There was once a time when a handshake and a person’s word were all that was needed to formulate an agreement. If promises were broken, the only recourse was through thoughtful deliberation and six shooter. Okay, I’m just romanticizing the Wild West but I do think the point still holds true. Nowadays you see contracts here, signed documents there, notarize this page and initial there. When push comes to shove, contracts are scrutinized every which way and even English grammar comes under fire. However, when all is said and done, it ultimately comes back to building relationships, reaching an understanding and then putting it on paper.

When a friend rented out a part of their home to friend, he required the renter to sign a lease. I was a little surprised. Did he not trust the renter? I was naive and thought it was a matter of trust. However, looking back, I’ve realized it wasn’t about trust, it was about reaching an agreement. The contract was there to solidify the terms of their agreement, likely negotiated over a few emails and finalized over some beers, and act as a historical record in case there were any disputes. It wasn’t there to “force” someone into terms.

If it’s in writing, you can study it and ensure it’s accurate. While you can’t ensure completeness, you can at least be sure that whatever is written down (and agreed to) is true and accurate to the best of your knowledge. Maybe there was some miscommunication or some misunderstanding, that can be clarified once the agreement is put in writing and both sides can review it.

Unless you have a photographic mind and everyone believes your memory to such, you can’t remember the exact terms of something you agreed to a year ago (or five, or ten). Let’s be honest, do you remember the exact terms of any of your leases? You probably remember how much rent was, when it was due, how much your security deposit was, and what you needed to do to get it back. Was it due the 5th of the month or the 6th? Don’t remember? That’s okay, that’s what the lease is for! You can’t remember everything and you can’t trust your memory to be 100% every single moment. You also can’t force the other party to trust that you remember everything. If you have it down on paper, you’re far better off.

Unless you use an attorney to draft up your contract, any attorney will be able to find a way to nullify your agreement. I have no background in law, I only know a handful of lawyers, but I believe that any personally crafted legal document is probably not going to stand up against the carefully scrutiny of a trained lawyer. That being said, unless you’re willing to hire an attorney on retainer to review every agreement you make, it’s more important that you build up the relationship that is clarified by a contract instead of relying on a contract to force a relationship. Also, unless you’re willing to hire an attorney to tear apart an agreement you made, you need to stress the relationship and not the sheet(s) of paper.

Contracts don’t exist in a vacuum and people have long memories and big mouths. Let’s say you screw and swindle your way out of a contract because the language was ambiguous, people will remember that and likely tell other people. If you promised to pay someone $50 and renege, people will remember for a long long time. It may not manifest itself verbally but you can bet anything that it will manifest itself on some form or another.

Build the relationship, clarify with a contract, but leave the lawyers out of it. I want to leave on this note: The contract isn’t about trust and shouldn’t be about trust, it should be about the relationship and clarifying an agreement. If you don’t trust the other party, don’t bother with a contract unless you are willing to hire yourself a lawyer and they sure would love that!

(Photo by [phil h])

After I incorporated my little side operation, my first order of business was to think about whether or not I wanted to get a business credit card and, if I wanted one, which one would be the best for my needs. I reviewed my options, which I’ll list and discuss below, but ultimately I didn’t think I really needed a business card because my operations require very little spending on my part and thus carrying a credit card that has an annual fee (most do because of the reporting options and extra cards you can get) simply didn’t make much sense to me. I currently do have a business credit card in my wallet and it’s the American Express Business Gold card but that’s because they offered $250 gift cards/free airline ticket to applicants (and the first year annual fee was waived). After the first year, I’m likely going to cancel it because I hardly use it.

So where would a business card make sense? I think that it makes the most sense when you need specialty reporting features such as how much you’ve spent in each category all neatly outlined. If you have hundreds or thousands of transactions a year, having them reported out in an easy to read fashion is easily worth the $50 or $100 annual fees because it could take you hours to sort through them. That time could be better spent on your business operations.

Here were the cards I looked at and what my thoughts were on each:

Discover Business Card - With all the reporting features and no annual fee (crucial!), I believe that this card is probably the best one for my business, if I ever decide that I need to get a card. It gives 5% cash back on office supplies, 2% on gasoline, and 1% on everything; making it a lot like your typical consumer card. There is also a no annual fee Discover Miles Business Card which has more of a travel focus with 2 miles per dollar on travel and gasoline with 1 mile per dollar on everything else (it also has 12,000 bonus miles). I think the regular Business card is by far and away the best of the bunch because it has no annual fee, a reward program, and is basically a consumer card with a business card title.

American Express Business Gold - They are arguably one of the bigger names in the business card landscape because so many companies already use American Express and because of the $250 promotion. The Business Gold card also opens up the door to American Express Gold Card Events and the AMEX Membership Rewards program but comes with a $125 annual fee. The biggest draw of this card is that you can take advantage of AMEX’s concierge type program but I don’t really need that sort of service so I can’t really appreciate it.

I had the following question on my post about 50 Fun Facts About Credit Cards that I wanted to float by you all and see if my answer was on point or off base.

Jim,

Is it illegal to charge business and personal charges on the same credit card, if we pay each item separately from appropriate accounts? I have been doing this for years, and my accountant just informed me that it is not legal, which I think is wrong information, but cannot locate a place to find the answer — can you lend me some correct facts?? thanks — Lauren

I’m not a lawyer and so I can’t be certain of the legality but I don’t see why it would be illegal for you to charge business expenses on your credit card. Consider the situation where you’re an employee and you buy something for your employer. When you do that, you probably submit an expense report and your employer pays you back some time later. If the mixing of business and personal charges on the same credit card were illegal, then this wouldn’t ever happen.

Now, one reason why you wouldn’t want to mix the two is when you have a limited liability corporation (or some other entity) and you are trying to shield your personal assets from your business liability. In that case, you have to clearly delineate between your business and personal finances - mixing the two will blur that line and expose you to personal liability if something happens in your business. So, while charging business and personal to the same card is not illegal, it’s generally considered a bad idea because it takes away the only benefit an LLC provides - personal liability separation.

Anyone else care to weigh in?

Do you know what the eBay High Demand Gadget Game is? Well, it’s when a company offers a much anticipated, high demand product with a low supply and you snatch a few up so you can post them on eBay for a nice premium. It’s actually quite fun, I haven’t participated in it much recently, but I had done it in the past with much success if you do it right. If you do it wrong, you could actually take a perfect arbitrage and profit scenario and end up losing money.

Is It Actually Low Supply?
You know the Apple iPhone that was just released? People were standing in line to get one… but they could’ve just gone to the Apple Online Store and ordered the 4GB version for $499 and the 8GB for $599 - shipping in 2-4 weeks. It’s not like the Nintendo Wii which you still can’t buy, unless you want to overpay for a bundle, without calling up stores beforehand to check on their shipment schedules. Check with the manufacturer to see if they’re actually going to be in low supply or not…

Is It Worth It?
First you must gauge the actual demand, check eBay prices to see how they stack up and take a 20% premium off the closing prices. The 20% is to discount the hype, pre-release promises to deliver, and to account for some of your transaction costs (sales tax, gas). If it’s still worth it for you to stand in line for however many hours before the store opens, you better get a comfy chair read and some sandwiches.

Don’t Overpay
Check out this hilarious story about a woman who brought $16k to buy out a store’s supply of iPhones, paid the first kid $800 for his spot, and then found out she could only buy one phone (I thought the limit was 2, but it certainly wasn’t unlimited). She took a nearly winning proposition (8GB goes for around $700 on eBay, so she’d make maybe $150 or so after everything) and made it a losing one by paying out all these unnecessary incidental costs. The kid also got a phone too plus a few hundred bucks.

Don’t Buy On Secondary Market
So you see that hot gadget on eBay or Craigslist at a steal of a price and you figure you can turn around and resell it for a quick profit right? Avoid the temptation! Either something is wrong with that particular item or you’re going to get scammed, the seller has as much information as you and you’re likely walking into a bad scenario. If you want to invest in any secondary market, at least let it be the stock market so that when you lose money no one will make fun of you.

Sell It Immediately
Do not wait. Do not pass go. Sell it. Once you get it, get your butt on eBay or Craigslist and sell the sucker as soon as possible. eBay is nice because you can set a reserve and if it isn’t met to your satisfaction, you can simply return the product to the store and you’ll have lost nothing but eBay listing fees. Craigslist let’s you avoid all the fees of eBay, which can be hefty, but you do have to deal with people trying to wheel and deal and the occasional no-show at meets.

Why do I recommend selling it? There’s a reason why there’s a saying, “A bird in the hand is worth two in the bush” and that’s because it’s true more often than it is false. Think of all the people who could’ve sold a PS3 for over a thousand bucks when it was first released but decided to wait until Christmas because they thought the demand would spike along with prices. Unfortunately that didn’t come to fruition… take the money now.

Warning: The Craigslist Sale
If you do arrange a meeting, be sure to do it in a public place (not your house) and don’t bring the product with you, leave it in your car that is also in a public place. If you have a friend who you don’t mind imposing on, get them to come with you. Only take cash - accept nothing else. There are many unsavory characters who would love to come to you house or a dark alley, beat the crap out of you, and steal that gizmo. Be very very careful with this.

There you go, enjoy the life lessons from a recovering eBay junkie, go forth, and play the eBay High Demand Gadget game and rake in the cold hard cash!

When you start the book, you might be tempted to think that You Call The Shots will be just one big lovefest about Cameron Johnson, how awesome he is, how enterprising he was, and how just gosh darn great it was that a young guy like him was able to do so much. In fact, the beginning of the book goes pretty heavy on the credentials, which is a fair way to start a book if you think that you’re going to learn all the great business ideas from someone in their early twenties, but I see the value of the book elsewhere.

You Call The Shots breaks down your traditional thinking about working, earning a living, and making money by taking you along a journey started by a kid who didn’t know he wasn’t supposed to be successful starting businesses online. Cameron Johnson isn’t some child prodigy who was given a head start either, he started as a kid not willing to fit what society thinks children should do, and he just did whatever he wanted - and it worked. He became a sales manager at his family Ford dealership through hard work, not nepotism (in fact, he said that being the son of the owner probably made his ascension much harder, which is probably right), and he started multiple businesses just because he had an idea and the moxie to execute.

Sure, the book offers 19 secrets to entrepreneurship (and they are excellent secrets framed with even better anecdotal recounts) and it follows the wild ride that was and is Cameron Johnson’s life, but the value is really in that it shows what happens when you’re willing to ignore what other people think you should be doing and doing that which you love.

I really enjoyed reading this book and it’s one of the few books that I’ve reviewed where I’ve read it from cover to cover, in part because I identify with him and his personality and also because I’m a sucker for these anecdotal books. If you are the enterprising, entrepreneurial type, I strongly recommend picking this book up and reading it (and to date, I don’t think I’ve given as strong a recommendation for any book I’ve reviewed).

Ahhhh, I messed up! Sometimes it pays to get a professional and just this past tax filing season I made a small mistake that turned into a minor inconvenience that, luckily since I caught it, didn’t get any worse than it could’ve. What happened was that I messed up my taxes and was underreporting my business income by a significant amount and so I had to file the awesome 1040X Amended Return form in order to repair the error (since it was in my favor, which is bad). The plus side is that I found it before the filing deadline so there will be no penalties.

Filing the 1040X was pretty easy but TurboTax didn’t do a great job in generating it so I resorted to filling it out by hand with a head star from TurboTax. Since I had e-filed about a month ago, the return had already been accepted so I could proceed as normal. If it hadn’t, I would’ve been forced to wait until the e-file was reviewed and accepted (which only a day or so when I did it a month ago) before I could mail in my amended return. I owed a little bit more tax but, with the help of Kay from Don’t Mess With Taxes, I was able to sort everything out.

Some little headaches that shook out of this were:
SEP-IRA Contribution - With more income comes more of an employer contribution, which is good and bad I suppose. Either way I was able to sock a little more away for an old rainy day.
State taxes - Again, with more income comes more taxes and this time it was with the state of Maryland. The state amended form was also pretty easy to fill out and so it wasn’t too too bad, though TurboTax again was messed up.

TurboTax didn’t remember that I paid part of my taxes a month ago so in Line 17 of the 1040X, where you would’ve entered in how much you’ve already paid, it left it blank - which meant I would’ve been paying way too much. With the state return, it just assumed you paid for the whole thing already - which would’ve resulted in penalties and interest. So, double check your forms before you mail them off… sometimes you make the mistakes and sometimes your preparer does.

You might be wondering how I found my error a month later, or you might not, but I was calculating my total income for the year (not realizing it was on the header printout of the TurboTax form because they changed how it looked this year) when I noticed a discrepancy. When I flipped back to my return I saw that I had underreported income that didn’t appear on a 1099, I probably was in too much of a hurry to finish and clicked past a question that I thought didn’t apply but really did. Either way, I found it so no harm, no foul so I’m pretty thankful.

So I did my taxes over the weekend and found that I had a significant tax shortfall (more than I’ve ever had as a rebate, but I see it as a good thing) as a result of not paying quarterly estimated tax payments last year. Now, I wasn’t assessed a penalty because I paid more tax than I did the year before (I wasn’t within 90% of what I owed, which is the other ‘get out of jail free’ card) but this year I will have to be paying these estimated payments in order to avoid penalties. If I hadn’t paid more than last year, I would’ve had about a hundred and fifty bucks in penalties, which isn’t bad on an absolute scale but terrible when you consider it’s a completely avoidable loss. So, here is my rough and tumble guide to calculating and paying your quarterly estimated taxes.

Calculating How Much Tax You Owe
You must make quarterly estimated tax payments on any self-employment income you earn and the process of calculating the amount of that tax isn’t tricky but does require a calculator. The first thing you need to do is to figure out what your average tax rate is, which you can find on your previous year’s tax return by dividing your income tax (line 43 on your Form 1040) by your adjusted gross income (line 37 on your Form 1040), that is your average tax rate. As a self-employed person, you need to tack on an additional 15.3% for Social Security and Medicare. Now, you take that tax rate and multiple it by your quarterly profits and that’s the amount you need to pay.

Another safe way to go about it is to see how much you paid in taxes last year, estimate how much you’ll have withheld and subtract that value from your tax paid, add some buffer to that and divide it by 4. If your business is growing, you’ll still experience a tax shortfall but you’ll avoid penalties. So, if you have a tax liability of $10,000 for 2006, your job withheld $6,000 last year, then your shortfall was $4,000. Add some buffer, say another $400, and you should send in $1,100 each quarter. That means for 2007, you’ll have paid $11,600 in taxes which is more than the $10,000 you owed last year - penalties avoided.

Paying That Quarterly Estimated Tax
As for paying it, you have two options - the 1980 way of writing a check, or the 2000 way of sending payment through the Electronic Federal Tax Payment System. I recommend the EFTPS because you won’t lose a payment in the mail but if you use a check, be sure to make out the check to United States Treasury, your social security number on the check, and include a copy of Form 1040-ES. The due dates for payment are April 15th for the first quarter, June 15th for the second quarter, September 15th for the third quarter, and January 15th (of the following year) for the fourth quarter. Obviously, keep copies of all your checks, forms, etc. for tax time next year.

Now, another question I had was whether the payments have to be equal and they aren’t required to be equal but they should. I don’t know what the ramifications are if they aren’t equal but as long as you do a pretty good job of estimating, a small deviation probably isn’t a big deal.

(As with anything you read on blogs, please consult a tax professional before you take any action)