Our Accidental Business

I didn’t expect FIRE (financially independent, retired early) to involve the incredible bureaucracy of a business bank account or paid use of Freshbooks (at least, not for a year or two), but here we are. It seems Sweet Husband and I own and operate our own business. Didn’t see that coming!

Lest you think we’ve fallen from the FIRE wagon and been knocked about the head, we haven’t. I’m working 40-50 hours/month for the foreseeable (not counting hobbies that bring in fun/side income) and Sweet Husband is working about 15-20 hours/week for a few months. Altogether, this brings in about $7-$10k/month.

This means we’ll not be touching our savings (and will in fact be adding to them), but that we also need to account for this income and our expenses in a sane way. Though being FIRE and in business may seem conceptually at odds, it is financially advantageous for us for tax reasons, and it may be for you as well.

Liar! You said you retired at 38!

One of my goals is to never have a job interview or annual review again, but that is not the same thing as never doing any paid work ever again. The point of achieving FIRE is having the freedom to do as much or as little work as you want, of the type you like, because you don’t have to.

Sweet Husband and I each quit our corporate tech jobs in mid 2015, hit the road, kicked back, and relaxed. The business happened accidentally. (I realize I sound like one of those women who “wasn’t trying, but also wasn’t not trying” to get pregnant when, bam, of course she does and seems shocked. Forgive.) Not soon after we quit, each of us was offered — through referral, with zero effort — very brief consulting gigs (one month of part-time work and a few days of full-time work). This created just over $8k of 2015 self-employment income, and we incurred some expenses (flights, software, etc.).

Then, a few days before Christmas, I got a consulting inquiry from someone I helped for free a couple of years ago. (By the way, self-employed folks: I was shocked at how many inquiries I received in the week between Christmas and New Year. It seems mid and upper-level management folks are working but have time to think and plan without everyone else around. That planning involved lining up contractors for the new year.) The same thing happened to Sweet Husband.

I’m now making as much in 40 hours per month as I did in three weeks at my old tech job, my client is a dream, and we get loads of business deductions on top of it.

Allow me a petty moment: Suck it, Silicon Valley.

Anyway, voila, we’re retired and we have a business. I spoke with our tax accountant and it’s too advantageous to not bother doing.

It’s not really THAT weird…

Owning a business is in line with the rest of our FIRE behavior, though: if something helps us preserve and keep our FIRE lifestyle and more of our money, it’s something we should at consider. That’s how we got to FIRE in the first place: by questioning everything, including our own ideas and assumptions, and doing lots of research.

It’s also a lot more fun to start a business when it doesn’t have to be successful or make any money!

Financial Advantages of Business Ownership in FIRE

The ever-optimizing FIRE folks are probably well aware of this, but just in case this might be helpful to someone…

1. Our health insurance premiums are deductible because we’re self-employed, even though they are not a qualified business expense. The only catch is that our business has to have some profit in order to take this deduction. Even just a teeny bit of profit will do, and we can adjust our business expenses to make that possible.

We qualify for the premium deduction whether or not we qualify for the federal subsidy that reduces monthly premiums (by subsidizing F**KING insurance companies, thus giving them zero incentive to lower costs, but I digress). This deduction is one way for us to recover some of the $635/month we spend on healthcare premiums for the two of us.

We also have an HSA health plan, so we can put over $6k year into that. Health Savings Accounts (HSAs) are different than Flexible Spending Accounts (FSAs), but this has nothing to do with the fact that we’re self-employed: an HSA is just a nice way to reduce your AGI, something many FIRE folks may not need to worry about if they are truly not working at all.

2. We can deduct home office space even on our paid off house. A home office deduction will offset our (high in California) property taxes. It’s a myth that without a mortgage, and thus mortgage interest, you can’t claim and benefit from home office space.

And there’s even better news for people who follow Mustachian values on home size: a small home helps maximize your home office deduction, because your home office is a larger proportion of a smaller house, than it would be of a larger house. The home office deduction is calculated as either a percentage of rooms or total square footage. The legal (tax assessor) square footage of our house is 866 sq ft. and our home office is 130 sq ft. of that, or a bit over 15%. Our tax accountant said most folks only get 4-5% because their houses are so huge, that the office alone is a much smaller percentage.

Finally, a reward for minimalist living from mainstream society (or at least the IRS).

3. Other stuff we’re paying for anyway becomes tax deductible. A percentage of all of our utilities and home maintenance, our Internet bill, software like Dropbox, professional topic books from Amazon, our mobile phone bills, a percentage of our homeowners, earthquake, and auto insurance, our umbrella liability policy… These are all legitimate business expenses.

We obtained an EIN and are opening a separate bank account using the EIN, to be more formal with the IRS. Qualified business expenses will then be paid using the debit or credit card associated with the business bank account. It should make things neater for us and our tax accountant.

That’s after we finally have a business bank account, which is the stuff of Kafka nightmares. I’ll write more on the hell of all this in a later post but, should you need an idea for a start-up that will make a lot of money in the meantime, you should make it easy and fast to open and use a business bank account, because it’s still 1979 in that area of the business world. Even the places that appear to do it well, like Spark by Capital One, don’t. Now go out and get yourself some VC money!