Money Blue Book

As I may have mentioned before, I’m a recovering attorney – and a fairly young one at that (I’m in my late 20’s). Right now I’m in the process of working at home on my online blog and business ventures for a few months before returning back to my full time work as a contract attorney.

So how did I end up doing this type of work instead of using my law degree to pursue a so-called real legal career? Sometimes I ponder about what my dream job might have been had I not gone to law school, since it wasn’t my passion in life to begin with. My decision to attend graduate school was more due to process of elimination. I started out college on the pre-med track to become a doctor, did well in my studies, got bored with chemistry and biology, and eventually shifted gears into computer science. I loved taking programming theory and practice courses and did very well, but after a few semesters, I decided that I couldn’t see myself stuck as a computer programming nerd – so I moved on (how ironic, now that I’ve come full circle again). So then I decided to go the business route and major in finance. After a few more semesters during which I did pretty well, I pondered what else was out there. However, by then I had enough college credits to graduate and my parents were beginning to wave the tuition baton, “encouraging” me to move onto bigger and better things. After looking around, I decided I wasn’t ready to financially support myself just yet. So I took the LSAT exam and sent in my application to a few top tier law schools. Before I knew it, I was attending the state law school and working my way through civil procedure, contracts, and criminal law classes.

Going The Law School Route – But Still Not Sure Where I Wanted To Go Professionally

One thing that I noticed during law school was how incredibly math-adverse law students are. I suppose that’s why they all chose to attend law school to begin with – to avoid having to deal with mathematics or anything related to numbers. However, it just so happened most of my law school friends were of the opposite persuasion – they were mostly into tax law, a legal field riddled with numbers and statistics. I wasn’t particularly fond of all the math involved, but I went with the herd and ended up taking most of the tax law courses available – everything from individual tax planning and corporate tax, to the most difficult law school course I ever took – partnership tax.

After law school I worked for a trial judge and later when on to work for the federal government as an associate attorney for a year or two. After another very short stint working for a crazy female cougar attorney (I’ll share that story one day, as it was a very eye opening experience, but for all the wrong reasons), I ended up choosing to work for myself. After starting up a few profitable blogs such as the personal finance blog you are reading right now and another law related one, I now work as a contract attorney on the side when I’m not working from home. I receive most of my contract attorney assignments from staffing agencies that place me on legal projects that last anywhere from a few weeks to several months. The job description usually entails very simple duties such as legal document review and mindless legal tag coding. Many dread performing contract lawyer work, but the work provides very lucrative pay without the heavy responsibilities (I often refer to it as my “stripper pay”). It’s perfect for my lifestyle at the moment since I don’t want my full time job to hinder the time and effort I devote to my personal small business operations.

The great thing about contract attorney work is that it is extremely stress-free and unlike a traditional lawyer job, my responsibilities and duties end at the end of the day. I never have to run into the office after work or cut a weekend short to file a legal brief or prepare a memo. However there are long term drawbacks to this line of short term work. The biggest downside is that the work is only temporary and isn’t career track oriented. With temping, while meals and transportation are frequently reimbursed, you usually don’t receive any health benefits or job security. But then again, in this day and age as well as economy, do any of us truly have solid job security anymore, or even guaranteed health benefits? The other downside with legal temping is the lack of professional development. However, I simply cannot see myself pursuing the traditional attorney path anyway. Lawyers notoriously burn out fast and work tremendous hours that ultimately take a terrible toll on their health, family wellbeing, and lifespan. Plus, legal employment prospects for attorneys isn’t what it used to be as the market has become extremely saturated. Almost anyone with half a functioning brain can go to law school these days as there are no significant barriers to entry or pre-requisites that need to be overcome to apply. Especially in a major city like Washington DC, you can’t walk in any direction without bumping into a lawyer. It’s utter and complete saturation.

Looking To the Future – Sacrificing Some Income Now To Build Up My Online Blog Businesses and Incubate My Other Real World Ventures

Thus, I’ve come to realize that the key to building wealth and reaching financial prosperity is to build up multiple streams of alternative and passive income, apart from your primary full time employment. Otherwise, you simply run the risk of living your entire life trading hours for dollars. Passive income generation through methods such as blog income or stock market investing help to get around the finite time problem by allowing you to generate income even when you are not actively sitting and working at your office desk.

However, I don’t regret going to law school at all. I was prudent to have attended a state school with relatively lower in-state tuition, and I was very fortunate to have been able to consolidate my student loans at a very low fixed interest rate. My college loans are all paid up and my graduate school loan payments are thankfully quite manageable. Other than tuition issues, law school prepared me for the future by teaching me how to more aggressively and confidently combat conflicts in the legal and business world. Overall my finance, tax, and legal background has helped me to better improve my personal finance blogging tasks, as well as enhance my non traditional legal pursuits. I knew after law school that I didn’t want to pursue the traditional law firm job path since I had a passion for entrepreneurship and running my own business. When I discovered how to make money blogging and developed the ability to tap into the limitless potential of online business income, I knew I had found my calling. It’s a key component part of my solution to end the 9-5 workweek cycle, and the reason why I’m currently sitting at home right now tinkering on the computer instead of collecting a steady paycheck at a stressful full time lawyer position or even at a contract attorney gig.

For now, I plan to only take a short time off to work on my ventures full time as I currently am not yet able to live off of my online income alone. Perhaps that day will someday come, but for now, I plan to return to my legal contracting job after a month or two off. Obviously I don’t see contract attorney work as the future for me since the profession is inherently unstable, unpredictable, and projects do tend to dry up during recessions and slow economic periods. I merely see it as a necessary means to an end for now. Meanwhile, I also realize that by taking a few months off I am forfeiting a substantial amount of contract attorney pay to spend time building my passive income businesses, but I think in the long run and even in a few years from now, the short term financial sacrifice will pay off. The amount of money I am losing by not working full time is quite substantial however. Contract attorneys in my area get top wage rates of $35 an hour with time and a half of $52.50 per overtime hour worked past 40 hours. My contract projects usually require that I bill around 50 or so hours, which comes to a weekly income of $1925.00. I’ve worked at least one extremely time demanding project before in the recent past, during which I worked and billed 96 hours a week for a span of one month. The work was a simple breeze, but the hours were brutal. Of course during that time, I earned $4,340.00 per week before tax. I guess it speaks highly of how much potential I see in online and passive income businesses that I would forsake that wage income now.

Business credit cards have grown to become a commonly accepted and practical way for small startup businesses to acquire access to needed venture credit. Not only do they offer benefits unique to business office and supply demands such as higher credit lines, better credit card rewards, and more versatile expense tracking, they offer also the opportunity for growing businesses to build up their business credit history. This is important because one day the business may need to draw upon that developed business credit history to acquire corporate loans.

Individuals Can Apply For Business Credit Cards With Their Social Security Numbers

What many consumers seemingly overlook is that business credit card benefits can be available to them as well and are not reserved for complex business entities alone. Card applicants don’t have to be part of a corporation or a limited liability company (LLC) to qualify. Ordinary individuals can go into business for themselves and establish their business operation as a sole proprietorship. If you are self employed, a freelance worker, or an independent contractor like myself, you may very well be operating as a sole proprietor already. In the eyes of the Internal Revenue Service (IRS), the government, and credit card companies, the individual and his or her sole proprietorship business are one and the same for legal and income tax purposes. The only significant difference is when it comes to record keeping and business tax deductions. As sole proprietorships are entitled to write off their business expenses against their income, most are encouraged to apply for and utilize an Employer Identification Number (EIN). This federal tax ID allows the sole proprietor to more easily keep their personal and business expenses separate so that business transactions can be more properly distinguished and categorized for tax deduction purposes. Having a separate Employer Identification Number apart from the individual’s personal Social Security Number (SSN) also allows the individual to apply and obtain credit lines separate and distinct from his own personal credit history.

For ordinary consumers interested in taking advantage of the many benefits of business credit cards but aren’t interested in actually writing off any business deductions, so long as they properly pay off the balance each month, they won’t have to put up with any extraneous IRS tax filing obligations. Other than the introduction of a separate business credit line for the sole proprietorship or company applicant, the differences in usage between consumer and business credit cards are fairly minimal.

Business and Personal Credit History Scores Are Reported and Recorded Separately

While they may be taxed as income generated from the same source, the sole proprietor and his or her business entity are treated separately for credit recordation purposes. Their credit histories and credit scores are not intermingled or consolidated when it comes to reporting credit transactions to the credit reporting agencies. In fact, the way they are reported differ as well.

Business credit scores range from a scale of 0 to 100 with 75 generally regarded as an excellent credit rating (example of a business credit report). Some agencies even report their own metrics such as Dun & Bradstreet (DnB), which reports its own Paydex score regarding the likelihood of credit delinquency. There are different types of scoring methods used for personal credit scores as well, but the most popular one is the FICO score, which ranges from 300 to 850 with 700 regarded as excellent. Both business and personal scores along with their accompanying credit history attempt to reflect the individual or business entity’s credit worthiness based on past and current credit lines, credit inquiries, and history of paying back outstanding debt.

Even With An EIN, Business Credit Card Applications Usually Require SSN’s As Guarantees

A true business or corporate credit card is a line of credit that is offered solely under the name of the business entity with all activity reflecting only on its own business credit history through business credit reporting agencies like DnB, Equifax, and Experian. However, the vast majority of online business credit cards still require that the business card applicant provide a personal guarantee for business credit liability. That is why card issuers almost always still ask for both a business tax ID as well as the Social Security Number of the person applying for the card. There are ways to obtain a business credit card through local banks and major card issuers using only a EIN without the need of a SSN, but those types of cards are strictly limited to established businesses that have developed and extensive credit histories. Thus, unless your sole proprietorship has a long standing and proven credit rating with a major business credit reporting agency like DnB, you will be required to associate your SSN as a guarantee for unpaid debts.

How a business card application will impact the respective business and personal credit reports depends on the card issuer’s policy, but in the vast majority of cases, an initial and one time hard credit check is applied against the applicant’s personal credit history like any consumer credit card would for approval purposes. While the inquiry itself will show up on the personal credit report, the business credit card balance and credit line will not. This hard credit inquiry is only for the initial approval. Subsequent business credit activity will be recorded on the business’ separate credit history report solely, unless there is something like a missed payment. Because most online business credit cards are backed by the cardholder’s personal credit and linked by his or her personal SSN, in the event the business entity enters default such as by filing for bankruptcy, the default may be reported on the personal credit report. But in general, business credit activity is kept separate from the associated personal credit file. This is the case for all major business credit card issuers like Citibank, Chase, and American Express.

However, despite the association of the applicant’s SSN with the business card as a guarantor, so long as the card payments are made properly, there is no business credit balance or credit usage impact on the individual credit history report other than the initial application inquiry hit.

Applying For A Credit Card With Just A Business Tax ID, Without A Social Security Number

For various reasons, including wanting to keep a pristine personal credit history report, or fear and paranoia about identity theft, some card applicants may seek to apply for a consumer or business credit card with just a business tax ID, without having to provide a personal SSN as a liability guarantor. Unfortunately that is not possible with the majority of online credit card offers. With regular consumer credit cards, attempting to replace the SSN with an EIN on the card application will likely result in a rejection letter as well.

I used to sell products on eBay as a money making hobby and even once attempted to make a side business out of it. It wasn’t easy trying to make profit while at the same time avoiding all the internet fraud and scams out there. While I eventually decided to pursue other ventures, I had a friend who continued to dabble in eBay auctions. Soon enough, he had successfully turned what started out as a one room operation to an impressive one man eBay business machine that engulfed his entire basement. Everytime I stopped by his house I was always startled at the sheer number of brand new Dell laptop and ThinkPad boxes stacked in piles throughout his basement that overflowed into his unoccupied garage.

Through his closely guarded network of online connections (he never disclosed them to me), he was able to secure excellent wholesale deals on hot electronics like laptops, desktop computers, and handheld PDA’s for sale on eBay. His racket continued for several years to my continued amazement as I wondered how he managed to stay so consistently profitable despite rising eBay fees and heavy online competition. One day I finally turned to him and asked him if he was reporting his eBay earnings as taxable income on his federal income tax. He simply smiled and changed the subject. Obviously, the answer was no, thus exposing the secret to his profitable eBay success – tax evasion!

Frankly I don’t really blame him for withholding his eBay profits from the Internal Revenue Service (IRS), although I wouldn’t have done that myself. The subject of eBay tax enforcement has been murky for years, mostly due to the lack of proper paper trails and the undeveloped legal area of online auction income. However, the IRS has been recently making moves to crack down on eBay powersellers and auction proprietors to compel the reporting of all business profits. The IRS has also set its taxation efforts on other popular online auction sites like Amazon and UBid, as well as other online hobby market networks like Etsy. I suppose it was about time the almighty IRS dealt with the issue of online auctions.

The IRS Struggles To Compel eBay Sellers To Divulge Their Taxable Earnings

When it comes to reporting their sales income to the IRS, eBay sellers currently operate on the honor system. However, this honor system has resulted in a significant shortfall of under-reported and untaxed auction earnings. Currently, eBay does not report seller stats or submit sales records to the IRS unless it is honoring a subpoena request for information. Many amateur and aspiring eBay entrepreneurs have been able to work the eBay tax loophole for some time and avoid having to pay tax on their profits. It’s a risky game of tax evasion roulette, but the lax enforcement has allowed it to persist for some time.

Recently, the federal government and the IRS has begun to put pressure on major online auction retailers like eBay to cough up user information and sales records, and has even introduced legislation to require market hubs to report personalized sales activity. Of particular taxation concern are the millions of auction sellers who consider eBay as their primary or secondary source of income but fail to accurately report their earnings. Obviously this effort is going to encounter much resistance from sellers and even the auction sites themselves since new tracking policies will undoubtedly result in higher tracking and record keeping costs. The prospect of requiring sites like eBay to track user information based on individual Social Security Number will obviously have the usual online privacy advocates up in arms.

While this taxation crackdown may bug a few eBay sellers, the requirement to report auction income and taxable business earnings is nothing new and has always been around. It’s just only until recently that the IRS finally decided to work harder at plugging up the tax gap to stem tax evasion activities. Mandating the implementation of tools to enforce tax compliance already exists in most employment sectors and the IRS believes the new frontier of online auctions should be no exception.

When Do Proceeds From An eBay Auction Sale Have To Be Reported As Taxable Income?

From the amateur seller who considers eBay to be nothing more than a hobby, to the heavy traffic Powerseller who runs his or her operation as a profit generating business, no one really wants to spent the time to report earnings as income if he or she can help it. However, the IRS instructions make it clear that all sources of income can be taxed, which includes everything from online auction profits, and income from gambling activity, to even illegal “business operations” such as drug dealing and prostitution.

Even if the eBay seller makes a few sales here and there as a hobby, the IRS requires all income to be reported – this includes wages, salaries, tips, gambling winnings, money found on the floor, sweepstakes earnings, business income, and yes, eBay earnings (both hobby and business). The hobby or business nature of your eBay income only becomes an important factor when determining whether your eBay losses and operation costs may be used to offset your eBay income as a business deduction.

The correct question to ask regarding taxability is not necessarily the frequency or dollar amount of the transactions – but rather – did the eBay auction activity result in a net profit? For those who use eBay or other internet auction sites to sell old stuff that’s been piling up in your garage, you probably don’t have to worry about paying income taxes on the proceeds since the cost (the basis) usually exceeds the selling price. Under current tax law, an individual who sells an item online and collects more money than its original purchased value is expected to report that money as income on his or her tax return. Items whose original purchase basis value cannot be determined is typically valued at $0 under current tax law. Thus, it’s advisable for all eBay sellers to get in the proper habit now of retaining their purchase and sales records. You never know when the IRS will flip the switch and go nuts with the eBay seller tax audits. It’s only a matter of time.

Why Does It Matter If Your eBay Selling Is A Hobby Or A Business?

All eBay online auction sellers have a duty to report their earnings and to comply with tax law obligations to avoid an IRS audit. For most casual eBay hobby sellers who occasionally run the online equivalent of the garage or yard sale, they usually are not obligated to report their sales. That’s because for most online garage or yard type sales, the items sold are usually personal household items purchased over the years and used. As such, the resulting selling prices are almost always lower than the original purchase basis price. The exception occurs when the item for sale has appreciated in value. Even if the transaction was intended to be a simple online yard sale, if the item being sold was something like a set of rare baseball cards that had appreciated in value in excess of the original purchase price, the resulting earnings must be reported as taxable income.

The hobby vs. business debate matters when it comes to self employment tax obligations and tax deduction benefits. If the eBay operation is properly regarded as a business, the taxpayer may be entitled to business deductions to write off operating costs. Whether the eBay seller will be treated as running a business will depend on his or her intent to generate profit. Activities such as visiting pawn shops for resale bargains like my friend used to do will likely be seen as demonstrating business intent. Furthermore, when the individual is running a business operation that results in regular profit sales, he or she may also be obligated to pay self assessed quarterly estimated tax payments through Form 1040-ES.

If you lose money pursuing a hobby, you cannot deduct your hobby loss from other income, but you can deduct your expenses up to the amount of your hobby income on your tax return. A hobby loss is a miscellaneous itemized tax deduction, and as such, only the total that exceeds 2% of the adjusted gross income may be deducted.

For more information regarding the differing IRS treatment of hobby and business related activity, check out the IRS explanation. The IRS also provides a good tax information resource for online auction sellers.

Updated List Of The Best Business Credit Cards Below!

Like most small business owners, I have my eyes on the prize with expectations based on the potential of future expansion. While my current small home business is still in the early growth stages and has not developed to the size where I needed to incorporate, I decided early on that now was a good time as any to start keeping my personal and business expenses separate by taking advantage of the expense tracking and management benefits afforded by business credit cards.

Whether you are a small business owner who works from your own home, or have your own dedicated virtual office setup, there may eventually come a time when you will need additional cash and credit infusion to pay for business expenses such as inventory, office supplies, or utility fees including wireless services. More than half of all small businesses currently use credit cards to pay for expenses, but less than half of the users utilize business credit cards. While most seem content on relying on their existing consumer cards, there are a number of key reasons why it’s better to use business credit cards under your company’s banner.

For those running a business as a sole proprietorship like myself, you may have already applied for an Employer Identification Number (EIN), sometimes referred to the Federal Tax ID. If so, you will need to enter it when applying for a business credit card. If you are a regular non-business consumer who wants to take advantage of the rewards and benefits that business cards have to offer, you can still apply by entering your personal name as the name of the business, thereby leaving the Federal Tax ID part on the card application blank. That’s generally permissible because individuals can always declare themselves to be a sole proprietorship business unto themselves.

Benefits And Advantages Of Using A Business Credit Card

Business credit cards provide a focused selection of business oriented tools to help business cardholders better manage their expense transactions and day to day employee operations. Many of their advantages are not available in ordinary consumer credit cards. Here are some of the important small business benefits that they offer:

1. Special Business Rewards – Business credit cards offer unique discounts and rewards for an array of business expenditures that range from office furniture and equipment, to airline travel, gas fill-ups, car rentals, and utilities such as wireless services. Many businesses also choose to carry multiple business cards – using low to 0 interest APR offers to carry 0 interest balances, while using reward oriented cards to earn airline miles or cash back of up to 5% on business related purchases.
2. High Credit Limit – Compared to their consumer card counterparts, most business credit cards tend to offer higher initial credit lines, an attractive benefit for growing businesses in need of access to lots of credit. The higher business credit limit is particularly attractive when coupled with 0% APR introductory purchases and 0% balance transfer offers. High credit limits and 0% APR credit card offers help businesses build start up venture capital to better grow and expand their enterprises.
3. Avoidance Of Asset and Expense Commingling – For solo proprietorships, commingling your personal and business expenses is not as big of an issue. But as your business expands, due to liability and taxation concerns, you may ultimately want to convert your business into a limited liability company (LLC) or corporation – operations that mandate the separation of your personal expenses from your business transactions. By using dedicated small business credit cards now sooner than later, you make it easier to complete the transition in the future.
4. Multiple Cards For Employees – One useful benefit of business credit cards is the ability to request multiple linked credit cards for your business employees. By adding employees as cardholders to your account, you enable the consolidation and tracking of your business transactions from one location. Most business credit cards also offer free expense accounting, with transactions broken down by each authorized employee’s card access account.
5. Itemization and Expense Tracking - The usage of business credit cards also offers the flexible and scalable ability to fix preset credit limits for each employee. Not only can you place credit usage limits for each employee cardholder working off your account, many card programs allow you to set limits on how much particular employees can spend in specific purchase categories. Business credit cards make it easier for small business owners by providing monthly and year end credit card statement summaries, with all transactions conveniently itemized and categorized. Rather than having to fumble around with a bulky envelope full of receipts, business credit cards make it easier for you to manage your cash flow and daily business transactions.
6. Opportunity To Build Business Credit - A small business credit card also offers your new business the opportunity to link your business tax ID to the account, enabling your business to build its own credit history. Maybe not now, but having a developed credit report and ready access to credit are key ingredients to growing your future business. One day, your business may very well require a capital infusion through credit loans to take it to the next level.

List Of The Best Business Credit Card Offers:

1) Citi Premier Pass-Elite Level – This card is the ultimate rewards card for earning free airline miles. If you are a frequent flyer you will greatly appreciate the miles earning potential it has. With the Citi PremierPass Elite, you earn 1 reward point for every 1 mile you fly, 2 points for every dollar spent at gas stations, supermarkets, drug stores, and transportation related businesses including parking, and 1 point for everything else. You can redeem the points for free plane tickets with no airline restrictions, no blackout dates, and no seating limitations. A $75 annual fee does apply but if you are a frequent business traveler, you will easily make it up in the form of free airline tickets. It is currently offering a $200 bonus gift card for new sign ups.

2) Citi AT&T Business Reward Card – This popular business credit card offer from Citi Card offers 5% reward back for eligible AT&T products and services purchased directly from AT&T. It also offers 3% back on purchases at gas stations, office supply stores, and on professional services. All other card purchases earn 1% back. ThankYou points earned can be redeemed for air travel, statement credit, gift cards, business merchandise, and more. The CitiBusiness network also provides numerous pretty sought after features and services – perks such as business-enhanced online account management privileges and special prescription drug discount benefits for cardmembers and their dependents. Currently, the Citi ATT business card is also touting an attractive 6 month promotional 0% interest rate for all purchases.

3) Discover Business Card – With this card, businesses can earn 5% cash back reward bonuses on office supplies, 2% on gas, and up to 1% on everything else. The card also offers a 12 month 0 APR balance transfer deal with a 3% balance transfer fee, capped at $75. Perks for small business owners include free employee cards with customizable spending limits and monthly reports, categorized online quarterly and annual statements, and free travel benefits. One of the best benefits of the Discover Business credit card is the ability to write and issue fee-free purchase checks. The unique purchase check function allows you to write checks to business suppliers who do not accept credit cards. Your purchase check interest rate will be the normal purchase APR on the card. Best of all, there is no transaction fee for this service, and there is no annual fee.

4) Advanta Business World Master Card – This card allows you to earn 1% back on all purchases with an additional 50% worth of extra bonus point rewards every year. In regards to the credit card rewards earned, there are no earnings cap, no travel redemption restrictions, or any sneaky blackout dates. There is also no preset spending limit or annual fee.

5) Advanta Net 90 Platinum Business Card – Advanta presents consumers and small business owners with the opportunity to enjoy continuous and recurring 90 days worth of 0% interest free purchases. This is not an introductory offer, but a permanent grace period feature that allows you to pay no interest for 3 months after any card purchase. This reward credit card also earns 1% back with a generous credit limit and no annual fee.

6) Advanta Platinum Business Card Unlimited Rewards – Advanta Bank has emerged as a leader of the small business credit card market. This particular Advanta card offers both an introductory 15 month, 0% APR offer for balance transfers, as well as the ability to earn 1% rebate rewards, redeemable for cash, travel, and merchandise, with no annual fee. The plastic credit cards provided can also be uniquely personalized with your company’s name on the top of the card.

7) Advanta Customizable Platinum Business Card With Unlimited Rewards – This custom credit card offer provides the same 15 month, 0% balance transfer offer as the regular Advanta Business Unlimited Card, along with the ability to earn unlimited 1% purchase rebates. However, not only can you customize the card with your company’s name, you can also customize the card design to display your small business or company’s logo or trademark colors.

8) Advanta Kiva Business Card – With this joint public interest Advanta-Kiva offer for small business owners and entrepreneurs, as you earn purchase rewards for yourself, the card issuer matches your redeemed rewards in the form of loan grants for people in developing countries. Cardholders get a 5% statement credit on the first $1,200 each year for Kiva grants, charitable donations, and other eligible purchases. The card also provides an unbeatable 15 month, 0% balance transfer offer, with no annual fee.