Tax Planning

CARES Act Review Part II: Retirement Account Provisions

Photo Credit: Kelly Sikkema, Unsplash

There are several retirement account provisions in the CARES ACT meant to reduce your tax liability or help with current cash flow or both. Here are the details:

1. RMD-REQUIRED MINIMUM DISTRIBUTIONS

You don’t have to take your RMD (Required Minimum Distribution) for 2020, whether it be from an IRA (regular, Simple, SEP), inherited IRA, 401(k) plans, 403(b) plans or 457(b) plans.

PLANNING TIP: If you already withdrew your RMD for 2020, and the withdrawal has been within 60 days, you can redeposit it to your account and avoid tax. If a distribution was taken more than 60 days ago and you can qualify for the coronavirus-related distribution (described below) you can redeposit it and avoid tax. Note: Non-spouse inherited IRA beneficiaries cannot redeposit the withdrawal. 

2CORONAVIRUS DISTRIBUTIONS FROM RETIREMENT ACCOUNTS  – new more tax-friendly rules 

For 2020, the 10% penalty will be waived for taking an early distribution from your IRA or employer plan. Previously, distributions before the age of 59 1/2 incurred a 10% penalty in addition to tax owed (with a few hardship withdrawal exceptions).

  • The distribution can be up to $100,000
  • It must be taken in 2020
  • The income is spread over 3 years for tax purposes unless you proactively elect to include it all in 2020
  • Beginning on the day after receipt of a Coronavirus-related distribution, an individual has up to three years to repay the amount as qualified rollover distribution (in one or multiple payments). Any distribution going back to January 1, 2020 qualifies

PLANNING TIP:  If you elect to take a distribution, it may be beneficial to include the entire distribution in 2020 if you expect your income to significantly decline in 2020 and be higher in future years).​​​​​​

PLANNING TIP: In a perfect world, withdrawing from retirement accounts early should be a last resort. These accounts get tax-deferral benefits to incentivize us to save for our future non-earning years. The compounding that happens when the money is left to grow tax-deferred is invaluable in building a nest egg. However, keeping that caution in mind, these are challenging times and the loosening up of these rules may be very helpful to many people. The good news is that there is a way to pay it back and avoid tax and penalties.

 Eligibility (very broad):

  •  People diagnosed with COVID-19, or have a spouse or dependents diagnosed with the virus.
  •  People who are experiencing adverse financial consequences as a result of being quarantined, furloughed, laid off, reduced hours, unable to work because of childcare issues, and a handful of other similar reasons.
  •  Business owners that had to close or operate under reduced hours
  •  Meet some other reason that the IRS decides to say is OK

3. ​​​​​​​COMPANY RETIREMENT PLAN LOANS – a provision to further expand company retirement plan loans (like from a 401(k):

  • The maximum amount of an allowable plan loan doubled from $50,000 to $100,000
  • The loan may be for up to the present value of the participant’s account
  • Payment on plan loan otherwise owed may be delayed for one year

In addition, the usual 20% mandatory tax withholding for non-direct rollovers from company plans is waived for 2020.  However, you will still need to pay tax (at tax time) on any amounts that you don’t roll back into a retirement plan within 60 days.

Next up: A review of enhanced Unemployment Benefits in the CARES Act

If you missed Part I: Stimulus Payments go here.

If you found this information interesting, please share it with a friend!

CARES Act Review Part II: Retirement Account Provisions Read More »

The Coronavirus Aid, Relief and Economic Security Act: Stimulus Payments

The CARE Act signed into law on March 27, 2020, is a 2 trillion package of aid to individuals and businesses to ease financial distress due to COVID-19.  It’s an over eight hundred page bill, so there are lots of details. Over a series of blog posts, I’m going to describe the provisions that will have the most impact on individuals and small businesses.

To start, I’ll describe the stimulus payments to individuals provision.

STIMULUS PAYMENTS

In general, individuals will be entitled to $1200, while joint filers will receive $2400 and taxpayers will receive $500 for each child under the age of 17. The payments are not taxable. Limitations and  phase-outs depend on income (AGI- adjusted gross income) as follows:

The rebate will be reduced for taxpayers whose AGI exceeds:

$75,000 for individuals
$150,000 for joint filers
$112,500 for Head of Household

For each $100 over the applicable threshold, you lose $5 of the rebate until it goes to zero, which means that once you hit the following AGI, you don’t get a rebate:

$99,000 for individuals
$198,000 for joint filers
$136,500 for Head of Household

The above numbers are based on the AGI from your 2019 tax return, or if that return hasn’t been filed yet, your 2018 return. If your income was higher in 2018 or 2019 than you anticipate in 2020, when you file 2020 taxes, you will get the rebate.

PLANNING TIP: If your income is lower in 2019 than in 2018 and you haven’t filed 2019 taxes yet, it would be a good idea to do so as soon as you can. It’s not clear how soon the rebates will go out. 

You don’t have to apply for payment. If the IRS already has your bank account information because you have a direct deposit of your social security check or tax refunds, the money will go there. Otherwise, the IRS will mail a check. If your payment gets misdirected somehow, you will get a paper notice in the mail letting you know where the payment went and in what form. If that doesn’t work, you will have to contact the IRS using the information in the notice.

PLANNING TIP: If you know the IRS doesn’t have your most current address and you expect a rebate, you can file Form 8822 to have your address updated. 

Next up on the blog: CARE Act Retirement Account provisions.

If you found this information interesting, please share it with a friend!

The Coronavirus Aid, Relief and Economic Security Act: Stimulus Payments Read More »

Tax Tips for 2017: How to Make Tax Season Easier for Yourself Next Year

Best Tax Tips for 2017 Tax SeasonIf you are like many of us, you are breathing a huge sigh of relief  that the last pesky K-1 came in and you have sent all the tax documents to your accountant.

Or, if you “do-it-yourself,” you have wrangled with your tax software to the point where you have no error alerts. Yay!

No one likes to do taxes, except maybe for accountants or why ever would they have chosen that for a career?

Not only is the document gathering and fact checking time consuming, but the fear of doing something wrong or filing late keeps people up at night. Filing taxes is never going to be a favorite chore, but there are steps you can take to make it easier for yourself next year.

Here are my seven tips to chilling at tax time next year:

1. Don’t stress about getting your taxes done “early.”

You need to wait until your employer, various banks and other institutions send you tax documents before you can finish your taxes. These institutions have deadlines which they mostly keep and you just have to be patient.

As long as you file by the deadline date in April, or properly file an extension, you won’t pay any penalties or extra tax.

2. Find a good software program that will let you identify and track expenses.

Log in monthly and categorize your tax-related items. At year-end, you just need to click a couple of buttons to produce a tax expense report. Voila!

3. If you don’t want to use a software program, be diligent about saving receipts or writing down tax-deductible expenses.

Either deposit them into a shoebox or better yet, slip them into separate envelopes marked: charitable deductions, property taxes, investment-related expenses. You’ll be so happy you did when tax season rolls around again.

4. If you plan on hiring an accountant to do your taxes, don’t wait until March to do it.

It’s best to establish a relationship as early as before year-end. Accountants get busy the few months before the tax deadline in April.

5. If you plan on working with a financial planner, hire someone earlier in the year.

As a financial planner, I also get a lot of people contacting me for planning in March. Doing taxes forces us to take a hard look at our finances, and I get it – it’s a motivator to get the help we need. Unfortunately, planners also get busy during tax season, so it pays to think about hiring someone earlier in the year.

6. Use one credit card for employee-related business expenses.

If you own a business or have lots of employee-related business expenses that you can deduct, use one credit card for these charges for easier tracking later.

7. If all else fails, you can file an extension.

For 2016 taxes the deadline for filing is October 16, 2017.  But, remember that you still have to estimate how much tax you owe and send in a check with the extension. There are no free rides when it comes to the IRS.

Interested in a tool that makes money management easier?

The Happiness SpreadsheetIf you want to think differently about the relationship between your spending, your values and your happiness, then sign up to get your FREE copy of The Happiness Spreadsheet.

Like this post?

If you found this blog post useful or inspirational, please share it on your favorite social media network!

 

If you found this information interesting, please share it with a friend!

Tax Tips for 2017: How to Make Tax Season Easier for Yourself Next Year Read More »

Clearing up the confusion over the Gift Tax Law, updated for 2018

There are many confusing tax laws, but the one that seems to generate the most misunderstanding is the gift tax law.

Many are aware that gifts can be made up to $15,000 in 2018, (this amount is periodically adjusted for inflation) with no tax consequences – but beyond that it’s fuzzy. A client asked me if she would have to pay tax on a $100,000 gift her parents were planning to give her to buy a house. The answer is no.

Here’s the low-down on the gift tax law:

1. Anyone can make gifts of up to $15,000 (in 2018) to as many people as they choose without any tax implications. This gift is called an “annual exclusion gift”- meaning the gift is tax-free for the giver and the receiver.

In each following year,  the donor can start all over again giving gifts up to the annual exclusion amount to as many people as they choose. The gift can be either cash or goods. The gift does not have to be to a family member, it can be to anyone the giver chooses. In addition, married couples can each give $15,000 a year, so your grandchild could receive $30,000 from you and your spouse in a given year.

2. If a donor exceeds the annual exclusion ($15,000 in 2018) to any one person, that is also a tax-free event – unless the gifts go over the generous lifetime estate and gift tax exemption of $11.18 million per person.  A minor annoyance:  Form 709 – United States Gift Tax Return – must be filed with that year’s tax return. But NO tax is due.

3. The recipient of said gifts (of any amount) does not pay tax on the money ever, at all.

If a gift tax return (Form 709) is required, it will be due on April 15 of the year following the year in which the gift was made.

Let’s step back and define what a gift is for IRS purposes:  It’s something that is given and nothing is received in return. It is complete as a gift. Loans are not gifts.

What are some of the reasons people give gifts?

  1. They are generous and kind.
  2. They want to help a loved one with expenses such as a down payment on a house,
    education costs, or a vacation.
  3. They are very wealthy and want to reduce the size of their estate and therefore, estate taxes.
  4. They know they won’t spend all their money during their lifetime and want to
    share it with their loved ones before they die.

Examples:

1. You and your spouse decide to give $15,000 each to your four grown children for Christmas. The total gift amount is $120,000. No tax is due and no gift return is filed.

2. The Brown’s gives $200,000 to their daughter Sally, to assist in the purchase of her first home. A gift tax return (Form 709)  for $170,000 ($200,000 –  $15,000 x 2) would be filed with that year’s tax return.  In subsequent years, any gifts the Browns’ give over the exclusion amount will be added to the $170,000.

How the estate and gift tax are tied together:

Let’s say the Brown’s, over their lifetime, gift $1,000,000 in gifts over the annual exclusion amount. When they die, the $1,000,000 will be subtracted from their lifetime estate and gift tax exemption – $11.8 x 2 =  $22.36 million – $1 million  = $21.36 million or $10.68 million each.

It’s obvious that very few but the most wealthy will exceed the estate and gift tax exemption, and in consequence few people pay estate or gift tax. This wasn’t always so. The basic exclusion amount (or applicable exclusion amount in years prior to 2011)  was $1,500,000 (2004-2005), $2,000,000 (2006-2008), $3,500,000 (2009), $5,000,000 (2010-2011), $5,120,000 (2012), $5,250,000 (2013), $5,340,000 (2014), $5,430,000 (2015), $5,450,000 (2016), and $5,490,000 (2017).

Spousal gifts and portability

Spouses fall under different rules when it comes to gifting and estate or gift tax. The unlimited marital deduction allows you to gift any amount of money or property to your spouse without incurring either the federal gift tax or a state gift tax if you live in a state that imposes one.

In addition, in 2013, Congress passed the American Tax Relief Act of 2012 (“ATRA”). One of the key provisions of ATRA is to make permanent the portability of the applicable exclusion amount between spouses, which was enacted by Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.

Portability allows the first spouse to die to transfer his/her unused estate tax applicable exclusion amount to the surviving spouse, who can then use it for his/her gift or estate tax purposes. The key is to be sure to file an estate tax return at the first spouse’s death to elect portability.

Gifts made directly for education or medical expenses qualify for exclusion.

Payments that you make on someone’s behalf for qualified tuition or medical expenses do not count towards the annual limit for gift tax purposes. This means that you can pay for a child’s tuition in the amount of let’s say $20,000 and if it is paid directly to the institution, you can still give that child $15,000 that year.

However, your payment(s) must be made directly to a qualifying educational organization or medical care provider in order to qualify for the exclusion.

In the case of 529 contributions, these gifts are considered part of the annual gift exclusion.  So you can give $15,000 a year to a 529 plan (or you can also give 5 years in one year or $70,000 and use up 5 years of the exclusion amount).  Note, these contributions are not made directly to an institution.

Do you want to manage your money (and life!) better?

The Happiness SpreadsheetIf you want to think differently about the relationship between your spending, your values and your happiness, then sign up to get your FREE copy of The Happiness Spreadsheet.

Like this post?

If you found this blog post useful and educational, please share it on your favorite social media network!

If you found this information interesting, please share it with a friend!

Clearing up the confusion over the Gift Tax Law, updated for 2018 Read More »

6 Year-End 2016 Tax Planning Tips and Reminders

Tax Planning Tips and RemindersDon’t let the year slip away without doing a little tax planning – the financial benefits will be worth your time. All of the below tips and reminders must be done by December 31, or you either forfeit the opportunity or pay penalties.

1. Max Out Qualified Plan Contributions

If your cash flow can stand it and you haven’t maxed out your 401(k) or 403(b) yet, talk to your payroll department to increase your contribution before December 31st.

For those under 50, the maximum contribution is $18,000, and for those over 50, the maximum contribution is $24,000. At the very least, be sure you’ve contributed up to any employer match.

2. Take Minimum Required Distributions (MRD’s) from Inherited IRA’s

If you have inherited an IRA from someone other than your spouse, you must take minimum required distributions beginning the year after the death of the original owner and by December 31st of that year.

To calculate the MRD, the IRS has a Single Life Expectancy table you can find by searching the IRS website. Or, Schwab and Fidelity and other custodians have on-line calculators to help you with the calculation. Be sure to have on hand the date of death and birthdate for the original owner and the balance of the account on December 31 of the previous year.

3. Take Required Minimum Distributions RMD’s from your Retirement Accounts.

As an owner of a traditional IRA, SEP, Simple IRA or company retired plan (401(k), 403(b) or 457 plan, you must start receiving distributions by April 1 of the year following the year in which you reach age 70½. You figure your required minimum distribution for each year by dividing the account balance of December 31 of the preceding year by the applicable life expectancy. Life expectancy tables are located on the IRS website. You must calculate the RMD separately for each IRA that you own, but you can withdraw the total amount from one or more of the IRAs.

Similarly, a 403(b) owner must calculate the RMD separately for each 403(b) contract that he or she owns but can take the total amount from one or more of the 403(b) contracts. However, RMDs required from other types of retirement plans, such as 401(k) and 457(b) plans have to be taken separately from each of those plan accounts.

If you don’t need the money and want to avoid tax, some or all of your required RMD can be donated directly to a charity. The donation counts as your required minimum distribution but doesn’t increase your adjusted gross income, which can be beneficial if you don’t itemize and can’t deduct charitable contributions.

Also, keeping some or all of your RMD out of your adjusted gross income could help you avoid the Medicare high-income surcharge or make less of your Social Security income taxable.  The money needs to be transferred directly from the IRA to the charity to be tax-free.

If you withdraw it from the IRA first and then give it to the charity, you can deduct the gift as a charitable contribution (if you itemize), but the withdrawal will be included in your adjusted gross income.

4. Roth IRA Conversions

If you have a traditional IRA, you might want to consider converting some or all of the balance to a Roth IRA. Roth IRA’s are a valuable tax-planning tool due to the favorable tax status once the money is inside the Roth IRA.

If all the rules are followed, you may never pay tax on your Roth balance and your heirs may not either. However, tax is due when you convert an IRA to a Roth, so the conversion makes sense if your income is lower than usual or you believe that your tax rate will be higher in future years. For example, if your income dropped in 2016 due to a job change, you might consider converting some of your IRA to a Roth because you will be in a lower tax bracket and pay fewer taxes than you might in future years. Be sure and take note that under Trump’s new tax plan, your tax rate maybe lower next year.

The deadline for conversions is December 31, 2016, but you will want to do this by at least December 22nd to make sure the paperwork gets processed with your custodian.

5. Establishing a New Qualified Retirement Plan

If you are self-employed and want to establish a qualified plan such as a 401(k), money purchase, profit-sharing or defined benefit plan, it must be set up by December 31st. Many people confuse this deadline with the SEP IRA deadline that can go into the next year, including extensions.

You can set up a SIMPLE IRA plan effective on any date between January 1 and October 1, provided you (or any predecessor employer) didn’t previously maintain a SIMPLE IRA plan. If you’re a new employer that came into existence after October 1 of the year, you can establish the SIMPLE IRA plan as soon as administratively feasible after your business came into existence.

6. Review Your Charitable Contributions

If you itemize deductions and are charitably minded, you will want to donate what you plan to before December 31st. You may deduct an amount up to 50% of your adjusted gross income, but 20% and 30% limitations apply in some cases. Good to know: donations made by check are considered delivered on the day you mailed it.

Do you want to manage your money (and life!) better?

The Happiness SpreadsheetIf you want to think differently about the relationship between your spending, your values and your happiness, then sign up to get your FREE copy of The Happiness Spreadsheet.

Like this post?

If you found this blog post useful and educational, please share it on your favorite social media network!

If you found this information interesting, please share it with a friend!

6 Year-End 2016 Tax Planning Tips and Reminders Read More »

10 Family and Individual Tax Breaks You Should Know About

Protecting Americans from Tax Hikes Act of 2015Given the timing (right in the midst of the holiday season), you might have missed hearing about some favorable last-minute tax legislation (also known as the Protecting Americans from Tax Hikes Act of 2015), that will benefit your wallet. There is a little something for everyone and best of all, it makes some of the long-favored tax breaks permanent or extended beyond one year.

Tax Breaks for Seniors

IRA Qualified Charitable Deductions (QCDs)

For 2006-2014, IRA owners age 70 1/2 and over could make tax-free charitable contributions up to $100,000 directly out of their IRAs. These deductions counted as Required Minimum Distributions (RMDs). Charitably minded seniors, who could afford to forgo the RMD cash, could cut their income tax bills by making tax-free QCD’s in place of taxable RMDs. The new tax legislation makes this break permanent and available for QCDs in tax years 2015 and beyond.

Tax Breaks for Parents and Students

American Opportunity Tax Credit (AOTC)

The AOTC is a partially refundable credit of $2500 for tuition and related fees for undergraduate education. It phases out for AGI starting at $80,000 (if single) and $160,000 (if married filing jointly). This break was set to expire in 2017 and is now permanent.

Qualified Tuition Deduction

This write-off, which can be as much as $4000 or $2000 for higher-income taxpayers, expired at the end of 2014. It is now retroactively extended through 2016.

Additional Uses For Tax-Preferred Distributions From 529 Accounts

In addition to the previously allowed expenses of tuition and fees, qualified room and board, and textbooks, 529 accounts can now be tapped for computer equipment, software and even internet access costs.

Tax Breaks for Teachers

$250.00 Deduction for K-12 Educators

With this deduction, teachers could deduct from income up to $250 worth of school-related expenses whether they itemized or not. The break expired in 2014, but the new legislation makes this deduction not only permanent but retroactive to 2015.

Tax Breaks for People with Little or No State tax (or really big spenders)

Deduction of State and Local General Sales Taxes

For the last few years people who paid little or no state income taxes had the option of claiming an alternative itemized deduction for state and local sales taxes. This option expired at the end of 2014 but is permanent starting with the tax year 2015.

Tax Breaks for the Environmentally Conscious

Credits for Qualified Solar Electric and Water Heating Property

Extended through 2021: The 30% credit for qualified solar water heating property and solar electric property expenditures was scheduled to expire for property placed in service after 2016. Now this credit is extended and phased down through 2021.

$500 Energy-Efficient Home Improvement Credit

In past years, taxpayers could claim a tax credit of up to $500 for certain energy-saving improvements to a principal residence. The credit equals 10% of eligible for energy-efficient insulation, windows, doors, and roof, plus 100% of eligible costs for energy-efficient heating and cooling equipment up to a $500 lifetime cap. This break expired at the end of 2014 but now is retroactively extended through 2017.

Tax Breaks for Commuters

Parity for Employer-provided Transit and Parking Benefits

The Act retroactively restores and makes permanent the parity provision that required the tax exclusion for transit benefits to be the same as the exclusion for parking benefits. Thus, for 2015, employees can receive tax-free transit benefits of up to $250 a month – the same as for tax-free parking benefits.

Tax Breaks for Short-Sellers

Tax-Free Treatment for Forgiven Principal Residence Mortgage Debt

The Feds count a forgiven debt as taxable Cancellation of Debt (COD) income. However, a temporary exception applied to up to $2 million of COD income from mortgage debt used to acquire a principal residence and cancelled between 2007 and 2014. The Act retroactively extends this break to cover eligible debt cancellations that occur before 2017 (or are under a written agreement entered into before 2017).

Do you want to manage your money (and life!) better?

The Happiness SpreadsheetIf you want to think differently about the relationship between your spending, your values and your happiness, then sign up to get your FREE copy of The Happiness Spreadsheet.

Like this post?

If you found this blog post useful or inspirational, please share it on your favorite social media network!

If you found this information interesting, please share it with a friend!

10 Family and Individual Tax Breaks You Should Know About Read More »

A Little Year End Tax Planning with Your Holiday Punch

HD-200911-r-pomegranate-punchOr,  8 Year End Tax-Related Deadlines and Things to Think About

With the busyness of the holiday season, it’s easy to forget about things like tax planning. After all, we’d rather focus on having fun with our friends and family! However, there isn’t much you can do to improve your tax situation after December 31st for 2015, so now is the time to do a little planning so as not to miss out on tax-saving or retirement saving opportunities and avoid penalties. (After all, the IRS has ways of knowing who has been naughty!).

1. Roth IRA Conversions: There were income limitations on converting regular IRA’s to Roth IRA’s, but no longer, now anyone can convert IRA’s to Roth’s as long as they are able and willing to pay the tax on the conversion. Why would you want to do this? Because converting to a Roth IRA will guarantee you will owe no income tax on the funds if withdrawn during retirement because you pay the tax now. For example, if your income dropped in 2015 due to a job change, you might consider converting some of your IRA to a Roth because you will be in a lower tax bracket and pay less taxes than you might in future years. The deadline for conversions is December 31, 2015, but you will want to do this by at least December 22nd to make sure the paperwork gets processed with your custodian.

2. Establishing a New Qualified Retirement Plan:  If you are self-employed and want to establish a qualified plan such as a 401(k), money purchase, profit-sharing or defined benefit plan, it must be set up by December 31st. Many people confuse this deadline with the SEP IRA deadline that can go into the next year, including extensions.

3. Max Out Qualified Plan contributions. If you contribute to a 401(k) or 403(b) at work and have not contributed the maximum and are able to, talk to your payroll department to increase your contribution before December 31st. For those under 50, the maximum contribution is $18,000 and for those over 50, the maximum contribution is $24,000. At the very least, try to contribute up to any employer match.

4. Take RMD’s (Required Minimum Distributions) on retirement accounts if you have reached age 70 ½. The minimum distribution rules apply to traditional IRA’s, SEP IRAs, SIMPLE IRAs, 401(k) plans, 403(b) plans, 457(b) plans, profit sharing plans and other defined contribution plans. If you don’t take the distributions or don’t take enough out, you may have to pay a 50% excise tax on the amount not distributed as required.

5. Take MRD’s From Inherited IRAs. If you have inherited an IRA from someone other than a spouse, you must take minimum required distributions beginning in the year after the year of death of the original owner and by December 31st of that year. To calculate the MRD, the IRS has a Single Life Expectancy table and each year you would subtract one year from the initial life expectancy factor. Fortunately, there are on-line calculators to help you do this!

6. Review Your Charitable Contributions. If you itemize deductions and are charitably minded, you will want to donate what you plan to before December 31st . You may deduct an amount up to 50% of your adjusted gross income, but 20% and 30% limitations apply in some cases. Good to know: donations made by check are considered delivered on the day you mailed it.

7. Donate Highly Appreciated Assets To Charity. Any long-term appreciated securities, such as stocks, bonds or mutual funds may be donated to a public charity and a tax deduction taken for the full fair market value of the securities up to 30% of the donor’s adjusted gross income. In addition to the tax deduction, the donor avoids any capital gains taxes. Probably the easiest way to do this is to set up a donor-advised fund –it’s like a charitable savings account: a donor contributes to the fund as frequently as they like and then recommends grants to their favorite charity when they’re ready.

8. Do Some Tax-Loss Harvesting. This is the practice of selling a security that has experienced a loss. By selling the security and taking the loss, an investor can offset taxes on capital gains or up to $3000 on ordinary income. The sold security can be replaced by a similar one, maintaining the optimal asset allocation and expected returns. When doing this, watch out for the wash-sale rule: your loss is disallowed if, within the period beginning 30 days before the date of the loss sale and ending 30 days after that date, you acquire a substantially identical security.

And, don’t forget to take a sip of that punch!

If you found this information interesting, please share it with a friend!

A Little Year End Tax Planning with Your Holiday Punch Read More »

Short List for your Finances 2014

listThere are many actions you can take to improve your finances, and that’s sometimes the problem. I have compiled a short list of ideas that can make a real difference in your financial health. Copy and paste this short list into Evernote or other list-making software or  print it out and tape it to your fridge. Then check off the items as you complete them and celebrate with your favorite indulgence – mine would be a piece of high-quality chocolate or a glass of Pinot Noir!

1. Write Down Your Financial Goals. We all know that writing things down makes them more real. Just having ideas floating  around in our heads  doesn’t cut it. Quantified goals are more likely to be achieved, so be as specific as possible as to deadlines and numbers.  For example, “I want to increase my net income by 20% in 2014 through a combination of decreasing expenses and adding new clients,”or “I want to reduce my spending on dining out from $500 to $300 per month.”  Next, you can make a plan to tackle your specific goals.

2. Make a Plan to Tackle Your Goals.
 Big goals can seem less daunting if you break them down into action steps. Take your list of goals and write down a simple plan of action for each. For example, taking the first goal above, an action item could be to review all business expenses from 2013 and determine whether they are 1. necessary 2. you could find a cheaper alternative, or 3. you could get away with spending less. Make a commitment to tackle the action steps by scheduling them into your calendar. 

3. Review Your Retirement Saving Strategy.  Most of us are saving on a regular basis to a retirement plan through our employer or through a self-employed retirement plan, but not all of us are saving as much as we could. Review your current payroll deductions into your 401(k) or your IRA contributions and see if you can increase the contribution amount to this year’s limits. Time is as important as the amount of money you save – it pays to start earlier than later.

If you are contributing to a Roth IRA, congratulations! – you have taken advantage of an excellent retirement savings vehicle. If you follow all the rules, you will only pay tax on the money invested once – before you contribute to the Roth. After that, your contribution and earnings can grow tax free for years.

4. Call your Insurance Agent. If you have been paying your insurance premiums for auto, home, and liability coverage on automatic, take the time to call your insurance agent or shop your insurance to feel confident you’re getting the best deal and your coverage is adequate for your current life situation. You might be surprised to find out that you have been overpaying or are underinsured.

5. Make a Charitable Giving Plan. Giving to needy or inspiring causes is a wonderful thing – the act of giving uplifts us and benefits the recipient. It  can also have excellent tax advantages, so it pays to know the different ways to give. For example, a great way to donate to a charity is to use a Donor Advised Fund (DAF). DAF’s can be funded using appreciated securities rather than cash, the securities are then sold within the fund to avoid the capital gains tax. The tax deduction is taken in the year when the account is funded avoiding ongoing record-keeping.

6. Understand Your Parent’s Finances. As uncomfortable as it may seem, it’s really important to talk to your parents about their financial planning so you know where they stand financially now and when they die. Questions to get answers to:  Do they have a plan to pay for possible long term care expenses? Have they created wills and trusts so that their estate is distributed with the least amount of costs and hassle? Do they have Durable Powers of Attorney set up for healthcare and finances? Knowing the answers to these questions before your parents grow too old will reduce stress later and possibly save dollars.

I’ll stop now and give you a chance to get started on your short list! If you enjoyed this post and found it useful, please let me know by commenting, tweeting it, or posting it on LinkedIn, Facebook, or Pinterest and I will plan to write similar posts in the future.

 

If you found this information interesting, please share it with a friend!

Short List for your Finances 2014 Read More »

Finglish Lesson #3: “Fiscal Cliff” and “Taxageddon”

Easy English Dictionary

Easy English DictionaryThe “fiscal cliff” and “taxageddon” refer to a convergence of fiscal events (or government spending and tax policies that influence the economy) slated to occur almost simultaneously at the end of 2012. If these terms aren’t on your radar yet, they are sure to be soon, as the media loves nothing better than drama and bad news and there’s plenty of that in this story.

The actors are the President, Congress, and U.S. taxpayers. The stage is the fragile U.S. economy. Like all good dramas, this one has lots of tension. The drama began decades ago when the U.S. started deficit spending, was exacerbated by the healthcare battle and the recent Great Recession, and came to a head last summer when the U.S. almost defaulted on its debt.

All kinds of political machinations took place to avoid a default—deals and compromises that were short-term stop-gaps, and all are coming due at the end of this year. You might say, “Surely the President and Congress can do something to stop Taxageddon?” Yes they can, but they won’t until after the November elections, leaving everyone at the edge of their seats—a true cliff hanger.

Hang on to your seats, and keep reading. Here is the fiscal cliff script:

  1. Tax rates for every income group will rise to levels not seen since 2001 (better known as the expiration of the Bush tax cuts). The current 10%, 25%, 28%, 33% and 35% rates will shift to 15%, 28%,31%,36 % and 39.6%.
  2. The tax rate on long-term capital gains will go from 15% to 20%. The maximum rate on dividends will increase to 39.6%.
  3. Some 3 million Americans will lose unemployment benefits.
  4. The Pentagon will start 2013 with a $55 billion budget cut; the budget for non-defense spending will be cut by the same amount.
  5. Soon after the beginning of the year, federal payments to doctors who treat patients covered by Medicare will be slashed by about a third.
  6. Higher-earning individuals ($200,000 for individuals and $250,000 for families) will be subject to an additional tax of 3.8% on all investment income: interest, dividends, capital gains, rents and royalties.

If all of these spending cuts and tax increases become reality, a significant slowdown (recession) is likely to result. This translates into continuing high unemployment, a volatile and downward-trending stock market, and generally unstable economic conditions.

In the final act, Congress and the Obama administration will fight it out over the last six weeks of 2012, negotiating, compromising, eliminating one thing, extending another, and once again avoiding disaster. But what remains to be seen is whether the U.S. economy will right itself or remain perched on the edge of the cliff.

How do you think this story will end?

If you found this information interesting, please share it with a friend!

Finglish Lesson #3: “Fiscal Cliff” and “Taxageddon” Read More »

Book Review: Small Business Taxes Made Easy, 2nd edition, by Eva Rosenberg.

Small Business Taxes Made Easy book cover As a financial advisor, I’ve read my share of tax books. So, I poured myself a strong cup of coffee, made sure I wasn’t too comfortable and opened Small Business Taxes Made Easy by Eva Rosenberg. After reading the first few pages, I realized that this tax book was different. First of all, I enjoyed Eva Rosenberg’s voice. She is friendly, knowledgeable, and savvy. She has obviously worked with many small business owners and understands us. You feel like she really cares about your business – No wonder she is referred to as the “TaxMama.”

But it’s not only her unique voice. The book is organized in a very logical and helpful way. Each chapter, beginning with Chapter 1: The Small Business Checklist, has a To-Do List and Questionnaire to review before you read the chapter. At the end of each chapter is a complete list of resources to make it easy to get even more information and do research on the topic at hand. If you are short on time, you could get a lot of information by just reading these two sections. However, it would benefit you to read through the chapters. Rosenberg is a tax expert and there are many gems of tax wisdom contained in the chapters where you will find yourself thinking, “Oh, I didn’t know that,” or, “Great idea, I think I will incorporate that tax strategy into my business.” It’s a workbook, so get out a pen and take notes where needed!

The book is really a small business bible, not just a tax book. The chapter titles tell the story: Business Plans You Know and Trust; Entities; Record Keeping; Income; Common Deductions; Office in Home; Vehicles: Everyone’s Favorite Deduction; Employees and Independent Contractors; Owner’s Fringe Benefits, Retirement, and Tax Deferment; (the dreaded) Estimated Payments; Online Businesses; and Audits. Ms. Rosenberg really wants you to set up your business right, from the start, for growth and profit! And we all know that taxes play a big part in the outcome.

You can download worksheets from www.YourBusinessBible.com that will help you stay on track as you complete the tasks in the book. She provides a different password to the site each month that you can only retrieve by owning the book. Clever!

I plan to keep this book nearby as a reference for those questions I often get from my business-owner clients. And if you are a business-owner yourself – whether you’re just starting out or not –  This book is a must-read.

Please note: This book was provided to me free of cost by McGraw-Hill. Even so, this is an honest, objective review of the book!

If you found this information interesting, please share it with a friend!

Book Review: Small Business Taxes Made Easy, 2nd edition, by Eva Rosenberg. Read More »

Curtis Financial Planning