering how to make and send a newsletter. It went to 231 contacts on Tuesday. One bounced and two unsubscribed. 64 recipients (27.8%, vs. 13.3% industry average) opened the email. It got 19 clicks (8.3% vs. 1.6% industry average) and one conversion.

How can I afford to absorb the cost of shipping, which is my largest single expense? Well, I can't, especially when nearly everything is priced at break-even at best. The single coupon redemption (so far) cost me $20.69 to bring in $51, all for products that were priced below profitability. I did convert a big box of dead stock into dollars, so that's nice, but I'd go broke if all of my customers did that.

Newsletters transcend the mailing list. MailChimp was supposed to autopost it to my Facebook page. That didn't work, so I did it manually, and 24 more people (out of Curio City's 223 followers) saw it -- if you want to reach your whole list, you have to pay Facebook a bribe. The key is that Facebook then autoposts it to the bottom of my store's front page, where the people who see the offer should be highly motivated to use it.


It showed up there two days ago. Nobody has used it yet, but at least I have an offer linked on my front page now. There's no other good way to do that.