Saturday, April 21, 2007

How to Lose Your Tax Savings in 10 Days

I just finished my taxes, praise the Lord. It's always the most dreaded time of the year, tax time. I had been noticeably depressed for weeks, procrastinating to delay the inevitable and highly unpalatable reality that my tax return would only bring gloom and doom: in translation, a sky-high tax bill. Sure, you may look forward to filing your taxes. But you see, when I file my taxes, it takes at least 4 full days of work. Rather than filing for a return with a simple W-2 and some charitable deductions, the world of self-employment opens up an entire encyclopedia of forms to file.

Unlike much of the population, I don't jump for joy at the prospect of receiving "money back." Now that's a rather backwards description, isn't it? After all, it's your money, earned with over 2000 hours of labor per year, that you generously "loan" to Uncle Sam so he can deposit it into interest-bearing accounts for 16 months before benevolently "returning" it to you. I sincerely hope that most people have come to their senses and have stopped asking for one paltry exemption on their paychecks because it's perfectly okay to take 2, 3, 4, or even 5 so you can actually take home more of your hard-earned cash every month. This is especially a must if you own your own home, since anyone who has purchased one in the past 5 years has undoubtedly watched their deductions quadruple. (I have to say as an aside that owning a home has done more for my tax deductions that anything else I could have invented. When Einstein was asked what the most powerful force in the universe was, he quipped, "Compound interest." Well I propose that the second most powerful force is mortgage interest. When your mortgage is between $2,000-3,000 per month and you're paying primarily interest for the first 5 years of your mortgage, guess how much mortgage interest you will have paid in one year? That's right, the better part of $2,000-3,000 x 12, which comes to almost $24,000-36,000. That, my friends, is powerful stuff). So I ask you, why wait till the following April to get back a "bonus" when you can take it home in the first place, invest it into your own interest-bearing accounts, and actually make money off of the money you've earned? What a novel concept.

Anyway, as I ploughed through the pile of papers signifying my wages, consultant income, interest & dividend income, retirement & annuity distributions, charitable donations, student loan interest, mortgage interest, asset summaries, itemized deductions, and the endless bags of receipts I'd accumulated over the past tax year, I pondered if it wasn't just easier to pay the $15,000 tax bill. But I persevered through Turbotax's exhausting but well-meaning inquisition and finally finished the hundreds of calculations that slowly whittled away at my so-called "taxable" income. Sure, self-employment paychecks may seem bigger at first, but subtract monthly operating costs, business and equipment purchases, health insurance, medical bills, business insurance, medicare, social security, and self-employment taxes, and you're looking at taking home one-half of your original compensation. So why pay taxes on money that doesn't even make it into your bank account, especially if you've already paid the sales tax on all those expenses?

Fortunately, by the end of the 3rd day of preparing my taxes, my dilligent record-keeping and tireless calculations began to pay off as I watched my $15,000 tax bill shrink to $8,000, then $4,000, then $2,500. I will admit that the $22,000 in mortgage interest I paid last year alone (plus the $4,000 in property taxes) represented the lion's share of my deductions. But hey, if you scrimped over the years so you could save enough money to buy your own house, then you shelled out exorbitantly high mortgage and tax payments, you'd take every deduction allowed by law. It's hard to stash away much savings from month to month when the most modest "starter home" in your neighborhood starts at $550,000 the average sales price of a house in your city costs $762,722. With prices like these, homeownership deductions are a saving grace for many families across America.

But back to my story. When I realized by the 4th day that my tax bill was $0 and that I wasn't going to owe taxes in excess of those I had already paid last year, I was visibly giddy. It could also have been delirium, since I had been chained to my computer for 4 days straight. But whatever the condition, it prompted me to make occasional forays into ebay and I found myself stealing glimpes of a certain bag. It was a luxurious Burberry leather Manor satchel tote, one of the undeniable "it" bags of the fall/winter season and a paragon of perfection aptly designated under the "Icon Collection." The color was a unique beige called "trench", the color of a perfectly prepared cafe au lait, or as I like to describe it, the color of Mississippi Mud ice cream (sans the chunks). Not too light like many of the bone-colored bags, and not too dark so it resembles brown (the color on the Burberry website is a tad too dark -- it's actually a shade lighter and more buttery). Just a perfect, seasonless, infinitely neutral yet decidedly not-boring bag. It had plenty of of light gold-toned hardware in all the right places -- even a little extra for the girl who likes to be noticed -- and loads of convenient zippers and pockets to boot. The size was just right for stashing all those necessary things, plus all those extras, plus all those unexpected things one tends to pick up along the way. Great for work, fabulous for a weekend outing, but not so big and bulky that it looks like you're carrying a tote bag. And being Burberry, it reeked of sophistication and class, both well-mannered and well-manored (sorry, I couldn't resist). I was a moth drawn to the light. I couldn't stop looking at it, imagining it, picturing what to wear with it, even inventing excursions to make good use of it. I was probably talking to myself a little too much because my husband kept peeking in and asking how things were going.

I confess that I first laid eyes on the bag while in London last October. Alas, the $1680 price tag was an unsurmountable obstacle at the time. And I might add, it's generally an insurmountable obstacle at any time. Can you believe that handbags have gotten so ridiculously high-priced? At one time (not that long ago) I thought $700 was a fortune to pay for a bag and was shocked when prices started to contain 4 digits. I mean come on, $1000 for a handbag? It had better be made of real crocodile. But no, real crocodile bags cost $4000-5000. (Does that price include the guy who wrastles the crocodiles and pins them down? I wonder if you can pick the poor sucker that's going to get wrastled that day....) Then I started to see handbags creep into the $2000 territory. Are women losing their marbles? I mean, who in God's name can afford a $2000 bag except heiresses and the independently wealthy? But if boutique sales are any indication, these bags are flying off the shelves. Apparently tens of thousands of people can afford a $2000 bag. Shame on me for underestimating the American economy. I shouldn't be so surprised, having learned that in December 2006 my proud state of Virginia (along with Montana, Utah, and Hawaii) lead the nation in low unemployment rates with just 2-2.9% unemployment. And why should women flinch in the face of a $2000 handbag purchase when my county's median family income in 2004 was $90,200 and 28% of families earned $150,000 or more? Surely a small $2000 treat is in the budget for many of these gals.

Being a self-proclaimed bargain shopper, I couldn't allow myself to splurge on such a frivolous accessory. $500 I could shell out for a barely-worn Jimmy Choo Tulita bag that originally retailed for almost $1000, and I did pay close to $900 full retail price for a Louis Vuitton one year (which I have since parted with on ebay). But I have never crossed the $1000 mark for any purchase -- not clothing, accessories, jewelry, or even computers or electronic equipment. Somehow, I've always managed to straddle the $999 limit and swung the purchase in my favor with some discount or promotion. I found it absurd that I was even considering buying a $1680 bag (which, after taxes, comes to $1764. I might add that Virginia has one of the more forgiveable sales tax rates of 5%). Perhaps, the times they are a-changin'. Maybe I'm the one who's behind and needs to get with the program. In an era where babysitters charge $15 per hour, dog walkers charge $25 per hour, and college tuitions exceed $120,000, I should hardly be fazed by a $1600, $2000, or even the stunning $3600 handbag I just saw at Neiman Marcus (no, it's not made of crocodile, just woven patent leather -- oh, and it carries the Fendi insignia. You'd think for $3600 they could give you real gold hardware, not "gold tone hardware." Sheesh.)

So there it sat, the Burberry bag, beckoning me with its simultaneously graceful and posh siren song. Meanwhile, I fine-tuned my tax return, remembering to include the 5 boxes of in-kind donations of clothing and shoes I had made to the local thrift shop that raises money for the blind. At the end of the night, I faced my final tax bill: -$450. Yes, there was a minus sign in front of the number. Wow! I was not only not going to owe money, but I was getting money back. The last time that happened was so long ago I couldn't remember. An added bonus was that I would receive another $420 back from the state of Virginia. Now that was truly an unexpected gift. Thus, I made a decision on that fateful evening, a decision that would eventually lead me down the path of ruin. I would purchase that outrageous Burberry bag, Suze Orman and The 9 Steps to Financial Freedom be damned. So without further ado, I prepared to part with my hard-earned cash.

Now here comes the twist. The same exquisite bag that called my name from the lofty shelves of Burberry in London was available to me for a much more reasonable price on ebay. In fact, I would probably have left it alone after our initial London introduction 6 months ago -- stopping periodically to fondle it at Nordstrom or at Neiman's -- had I not accidentally come across it on ebay while shopping for something else. You don't think a savvy shopper such as myself would just stroll into Saks and plunk down my plastic without shopping around first, would you? Of course not, or my name wouldn't be the 3-Penny Princess and this blog wouldn't be about scoring fabulous bargains. You'd better believe I regularly scour the hallowed ebay halls of the used and unwanted in search of the objects of my affection. So they've been carried a few times. Maybe a tiny scratch here or a mark there. Perhaps an ink stain inside. Listen, a great quality bag can handle being carried a few times and still look almost as good as new. As for those ink stains inside? I won't tell anyone if you won't. And sometimes, the bags barely show any signs of wear at all. We all know what happens when you drive a brand spanking new car off the lot, don't we? The price of the car instantly drops. But does that mean the car is any less valuable to those to might want it? No, it's just a better buy. Especially if it's a luxury car. The performance and comfort of a great car probably won't be compromised too much after just 5,000 miles. If the car has been well-cared-for and cleaned thoroughly, it may look like a brand new car. The same can be said of a great bag. Ladies, there's no shame in buying secondhand.

So guess how much the same $1680 beautiful beige Burberry Manor bag cost on ebay? How about 47% less at just $900? We're not talking about a model from seasons ago. We're talking about a bag that just came out last fall and is still sitting on internet and store shelves for full price. Of course I'll take it for 47% off the retail price! After doing my due dilligence to investigate the seller, ensuring that her feedback was immaculate, reading every feedback comment, arranging for a refund if necessary, and getting the authenticity proof that I needed, I felt confident to move ahead.

Now before you sound the alarm and proclaim that a Burberry bag doesn't go on sale, I must argue that it most certainly does. In fact, today, there are 6 bags listed on sale on the Burberry website alone. Turns out there are actually Burberry outlets. One is located in London, which I discovered only too late on my last trip. Even more conveniently, one is located about 50 miles from my house, which I discovered just recently. These are a Burberry-lover's dream, especially if you love the old-school trenches, warm scarves, and shoes. Not only are there Burberry outlets, there are also Gucci and Prada outlets. I drove right by them in Italy in a small town just off the main road. Marc Jacobs, Christian Dior, Jimmy Choo -- these all go on sale. Granted, they don't usually drop to half-off their original prices (at least not at first), but wait a little longer and you can get them for 40-60% off. Or, buy a gently used bag and you can score an almost-new gem on ebay for 40-50% cheaper just months after it retails.

Now that we've gotten that fallacy out of the way, my saga continues. Another bidder had already started bidding on my dream bag, so I had to be careful not to compete too early or too often. Fortunately, the auction ended late at night over the weekend, so there wasn't as much competition as there would have been in the middle of a workday. The price started at $800, and after a furious round of last-minute bids, I was the final victor, coming in at $900. I will admit I experienced a bit of shock and just a slight twinge of remorse right after it was over. I had never dreamed that I would spend this much money on ebay, for a bag or anything else! But the fear soon warmed to joy and was quicly replaced with anticipation as the very responsive seller promised to mail it right away. Exactly one postal day later, my jaw dropped as I heard a knock on the door and saw that the mailman was holding a huge box for me. Wow, I couldn't believe the bag traveled from Hawaii to Washington, D.C in 1 business day! The seller was great, following up to make sure that everything was to my satisfaction and expectation. I told her that both the bag and the service had exceeded my expectations. I fell in love with the Burberry bag as soon as I unpacked it from the thick Burberry gift box and proceeded to put it into service immediately.

As I write this a week later, I am still just as thrilled with the bag, having successfully worn it with a variety of ensembles. It really does fit everything I could think of carrying. It came in particularly handy when I went on an impromptu adventure and needed to grab a lunch, magazine, sweater, and other odds and ends, and I found that it still had room for more. The color matched everything I could conjure to wear with it. And it's tough and sratch resistant. Plus, Burberry was thoughful enough to install little brass feet and a lock on it. How useful! This bag is a keeper. (At least until I change my mind in a year or two.) The price was well worth it.

Wouldn't you know it, another Burberry Manor bag came up on ebay. It's not that I was actively looking for one or anything. It's just that, you know how ebay sends you reminders about items you're watching? Well, while I was watching the beige bag, ebay notified me that another one was available, only in a different color. This time, it was the same bag in burgundy. I admit I brushed it off at first, thinking one Burberry Manor bag was enough. But then I thought, burgundy would be so perfect for fall. And it would really bring out the pairs of bordeaux and claret-colored shoes I had recently acquired. Wouldn't it be a nice change from boring mouse-brown to carry a striking burgundy bag when the leaves start to change colors? I know, I'm jumping ahead a little, but a girl must think ahead when she sees a good bargain. And this was some bargain. I had paid an ambitious (but still worthwhile) $900 for the beige bag. Well, the burgundy bag was starting at only $600! It had been slightly more used, but I mean, how used can a bag from last fall/winter be? Especially one made of thick scratch-resistant leather. Anyway, I proceeded to watch it. When the final day came and no one had bid on it, I admit I felt compelled to take advantage of this opportunity. So, I sprung into action and placed a bid. Presto, another Burberry bag was soon to be mine. With barely any competition, I scored the bag for $612 -- that's 64% off retail!

This was too easy. Now I felt very guilty. How can I possibly justify spending over $1500 in 7 days, and on what -- bags? I must be losing my marbles. And I haven't yet figured out how I'm going to tell my husband. He was remarkably mellow and forgiving when I showed him the first bag. So much so that I worried if he was losing his mind. But now I'm really pushing my luck. I've crossed over into treacherous territory. Then again, I bought 2 Burberry bags for less than the price of 1 and they're stil selling for full price in stores. That's no small feat by anyone's measure! Besides, I haven't seen this model before or since on ebay. It must have been my luck to find not one but two of them. Now I have one for fall/winter and one for all seasons. You see, it was meant to be. Any savvy shopper would have done the same in my shoes.

Just think how far I have come from scraping to buy $4.75 shoes at the Talbots outlet only 4 months ago. And what have I learned from this experience? That I too am capable of buying an outrageously expensive bag. That I too am capable of blowing my entire savings on a completely unnecessary and frivolous purchase. That sometimes an excellent bargain can still leave you with a big hole in your bank account. Granted, I didn't shell out $2,000 or even $1680 for one single bag, but at the end of the week, I spent more than $1500. Granted, again, I got 2 bags and paid less than the price of 1 and I adore them both (well, to be fair, the 2nd still hasn't arrived, but I'm sure I'll adore it when I receive it). But I was only looking to buy one perfect bag. And one perfect bag led me to buy another perfect bag. So I still ended up spending more money that a person should be allowed to spend on any purchase in the course of one week. Or even one month. Heck, I shouldn't buy anything for the next year. But you know I will be back, secretly creeping through ebay searching for the next great buy.

I used to be a thrifty shopper. I never thought I could throw all my caution to the wind and shell out over $1500 for fashion in almost one fell swoop. I'm not like those women -- I have more common sense. I know how to save money. Well. maybe if I had stopped at one bag... But now, I am certifiably irresponsible, not fit to manage the household budget or raise children. I have fallen from grace. I hope that I can forgive myself.

Post-post script:
Okay, it's been 8 days since the auction ended for the second bag and I still haven't received it! It only needed to travel one state. What gives, especially given her 100% positive feedback and nothing but good comments about authentic bags and fast shipping. I already emailed the seller twice and got no answer. Maybe it's my luck. Maybe the second bag wasn't meant to be. Maybe if I don't receive it, I'll file for non-receipt of the item and try to get some of my savings back. Will it make me happy? Not really. Will be take a large burden of guilt off my shoulders? You bet! I guess we'll have to wait and see...

Meanwhile, I just checked ebay today and there's a new Burberry Manor bag listed! It's the black model. Bidding starts at $1000 and you can buy it today for $1300. Not a bad buy if you get it for $1000. I could really use a black bag to complete my collection.... Well someone should grab it, anyway.

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Joel Walter said...

It seems that you are quite the veteran on preparing taxes! Some people find the process a little complicated, but having a clean record of your expenses and paychecks could help you to prepare your taxes on time. Moreover, it could help you identify whether you have some discrepancies in your numbers or if you’ll have some left to spare. I hope that you continue with this diligent practice!