“Real World” Personal Strategy Blog

“Make These Moves This Month” Shakopee Accountant Advises

"The way we communicate with others and with ourselves ultimately determines the quality of our lives."  -Anthony Robbins

Hey, maybe my readers of last week’s Black Friday tips REALLY took it to heart! Apparently, sales from that day were up a whopping 16% from last year, which, as I write this on Monday morning, is driving the stock markets up, up, up.

Of course, this may not quite be the indicator we all might hope it to be — after all, Black Friday is notorious for big sales and for penny-pinchers. I might feel better about our economy’s direction if we get a few quarters of sustained consumer spending, outside of the big sales, under our belts.

This week, I’m hoping you will take my advice equally to heart. With just about one month left in 2011, there are some moves you simply must make. Why? Because right now, the tax picture for 2012 is extremely murky. Congress has just under five weeks to consider a TON of legislation and expiring credits (here’s a list, in case you’re interested: http://www.bankrate.com/financing/taxes/congress-year-end-tax-tasks/ ).

So the smart money should be leveraged to take maximum advantage out of this year’s tax situation. Because the way our political situation is shaping up … well, the only certainty right now seems to be UNcertainty.

The following is how you can make some CERTAIN tax-saving moves — but I will say this: if your income looks to be over $75K this year and you will have significant deductions, then we really should touch base for a planning conversation to ensure you don’t get hit by the AMT.

952-445-8753 or email me rmenden@mendenaccounting.com.

After you’ve done that, read on.

Roger Menden’s
"Real World" Personal Strategy
Menden’s Year-End Tax Moves for 2011
As promised, I’ve compiled some information on expiring tax breaks for 2011, as well as some suggested moves to make before December sees its ball-dropping end.

But before I share them with you, please allow me this important disclaimer: it’s difficult to make blanket recommendations to all my clients, simply because everyone’s situation is different. If you are uncertain about taking action on any of this information, well, that’s why we do tax planning — so give us a call in that instance (952-445-8753).

Disclaimers aside, here are some relatively-easy tax moves you can make before 2012:

Filed under: Increased-Deduction strategy
With one caveat: increasing deductions could cost you if you end up owing under the Alternative Minimum Tax (AMT).

1. Pre-Pay and Accelerate
Mortgage bills, college tuition, property taxes — all of these can add deductions to your bottom line, so cherry-pick some 2012 bills if cashflow allows, and you’ll get to mark them against this year’s taxes (only January’s mortgage payment counts for this, I should hasten to say).

And you can "accelerate" certain expenses like optional medical procedures (dentistry is always a ripe source for procedures to implement, unfortunately ?), again, doing so if cashflow allows.

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.

Filed under: Buying stuff you already need — and saving on taxes
3. Energy-Savings and Big Cars
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 $500 tax credit on your 2011 tax bill! Credits always beat deductions. A solar energy system gets a 30% credit with no upper limit.

How about that fancy new vehicle you’ve been eyeing? Or that energy-sucking flatscreen? Buy it before the end of the year, and you are eligible for a deduction on the state and local sales taxes.

But you can’t deduct both state income taxes and general sales taxes, so the deduction is usually most beneficial to our clients who actually live in the no-income-tax states. By the way, this sales tax deduction is scheduled to expire on Dec. 31.

Filed under: Common sense
4. Please stop loaning extra funds to Uncle Sam
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 tax law changes, payroll calculators may not have time to update by January 1st. This means that even if you request the changes, your withholding may not reflect things until 2012 … but making the change will still impact your taxes — it just might not be obvious until next year..

I hope these are easy, and that they give you some good ideas. Remember– I’m in your corner!
And when in doubt, give us a call.

Shakopee Accountant On: “Betting On Black”

"95 percent of your emotions are determined by how you interpret events to yourself."  – Brian Tracy

You know how Thanksgiving got its start, don’t you?

Smack in the middle of horrendous civil war, President Lincoln proclaimed the last Thursday of November as a national day of Thanksgiving which should take place every year.

I believe Lincoln understood a fundamental truth in the human soul: how we choose to see our circumstances often dictates the state of our hearts — and, thereby, our future circumstances. After all, if a war-torn nation can turn its eyes upward — so can you and your family.

You should sit in my office with me sometime, watch the procession of "wealthy" and "poor" clients meeting with me and my staff over various problems — and watch how the hearts are activated. Sometimes my "wealthiest" clients are the most impoverished … and those without many zeroes in their accounts are flat-out rich.

"Rich" is a state-of-mind–and it’s tied to gratitude. It affects how you see savings, retirement, our current economy, and investment. And, of course, gratitude is the enemy of fear. It’s like an opposite magnet for it — walk in gratitude, and fear just melts away.

So, here’s my advice for this week: Whatever financial situation you happen to find yourself in, be thankful. There are hidden blessings in any trial … and hidden fears lying within any windfall. Find them, savor the blessings, and watch your family thrive.

Now, perhaps this the perfect segue into my actionable advice for this week — because though I’m a professional in tax-savings, I like to find ways for my clients to find savings all over the place. And aside from turkey, there’s this whole "shopping" thing which is pushing up against our football! Well, I scanned around online, and I’ve compiled some of the BEST (i.e. not-just-conventional) advice for starting the holiday shopping season with a bang…

[By the way, as I write this, the "debt supercommittee" is headed towards failure. You KNOW that means that the IRS will be under serious pressure to collect maximum tax from you, right?

Roger Menden's
"Real World" Personal Strategy
Menden's Black Friday Winning Tactics
Personally, I prefer avoiding this mess altogether, but I just KNOW that many of my clients feel differently. So, if that's you...here you go:

Expect some Black Friday sales to start on Thursday. Many retailers will start offering discounts online on Thanksgiving day. And some, such as Amazon, will offer Black Friday deals several days before November 25 -- so hot items may sell out before the big shopping day after Thanksgiving. And, as you've probably seen, some stores (like Target) are even opening on Thursday...

Don't assume the best deals are only in the stores. It's a tradition for a lot of people to get up at the crack of dawn and camp out in front of stores to scoop up deals. But a lot of "doorbusters" (those deeply discounted items retailers use to get consumers in the door early Friday) will be available online, too -- especially on big-ticket products. And if an Apple product is on your gift list, you'll probably find it for less online (at Amazon.com, MacMall.com or MacConnection.com) than at an Apple store -- AND you may escape sales tax on your purchase [I just had to get that one in there, as a tax pro!].

Only brave the crowds if you’re trying to snag an extremely limited item. You have a better chance of getting the deal if you go to the store – and are first in line. Keep in mind, though, that the items which are marked down dramatically are often cheap items to begin with – not top-selling, name-brand products.

Black Friday is only the beginning. In fact, the best deals on apparel usually appear on Cyber Monday (November 28 this year), when retailers discount items online. Toys will be cheaper the first two weeks of December when Walmart and Amazon go to war with each other to offer the lowest prices and clear out inventory before Christmas. And the best deals on name-brand TVs and luxury items can be found in early December, too.

Watch out for return policy shenanigans. Some retailers tighten their policies around the holidays as a way of compensating for all that discounting they’re up to. Some charge restocking fees if you bring an item back. And some won’t let you exchange items which were manufactured specifically for Black Friday (to be sold at a low price).

This one is pretty universal: Never spring for extended warranties on big-ticket items. There’s a good chance that a salesperson will try to talk you into paying extra for an extended warranty if you purchase a big-ticket item on Black Friday. That’s because revenue from extended warranties helps make up for lost profits on these discounted items. Typically, you’ll pay 10% to 20% more for an item to extend a one-year manufacturer’s warranty through the fifth year of ownership. But most major appliances do not break down within the extended-warranty period. Plus, you might already be covered if you use your credit card to purchase an item.

Just doing my little part to help YOUR economy-stimulation efforts this holiday season get the most bang.

Next week, I’ll have some urgent information on expiring 2011 tax breaks. Until then…

HAPPY THANKSGIVING!

I’m NOT a Financial Planner, But …

“Don’t wish it were easier, wish you were better.”  – Jim Rohn

First off, I hope you’ve had the chance to respond to last week’s blog post – and thanks to the many who took the time to help US help YOU before tax season strikes.

But secondly, I’m here to challenge your thinking a little today. This blog post might get a little math-y … but hey, we get paid the big bucks to do math.:)

If you’ve followed my writing for a while, you know that I like to challenge conventional wisdom. And, though I’m not a financial planner, per se, we do face a bunch of questions which simply must be considered from a financial planning perspective.

Many of my clients and their friends are scrambling for ways to think about how to save for retirement. And, as I hope you know, we can help think through all of the tax implications for various accounts, deductions, etc. But one of the “lazy man’s” methods for saving for retirement, for too many people, is to rely on the equity in their primary residence.

In short, this won’t be enough, for most people.

The long, more fully-explained version is laid out here in my Note. I hope you see how it demonstrates the sort of thinking which we bring to ALL of the decisions we can help you make. After all … we can be so much more than form filler-outers, if you let us!

Roger Menden’s

“Real World” Personal Strategy

Your House May Not Be The Investment You Thought It Was

Just because something costs a lot doesn’t mean it is an investment. An investment is something that pays you money.

Therefore the house you and your family live in is not an investment. Neither is the vacation home you rent occasionally. Nor that piece of land next to your house you bought to preserve your view. It is human nature to justify a purchase by calling it an “investment,” but if it doesn’t pay you money, it shouldn’t be treated as an investment in financial planning.

Historically, equities appreciate at a rate of about 6.5% above inflation. If inflation has historically been 4.5%, equities average about 11%. Equities include stocks, stock mutual funds and stock exchange-traded funds (ETFs). Your portfolio should be invested mostly in equity investments to appreciate at a rate greater than inflation.

Fixed income is more stable, but averages interest payments of 3% over inflation. If inflation averages 4.5%, fixed-income investments average 7.5%. Fixed income includes bonds, bond mutual funds and bond ETFs.

Real estate as an investment falls somewhere between stocks and bonds. On average commercial real estate produces a real return of about 4.9% over inflation. If inflation averages 4.5%, commercial real estate averages 9.4%.

Commercial real estate as property with no income does not appreciate at the rate of inflation. It actually depreciates against inflation by about 1% a year. Fortunately, it should produce 5.9% in profit to overcome this depreciation and produce a real return of about 4.9% over inflation.

Handling commercial real estate privately requires more work. If your commercial real estate isn’t generating a lot more income than it costs to maintain it–including depreciation–it isn’t pulling its weight. Only if it can produce significant income and grow at a real return of 4.9% over inflation will a $100,000 investment in real estate grow to $331,000 after 25 years.

Similar equations can be used for residential real estate. On average it produces slightly less income, giving a real return of 4.1% and growing to have a buying power of $273,000. Obviously all real estate is subject to the increasing desirability of the area where it is located. Some excellent school districts have experienced appreciation significantly greater than inflation. But many rural communities have barely kept up.

These historical averages provide benchmarks as a way to judge the investment worthiness of a particular piece of property. If you own a $300,000 rental home, you should expect to average at least $3,000 each year in repairs and upkeep. One year it might be lower only to have major bills the next. Your benchmark is a real return of 4.1%. After repairs and all other expenses, you should have a profit of $12,300, or 4.1% of your investment. That means you have to have a profit of at least $15,300 (5.1%) or more for your investment to pay you the appropriate amount.

Real estate that pays you appropriately can be considered an investment for the purposes of wealth management. But you need to run it like an investment and track your return after all of your expenses.

This analysis helps explain why property that you do not rent is not an investment. Every $100,000 of equity put into property that lies fallow costs you $1,000 in expenses just to keep up with inflation. And although keeping up with inflation is good, without the 4.1% income there is no way your $100,000 investment will grow to have the increased purchasing power of $273,000.

A family’s home, however, does not, typically, keep up with inflation. Some couples sell a large expensive home, purchase a smaller house and invest the difference. Many believe they will, but when the time comes, their downsized house is so much nicer that little is left over to invest.

Additionally, for many couples the value in their home is used as equity toward an assisted living arrangement. The larger their home, the more expensive the retirement community they buy into. For these and other reasons, it’s helpful to not assume that the equity in a family’s home will be available during retirement.

To reiterate, just because something costs a lot doesn’t mean it is an investment. Investments should appreciate at a rate that grows faster than inflation and gains purchasing power. And spending your money on non-investments can jeopardize a plan to reach your goals of financial freedom.  As a rule, investments should work FOR you, paying you money that you can spend or reinvest elsewhere.

I do hope this helps — and I realize there’s a lot to consider here. Let me know if there’s anything I or my team can do to help, or if you’d simply like to discuss this further. As you can see, both with taxes and family finances, we make it our mission to think ahead on your behalf!

Shakopee Accountant Reviews: “Questions Which Might Affect Your 2011 Tax Bill”

"If you treat an individual as if he were what he ought to be and could be, he will become what he ought to be and could be." -Goethe

I have a few questions for you, which won’t take very long to answer, but can help US help you keep your taxes down, even for this year. Just email the answers to the nine questions below to rmenden@mendenaccounting.com – and with your permission, we’ll contact you to set up an appointment.

You see, I’m doing something a little different here this week. As you know, I love to write about current events, personal finance issues and information that matters to YOU with my Weekly Note (we try to keep the tax information concise and as pertinent as possible — knowing that most of our clients prefer we handle that all for them), as we did, for example, last week with the information about the looming higher ed bubble.

Well, with two months (less!) remaining in 2011, there may be a few moves we can make that can help your tax hit before we’re forced into "reaction mode" — which is the only mode out of which after-the-fact tax work can be done. So, if at all possible, I’d like to change that paradigm for you by having you answer a few short questions for me…

So, without further ado — some questions for you:

1) Have you had a significant change in your wage income this year?

2) Have you taken capital gains or losses this year? Are you planning to?

3) Did you start or sell a business this year?
BONUS QUESTION: Do you know anyone who did, that would like input on their tax situation?

4) Did you purchase real estate?

5) Did you make your full contributions to retirement accounts?

6) Have you considered a Roth IRA?

7) Did you withdraw from retirement accounts, and for what purpose?

**8) Have you sent your family and friends our way — and, if not, is there something which we can help you with to make this easier?

9) Are there any other issues you think we should know about?

Now — the answers to these questions form the "tip of the iceberg", and they will help us to know which direction to take as we work with you over the next two months to prepare for year-end. With your permission, we’ll contact you back, as appropriate, and set up a time to discuss them further with you, whether by phone or other method.

We’re really looking forward to serving you WELL this year — and greatly appreciate your helping us do that!