“Real World” Personal Strategy Blog

There ARE Some Shady Tax Pros Out There

“A lot of people like to do certain things, but they’re not that good at it. Keep going through the things that you like to do, until you find something that you actually seem to be extremely good at. It can be anything.”
- George Lucas

This subject came up in a note I wrote in mid-June, and the topic is back in the news.

You see, unlike my clients, there is a growing number of individuals and families who feel like they get a bit taken advantage by unethical and poorly-trained tax preparers and professionals. Families get sold on promises of fat refunds and excellent service…and then reality sets in. Errors, unfulfilled promises and worse–audits (!) come down the pike, and these families are left hanging in the lurch.

Well, the federal government is considering requiring a license for *anyone* who prepares taxes on another’s behalf. And yes…you might think I’d be opposed to these additional standards and licenses, but, in fact, legitimate businesses generally welcome higher standards as a way of announcing to our clients that we meet those standards! The American Bar Association and H&R Block are just two of the organizations that have announced they support the IRS effort.

Further, you can add your own comments for the IRS here: http://www.irs.gov/newsroom/article/0,,id=211141,00.html . Feel free to add your thoughts–it will NOT increase your likelihood of an audit .

Moving on to the subject of this week’s Strategy Note, we’ll be talking CARS. Specifically, of the “clunker” variety, as the new federal program started on Friday. Plus, there’s some other ways you can save on your taxes through qualifying vehicle purchases, which I lay out in this week’s note.

Oh, but before I go there, let me remind you of our “Independence Month Special”, esp. for your friends who may want the peace-of-mind from having some REAL professionals review their previous years’ returns–up to three years previous can still trigger an amendment which can save on taxes!

“Real World” Personal Strategy
Cars, Cars and CARS…

Two items today, re: vehicle purchases…

There’s been a bit of controversy surrounding the new program for trading in low-mileage vehicles (see here: http://abcnews.go.com/Business/story?id=8154897&page=1) , but regardless of your opinion on the program, it started on Friday.

To recap…

*Trade-ins must be 1984 models or newer, get no better than 18 miles per gallon, and have been registered and insured for the past year. (An interesting note is that buyers’ trades will actually be completely scrapped and have no value to the dealership above the amount of the voucher. A 10-year-old Lexus might qualify for the biggest ($4,500) voucher, but it’s almost certainly worth more than that on the open market, so you should keep that in mind.)

* The mileage you get in your daily driving does not matter one bit. What matters is what’s on record with the government; its source of data is www.fueleconomy.gov. A muffler-dragging 23-year-old Honda may meet the popular definition of “clunker”, but if the government’s estimates show it should get more than 18 mpg combined new, it’s not a clunker. You’ll see two sets of fuel-economy numbers for most cars: one calculated under an older EPA system, the other recalculated to reflect a new formula. Use the new one.

*The numbers:
- New passenger vehicles must have a combined mpg of 22mpg; “Light duty” trucks must be 18 mpg; and trucks over 6,000 lbs. must get 15mpg

- To qualify for the program, the “old” vehicle must get…

>Passenger vehicles– 4 mpg LESS than the new for $3500 credit; 10 mpg LESS than the new for $4500 credit

>”Light duty” trucks– 2 mpg LESS than the new for $3500; 5 mpg LESS for $4500

>Trucks over 6K lbs– 1 mpg LESS than the new for $3500; 2 mpg LESS for $4500

Let us know if we can help…

SEPARATELY from “Cash for Clunkers”…

A special deduction will be available on your 2009 individual tax return, next year, whether you itemize deductions or not.

If you purchase a new passenger vehicle between February 16, 2009 and before January 1, 2010, you may qualify for the deduction. There are income limitations after which a phase-out will occur. For example, if your modified adjusted gross income is between $125,000 and $135,000 for individual filers, or between $250,000 and $260,000 for joint filers, the deduction may be discounted or disallowed.

No matter whether you purchase a new car, light truck, motor home or motorcycle, this deduction will be limited to the state and local sales and excise taxes paid on up to $49,500 of the original purchase price of the vehicle. According to the IRS, this deduction will enable you to buy now and get cash back later on your 2009 tax return.

Hope this helps!

Summer Time is Tax Cutting Time!

No life ever grows great until it is focused, dedicated, disciplined. - Harry Emerson Fosdick

It’s pretty crazy that we’re already nearing the end of July! Is it just me, or is time really flying by? More than halfway through 2009…

Well, I often try to avoid discussing taxes with you in these personal notes. I find that too many tax professionals and accountants are so full of tax jargon, that the regular family just ends up buried in a blizzard of gobbledy-gook.

I hope you can already tell that I take a different approach . And, of course, it’s our JOB (and our true pleasure at my firm) to take care of most of that stuff on your behalf in the first place!

But I did want to make some suggestions this week for how you can plan ahead NOW to avoid getting nailed next tax season.

That’s my subject for this week’s Personal Strategy Note…read on, and leave your feedback or questions!

“Real World” Personal Strategy

Tax Cutting Tips For The Summer

Here are just a few summertime tax-saving ideas to consider:

* If spring cleaning left you with outgrown clothing and household items you no longer use, donate them to charity. Items in good used condition qualify for a tax deduction.

* If you and your spouse work, consider sending your children to a summer day camp. The cost may qualify for the dependent care tax credit.

* If you operate an unincorporated business, consider hiring your children to work for you this summer. You can deduct reasonable wages paid to them for the work they perform, and there’s no social security tax on their wages if they are under age 18.

* Summer is great for entertaining customers or clients. Keep records of the cost, the date, who was entertained, and what the business purpose was. However, your tax deduction is limited to 50% of your cost.

* Combine business with your summer travel, and you may be able to take a tax deduction for the business portion of your costs.

Need To Make Some Home Improvements?

Make energy efficiency changes and you might be able to cut your 2009 tax bill at the same time.

The 2009 tax law signed in February expanded energy tax credits in order to encourage homeowners to make improvements that will make their homes more energy-efficient and save money over the long run.

Qualifying improvements – such as adding insulation, energy-efficient exterior windows, and energy-efficient heating and air conditioning systems – could cut your taxes. Previously the credit for energy improvements was 10% of the cost, with a $500 lifetime limit. The new law increases the credit to 30%, with a $1,500 limit.

The new law also eliminates the cap on the 30% tax credit for alternative energy equipment, such as solar water heaters and geothermal heat pumps installed in homes.

For details and guidance in maximizing the enhanced energy credits for your home improvement projects, give us a call. We’re here to help you benefit from every available tax break!

Hope this helps!

To a LOW tax bill for you!

More on Achieving Financial Independence

“A true conservationist is a man who knows that the world is not given by his fathers, but borrowed from his children.” – John James Audubon

Thanks for your responses from last week’s Strategy Note on achieving financial independence. It was so well-received, that I thought I would spend a bit more time on that subject in this weeks’ note for you.

But, before I get there, I’d like to speak some encouragement to you. A few people wrote to me saying that they were feeling pretty dispirited about their personal situation…and that anything discussing “financial independence” really seemed like a pipe dream, and unrealistic for them.

As usual, I know that when a few people write about it, there’s many more that think it, and I’d like to speak a word to you, if you’re in that category.

Don’t give up.

Yes, simplistic perhaps–but with all of the folks in this economy who are going through hard times, it’s easy for them to believe that there isn’t a light at the end of the tunnel. Did you know that most millionaires have previously been bankrupt at some point? In fact, it’s often the “fire” of these times of trouble which serve to clarify things–and get you making smart decisions, perhaps for the first time.

So, if you’re feeling the financial heat right now, look out for the blessings in the midst of pain. I know it’s hard–but chances are, you’re being reminded of what’s REALLY important…and often, seeing this again can be a launch pad for living the kind of life that you really want to live.

So go for it!

Well, I’ve got some additional thoughts for you about what I wrote in last week’s Personal Strategy Note…

“Real World” Personal Strategy

How To Achieve Financial Independence (Part 2)

Money has no value unless you’ve got the time and good health to enjoy it. In fact, if you have to be poor, would you rather be poor now or at retirement? By planning carefully and investing wisely, you shouldn’t have to make this choice.

Planning for Financial Independence

I believe that you ought to save early and often, making regular scheduled investments in the stock market through the use of mutual funds.

Over the long term, the U.S. stock market yields an annualized return of about 10% (assuming dividends are reinvested). Yes, things are volatile right now…but “market risk” is not the greatest danger to your savings – inflation is the greatest danger. The value of your retirement erodes at a rate of roughly three or four percent every year.

But the stock market has always recovered from even the steepest declines.

Here’s an historical note for you (pertinent now): the worst one-year period for the Dow ran from 01 July 1931 to 30 June 1932. It lost 68.92% of its value. Would you have bought stock then? If your goals were long term, that’s exactly what you should have done. The best 30-year period for the Dow ran from 01 July 1932 to 30 June 1962, during which time it offered an average annual return of 14.34%.

Becoming Financially Independent

Reaching financial independence isn’t always easy. It takes time and work. You cannot accomplish your goal of achieving it by wishing. It takes doing. It takes being committed to and being absolutely determined to act.

One way you can act now, is to take a look at your personal expenses. Here’s some tips to cut them…

* If you and your partner both work, try to live on only one income. Invest the other.

* Save an emergency fund, but don’t make it too large. I like a small (one-month of expenses) emergency reserve, with everything else invested in mutual funds.

* Never borrow money, except to buy a home. If you use credit cards, use them only as a convenience, not to borrow.

* Pay yourself first. Every month, invest some portion of your income for your future.

Finding more money to actually invest is the best way for you to reach financial independence. And one great way to find extra money is to cut back on your existing expenses.

Yes, you can achieve financial independence, but you can’t get there overnight, and you can’t get there without setting goals and making sacrifices.

So start now.

Hope this helps…

To your greater independence!

How to Achieve Financial Independence

No bird soars too high, if he soars with his own wings. - William Blake

I truly hope you enjoyed your Independence Day festivities.

Interestingly, did you know that the Declaration of Independence was actually approved on July 2nd, and most of the delegates didn’t sign it until August 2nd? While John Adams expected Americans would celebrate July 2, the date on the publicized copies of the document was July 4th…so that’s why we celebrate it then!

Some other facts you may not know about our just-passed holiday…

* Three presidents died on July 4th: Thomas Jefferson and John Adams in 1826, and James Monroe, in 1831. Calvin Coolidge was the only president born on July 4th, in 1872.

* The Massachusetts General Court was the first state legislature to recognize July 4th as a state celebration, in 1781.

* The first recorded use of the name “Independence Day” occurred in 1791.

* The U.S. Congress established Independence Day as an unpaid holiday for federal employees in 1870. They changed it to a federal paid holiday in 1931.

For those of you who enjoyed a paid holiday on Friday–thank the Great Depression-era Congress!

So…all of this about “independence” got me thinking about YOUR *financial* independence. Are you on track for it?

I’ve got some thoughts for you about how to get there in this week’s Personal Strategy Note…

“Real World” Personal Strategy

How To Achieve Financial Independence

Often, as we strive to keep our heads above water in these financially crazy times, it’s easy to lose sight of why we’re doing this. What is the goal? What is it we’re trying to accomplish by earning wealth? For me – and for many others – the answer is Financial Independence.

I would define this as “having an income sufficient for your basic needs and comforts from sources other than paid employment”. Financial independence implies freedom. It’s the condition of having saved enough money that you can do whatever you choose. Whether you elect to keep working doesn’t matter – you have enough saved and invested to follow your dreams.

But is financial independence just a pipe dream? Is it something only for the lucky and the strong? No, it’s a goal that anyone can fulfill as long as they’re armed with some basic knowledge, as long as you make smart choices.

As I see it, there are four keys to accumulating wealth:

1. Start investing as early as possible. It takes significantly less money to accomplish what you want, and you have more time working for you.

2. Be determined to save on a regular basis. It is an easy way to accumulate wealth.

3. Begin investing with the largest possible sum you can. You will have more money working for you over a longer period of time.

4. Reach for the highest rate of return you believe you can safely receive on your money over time. Each additional percent is important. The higher the rate, the less money it takes to accomplish what you want.

Financial independence is built upon these four guidelines.

Confronting your financial challenges

In order to save money, you must fight to keep from spending it. I encourage you to set goals, to prioritize wants. Since money can be spent only once, you need to decide which wants are most important. To do this, it may be helpful to place a value on each of your wants.

So…here’s an exercise for the week: Pull out a piece of paper and list your wants.

These can range from a new house to a hot tub to a trip to London to a new blender for the kitchen. Next to each item, write why you want it. (You might want a hot tub, for example, because it would allow you to relax with family and friends.)

When you’ve finished, take another piece of paper and re-order the list based on how important each want is to you. If a trip to London tops the list, are you still willing to delay it by spending $40/month for that gym membership you rarely use?

Confront this issue first (keeping in mind those four keys mentioned above), and I’ll be back with more thoughts for you next week.

Hope this helps!

To your greater independence…