Conversations With Tax Man

The 2016 tax year was the first full one we spent in our FIRE-and-limited-self-employment life, making 2016 our first FIRE tax return. Ah, milestones!

Our income was over $90k, for a net income of $63k after business and other write-offs. We used no savings. We still had to contribute to IRAs.

Now, we think a $63k net income between two adults with a paid-off house, bought-in-cash car, no debt, no kids, and no other dependents is–even in the San Francisco Bay Area–a princely sum, so much so that we gave a lot of that $63k away. Our donations to charities haven’t changed since we entered FIRE, and they were already high. We also took some family and friends on vacations that may seem simple, but it turns out that free airfare and a house by the ocean for a week still count for something to our nearest and dearest.

Yes, where we live, $63k is not much to get by on if you do have to pay for housing, a car payment, debt, kids, child care, and more. But as I said: That’s not us. And perhaps nobody knows that better than our tax accountant, with whom we’ve worked since 2007 (I later brought him into to our marriage, aww).

Let’s call him Tax Man Dan, since that rhymes.

Tax Man Dan was, understandably, surprised by our drastically reduced income (even though I think earning almost $100k before taxes is a great first year in business by any standard, even for people who are not FIRE). He asked, with sincere concern, if we thought our income would be the same for 2017. Based on what we’ve earned since January, we sighed and said “Yes.” And then he asked if both of us would remain self-employed for the entirety of this year, or if “at least one of us” planned to get a job.

We had to smile. Tax Man Dan, concerned father figure type that he is, thought things were pretty dire for us at $63k net, while we recalled a 2016 of living like kings, what with our organic coffee and wine from Costco, abundant beach frisbee time, and taking friends on vacation. We realized we hadn’t really given Tax Man Dan our FIRE context.

Me: “Tax Man Dan, you know how much money we’ve earned these past 10 years. You know we no longer deduct mortgage interest, all that.”

TMD: “Of course.”

Me: “Then… How much more money do we need?”

TMD: “Ah, well… All depends on what you want to do with it, I guess. Buy a second home, maybe? Get a Tesla, like so many other people seem to be doing?”

Me: “That’s the thing. We just can’t get motivated by stuff. The only thing that motivates us is staying out of offices and job interviews.”

TMD: “Really! Well… That is really something… I mean, I suppose… It’s just, not a lot of people do this.”

Me: “We know.”

TMD: “I mean, they really don’t. And they could. They absolutely could. I, well… You know some of my other clients. They referred you. Many of them have earned far, far money than the two of you. Some earn more in one year than you have in 10. And they keep working, keep buying houses… a house in Tahoe, a house in Hawaii. They keep getting divorced and remarried, too, now that I think about it! I guess I’ve just never seen people do this, certainly not at your ages. But, you’re right. If you don’t have a strong reason to keep working…”¬†

Me: “And we don’t…”

TMD: “And you don’t, then… Well, why not?”

And then Tax Man Dan got a lot more interesting.

TMD: “I mean, look at our family, even. You don’t know them but let me tell you, we have far, far more than we need. More than enough house. College was paid for ages ago. And I’m an accountant, we’re pretty frugal, but… When we bought our house in this area, that was the late 80s, prices were starting to rise, but it wasn’t as desirable as it is now… It cost us what… $70k? Maybe less? That was a lot compared to the rest of the country, but it was something you could pay off in a lifetime of work, and we did that some time ago. But I have never¬†personally thought about retiring early. Just always assumed I’d work until full retirement age. Huh. It’s really something.”

Now we’re wondering if Tax Man Dan will still be working next year. Will our FIRE values end up depriving us of our beloved tax accountant?! Stay tuned for the next few hundred days until tax year 2018!