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Ask HN: I made $24k over the last month. Now what?

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Re: Ask HN: I made $24k over the last month. Now what?

#171

Post by justinph »

portman wrote: post #92
wmeredith wrote: post #85

Earlier quoted context omitted.

Incorporate to soften this blow.

If the OP is a sole proprietor in the United States, then incorporation won't alter the tax burden. Incorporation is still a good idea, for other reasons (simplified banking, limited liability, etc).

Forming an S-Corporation can reduce your tax burden. The filing is a bit more complicated and you have to pay yourself payroll, but you would be looking at reducing your tax burden on a portion of your income by about 7%... That is, going from 25% tax rate to 18%. Definitely worth doing.

Re: Ask HN: I made $24k over the last month. Now what?

#172

Post by mechanical_fish »

randallsquared wrote: post #152
mechanical_fish wrote: post #80

Earlier quoted context omitted.

Yes, listen to patio11. I do NOT want to invest in the stock market, or invest in anything long term like bonds or property. I want to somehow use the money to make more money quickly (within a 2 year time span). Excuse me if I'm too harsh, but you should spend some of the money on a membership in Gamblers' Anonymous. Because you talk like a bad gambler. The hallmark of bad gamblers is that, if ever they get ahead, t…

The hallmark of bad gamblers is that, if ever they get ahead, they look desperately around for a way to lose so they can get back to their comfortable status quo: Grifting, in poverty. You appear to be using a very roundabout way to say that there is no reasonably safe way to turn tens of thousands of dollars into hundreds of thousands in 2-3 years. If that's what you mean, just say so. Implying that everyone already…

Okay. There is no reasonably safe way to turn tens of thousands of dollars into hundreds of thousands in 2-3 years.

Was that tepid enough or should I also insert a series of sleep-inducing legal disclaimers? ;)

The above advice is utterly conventional. Every reputable book on investing says it. Indeed, most books and pamphlets on how to get rich quick say it as well, in the footnotes that nobody reads. The brain slides off such disclaimers like water off a duck.

So one tries to find a more dramatic way to say the same thing.

And while I'm explaining things I thought were obvious: The OP is not a gambler -- or, rather, he has placed an intelligent bet and won: He is now making money hand over fist by building products that sell. Nothing wrong with that. Except that now the OP seems to be having that unnerving feeling -- which everyone gets at least once in their lives -- that he's missing out on something big, some kind of big secret to moneymaking that the cognoscenti know. And, indeed, there are people who make amazing amounts of money in 2-3 years. They do it by gambling -- and when gambling works, it works. It just doesn't work very often, and you rarely hear from the people who place risky bets and fail. One's mind often fails to register those people. Sometimes you have to take deliberate, dramatic steps to make yourself see them.

Re: Ask HN: I made $24k over the last month. Now what?

#173

Post by kirse »

mechanical_fish wrote: post #122
nandemo wrote: post #111

Earlier quoted context omitted.

I disagree. Investing in the stock market is far from safe. Not even an index fund over a 30-year period; we don't know what will happen in the next 30 years.

I didn't say to invest solely in the stock market. Some in stock funds. Some in international stock funds. Some in bonds. Some in a bank savings account. It's called diversification for a reason. You can buy more than one Vanguard fund almost as easily as you can buy one. Time to plug Bernstein again: http://www.amazon.com/Four-Pillars-Investing-Building-Portfo... What you don't want to do is spend all your time read…

I always agree with you on these financial topics =) I remember back in October 2008 when we both commented that the best time to sink money into the stock market is exactly when everyone else is pulling out in fear. (I was 22 at the time and my most conservative index funds are currently up ~35%... individual investments have garnered even better returns)

When the majority of people conclude that the "stock market is too risky", they usually look at the single problem of their investments tanking without looking at the bigger picture... which is:

First, if you invest money without setting a stop limit (rule #1 of investing) then you shouldn't be investing.

Second, if you invest in a quality index fund and you somehow do lose a majority of your investment (>50%), there are much larger problems at hand than just the loss of money. We're talking major economic / political / global unrest.

After witnessing the Sept 11th downfall and the October 2008 crash, I've come to the conclusion that there needs to be some damn serious issues to cause a significant loss in investments... Again, all of which could be avoided through proper diversification and setting financial loss limits.

----

As a side note, I do think many people got lucky taking the "too big to fail" approach with many banks that ultimately received government guarantees. I do believe, however, that the snap-back we experienced in 2009 is NOT going to be the same in 2010. Obama has spent insane levels of money to prop up the economy and this sort of stomach-churning level of gov. spending simply cannot continue. 2010 will be the year for finding individual companies that have survived the recession trimming, but I honestly can't see the DOW/S&P indices going much higher.

Re: Ask HN: I made $24k over the last month. Now what?

#174

Post by messel »

I'd suggest angel investing in startups that compliment your view on where things are headed. It's more fun than the stock market. You have proven knowledge of what's selling now, and understand software.

The turn around is probably longer than 2 years though.

Can you do the same thing with the Android store?

Re: Ask HN: I made $24k over the last month. Now what?

#176

Post by kristiandupont »

maxklein wrote: post #98
hedgehog wrote: post #79

Market yourself. Write a book & give talks about your process for making winners. Lots of people want to know how to make money in the App Store. There might be a higher-priced corporate training market for how to make popular apps for marketing purposes (think packaged food or sports apparel industry). On reading your blog it looks like you're already going down this road?

Ehh, anyone who bothered to email me has gotten the stuff I know for free. I don't want to give any talks or write a book. It's easier and less stressful to just make the apps.

Well, your post was about what you can do when you can't rely on the apps for income anymore. Personal branding is something that you can capitalize off in many ways.

Re: Ask HN: I made $24k over the last month. Now what?

#177

Post by drawkbox »

sabat wrote: post #159
drawkbox wrote: post #116

Like others mentioned, keep in mind you owe about 45% taxes. 30% ish for actual taxes then 15% for self-employment tax. SO that 24K is really about 14K. Also keep in mind that was during the holidays it seems or maybe after a few game launches that did well. You won't see the same level of revenue steadily unless you keep releasing and have good pricing strategies. My advice, save it up or use it to reinvest in your…

Question for drawkbox: if this guy had formed an S corporation, would that have changed the self-employment tax? He'd owe taxes for his own income, but the S corp (IIRC) doesn't pay taxes, right?

Nope that tax is always there. Your employer covers most of it mainly in social security/medicare and a C or S corp will pay out of their coffers for that. So most full-time workers never see that hidden 15% but it is blatantly there when you contract, self-employ, LLC etc.

SE tax rate. The self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).

http://www.irs.gov/businesses/small/article/0,,id=98846,00.h...

When I contract, sell products etc. I expect to get about 55% of the revenue after taxes. That is actually a bit low but it is a good number to use to make sure you are charging enough. So if you work for $70/hr you are actually working for about $40/hr and so on.

Re: Ask HN: I made $24k over the last month. Now what?

#179

Post by Tuna-Fish »

patio11 wrote: post #25

Hire people to do the things you do which have the worst tradeoff of hours expended per unit of value added. Alternately, hire people to automate those things. And I'd SERIOUSLY consider at the very least a) setting yourself up a SEP-IRA and b) socking away the maximum in an index fund. It is essentially monopoly money to you anyhow at the moment, right? Trust me, you won't regret having 30 years of appreciation on y…

There is another benefit of a sep ira -- Since the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCA), it is protected from bankruptcy. There are a thousand things that can go wrong in life -- and while you seem immortal now, bad stuff can and does happen. You can withdraw money early out of an ira by paying a 10% penalty and taxes. If you have an ira and bad stuff happens, you should NOT withdraw money from it. Instead, it's better simply to spend everything else first, then rack up on debt and go bankrupt, knowing that you have a sizable nest egg waiting for you on the other side.

Re: Ask HN: I made $24k over the last month. Now what?

#180

Post by grandalf »

sabat wrote: post #159
drawkbox wrote: post #116

Like others mentioned, keep in mind you owe about 45% taxes. 30% ish for actual taxes then 15% for self-employment tax. SO that 24K is really about 14K. Also keep in mind that was during the holidays it seems or maybe after a few game launches that did well. You won't see the same level of revenue steadily unless you keep releasing and have good pricing strategies. My advice, save it up or use it to reinvest in your…

Question for drawkbox: if this guy had formed an S corporation, would that have changed the self-employment tax? He'd owe taxes for his own income, but the S corp (IIRC) doesn't pay taxes, right?

The amount of self-employment tax is lower with an s-corp b/c your salary will be lower. With an s-corp you can also benefit from the standard deduction on your individual return.

Consider:

Sole Propietorship: taxable income is equal to whichever is lower, gross income minus expenses or gross income minus the standard deduction.

S Corp: you subtract expenses from the corp's income, and pay your self, say, 60% of the remainder as salary, which is subjected to payroll tax. However, you calculate your taxable income by subtracting the standard deduction from your taxable income. The corp then pays its half of payroll tax, but you can take the remaining income (not paid to you as salary or used for expenses) as a profit distribution, which is only taxed at capital gains rate.

So all in all it can save a lot of money, particularly if you have business expenses (which in a sole proprietorship are eaten up by the standard deduction)...

Note: You have to do payroll every month for it to be legit with the IRS, and you need to file taxes once you create the corporation, even if your situation changes and you don't use the corporation for anything. You also have to pay yourself a reasonable salary. If you're a single employee S Corp then it may be wise to pay yourself > 50% of the corp's gross income as salary, to avoid arousing suspicion that you're doing the s-corp purely as a tax shelter.

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