“Real World” Personal Strategy Blog

The last week for making changes

Life has no blessing like a prudent friend.

- Euripides

I woke up Monday morning, after the wonderful holiday weekend … and I had a realization: there are only FOUR days left in 2010.

Obvious, yes … but it carries implications for your wallet, if you are wise with these days.

For those of my clients and friends who prefer to “do it yourself” (though with THIS tax code, I’m not sure that’s always wise), I’ve put together a brief, and actionable “checklist” to ensure that you’re squeezing every last drop out of the deductions available to you for 2010.

And, on the early note — let me wish you a premature Happy New Year, 2011!

Now, let’s get deducting…shall we?

Very Last-Minute Tax-Reducing Moves for 2010

Because time is short, and some moves do require more than this week to pull off, I’m restricting myself to those items which you can realistically affect before the end of the year.

This will be short, but (hopefully) sweet to your wallet…

1) Make an extra payment on your mortgage

If you own a house, and you can swing the cashflow hit, add an additional payment before year-end, and the interest on that payment will be deductible for 2010. Of course, that means that it WON’T be for 2011, but perhaps you can use this as an “extra” payment … and get ahead of the escrow game.

2) Use Your FSA Funds

Money set aside in a flexible spending account must be spent by the end of the year, else the funds are lost. Some employers allow a 2-and-a-half month grace period. So check with your employer to see what your personal deadline is for utilizing your FSA savings.

3) Make the Switch to a Roth IRA

Roth conversions are taxed in the year the conversion happens. However taxpayers have the option to undo part or all of that conversion by their filing deadline. But in order to retroactively undo part of their conversion next year, they first have to convert this year. So if you are on the fence about converting, consider taking the plunge before the end of the year knowing that you (and/or US) can re-characterize some or all of the amounts early next year.

4) The old standby

You know how I feel about charitable giving by now (I hope). This week, of course, is a big one for non-profits who are the happy beneficiaries of last-minute donations. You can pay early on a monthly gift, or give a lump-sum gift. The purpose (aside from the many, many benefits to the organization, and to you), of course, being to knock you into a different tax bracket, perhaps, or to simply cut your tax bill, regardless of the bracket status.

Now, there are plenty others. But these are the quickest, and the easiest (aside, perhaps, from the Roth conversion — but that can be done quickly).

Do you have others you want to explore? Give us a call (952-445-8753) or shoot me an email, and we’ll help you out.

I’m personally dedicated to the success of you and your family.

Taxes for the holidays?

“Attitudes are contagious. Are yours worth catching?”

- Dennis Mannering

So, I approached my computer this morning to write this, with a bit of a dilemma on my hands: should I give you my insight and input about the recently-PASSED tax rate agreement? Or, should I do something a little different?

But then I realized — many of my clients have the holidays *on* the brain. And, even if they ARE able to focus this week … well, implementation of my advice would be short-lived. Lastly, advice on this topic doesn’t actually affect your daily life until 01/01/11 … so, I’m keeping my powder dry for a bit, until the right moment … and will pause on detailing all the tax implications for you, with a Note below instead that I think you’ll appreciate this week.

But just so you know…

In addition to keeping the current six tax rates that range from 10 percent to 35 percent, the bill contains a raft of other tax breaks for both individuals and businesses.

Most of the provisions relate to 2011, but these are some of the individual tax provisions that expired at the end of 2009 and were extended retroactively for the 2010 tax year:

* Alternative minimum tax (AMT) patch

* State and local sales tax deduction (itemizing required)

* Tuition and fees deduction

* Teachers et al write-off for $250 of out-of-pocket expenses

* Private mortgage insurance (PMI) deduction

* Direct donation of IRA money by older account holders

So all of that is good news for THIS year.

I’ll be back later, to give you my particular input on those upcoming tax breaks. Some of them are really pretty nice.

But now, in keeping with my mission to send you actionable items for THIS week … well, read on, and you tell me if this isn’t actionable?

Holiday Prayer

This was sent to me by a friend, and I thought it worth sharing … this holiday week, traveling can be chaotic, shopping even worse. Let’s all remember to keep our heads about us…

“God, help us remember that the jerk who cut us off in traffic last night is a single mother who worked nine hours that day and is rushing home to cook dinner, help with homework, do the laundry and spend a few precious moments with her children.

“Help us to remember that the pierced, tattooed, disinterested young man who can’t make change correctly is a worried 19-year-old college student, balancing his apprehension over final exams with his fear of not getting his student loans for next semester.

“Remind us, Lord, that the scary-looking bum, begging for money in the same spot every day (who really ought to get a job!) is a slave to addictions that we can only imagine in our worst nightmares …

“Help us to remember that the old couple walking annoyingly slow through the store aisles and blocking our shopping progress are savoring this moment, knowing that, based on the biopsy report she got back last week, this will be the last year that they go shopping together.

“Father, remind us each day that, of all the gifts you give us, the greatest gift is love. It is not enough to share that love with those we hold dear. Open our hearts not to just those who are close to us, but to all humanity. Let us be slow to judge and quick to forgive, show patience, empathy and love. ”

Amen.

Best to you. May your season be truly bright.

Strong words about giving

“People with many interests live, not only longest, but happiest.”

- George Matthew Allen

I’m writing this on the “First Day of Christmas” (12 days before the 25th– or do the “12 days of Christmas” start on Christmas? Ah well…it’s the holidays.), and I’ll tell you what–this past weekend, I got a dose of what the holidays are *really* about…

Shopping.

I say this, with a good helping of eye-rolling. Whichever faith tradition you hold dear, it’s likely to have become extremely commoditized and “shopping-ified” (look, I’m an accountant–not a word smith) around this time of year.

And we all complain about it, reliably, loudly and regularly–yet there we are at JCPenney, stocking up on plastic toys and off-brand cologne, all to “celebrate” the holiday. (And that’s a taste of my weekend, by the way…and I’m tired!).

Now, far be it from me to decry the operation of a healthy economy, but may I make a humble suggestion? Regardless of your tax-deduction needs, consider making GIVING a large part of your holiday plans.

In fact, I was a bit provoked to write more about this topic by the comment of a neighbor, so read on for some strong words about *why* you should be giving, and doing it now…

Six Reasons You Should Be Giving To Non-Profits, NOW

I was at a holiday party recently, and as often is the case, when I tell someone my profession this time of year, I got cornered for tax tips.

That happens often, but what doesn’t happen often is when I mention giving to charity, my listener gets angry and provoked and launches into a diatribe about why charities are terrible investments, etc. etc., ad infinitum.

I was too interested in avoiding an argument with this gentleman, so instead of saying this, I thought it (later, of course). Here’s what I WOULD have said to the Angry Scrooge, six reasons why you should be giving money to charity, right now–regardless of the impact the money will create…

1. Tax Rate Leapfrogging.

You can bump yourself into a whole different (lower) tax rate, at times, by reducing your taxable income. That’s one to consult with us about, if you wonder if you’re on the fence.

2. Your heart changes.

Studies show (http://www.livescience.com/health/080320-happiness-money.html) that when individuals spend money on gifts for friends or charitable organizations, their happiness increases — while those who spend on themselves get no such boost. Even Scrooge can agree that everyone wins.

3. You can double your money without doing any work.

Instead of simply sending off your money, why not find out if anyone is offering to match? Sites like www.DonationDoubler.org have lists of companies that will match your charitable contribution. Find one you like and suddenly you contribution goes twice as far!

4. You’re just going to blow it on something dumb anyway.

As pious as you are, there’s still extra money in your budget somewhere. Create a budget for charity donations, then take some of your extra money (each month or each year) and donate it to charity. Use your spending money to make a difference instead of spending it on Brookstone junk you’ll use once. And if you think you don’t have enough, take that extra 2% you’ll be earning next year and put that toward a charity fund. For someone making $30,000, that’s about $500!

5. Face it: If you don’t help now, you never will.

Don’t pretend that instead of giving money, you’re going to donate time. When was the last time you volunteered at a soup kitchen? Don’t let your mind fall for this trick. Send the money now or you’ll end up giving nothing.

6. Be a leader, not a follower.

This is the biggie, in my opinion. There’s just something that happens in your psyche when you cut a big (or relatively big) check to someone in need, or to a charity organization. You feel more powerful–more dynamic. You signal to your own unconscious: “Money doesn’t rule me. I have more than enough, so much more than enough that I’m giving it away.” Then, of course, something special often happens: more money seems to find itself in your hands.

I’m not advocating a mystical pay-it-forward scheme; I’m simply making the observation over years of being a student of how money “works”. And, it just seems to find itself in the hands of those who give it away.

So–was any of this convincing? Did it help you see things in a new light? Let me know…

And remember– I’m in your corner!

Take a day off … and save money?

“Your big opportunity may be right where you are now.”

- Napoleon Hill

As I write this, Congress is still dawdling around with the politics of extending the current tax rates. They call it a “tax cut”…but really, it’s the avoidance of a tax *increase*. By the time you read this, it may have already been “resolved” … and I’ll give you fuller commentary once they’ve done SOMETHING.

Sheesh.

Moving on from taxes, this holiday season is probably busy for you (it is for us!) … and I’ve become increasingly aware that though I send you strategies, tips and whatnot every week — it can be a pain to pull them off in the evenings, when the demands of family and the necessity for down-time pulls at you.

So, I have a bit of a novel proposal for you in this week’s post. I believe it could help you in multiple ways–your bottom line, your taxes … and even your mental health!

Let me know what you think!

Your Fiscal Sanity Day

It’s true: inactivity is costly.

You see, if you’re like most people, I bet that when you get your house insurance renewal notice, you quickly glance at the price — and renew it.  You renew it simply because you don’t have the time to search around for better prices.

In my experience, working with family finances for YEARS, I’ve learned that most people have a good sense of what needs to be done to improve their finances but they simply cannot find the time.

So here’s my proposed solution for you:  Take a day off work.

In fact, many financial tasks simply cannot be completed in the evening or on the weekend.  By taking a day off work, you can contact people who may only be available at regular business hours.

On top of the true bottom-line impact a day like this could create, there is, of course, the “mental health” aspect of it all. HR professionals often recommend taking a mental health day, from time to time–well, call this your “Fiscal Health” Day!

Possible tasks to consider accomplishing on your day off:

1. Dump your savings account with a puny interest rate and open a high yield savings account.

2. Get quotes for cheaper insurance: health, life, auto, house, and any other insurance. And you can even do a little calculating to determine how much you could save by changing your deductible.

3. Complete any important (but not obviously-pressing) financial tasks like making a will. Best done with a professional, by the way!

4. If you’re carrying credit card debt, call the companies and ask them to reduce your credit card interest rates. Believe it or not–they’ll often say yes! Take time to develop and formulate a good plan to get out of credit card debt.  Find or prepare a debt reduction plan.

5. Apply for a cash back debit card.

6. Get more organized with your finances by shopping around for and using a good personal finance software program.

7. Review your budget, get caught up on your budget, or learn how to budget.

8. Shop around for the best online broker.  Be sure you’re getting the best price for your stock trades.

9. Make energy efficient changes to your home and lifestyle.

10. Find a good second hand store to shop at instead of the local department store.

11. Set up automatic payments for your bills to be sure you avoid late payments.

12. Google It.  Use the phrase “how to save money”, and then fill in the blank “on groceries”, “on gasoline”, “on kitchen expenses”, “on babies” …

13. Sell stuff on Ebay. Look for junk lying around the house and list it on Ebay.

Undoubtedly, there are more things which can go on this list, if you’re industrious about it. But simply put, I’m hoping to give you “permission” to see your financial health in a similar light as you see your mental health.

And remember– I’m in your corner!

Profitable tax moves to make

“Just because something doesn’t do what you planned it to do doesn’t mean it’s useless.”

- Thomas Alva Edison

Finished with one holiday (and I’m still stuffed with leftovers) … but now we move into the “holiday season”. Yikes. I’m *already* overwhelmed with all of the marketing going on, you?

(Far be it from me, of course, to complain about brisk business. I’m all for small businesses seeing a surge this month. Initial reports say that there was a 0.3% growth on Black Friday, but that online shopping grew by 16%. Recovery comes. Faster, please.)

Anyway, Congress is convening for its “lame duck” session. That’s an old term, coined in the 1700’s, which essentially means that this Congress is in the peculiar position of not facing the consequences of their actions in a subsequent election, giving them greater freedom to issue unpopular decisions.

But…the mood of the country may make this one rather tame. The “Bush Tax Cuts” may yet be extended. However, regardless of what Congress does, there are some important moves for you to make THIS month which will help your tax bill stay low.

5 Easy Tax Moves Before New Year’s

It’s usually our job to “assess the damage” AFTER the fact, and make sure families like yours pay only the minimum taxes they *should* when everything comes due.

That is, of course, unless you help us plan your tax moves ahead of time.

Now, it’s difficult to make blanket recommendations to all my clients, simply because everyone’s situation is different. That said, I’ve done what I can here to put together an actionable list of moves you can make NOW, which truly will affect almost all of my clients’ situations.

Of course, let us know if we can assist you with any of this…

1. Sell certain (appreciated) assets

Right now (until Dec. 31 at least), the long-term capital gains tax rates are at historic lows. Come January 1, there’s a very good chance they could be slightly–or significantly–higher.  So you’ll pay less taxes if, by Dec. 31, you sell stock and other assets that have appreciated and which you’ve owned for more than a year.

If you’re in the 25 percent tax rate bracket or higher, your long-term capital gains rate is just 15 percent. If you’re in the 15 percent income tax bracket or lower, you won’t owe any capital gains taxes.

2. Donate

It’s not just because ’tis the season, but often (if we’re all honest) because the year-end is so close. So, obviously, when it comes to taxes, giving to a nonprofit can be like a money-saving gift to yourself. If you itemize your deductions, you can claim your charitable donations, both of cash or goods.

In fact, if you’re *close* to being able to itemize deductions, making some nice gifts this month can push you over the top into some major tax-savings. And, of course, there’s the added benefit of what happens to YOUR mindset when you give.

What’s even better, in 2010–and this year only (at least for now)–there is no itemized deduction limit for anyone. So everyone who itemizes deductions, regardless of how much they make, gets to claim all of their itemized deductions.

But one caveat: increasing deductions could cost you if you end up owing under the alternative minimum tax.

3. Make the switch to Roth

Changing a traditional IRA to a Roth is even better this year because the $100,000 income threshold is gone. (However, taxes still will be due on any converted money that was not previously taxed.)

Even better: if you make the traditional-to-Roth IRA switch by Dec. 31, you can defer payment of the associated taxes until you file your 2011 and 2012 tax returns.

The same thing applies to certain 401(k) accounts too … you can defer tax payment over the next two years.

4. Put Those New Windows In!

We ‘tax people’ have been pounding this drum for a while, for the simple fact that (because of the last “stimulus” package) replacing windows, doors, and HVAC  systems– as well as installing new insulation–could net you a $1,500 tax credit on your 2010 tax bill! Credits always beat deductions. Note, however, that if you claimed the full credit on your 2009 return, you don’t get it again this tax year.

5. Adjust your withholding

Do you intentionally get a big refund each filing season? Quit that! You’re providing Uncle Sam an interest-free loan of your money.

Submit a new W-4 now so that your payroll withholding is more closely in line with your future IRS bill. It could even give you a few extra dollars at the end of the year to spend on holiday gifts!

Oh, and just so you know, it’s growing very likely that whatever Congress decides on the tax cuts, payroll calculators may not have time to update by January 1st. So, keep that in mind as well.

I hope these are easy, and that they give you some good ideas. Remember– I’m in your corner!