“Real World” Personal Strategy Blog

Last week to lower your tax bill?

December 31, 2009 by Roger Menden 

“If it’s never our fault, we can’t take responsibility for it. If we can’t take responsibility for it, we’ll always be its victim.”
- Richard Bach

I trust you’re recovering from all the holiday sweets and family fun? My body might need a few weeks, probably!

Last week, I wrote a plea to make sure that you don’t let the year end without making some possible adjustments to THIS year’s situation–to ensure your tax bill is as low as possible. And we’ve been already contacted by folks who are looking for help.

I’ve put together a brief article on moves you CAN make, if you’re savvy and fast in the current week.

I’ve also got some interesting news items to pay attention to, but I’ll place those at the END of my post, as I know that some of my readers would rather leave all the tax items to us!

Now…to this week’s Strategy Note…some year-end tax moves to consider.

Let me know your thoughts…and, of course, if you’d like to talk this over with us we DO have a couple slots left! Call or email soon, though!

“Real World” Personal Strategy
Move Quickly To Secure Year-End Tax Savings

There are certain moves you can ALWAYS make which will help your tax bill at the end of the year, but this year there are some tax breaks that are specific to 2009 but which will require you to make big decisions quickly – like buying a new car. Others can be completed in a matter of minutes, whether it’s contributing to your children’s 529 college savings plan or making a donation to your favorite charity.

A few pertinent questions for you: Did you lose your job? Or do you expect to collect a larger paycheck next year?

Generally speaking, if you expect your income to drop next year, you should try to reduce this year’s bigger bite. Similarly, if you expect to land in a higher tax bracket next year, you might want to pay extra taxes now to ease the burden later.

My recommendation? Let’s avoid making a big gift to Uncle Sam in your name, come April 15th. Sound good?

Well, here’s a checklist of items to consider before you take out the champagne on New Year’s Eve.

BASIC MOVES: If you think your income will be lower next year or you expect to remain in the same tax bracket, you probably want to take as many deductions as you can in 2009, and defer any income that you can into 2010. The opposite applies, of course, if you expect to be in a higher tax bracket in 2010.

If you are looking for deductions, think about what tax-deductible payments are due early next year that can be paid now. For instance, you might pay your January mortgage payment right now. The mortgage interest is (still) deductible.

Likewise, if you are self-employed or retired and you make estimated state and local income tax payments each quarter, you can make the payment due Jan. 15 in December.

ABOUT THOSE CAPITAL “GAINS”: The majority of investors likely have plenty of investment losses left over from 2008 – and those can be used to offset any gains on an investment sold this year. But whether you’re selling an investment at a profit – or to generate a loss – just remember to pull the trigger by the end of the year.

If your investment losses exceed your gains, you can use the excess to offset up to $3,000 of ordinary income each year (or $1,500 for married individuals filing separately). Losses can be carried to future years until they are used up.

Long-term capital gains are currently taxed at 15 percent, though that is likely to rise to 20 percent, at least for high-income taxpayers, by 2011. It is also important to note that taxpayers in the lowest income tax brackets, of 10 and 15 percent, pay no capital gains taxes in 2009 and 2010, so selling investments at a loss would not provide additional tax savings.

TIME TO CONSIDER A NEW VEHICLE: If you are planning on buying a new car, truck or motorcycle, you may qualify for a federal tax break if you purchase it before Dec. 31. The break allows eligible taxpayers to deduct state and local sales and excise taxes paid on up to $49,500 of the purchase price. But the amount of the tax break, which can be used whether you itemize deductions on your tax return or not, begins to phase out for individual taxpayers whose modified AGI is $125,000 to $135,000 and $250,000 to $260,000 for joint filers.

And, of course, some hybrid vehicle purchases still qualify for a credit of up to $3,400.

CHARITY: All donations, monetary or otherwise, must be made by the end of the year (and only individuals who itemize their deductions are eligible for a deduction). Donations of household goods or clothes must be in “good used condition,” and require a receipt from an organization detailing the items, unless you left the property in a drop box (if that’s the case, keep your own records). All donations worth more than $250 require a written receipt from the organization. Donations put on your credit card this year but paid next year are also deductible, by the way.

PERSONAL GIFTS: Individuals can give any number of people up to $13,000 each in 2009 without gift tax consequences. So if you want to maximize the amount you can give to, say, a relative who lost a job, you can send $13,000 now and $13,000 more next month.

MEDICAL EXPENSES: These can only be deducted – as an itemized deduction – if they exceed 7.5 percent of your adjusted gross income (10 percent if you’re subject to the A.M.T.). So if you’re near the threshold, consider buying eyeglasses or getting dental work … and paying for it before the year’s up.

And, as I’ve written previously, don’t forget that any money in flexible spending accounts must be spent before the end of the year (though some plans might have grace periods).
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Now, to the interesting news items..

Good news for the economy
http://www.bloomberg.com/apps/news?pid=20601103&sid=amOLWTZtsdNg
Looks like holiday sales were UP 3.6% by recent estimates. Perhaps it indicates a sign that consumers have more confidence (or it could be that they’re tiring of “recession behavior”). Whatever the reason, as usual I recommend that you focus mostly on YOUR situation…and what you can do to make 2010 your best year yet.

Bad news for small businesses…and wealthy individuals
http://www.google.com/hostednews/ap/article/ALeqM5jy4hV5AxTuIMgjl52eclu8RQ4lrgD9COID500
New audit data out, here’s the skinny:

* Enforcement revenue up 50% from 2000
* Individual audit rate up 100% from 2000
* A millionaire is six times more likely to be audited than someone earning less than $200,000
* Business audit rate down 15% from 2000
* The only businesses with a higher audit rate in 2009 than 2000 are small businesses (< $10m assets). The audit rate of larger businesses (including those with over $250m of assets) is lower in 2009 than in 2000

I hope all this helps. To your family’s financial and emotional peace…

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Are you ready for 2010?

December 21, 2009 by Roger Menden 

“If you keep thinking about what you want to do or what you hope will happen, you don’t do it, and it won’t happen.”
- Desiderius Erasmus

2009 is drawing to a close….

Have you done everything you can to protect yourself in 2009 from the IRS tax hounds?

I’m not sure if you know this, but the federal government is gunning after small business owners and families to ensure they collect as much revenue as possible this year. It’s a simple function of the fact that revenues for the government are way down. That includes good families, like yours, unfortunately.

If families don’t develop a plan now, many will be faced with a big surprise when they have their taxes prepared.

And to make things worse, there are significant changes on the horizon which promise to increase that tax burden even more.

It’s not too late to make some last-minute changes to your situation. Call us by the 30th…you won’t be disappointed.

Now, before we get to this week’s Strategy Note, a few interesting news items

Filed under: Another celebrity tax scandal: The Black-Eyed Peas
http://www.thewrap.com/ind-column/black-eyed-peas-lawyer-business-manager-failed-pay-their-taxes-11780
I can’t admit to actually knowing much about this band, but apparently they’re pretty famous. Enough so, that they were all over the “tax news” wires last week for failing to pay taxes. This one seems to be the fault of poor management, but the lesson is true even for families who don’t pay a business manager–have someone competent manage your taxes!

Filed under: Health Care Reform is coming
http://www.reuters.com/article/idUSTRE5B83ZG20091221
Well, this was just a procedural vote, but over the weekend in DC, our Congressional leaders inched closer (in a seemingly decisive move) to passing the much-discussed health care legislation. I’m going to reserve comment until the final bill is passed…but needless to say, the tax implications will be significant for families and business owners. We’ll keep you in the loop.

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Now…to this week’s Strategy Note…one of the significant tax items under discussion has been a repeal of the “estate tax”. It’s still unclear what will occur, but it reminded me of something I’ve been meaning to write about for a while–estate planning for families. It’s a significant “missed base” for many people, often because of misconceptions about it. So, I’ve got a two-part series on “Estate Planning Myths” which might clear up some of the confusion. And I also know that the holiday season can be painful for families who are processing the loss of loved ones in years past, so this isn’t at all intended to chafe those wounds. Instead, I hope you can see it as an opportunity to make proactive steps to lessen any future impact of losses.

Let me know your thoughts…and if you’d like to be put in touch with someone who can help you get this important process completed on your behalf!

“Real World” Personal Strategy
Part 1: Common Myths About Estate Planning

As of this writing, it’s a fact that almost 60% of Americans don’t have a basic will, and that’s a big problem.

One of the big reasons that most families don’t yet have this in place is because of some incorrect thinking about whether it’s right for them, or if it’s even necessary. And sure, some people just haven’t gotten around to creating a will or trust. Others think they don’t need an estate plan because they’re not rich. I’ve even heard from people that they don’t want to put it in place because when they do, it’s sending some sort of death wish into the universe (or some such).

Well, I’ll start by busting THAT myth: Preparing a plan for your succession will not speed your demise. Easy enough.

But here’s the problem–if you continue without an estate plan, you could leave a legacy of bad feelings and attorneys’ fees.

But, I’ll move off of that easy one, and speak to some of the more common misconceptions out there. I’ll start with two this week, and address three more in a future Note.

1. Only rich people prepare estate plans.

Do you own ANYTHING? Because if so, you need a will. You see, a will allows you to designate who will receive your property should anything happen. Continuing without one ensures that your assets will be distributed under the terms of your state’s “intestate succession” laws. That means your money and property could end up with family members you haven’t spoken to in years, instead of who you’d really like to see control your assets.

I won’t go into all of the different components of a will, trust, health care directive etc., as my purpose here is to emphasize that failing to plan is simply a decision to trust your assets to government bureaucrats.

Even if you think your situation is pretty straightforward, you may feel more comfortable hiring a lawyer to guide you through the process.

2. Everything goes to your spouse, if something happens.

Unfortunately, that’s not always the case. We deal with clients from different states around the country, and state laws vary. In fact, in most states, if you continue without a will (intestate), your inheritance will be divided among your spouse and your children. In New York, for example, when someone dies intestate, the spouse gets the first $50,000 of the estate and what’s left is divided 50-50 among the spouse and the children.

You can imagine how this could create all kinds of problems, particularly if your spouse was financially dependent on you or you have children from a previous marriage.

I’ll send a few more in the weeks ahead, but I hope you can already see that things are not always as we “think”.

I hope this helps. To your family’s financial and emotional peace…

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Cough drops, sunscreen and bandages

December 14, 2009 by Roger Menden 

“The beginning is always today.”
- Mary Wollstonecraf

With less than two weeks to go in the holiday season we can sometimes neglect the fact that it’s also less than three weeks left for the calendar year.

And that means that you’ve got a bunch of decisions to make these next few weeks which can directly affect your tax bill this coming season.

So…that being the case, I also wanted to remind you about Flexible Savings Accounts (FSA), and make sure you use everything you have in yours–as well as a few ideas for using your Health Savings Account (HSA).

A couple items of note:

Filed under: This is a little ridiculous
http://seattletimes.nwsource.com/html/dannywestneat/2010435946_danny06.html
Don’t EVER believe that you’re immune to an IRS audit…and I don’t write that to scare you. It’s just that when we see that a woman who makes less than $20K per year can get audited–well, anyone can. Ask us about our different options for “Audit Protection” for this coming tax season when you meet with us.

Filed under: The IRS’ Delta Squad (or some such)
http://www.reuters.com/article/idUSTRE5BA45320091211

I’m not exactly sure why the IRS is positioning this special task force this way, but last week there was a bunch of publicity about gathering a couple hundred agents specifically tasked to pursue tax fraud and high-earners with “aggressive tax strategies”. It remains to be seen how they’ll define this (we’ve always been pretty aggressive about helping our clients keep money in their pocket, after all!)… but it’s a good reminder that it’s always nice to have someone in your corner when the IRS comes a ‘knocking.

Now…to this week’s Strategy Note.

Next week, I’ll be letting you know of some last-minute moves you can make, as well as information on expiring deductions to know about.

And listen: I know that we get paid to take care of all of this so you don’t have to think about it, but the point in my sending you this information is that we’d like to see you be *pro-active* about your spending and financial decisions BEFORE we get to “cleaning it up” for you.

Yes, we’re pretty skilled at cleaning up financial messes on behalf of our clients (with minimal tax implications), but we can’t spend your money for you. So, unlike many other tax professionals, we don’t send you “re-heated leftovers”. As you can tell, we put a bit more effort into our notes so that you are prepared and we can serve you best.

That’s why we’re known as the most trusted tax professionals in our area.

Anyway…to the Strategy Note. And, as always, I would love your feedback!

“Real World” Personal Strategy
Don’t Waste YOUR Health Care Spending

It’s a fact: the average American family spends $2,000 on personal health-care expenses each year.

But the majority of these families miss out on the tax benefits available to them through that spending.

You see, if you contribute that amount to a Flexible Spending Account (FSA), you can reap a federal tax savings of more than $500 (assuming the average 27% tax bracket). The kicker, though, is that if you don’t use all of the funds in one calendar year, the money vanishes. Make sure this doesn’t happen to you; try spending some of it on these handy, healthful items.

Now, this is NOT the case if you have a Health Savings Account (HSA)–those never expire. However, they must be linked to a qualifying “high deductible” insurance plan, which is not the case for an FSA.

Yet those who don’t have an HSA often forget about the FSA option. The tax savings really can add up.

What makes these accounts so great is what you can purchase, and cut your tax bill at the same time. Here’s just a few often-overlooked items which qualify…

Cold Remedies: FSA often reimburses for over-the-counter cold remedies, including cough drops and syrups, throat lozenges, and multi-symptom cold medicines. Buy now and avoid the rush, particularly if you require a formulation that doesn’t exacerbate high blood pressure.

Hand Sanitizer: Does anybody NOT have a pump-bottle of hand sanitizer on their desk anymore? Not only can you purchase a desktop version, but there are also portable formats as well. A recent study shows that only about 50% of middle-school and high-school students wash their hands regularly. Pack your kids off to school with an FSA-approved sanitizer spritz and wave bye-bye to H1N1.

Gym-Bag Essentials: Keep your athletes healthy and fit by spending your flex dollars on bandages, antibiotic ointments, and even anti-fungal athlete’s foot treatments. Maximize your FSA dollars by purchasing a variety – boo-boos come in all shapes and sizes, as do bandages.

Sunscreen: You knew this was coming, right? Dermatologists recommend wearing sunscreen year-round to protect against UVA and UVB rays, and, thankfully, sunscreens with SFP ratings of 30 and above are typically covered by FSA. SPF moisturizers are not covered, though, so try to find a sunscreen product that is lightweight enough for year-round, everyday use.

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The best presents for the season (not what you think)

December 10, 2009 by Roger Menden 

“If you haven’t any charity in your heart, you have the worst kind of heart trouble.”
- Bob Hope

Well, my family is deep into the holiday season. No matter your religious persuasion, it’s pretty difficult to avoid the non-stop merchant clamor to “buy stuff” in order to properly celebrate what started as a spiritual season.

And yes, I’m a business owner–I have nothing against people spending money as a way to communicate their love. It’s just…a tad ironic, isn’t it?

Anyway, I’ve put together a little note which may actually be somewhat controversial about holiday shopping, but before I get to that–some tax news (which I know you’re just dying to learn about. Ok…feel free to skip to the article about holiday shopping!)…

Filed under: Hidden Taxes in Proposed Health Care Reform:
http://wellness.blogs.time.com/2009/11/30/bo-tax-a-levy-on-nips-and-tucks/?xid=rss-topstories
Looks like one of the ways with which Congress is looking to fund the Health Care Reform package is that there are specific items which will be taxed. One of them is elective cosmetic surgery. That might not be a bad thing (unless you’re a cosmetic surgeon)? We’ll see what happens…and will, of course, keep you in the loop.

Filed under: How To Pay For War
http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h4130ih.txt.pdf
This one is getting a lot of commentary–a proposed bill which would have high-earners pay MORE percentage for the Afghanistan conflict than would lower-earners. Too much politics to wade through on this one–but that link will show you what a Congressional bill really looks like. (Note: That link is to an online PDF and may give you a warning, but it’s a safe file; may just take a couple of clicks to view.)

Filed under: “I Guess It Pays to Be a Snitch?”
http://www.forbes.com/forbes/2009/1214/investment-guide-10-ubs-irs-spondello-tax-informants-on-loose.html
Among other well-publicized similar initiatives, this one is aiming to reward people for informing on their friends and neighbors who hid money in offshore accounts. Quite a moral conundrum, eh?

Now…to this week’s Strategy Note. It’s on shopping…but it may not *quite* give you what you think it will. You’ll see what I mean.

And, as always, I would love your feedback, as I read every comment that comes my way!

“Real World” Personal Strategy
Are You Wasting “Value” With Gifts?

Many people spend more during the holiday season than they can afford. Among other things, sometimes guilt or shame can drive a lot of big-ticket gifts–though not always, of course. But the satisfaction can be both short-lived and shortsighted.

Well, in a new book, Wharton School professor Joel Waldfogel’s book, “Scroogenomics: Why You Shouldn’t Buy Presents for the Holidays.” says that people are the most efficient when spending their own money, producing at least a dollar in satisfaction for every dollar they spend. But spending money on those we don’t know well results in what Waldfogel calls a “deadweight loss” of value–about 20%.

You are guarding against deadweight loss when the recipient can exchange the gift or return it for cash. With Christmas & holiday spending in the United States at $100 billion, this loss results in “an orgy of wealth destruction” to the tune of about $20 billion. Ouch.

Waldfogel’s study found that givers with infrequent contact were those most likely to give less appreciated gifts. This group includes aunts, uncles and grandparents who live in another town. According to economists, people are better off when they make their own choices. For this obvious reason, Waldfogel suggests giving money or gift cards instead.

To the criticism that he had taken the joy out of Christmas, he responds that after watching desperate last-minute shoppers, he thinks the joy was taken out of Christmas long before his critique.

Of course railing against the commercialism and waste of the holidays is pretty common these days. So, let’s further breakdown what happens during this gift-giving season…

Some gift giving is driven by social expectation and becomes a test of the relationship. For example, for couples who are dating seriously, the message is much more important than the medium. Give a book the other person despises, and you have revealed how little you pay attention to your loved one’s opinions. But a pair of gloves, with a heartfelt note saying, “These will keep your hands warm when I’m not there to hold them” would show your affectionate side. Or perhaps the receiver doesn’t like romantic mush, and you are expected to know better.

Parents can help extended family members select gifts for their children by providing specific wish lists to ensure that what they buy will truly be appreciated. If you aren’t confident, include a gift receipt. You are guarding against deadweight loss when the recipient can exchange the gift or return it for cash.

And in families where children don’t have any spending money, cash may be the best possible gift. Handling cash with all the complexity of choice is an experience that offers irreplaceable life lessons.

Try asking people, “What present changed the course of your life the most?” to see how much influence you can have. A pair of binoculars sparks a love of ornithology. A telescope fuels a fascination with astrophysics. A microscope leads to a biology career. An electronic toy prompts your daughter to join a robotics competition.

Not all presents need to be academic. A graphics tablet can lead to a design career. A guitar can inspire your son to form a new band. Or a video camera can lead to a later career choice in filmmaking.

Finally, some parents who are still unemployed will disappoint their children if they are hoping for expensive gifts this year. I’ve known a few families who had to tell their children that celebrating a traditional American credit card holiday would jeopardize the family’s financial security. Many parents are experiencing the first economic setback in their adult lives. Being financially cautious doesn’t mean you love your children any less. And if you can be positive and reassuring, you needn’t try to shelter you children from household economics.

The greatest joy of the holiday season is not bought in a store and does not increase your credit card debt. There is a better way to celebrate that builds long-lasting family ties.

Make a list of all the things you have gotten right in past holidays and make them annual family traditions. Add a few new ideas every year. The best holiday traditions don’t cost a lot of money, and they aren’t wrapped and put under a tree.

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Thanksgiving recovery begins now

December 1, 2009 by Roger Menden 

“I was thinking one day and I realized that if I just had somebody behind me all the way to motivate me I could make a big difference. Nobody came along like that so I just became that person for myself.”
- Unknown

Apparently, I ruffled some feathers last week with my blog title: “Thanks for nothing”. Well, in a sense, I’m glad–it’s always a good thing to get a reaction, especially when that reaction indicates a beating human heart.

Rightly so, people inherently recognize that gratitude is so critical for emotional well-being. Well, I tried to make the case that it’s also linked to *financial* well-being as well. In my opinion, money is a simple demonstration of what is valued–no more, no less. And there’s a certain kind of logic in how it moves through the system, and the hands of its bearers.

If, somehow I wasn’t clear in my last blog, I’ll say it now very clearly to you: We deeply appreciate your trust, and are honored by the opportunity to help you realize your dreams. We understand that money is the fuel for those dreams–and not their fruition. Which is why we work so hard to help you keep more in your bottom line…so your REAL dreams can come true.

Sure, it may seem a bit lofty for a simple accountant-type, like me…but it’s how we remember that every dollar and cent matters. Your dreams are important, and worth protecting–zealously. So again…thanks for letting us help.

Now, to my Strategy Note for the week…as you may be staring at some debt, I further want you to know that we do NOT “judge” you for the decisions you’ve had to make during these tough times. Simple…we’d just like to walk alongside you, and help you out. That’s why I’ve put together some strategies for beating back that debt.

And, as always, I would love your comments, as I read every one that comes my way!

“Real World” Personal Strategy
Beat Back That Debt

First, some sobering numbers–and they may be worse now: by the end of 2008, the average credit card balance per household in America was $8,329 and the average balance per card was up 11 percent over the previous year to $1,157.

You may be in a better situation…it may also be worse. So, to answer the questions we often get around here, some basic strategy for you:

1. If you ever hope to pay off your credit card debt, pay more than the minimum payment each month.
If you only pay the minimum payment each month, your bill could continue to INCREASE, even if you completely stop using your card. This is called “negative amortization”–where you think you are paying on your debt but the additional fees and finance charges are more than the minimum payment. The bottom line is: Pay more than your minimum or you will eventually be in debt over your head.

2. Implement a regular *system* for credit card debt reduction.
With online banking and automatic payment options, there are GREAT tools for ensuring you don’t mess up because of administrative chaos. If you feel you can’t manage all your bills by pen and paper, there are several good software programs available for keeping track of your financial records.

3. You can negotiate with your credit card company.
No, you do not need to be an attorney or other professional to negotiate with your credit card company (you will need patience and persistency though). The rising amount of consumer debt in this country has made creditors realize that they need to be more understanding of their customers — if they hope to get any money back. If you file bankruptcy they are only going to get pennies on the dollar, so they are willing to make deals.

4. Write letters to each of your creditors acknowledging your debt and the situation, and tell each one when you can begin repayment.
Open communication always helps. Usually credit card companies get ignored and end up sending delinquent files to a collections agency. So they’ll actually appreciate your openness in contacting them and may be more understanding of your situation. Proactively dealing with your debt problem rather than hiding will not only help your financial problem but make you feel better about yourself.

5. Keep track of what you are able to pay each creditor every month.
If you are not able to pay the full amount of your credit each month, you still should still pay something to stay on top of it. You should work off a written budget so you know exactly where you stand. Some experts suggest that you divide your monthly debt budget by the percentage each bill makes of the total and pay that amount.

Here’s an example: If you owe a total of $1,000, and one credit card is $800 and the other is $200, and you only have $100 available to pay for that month… You should pay $80 on the $800 balance, and $20 on the $200 balance. This way you are reducing each debt by the same percentage.

6. Don’t fall prey to intimidation tactics
No matter how forthcoming and honest you are, some creditors have been taught to be mean and downright nasty. Hang in there and don’t let this tactic intimidate you.

Lastly–don’t let the IRS be one of those creditors. Let us help you this tax season, and THAT will be one less creditor to worry about. I guarantee it.

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