Personal Planning

January 12 2024

Tips for a Smooth Tax Season

Personal Planning, Tax Planning, Taxes Tax Planning, tax returns, taxes

With tax season officially underway, here are tips to make filing your return as stress-free as possible:

Gather your tax information for filing. Items you’ll need include W-2s, 1099s, K-1s and other forms you receive from your business, employers, brokers, banks, and others. If you find any errors, contact the issuer immediately to request a corrected copy.
Organize your records. Once you’ve started gathering your information, find a place to put all the documents as you receive them, or consider scanning documents to store on your computer. You can also take pictures of the documents with your phone as backup. Missing information is one of the biggest reasons filing a tax return is delayed.
Create an April 15th reminder. This is the deadline for filing your 2023 individual income tax return, completing gift tax returns, making contributions to a Roth or traditional IRA for 2023, and for paying the first installment of 2024 individual estimated taxes. So create a reminder that works for you.
Know the deadlines for business returns. If you are a member in a partnership or a shareholder in an S corporation, the deadline for filing these business returns is March 15th. Calendar-year C corporation tax returns are due by April 15th.
Clean up your auto log. Create and review the necessary logs to support your qualified business miles, moving miles, medical miles and charitable miles driven by you. Gather the logs and make a quick review to ensure they are up to date and totaled.
Review your child’s income. Your child may be required to file a 2023 income tax return. A 2023 return is generally required if your child has earned more than $13,850, or has investment income such as dividends, interest, or capital gains that total more than $1,250.
Contribute to your IRA and HSA. You can still make 2023 IRA and HSA contributions through either April 15th or when you file your tax return, whichever date is earlier. The maximum IRA contribution for 2023 is $6,500 ($7,500 if age 50 or older). The maximum HSA contribution is $3,850 for single taxpayers and $7,750 for families.
Calculate your estimated tax if you need to extend. If you file an extension, you’ll want to do a quick calculation to estimate your 2023 tax liability. If you owe Uncle Sam any money, you’ll need to write a check by April 15th even if you do extend.

Contact our tax consultants for more information.

September 7 2023

The Trouble With 0% Financing

Financial, Money Management, Personal Planning interest

Companies want to make it easy to buy their big ticket items, especially at times of economic uncertainty. A popular technique is to offer 0% financing when you buy furniture, electronics and other household items. You can also take matters into your own hands with a credit card that offers 0% APR on purchases, balances transferred to the card, or both.

While paying for goods and services with 0% interest may sound appealing, there are risks you’ll face that you should be aware of before you take this step.

What’s hiding behind 0% financing

Here are some of the potential problems hiding behind these 0% financing offers:

Special financing offers make it easier to overspend. Psychology Today reported that credit card use can easily result in overspending, and the same is true for loans. The key is to understand the monthly payments you are committing to, and ensuring you can handle them. At the same time, try to assess your purchase decision. Would you buy this item if the 0% offer was not available?
Some 0% APR offers come with deferred interest. Hidden in the fine print of some 0% interest offers may lurk deferred interest charges. This means that while you’re enjoying monthly payments with no interest, the interest charge accrues over time. If you miss a payment, have a late payment or haven’t paid off the loan by the end of the 0% offer period, the accrued interest gets added to your unpaid balance. The key is to precisely understand what happens if you miss a payment or don’t follow the 0% offer exactly as written…before you take the 0% offer.
The 0% offer may be impacting the price. Remember, money has value and someone is paying the interest cost of the 0% financing. Usually the merchant is hiding the cost inside the price you are paying for the item.

What you can do

Before considering a 0% interest financing offer on your next purchase, do this:

Save up for large ticket purchases. Instead of financing items and ensuring you have even more bills to pay each month, start saving for pricier purchases on a regular basis. Even better, leverage the value of your savings within higher interest savings account options that are now in excess of 4 percent.
Turn on your negotiating switch. Whenever you see a 0% offer, there should be a discount available to you for paying upfront. Someone is paying the interest and it is probably going to be you if the financing cost is built into the price you are paying.
Pay on time! Finally, if you do think the 0% option is a deal for you… set up auto payments. Most of these deals are unforgiving and punitive if you miss a payment, so automate them to avoid this possibility.

August 17 2023

When to Call: Common Situations that Require a Tax Review

Individual Taxes, Personal Planning, Tax Planning taxes

Taxes can affect many areas of your life. Here are some common situations when you’ll want to schedule a tax review.

1. Something changed in your life. A change in your life could mean significant changes in your tax status. Some of these changes include:

Getting married or divorced
Retirement
A child starting college or an adult going back to school
Moving to a new home
The birth of a child or an adoption
A family member passes away

How your taxes may be different: Tax deductions and credits can increase and decrease because of these and other life changes. You’ll want to know as soon as possible if your taxes will be going up so you can be prepared to pay the increased amount.

2. A new job. You’ll have several decisions to make when starting a new job that will affect your tax situation:

Retirement savings plans – Learn about the available retirement savings plans offered by the employer and any other tax-deferred savings options. Remember that some employers will match a certain percentage of contributions that an employee makes to a plan.
Medical savings accounts – Your employer may offer a Flexible Spending Account or a Health Savings Account to help with paying certain medical expenses with pre-tax funds.
Withholding – You’ll need to determine if you want additional federal (along with state and local income taxes if applicable) income taxes withheld from your paycheck beyond what your employer is obligated to withhold.

How your taxes may be different: You can decrease your taxable income by contributing to qualified retirement and medical savings plans. A tax planning session can reveal how much you can contribute to each of these plans, and if you should consider adjusting your paycheck withholdings.

3. A new business or side hustle. A new business (hopefully!) means more money, but also more tax responsibilities. Here are some things to consider:

Separate accounts and credit cards – If you only remember one tip, it’s to keep separate accounts. Without this, it is easy for the IRS to deem expenses as personal and, therefore, not deductible.
Paying estimated taxes – As a business owner, you are responsible for making tax payments throughout the year to the IRS if your business is profitable.
Setting up a bookkeeping system – Having an accurate bookkeeping system is vital to making sure you don’t pay any more in taxes than you’re legally obligated to pay. Consider reconciling your bank accounts weekly (or even daily if possible) so they’re always current.
Other tax responsibilities – You may be required to submit a sales tax return depending on what types of products you sell or services you provide. You’ll also be required to submit various payroll tax returns if you have any employees.

How your taxes may be different: Most small businesses are flow through entities. This means any business profits will add to your personal income. Because of this, your personal tax situation could vary dramatically! So tax planning becomes critical on two fronts: Your new taxable income level AND helping you stay in compliance at the federal, state and local business tax rules.

Nobody likes a tax surprise and now is a great time to schedule a tax planning review.

August 3 2023

Mastering Your Credit Card (and Not the Other Way Around!)

Banking, Credit, Financial, Money Management, Personal Planning interest rates

The average credit card balance in America ballooned to $5,910 in 2022. This figure is up 13.2% from the year before according to Experian, and it spells out a worrisome (and costly) trend for consumers. After all, credit card interest rates were on rise throughout all last year and well into 2023, mostly due to changes to the federal funds rate by the Federal Reserve. The fact is, consumers with credit card debt pay an average interest rate of 20.92% as of February 2023, compared to just 16.65% in the second quarter of 2022.

Fortunately, you have the power to use credit cards to your advantage — and to avoid paying exorbitant interest rates altogether. Consider these tips to master credit cards instead of letting them rule over you this year.

Plan purchases to carry no credit card balance. While interest rates are incredibly high right now, you can use credit cards without paying for the privilege. Instead of racking up balances and hoping you can afford the bill, use credit cards for planned purchases only — and for spending that’s backed up by money in the bank. Provided you pay your credit card balance in full each month, today’s sky-high interest rates can’t hurt you.
Consolidate high-interest debts. You can get a break from today’s high rates by consolidating credit card debt you already have with a 0% balance transfer credit card. Many cards in this niche give you 0% APR on balance transfers, purchases or both for up to 21 months. This gives you time to pay down your balance with zero interest, which can help eliminate debt faster and save money along the way.
Earn rewards for your spending. If you’re still using your old credit card from college or haven’t bothered to upgrade in the last few years, you could be missing out. Today’s credit cards let you earn as much as 2% cash back on spending with no annual fee, or you can opt to earn generous rewards for travel instead. Just make sure you carry no balance, as interest rates on these cards can be even higher than regular credit cards.
Put your perks to work. Finally, check whether your credit card has other, often unpromoted, benefits. Depending on your card, you may have access to perks like purchase protection against damage or theft, extended warranties on items you buy that come with a manufacturer’s warranty or even travel insurance protections. If you already have access to these benefits or others, knowing ahead of time is the best way to put them to good use.

Credit cards offer convenience and a range of features you can benefit from, but they can either be a blessing or a curse for your finances. Ultimately, your best bet is taking control of your credit card use before it controls you.

April 5 2023

IRA: When are withdrawals required?

Personal Planning, Retirement IRA, Retirement

Question: When must I start withdrawing money from my IRA?

Answer: Upon turning age 72 (or age 70 1/2 if you reach 70 1/2 before January 1, 2020), you must begin withdrawing money from your traditional IRA as follows:

Your first withdrawal can either be taken by December 31 of the year you turn age 72, or it can be postponed up until April 1 of the following year.
Your second withdrawal must be taken by December 31 of the year after you turn age 72.
In each subsequent year, you must withdraw at least the required minimum amount by December 31.

If you fail to take your required distribution on time, you’ll face a 50% penalty on the amount that should have been withdrawn.

Note: There is no requirement to make withdrawals from a Roth IRA at age 72.

November 17 2022

Record Retention Guide for Individuals

Individual Taxes, Personal Planning, Tax Tips tax records, tax return

Good recordkeeping can cut your taxes and make your financial life easier.

How long to keep records is a combination of state and federal statutes of limitations. Since federal tax returns can generally be audited for up to three years after filing and up to six years if the IRS suspects underreported income, it’s wise to keep tax records at least seven years after a return is filed. Requirements for records kept electronically are the same as for paper records.

Generally, follow these recommended retention periods for various documents:

Record	Retention Period
Tax returns (uncomplicated)	7 years
Tax returns (all others)	Permanent
W-2s	7 years
1099s	7 years
Cancelled or substitute checks supporting tax deductions	7 years
Bank deposit slips	7 years
Bank statements	7 years
Charitable contribution documentation	7 years
Credit card statements	7 years
Receipts, diaries, logs pertaining to tax returns	7 years
Investment purchase and sales slips	Ownership period + 7 years
Dividend reinvestment records	Ownership period + 7 years
Year-end brokerage statements	Ownership period + 7 years
Mutual fund annual statements	Ownership period + 7 years
Investment property purchase documents	Ownership period + 7 years
Home purchase documents	Ownership period + 7 years
Home improvement receipts and cancelled checks	Ownership period + 7 years
Home repair receipts and cancelled checks	Warranty period for item
Retirement plan annual reports	Permanent
IRA annual reports	Permanent
IRA nondeductible contributions (Form 8606)	Permanent
Insurance policies	Life of policy + 3 years (Check with your agent. Liability for prior years can vary.)
Divorce documents	Permanent
Loans	Term of loan + 7 years
Estate planning documents	Permanent

September 27 2022

Section 529 College Savings Plan

Education Expenses, Financial, Personal Planning, Savings College, Savings

Section 529 plans (named after the IRS Code Section) allow individuals to set up an account on behalf of another individual (typically a child or grandchild) that can be used to pay college expenses. Section 529 plan rules also allow for up to $10,000 per year to be applied toward private elementary or secondary school tuition expenses.

The funds used as contributions are after tax, but any earnings within the account are tax-free as long as they are used for qualified educational expense. Even better, anyone can contribute to an account.

There are two types of plans:

Prepaid tuition programs are designed to hedge against inflation. You can purchase tuition credits, at today’s rates, that your child can redeem when he or she attends college. Both state and private institutions can offer prepaid tuition programs. Using tuition credits from prepaid tuition programs is tax-free.

College savings accounts let you build a fund for your child’s college expenses. Once in the plan, your money grows tax-free. Provided the funds are used to pay for qualified college expenses, withdrawals are tax-free. Qualified expenses include tuition, fees, books, supplies, and certain room and board costs. Private institutions are not allowed to set up college savings accounts, so each state sets up their own 529 plan in conjunction with a third part administrator.

September 6 2022

Education Savings Account: Coverdell ESA

Financial, Money Management, Personal Planning Education, Savings

Originally named education IRAs, these accounts are now called Coverdell education savings accounts.

An education savings account is a custodial savings account created to pay for a child’s school expenses at any accredited college, university, or vocational school. The funds can also be used for elementary and secondary (K-12) school expenses at public, private, or religious schools.

Education savings accounts allow anyone, not just parents, to contribute to an account for any child under age 18. The total contributions made for a child cannot exceed $2,000 per year. To contribute the full amount, your income must be under a certain level.

Contributions are not deductible, but the earnings in the account are never taxed if the money is used to pay for qualifying education expenses, such as tuition, fees, supplies, required equipment, and certain room and board expenses.

Education savings account funds must be used by age 30. If the money is not spent on college by the time the beneficiary is 30 years old, the unspent money must be withdrawn (subject to income tax and a 10% penalty) or rolled over into another family member’s education IRA.

August 18 2022

How to keep track of business car expenses?

Business Taxes, Personal Planning, Tax Tips deductions

Question: How do I keep track of the business use of my vehicle?

Answer: You can use either of two methods to account for your deductible business use of a vehicle.

Actual expenses. The first and most cumbersome is to keep track of all your expenses, such as gas and oil, license, insurance, and repair bills. You total all your expenses and take a percentage of that total based on the business miles driven in relation to the nonbusiness miles driven.
Standard mileage. Your other choice is to use the standard business mileage rate announced by the IRS each year. This is a flat rate that is multiplied by the total business miles driven for the year. In addition you can deduct your business-related parking fees and tolls paid.

If you are an employee and use your personal vehicle for business purposes, special rules apply. Check with your employer to determine whether they will reimburse you for the use of your vehicle.

August 16 2022

What is a Capital Gain Distribution?

Financial, Personal Planning Mutual Fund

Question: What is a capital gain distribution? I didn’t sell any shares of my mutual fund, but I received a year-end statement from the company reporting a capital gain distribution.

Answer: Typically mutual funds buy and sell stocks or bonds throughout the year. Each time the fund sells an investment, its owners owe tax on their share of any gain. At the end of each year, the mutual fund company reports the total gains to its owners for income tax reporting purposes.

Many investors are surprised to learn they owe tax when they didn’t receive any cash from the company. Instead of distributing the proceeds to you when an investment is sold, the fund manager reinvests the cash in another investment. However, you are still responsible for the tax.