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This is a list of the products we use and for what purposes:

• Turbo Tax Business to do the 1065 and the K-1 for the LLC partners.
• Turbo Tax Home & Business to do the W-2, 1099 and the personal taxes.
• And QuickBooks Pro for the regular day to day accounting.

I think they manage to extract around $400 in software and fees just because the tax code is very complex and too difficult to do by paper and pencil.  When the LLC was young and simple, I was able to create 1065/K-1 and 1099’s by hand.  Nowadays, it is far more complex than what I can do by hand.

I wish they at least had a combined product that did it all, even if it costs the same amount.

As to what specific forms you need to do:

• 1099 / W-2 – These are for sub-contractors of the partnership.  We are good, but we still need help from very good people.  That is where we report what we pay them.
• 1065 and K-1 – These are the partnership taxes.  The partnership passes through income/loss to its members.  No need to send a check here to anyone.  Just a statement to the IRS and the Partnership members so that they can pay their taxes in proportion of their income/loss.
• 1040 – For the personal taxes.  We have to include the K-1’s here.

Buying a condominium is a great alternative to a detached, single family home.  They are more economical and they require less effort on your part to maintain them.  Or… do they?

Just like any purchase in life, there are those things that are promised on the purchased and then there is reality.  When working with responsible, respectable people the expectations tend to match reality most of the time.  When working with the wrong kind of people, the opposite may be true.  And so happens on Condominiums.

Two extremely important tips:

• Are You Willing To Live There Forever? — Yes, I mean it. No matter how optimistic you are, you should always consider the unfortunate possibility that your financial situation may not improve ever again, or even deteriorate.  But that is not the reason or my argument.  You want a property that other people will be able to buy or rent from you once you are done using it.  And you want them to buy or rent it because they fall in love with it, not because they have no other choice.  Those people who fall in love tend to pay a premium, while those who do not have a choice tend to pay the least – or in the case of rents… they may stop paying.
• Maintenance Free? — Some condominiums have perfect finances.  I define it as a condominium that is in current repair, does not require special assessments, and has at least one year of condominium dues in the bank (unless it is brand new).   Any special assessments in the last 5 years means that the condominium has been poorly managed:  someone dropped the ball on repairs and they didn’t had cash reserves.  Most states do not require condominiums to estimate repair costs over the course of the years.  Fortunately Florida creates the guideline that condominiums have to be inspected every 5 years and estimates should be done for major purchases (roof, siding, etc.) — they also require them to be funded in cash reserves.

In summary:  Before making any offer:  Buy a property only if you fall in love for it.  Ask for a copy of the cash reserves (savings) statement.  The vendor may try to lie about any special assessment the condominium has made in the past, and the condominium association may be lying about the repair schedule.  But it is difficult to fake a pile of cash – not to mention fraudulent if they use it to advertise the property and entice you to leave a deposit.  Your attorney will advise you as to what other documents he/she will use to evaluate the worthiness of the property.

People often tell me they are unhappy about their jobs, and they would rather be doing what I am doing: peddling my services independently of big corporation.

We all can do it. One thing we can’t do it is have our cake and eat it too. Many people want both:

• Happiness – Freedom to do what you like to do best.
• Safety net – apparent safety net of a “permanent” job.

Life is full of trade offs. And although I believe that if you have a passion for your career you will certainly do better alone than with big company, it is not without difficulties. A big, comfy cash cushion is the independent contractor’s most valuable asset.

In other words: it all comes back to the principles of spending less than you earn, and saving around 6 months of salary. That is… only if you think that freelancing will bring you happiness. Otherwise, your job may be bringing you more happiness than you think!

2010 Reading List

My main profession (and the one feeding my investing) is as a custom software developer in a niche professional services firm. Since this is both my passion and my livelihood, I look for ways to educate myself as much as I can on it.

On the technical aspects of my career I continuously update my skillset. It has been my passion since I was a kid.

However, not being an MBA, I have to force myself to learn as much as I can about the business aspect of Professional Services. I have found what seems to be a good list of books to read this year (it includes some I have already enjoyed, and I suspect that the others will be as enjoyable and enlightening – if association means anything).

If you are in the same kind of practice, it may be worth to look at it. Otherwise, writing this article serves me as a good reminder.

“We are From Human Resources, And We Are Here to Help”

For a company to work well, everyone should be willing to help each other. That is for granted. And most of the time Human Resources can help you: they can help you change your health plan from a PPO to an HMO to save some money (and lose some life), they can also help you increase your 401k Contributions.

One thing where they may help you, but not as their highest priority, is on management style, behavioral, discrimination and/or harassment issues. This is the moment where the Human Resources person first and foremost responsibility is to protect the employer (company). The company feeds their family, not you.  The most obvious way they want to protect the employer is avoiding any costly lawsuits. The second, also obvious way, they want to help the company is avoid losing human resources – that is, the valuable employees.

If you need to bring one of these issues to Human Resources attention, it is most important to have a clear idea of what is the outcome you want to see. It is just like any negotiation process: a clear idea of desired outcome is important. Just complaining may result in a quick resolution that may or may not be something you wanted.

Avoiding Lawsuits:
What you bring up to the table may very well be lawsuit fodder. The company doesn’t want to be the defendant on any lawsuit — even if they are not at fault, it costs them money to defend themselves. They will want to resolve the situation as early and as efficiently as possible.

Problems are normally best resolved early, before things escalate too far. Especially when things can be resolved by just a quick talk to the offending party. Most of the times these small issues can be resolved by talking to the offending party directly rather than escalating to Human Resources. But sometimes some harm may have been done already by the offending party. You may complaint about salary discrepancies, or bad behavior from other people. In those cases the company already knows you are a risky person: you may want to sue them, even if they help. Even helping may be accepting wrong-doing. They can’t fire you (there are whistle blowing laws, harassment laws, and discrimination laws that would prevent them from firing you). But think about how many tools they do have at their disposal, and try to be specific in your conversations about how you want the issue to be addressed:
• Reprimanding the offending party (Is this what you want? Do you think it will solve the issue? If so, then it is all you need).
• Offering you a package to leave the company (which could be less costly than a lawsuit). I have seen this done very often.
• Changing you to a different department. (Could be better, or worse – could be a dead end one).
• Adjusting your salary in the case of discrimination. (But, have you made sure that you will not fall behind again, after a couple more years? Have they really changed behavior? Did they just adjusted everyone’s else’s salary down over time just to make you believe it is a fair environment?)
• Firing the offending party.
• Do a quick resolution now… and wait a few months while they find some reason why you might be an inefficient or unnecessary employee, and fire you. After all, they may see you as a problem maker and not as an asset anymore. I have seen this happen too often as well.

Avoiding Human Resources Loss:
Are you sure you are the most valuable resource for a company? If you are, a quick talk to your manager (or your manager’s manager) may solve the situation. (He/she may quickly fire or reprimand the offending party just to avoid losing you). But what if the offending party is the more valuable than you? At least in the way other people perceive it?

Company Culture
Look at your CEO and his/her immediate management team. How do they behave? Are they hostile? Do they harass? Do they discriminate? If they do, you are out of luck (unless you are like them and enjoy it). Remember that Human Resources are their employees. They do have an interest in modifying top-level management behavior’s to avoid them a lawsuit. But they will not fire top-level management. If the culture management has imposed on the company is not to your liking you probably have to options: switch to a better employer, or try to become the victim of the most horrendous crime you can so that you can win big money against them on a huge lawsuit. I advise the former, not the latter. Just staying in the company and trying to change their culture by complaining to Human Resources will do little to fix the issue.

Some people tell me that their employee is taking advantage of them in a recession. It may well be true – an employee value may have been diminished due to availability of cheaper, unemployed resources.

However, my first question to those people who tell me of their employers plans to pay them less or to torture them with a miserable 3% annual raise is:
Are they earning money? (Earning == Revenue less spendings)

In this recession, many companies are losing money. Some of them have not closed the doors just because they are hoping the economy rebounds. They may be doing you a favor by keeping you employed. They are also happy to have you – they know they are the ones taking the big risks, and your salary is the price to pay for the risk.

Public companies publish this information on the web. (Google them). The government is loosing money for decades. And Private companies may not publish their numbers — but you can find them on the grapevine / water-cooler (example: are they close to being public (earning)? or are they delaying the plans by 3 years (bleeding)?)

The second question I ask is:
How much more money do they make this year, versus previous year? Earnings (Revenue less salaries, expenses, taxes, depreciation, etc.)

If a company revenue is flat, why do you expect them to raise your salary? Reason would dictate your salary should stay flat (especially when your medical insurance may be going up, your portion and theirs).

Unfortunately, the opposite is not always true. Once the economy bounces back, the company may experience increasing margins and profit / revenue. Don’t expect a 25% raise just because they raise their earnings by that much (although they may give you a better bonus, for example). Companies start just because they are willing to take a big risk in exchange for a bit reward potential.

I just feel like I wanted to put some things into perspective today.

There is a mis-conception that hard work will equal higher pay. I do believe that hard work is a necessary condition for higher pay, but it is not a sufficient condition. Otherwise, miners and loggers would get better pay. (Although they do get better pay than a McDonalds employee).

The key is _value_. Of particular importance is how much money a company can make or save out of one’s work. And how it compares with the amount of money that can be made or saved by someone else who might be willing to work for less (maybe on a less expensive geography, or someone that just got out of college).

Once we can clearly document and articulate our value we can compare it to what we are being paid. And if there is an inconsistency, we feel more secure in going to a different organization and asking for a job that pays better. If we are able to clearly articulate the value, we will be paid accordingly.

Our value, however, is constantly being attacked by many factors. Sometimes kids coming out of college just know the same or equal – we become obsolete. Sometimes someone provides the same value in a different geography. Sometimes our skills compete with the skills of a machine (I am great at making software that makes people less necessary). And every day we do not do something to increase our value, we see it diminished.

W-2 and Contractor or Consultant should not appear on the same sentence, it is an oxymoron.  W-2 forms are given to employees, as defined by the IRS.  Employees have certain rights and duties.  Employers retain taxes from them and may be obliged to give them some benefits in some states or localities.  Normally consultants/contractors don’t work for only one customer for a long period, and they have a leeway into how they perform their tasks.  They also buy their own equipment.  The fact that they append the term “Contractor” or “Independent Consultant” to the job posting that also says it is a W-2 positions is just because they want to give you a clear impression that it is a temporary engagement (6 months, for example), and that after that term there is no sure employment.

There is nothing wrong with a W-2 positions.  With the high unemployment rate we have, any work opportunity is a good opportunity.  Don’t be discouraged by it.  However, don’t be falsely encouraged to think you have achieved independence if at the end of the year you get a W-2.

Professional independence comes with risks and rewards, but normally it requires:

• Subject Matter Expert - You are the one who knows how to complete a task – that is why they hire you and not just anyone on the street.  You have spent years training yourself, sometimes at your own expense or your own time.  You have done the task several times, in different situations, for many customers.  You are the right choice – or the only choice – for this kind of task.
• You Have the Tools - You have the tools to accomplish the job.  Tools can be physical ones as in hardware, or they could be proprietary intelligence that you use to accelerate your deliverables.  Either way, they need your skillset and your toolset.
• You Have Risks and Rewards - You have the chance for profit or loss.  On a W-2 you only have profit for your time, albeit it may be adjusted to reflect the risk is being carried by an employer.  There are many reasons why a 1099 contractor may get paid better than an employee – sometimes double – or even more.   As a consultant/contractor you also have the paperwork risk:  you have to do accounting, tax paying, and have to verify you are complying with  laws – not an easy task in this country.

Some companies do a hybrid of this.  They hire people on a W-2 employee basis, and then re-sell them to other companies collecting revenue on a 1099 basis for themselves.  They resell the time of their employees.  Essentially this Contractor company takes on the risk and pays employees in a low risk way.  The margin they collect as a middleman reflects the risk.  They still call the people they resell Contractors, ans they look like contractors for the company that hires the Contracting Company.  But from the individual perspective, they are Employees.

I think it is important that we differentiate.  I have many friends that think they have achieved independence when they get a W-2 Contractor positions (in reality they got something less convenient than full time W-2 employment).  If they feel complacent on their achievement, they may be missing the joys of full independence and full Consultant/Contractor status.

For more differences between W-2 and 1099 you can check plenty of sites on Google.

Unemployment climbed to 10.2%. I wish I had better news.

If people haven’t noticed, double digit unemployment is common on what used to be called third world countries. Unemployment leads to stagnant nations where we never recover.

Regardless of what or who is to blame for high unemployment, maybe it is time we try to reduce it: as individual persons. As people who want to help each other.

I will make a plea for help here, almost begging:

• Please, take a job: any job, even if it pays less than the one before. Even if it is in McDonalds or Home Depot. If you feel you are truly worth what they used to pay you before, then you will find a job that pays that amount later. If not, at least you are not part of the problem. But for now, take any job please.

• Or even better, get out of the labor force and start your own business. It may create a few more jobs.

Notice I do not ask yourself to go back to school (unless you haven’t finished high school). There are plenty of college graduates unemployed already. Having a few more doesn’t help.

We need workers – people who desire to work so much they will take a job if offered – and do it well.

(And yes, I have already offered jobs to people who seem qualified, who have been out of a job for more than a year. And the job has been rejected – because of a 40% travel requirement, or because it wasn’t high paying enough – even when it was paying higher than unemployment benefits).

If you wake up one morning and think you may be on the wrong career for very important reasons: you may be.  And it may be better to jump ship while there are lifeboats available.  You do not want to find yourself without a job and trying to go back to the same career you disliked (or where you didn’t excelled) or trying to force a career switch on a desperate moment of your life.

I see a probable way in which you can switch careers without suffering a lot of impact: doing so on the same company where you work.  You may be able to save yourself from a paycut, or you may be able to get help from people who like you already.

Companies are reluctant to give raises to internal job-switchers. At the same time, they are reluctant to give pay-cuts to internal job-switchers. If you are highly valued by your peers and superiors, they will understand when you tell them that you love the company and love iteracting with them, but want to explore another career within the same company. (If you are not respected and needed, you are out of luck). Remember to talk to your manager first before looking for other jobs within the company.  Don’t be afraid:  you are just expressing your need for change.  Unless he/she has something against you (in which case you should find something else fast!), there should be no problem.

Reasons you may want to switch careers now:

• Motivation.  You do not like your career.  It doesn’t motivates you.  Lack of motivation leads to lousy work.  Lousy work leads to lousy pay or lack of job on the next round of layoffs.
• Obsolecense.  Maybe your career is obsolete.  No longer needed.  Secretaries had to transform themselves into Administrative Assistants.  And even then, there aren’t too many of those anymore.
• Dime a Dozen.  Thats what your skills are worth to the market: too many candidates have inclined the balance of offer-demand out of your favor.  Some people are happy with that, but some others want to pay the mortgage and car bills.
• Game End.  You are at the top of your career.  Nowhere else to go, nothing new to try.  If you do not do something you may fall into a lack of motivation trap.

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