be more concerned about her tax situation. A single, black female with no children, living at home, and making good money, Hall’s monthly expenditures are minimal. But like many people in her situation, she’s not coming out ahead financially, says Gail Perry-Mason, first vice president of financial services for Fahnestock & Co. in Grosse Pointe, Michigan.
Since Hall doesn’t own a home or have any other tax write-offs, her tax liability is extremely high. She is in the 30% tax bracket. So, a large percentage of her income goes toward paying taxes. Instead of working for assets by paying on a home mortgage, Perry-Mason says Hall is actually working for the government twice—first as an employee and second as a taxpayer. BLACK ENTERPRISE had Perry-Mason consult with Hall to help her devise a tax-savvy plan. The following are her recommendations:
ESTABLISH A BUSINESS, AND SHELTER TAXABLE INCOME
Since she has expressed an interest in working outside of her day job, Hall should get a tax ID number and set herself up as a consultant (sole proprietor or single-member limited liability corporation). This will allow her to deduct business-related expenses—supplies, travel, and entertainment for conferences—when she files her taxes. More importantly, she can take greater advantage of her SEP-IRA, which she established three years ago during a short stint as an independent contractor. Hall can shelter some of her taxable income by contributing money to that account on a regular basis. Under the current tax law she can contribute up to 20% of the first $200,000 she earns.
INCREASE STREAMS OF INCOME
“Everyone should strive to live on Fifth Avenue,” says Perry-Mason. Not the New York City strip famous for its designer shops and high-income patrons, but rather having five avenues of income outside of one’s regular 9-to-5 gig. Marketing herself as a legal consultant would mean additional income for Hall. Owning rental property, public speaking, freelance writing for law journals or trade publications, and testing consumer products are other possible income sources. Perry-Mason adds that Hall could even become a mystery shopper. The skills Hall has acquired as a contract lawyer—such as being detail-oriented—would bode well for writing evaluation reports on particular stores, restaurants, or business establishments. She can use the additional income to prepay her car note, as well as contribute more money toward her savings. Perry-Mason advises Hall to work with a skilled accountant to make sure that she takes the proper business deductions, as well as to determine if she will have to make quarterly tax payments on her freelance income.
TAKE OVER MORTGAGE PAYMENTS
Once she has paid off her car note, Hall wants to buy the house she grew up in. She plans to move her mother into a condominium. The remaining balance on the three-bedroom ranch house is $89,000 at 7% interest, with 20 years and eight months left on a 30-year conventional loan. Hall’s mother has refinanced twice since first purchasing the home in 1979. More than likely, Hall will have to buy the house at market value; condos