How to Save $5000 a Year — As a Homeowner or a Renter
Published on - December 23rd, 2008 (by J.D. Roth) J.D. is on vacation. This is a guest post from Alison Wiley, who writes about more joy and less consumption at Diamond-Cut Life.
Friendly married couple, both professionals in sustainability, seeks one competent, friendly person to serve as Home & Garden Manager in exchange for free rent.
That’s the opener to the Craigslist ad that has saved us about $5,000, turned our weedy front lawn into a beautiful garden, and freed up six hours of our time per week.
Conversely, two bright, energetic college graduates have each repaid about $2,500 on their student loans that they would still owe if they hadn’t been (one at a time) our housemates, working in exchange for rent. A work/rent exchange can be a win-win for both parties, especially in this tightening economy, and could revolve around child care, home repairs, cooking, painting, etc. rather than gardening. While some people would craft this as a landlord/tenant arrangement, especially if living quarters were completely separate, it works nicely for us as a housemate arrangement.
Here are the common-sense rules that have worked for us.
The recruitment ad should be specific, giving a clear picture of what both parties should expect. Here’s the rest of our Craigslist ad:
We’re offering:
- Pleasant house with spacious, sunny bedroom for you
- $16-$21/hour in rent/util. for skilled, reliable work
- Great location by Mt Tabor Park
You are:
- Organized and able to keep an accurate work-log
- Available to work 5.5-6 hours/week
- Experienced at gardening & housekeeping
- Able to make vegetarian meals and enjoy them with us
- Experienced at living with others
- Equipped with references, both employment and housemates
- Comfortable with green lifestyle, i.e. CFL’s, low hot-water use, composting
If you are qualified, please email a letter of interest and your phone number. I’ll call or write back if I see a possible fit. Thank you!
The “hiring” process is similar to that for any job. If their written information looks good, do a phone interview. If they sound good, have an in-person interview. Volunteer lots of information, including downsides (“Sorry, but your bedroom will be hot in the summer.”) If everyone is seeing a fit, arrange a paid trial work-session. (Seeing the person actually work is the most important step.) Finally, check references from both employers and housemates.
The applicant must feel right to you at each stage in order to move to the next stage. Past experience in hiring is great, but even without it, you can generally tell if a person is responsible and has the work ethic and social skills you need in a working housemate.
The paid work-session tells you much more about a person’s actual work-skills than either their resume or references – but references are still crucial. Also critical: do you like the person and feel comfortable? The housemate fit is probably more a make-or-break than their work-skills.
Have all parties sign a simple, written agreement. Ours was a single page and included cost of rent plus utilities; rate of starting pay and possibility of raises; our groceries agreement; spreadsheet-based work-log to be updated and turned in every Sunday. It was for six months, with either party able to cut it short with 30 days notice.
Be willing to supervise your housemate who is working for rent. They can only succeed in their role with your active involvement, especially in the beginning. Be clear on what tasks they will do. At the same time, don’t micromanage, or expect perfect performance. Be quick to praise and appreciate.
Practice healthy boundaries. When they are not working, they’re off duty, i.e. your housemate and not an employee. It’s not a 24/7 job. Conversely, if the agreed-upon work isn’t getting done steadily, the person may need to pay the difference in cash (if that’s in the written agreement), or eventually be asked to leave. I once wrote a note to Steve when he was temporarily slacking off: “This is a real job, despite the fact I like you. Do these tasks today.” He did them.
Have fun with the new, different situation. Our ‘working housemates’ have brought lively, positive energy into our home, and plenty of laughs. Two out of three have remained our friends after moving on to other living situations. Someone asked me once about the wisdom of having a ‘stranger’ live in my home. I replied, “Well, all of my friends were strangers — until they became my friends.”
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I can’t justify this being a savings of 5K, as this is a frivolous expenditure. I would have to say that, in this economy, that not many of us have hired help that cooks and gardens for us. And if you do, I doubt that you would be worried about saving 5K.
What I thought I was coming to read surely wasn’t this.
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Interesting idea – Don’t forget to pay Social Security taxes (aka “Nanny tax”) on behalf of your employee on the value of the work done in lieu of rent; don’t forget to pay income taxes on the value of the work done; and good luck if this arrangement goes sour and you have to initiate eviction proceedings against your tenant.
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True, this is a good idea to save tons of money. But privacy is something you can’t put a price on. Personally, I value that at more than $5000/year. Plus, M and I don’t really have room for another person in our tiny one bedroom!
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Agreed, it could actually cost you more sometimes if the person starts eating from your refrigerator when you are work…
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Wow, this is a great idea. A win-win situation if it works out. Sounds like the author was lucky. I would be hesitant (to put it mildly) to enter into such an arrangement with children in the house.
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A definite no for me if kids are in the house, but even still, I don’t think I could share our home with someone we met through an ad. Getting to know a stranger and eventually befriending that person is much different than having a stranger move into your home straightaway.
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We own a side by side duplex. This could work really well. Especially once the kids are out of the house and I don’t want to do yardwork anymore.
It is also a great oppurtunity for an enterprising college student to save some money.
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I am wondering what kind of other job besides gardening did this person do? Cook for you as well? Why do they have to know how to cook veg meals?
I’m just curious how the 5000 total added up, is this time that you “made money” on because you weren’t working?
I’m really interested in this idea but the article had a lot more info on how to hire this person, instead of what they actually do and how you saw the savings.
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Very interesting article for us, as we currently own 3 rental properties in snow country — lots of work to be done! Boarding houses (which this is describing) have been very common during bad economic times. Having easy and cheap communication and google available can make the situation a lot safer than it has been in the past: background checks are cheap and easy, and google and criminal records databases can provide a lot of info.
Something to keep in the back of our minds . . . thanks!
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This is a very clever idea but does it run afoul of equal housing opportunity laws in some states?
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Maybe I am not familiar with the law. Do you have to pay social security tax when no money changes hands? I mean, this person is working for a reduction in what they’d pay in rent, not for actual cash, right?
Maybe I misread, but I understood this to be work traded for lower rent. Some of the comments made me think otherwise.
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Well, if people have spare rooms, you can actually rent them out for cash- that would have to help with the mortgage, rent etc. I am pretty sure that idea has already been posted here.
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You share a very interesting idea. It seems like a great way to be part of the community, have a nice garden and help out a student.
However, I struggle to see how this really saves money — unless I was paying someone to do these tasks already (no, just me!), or I use that time to do something that generates income (which you would need to explain more explicitly.)
I did enjoy looking at your website!
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Our house is 68 years old, and my husband and I are not good at repairs. Our most recent housemate is good at them, a carpenter, actually. So I see the value of our home being preserved in this arrangement, as well as our time freed up.
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This was really interesting for me to read. I’ve been thinking about an arrangement like this with my mother in law (we actually get along!) Once we have kids, it would be great to have an apartment for her in the attic or basement so she could have some privacy. Then, she could provide childcare in exchange for rent. I’d have to look into the social security laws, etc. since I would want to pay her some money (in addition to the free rent). I think it could really be win-win. I have yet to speak to her about it – kids aren’t in the picture yet – but I think it could work. More research for me to do!
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This is a really excellent idea and brings up the important issue of how different parties have different needs. While it doesn’t “cost” much to you to give them a place to live – it is fantastic for young college kids, etc.
Great Idea!
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this is an interesting idea, but I can find many other quick ways to save $5000/year.
Plus having to supervise means that my time is not worth any money. Yes, you said not to micromanage, but still having to “watch” over the house mate means I cannot be doing other things and will have to re-arrange schedules which cannot equate to money saved.
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I will tell my friend and his wife who live on 5.88 acres of land and spend any where from 3 to 12 hours a week on outdoor maintenance about this arrangement. This friend is a software developer that would love to free that time for high-paying side work instead. It should more than pay for itself. Heck, he might even benefit from a landscaping service company if he is worried about privacy.
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Funny, I just read The Christmas Box, which a story is created on a live in situation like this. While reading, I thought it was a fabulous idea and still do. Especially, if the situation is right for all involved.
Should I find myself older and my husband and kids, gone and grown, I think it would be a fabulous idea for companionship and allow me to stay in my home. For a younger person, couple or family, it is a great way to build the dollars and security needed to move forward in the world into a home of their own.
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I personally love this idea. In the apartment/house sharing situations I’ve had during and after college, I’ve generally ended up with such tasks anyway due to less-than-stellar roommates. (In my fraternity house I even ended up with the ‘housing manager’ position…boy was that a mistake…).
If anyone in the DC/NoVA/MD area is looking for such a situation, I’d love to oblige!
Also, not to say I’ve not been enjoying your writing JD, but having these guests post lately has been great. New voices, new ideas, and links to new sites to soak up! Thanks!
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I hate to break it to you, but the fact no money is changing hands isn’t necessarily decisive in avoiding this being classified as an employment arrangement. At best, the landlord needs to claim the value of the labor as income (I presume) if this is classified simply as a rental. If it is classified as an employment arrangement, then the employer needs to pay soc sec taxes (unless there is some threshhold that can be avoided given the low dollar amount) and the employee will need to pay taxes on his inputed income (which, assuming he’s not working some other higher paying job would be pretty low at this rate).
I’m not terribly familiar with the law, but I’d be willing to bet 10 bucks that the author thinks that the fact that no money changes hands means she isn’t obligated to pay taxes and so she isn’t.
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As a CA in Canada, and someone who lives in a similar situation, certainly in Canada this would be classified as income to the tenant, and to homeowner.
Additionally, “in-home” employees are covered by different rules (and someone above mentioned it would appear to be similar in the US).
The homeowner would be deemed to be renting the space out, and ‘paying’ the tenent for work done. Against this income the homeowner could deduct “reasonable” expenses (including a portion of the ‘payment’ to the tenent as repairs and maintenance as well as other household expenses).
If you aren’t sure of the tax status of an agreement you should definitely discuss it with an accountant (CPA in the US or a CA, CMA or CGA in Canada).
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I’ve tried to look into the tax laws regarding somewhat similar situations before, and it’s not totally straightforward. I would guess that some taxes / SS have to be paid here, but it’s hard to just guess quite how much. If anyone does look it up, I’d be interested to hear what they find!
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The IRS website provides many excellent references on hiring household employees.
Visit this page to view Hiring Household Employees at IRS.gov
Income from bartering is taxable. Money does not need to exchange hands in order for tax law to apply. See Topic 420 (I kid you not) for more on Bartering Income.
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Good read, this would be a good contract to present to able bodied kids eh?
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Hi
I’ve been doing lots of trades for years with recent college students, particularly those committed to a green life style. In general, they are a very safe values-based group. Before I leave someone in my home to do fix-up, I’ve usually worked alongside them in the yard. Sometimes, I’ve first invited them to social gatherings in my home to see how they fit in. I agree with Alison that references also add a lot to this common-sense step-by-step process. This is somewhere between a situation where friends trade resources and a more official arrangements. As such, I decided not to worry about taxes.
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This is a horrible idea. I wonder what fancy world you live in. Someday living in the real world might be beneficial to you.
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Sounds like a great system that I never thought of before, but could see how it could help. Especially for a family who the money isn’t as much a big deal but needs more of a babysitter/handy man. The problem is I don’t think it would be good for college students. Too much of a difference in lifestyle and the rules would be strict. Could see a more older person having this work out well for.
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Poorly titled article.
I second this statement:
“I can’t justify this being a savings of 5K, as this is a frivolous expenditure. I would have to say that, in this economy, that not many of us have hired help that cooks and gardens for us. And if you do, I doubt that you would be worried about saving 5K.
What I thought I was coming to read surely wasn’t this.”
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I thought this was a brilliant article. What a great idea to return to a bartering system like this. Everyone gets something out of it, that they value more than what they put in. ie you get home and garden maintenance done that you can’t do/don’t like doing, for the use of a room that is already there, and a slight increase on utilities. Your roommate gets to do work he/she presumably enjoys and finds easy, in return for saving cash which is always in short supply.
It’s really great and I’m going to think if we can do a similar thing, and also visit your blog. Thanks Alison!
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Hi,
I liked the article, and the idea. What I don’t understand is how this saved the author $5,000? Would she have paid someone to do that work if not for this arrangement? If she or anyone else could answer that, I’d be grateful.
Thanks,
Chris
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Hi Chris, I’d say we got $5,000 worth of value added to our property (and our housemates literally saved that amount of rent through their work). Because my husband and I are thrifty and not big spenders, we probably would not have paid 5k in cash for the help . . . . and thus in that case we would not have gotten the value-add to our property.
– Alison
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Allison,
Wow, that was fast! Thanks for the reply. I liked your article, and will definitely consider your idea as we prepare to move this spring. I was sorry to see so many comments focused on the potential negatives. There is always risk in a new idea, but the risk in this one seems entirely and easily manageable to me.
Thanks again,
Chris
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Er, no, sorry, this is illegal (at least in CA) unless the students reported the income and the author paid payroll taxes. Check out the rules for apartment building managers who get free rent – it’s similar.
Now, the idea of inviting a trusted friend of relative who needs free room and board to come in and take care of your kids or run your errands or cook or garden – sure, that could be sweet. It won’t work for a lot of us (no relatives in the area, for example), but it’s definitely something to keep in mind. Then again, this is pretty much how people used to live back before we decided every little nuclear family unit must have its own McMansion.
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No, the housemates didn’t “literally save that amount of rent through their work.” What happened was an even exchange of work for rent, which would be similar to any old renter working an outside job for cash and paying rent with that cash. The housemate didn’t “save” anything, he’s just going about paying for rent in an unusual way.
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Like others have said, this would be feasible if I had a $400+ monthly gardening bill. But I, like most other GRS readers, don’t feel like that’s a worthwhile use of over $400 a month. And, like many other GRS I live in a place that’s sized suitably for the two people living here. It’s not so big as to have spare room for an extra person to live.
That right there is a good way to save $5000/year — don’t buy (or rent) a house that’s way bigger than you need.
I mean, this post essentially boils down to “It’s so much more affordable to have the hired help live in the guest house than to pay them a salary.”
I don’t have a lot of hired help, nor a guest house, and I make pretty good money. I’d imagine not a lot of GRS readers are in that sort of situation, either.
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I’ve watched the comments with interest today. I thought this guest post would prove controversial, and it has.
For one, when guest authors submit articles about bartering, they rarely consider the tax implications. Now, I know that most people who barter ignore taxes, and I’m not saying I blame them. But legally, there are tax implications to consider.
Second, I had problems with the math on this, too.
However, I think Alison’s main point still stands. This is a great way to provide mutual benefit to both parties. It’s not something that everyone can do, but there are a few who can. I know a couple of people with “guest houses”. I know even more with extra rooms. (Heck, Kris and I have a house with too many rooms ourselves — we bought this place before we were conscious of that sort of thing.) Renting out a room — or exchanging it for work — is a clever idea.
And while I can’t imagine a $400/month gardener/handyman bill, that’s simply because we let a lot of tasks go undone. If we had a “free” worker, we’d do a lot more pruning, and a lot more home maintenance. My gutters would never be clogged!
But I agree — this isn’t really a savings of $5000/year. It’s not money I would spend normally. It’s actually a trade.
Still, I like the advice, and think it’s worth keeping in mind for the future.
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Interesting that the author has not responded to any of the comments regarding taxes. Seems like this arrangement is cheating us all out of $2,500 ($5,000 income and $5,000 rent, both at 25% marginal tax rate) in federal income taxes and cheating the renter out of future Social Security income. No wonder the SocSec system is in such trouble with tax cheats like the author and her employee/tenant. People like these who think that they are “saving” taxes by bartering or “under the table” transactions are really fleecing honest citizens billions of dollars a year. Disgraceful.
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That is a very neat idea. This is a great post during such a rough economic time.
I have a question to anyone, but J.D. in particuluar. I’m 20 years old, nearly halfway through college but am not enrolled right now. I have a little bit less than $2000 of student loan debt to my parents and that’s it. I maxed out my Roth IRA this year. I have a good part-time job which which has good prospects to become full time.
I’d like to purchase a house and know I can afford a mortgage payment between $700-900 a month. I have established credit (good credit card standing).
Do you think I can get a loan for a house around $120,000? Should I even consider purchasing a house at all and just wait until I’m older?
Thanks.
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Hey all,
Personal Note: When I got my first job out of grad school I rented a room from a young couple. Now, while they only asked for cash in return (no services) several years later they remain friends.
Point is this: if the house of our future permits my wife and I are considering renting out a room. I wonder if Alison or her partner rented a room from someone earlier in life, they had a good experience, and came up with this idea later. Do experiences (good / bad) impact your opinions?
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I think because they live there, there is no violation of fair housing. If you’re renting a room in the house that you live in, the rules are far different (and lax) than renting in a “rental”. As far as taxes go, it could be drawn up as an independent contractor agreement, with the person providing the service responsible for his own taxes.
It’s not “disgraceful”. This is not someone trading a rental unit for services – it’s bringing someone else into your HOME with the expectation that they carry their weight.
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@Julie #39 — Whether you like it or not, the law states that goods and services provided and received under a bartering system are treated as income and subject to federal income tax. PERIOD.
I complain about paying taxes just as much as the next gal, but I do pay. People who do not pay their fair share of taxes are cheating honest folks. Maybe “disgraceful” was too strong a word. Maybe “pathetic” is better.
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I would just do a simple rental agreement with the students having them pay $416/month and then pay them the same for services rendered. The students will handle the taxes in their own way and the homeowner will claim the rental income.
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Alison responding: I’ll go check with my attorney on taxes. My housemates have always had full-time jobs besides their part-time gigs with me, and possibly they can be considered independent contractors.
I’d like to hear from other homeowners with housemates, plus intergenerational households in which relatives or friends provide child care, etc. — how have you handled taxes?
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I live with a friend. I pay her rent in cash. She does not claim it as income. I’ll be crying into my pillow tonight about how we’re “fleecing taxpayers” LOL I get super cheap rent, she gets a little side income and some help around the house. Win-win.
Fuzzy math aside, the article makes a good case for those willing or able to consider having housemates. You don’t even necessarily have to look to strangers to fill this void; in my case, my friend and I both needed to save money, she has a big house and I was in an apartment. It just fit.
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@ AB # 45 Your friend is very kind to discount your rent, but she is a fraud, thief and criminal by not reporting the rent as income on her tax return. There is no “fuzzy math” here – it’s simply the law. She should be ashamed of herself.
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@ Sean # 45 – Yours seems to be the simplest solution. No fuzzy math needed – the rent and work are clearly valued, and both parties each pay their fair share of the national tax burden. I still think that there’s an issue regarding the payment of Social Security taxes by the employer (homeowner) on behalf of the employee (gardener).
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@ Alison Wiley #44 You may be interested in reading the IRS regulations on bartering:
“While our ancestors may have exchanged eggs for corn, today you can barter computer services for auto repair. Another example of a one-on-one, non-barter exchange transaction is a plumber doing repair work for a dentist in exchange for dental services. The fair market value of the goods and services exchanged must be reported as income by both parties.”
You are bartering accommodations for gardening services. Here’s the link:
http://www.irs.gov/businesses/small/article/0,,id=187904,00.html
And here is the link regarding property or services in lieu of rent:
http://www.irs.gov/businesses/small/industries/article/0,,id=98895,00.html
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Allison,
Ironically, the difference between having your mother move in and help out around the house v. putting an ad in Craigslist for a stranger to do the same thing is that the law gets fuzzy when it’s family. If it didn’t, homemakers would need to be paid 6 figures by their husbands/wives (what most estimates of a stay-at-home-parent’s “job” would cost if performed by paid professionals).
But the government likes to tax anything it conceivably can without violating cultural traditions. There’s a long-standing tradition of family helping family unpaid – if you suddenly told people in rural Arkansas that they needed to pay their mother-in-laws payroll taxes, they’d laugh in your face. And (as I said before) since neither party is going to report it, they could never catch you anyway.
But with strangers… they could later find out the law, see an opportunity to sue you for SSN payments, and cause you trouble.
It IS inconsistent, and I personally think it’s silly that we’re supposed to pay taxes on bartered services. But the reason the laws exist (if I’m not mistaken – if anyone knows better, please correct me) is because years ago, people paid migrant workers and coal miners in goods or “scrip” that wasn’t worth the labor they were doing – it kept them poor and desperate and powerless to improve their lives, or even stand up to bosses who put them in lethally unsafe working conditions. Because “bartering” on this scale needed to be stopped for the good of many people, we ended up with laws that effect people like you, too.
I don’t personally consider skirting taxes on the kind of money you’re talking about to be so awful. Most restaurant servers skirt a few bucks in taxes because the restaurant just automatically reports a certain percent of your sales as your tip income, and your tips are almost always much higher than that. But the law is the law, and I was concerned that your readers realize that when deciding if this is the right path for them.
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Anon, I’m sure she’ll be crying herself to sleep tonight, too.
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