Wednesday, February 15, 2006
How to live below the tax radar
If you resent the big bite our various governments take out of the money you make, you’re probably interested in living below the radar. Government, like most idiotic and half-blind hunters, tends to go after the biggest and easiest targets. If most Americans have something or want to do something, expect those somethings to be most heavily taxed. The big two somethings most people have are vehicles and homes. No surprise that from these two things spring forth most property taxes. To avoid property tax you could try to avoid owning property, at least in the forms of homes or cars. Unfortunately, in most of the USA it’s unrealistic to go without a car. Some people can do it in San Francisco or NYC, but elsewhere you’ll need a car to get anywhere interesting. You can, however, live without a house. And you can dodge most car taxes too. Here’s how to live below the tax radar:
1. Drive a used car. In most states, your annual car tax (aka “license plate registration”) varies greatly depending on the age of your vehicle. In Arizona, a new $25,000 car costs about $500 a year to register. A 10-year-old car is around $40. Another Arizona bonus: you don’t pay sales tax on person vehicle transactions. Time to hit the classified ads. Another advantage of a used car: ditch the comprehensive insurance and save hundreds every year. If you car is worth $3000, it’s probably silly to pay $300-600 a year to protect it from theft and collision. Stash that money in the bank, earn interest, drive safe, use a steering wheel lock, and “self-insure” for collision/comprehensive. (Not liability. Get that. Keep it.) Live with door dings. If your car does get stolen, tap into the money you socked away. You’re likely to come out ahead in the long run.
2. Don’t own a house. Conventional wisdom says that owning a house is smarter than renting. If you rent, you’re “throwing your money away”. But keep in mind that paying a mortgage is also “throwing your money away” – to the bank instead of the landlord. It’s true that you’re building up equity in your property – but that equity is not liquid, since it’s hard to tap without hefty fees (on a home equity loan). Also, unless you’re lucky enough to live in an area with a real-estate bubble, property doesn’t historically appreciate very quickly. It might keep pace with money markets or CDs – 3-5% a year – but not with the stock market, which averages closer to a 10% return. Other disadvantages for the footloose below-the-radar types: homes are stationary. If you own, it’s hard to hop ship for a different neighborhood or city. Maintenance isn’t to be taken lightly either. Painting, yardwork, and caulking the bathroom tub, or hiring a handyman to do it, are part of owning a home. But the biggest drawback is taxes. Annual property taxes vary widely, but in Tucson a $150,000 property will be billed around $1200 per year. In some parts of the country the bill could be closer to $3000 for a similar property. This money goes largely to the support of public schools, which won’t benefit you as a childless tax-dodger. You’re too smart to avoid the expensive trap of children.
3. Live with others. If you don’t own a house, where to live? If you can stand it, sharing a place makes a lot of sense. Not only can rent or mortgage payment be split up, but utilities are usually much cheaper when shared. Some services have tiered pricing structures to penalize heavy consumption (e.g. in Tucson, water). However, many services are still cheaper on a per capita basis since connection and service fees are fixed. Also, many services have untiered fees, like cable TV, high-speed internet, phone and garbage pickup.
4. Shop online. Not only are prices usually cheaper, and free shipping often available, but sales tax is rarely collected. In places like Tucson, sales tax eats 7.6% of your purchasing power. Parts of California and New York reach around 10%. So far, most online retailers who don’t have a brick-and-mortar store in your state don’t collect sales tax from you. Amazon.com is one of my favorite online retailers since orders over about $30 ship free, although slower than regular orders. Prices are usually 10-25% lower than local outlets, in addition to the 7.6% no-sales-tax reduction. Some states require that you remit sales tax from online purchases on your own...
5. Don’t earn much. This last one is the most difficult. Income tax is difficult to dodge, which is why the government relies on it so much. No matter how frugal your lifestyle, you’ll still give up at least 30% if you have any normal kind of job. I’m not giving advice on tax loopholes, and not only because I don’t know of any. As far as earnings, there is no easy way to live below the tax radar.
1. Drive a used car. In most states, your annual car tax (aka “license plate registration”) varies greatly depending on the age of your vehicle. In Arizona, a new $25,000 car costs about $500 a year to register. A 10-year-old car is around $40. Another Arizona bonus: you don’t pay sales tax on person vehicle transactions. Time to hit the classified ads. Another advantage of a used car: ditch the comprehensive insurance and save hundreds every year. If you car is worth $3000, it’s probably silly to pay $300-600 a year to protect it from theft and collision. Stash that money in the bank, earn interest, drive safe, use a steering wheel lock, and “self-insure” for collision/comprehensive. (Not liability. Get that. Keep it.) Live with door dings. If your car does get stolen, tap into the money you socked away. You’re likely to come out ahead in the long run.
2. Don’t own a house. Conventional wisdom says that owning a house is smarter than renting. If you rent, you’re “throwing your money away”. But keep in mind that paying a mortgage is also “throwing your money away” – to the bank instead of the landlord. It’s true that you’re building up equity in your property – but that equity is not liquid, since it’s hard to tap without hefty fees (on a home equity loan). Also, unless you’re lucky enough to live in an area with a real-estate bubble, property doesn’t historically appreciate very quickly. It might keep pace with money markets or CDs – 3-5% a year – but not with the stock market, which averages closer to a 10% return. Other disadvantages for the footloose below-the-radar types: homes are stationary. If you own, it’s hard to hop ship for a different neighborhood or city. Maintenance isn’t to be taken lightly either. Painting, yardwork, and caulking the bathroom tub, or hiring a handyman to do it, are part of owning a home. But the biggest drawback is taxes. Annual property taxes vary widely, but in Tucson a $150,000 property will be billed around $1200 per year. In some parts of the country the bill could be closer to $3000 for a similar property. This money goes largely to the support of public schools, which won’t benefit you as a childless tax-dodger. You’re too smart to avoid the expensive trap of children.
3. Live with others. If you don’t own a house, where to live? If you can stand it, sharing a place makes a lot of sense. Not only can rent or mortgage payment be split up, but utilities are usually much cheaper when shared. Some services have tiered pricing structures to penalize heavy consumption (e.g. in Tucson, water). However, many services are still cheaper on a per capita basis since connection and service fees are fixed. Also, many services have untiered fees, like cable TV, high-speed internet, phone and garbage pickup.
4. Shop online. Not only are prices usually cheaper, and free shipping often available, but sales tax is rarely collected. In places like Tucson, sales tax eats 7.6% of your purchasing power. Parts of California and New York reach around 10%. So far, most online retailers who don’t have a brick-and-mortar store in your state don’t collect sales tax from you. Amazon.com is one of my favorite online retailers since orders over about $30 ship free, although slower than regular orders. Prices are usually 10-25% lower than local outlets, in addition to the 7.6% no-sales-tax reduction. Some states require that you remit sales tax from online purchases on your own...
5. Don’t earn much. This last one is the most difficult. Income tax is difficult to dodge, which is why the government relies on it so much. No matter how frugal your lifestyle, you’ll still give up at least 30% if you have any normal kind of job. I’m not giving advice on tax loopholes, and not only because I don’t know of any. As far as earnings, there is no easy way to live below the tax radar.
Tuesday, February 14, 2006
Ribbit
Each week I ride from my house out to Sabino Canyon. Sabino is a deep gash in the south-southwest face of the Santa Catalina mountains. From the parking lot, a paved road continues 3.7 miles up the canyon into the heart of the mountains. Cyclers turn around here for the fast ride back down to the parking lot. Last week I rode out by myself into a cold sustained headwind. Five miles into the ride, my right knee started to hurt. I realized I was fighting my SPDs, trying to bring my heel in more than the pedals allow. Mine have about six degrees of float -- not enough. Or maybe enough if I could adjust the cleat angle, but that's not possible. I think six degrees is fairly standard. By the time I got to Sabino my knee was killing me, and I thought I could actually see some bruising on it. On the way home I swore I'd look into some full-float pedals. An email to my brother and a search on the web pointed me toward Speedplay. But their two lines of road pedals (the lollipops) require standard road shoes with a 7- or 8-bolt pattern (I can't remember). Speedplay's Frog off-road shoe fits standard 2-hole (SPD-style) shoes. They have "unlimited float", but that's not really true. On the bike, your heel cannot rotate inward more than a degree or two. It can rotate out 20 degrees before releasing. There is no spring, and nothing prevents your cleats from releasing except your muscles holding your heel in line with the bike (within 20 degrees). When I first figured out how they work (sitting on my couch playing with the pedals) I was surprised -- they aren't really "clipless" pedals at all. They're a different animal... a cross between a platform pedal and true clipless, like SPDs, where you are actually attached to the bike, with spring tension preventing your cleats from releasing. I was disappointed. $130 for what are really just platforms? The packaging suggests 2-3 weeks to get used to the pedals. I installed them and went for my Sabino ride. It took me about 2-3 minutes to get used the pedals, and I actually like them. It's very easy to "clip in" -- just put your foot down. Also easy to clip out -- no spring tension holding you in. Just swing your heel out. No sound. It just releases. It's clever, but it makes me wonder if I need clips at all. Rivendell generally thinks no, they're silly. Rhino likes them. I like them. With clipless, I don't have to worry about where to place my foot on the pedal fore/aft or side to side. Just plop. Otherwise I'd be moving my foot around all the time, being rather flippant.
