Even if you want to, there will come a day when you physically cannot pick and deal vintage anymore. Whether it’s due to an early death at the hands of an irate landowner of a bando you’re picking, or developing arthritis from digging at the Goodwill bins, someday you will find your last grail and never pick vintage again. Hopefully, if you aren’t dead, you’ve saved, invested, and—if you’re smart—paid your Social Security tax.

Vintage clothing is a cash-heavy business—flea markets, garage sales, door knocking—so keeping track of your cash and declaring all your income might seem like an unnecessary hassle. But there’s a bigger picture to consider: your future. Reporting your earnings accurately is crucial if you want to ensure a comfortable retirement. Here’s why.

Building Your Social Security Benefits

Social Security in the United States provides retirement, disability, and survivor benefits and is a key component of retirement planning. It’s funded through payroll taxes, which means the income you report today directly influences the benefits you’ll receive when you retire. If you’re not reporting all your cash earnings, you’re essentially shortchanging your future self.

• Eligibility: You need to earn 40 credits to qualify for Social Security retirement benefits. That’s about 10 years of work, but only if you report your earnings correctly. For example, this year you earn one credit for every $1,640 in earnings, up to a maximum of four credits.
• Benefit Calculation: The SSA (Social Security Administration) calculates your benefits based on your average monthly earnings over your 35 highest-earning years. Underreporting means lower benefits.

If you under-report your earnings, you’re resigning yourself to potentially living out of your picker-van indefinitely. Spending the night in your car may be exciting when you’ve got a lead on the estate sale of the summer, but it’s far sadder when you’re 75 and selling off your Disney tee archive to pay for your heart medication.

How Social Security Works

The vast majority of vintage dealers are self-employed. For some, this means you work directly with an accountant, bookkeeper, and financial adviser and have a better understanding of your finances than the average W-2 employee. However, I know from experience, that most of you show up to H&R Block with a shopping bag full of receipts at on tax day, don’t file at all and hope someday you’ll hit it big and tie up all your loose ends, or pick on the side and don’t report your vintage earnings at all. So for those of you who are winging it, we’re going to do a deeper dive into how it functions:

Payroll Taxes

Social Security is primarily funded through payroll taxes. Here’s the breakdown:

• Employee Contributions: Employees contribute 6.2% of their earnings to the Social Security Trust Fund. This is automatically deducted from your paycheck.
• Employer Contributions: Employers also contribute an equal amount of 6.2% for each employee, making it a total of 12.4% contributed per employee.
• Self-Employed Contributions: If you’re self-employed—looking at most of you here—you are responsible for both the employee and employer portions, totaling 12.4%. Though this might seem steep, it’s a necessary step to secure your retirement benefits.

Trust Funds

Social Security benefits are paid from two main government-managed trust funds:

• Old-Age and Survivors Insurance (OASI) Trust Fund: This fund is used to pay retirement and survivor benefits. It’s primarily financed through payroll taxes but also receives income from the taxation of benefits and interest earned on its investments.
• Disability Insurance (DI) Trust Fund: This fund pays for disability benefits. Like the OASI, it’s funded by payroll taxes, taxes on benefits, and interest income.
• Supplemental Funding: Both funds are supplemented by the taxation of Social Security benefits and interest earned on the trust fund investments. Yes, you may have to pay taxes on your Social Security benefits. Only around 40% of recipients of Social Security benefits do, usually only when they have substantial additional income.

Cost-of-Living Adjustments (COLA)

To ensure that Social Security benefits keep pace with inflation, the SSA implements annual Cost-of-Living Adjustments (COLA):

• Adjustment Basis: COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index measures changes in the cost of living, ensuring that benefits reflect inflation rates.
• Annual Updates: Each year, the SSA evaluates the CPI-W to determine the necessary adjustments. If the cost of living increases, Social Security benefits are adjusted accordingly, maintaining the purchasing power of retirees and other beneficiaries.

Retirement Programs and Savings Plans

Accurately reporting your income also affects your eligibility and benefits from other retirement programs and savings plans. Here are some plans to familiarize yourself with as a self-employed individual:

1. One-Participant 401(k) Plans: Also known as Solo 401(k) plans, these can be opened by self-employed individuals or couples. They follow the same rules as traditional 401(k) plans, and contributions can be made by the individual both as the employer and employee. This year the limit for 401(k)s is $19,500, with an additional $6,500 catch-up contribution allowed for those aged 50 and above.
2. SEP IRA: Designed for self-employed individuals and small business owners. Contributions are tax-deductible and can be significantly higher than traditional IRAs, up to 25% of compensation or $61,000 (whichever is less) for 2024.
3. SIMPLE IRA: Another option for small businesses, allowing both employer and employee contributions. Employees can contribute up to $14,000 in 2024, with a $3,000 catch-up contribution for those aged 50 and above.
4. Health Savings Accounts: Contributions to HSAs are tax-deductible, and withdrawals for qualified medical expenses are tax-free. After age 65, withdrawals can be used for non-medical expenses without penalty (though they are taxed as ordinary income). For 2024, the contribution limit for individuals is $3,650 and $7,300 for families, with an additional $1,000 catch-up contribution for those aged 55 and above.

Conclusion: It Sucks but Do It

Declaring your cash income isn’t just about compliance; it’s about securing your future. By accurately reporting your earnings, you ensure that you can retire with dignity and financial stability, without the need to sell off your bangers just to get by. For more detailed information, check out the Social Security Administration’s official website.