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Our Income Shell Game to Avoid Tax Drama

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Disclosure:  This is a personal story from my point of view.  Don’t mistake this for advice.  Ask a professional for tax advice.  I’m not a professional. In short, don’t be an asshole and blame me for anything.  😉

We DIDN’T Owe the IRS $67,000

If you’ve been reading for a while, you know that we went through a 2 year saga from 2014-2016 with the IRS to prove we DIDN’T owe them nearly $70,000.  To summarize – after some tears, shit tons of frustration, some sleepless nights, and a classically AWFUL experience with a tax lawyer, the IRS agreed with us.  Yep, cost the IRS some paper and stamps for automated scary letters.  Cost us unnecessary stress and $5600 of expenses between the money-hungry lawyer (somehow magically was able to use ALL but $112 of our $5000 retainer to literally file two sets of papers and take 2-3 phone calls) and our new, actually helpful, CPA.

Our New System

After that total bullshit, we started paying that CPA to file our taxes every year (CPA-filed taxes get picked on less).  We also pulled the trigger to set up both of our main businesses officially (Budgeting in the Fun Stuff and Crystal’s Cozy Care Pet Sitting).  Here is the totally legal, yet ridiculous, shell game that we play to avoid excess taxes and IRS trouble. 

  1. Do a job and pick up my payment via check if they didn’t pay with Paypal or Square.
  2. Paypal money has to be withdrawn into our business account, Square money automatically gets deposited into our business account, and checks are deposited into our business account via the phone app.  Side note, this phone app seems to screw up 1 in 50 times and grabs $0.06-$3 too much from our clients…just a lovely little annoyance about CapitalOne Spark Business Accounts.
  3. For fewer tax headaches, our CPA suggested we hire Paychex to officially pay ourselves and our pet sitter(s).  But we can’t pay ourselves with our business account money directly.  The money for our biweekly paychecks has to be transferred from our business checking account into a DIFFERENT business checking account that is just the management company for our online and pet sitting businesses.
    So, to be clear as mud, we have one account that has two checking accounts (one for BFS and one for Crystal’s Cozy Care).  We have another business account that is just for this “management company” for our two businesses.  So we have to transfer money from each business checking account to a differently-named business checking account, and then I send Paychex an email with the amounts for the next payroll.
  4. Paychex then withdraws my money from my management business account and pays it to us and our pet sitter via direct deposit into our personal accounts.  My husband and I are the co-owners AND technically employees, so we each get our own direct deposit into the same freaking personal checking account.
  5. In the end, we pay taxes quarterly, Paychex a monthly fee, our CPA an annual fee just to officially be paid our own money.  

And why would we do all of this?

Main Benefits to Embracing the Red Tape

    1. We set our salaries based on the amount we could outsource our jobs for (a realistic income that we can justify), so we are taxed on less than we actually make since we earn more than we get paid as employees.  If we need more money than we receive through our biweekly paychecks, we can take extra money out of the business account as personal distributions, so there is a clear tax benefit to this madness. 
    2. We are less likely to be audited or singled out by the IRS.  All of our money is well documented via Quickbooks by Len, and the deposits and transfers are literally documented every step of the way by banks.  Paychex deals with the business tax filing stuff. our CPA handles our annual returns, and we send in quarterly taxes.
    3. If we ever get sued by a client, only the assets in the business account for the business being sued are at risk.  That does help me worry less since pet sitting is a service industry and you never know when you accidentally stumble into a rabid crazy person. 

All in all, this new system is unnecessarily time consuming, but the benefits outweigh the costs for us.  Have you ever had to deal with this?  Any tips?  I’ve just had to add payroll reminders into my calendar…



FYI:  I worked at a dead end cubicle job from 2005-2011 for about $30,000 per year.  I went self-employed in July 2011 and make between $70,000-$90,000 through blogging, professional pet sitting, hubby's reffing, and our rental home.  If you’d like to start your own site (link to my free step-by-step guide), I highly suggest checking out Bluehost (my referral link with a nice discount for you, PLUS a free custom header banner from me!).  Please contact me any time at budgetingfunstuff*at*gmail*dot*com with questions or just to brainstorm! I’d love to help!
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5 thoughts on “Our Income Shell Game to Avoid Tax Drama

  1. Wowza. That sounds like a headache, but one that will likely prevent more headaches down the line. I think it would really help me sleep at night knowing that my business assets are the only assets at risk if you’re ever sues. Hopefully that will never be an issue, but..
    Good luck with all the transfers! Hopefully after a couple of months it will be less time consuming.




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  2. @Jax, we started all of this in February…I think it’s just slow…

    @ESI, we liked doing our taxes ourselves because we were good at it and it seemed self sufficient. But yeah, the IRS is impossible to talk to or work with, so we’re paying to make it someone else’s headache.




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  3. I totally agree w. doing it the PITA way. I was self-employed for six years and still have some self-employment income. My husband has been self-employed since January. We are set up exactly the way you describe as we do not like to invite trouble.




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  4. It seems somewhat overcomplicated, but if it works…it works.

    But why didn’t you “set up both of our main businesses officially” from the git-go?
    The Copyeditor’s Desk has been incorporated from the day it had to earn enough to contribute to my survival. Before that, it was a sole proprietorship, all of its income and outgo run through a separate set of books.

    Maybe it’s because of all those years married to a corporate lawyer, but I can’t even begin to imagine NOT having a CPA do your taxes. The tax code is too complicated and the IRS too capricious for anyone who’s not an expert to deal with.




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