I am pretty tax adverse and I don’t like paying any more than I am required to. I try to make sure I have taken every deduction possible while still paying my fair share of income tax. Here are a few items for you to look at to see if you can reduce your tax bill:
Investment management fees:
My clients pay me a fee to manage their assets and in some cases, the fee is deductible. If you pay investment management fees that exceed 2% of your adjusted gross income, you can deduct them.
This one is a bit tricky. You had to buy before 12/15/17 to still deduct mortgage interest up to 1 million and/or home equity loan interest. If you signed your mortgage note after that date, you will limited to $750,000 and home equity interest limited to improvements for the home purchased only.
Are you taking care of an Elderly family member?
Many of us now have primary responsibility for a parent to the extent that we are responsibly for more than 50% of their care and wellbeing. If this situation applies, you’re allowed to claim your parent as a dependent and take the corresponding deduction.
Read the 2017 tax code carefully to make sure you don’t leave anything on the table.
This years’ tax scam is receiving an unauthorized refund. Tax payers are receiving phone calls at home telling them that the refund they have received was sent in error. Taxpayers are then being told to wire the funds to an account provided by the caller.
If the IRS needs to contact you, they will do so by regular mail. The IRS does not call or email taxpayers. If you receive a call as I have outlined, please report it to the IRS.
Tis the season – tax season, the season we love to hate. This is the last return to be filed under our “old” tax system and 2018 should be a lower tax year for most taxpayers. While no one likes paying taxes, there are a few things you want to avoid with your 2017 return so you don’t raise any red flags.
Having higher than average deductions. As a self-employed person I fall into this category. If the deductions on your return are disproportionately large compared with your income, the IRS may pull your return for review. But if you have the proper documentation for your deduction, don’t be afraid to claim it. There’s no reason to ever pay the IRS more tax than you actually owe. In 2015, we had to prove we were paying what we claimed in health insurance premiums, we had all of the documentation, submitted everything to the IRS, then received a letter stating everything was accepted.
Taking an alimony deduction can be tricky. Alimony paid by cash or check is deductible by the payer and taxable to the recipient, provided certain requirements are met. For instance, the payments must be made under a divorce or separate maintenance decree or written separation agreement. The document can’t say the payment isn’t alimony. And the payer’s liability for the payments must end when the former spouse dies. You’d be surprised how many divorce decrees run afoul of this rule.
IRA withdrawals done early can cause a problem if not reported correctly.
The IRS wants to be sure that owners of traditional IRAs and participants in 401(k)s and other workplace retirement plans are properly reporting and paying tax on distributions. Special attention is being given to payouts before age 59½, which, unless an exception applies, are subject to a 10% penalty on top of the regular income tax. An IRS sampling found that nearly 40% of individuals scrutinized made errors on their income tax returns with respect to retirement payouts, with most of the mistakes coming from taxpayers who didn’t qualify for an exception to the 10% additional tax on early distributions. So the IRS will be looking at this issue closely
The headlines are screaming, “Largest point drop ever for the Dow.” The actual percentage drop was 2.5%. It takes a drop of 10% to be called a correction, we are not there yet. Over the past twelve months the Dow is up 21.3% according to MSN. Prior to yesterday, many investors were concerned that the Dow was too high to buy. The dips we have seen over the past few days should be considered a gift for those who either have cash or make regular deposits to their accounts. When the markets go down, we can buy on sale. Who doesn’t love a sale?!
Keep in mind, you are an investor. You are in it for the long haul. Take advantage of the dips. We regularly re-balance our clients’ portfolios to protect their portfolios. We sell gains and re-allocate to be able to keep those gains and buy on the dips.
No Chicken Little – it is not time to come out of your coop.
Occasionally, my position requires me to wear the hat of family counselor. I have a few clients that I am working with right now that are “lucky” to have money that their family members feel should be shared. A few of them are chronically requesting “loans” to pay rent, make a car payment, and various other items. Some of the children or siblings of my “lucky” client feel that cars should be bought for them, or credit card balances should be paid off for them.
My “lucky” clients have worked hard all of their lives, often, more than one job at a time. They have lived below their means, and the money that they have is all that they have. If my clients keep giving to their family members, will these family members care for them when they are broke?
By the way, most of my “lucky” clients have this extra money because they no longer have their parents, siblings, or spouse. Who is the lucky one?
While many tax payers are still trying to sift through the Tax Reform bill to see what impacts, negative or positive, there will be for them, here are a few things that did not change.
Your 401(k) was spared:
A firestorm of criticism blew up last fall when it was learned that the House of Representatives was considering severely limiting the amount or pre-tax salary retirement savers could contribute to their 401(k) plans. In the end, though, Congress decided to leave 401(k) s alone, at least for now. For 2018, savers under age 50 can contribute up to $18,500 to their 401(k) or similar workplace retirement plan. Older taxpayers can add a $6,000 “catch-up” contribution, bringing their annual limit to $24,500.
You can still stretch your IRA:
Early on in the tax-reform debate, it appeared that Congress would put an end to the “stretch IRA,” the rule that permits heirs to spread payouts from an inherited IRA over their lifetime. This could allow for years, or even decades, of continued tax-deferred growth inside the tax shelter. One plan that gained traction on Capitol Hill would have forced heirs to clean out inherited IRAs within five years of the original owner’s death. The accelerated payout would have sped up the IRS’s collection of tax on the distributions. Ultimately, though, this plan wound up on the cutting room floor. The stretch IRA is still available as long as the heir properly titles the inherited account and begins distributions, based on his or her life expectancy, by the end of the year following the original owner’s death.
The Do-Over is done:
The new law will make it riskier to convert a traditional individual retirement account to a Roth. The old rules allowed retirement savers to reverse such a conversion—and eliminate the tax bill—by “recharacterizing” the conversion by October 15 of the following year. That could make sense if, for example, the Roth account lost money. Recharacterizing in such circumstances allowed savers to avoid paying tax on money that had disappeared. Starting in 2018, such do-overs are done for. Conversions are now irreversible.
Please make sure to review and update your retirement plans today.
I am in MOB(Mother of the bride) mode, looking for the appropriate outfit for my daughter’s wedding. I waited until after the holidays specifically so I could buy a formal dress on sale. Every store I have gone to, including shoe stores (gotta have the rights shoes), I start in the back of the store where all of the sale items are. I have found some great bargains on formal dresses and shoes. Why do I think you care about this? Because how much you spend may be more important than how much you save.
A huge part of retirement planning is trying to anticipate expenses and emergencies. Through planning, we can get a pretty good handle on the assets that you have accumulated and potential returns from that nest egg, it’s the spending that tends to muck things up. Spending a bit foolishly while you are still working is one thing, there should be time to recover, but in retirement, that recovery time may not exist.
So take it from this MOB, start shopping at the back of the store for a bargain as there may be a bit of saving for a tiny splurge after all.
In a recent survey conducted by Financial Engines, 61% of those who took the survey underestimated average life expectancy by 5 years. The tool showed that the average non-smoking 65 year old has a 42% chance of living to age 90 and a 22% chance of living to age 95. Most retirees that I meet are shocked that I use age 90 for life expectancy in my planning. They do not feel that they will live that long, but what if they are wrong? Along with not estimating life expectancy correctly, many retirees underestimate their living expenses in retirement.
One solution is an extensive budget. We have put together an expense summary that includes many items most people do not think of when making a budget, but year after year on which you spend money.. If you would like a copy of this expense summary please email me at: email@example.com.
Think about the life you hope to lead in retirement. Will you stay in your current home? How will you spend your time? What legacy do you wish to leave?
Face this fear and plan for it.
I have not seen the new Star Wars movie yet, I have tickets for this coming weekend, but there is always something to learn from the movies. Here are a few financial tips from the force:
Used cars can be a great value.
Obi Wan Kenobi and Luke Skywalker hurry to leave the Mos Eisley spaceport on Tatooine and they must quickly raise funds to pay for their transportation aboard the Millenium Falcon. Luke negotiates the sale of his landspeeder with a vendor, but is saddened by how quickly the value of his model has fallen since new models came to market.
My husband just bought a “new” car, a 2017 Buick that was a loaner. Low mileage, warranty, a lot of bells and whistles, but about $20,000 less than new.
Debt can be a killer.
Han Solo spends Episode 4 (the original film) running from Jabba the Hutt, a crime boss to whom he owes money; he is eventually captured in Episode 5 and handed over to bounty hunter Boba Fett. To begin Episode 6, we find our friend Han hanging on Jabba’s wall, frozen in carbonite, as a warning to those who owe money to Jabba.
Think carefully before you go into debt for anything. Is the item a need or a want? Can you really afford a loan or should you wait before you purchase to accumulate the necessary cash.
Patience is important.
Where is Luke Skywalker? The question is asked in the opening crawl of The Force Awakens with the answer only coming during the film’s final frames. Rey’s path to discover Luke only becomes clear as the pieces of a map are eventually connected throughout the movie. And even once she finds the reclusive Jedi, her own adventures with the Force are just starting to unfold.
Patience pays off in accumulating retirement assets also. We have been hearing a lot about cryptocurrency lately and how “rich” some people are becoming by buying this. That type of purchase is a gamble and not an investment. Investments take thought, research, and patience to be successful long term.